C3.ai (AI) Q1 2026 Earnings Call Transcript

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DATE

Wednesday, Sept. 3, 2025, at 5 p.m. ET

CALL PARTICIPANTS

• Executive Chairman — Tom Siebel
• Chief Executive Officer — Stephen Ehigian
• Chief Financial Officer — Hitesh Lath
• Head of Investor Relations — Amit Berry

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RISKS

• Tom Siebel said, "the financial results of the first quarter were completely unacceptable. And completely unacceptable in virtually every respect."
• Revenue (non-GAAP) of $70.3 million declined 19% year-over-year. Management directly attributed the miss to sales execution challenges and resource coordination issues.
• The company’s non-GAAP operating loss was $57.8 million, and free cash flow was negative $34.3 million during the quarter, indicating a continuation of non-GAAP operating losses.
• Management withdrew all previous guidance beyond next quarter, citing leadership transition and company reorganization as uncertainty drivers.

TAKEAWAYS

• Total Revenue-- $70.3 million (non-GAAP), down 19% year-over-year compared to the fiscal first quarter ended July 31, 2025, marking the company’s first reported miss against revenue guidance as a public entity.
• Subscription Revenue-- $60.3 million, representing 86% of total non-GAAP revenue.
• Demonstration License Revenue-- $17.9 million (non-GAAP), sequentially down $15.9 million versus the prior quarter.
• Professional Services Revenue-- $10 million in non-GAAP professional services revenue, with $8.7 million (non-GAAP) from engineering services (PES), equating to 14% of total revenue.
• Non-GAAP Gross Profit-- $36.3 million with a non-GAAP gross margin of 52%.
• Non-GAAP Operating Loss-- Non-GAAP operating loss was $57.8 million.
• Non-GAAP Net Loss-- Non-GAAP net loss was $49.8 million, or $0.37 per share.
• Free Cash Flow-- Free cash flow was negative $34.3 million, marking continued consumption of cash.
• Cash, Cash Equivalents, and Marketable Securities-- $711.9 million at quarter end.
• Initial Production Deployments (IPDs)-- 28 new IPDs signed; total cumulative IPDs now 374, with 266 active.
• Revenue Mix Shift-- Non-GAAP gross margin fell to 52%, driven by higher IPD costs, lower demonstration license revenue, and reduced economies of scale.
• Guidance for Next Quarter-- Revenue (non-GAAP) projected at $72 million to $80 million, with a non-GAAP operating loss of $49.5 million to $57.5 million.
• Guidance Withdrawal Beyond Next Quarter-- Previous guidance rescinded due to CEO transition and sales/service restructuring.
• Leadership Overhaul-- A new Chief Executive Officer, Chief Commercial Officer, General Manager of EMEA, and Group Vice President for North America were installed, along with expanded federal leadership.
• Partner Ecosystem Sales-- Tom Siebel said, "90% of the business we closed was with partners," citing Azure, AWS, and GCP as key contributors.
• Strategic Integrator Program Introduction-- Launch of software OEM program licensing the C3 Agentic AI platform, targeting OEMs and systems integrators.
• Customer Engagements-- Highlighted major new or expanded customer programs at Nucor, Comerica, HII, and the US Army Rapid Capabilities and Critical Technologies Office, involving enterprise-wide AI initiatives.

SUMMARY

Management reported C3.ai's (NYSE:AI) first-ever guidance miss since becoming public, directly tying the shortfall to disruption from sales leadership changes and resource coordination failures. The quarter saw a marked decline in both total and demonstration license revenue, with company leaders responding by executing a comprehensive overhaul of sales, service, and executive leadership. Despite the disappointing financial results, executives outlined rapid action steps, including the integration of sales and service under a Chief Commercial Officer, organizational realignment, and the introduction of a new strategic OEM channel for the C3 Agentic AI platform. Leadership emphasized a partner-driven sales approach, identifying cloud partners and systems integrators as primary drivers of deal volume this quarter. The company withdrew all guidance beyond next quarter, citing organizational transition while maintaining confidence in long-term addressable market opportunity and customer engagement momentum.

• Siebel publicly framed the quarter as attributable to "poor sales execution and poor resource coordination," acknowledging temporary disruption from health-related absence and leadership transition.
• The platform shift toward OEM integration via the Agentic AI software program is already generating partner interest, with management signaling expectations for substantial business growth from this initiative.
• Executives underscored account activity with high-profile industrial, government, and defense customers, aiming to demonstrate market relevance despite near-term revenue disruption.
• Sales pipeline monitoring and August activity under new leadership form the basis for next-quarter guidance, while all future-period projections have been suspended for re-assessment.

