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C3.ai, Inc. (AI)·Q1 2026 Earnings Summary

Executive Summary

  • C3 AI reported a sharp sequential and year-over-year contraction: revenue $70.3M, GAAP gross margin 38% and GAAP net loss per share $(0.86); management called performance “completely unacceptable” and attributed it to sales reorganization disruption and reduced involvement from Tom Siebel due to health issues .
  • Results materially missed Wall Street consensus: revenue versus $93.9M* and non-GAAP EPS $(0.37) versus $(0.21)*; management withdrew full-year FY26 guidance and guided Q2 FY26 revenue to $72–$80M and non-GAAP operating loss $(49.5)–$(57.5) .
  • Strategic changes: appointment of new CEO Stephen Ehikian (effective Sept 1), combining sales and services under a new Chief Commercial Officer, and launch of the Strategic Integrator Program (OEM) to broaden go-to-market leverage via partners .
  • Operational highlights amid weak financials: 46 agreements closed, 28 initial production deployments (IPDs), 40 partner-led agreements, and a 54% YoY increase in the joint qualified pipeline with partners (including 24 joint wins with Microsoft) .

Values retrieved from S&P Global.*

What Went Well and What Went Wrong

What Went Well

  • New CEO and leadership reset: “I am extremely pleased to announce the appointment of Stephen Ehikian as Chief Executive Officer… ideally suited to drive growth” and consolidation of sales and services under a Chief Commercial Officer to deliver value faster .
  • Partner momentum and pipeline expansion: 40 agreements closed through the partner network; joint 12‑month qualified pipeline up 54% YoY; 24 agreements closed jointly with Microsoft .
  • Strategic Integrator Program (OEM) launched to let integrators license the C3 Agentic AI Platform; management sees it as a “large and rapidly growing line of business” .

What Went Wrong

  • Severe miss and margin compression: revenue fell to $70.3M (vs $108.7M in Q4), GAAP gross margin dropped to 38% (from 62% in Q4); non-GAAP margin declined to 52% (from 69%) .
  • Sales execution disruption and leadership transition: Siebel cited “poor sales execution and poor resource coordination,” plus his health issues reducing sales involvement; reorg mid-quarter created confusion .
  • Mix shift headwinds: CFO flagged higher mix of IPD-related costs, lower demonstration license revenue ($17.9M, down $15.9M sequentially), lower PES, and reduced economies of scale driving margin declines .

Financial Results

Revenue, EPS, and Consensus Comparison

MetricQ1 2025Q3 2025Q4 2025Q1 2026Q1 2026 Consensus
Revenue ($USD Millions)$87.213 $98.782 $108.723 $70.261 $93.879*
GAAP Net Loss per Share ($)$(0.50) $(0.62) $(0.60) $(0.86) —
Non-GAAP Net Loss per Share ($)$(0.05) $(0.12) $(0.16) $(0.37) $(0.211)*

Values retrieved from S&P Global.*

Margin Comparison (GAAP and Non-GAAP)

MetricQ1 2025Q3 2025Q4 2025Q1 2026
Gross Margin % (GAAP)60% 59% 62% 38%
Gross Margin % (Non-GAAP)70% 69% 69% 52%
Loss from Operations ($USD Millions, GAAP)$(62.586) $(87.585) $(88.965) $(124.819)
Loss from Operations ($USD Millions, Non-GAAP)$(16.631) $(23.144) $(31.165) $(57.824)

Segment Breakdown

MetricQ1 2025Q3 2025Q4 2025Q1 2026
Subscription Revenue ($USD Millions)$73.456 $85.679 $87.333 $60.301
Professional Services Revenue ($USD Millions)$13.757 $13.103 $21.390 $9.960
Subscription + Prioritized Engineering Services ($USD Millions)$85.700 $91.400 $104.400 $69.000

KPIs

KPIQ3 2025Q4 2025Q1 2026
Agreements Closed (#)66 69 46
IPDs Closed (# in quarter)50 36 28
Partner-led Agreements (#)47 59 40
Joint Pipeline Growth (YoY)—37% 54%
Microsoft Joint Wins (#)28 28 24
Demonstration License Revenue ($USD Millions)—$33.8 (implied from seq delta) $17.9

Note: The Q4 demonstration license figure is implied by CFO’s stated sequential decline of $15.9M from $33.8M to $17.9M .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total RevenueQ1 FY26$100.0–$109.0M Actual: $70.3M Significant miss (below prior guide)
Total RevenueQ2 FY26—$72.0–$80.0M New guide issued
Non-GAAP Loss from OperationsQ1 FY26$(23.5)–$(33.5)M Actual: $(57.8)M Worse than guide
Non-GAAP Loss from OperationsQ2 FY26—$(49.5)–$(57.5)M New guide issued
Total RevenueFY26$447.5–$484.5M Withdrawn Withdrawn
Non-GAAP Loss from OperationsFY26$(65.0)–$(100.0)M Withdrawn Withdrawn

