C3.ai Inc.
09/09/2025 | Press release | Distributed by Public on 09/09/2025 04:01
Quarterly Report for Quarter Ending July 31, 2025 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes and the discussion under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the fiscal year ended April 30, 2025 included in the Annual Report on Form 10-K for the fiscal year ended April 30, 2025, which was filed with the Securities and Exchange Commission, or SEC, on June 23, 2025. This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading "Special Note Regarding Forward-Looking Statements" in this Quarterly Report on Form 10-Q. You should review the disclosure under the heading "Risk Factors" in this Quarterly Report on Form 10-Q for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements. Unless the context otherwise requires, all references in this report to "C3.ai," "C3 AI," the "Company", "we," "our," "us," or similar terms refer to C3.ai, Inc. and its subsidiaries.
Overview
C3 AI is an Enterprise AI application software company.
We have built a family of software applications that enable our customers to rapidly develop, deploy, and operate large-scale Enterprise AI applications. Customers can deploy C3 AI solutions on major public cloud infrastructures, private cloud or hybrid environments, or directly on their servers and processors. We provide three primary families of software solutions, which we collectively refer to as our "C3 AI Software":
•C3 Agentic AI Platform, our core technology, is a comprehensive, end-to-end application development and runtime environment that is designed to allow our customers to rapidly design, develop, and deploy Enterprise AI applications.
•C3 AI Applications, built using the C3 Agentic AI Platform, is a portfolio of pre-built, extensible, industry-specific and application-specific Enterprise AI applications that can be rapidly installed and deployed.
•C3 Generative AIcombines the utility of large language models, or LLMs, generative AI, reinforcement learning, natural language processing, and the C3 Agentic AI Platform to rapidly locate, retrieve, and present information, disparate data stores, applications, and enterprise information systems.
These solutions, and our patented model-driven architecture, enable organizations to simplify and accelerate Enterprise AI application development, deployment, and administration. We significantly reduce the effort and complexity of the AI software engineering problem.
How We Generate Revenue
We generate revenue primarily from the sale of subscriptions, which accounted for 86% and 84% of our total revenue in the three months ended July 31, 2025 and 2024, respectively. Our cloud-native software offerings allow us to manage, update, and monitor the software regardless of whether the software is deployed in our public cloud environment, in our customers' self-managed private or public cloud environments, or in a hybrid environment.
We primarily recognize revenue from subscriptions on a ratable basis over the contract term or on a usage basis for consumption-based arrangements. We also recognize revenue upon delivery to the customer for software licenses that do not require maintenance and support services. In addition, customers typically pay a usage-based runtime fee for production use of our C3 AI Software for specified levels of capacity. Customers who choose to run the software in our cloud environment pay the hosting costs charged by our cloud providers. In the first quarter of fiscal year 2023, we introduced a consumption-based pricing model, beginning with an initial production deployment phase which may include access to the C3 Agentic AI Platform, one or more C3 AI Applications or C3 Generative AI, and C3 AI Center of Excellence, or COE support services. Following the initial production deployment period, customers either pay a monthly fee and consumption charges using vCPU and vGPU hours as the metric to calculate payment or enter into a time-certain multi-period commitment that may include consumption charges. Our subscriptions also include our maintenance and support services. Additionally, we offer premium stand-ready support services through our C3 AI COE which is included as part of the subscription when purchased.
We also generate revenue from professional services, which primarily include prioritized engineering services and services fees. Professional services revenue represented 14% and 16% of our total revenue for the three months ended July 31, 2025 and 2024, respectively.
Prioritized engineering services are undertaken when a customer requests that we accelerate the design, development, and delivery of software features and functions that are planned in our future product roadmap. When we agree to this, we negotiate an agreed upon fee to accelerate the development of the software as well as other terms, such as relevant specifications. When the software feature is delivered, it becomes integrated to our core product offering, is available to all subscribers of the underlying software product, and enhances the operation of that product going forward. Such prioritized engineering services result in production-level computer software-compiled code that enhances the functionality of our production products - which is available for our customers to use over the life of their software licenses. Prioritized engineering services revenue is recognized as professional services over the period in which the software development is completed. Prioritized engineering services revenue accounted for 87% and 77% of total professional services revenue for the three months ended July 31, 2025 and 2024, respectively.
Service fees include revenue from services such as consulting, training, and paid implementation services. For service fees, revenue is typically recognized over time as the services are performed.
Remaining Performance Obligations
As it relates to our subscription-based pricing agreements, we monitor remaining performance obligations, or RPO. While RPO provides insight into committed revenue, it may not accurately reflect future revenue growth, particularly for pay-as-you go consumption pricing agreements and due to factors such as timing of renewals, the timing of conversion of an initial production deployment into a recurring subscription contract, purchases of additional capacity, average contract terms, and seasonality. As a result, it is important to review RPO in conjunction with revenue and other financial metrics disclosed elsewhere in this Quarterly Report on Form 10-Q.
RPO was $223.2 million as of July 31, 2025, which includes $67.4 million of non-cancellable commitments where actual product selection and quantities of specific products or services will be determined at a later date. RPO was $235.1 million as of April 30, 2025.
RPO represents the amount of our contracted future revenue that has not yet been recognized, including both deferred revenue and non-cancellable contracted amounts that will be invoiced and recognized as revenue in future periods. Our RPO as of July 31, 2025 is comprised of $29.9 million related to deferred revenue and $193.3 million of commitments from non-cancellable contracts. Our RPO as of April 30, 2025 was comprised of $36.6 million related to deferred revenue and $198.5 million of commitments from non-cancellable contracts.
