C3.ai Inc. reported a total revenue of $94.3 million for Q2 FY25, marking a 29% increase year over year. The earnings announcement, released on December 9, 2024, revealed that subscription revenue amounted to $81.2 million, accounting for 86% of total revenue, and reflecting a 22% increase from the previous year. Professional services contributed $13.2 million to total revenue.
C3.ai reports $94.3 million revenue, boosts growth with Microsoft partnership
The company’s non-GAAP gross profit stood at $66.3 million, equating to a gross margin of 70%. Despite a non-GAAP operating loss of $17.2 million, this figure was an improvement over the previously provided guidance range of $26.7 million to $34.7 million. C3.ai reported a non-GAAP net loss per share of $0.06, with cash and cash equivalents exceeding $730 million.
C3.ai’s revenue grew significantly, with non-Baker Hughes revenue showing a remarkable 41% year-over-year increase. The company’s revenue guidance for Q3 FY25 is set between $95.5 million and $100.5 million, while the updated revenue guidance for the entirety of FY25 ranges from $378 million to $398 million. However, C3.ai also noted a negative free cash flow of $39.5 million for the quarter.
Performance highlights
In their earnings call, C3.ai pointed out this quarter marked the seventh consecutive quarter of accelerating revenue growth. The significant jump in revenue was bolstered by the formation of a strategic alliance with Microsoft Azure, which is expected to reduce sales cycles effectively and broaden the company’s market reach. C3.ai successfully closed 58 agreements in the second quarter, including both new and expanded contracts with notable clients such as ExxonMobil, Shell, and the US Department of Defense.
C3.ai emphasized its strong cash position, indicating an available resource of over $730 million for future growth and strategic partnership investments. However, the company indicated it would not achieve cash flow positive status for the current fiscal year 2025 due to increased investments in the Microsoft partnership. Furthermore, questions remain regarding the renewal of the exclusive marketing agreement with Baker Hughes, which has previously been a substantial revenue generator.
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During the Q&A session of the earnings call, executives discussed the historic nature of their collaboration with Microsoft and its implications for federal spending in AI applications. They noted a significant focus on AI within the defense and intelligence sectors, anticipating a substantial rise in AI adoption by government entities.
Responding to inquiries regarding the distinct offerings of C3.ai compared to Microsoft’s capabilities, executives clarified that Microsoft provides a broad array of services on Azure, while C3.ai focuses on delivering complete applications that quickly yield economic benefits. The collaboration effectively positions C3.ai as Microsoft’s preferred enterprise AI application vendor, adding value through customer commitment fulfillment in terms of software services.
The executives also expressed confidence that the Microsoft partnership would already show revenue contributions since the partnership’s establishment on September 30. Discussion also centered on the anticipated growth potential, citing the expansion of the sales force from 100 to 10,000 as a potential accelerator for revenues.
Amid the fiscal challenges presented, there is an expectation within C3.ai to achieve free cash flow positivity at some point in fiscal ’26, as they continue investing in market share and operational leadership by leveraging their partnership with Microsoft.
Stock performance and market trends
Following the earnings announcement, C3.ai’s stock experienced a significant uptick, soaring over 13%. The company previously reported a sales increase of 29%, with the current quarter’s figures exceeding analyst expectations. Prior to the earnings release, C3.ai’s stock had benefited from a rally linked to recent election results, hitting notable price points.
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Despite this positive momentum, analysts have pointed out several challenges. C3.ai’s shift from a subscription-based model to a consumption-based pricing structure aims to align the company with industry standards but may not translate into immediate revenue growth. Industry trends, driven especially by AI applications such as OpenAI’s ChatGPT, promote further interest in AI enterprise software.
A notable increase in the company’s Relative Strength Rating from 49 to 93 reflects improved investor sentiment, yet C3.ai still encounters the volatility typical of the AI sector. As events unfold regarding funding and market positioning, C3.ai’s future prospects remain closely monitored. The company currently maintains a Composite Rating of 91, while its EPS Rating stands at 40, driven by ongoing losses.
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Featured image credit: C3.ai