INDUSTRY GLOSSARY

• Initial Production Deployment (IPD): A customer’s first live deployment of a C3.ai software solution, intended to convert into a longer-term contract or expanded usage following a trial or initial adoption phase.
• PES (Engineering Services): Professional engineering services provided by C3.ai, often in support of customer platform integration or customization.
• Agentic AI Platform: C3.ai’s proprietary enterprise AI platform designed to enable flexible, partner-developed, and open-architecture AI software solutions for various industries, including generative and agentic (autonomous) AI components.

Full Conference Call Transcript

Amit Berry: Good afternoon. And welcome to C3.ai, Inc.'s earnings call for the 2026Q1, which ended on July 31, 2025. My name is Amit Berry, and I lead investor relations at C3.ai, Inc. With me on the call today are Tom Siebel, Executive Chairman, Stephen Ehigian, Chief Executive Officer, and Hitesh Lath, Chief Financial Officer. After the market closed today, we issued a press release with details regarding our first quarter results, as well as a supplemental to our results. Both of which can be accessed through the Investor Relations section of our website at ir.c3.ai. This call is being webcast and a replay will be available on our IR website following the conclusion of the call.

During today's call, we will make statements related to our business that may be considered forward-looking under federal securities laws. These statements reflect our views only as of today, and should not be considered representative of our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations.

For a further discussion of the material risks and other important factors that could affect our actual results, please refer to our most recent annual report on Form 10-K filed with the SEC, as it may be supplemented by other filings and reports we make with the SEC from time to time, including our quarterly report on Form 10-Q that will be filed for the fiscal quarter ended July 31, 2025. All financial results will be discussed on a non-GAAP basis unless otherwise noted. A reconciliation of GAAP to non-GAAP financial measures to the extent reasonably available is included in our press release.

Finally, at times in our prepared remarks, in response to your questions, we may discuss metrics that are incremental to our usual presentation to give greater insight into the dynamics of our business and our quarterly results. Please be advised that we may or may not continue to provide this additional detail in the future. And with that, let me turn the call over to Hitesh.

Hitesh Lath: Good afternoon, everyone, and thank you for joining our call today. I will share our financial results and provide additional color on our business. All figures are non-GAAP unless otherwise noted. Total revenue for the quarter was $70.3 million, a decrease of 19% year-over-year. Subscription revenue for the quarter was $60.3 million, representing 86% of total revenue. Revenue from the sale of software licenses that are demonstration versions of C3.ai, Inc. applications was $17.9 million during the quarter, which was sequentially lower by $15.9 million.

We sell these licenses at the request of our distribution partners to enable them to demonstrate our software effectively to their customers and at the request of our large strategic customers to enable them to accelerate C3.ai, Inc. application adoption across their companies. Professional services revenue was $10 million, of which $8.7 million was revenue from engineering services, or PES. Professional services represent 14% of total revenue during the quarter. Our subscription and PES revenue combined was $69 million and accounted for 98% of total revenue. I'll now walk you through some of our strategic customer wins this quarter. Nucor has expanded its commitment with C3.ai, Inc. in a multiyear partnership to build an enterprise-wide AI program across their facilities.

We are supporting and optimizing day-to-day planning, inventory, and scheduling decisions, and now expanding to additional plants and use cases. Comerica, a global leader in chemicals, launched its first enterprise-scale AI program with C3.ai, Inc. After initial success improving yield in its salt business, Comerica is now scaling to 100 assets and multiple use cases, the start of a company-wide AI transformation. HII, America's largest military shipbuilder, is expanding its partnership with C3.ai, Inc. to accelerate throughput at Ingalls and Newport News. Initial deployments cut complex shipbuilding timelines, and we are now scaling these AI capabilities across HII shipyards to strengthen US Navy fleet readiness.

The US Army Rapid Capabilities and Critical Technologies Office is deploying a contested logistics application built on the C3 Agentic AI platform to support frontline vehicles in high-risk environments. This system applies agentic and generative AI to enhance sustainment, readiness, and decision speed in contested environments. I'll now move on to the rest of the financial results. Non-GAAP gross profit for the quarter was $36.3 million, and non-GAAP gross margin was 52%. Non-GAAP gross margin for professional services remained high at over 80%. Non-GAAP operating loss for the quarter was $57.8 million. Non-GAAP net loss for the quarter was $49.8 million, and non-GAAP net loss per share was $0.37. Our net cash used in operating activities was $33.5 million.

