Executive Summary
C3.ai delivered a strong QQ2 2025 performance, highlighted by 29% year-over-year revenue growth to $94.3 million and a 70% non-GAAP gross margin, supported by a high mix of Subscription and Prioritized Engineering Services (PES). The quarter underscored the strategic inflection created by the expanded Microsoft Azure alliance, positioning C3.ai to scale its enterprise AI platform through Azure’s global sales force and Fortune 500 footprint. Management signaled that a material acceleration in bookings and pilots should follow from the alliance, though near-term profitability will be pressured by deliberate investments in sales, marketing, and the broader pilot-to-production transition. The company remains well-capitalized with a substantial cash and marketable securities balance (~$730 million) and is guiding toward a positive free cash flow in Q4 FY25, after a near-term negative print in Q3. The combination of enterprise AI deployment in production, a broad partner ecosystem, and a patent-backed agentic AI framework positions C3.ai to sustain above-market growth as AI adoption deepens across verticals and geographies.
Key Performance Indicators
Key Insights
Revenue: $94.338m in Q2 FY25, up 28.83% YoY and 8.17% QoQ. Gross profit: $66.3m, gross margin 70.0% (Professional Services gross margin >90%). Operating income: GAAP -$75.3m; Non-GAAP operating loss -$17.2m. Net income: GAAP -$65.97m; Non-GAAP net loss -$7.80m; EPS (GAAP) -$0.52; Non-GAAP EPS -$0.06. Cash and equivalents plus marketable securities: ~$730.4m. Net cash provided by/used in operating activities: -$38.7m; Free cash flow: -$39.5m. Accounts receivable: $160m (unbilled $97.5m); curre...
Financial Highlights
Revenue: $94.338m in Q2 FY25, up 28.83% YoY and 8.17% QoQ. Gross profit: $66.3m, gross margin 70.0% (Professional Services gross margin >90%). Operating income: GAAP -$75.3m; Non-GAAP operating loss -$17.2m. Net income: GAAP -$65.97m; Non-GAAP net loss -$7.80m; EPS (GAAP) -$0.52; Non-GAAP EPS -$0.06. Cash and equivalents plus marketable securities: ~$730.4m. Net cash provided by/used in operating activities: -$38.7m; Free cash flow: -$39.5m. Accounts receivable: $160m (unbilled $97.5m); current ratio 7.52x; cash ratio ~1.0x. End-quarter cash mix reflects $121.3m in cash and cash equivalents and $609.1m in short-term investments. Pilots: 58 agreements closed, 36 pilots signed; cumulative pilots 260 with 210 active. Microsoft alliance expanded on Sept 30, 2024 to 5.5-year term; Azure price list now includes all C3 AI offerings; Azure is designated as preferred cloud provider; C3 AI as preferred Enterprise AI solution for Microsoft customers.
Income Statement
| Metric |
Value |
YoY Change |
QoQ Change |
| Revenue |
94.34M |
28.83% |
8.17% |
| Gross Profit |
57.84M |
40.69% |
10.88% |
| Operating Income |
-75.29M |
5.17% |
-3.72% |
| Net Income |
-65.97M |
5.46% |
-5.01% |
| EPS |
-0.52 |
11.86% |
-4.00% |
Key Financial Ratios
operatingProfitMargin
-79.8%
operatingCashFlowPerShare
$-0.3
freeCashFlowPerShare
$-0.31
priceEarningsRatio
-11.93
Management Commentary
Key insights from management and the earnings call:
- Microsoft Alliance as a Catalyst: The September 30, 2024 expansion creates a broad, global go-to-market with Azure, making all C3 AI enterprise and generative AI solutions orderable on Azure and aligning Azure salesforces with C3 AI deployments. Tom Siebel described this as an inflection point for Enterprise AI and noted the potential to expand the seller base from hundreds to up to ~10,000 across geographies and industries. (Quote reflects the scale and scope of the alliance and its strategic implications.)
- Generative AI Momentum: C3 AI reported 15 new generative AI agreements in Q2, with production deployments at major customers (e.g., Dow, Cargill, Norfolk Iron & Metal, Florida Crystals) and a strong patent moat (US patent 12111859 on agentic AI). Management emphasized the turnkey, secure, and auditable nature of its generative AI deployments and a growing pipeline.
- Pilot-to-Production Conversion: The company closed 36 pilots and had 210 active pilots out of 260 signed pilots, highlighting a robust conversion path to subscription/consumption contracts and reinforcing the services-driven revenue mix.
- Customer and Industry Momentum: A diversified footprint in federal and industry verticals, including significant wins with DoD and multiple agencies, supports a scalable enterprise AI platform across sectors such as manufacturing, utilities, and defense. Management also highlighted Baker Hughes’ declining revenue contribution versus ex-Baker Hughes growth (ex-Baker Hughes up 41% YoY in Q2 FY25).
- Short-Term Profitability Trade-Offs: Management conceded near-term gross-margin and operating-margin moderation due to higher pilot mix and increased investments in the sales force, customer support, R&D, and marketing, with a near-term plan to be free-cash-flow negative in Q3 but positive in Q4, positioning for longer-term profitability with scale.
The most significant event of the quarter and perhaps the most significant event in the Company's history was the substantial expansion of our strategic alliance with Microsoft Azure. All C3 Enterprise AI and Generative AI solutions are now orderable on the Azure price list, and Azure will subsidize pilots and deployments over the term of the agreement.
— Tom Siebel
Given the magnitude and the great potential of the new Microsoft alliance, we are going to invest in the Microsoft partnership in a big way. We will hire more salespeople. We will hire more customer support people. We will engage in more marketing activity, and we will do that to support a more rapidly growing customer base. The result will be increased sales and revenue growth, and we will be cash-flow positive in the fourth quarter of this year.
— Tom Siebel
Forward Guidance
Guidance and outlook as communicated by management:
- Q3 FY25 revenue guidance: $95.5 million to $100.5 million.
- FY25 revenue guidance raised to $378 million to $398 million.
- Q3 FY25 non-GAAP operating loss guidance: $38.6 million to $46.6 million.
- FY25 non-GAAP loss guidance raised to $105 million to $135 million (non-GAAP).
- Free cash flow: expected to be negative in Q3 FY25 and positive in Q4 FY25.
- Structural profitability: Management argued that profitable economics will emerge with scale, given gross margins of 70% and the high mix of recurring revenue (subscription plus PES). The Microsoft alliance is expected to accelerate growth, potentially transforming the size of the sales force and the pace of revenue expansion, but it requires continued investment in go-to-market, product, and customer success.
- Risks and sensitivities: near-term margin moderation from pilots, potential MACRO shifts in enterprise IT spend, and execution risk in converting pilots to contracted revenue; Baker Hughes revenue mix remains a swing factor in the near term if renewal decisions alter the composition of channel partners.