RPO excludes amounts related to monthly usage-based runtime and hosting charges.
Go-to-Market Strategy
Our go-to-market strategy has been historically focused on large organizations recognized as leaders in their respective industries or public sectors that are attempting to solve complicated business problems by digitally transforming their operations. These large organizations, or lighthouse customers, include companies and public agencies within the oil and gas, power and utilities, aerospace and defense, industrial products, life sciences, and financial services industries, among others. This has resulted in C3 AI powering some of the largest and most complex Enterprise AI applications. These lighthouse customers serve as proof points for other potential customers in their respective industries. As a result, we have a customer base of a relatively small number of large organizations that generate high average total subscription contract value, but we expect that, over time, as more customers adopt our technology based on the proof points provided by these lighthouse customers, the revenue represented by these lighthouse customers will decrease as a percentage of total revenue. As our C3 Agentic AI Platform and much of our other C3 AI software are industry agnostic, we also expect to expand into other industries.
In the first quarter of fiscal year 2023, we introduced a change to our go-to-market strategy including a way for new customers to subscribe for our products at smaller initial contract sizes and pay for services based on their monthly consumption of vCPU and vGPU hours. Customers generally begin with a one to two-quarter-long initial production deployment agreements which includes the necessary resources required to deploy the C3 Agentic AI Platform and/or C3 AI Applications and receive necessary training to operate and maintain the software in production use. Following the initial production deployment period, customers either pay a monthly fee and consumption charges using vCPU and vGPU hours utilized as the metric to calculate payment or enter into a time-certain multi-period commitment that may include consumption charges.
Acquiring new customers and expanding our business with our existing customers is the purpose of our go-to-market effort and drives our growth. Making new and existing customers successful is critical to our long-term success. After we help our customers solve their initial use cases, they frequently identify incremental opportunities within their operations and expand their use of our products. The increased engagement is measured by a combination of increased vCPU/vGPU usage, increased C3 AI Software subscriptions and subscriptions to the C3 Agentic AI Platform for in-house AI application development.
The size and sophistication of our customers' businesses demonstrate the flexibility, speed, and scale of our products, and maximize the potential value to our customers. To be a credible partner to our customers, who often are industry leaders, we deploy an experienced and highly educated team of C3 AI personnel and partners. We also complement and supplement our sales force with a number of go-to-market partners.
•Industry Partners.We have developed an alliance program to partner with recognized leaders in their respective industries, such as Baker Hughes and, Booz Allen Hamilton; to develop, market, and sell solutions that are natively built on or tightly integrated with the C3 Agentic AI Platform.
•Hyperscale Cloud and Infrastructure.We have formed global strategic go-to-market alliances with hyperscale cloud providers including Microsoft Azure, Amazon Web Services, or AWS, and Google Cloud.
•Consulting and Services Partners.We partner with a number of consulting firms and system integrators specializing in Enterprise AI implementation, including McKinsey & Company, PwC, Fractal, and Paradyme.
•Independent Software Vendors.We partner with independent software vendors who develop, market, and sell application solutions that are natively built on or tightly integrated with the C3 Agentic AI Platform.
Key Business Metric
Initial Production Deployment
Historically, our go to market strategy has focused on enterprise-wide, multi-period, large-value subscription contracts that entailed a long sales cycle, considerable sales effort and protracted negotiations. Our introduction of consumption-based pricing model for new customers helps us to better meet the needs of customers and align us with the model that is becoming common for enterprise software companies.
Our consumption-based pricing model is designed to increase the number of customers and accelerate growth by making it easier and less costly to adopt C3 AI solutions.
A consumption-based pricing model begins with a paid "Initial Production Deployment" phase (formerly known as "Pilot" phase) of generally up-to six months that may include developer access to the C3 Agentic AI Platform, one C3 AI Application or C3 Generative AI and COE support services. Following the initial production deployment period, customers either pay a monthly fee and consumption charges using vCPU and vGPU hours as the metric to calculate payment or enter into a time-certain multi-period commitment that may include consumption charges.
We consider the initial production deployment count as a key business metric, as it reflects trends in market penetration and customer acquisition.
We count an agreement as an initial production deployment agreement when an agreement meeting the characteristics of initial production deployment as described above is executed with the customer.
We executed 28 and 52 initial production deployment agreements during the fiscal quarters ended July 31, 2025 and 2024, respectively.
Factors Affecting Our Performance
We believe that our future success and financial performance depend on a number of factors that present significant opportunities for our business but also pose risks and challenges, including those discussed below and in the section of this Quarterly Report on Form 10-Q in Part II, Item 1A titled "Risk Factors", that we must successfully address to sustain our growth, improve our results of operations, and establish and maintain profitability.
Customer Acquisition, Retention, and Expansion
We are focused on continuing to grow our customer base, retaining existing customers and expanding customers' usage of our C3 AI Software by addressing new use cases across multiple departments and divisions, adding users, and developing and deploying additional applications. All of these factors increase the adoption and relevance of our C3 AI Software to our customers' business and, as an outcome, increases their runtime usage.
We have built a high-performance, customer-focused culture and have implemented proactive programs and processes designed to drive customer success. These include a robust customer support and success function. For example, as part of our subscription offerings, we provide our customers with the ability to establish a COE utilizing our experienced and specialized resources in key technical areas like application development, data integration, and data science to accelerate and ensure our customers' success developing applications on our C3 Agentic AI Platform. We closely monitor the health and status of every customer account through multiple activities, including real-time monitoring, daily and weekly reports to management, as well as quarterly reviews with our customers.
