C3.ai's Q2 2026 Earnings Call: Contradictions Emerge on Sales Execution, Leadership Changes, and Public Sector Growth

Date of Call: October 31, 2025

Financials Results

• Revenue: $75.1M, up 7% sequentially
• EPS: Non-GAAP net loss $34.8M, $(0.25) per share
• Gross Margin: 54%, moderated vs fiscal '25 due to higher mix of IPDs and investments in support capacity
• Operating Margin: Non-GAAP operating loss of $42.2M

Guidance:

• Q3 revenue expected to be $72M to $80M.
• Q3 non-GAAP loss from operations expected to be $44M to $52M.
• FY26 revenue expected to be $289.5M to $309.5M.
• FY26 non-GAAP loss from operations expected to be $180.5M to $210.5M.
• Guidance reflects sequentially higher sales & marketing spend in Q3–Q4 for major events (World Economic Forum, Transform).

Business Commentary:

• Revenue and Bookings Growth:
• C3 AI reported revenue of $75.1 million for Q2, a 7% sequential increase, with bookings reaching $86.4 million, up 49% from the previous quarter.

• The growth was driven by strong demand in the federal sector and strategic partnerships.

• Federal Sector Performance:

• Bookings in the federal business increased by 89% year-over-year, accounting for 45% of total bookings.

• This growth was attributed to the government's focus on moving away from bespoke solutions and embracing commercial off-the-shelf (COTS) solutions, as well as AI adoption and the reindustrialization effort.

• Partnership and Customer Wins:

• Partnerships resulted in 89% of Q2's bookings, with a focus on Microsoft, AWS, and McKinsey.
• This success was due to a growing pipeline of joint opportunities and increased focus on customer value delivery.

• Product Innovation:
• C3 AI launched C3 AI genetic Cross automation, expanding the scope of AI applications and increasing the addressable market.
• This innovation is poised to drive future growth by enabling complex workflow automation through AI agents.

  Sentiment Analysis:

  Overall Tone: Positive

  • Management: "Our results in Q2 were solid. Revenue grew 7% sequentially and bookings increased by 49% sequentially to $86 million." CEO: "Despite these headwinds, we delivered a fine quarter" and outlined a detailed plan to "return the company to rapid growth"; CFO noted expense reduction of $10.7M QoQ and $675M in cash, supporting an optimistic outlook.

Q&A:

• Question from Patrick Walravens (Citizens): I thought it might be helpful if you could just sort of take a step back. I mean 2 quarters ago, this company was growing in the mid-20s and the gross margins were closer to [70] and now the business is shrinking and the gross margins are down, the losses are big. And I think some of us understand sort of the setup that you walked into. But if you could just take a minute and explain why the business fell off by so much? And then the steps you're taking to bring it back, big picture, I think that would be really helpful?
  Response: Core issue was poor sales execution; product demand is strong, and management has a detailed plan to improve qualification, IPD execution and drive faster economic value to customers.

• Question from Patrick Walravens (Citizens): And then just a follow-up, how your confidence in getting this business back to growth and profitability?
  Response: Management is confident the market and product can deliver growth if execution improves; success depends on disciplined execution.

• Question from Matthew Calitri (Needham & Company): Hitesh, you mentioned $21.9 million during the quarter. I forget exactly how you described it. Was that from demo licenses? Was that what that was?
  Response: Yes — the $21.9M referenced was from demo licenses.

• Question from Matthew Calitri (Needham & Company): On the revenue line, professional services mix — you've talked about professional services generally staying within 10% to 20% of revenue long term? Any changes to that outlook?
  Response: CFO: Long-term professional services mix is expected to remain ~10%–20%; this quarter was on the low side due to reduced PES demand.

• Question from Matthew Calitri (Needham & Company): On the public sector, strong bookings growth despite headwinds — what's your view for the rest of the year and any lingering impacts of the extended shutdown?
  Response: CEO: Federal is a durable growth engine driven by shift to COTS, the AI Action Plan adoption, and reindustrialization; these are multiyear tailwinds despite short-term shutdown impacts.

• Question from Brian Essex (JPMorgan): Are there a few more stars you could point to where you're setting expectations and holding management accountable for delivering better execution going forward?
  Response: CEO: Primary focus is on rigorous IPD qualification and milestone-driven delivery to demonstrate rapid economic value—this is the operational north star.

• Question from Brian Essex (JPMorgan): Are these initiatives tied back to discrete metrics investors can use to evaluate progress?
  Response: CEO: Bookings and growth in IPD-to-production (production subscription/consumption revenue) will be the leading indicators to track progress.

