C3.ai Revenue Falls 19 Percent in Q1

C3.ai(NYSE:AI) reported first quarter fiscal 2026 results on September 3, 2025, with revenue of $70.3 million, a 19% year-over-year decline in revenue, non-GAAP gross margin declined to 52%, and a non-GAAP net loss of $49.8 million. Leading indicators included 28 new initial production deployments, expanded partnerships withNucor(NYSE:NUE),Comerica(NYSE:CMA), andHII(NYSE:HII), and an overhaul of sales and service leadership amid the company’s first revenue guidance miss since its IPO. This summary analyzes the operational disruption, organizational changes, and new business initiatives detailed during the call.

Sales execution breakdown drives revenue miss at C3.ai

This quarter marked C3.ai’s first revenue shortfall as a public company, with CEO and leadership transitions occurring mid-quarter and subscription revenue (non-GAAP) accounting for 86% of total revenue. The company reported significant declines in demonstration license sales (non-GAAP) and attributed materially weaker financial results to internal issues rather than market or competitive dynamics.

"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."
-- Tom Siebel, Executive Chairman

The attribution of the miss solely to suboptimal internal execution increases visibility into the company’s self-identified areas for remediation but heightens scrutiny on management’s operational discipline and ability to stabilize enterprise sales cycles following leadership changes.

C3.ai restructures go-to-market under new executive team

Following the sales and service disruption, C3.ai appointed Stephen Ehigian as CEO, consolidated its sales and service units under a new Chief Commercial Officer, and installed new senior leadership across EMEA, North America, and federal business operations. 266 of 374 initial production deployments remain active, indicating embedded relationships despite commercial execution missteps.

"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."
-- Tom Siebel, Executive Chairman

The comprehensive leadership overhaul and realignment seek to restore go-to-market momentum and direct accountability, but will require rapid execution to counteract sales cycle delays and regain investor confidence in the path to profitability.

Partner ecosystem becomes central to C3.ai’s sales model

Approximately 90% of bookings were won with or through partners including Microsoft Azure, Amazon Web Services, Google Cloud Platform, and McKinsey QuantumBlack, reflecting a strategic bet on scaling indirect channels. The company also launched a strategic integrator (OEM) program licensing core AI platforms to third parties -- targeting defense and public sector system integrators for incremental growth.

"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."
-- Tom Siebel, Executive Chairman

Doubling down on channel partnerships increases C3.ai’s market reach and deal flow scalability, but places success increasingly on the effectiveness of third-party sales ecosystems and strategic alignment with hyperscalers.

Looking Ahead

Management guided revenue (non-GAAP) for the second quarter fiscal 2026, ending October 31, 2025, to $72 million-$80 million, with a non-GAAP operating loss of $49.5 million-$57.5 million, while withdrawing full-year guidance due to internal changes. Full-year revenue consensus from analysts is $290 million-$300 million, with reiterated commitment to achieving non-GAAP profitability and free cash flow as scale returns. No concrete forward-looking product launch or customer win milestones were quantified in the call.

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This article was created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.