We intend to attract new customers across multiple industries where we have limited meaningful presence today, yet represent very large market opportunities such as telecommunications, smart cities, transportation, and healthcare, among others.
Historically, we have had a relatively small number of customers with large total subscription contract values. As a result, revenue growth can vary significantly based on the timing of customer acquisition, changes in product mix, and contract durations, renewals, or terminations. We expect the number of customers to increase compared to prior fiscal years as organizations address the importance of digital transformation. The average total subscription contract value as well as the revenue represented by our lighthouse customers as a percentage of total revenue is decreasing and we expect them to continue to decrease as we have restructured our sales organization as described below and expanded our market-partner ecosystem to effectively address small, medium, and large enterprise sales opportunities.
We expect that we will continue to attract new customers who prefer to subscribe to the C3 Agentic AI Platform and C3 AI Applications with our consumption-based pricing model. For further discussion, see the section titled "Overview-Go-to-Market Strategy" included in Part I, Item 2 of this Quarterly Report on Form 10-Q.
Restructuring of Sales and Services Organization
During the three months ended July 31, 2025, we restructured our sales and services organization to provide a more seamless, high-touch customer experience with a consistent focus on realizing significant economic benefit rapidly from each C3 AI customer engagement. However, the restructuring had a disruptive effect on our financial performance in the three months ended July 31, 2025. This disruptive effect, together with the impact of our Executive Chairman's unanticipated health issues preventing him from participating in the sales process as actively as he had in the past, may have had a negative effect on our sales results in the three months ended July 31, 2025. Our future success and financial performance depends on the ability of our restructured sales and services organization to achieve desired productivity levels in a reasonable period of time. See "The failure to effectively develop and expand our marketing and sales capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our C3 AI Software." included in Part II, Item 1A of this Quarterly Report on Form 10-Q.
Appointment of Chief Executive Officer and CEO Transition
On September 3, 2025, we announced that our Board of Directors appointed Stephen Ehikian to succeed Mr. Siebel as CEO, effective September 1, 2025. Mr. Ehikian is a recognized innovator in the enterprise software industry and most recently served as Acting Administrator of the U.S. General Services Administration, or GSA. Mr. Siebel plans to continue in the role of Executive Chairman. We will need to successfully transition the role of Chief Executive Officer to Mr. Ehikian and integrate Mr. Ehikian into the C3 AI organization in order to successfully execute on our business strategy. See "The transition of our CEO and our ability to retain key members of our senior management may impact the successful execution of our business strategy."included in Part II, Item 1A of this Quarterly Report on Form 10-Q.
C3 Generative AI
Investing in generative AI positions us as leaders in the Enterprise AI space. By offering innovative generative AI solutions that improve operational efficiency for verticals, we enable more enterprises across industries to benefit from technology advancements as we address a broader market with our Enterprise AI applications.
As the AI landscape continues to evolve, we remain at the forefront of generative AI technologies. This is clear in the product innovations we continue to roll out. In early fiscal year 2024, we launched the C3 Generative AI, with 28 domain-specific generative AI offerings that addressed needs unique to industries, business processes, and enterprise systems.
C3 Generative AI is a vehicle that allows us to diversify our customer base and market reach. Aiming to develop technology that serves high impact, under-served verticals, we launched the C3 Generative AI for Government Programs application. This application was built to help government agencies and the residents they serve navigate public benefits programs more efficiently and effectively. With C3 Generative AI for Government Programs, federal, state, or local government agencies can eliminate service delays, reduce wait times, make contact centers more effective, and improve the citizen experience.
The value of our innovations is evident in the benefits customers are realizing as adoption grows. In fiscal year 2025, we continue to have strong customer demand and adoption in diverse use cases, including operator assistance, intelligence analysis, complex documentation drafting, and customer service.
To help customers get started with C3 Generative AI faster and allow enterprises to truly understand the value of our technology, we launched C3 Generative AI Accelerator Program. This program is a three-day workshop designed to help organizations implement generative AI solutions effectively. The in-person program emphasizes a hands-on approach with participating teams engaged in unstructured and structured data integration, accuracy tuning, and application configuration using C3 Generative AI and the C3 Agentic AI Platform. At the end of the Accelerator, participating teams have working prototype applications that they can showcase within their organizations. Participants also work with C3 AI experts to develop customized AI scale-out and value capture plans that are tailored to each organization's specific requirements.
Our intellectual property advancements in generative AI highlight our power as a pioneer in Enterprise AI. In October 2024, we were awarded a foundational U.S. patent (No. 12,111,859) for our generative AI agentic technology. The patent details a sophisticated system and method for orchestrating multiple AI agents using multimodal foundation models. This patent reinforces C3 AI's commitment to innovation and its leadership in generative AI. Key patented technologies include:
•AI Orchestrator: The C3 AI orchestrator coordinates multiple AI agents, invokes specialized machine-learning models or mathematical tools as necessary and handles all data types and tasks.
•Autonomy: Meaning the AI agents can operate independently to perform tasks across various business functions like sales, service, marketing, and commerce. AI agents can be fully customized to fit the specific needs of any industry or business process, using tools that are already familiar to programmers and data scientists.
•Multimodal Model Integration: The system integrates advanced multimodal models to break down inputs into a series of instructions for a multiplicity of AI agents.
•Natural Language Summarization: The technology generates comprehensive summaries from varied data sources, significantly improving decision making.
•Traceability and Security:C3 Generative AI Agents provide full traceability to sources, comprehensive enterprise access controls, high security, minimal hallucinations, and are LLM agnostic.