No guidance provided for gross margin, OpEx line items, OI&E, tax rate, segment-specific metrics, or dividends in these materials .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 FY25)Previous Mentions (Q4 FY25)Current Period (Q1 FY26)Trend
Partner ecosystem (Microsoft/AWS/Google/McKinsey)Rapid expansion: 28 Microsoft wins; 47 partner-led agreements; pipeline up 244% YoY with Microsoft Partner bookings +419% YoY; 59 partner-led agreements; 28 Microsoft agreements 40 partner-led agreements; 24 Microsoft wins; joint pipeline +54% YoY Strong, sustained partner GTM; momentum intact despite weak quarter
Generative/Agentic AI deployments20 generative AI pilots; foundational time series embedding model Generative AI revenue >100% YoY; omni-modal parsing, planning agents, tool authoring 9 C3 Generative AI agreements; agentic data extraction; measurable economic benefits cited Continuing product differentiation; deployments generating benefits
Federal/governmentNew DoD/Navy/MDA wins; awardable status in DoD Tradewinds Air Force PANDA ceiling raised to $450M; DLA PLUTO expanded 12 agreements; contested logistics app; HII expansion across shipyards Federal breadth and use cases expanding
Sales execution and leadershipStrong pipeline and pilots; no execution concerns flagged Momentum-building year; guide raised for Q1 FY26 Sales reorg disruption and reduced Siebel involvement led to miss; new CEO and commercial leadership installed Transition underway; focus on execution reset
Margins and mixGAAP GM 59%; non-GAAP 69% GAAP GM 62%; non-GAAP 69% GAAP GM 38%; non-GAAP 52%; CFO cites IPD costs, lower demo/PES mix, scale Sharp compression; expected near-term moderation
Pipeline and bookings66 agreements; 50 pilots; S&L government footprint expanded 69 agreements; strong partner-supported bookings; S&L further expansion 46 agreements; 28 IPDs; partner momentum continues Lower activity QoQ, partners cushioning

Management Commentary

  • “The bad news is that financial performance in Q1 was completely unacceptable… I attribute this to… the reorganization… had a disruptive effect… and … unanticipated health issues” — Thomas M. Siebel (prepared remarks) .
  • “Non GAAP gross margin declined… due to a higher mix of IPD related cost, a lower mix of demonstration license revenue and PES revenue and lower economies of scale” — Hitesh Lath, CFO .
  • “We have appointed a new chief executive officer… Stephen Ehikian… ideally suited to drive growth” — Thomas M. Siebel .
  • “The strategic integrator program… is being well received… we expect this to be a large and rapidly growing line of business” — Thomas M. Siebel .
  • “C3 has the technology platform and applications that customers need today… deployed across some of the most valuable customers in the world” — Stephen Ehikian .

Q&A Highlights

  • Execution drivers and leadership transition: Siebel quantified underperformance drivers (≈70% sales disruption, ≈30% reduced involvement), emphasized his ongoing support to ensure smooth handoff and ramp-up under new leadership .
  • Guide context and Street framing: CFO said Q2 guide reflects August activity and pipeline review; noted most analysts’ FY26 revenue forecasts range $290–$300M and “I would not argue against any number within that range” (clarifies withdrawn official guide but sets context) .
  • Partner-led motion: ≈90% of business closed with partners in the quarter; plans to scale with Microsoft/AWS/GCP to “thousands” of engagements .

Estimates Context

  • Q1 FY26 outcomes versus S&P Global consensus: revenue $70.3M versus $93.9M* (miss), non-GAAP EPS $(0.37) versus $(0.21)* (miss). EBITDA consensus −$29.4M* versus actual −$121.4M* (miss), indicating deeper operating drag than modeled. Values retrieved from S&P Global.
  • Near-term estimate adjustments likely: management withdrew FY26 guidance, guided Q2 revenue $72–$80M and non-GAAP Op Loss $(49.5)–$(57.5), and flagged continued moderated gross margins due to IPD mix and scale; Street models may need to recalibrate sequential ramps and margin trajectories .

Key Takeaways for Investors

  • The quarter is a reset: revenue/EPS/margins significantly below expectations; the company withdrew FY26 guidance — the narrative hinges on execution under the new CEO and restructured commercial organization .
  • Partner leverage remains the strategic edge: despite weak results, partner-led agreements and pipeline growth suggest distribution strength that can accelerate recovery if execution improves .
  • Mix headwinds are real in IPD-heavy phases: expect margin moderation near-term; watch for conversion of IPDs to higher-margin subscriptions to restore gross margin .
  • Strategic Integrator Program could be meaningful: OEM licensing of the Agentic AI Platform broadens channel capacity; monitor early traction and bookings contribution .
  • Federal wins diversify demand: multi-agency agreements and large-scale platforms (e.g., PANDA) support durability across cycles .
  • Near-term trading setup: stock likely sensitive to signs of sales stabilization (monthly bookings cadence), Q2 execution versus guide, and clarity on the reintroduced FY26 outlook at Q2 earnings .
  • Medium-term thesis: if leadership changes translate into consistent subscription growth, partner-sourced scaling, and improving margins post-IPD conversion, C3 AI’s differentiated Agentic/Generative AI stack can reassert growth premium; watch subscription mix, non-GAAP operating loss trajectory, and free cash flow path .

Values retrieved from S&P Global.*