C3.ai, Inc. Q3 FY2025 earnings call

• The market for enterprise AI is huge and rapidly growing, with Generative AI and Agentic AI driving growth. - Strong financial performance in Q2 and Q3, with revenue growth accelerating. - Strategic alliances with Microsoft, AWS, and McKinsey QuantumBlack are key, with significant joint selling engagements. - Customer success with new and expanded agreements across federal, state/local, and corporate sectors. - Focus on Generative AI with 20 pilots closed in Q3, and advancements in Agentic AI including high-quality agentic planning and orchestration. - Leadership in Agentic AI with innovations like a foundational time series embedding model.

Total revenue for the third quarter was $98.8 million, a 26% year-over-year increase. Subscription revenue grew by 22% to $85.7 million, representing 87% of total revenue. Revenue from sale of software licenses that are demonstration versions of C3.ai applications was $28.6 million. Professional services revenue was $13.1 million, and Prioritized Engineering Services (PES) revenue was $5.7 million. Gross profit for the quarter was $68.2 million with a 69% gross margin. Subscription and PES revenue combined was $91.4 million, accounting for 93% of total revenue, an increase of 18% compared to the prior year.

• Q4 revenue guidance: $103.6 million to $113.6 million. - Full fiscal 2025 revenue guidance: $383.9 million to $393.9 million. - Non-GAAP operating loss guidance for Q4: $30 million to $40 million. - Non-GAAP operating loss guidance for full year 2025: $87 million to $97 million. - Guidance is predicated on geopolitical stability; risks include U.S. government shutdown, budget issues, or global trade war impacting results.

• Geopolitical risks such as the U.S. Government closing, budget not passing, or indications of a global trade war could have unknown and adverse consequences on business results.

Q: Good morning. Thanks guys. Great job on the relationship here with Microsoft, Amazon, McKinsey. Can you give a little bit more color? What's going on with the total number of pitches that you're going on at this point and pipeline, and when do you think that will start converting to revenue?

A: It is converting to revenue. Involved with over 600 engagements with Microsoft where we are the preferred enterprise AI solution. Agreements signed September 30, and engaged in over 600 joint selling relationships across various regions and industries.

Q: My apologies. So let me add my congratulations on the - all the partnership momentum. Tom, would you be okay talking about the note that you published on February 18. So sorry - but if you could just talk about what the health setback was, and what steps you're taking in terms of running the business, I think that would be great?

A: Came down with flu-like symptoms after Christmas, which degenerated into giant cell arteritis attacking the optical nerve. Managing business daily, with Jim Snabe acting as special assistant to handle events Tom can't do due to travel restrictions related to health.

Q: Yeah, Tom, best of luck on the health front. And then, yes, a question for Tom or Hitesh. Within Pro Services this quarter, the services fees outperformed by, I think, $4 million or so relative to the first half of the year. I think it was up $6.5 million, or so compared to the year ago quarter. Can you maybe just speak to what drove the services outperformance this quarter?

A: Professional services revenue includes consulting, implementation, and training services. Uptick due to need to arm sales teams with demonstration licenses to effectively engage with customers, as demonstration software is critical for salespeople to conduct initial demos independently.