C3 Generative AI is a highly differentiated product offering that provides customers with safe, secure, fast, and reliable insights from data across the enterprise. We differentiated C3 Generative AI from other market offerings, introducing expanded functionalities and innovative capabilities, including:
▪Omni-Modal Parsing at Scale: C3 Generative AI now extracts high-quality content and metadata from a wide array of unstructured formats - including presentations, spreadsheets, rich text, audio, and video - transforming them into a structured knowledge graph. This enables users to seamlessly search, link and analyze information across disparate systems, reducing time spent on manual information discovery.
▪Dynamic Planning Agent with Multi-Agent Collaboration: C3 AI's planning agent performs multi-step reasoning across all data types, coordinating with other agents to solve complex tasks and workflows. This enables organizations to automate decision chains that previously required cross-functional input, from scenario planning to operational forecasting.
▪Easy Agent and Tool Authoring: C3 Generative AI offers a streamlined developer experience, enabling users to rapidly create or enhance agents by integrating new tools in minutes, without the need for system upgrades. This flexibility allows enterprises to quickly adapt AI capabilities to meet evolving needs.
▪On-the-Fly Custom Visualizations: C3 Generative AI can autonomously generate context-specific visualizations from natural language queries. This feature allows users to transition from questions to insights instantly, eliminating the need for manual charting, coding, or dashboard configuration.
A key priority for us is not just to meet but anticipate the needs of the Enterprise AI market. In many ways, generative AI is accelerating our strategic initiatives to achieve this goal. We expect to continue to invest heavily in generative AI, leveraging these advanced technologies not only to enhance our existing offerings, but also to create new, innovative applications that expand our impact in Enterprise AI.
Technology Innovation
We intend to continue to invest in our research and development capabilities to extend our C3 AI Software, to expand within existing accounts, and to gain new customers. Our investments in research and development drive core technology innovation and bring new products to market. Our model-driven architecture and generative AI agents framework enables us and our customers to rapidly address new use cases by building new applications and extending and enhancing the features and functionality of current C3 AI Software. By investing to make it easier to develop applications on our C3 Agentic AI Platform, our customers have become active developers. With our support, our customers have developed and deployed almost two-thirds of the applications currently in production and running on the C3 Agentic AI Platform. Research and development spending has fueled enhancements to our existing C3 Agentic AI Platform.
We expect to maintain high levels of investment in product innovation over the coming years as we continue to introduce new applications which address new industry use cases, and new features and functionality for the C3 AI Software. As our business scales over a longer-term horizon, we anticipate research and development spend as a percent of total revenue to decline.
Brand Awareness
We believe we are in the early stages of a large and expanding market for AI enabled digital transformation. As a result, we intend to continue to invest in brand awareness, market education, strategic paid media, and thought leadership, particularly as it relates to generative AI. We engage the market through digital, radio, outdoor, airport, and print advertising; virtual and physical events, including our C3 Transform annual user conference; and C3 AI Webinars, a series of events featuring C3 AI customers, C3 AI partners, and C3 AI experts in AI, Machine Learning, or ML, and data science.
We anticipate continuing to make significant investments in marketing over the next few years. Over the long term, we expect marketing spend to decline as a percent of total revenue as we make ongoing progress establishing C3 AI's brand and reputation and as our business scales.
Grow Our Go-to-Market and Partnership Ecosystem
In addition to the activities of our field sales organization, our success in attracting new customers will depend on our ability to expand our ecosystem of strategic partners and the number of industry verticals that they serve. Our strategic go-to-market alliances vastly extend our reach globally. Some of our most notable partners include Microsoft, Baker Hughes, AWS, and Google. Each strategic partner is a leader in its industry, with a substantial installed customer base and extensive marketing, sales, and services resources that we can leverage to engage and serve customers anywhere in the world. Using our C3 Agentic AI Platform as the development suite, we leverage our model-driven architecture to efficiently build new cross-industry and industry-specific applications based on identifying requirements across our customer base of industry leaders and through our industry partners. Our strategy with strategic partners is to establish a significant use case and prove the value of our C3 Agentic AI Platform, C3 AI Applications, and C3 Generative AI with a flagship customer in each industry in which we participate. We have done this with our strategic vertical industry partner in oil and gas, Baker Hughes, as well as with our iconic global customers, some of whom are deploying C3 AI technology to optimize thousands of critical assets globally across their upstream, midstream, and downstream operations. We establish formal sales and marketing plans with each partner, including specific sales goals and dedicated budgets, and we work closely with these partners to identify specific target accounts. We intend to grow the business we do with each partner and to add more partners as we expand the vertical markets we serve. We also offer revenue generating initial production deployments of our applications as part of our customer acquisition strategy.
In September 2024, we entered into a new global alliance agreement with Microsoft - focused on sales, marketing, and solution delivery across all geographies and all industries - to accelerate the adoption of Enterprise AI. The agreement establishes us as a preferred AI application software provider on Microsoft Azure. The collaboration includes joint sales, joint go-to-market strategies, and immediate availability of all C3 Enterprise AI solutions through Azure sales channels, including the Microsoft Commercial Cloud, technical integration, and aligned product development. We plan to invest aggressively to support this distribution channel.
In January 2025, we also entered into a new strategic alliance with McKinsey & Company, a global management consulting firm, to help clients and prospects across industries and geographies accelerate Enterprise AI transformations at scale. The alliance combines the deep technical expertise of McKinsey's AI practice, QuantumBlack, and its track record of deploying and scaling AI solutions across industries with our cutting-edge Enterprise AI software applications to help clients unlock the power of Enterprise AI and agentic AI to realize significant operational improvements and unlock new growth opportunities.
