Release Date: December 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- C3.ai Inc (AI, Financial) reported a 29% year-over-year revenue growth for the second quarter of fiscal year 2025, marking the seventh consecutive quarter of accelerating revenue growth.
- The company exceeded its revenue guidance with a total revenue of $94.3 million, driven by a 22% increase in subscription revenue.
- C3.ai Inc (AI) has formed a significant strategic alliance with Microsoft Azure, which is expected to dramatically shorten sales cycles and expand market reach.
- The company closed 58 agreements in the second quarter, including new and expanded agreements with major corporations like ExxonMobil, Shell, and the US Department of Defense.
- C3.ai Inc (AI) holds a strong cash position with over $730 million in cash, cash equivalents, and investments, providing a solid foundation for future growth and investment in strategic partnerships.
Negative Points
- C3.ai Inc (AI) reported a non-GAAP operating loss of $17.2 million for the quarter, although this was better than the guidance range.
- The company is no longer targeting to be cash flow positive for the full fiscal year 2025 due to increased investments in the Microsoft partnership.
- There is uncertainty regarding the renewal of the exclusive marketing agreement with Baker Hughes, which has been a significant revenue contributor in the past.
- The company expects some moderation in gross margins due to a higher mix of pilots, which carry greater costs during the pilot phase.
- C3.ai Inc (AI) anticipates continued free cash flow negativity in the near term as it invests aggressively in sales, customer support, and marketing.
Q & A Highlights
Q: Can you share the history of the relationship with Microsoft and how it developed to this point? Also, what are your thoughts on federal spending under the new administration?
A: Our relationship with Microsoft has been primarily driven by Judson Althoff and myself. We have coordinated closely on this agreement. Regarding federal spending, there is a significant focus on AI applications across defense and intelligence sectors, and we expect a dramatic acceleration in AI adoption within the federal government.
Q: What is unique about what C3.ai offers that Microsoft couldn't do on its own? Who else might Microsoft be partnering with?
A: Microsoft provides a vast array of services on Azure, which we utilize to build turnkey applications. We offer complete applications that deliver economic benefits quickly, complementing Microsoft's services. Our partnership positions us as Microsoft's preferred enterprise AI application provider.
Q: Does the partnership with Microsoft contribute to enterprise contract commitments in terms of volume and dollars spent?
A: Yes, sales through this partnership apply against customer commitments to Microsoft, helping them fulfill large commitments to purchase Microsoft software services.
Q: When do you expect the Microsoft partnership to start contributing to revenue, and how significant could it be for overall growth?
A: The partnership has already contributed to revenue growth since the agreement was signed on September 30th. While the exact impact is unknowable, the potential increase in sales force from 100 to 10,000 provides a substantial tailwind for future growth.
Q: With the pushout of free cash flow expectations, when do you anticipate becoming free cash flow positive?
A: We expect to become cash flow positive at some point in fiscal '26. Currently, we are investing in market share and leadership, leveraging the largest software sales organization in the world through our partnership with Microsoft.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
