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December 12, 2025 • 4 min read
For investors tracking the artificial intelligence sector, C3.ai (AI) remains a company of significant interest given its focus on Enterprise AI—software designed to help large organizations deploy artificial intelligence applications at scale. However, shifting business models often create turbulent financial periods. We are going to dig into the income statement from their latest 10-Q filing for the quarter ended October 31, 2025, to see how the company’s transition to a new pricing model is impacting its bottom line.
The headline figures for the quarter reveal a contraction. C3.ai reported Total Revenue of $75.1 million, a 20% decrease compared to the $94.3 million reported in the same period last year.
This decline affected both primary revenue streams:
The company attributes aspects of this volatility to its strategic shift toward a consumption-based pricing model. Unlike traditional SaaS (Software as a Service) subscriptions where customers pay large, flat fees upfront, a consumption model charges based on usage (similar to a utility bill). While this model lowers barriers to entry for new customers, it often introduces unpredictability in revenue recognition during the transition phase.
While revenue contracted, the cost to deliver that revenue increased. Total Cost of Revenue rose 23% to $44.8 million. This divergence—falling revenue coupled with rising costs—put significant pressure on profitability metrics.
Gross Profit dropped to $30.4 million, down from $57.8 million in the prior year comparable quarter. Consequently, Gross Margin compressed to 40.4%, a stark contrast to the 61.3% margin seen a year ago. According to the filing, the increase in the cost of subscription revenue was primarily driven by higher payroll and contractor costs, totaling an increase of $7.1 million. This highlights the human capital intensity currently required to support their deployed software.
To visualize how these revenues and costs flow through to the bottom line, see the diagram below:
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Below the gross profit line, C3.ai maintains aggressive spending to support innovation and market share acquisition. Total Operating Expenses reached $142.5 million, far exceeding the revenue generated.
The two largest drivers of operating expenses were:
A critical component of the company's cost structure is Stock-Based Compensation (SBC)—the practice of paying employees with equity to preserve cash. For the quarter, total SBC was $68.9 million.
It is important to understand where this expense lands on the income statement. Approximately $10.4 million of the SBC is allocated to Cost of Revenue (directly depressing Gross Margins), while the remaining $58.5 million is recorded within Operating Expenses.
The combination of compressed margins and high operating costs resulted in a Net Loss of $104.7 million, widening from a loss of $66.0 million in the same quarter last year.
Despite the quarterly burn, C3.ai maintains a strong liquidity position. The company holds approximately $103.2 million in cash and cash equivalents and $571.8 million in marketable securities. This war chest of roughly $675 million provides the company with a substantial runway to navigate its transition and weather ongoing losses.
C3.ai operates in a crowded market, competing against internal IT teams and "frenemies"—hyperscalers like AWS, Microsoft Azure, and Google Cloud, who serve as both partners and competitors. The latest filing illustrates the financial friction of transitioning to a consumption model: revenue is currently lagging while fixed costs for talent and development remain high. For investors, the key indicator of success in future quarters will be whether consumption volume accelerates enough to reverse the margin compression and justify the high operating spend.
Last updated: December 12, 2025