Free cash flow for the quarter was negative $34.3 million. We continue to be well-capitalized and closed the quarter with $711.9 million in cash, cash equivalents, and marketable securities. During the first quarter, we signed 28 initial production deployments or IPDs. At the end of the quarter, we had cumulatively signed 374 IPDs, of which 266 are still active. This means they are either in their original three to six-month term, extended for some duration, converted to ongoing subscription or consumption contract, or are currently being negotiated for conversion to ongoing subscription or consumption contract.

Non-GAAP gross margin declined this quarter to 52% primarily due to a higher mix of IPD-related costs, a lower mix of demonstration license revenue, and PES revenue, and lower economies of scale. As compared to fiscal 2025, we expect to continue to see moderated gross margins in the near term due to a higher mix of IPDs, which carry a greater cost of revenue during the initial production phase of the customer life cycle due to our investments in expanding our support capacity and lower economies of scale. Now I'll move on to our guidance for the next quarter. Our revenue guidance for 2026Q2 is $72 million to $80 million.

Our guidance for non-GAAP loss from operations for 2026Q2 is $49.5 million to $57.5 million. Given the appointment of our new Chief Executive Officer and the recent restructuring of the sales and services organizations, we are withdrawing our previous guidance. We plan on providing guidance for the 2026Q3 and full year fiscal 2026 when we announce our financial results for the 2026Q2. With that, I'd like to turn the call over to Tom.

Tom Siebel: Thank you, Hitesh. And good afternoon, everyone. As Hitesh reported, the financial results of the first quarter were completely unacceptable. And completely unacceptable in virtually every respect. I've given this a lot of thought as to, you know, what the root cause of this is. Okay? Is there a market? The market is huge. Is there some new competitor that changed the competitive dynamics of the space? There is not. Is there some secular change in the market that we haven't seen before? There is not. The fact of the matter is that it boiled down to poor sales execution and poor resource coordination.

It's clear that the new leadership that we brought into the organization in the guy globally in sales and service in the service organization, in EMEA, in federal, in North America, kind of mid-quarter, and it caused confusion in the sales process. As I have previously announced, I ran into some unanticipated health issues, and as a result of these health issues, I was unable to participate as actively as I used to in the sales processes and the coordination of resources necessary to make these sales processes successful and come to closure. In hindsight, it's clear that my active involvement in that sales process had a greater impact than any of us knew.

The good news is that we have completely restructured our sales and service organizations globally. We have brought in new, highly experienced leadership across the board, okay, to drive growth, to drive customer satisfaction. Even better, consistent with our announcement last July, we have completed the search, and we have appointed a new Chief Executive Officer in the person of Stephen Ehigian, who is highly experienced and well-equipped to drive the details of this business, to coordinate resources, and to accelerate growth.

In the sales and service organizations, we have combined these organizations under a new leader in the person of a Chief Commercial Officer to bring a more seamless experience focused on delivering value for each and every one of our customers. In addition to the Chief Commercial Officer, we've brought in a new General Manager of EMEA, we brought in a new Group Vice President for North American operations, and we brought significant leadership into the federal business operations. By combining the sales and service organizations into a cohesive whole, we are assuring a focus on delivering rapid economic benefits to each and every one of our customer engagements to ensure their continued success.

As we entered Q2, we have installed new leadership across the board. We have reorganized our sales and service organizations with a tightly integrated detailed execution plan going forward where everybody knows where they sit, what their job responsibilities are, and we've assured that everybody has the resources to do their job. We have a product that is unmatched in technical sophistication and functionality. We have over 131 enterprise AI applications in the market. I believe we have the highest levels of customer satisfaction as measured by net promoter scores in the application software industry. We have a huge and rapidly growing addressable market opportunity. We have the leadership in place, and we are positioned to grow.

We are in position to gain market share, and we are in a position to assure the success of each and every one of our customer engagements. An important development in Q1 was the introduction of our strategic integrator program. This is a software OEM program whereby we are licensing the C3 Agentic AI platform to others, enabling them to design, develop, provision, and operate the industry and domain-specific applications for their markets. We're finding that the strategic integrator program is being well received by OEMs, systems integrators, into the defense, intelligence, and civilian government communities. And we expect this to be a large and rapidly growing line of business for C3.ai, Inc. going forward.

The use of the Agentic AI platform enables them to use all of the assets that they've developed in the last couple of decades. Be these machine learning models. And so it's an entirely open that allows them to use any of the capabilities they have, any new capabilities that the market may bring going forward since an entirely open model-driven architecture enabling complete flexibility going forward and avoiding vendor lock-in. It's difficult to overestimate the scale of the generative AI, agentic AI opportunity that is before us.

