C3.ai’s stock crumbles on ‘unacceptable’ results, but new CEO promises to turn things around

Artificial intelligence software company C3 AI Inc.’s stock was battered and bruised in extended trading, down more than 10% after it delivered disappointing financial results and a weak outlook.

That happened despite the company’s best efforts to generate optimism over the appointment of former Trump administration official Stephen Ehikian as its new chief executive, replacing founder Thomas Siebel (pictured).

The company reported a first-quarter loss before certain costs such as stock compensation of 37 cents per share, way below Wall Street’s target of a 21 cent loss. Revenue came up short too, with the company delivering just $70.3 million in sales, down 19% from a year earlier and trailing the Street’s forecast of $94.1 million by a long distance.

The numbers were roughly in line with the company’s preliminary results announced last month, when it said it’s expecting revenue of between $70.2 million and $70.4 million, down 33% from its previous guidance.

Not surprisingly, with sales so low, it had a big impact on C3 AI’s bottom line, with its net loss widening to $116.8 million in the quarter, down from a loss of just $62.8 million in the year-ago period.

Ehikian takes the reins

C3 AI likely knew investors would react badly to its miserable numbers, so it elected to reveal that it had found a successor to longtime CEO Siebel at the same time as it delivered its results. Ehikian, who took over on Sept. 1, is a somewhat surprising choice, because until earlier this week he was serving as the acting administrator of the U.S. General Services Administration, tasked with modernizing its procurement processes. Ehikian revealed just 24 hours earlier that he is transitioning from that role, and today’s announcement makes it clear why.

The new CEO does have plenty of experience in running software companies, at least. He previously built two startups that were later acquired by Salesforce Inc. He replaces Silicon Valley veteran Siebel, who announced his decision to step down from the company in July to focus on his health. He said at the time he had been diagnosed with an autoimmune disease that caused him “significant visual impairment.”

Valoir analyst Rebecca Wettemann told SiliconANGLE that Siebel was one of the few remaining CEOs of a bygone era, before the emergence of cloud computing. “With the exception of Larry Ellison at Oracle, most of Tom’s peers have long left active managerial roles,” she said. “Tom was one of the old guard that first saw success in the on-premises software industry before SaaS and the need to drive recurring revenues came along and changed business models.”

Still, it’s notable that Siebel isn’t going to abandon the company to its fate. Though he won’t be involved in the day-to-day running of the company anymore, he told Marketwatch in an interview that he’ll remain engaged with the company, advising Ehikian as necessary. He’ll also continue to play a part in maintaining and building “important partner and strategic customer relationships, with a continued eye on product strategy and direction.”

C3 AI sells software that helps enterprises develop artificial intelligence applications using a selection of prepackaged building blocks, plus an extension that makes the VS Code editor better suited for AI development. In addition, it offers a collection of prebuilt AI applications designed to optimize tasks such as inventory management and customer demand forecasting. It’s also pushing into “agentic AI” with its new C3 Generative AI platform, which utilizes AI agents to automate business tasks like financial data analysis.

“C3 AI is one of the most important companies in the AI landscape and enterprise software, with a platform and applications that are unmatched,” Ehikian insisted. “I am confident that we will be able to capture an increasing share of the immense market opportunity in enterprise AI.”

Results were “unacceptable”

Ehikian did little to mask the fact that C3 AI has endured a horrible couple of months since Siebel’s announcement. When the former CEO said he was stepping down, the company took the unusual step of issuing preliminary financial results, warning investors that his departure was going to have an immediate negative impact. At the same time, it also announced a restructuring of its global sales and services organization, which further impacted its results this quarter.

In a candid interview, Siebel told Marketwatch that the results were “completely unacceptable,” but said they were the result of his ongoing health issues and the disruptive effect of the reorganization. He also admitted to “dreadful” execution by a sales team that was shaken up by the appointment of a new chief revenue officer. Part of the problem is that Siebel himself was always very active in terms of customer engagement, but was unable to continue doing this given his health problems, he said.

“Some CEOs are very hands-on in the sales process,” he said, adding that his participation was “a little bit more important than we thought.”

Wettemann said the restructuring resulted in a significant change to the cost of capital for C3 AI. “It’s in a tough spot because investors are a lot less patient with a loss-leading market penetration model,” she explained. “Although it has focused its messaging and marketing on rapid time to value and rapid adoption curves for AI, investors are going to push hard not just for revenue growth but profitability.”

Looking to the current quarter, things aren’t going to get much better. The company is targeting revenue of between $72 million and $80 million in the second quarter, far below the Street’s forecast of $100 million.

Longer-term optimism

However, both Ehikian and Siebel said they’re optimistic that they’ll be able to turn things around before too long. Ehikian said his recent work in government procurement can greatly benefit the company and help make it easier for federal agencies to acquire its AI technologies, implement them and scale them up. He added that he’ll personally engage with customers and show them how AI can be deployed in “mission-critical operations,” beyond what’s shown in traditional demonstrations of its software.

Wettemann believes there’s a lot of potential for C3 AI in the public sector too. “As Salesforce ramps up its public sector efforts with Agentforce for public sector and ServiceNow and Oracle continue to ramp investments, the new CEO’s ability to sustain public sector confidence in C3 will be really important,” she added.

Siebel thinks the combination of a new leadership, a newly restructured sales and services organization, and extraordinarily large market opportunity bodes well for C3 AI going forward. “We have a superlative product offering and exceptional levels of customer satisfaction, and I am confident the company is positioned to accelerate going forward,” he said.

Photo: SiliconANGLE