International Expansion
The international market opportunity for Enterprise AI software is large and growing, and we believe there is a significant opportunity to continue to grow our international customer base. We believe that the demand for our C3 AI Software will continue growing as international awareness of the benefits of digital transformation and Enterprise AI software grows. We plan to continue to make investments to expand geographically by increasing our direct sales team in international markets and supplementing the direct sales effort with strategic partners to significantly expand our reach and market coverage. We derived approximately 9% and 13% of our total revenue for the three months ended July 31, 2025 and 2024, respectively, from international customers.
Impact of Macroeconomic Conditions
Our business and financial condition have been, and may continue to be, impacted by adverse macroeconomic conditions and uncertainties, including labor shortages, supply chain disruptions, inflation, higher interest rates, and fluctuations or volatility in capital markets, which are causing customers to optimize consumption, rationalize budgets, and prioritize cash flow management.
Our business and financial results may be adversely affected by macroeconomic conditions, including geopolitical instability, a potential U.S. government shutdown, delays in budget approvals, or increased tariffs or global trade tensions. These and other market risks could have unforeseen and negative impacts on our operations and performance.
We will continue to evaluate the nature and extent of the impact of general macroeconomic conditions on our business. For further discussion, see the section titled "Risk Factors" included in Part II, Item 1A of this Quarterly Report on Form 10-Q.
Components of Results of Operations
Revenue
Subscription Revenue. Our subscription revenue is primarily comprised of software licenses, software-as-a-service offerings, stand-ready COE support services, initial production deployments of our C3 AI Applications or Generative AI, and hosting charges. Sales of our software licenses grant our customers the right to use our software, either on their own cloud instances or their internal hardware infrastructures, during the contractual term. We also offer a premium stand ready service through our COE. Sales of our software-as-a-service offerings include a right to use our software during the contract term. In addition, customers pay a usage-based runtime fee for our C3 AI Software for specified levels of guaranteed minimum consumption. Our subscriptions also include our maintenance and support services, which include critical and continuous updates to the software that are integral to maintaining the intended utility of the software over the contractual term. For a significant majority of our offerings, our software subscriptions and maintenance and support services are highly interdependent and interrelated and represent a single distinct performance obligation within the context of the contract. We also sell software licenses that do not require maintenance and support services. We currently have a small number of customers that license our offerings under a perpetual license model, and we expect that may continue for the foreseeable future for certain customers due to their specific contracting requirements.
Professional Services Revenue.Our professional services revenue primarily includes consulting, training, paid implementation services and prioritized engineering services. We offer a complete range of professional service support both onsite and remotely, including training, application design, project management, system design, data modeling, data integration, application design, development support, data science, and application and C3 AI Software administration support. Professional services fees are based on the level of effort required to perform the specified tasks and are typically a fixed-fee engagement with defined deliverables and a duration of less than 12 months. In certain cases, customers seeking increased utility from their C3 Agentic AI Platform or C3 AI Application subscriptions can procure prioritized engineering services to develop and modify software features, which are typically part of our product roadmap, but on an accelerated basis.
Cost of Revenue
Cost of Subscription Revenue. Cost of subscription revenue consists primarily of costs related to compensation, including salaries, bonuses, benefits, stock-based compensation and other related expenses for the production environment, support and COE staff, third-party system integration partners, hosting of our C3 AI Software, including payments to outside cloud service providers, and allocated overhead and depreciation for facilities.
Cost of Professional Services Revenue. Cost of professional services revenue consists primarily of compensation, including salaries, bonuses, benefits, stock-based compensation and other related costs associated with our professional service personnel, prioritized engineering personnel, third-party system integration partners, and allocated overhead and depreciation for facilities.
Gross Profit and Gross Margin
Gross profit is total revenue less total cost of revenue. Gross margin is gross profit expressed as a percentage of total revenue. Our gross margin has fluctuated historically and may continue to fluctuate from period to period based on a number of factors, including the timing and mix of the product offerings we sell, size or nature of customer, size of contract, industry, and the geographies into which we sell, in any given period. Our subscription gross margin may experience variability over time as we continue to invest and continue to scale our business. Our professional services gross margin may also experience variability from period to period due to the use of our own resources and third-party system integration partners in connection with the performance of our fixed price agreements.
Operating Expenses
Our operating expenses consist of sales and marketing, research and development, and general and administrative expenses. We expect our operating expenses to increase as we continue to invest to grow our business.
Sales and Marketing.Sales and marketing expenses consist of expenditures related to advertising, media, marketing, promotional events, brand awareness activities, business development, customer success and corporate partnerships. Sales and marketing expenses also include employee-related costs, including salaries, bonuses, benefits, stock-based compensation, and commissions for our employees engaged in sales and marketing activities, and allocated overhead and depreciation for facilities.
We expect our sales and marketing expenses will increase in absolute dollar amounts as we continue to hire additional sales personnel to increase sales coverage of target industry vertical and geographic markets. Consequently, sales and marketing expense as a percent of total revenue will remain high in the near-term. As our business scales through customer expansion and market awareness, we anticipate that sales and marketing expense as a percent of total revenue will decline over time.
Research and Development.Our research and development efforts are aimed at continuing to develop and refine our solutions, including adding new features and modules, increasing functionality and speed, and enhancing the usability of C3 AI Software. Research and development expenses consist primarily of employee-related costs, including salaries, bonuses, benefits, and stock-based compensation for our employees associated with research and development related activities. Research and development expenses also include cloud infrastructure costs related to our research and development efforts, third-party system integration partners and allocated overhead and depreciation for facilities. Research and development costs are expensed as incurred.