As of the end of the first quarter, we're involved in approximately 60 large-scale customer engagements in state and local government, in manufacturing, in federal government, in defense, intelligence, manufacturing, what have you. Many of you are familiar with the MIT report that shows that order of 95% of these LLM projects run into a dead end and are unsuccessful. Our experience is that the majority of our LLM deployments are successful across industries and across use cases. The reason for the success is the combination of these generative free chain transformers with the C3 Agentic AI platform solves all the hobgoblins with the voter as with generative AI.

These hobgoblins include data exfiltration, cybersecurity risk, hallucination, inability to enforce data access controls, the inability to take advantage of omni-modal integration, all of these problems are solved by C3 generative AI, resulting in a very, very high success rate associated with our projects. Q1 2025 was our nineteenth quarter operating as a public company. This is the first quarter into which we have missed our revenue guidance. Know that we take that very seriously. And we will take that seriously going forward. Candidly, there is no excuse for the economic results that we delivered in the first quarter. Okay? That being said, going forward, our objective remains the same.

We're here to establish and maintain a market leadership position globally in enterprise AI applications. Not in infrastructure, not in semiconductors, not in machine learning models, not in professional services implementations. Okay? We're here to establish a market leadership position in enterprise AI software, both with the C3 Agentic AI platform and with the enterprise AI application footprint we have in place and will be expanding. We have tried, tested, and proven products. We have incredibly sophisticated architecture in the Agentic AI platform. We're establishing clear leadership in Agentic AI, a concept for which you know that we hold the patents. We have tried, tested, and proven executive leadership in place. We have highly satisfied customers.

We have a large and expansive addressable market opportunity before us that some estimate approaches $2 trillion a year. Okay? And we are geared up to grow our product footprint, grow our market share, increase our market penetration, and operate a rapidly growing cash-positive profitable business. Going forward, I will continue to remain deeply engaged in the business now in the role as Executive Chairman. In that role, I will particularly focus on strategic partner relationships, strategic customer relationships, and keep an eye on direction and product strategy going forward. I'm most enthusiastic to announce the appointment of Stephen Ehigian as the new Chief Executive Officer of C3.ai, Inc.

Stephen brings a superlative educational background, a wealth of industry experience, having started and built and grown two successful AI companies that he sold to Salesforce. Stephen is also an experienced and accomplished public sector leader, having served as President Trump's appointee as the Acting Administrator of the General Services Administration, where Stephen was responsible for performing the General Services Administration's performing the acquisition activities of all the divisions of the federal government, and driving President Trump's AI strategy across the federal government.

On behalf of the board of directors of C3.ai, Inc., the executive leadership of C3.ai, Inc., and the, I know, 11 or 1,200 employees of C3.ai, Inc., whatever that number may be, I can tell you we're all enthusiastic about working closely with Stephen in his new leadership role. To ensure that he is successful in bringing more creativity to the process, more energy to the process, more drive to the process, as we accelerate growth, accelerate market penetration, and accelerate market leadership in enterprise AI. Ladies and gentlemen, thank you so much for your time. And now I'll turn this back to Hitesh to field your questions.

Hitesh Lath: Thank you, Tom. Operator, could you please open the line for questions?

Operator: Thank you. And our first question will come from the line of Roddy Sultan with UBS. Your line is open.

Roddy Sultan: Awesome. Thank you. First for Tom, you know, your involvement in the sales process has obviously been very critical here. I mean, is there any way to more concretely understand how involved you're planning on being in the sales process going forward? And what you're doing to ensure a smooth handoff to Stephen and the new sales leadership?

Tom Siebel: I am here to do everything I can to ensure that Stephen is successful. Okay? And so now do we have a new, you know, an entire new layer of senior leadership in the company who are tried, tested, and proven at selling enterprise AI globally. And I suspect with Stephen's leadership, they're gonna be enormously successful. That being said, okay, I will continue to be involved as necessary, okay, in monitoring that process and assisting that process to ensure that this transition goes very smoothly. And we dramatically ramp up the sales and service capacity globally.

Roddy Sultan: Awesome. And then second for Hitesh. Obviously, a lot of moving parts in the quarter. What are you seeing that's giving you confidence in the Q2 guide? And then as about Q3 and Q4, like what is the right starting point to think about that sort of back half outlook? Any sort of building blocks would be helpful as we calibrate numbers.

Hitesh Lath: Yeah. Sure, Roddy. Q2 guidance is based on the sales activity we've seen in the month of August, as well as our review of sales pipeline for the rest of the quarter with the new sales leadership. As it relates to periods beyond Q2, while we're not providing any guidance at this point, we note that most analysts who have updated their revenue forecast for the year are forecasting fiscal 2026 revenue ranging from $290 million to $300 million. And at this point, I would not argue against any number within that range. As it relates to profitability, we acknowledge our performance in Q1 has put us behind. But we remain committed to achieving non-GAAP profitability and free cash flow.

