C3.ai(AI) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue for Q3 increased 26% year-over-year to $98.8 million, with subscription revenue growing 22% to$ 85.7 million, representing 87% of total revenue [16][34] - Non-GAAP gross profit was $68.2 million, resulting in a gross margin of 69% [16][37] - Non-GAAP operating loss improved to$ 23.1 million, better than the guidance of $38.6 million to$ 46.6 million [17][38] - Free cash flow for Q3 was negative $22.4 million, an improvement from negative$ 45.1 million in the same quarter last year [40] Business Line Data and Key Metrics Changes - Revenue from software licenses was $28.6 million, while professional services revenue was$ 13.1 million, accounting for 13% of total revenue [34][36] - Subscription and professional engineering services revenue combined was $91.4 million, representing 93% of total revenue, an increase of 18% compared to the previous year [37] Market Data and Key Metrics Changes - The partnership with Microsoft resulted in closing 28 agreements across nine different industries, marking a 460% increase quarter-over-quarter [18][22] - The joint qualified sales pipeline with Microsoft surged 244% year-over-year, targeting 621 eligible customer opportunities [19] Company Strategy and Development Direction - The company is focusing on expanding its strategic alliances with Microsoft, AWS, and McKinsey QuantumBlack to enhance global reach and execution speed [20][29] - The emphasis on Generative AI and Agentic AI is expected to drive innovation and customer traction, with plans to ensure proper organization for expanding direct sales and services [30][31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's positioning to capitalize on the growing enterprise AI market, with fiscal years 2026 and 2027 expected to focus on expanded growth and market share [31][32] - The company anticipates continued moderation in gross margins due to a higher mix of pilots in the near term, but expects to be free cash flow positive for Q4 [43][44] Other Important Information - The company closed 50 pilots during Q3, with 245 still active, indicating strong customer engagement [42] - The company ended the quarter with$ 724.3 million in cash, cash equivalents, and marketable securities, indicating strong capitalization [40] Q&A Session Summary Question: Can you provide more color on the total number of pitches and pipeline? - Management indicated involvement in over 600 engagements with Microsoft, with 28 agreements closed in the last quarter [49][56] Question: Can you discuss remaining performance obligations trends? - Management noted that the total remaining performance obligations (RPO) at the end of the quarter was around $208 million, with expectations of some decline in RPO in the near term [62] Question: What drove the outperformance in professional services this quarter? - The outperformance was attributed to an uptick in revenue from consulting services, paid implementation services, and training services [78] Question: Why are demonstration licenses outperforming? - The increase in demonstration licenses was driven by the need to equip sales teams with effective tools to engage customers independently, resulting in higher revenue recognition [84][85]