Key Points
Revenue fell 19.4% to $70.3 million compared to Q1 fiscal year 2025.
Margins and profitability deteriorated sharply; the company posted an adjusted per share loss of $0.37.
Full-year guidance was withdrawn as new leadership and a major sales reorganization took effect.
C3.ai(NYSE:AI), an enterprise artificial intelligence (AI) software company, released its financial results on Sept. 3, 2025, for the first quarter of fiscal 2026. The headline results showed a significant shortfall with revenue of $70.3 million falling 19.4% year over year. Profitability worsened compared to Q1 fiscal year 2025, with an adjusted net loss per share of $0.37. The adjusted gross margin dropped to 52% from 70% in Q1 fiscal year 2025.
Management cited a disruptive sales reorganization and health issues affecting founder Thomas Siebel as key reasons for the quarter’s weak outcomes. The company withdrew its full-year outlook, citing the arrival of a new CEO and operational reset. Overall, the period marked one of sharp financial underperformance and elevated uncertainty as C3.ai undergoes a leadership and structural transition.
MetricQ1 FY2026Q1 FY2025Y/Y ChangeAdjusted EPS$(0.37)$(0.05)N/ARevenue$70.3 million$87.2 million(19.4%)Adj. gross margin52%70%(18.0 pp)Free cash flow$(34.3) million$7.1 million(582.7 %)Cash, cash equivalents and marketable securities$711.9 million$712.2 million(0.04%)
Source: C3.ai. Note: Fiscal 2026’s first quarter ended July 31, 2025. Fiscal 2025’s Q1 ended July 31, 2024.
Company Overview and Strategic Focus
C3.ai develops and sells the C3 Agentic AI Platform, a set of tools that helps large organizations build, deploy, and manage artificial intelligence applications. The platform uses a model-driven architecture, which makes it easier for businesses to create complex AI tools without needing to write heavy custom code. The core products include the Agentic AI Platform, which focuses on automated enterprise AI, and the C3 Generative AI suite, which provides advanced data analysis capabilities based on artificial intelligence models.
The company’s strategy centers on technological innovation, platform scalability, and strategic partnerships with cloud providers such as Microsoft Azure, Amazon’s AWS, and Alphabet’s Google Cloud. It aims to expand its influence in sectors like government, manufacturing, and energy by enabling clients to solve complex data problems and automate workflow through AI. In recent quarters, the company has shifted more towards a consumption-based pricing model and invested in channel and partner integrations to reach new customer segments.
Quarterly Performance and Operational Developments
The most telling aspect of the quarter was the revenue shortfall. Sales were $70.3 million, down nearly a fifth compared to Q1 fiscal year 2025. This decline affected both subscription revenue — usually a stable source for software-as-a-service (SaaS) firms — and professional services. Subscription sales dropped almost 18% compared to Q1 fiscal year 2025, and professional services revenue was down over 27% compared to Q1 fiscal year 2025. Subscription fees accounted for 86% of total revenue, an increase in mix but not in absolute dollars.
Margins compressed sharply compared to Q1 fiscal year 2025. Gross profit margin slid to 52% from 70% a year ago. Operating expenses rose compared to Q1 fiscal year 2025, with spending on sales and marketing, research and development, and administration all increased over 20% compared to Q1 fiscal year 2025. Operating and net losses worsened compared to Q1 fiscal year 2025. Non-GAAP net loss of $(49.8) million was seven times the adjusted loss reported in Q1 fiscal year 2025, and the non-GAAP loss per share widened to $(0.37) from $(0.05).
Leadership changes were a defining event. Founder Thomas Siebel, previously an active participant in sales, cited health issues that reduced his involvement. The company appointed Stephen Ehikian as CEO, effective Sept. 1, 2025. The sales and services organization underwent restructuring, with new leadership in place as part of efforts to refocus sales execution. Management described the quarter as “completely unacceptable,” noting the disruption caused by these changes. The company also closed 46 total agreements, but did not see these translate into improved financial results.
Product development continued, highlighted by advances in C3 Generative AI—a product family that enables automated data extraction and knowledge management for enterprise clients—and the launch of the C3 Agentic AI Platform’s integrator program. This initiative allows third-party companies to build their own tailored AI solutions using C3.ai’s architecture, which could open new channels for growth. The company emphasized new partnerships and deployments, especially in the federal sector, with 12 federal agreements accounting for 28% of bookings and several major defense sector clients among the wins. However, these new contracts were not enough to offset overall commercial softness and sales execution lags.
The period also saw continued expansion of strategic alliances. For example, agreements with Microsoft deepened, resulting in a marked increase in qualified pipeline deals. Notably, the joint pipeline with Microsoft grew 140% year over year, while the broader partner pipeline increased by 54% year-over-year. The scale of these pipelines suggests potential for future growth, but the company noted that sales execution needs to improve for these opportunities to convert into revenue.
There were no material one-time events or announced dividend changes in the quarter, focusing instead on reinvestment in platform development and go-to-market expansion.
Financial Outlook and What to Watch Ahead
Looking forward, management provided limited visibility. For the current quarter, revenue (GAAP) is expected in the range of $72 million to $80 million, and adjusted operating losses (non-GAAP) are forecast to remain high — $49.5 million to $57.5 million. This outlook implies only a modest sequential improvement in revenue. but continued steep losses. Most notably, the company withdrew its previous full-year revenue and profit guidance, citing the need for the new CEO and reorganized sales team to establish a clearer operational base before setting longer-term targets.
Investors will need to watch for tangible signs of operational improvement. The key things to monitor include whether the expanded partner ecosystem increases deal flow, and if product momentum in areas like generative AI translates into customer wins. With a $711.9 million cash balance as of quarter end, C3.ai has breathing room to execute its turnaround, but persistent negative cash flows (GAAP) will challenge its ability to sustain current spending and invest in growth if results do not rebound.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
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Motley Fool Markets Team is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. The Motley Fool takes ultimate responsibility for the content of these articles. Motley Fool Markets Team cannot own stocks and so it has no positions in any stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool recommends C3.ai and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.