We expect to continue to invest in our existing and future product offerings. We may experience variations from period to period with our total research and development expense as a percentage of revenue as we develop and deploy new applications targeting new use cases and new industries. Over a longer horizon, we anticipate that research and development expense as a percent of total revenue will decline.
General and Administrative.General and administrative expenses consists primarily of employee-related costs, including salaries, bonuses, benefits, stock-based compensation and other related costs associated with administrative services such as executive management and administration, legal, human resources, accounting, and finance. General and administrative expense also includes facilities costs, such as depreciation and rent expense, professional fees, and other general corporate costs, including allocated overhead and depreciation for facilities.
Our general and administrative expense may increase in absolute dollars as we continue to grow our business. We have incurred, and expect to continue to incur, additional expenses as a result of operating as a public company, including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, as well as higher expenses for general and director and officer insurance, investor relations, and professional services. We expect that general and administrative expense as a percent of total revenue will decline over the long-term as we benefit from the economies of scale of our overall business.
Interest Income
Interest income consists primarily of interest income earned on our cash, cash equivalents, and available-for-sale marketable securities. It also includes amortization of premiums and accretion of discount related to our available-for-sale marketable securities. Interest income varies each reporting period based on our average balance of cash, cash equivalents, and available-for-sale marketable securities during the period and market interest rates.
Other Income (Expense), Net
Other income (expense), net consists primarily of foreign currency exchange gains and losses, losses from impairment of marketable securities, and realized gains and losses on sales of available-for-sale marketable securities. Our foreign currency exchange gains and losses relate to transactions and asset and liability balances denominated in currencies other than the U.S. dollar. We expect our foreign currency gains and losses to continue to fluctuate in the future due to changes in foreign currency exchange rates.
Provision for Income Taxes
Our income tax provision consists of an estimate of federal, state, and foreign income taxes based on enacted federal, state, and foreign tax rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in the valuation of our deferred tax assets and liabilities, and changes in tax laws. We maintain a full valuation allowance on our federal and state deferred tax assets as we have concluded that it is not more likely than not that the deferred tax assets will be realized.
Results of Operations
The following tables set forth our condensed consolidated statements of operations for the periods presented:
| Three Months Ended July 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| Revenue | |||||||||||
| Subscription | $ | 60,301 | $ | 73,456 | |||||||
| Professional services | 9,960 | 13,757 | |||||||||
|
Total revenue
|
70,261 | 87,213 | |||||||||
| Cost of revenue | |||||||||||
|
Subscription (1)
|
41,481 | 33,292 | |||||||||
|
Professional services (1)
|
2,336 | 1,755 | |||||||||
|
Total cost of revenue
|
43,817 | 35,047 | |||||||||
| Gross profit | 26,444 | 52,166 | |||||||||
| Operating expenses | |||||||||||
|
Sales and marketing (1)
|
62,513 | 52,125 | |||||||||
|
Research and development (1)
|
64,651 | 52,927 | |||||||||
|
General and administrative (1)
|
24,099 | 19,700 | |||||||||
| Total operating expenses | 151,263 | 124,752 | |||||||||
|
Loss from operations
|
(124,819) | (72,586) | |||||||||
| Interest income | 8,218 | 10,003 | |||||||||
|
Other income (expense), net
|
132 | 28 | |||||||||
|
Loss before provision for income taxes
|
(116,469) | (62,555) | |||||||||
| Provision for income taxes | 300 | 272 | |||||||||
|
Net loss
|
$ | (116,769) | $ | (62,827) | |||||||
________________________________________________________________________________________________________________________________
(1)Includes stock-based compensation expense as follows:
| Three Months Ended July 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| Cost of subscription | $ | 8,622 | $ | 7,694 | |||||||
| Cost of professional services | 668 | 714 | |||||||||
| Sales and marketing | 24,181 | 18,833 | |||||||||
| Research and development | 19,323 | 18,431 | |||||||||
| General and administrative | 11,981 | 9,011 | |||||||||
| Total stock-based compensation expense | $ | 64,775 | $ | 54,683 | |||||||
The following table sets forth our condensed consolidated statements of operations data expressed as a percentage of revenue for the periods indicated:
| Three Months Ended July 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Revenue | |||||||||||
| Subscription | 86 | % | 84 | % | |||||||
| Professional services | 14 | 16 | |||||||||
|
Total revenue
|
100 | 100 | |||||||||
| Cost of revenue | |||||||||||
| Subscription | 59 | 38 | |||||||||
| Professional services | 3 | 2 | |||||||||
|
Total cost of revenue
|
62 | 40 | |||||||||
| Gross profit | 38 | 60 | |||||||||
| Operating expenses | |||||||||||
| Sales and marketing | 89 | 60 | |||||||||
| Research and development | 92 | 61 | |||||||||
|
General and administrative
|
34 | 23 | |||||||||
| Total operating expenses | 215 | 143 | |||||||||
|
Loss from operations
|
(178) | (83) | |||||||||
| Interest income | 12 | 11 | |||||||||
|
Other income (expense), net
|
- | - | |||||||||
|
Loss before provision for income taxes
|
(166) | (72) | |||||||||
| Provision for income taxes | - | - | |||||||||
|
Net loss
|
(166) | % | (72) | % | |||||||
Comparison of the Three Months Ended July 31, 2025 and 2024
Revenue
| Three Months Ended July 31, | $ Change | % Change | |||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Subscription | $ | 60,301 | $ | 73,456 | $ | (13,155) | (18) | % | |||||||||||||||
| Professional services | 9,960 | 13,757 | (3,797) | (28) | % | ||||||||||||||||||
|
Total revenue
|
$ | 70,261 | $ | 87,213 | $ | (16,952) | (19) | % | |||||||||||||||
Subscription revenue accounted for 86% and 84% of our total revenue for the three months ended July 31, 2025 and 2024, respectively. Subscription revenue decreased by $13.2 million, or 18%, for the three months ended July 31, 2025, compared to the same period last year. Approximately 32% and 19%, respectively, of the total subscription revenue for the three months ended July 31, 2025 and 2024 was attributable to revenue from new customers, and the remaining 68% and 81%, respectively, was attributable to revenue from existing customers. Existing customers are those from whom revenue was recognized during the three months ended July 31, 2024.