We are still bullish about the business, as Tom said, and we will get to profitability and free cash flow, with the right scale, and that is a matter of time.

Roddy Sultan: Awesome. Thank you.

Operator: Thank you. One moment for our next question. And that will come from the line of Patrick Walravens with Citizens. Your line is open.

Patrick Walravens: Hey, guys. Thank you so much for taking my question. This is Nick on for Pat. Tom, one quick one for you. You guys closed 40 partner-led deals this quarter. How do you see the mix of partner-led versus direct sales evolving?

Tom Siebel: That's a great question. I think something like Amit, correct me. Is it 80% or 90%? 90 this quarter. The 90% of the business that we closed this quarter was with partners. Particularly Azure and AWS and GCP. And McKinsey Quantum Black, and you can expect that our investment in those partnerships going forward is gonna be big time.

I think there are, you know, what certainly, without quoting a number, there are certainly tens of thousands of salespeople at Azure alone, and we are amping up our go-to-market activities with Microsoft, with AWS, GCP in a big way globally, and so we would hope we're going from, say, hundreds of that we're involved in today where we're joint selling and we hope that will go to soon to thousands. So that is a major, major advantage that we have, this partner ecosystem. And we fully intend to exploit that advantage.

Patrick Walravens: Great. Thank you. And then as a follow-up, I heard Stephen was in the room. If I could ask him a quick one, that would be fantastic. You know, how did Stephen, great to meet you. Looking forward to working with you. How did you choose C3.ai, Inc., and why was it a compelling opportunity?

Stephen Ehigian: Yeah. Well, first, the market opportunity here for enterprise AI is enormous. Every company, every government is exploring how to transition away from testing and experimenting with AI to actually rolling out across their core operations and workflows. Exciting for me is C3.ai, Inc. has the technology platform and applications that customers need today. Their technology is being deployed across some of the most valuable customers in the world into the most challenging environments. So for me, on top of all that, the ability to learn from Tom Siebel, who invented this entire enterprise AI market, as well as with the extraordinary team here, was, honestly, an easy decision to say yes to.

Patrick Walravens: Awesome. Thank you very much. Looking forward to working with you.

Stephen Ehigian: Likewise. Thank you.

Operator: And one moment for our next question. And that will come from the line of Matthew Calitri with Needham and Co. Your line is open.

Matt Calitri: Hi, guys. This is Matt Calitri on for Mike Cikos over at Needham. Thanks for taking our questions. Tom, how would you weight the underperformance this quarter between sales disruption and your impact on the sales process?

Tom Siebel: I think it was a combination of both, but I would put it, you know, probably 70% sales disruption and 30% my not being as involved in the details as I have previously been. And, you know, I think that, you know? So those are the facts. And, you know, the quarter is the quarter was dreadful. Okay? And now we need to pick ourselves up, dust ourselves off, and get on business, which is exactly what we're gonna do.

Matt Calitri: Understood. And then looking at the execution steps, how would you categorize them as far as assigning pilots or converting them in contracts? What exactly were you seeing there?

Tom Siebel: It's all of the above, Matt. I mean, there are a lot of new people involved. There is new leadership involved. I think, you know, when you do that, you know, sometimes channels could cross a little bit and these things get confused. And, you know, we were, you know, we were, you know, driving the car down the road and replacing the engine, the transmission, and the wheels at the same time. And, you know, the guy who used to drive the car wasn't there. So it was a bad quarter. It happens. I mean, come on. I was at Oracle in 1989 when Oracle had its first miss.

I think that the stock went from 27 to 3 as I recall. And it was the end of the world. Well, since then, as you know, Oracle has missed 34 quarters since, still not the end of the world. And, NVIDIA has missed 10. Amazon has missed 23. Salesforce has missed a few, certainly six months ago and twelve months ago. And today, nobody remembers any of that. Six months from now, nobody will remember this because we're gonna be rocking.

Matt Calitri: Understood. Thanks so much.

Operator: Thank you. That is all the time we have for Q&A today. I would now like to turn the call back over to Mr. Siebel for any closing remarks.

Tom Siebel: Ladies and gentlemen, thank you for your time this afternoon. We really appreciate your attention. You know, keep your eye on the screen. There's gonna be a lot of things happening at C3.ai, Inc., and it's exciting. We're encouraged, and we are going for it, people. So stay tuned. And thank you. Thank you. Thank you.

Operator: Ladies and gentlemen, this concludes today's program. Thank you all for participating. You may now disconnect.

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