C3.ai Inc. (AI) 2025 Q1 Earnings Call Summary

Optimistic Highlights

• Exceeded Expectations

Exceeded all expectations for revenue, cash flow, and profitability in Q1 FY25.

• Revenue Growth

Achieved 21% year-over-year revenue growth, marking the sixth consecutive quarter of accelerating growth.

• Strong Customer Acquisition

Closed 71 agreements, including 72 new pilots, marking a 117% year-over-year increase in pilot count.

• Positive Cash Flow

Generated $8 million in net cash from operating activities and $7.1 million in free cash flow.

• High Customer Satisfaction

High levels of customer satisfaction and increasing demand for enterprise AI applications.

Pessimistic Highlights

• GAAP Operating Loss

Reported a GAAP operating loss of $72.6 million.

• Short-term Margin Pressure

Expected short-term pressure on gross margins due to a higher mix of pilots.

• Free Cash Flow Negative

Expected to be free cash flow negative for Q2 and Q3 FY25.

• Expense Growth

Year-over-year expense growth rate was 12%, which is lower than revenue growth but still significant.

• Complex Business Modeling

Difficulty in modeling the business due to the complexity and variety of AI applications.

Company Outlook

• Revenue Guidance

Revenue guidance for Q2 is $88.6 million to $93.6 million, maintaining previous guidance of $370 million to $395 million for FY25.

• Path to Profitability

Expected to be cash flow positive in Q4 FY25 and for the entire fiscal year.

• Expansion Focus

Focused on expanding sales capacity, North America, Europe, and the public sector.

• Partner Network Growth

Significant growth in partner-supported bookings, particularly with Google Cloud.

• Long-term Profitability

Believes revenue growth rates will generally exceed expense growth rates, leading to non-GAAP profitability.

Q & A Highlights

• Q: Characterizing the Tone of Business in Q1 (Patrick Walravens, from JMP Securities)

  A: The business environment is complex and dynamic, especially with the advent of generative AI. The company is finding a broad range of applications for enterprise AI, many of which were unanticipated. (Thomas Siebel)

• Q: Why the Guidance Didn't Go Up Despite Strong Bookings (Patrick Walravens, from JMP Securities)

  A: The current guidance still represents 19% to 27% revenue growth, making C3 AI one of the fastest-growing companies in the public software universe. (Hitesh Lath)

• Q: Trends in Subscription Revenue and Professional Services (Timothy Horan, from Oppenheimer)

  A: Subscription and services revenue will continue to bounce around 10% to 20%. Services margins are over 90%, making it a good business. (Thomas Siebel)

• Q: Competitive Dynamics (Timothy Horan, from Oppenheimer)

  A: The main competition is the IT organizations trying to build applications themselves, which often come back to C3 AI after failing. (Edward Abbo)

• Q: Size and Value of Pilots (Michael Latimore, from Northland Capital Markets)

  A: The value of enterprise AI pilots is about $0.5 million, and generative AI pilots are about $0.25 million. Approximately 70% of pilots convert to production contracts. (Thomas Siebel)

• Q: Confidence in Q2 Revenue Growth (Michael Latimore, from Northland Capital Markets)

  A: The guidance is based on the best professional judgment, and the company has consistently met or exceeded guidance in the past. (Thomas Siebel)

• Q: Partner Efforts Outside of GCP (Kingsley Crane, from Canaccord Genuity)

  A: Relationships with AWS, Microsoft Azure, and other partners are strong, contributing significantly to the business. (Thomas Siebel)

• Q: State and Local Agreements (Kingsley Crane, from Canaccord Genuity)

  A: Most state and local agreements start as pilots and then convert to production. (Thomas Siebel)