Professional services revenue decreased by $3.8 million, or 28%, for the three months ended July 31, 2025, compared to the same period last year, predominantly due to a decrease in prioritized engineering services of $2.0 million and a decrease in professional services of $1.8 million as a result of a decrease in the number of implementation and training projects.
Cost of Revenue
| Three Months Ended July 31, | $ Change | % Change | |||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Subscription | $ | 41,481 | $ | 33,292 | $ | 8,189 | 25 | % | |||||||||||||||
| Professional services | 2,336 | 1,755 | 581 | 33 | % | ||||||||||||||||||
|
Total cost of revenue
|
$ | 43,817 | $ | 35,047 | $ | 8,770 | 25 | % | |||||||||||||||
The increase in cost of subscription revenue for the three months ended July 31, 2025 compared to the same period last year was primarily due to higher payroll and contractor costs of $7.1 million and higher data center costs of $0.3 million.
The increase in cost of professional services revenue for the three months ended July 31, 2025 compared to the same period last year was primarily due to higher payroll and contractor costs of $0.5 million.
Gross Profit and Gross Margin
| Three Months Ended July 31, | $ Change | % Change | |||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Gross profit | $ | 26,444 | $ | 52,166 | $ | (25,722) | (49) | % | |||||||||||||||
| Gross margin | |||||||||||||||||||||||
| Subscription | 31 | % | 55 | % | |||||||||||||||||||
| Professional services | 77 | % | 87 | % | |||||||||||||||||||
| Total gross margin | 38 | % | 60 | % | |||||||||||||||||||
The decrease in total gross margin for the three months ended July 31, 2025 compared to the same period last year was driven by decline in both subscription and professional services margin.
The subscription margin for the three months ended July 31, 2025 decreased primarily due to decline in subscription revenue and higher payroll and contractor costs supporting initial production deployment projects.
The professional service margin decreased for the three months ended July 31, 2025 due to decline in prioritized engineering service projects compared to the same period last year.
Operating Expenses
| Three Months Ended July 31, | $ Change | % Change | |||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Sales and marketing | $ | 62,513 | $ | 52,125 | $ | 10,388 | 20 | % | |||||||||||||||
| Research and development | 64,651 | 52,927 | 11,724 | 22 | % | ||||||||||||||||||
| General and administrative | 24,099 | 19,700 | 4,399 | 22 | % | ||||||||||||||||||
| Total operating expenses | $ | 151,263 | $ | 124,752 | $ | 26,511 | 21 | % | |||||||||||||||
Sales and Marketing.The increase in sales and marketing expense for the three months ended July 31, 2025 compared to the same period last year was primarily due to higher payroll costs of $15.1 million as a result of additional headcount and overall costs to support the growth in our business, and increased stock-based compensation primarily related to additional equity awards granted to current and new employees, partially offset by lower advertising and marketing costs of $6.0 million.
Research and Development.The increase in research and development expense for the three months ended July 31, 2025 compared to the same period last year was primarily due to higher payroll and contractor costs of $9.4 million and higher data center costs of $1.4 million.
General and Administrative.The increase in general and administrative expense for the three months ended July 31, 2025 compared to the same period last year was primarily due to higher payroll costs of $4.0 million as a result of additional headcount and overall costs to support the growth in our business and increased stock-based compensation primarily related to additional equity awards granted to current and new employees, and higher professional services costs of $0.7 million.
Interest Income
| Three Months Ended July 31, | $ Change | % Change | |||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Interest income | $ | 8,218 | $ | 10,003 | $ | (1,785) | (18) | % | |||||||||||||||
The decrease in interest income for the three months ended July 31, 2025 compared to the same period last year was primarily due to higher prevailing interest rates on our marketable securities portfolio and higher volume of investments in the three months ended July 31, 2024.
Other Income (Expense), Net
| Three Months Ended July 31, | $ Change | % Change | |||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
|
Other income (expense), net
|
$ | 132 | $ | 28 | $ | 104 | 371 | % | |||||||||||||||
The increase in other income (expense), net for the three months ended July 31, 2025 compared to the same period last year was primarily due to higher foreign currency gains on the remeasurement of Euro-denominated cash and accounts receivable balances, in the three months ended July 31, 2025.
Provision for Income Taxes
| Three Months Ended July 31, | $ Change | % Change | |||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Provision for income taxes | $ | 300 | $ | 272 | $ | 28 | 10 | % | |||||||||||||||
The change in provision for income taxes for the three months ended July 31, 2025 compared to the same period last year was primarily related to foreign and state tax expense.
