C3.ai's Q1 2026: Contradictions Emerge on Sales Leadership Transition, Disruption, and Profitability Timelines

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 3, 2025

Financials Results

• Revenue: $70.3M, down 19% YOY
• EPS: $(0.37) non-GAAP net loss per share
• Gross Margin: 52%, declined due to higher IPD-related costs, lower demo license/PES mix, and lower economies of scale

Guidance:

• Q2 FY26 revenue expected to be $72–$80 million.
• Q2 non-GAAP operating loss expected to be $49.5–$57.5 million.
• Prior guidance withdrawn due to leadership changes; Q3 and FY26 outlook to be provided with Q2 results.
• Near-term gross margins to remain moderated given higher IPD mix and lower economies of scale.
• Management remains committed to achieving non-GAAP profitability and free cash flow over time.

Business Commentary:

• Revenue Decline and Sales Execution:
• C3.ai reported total revenue of $70.3 million for Q1 2026, a decrease of 19% year-over-year.

• The decline was attributed to poor sales execution and confusion caused by mid-quarter leadership changes in sales and service organizations.

• Customer Engagement and AI Applications:

• The company signed 28 initial production deployments (IPDs) in Q1, with a cumulative total of 374 IPDs.

• Growth in customer engagement was driven by successful implementation of AI applications across various industries, including manufacturing and government sectors.

• Strategic Hires and Reorganization:

• C3.ai appointed Stephen Ehikian as the new Chief Executive Officer and restructured sales and service organizations under a new Chief Commercial Officer.

• These changes aimed to improve sales coordination and ensure customer success, following poor sales execution in Q1.

• Agentic AI Platform and Strategic Integrator Program:

• Introduction of the Agentic AI Platform and a strategic integrator program enabled OEMs and system integrators to design and operate AI applications.
• This initiative is expected to be a significant growth driver for C3.ai, enhancing market reach and penetration.

Sentiment Analysis:

• Management called results “completely unacceptable.” Revenue was $70.3M, down 19% YOY, with non-GAAP operating loss of $57.8M and gross margin declining to 52%. They withdrew previous guidance and noted this was their first quarter missing revenue guidance. Causes cited were poor sales execution and resource coordination amid leadership changes.

Q&A:

• Question from Radi Sultan (UBS): How involved will you be in sales going forward, and how will the transition to Stephen and new sales leadership be managed?
  Response: Siebel will monitor and assist as needed while new senior commercial leadership scales globally to ensure a smooth transition and ramp sales/service capacity.

• Question from Radi Sultan (UBS): What underpins the Q2 guide, and how should we think about Q3/Q4?
  Response: Guide reflects August activity and pipeline under new leadership; no beyond-Q2 guidance, but FY26 revenue of $290–$300M (street range) is reasonable; still targeting non-GAAP profitability and FCF with scale.

• Question from Nick (Citizens): How will partner-led versus direct sales mix evolve?
  Response: About 90% of business closed was partner-led (Azure, AWS, GCP, McKinsey), and C3 AI plans major investments to expand joint selling from hundreds to thousands of engagements.

• Question from Nick (Citizens): Stephen, why choose C3 AI and what makes the opportunity compelling?
  Response: Massive enterprise AI market; C3 AI has the platform/apps customers need and deployments at demanding clients; opportunity to work with Siebel and the team made it an easy decision.

• Question from Matthew Calitri (Needham): How do you apportion the underperformance—sales disruption vs. reduced CEO sales involvement?
  Response: Roughly 70% sales disruption and 30% reduced Siebel involvement; focus now is on execution post-restructuring.

• Question from Matthew Calitri (Needham): Where did execution break down—signing pilots or converting them to contracts?
  Response: Both; new leadership and mid-quarter reorg caused confusion and slowed pilots and conversions, which should improve after the restructuring.