Non-GAAP Financial Measure
In addition to our financial results determined in accordance with generally accepted accounting principles in the United States, or GAAP, we believe free cash flow, a non-GAAP financial measure, is useful in evaluating liquidity and provides information to management and investors about our ability to fund future operating needs and strategic initiatives. We calculate free cash flow as net cash (used in) provided by operating activities less purchases of property and equipment. Free cash flow has limitations as an analytical tool, and it should not be considered in isolation or as a substitute for analysis of other GAAP financial measures, such as net cash used in operating activities. This non-GAAP financial measure may be different than similarly titled measures used by other companies. Additionally, the utility of free cash flow is further limited as it does not represent the total increase or decrease in our cash balances for a given period. The following table below provides a reconciliation of free cash flow to the GAAP measure of net cash used in operating activities for the periods presented.
| Three Months Ended July 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| Net cash (used in) provided by operating activities | $ | (33,535) | $ | 8,042 | |||||||
| Less: | |||||||||||
| Purchases of property and equipment | (760) | (924) | |||||||||
| Free cash flow | $ | (34,295) | $ | 7,118 | |||||||
| Net cash used in investing activities | $ | (51,171) | $ | (41,550) | |||||||
| Net cash provided by financing activities | $ | 1,289 | $ | 182 | |||||||
Liquidity and Capital Resources
Since inception, we have financed operations primarily through sales generated from our customers and sales of equity securities. As of July 31, 2025 and April 30, 2025, we had $80.9 million and $164.4 million of cash and cash equivalents and $631.0 million and $578.3 million of marketable securities, respectively, which are available for use in current operations. Our marketable securities generally consist of high-grade U.S. treasury securities, certificates of deposit, U.S. government agency securities, commercial paper and corporate debt securities. We have generated operating losses from our operations as reflected in our accumulated deficit of $1.5 billion as of July 31, 2025. We expect to continue to incur operating losses and generate negative cash flows from operations in the next few quarters due to the investments we intend to make in our business, and as a result we may require additional capital to execute on our strategic initiatives to grow the business.
We believe that existing cash, cash equivalents and marketable securities alone will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. We also believe we will meet expected future cash requirements and obligations through a combination of cash flows from operating activities and available cash balances. Our principal uses of cash in recent periods have been funding our operations and investing in capital expenditures. Our future capital requirements will depend on many factors, including our revenue growth rate, the timing and the amount of cash received from customers, the expansion of sales and marketing activities, the timing and extent of spending to support development efforts, expenses associated with our international expansion, the introduction of C3 AI Software enhancements, and the continuing market adoption of our C3 AI Software. In the future, we may enter into arrangements to acquire or invest in complementary businesses, products, and technologies. We may be required to seek additional equity or debt financing. If we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business, results of operations, and financial condition.
The following table summarizes our cash flows for the periods presented:
| Three Months Ended July 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| Net cash (used in) provided by operating activities | $ | (33,535) | $ | 8,042 | |||||||
| Net cash used in investing activities | $ | (51,171) | $ | (41,550) | |||||||
| Net cash provided by financing activities | $ | 1,289 | $ | 182 | |||||||
|
Net decrease in cash, cash equivalents, and restricted cash
|
$ | (83,417) | $ | (33,326) | |||||||
Operating Activities. Our largest source of operating cash is cash collections from our customers for subscription and professional services. Our primary uses of cash from operating activities are for payroll and contractors costs, third-party cloud hosting costs, sales and marketing costs, and other operational costs.
During the three months ended July 31, 2025, cash used in operating activities was $33.5 million, an increase of $41.6 million compared to the same period last year. The increase was primarily attributable to an increase in cash paid for payroll and related costs, and to vendors, partially offset by an increase in cash received from customers.
Investing Activities. Net cash used in investing activities of $51.2 million for the three months ended July 31, 2025 was attributable to purchases of marketable securities of $206.5 million and capital expenditures of $0.8 million mainly related to computer equipment and servers, partially offset by maturities and sales of marketable securities of $156.1 million.
Net cash used in investing activities of $41.6 million for the three months ended July 31, 2024 was attributable to purchases of marketable securities of $230.9 million and capital expenditures of $0.9 million mainly related to the leasehold improvements associated with the new leased space, partially offset by maturities and sales of marketable securities of $190.3 million.
Financing Activities.Net cash provided by financing activities of $1.3 million during the three months ended July 31, 2025 was due to proceeds from the exercise of stock options for Class A common stock.
Net cash provided by financing activities of $0.2 million during the three months ended July 31, 2024 was due to $3.1 million of proceeds from the exercise of stock options for Class A common stock, partially offset by $2.9 million of taxes paid related to net share settlement of equity awards.
Contractual Obligations and Commitments
Our contractual obligations and commitments primarily consist of operating lease commitments for our facilities and non-cancellable purchase commitments related to third-party cloud hosting and professional services.
For additional information, refer to Note 6. Commitments and Contingenciesto our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Except as disclosed in Note 6., there has been no other material change in our contractual obligations and commitments other than in the ordinary course of business since our fiscal year ended April 30, 2025. See our Annual Report on Form 10-K for the fiscal year ended April 30, 2025, which was filed with the SEC on June 23, 2025, for additional information regarding our contractual obligations.
Critical Accounting Policies and Estimates
Our unaudited condensed consolidated financial statements and the accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with GAAP. The preparation of condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected.
There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates discussed in the Annual Report on Form 10-K for the fiscal year ended April 30, 2025, which was filed with the SEC on June 23, 2025.
C3.ai Inc. published this content on September 09, 2025, and is solely responsible for the information contained herein. Distributed via SEC EDGAR on September 09, 2025 at 10:01 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]