Contradiction Point 1

Sales Execution and Market Demand

It involves the explanation of the primary cause of the decline in growth and profitability, which directly impacts the company's strategy and investor expectations.

Why has the business's growth and profitability declined so much, and what steps are you taking to reverse this trend? - Patrick Walravens(Citizens)

20251204-2026 Q2: The biggest issue was sales execution, which dropped off due to health concerns of the previous CEO. However, the demand for C3's enterprise AI is accelerating, and the product is world-class. - Stephen Ehikian(CEO)

Can you explain why the business has declined significantly in growth and profitability, and what steps are being taken to recover? - Patrick Walravens(Citizens)

20251204-2026 Q2: Sales execution was the main issue, affected by Tom Siebel's health. The market demand for C3 and enterprise AI is accelerating. - Stephen Ehikian(CEO)

Contradiction Point 2

Confidence in Recovering Growth and Profitability

It involves the level of confidence in the company's ability to regain growth and profitability, which is crucial for investor sentiment.

好的，我需要处理用户提供的这个任务。首先，用户是一位专业的金融文章作者，负责总结和精简美股上市公司财报电话会议中的问答环节的问题。用户的要求是让问题更简洁、精准，同时不改变原意，并且符合美式英语的读写习惯。输出时要只生成简化后的问题，并且保留结尾的问号。现在来看用户给的例子：原问题是“How confident are you in getting the business back to growth and profitability?”，简化后的问题是“How confident are you in returning the business to growth and profitability?”。看起来用户将“getting the business back to”改成了“returning the business to”，这样更正式，更符合书面表达，同时保持了原意。接下来，我需要确保自己理解用户的需求。用户希望将冗长、可能有装饰词的问题简化，但必须保留问题的核心意思。例如，原问题中的“getting back to”可能比较口语化，而“returning to”更正式，符合美式英语的习惯。同时，用户强调要保留问号，并且只输出问题，不加其他内容。现在假设用户给了另一个问题，比如“How do you plan to achieve the growth targets that were outlined in the previous quarter’s earnings call, considering the current market conditions and the recent strategic adjustments?”。我需要将其简化为更直接的问题，同时保留所有关键要素：计划、增长目标、上一季度的财报电话会议、当前市场状况、最近的战略调整。简化后可能的问题：“How do you plan to achieve Q1’s growth targets given current market conditions and recent strategic changes?” 这里将“outlined in the previous quarter’s earnings call”简化为“Q1’s”，因为如果当前季度是Q2，那么上一季度就是Q1，这样更简洁。同时，“considering”换成“given”更直接，而“strategic adjustments”改为“strategic changes”可能更常用，但需要确认是否准确。不过用户可能希望保持原词，所以可能需要保留“adjustments”。或者可能用户接受“changes”作为更简洁的表达。另一个例子：原问题可能有多个从句，比如“Could you elaborate on the steps that the company is taking to mitigate the risks associated with the ongoing supply chain disruptions and how these steps are expected to impact the second-half financial results?”。简化后的问题应该是：“What steps are being taken to mitigate supply chain risks and how will they impact H2 financial results?” 这里去掉了冗长的表达，如“Could you elaborate on the steps that the company is taking”改为“What steps are being taken”，更直接。同时，“ongoing supply chain disruptions”简化为“supply chain risks”，因为“disruptions”可能属于风险的一部分。最后，“how these steps are expected to impact the second-half financial results”简化为“how will they impact H2 financial results”，使用缩写H2（Half 2）更简洁，符合金融领域的习惯。在处理过程中，需要注意以下几点：1. **保持原意**：不能改变问题的核心内容，例如将“mitigate the risks”改为“solve the problems”可能会改变原意。2. **美式英语习惯**：使用正确的拼写和术语，例如“H2”而不是“H2nd half”。3. **简洁性**：去除冗余的词汇，如“could you please”、“would you mind”等礼貌用语，除非必要。4. **保留问号**：每个简化后的问题必须以问号结尾。5. **术语一致性**：使用财务和商业领域常用的缩写和术语，如Q1、H2、FY等。现在回到用户提供的具体例子：“How confident are you in getting the business back to growth and profitability?” 简化为“How confident are you in returning the business to growth and profitability?”。这里的变化是将“getting back to”改为“returning to”，更正式，同时保持动词的正确形式。原句中的“getting”是现在分词，而“returning”同样作为现在分词，结构一致，但“returning”在正式场合更常用，符合用户要求的美式英语习惯。需要确认是否有其他可能的简化方式，例如是否可以将“getting the business back to growth and profitability”简化为“restoring growth and profitability to the business”，但这样改变了结构，可能会影响原意。原问题强调的是自信度，即公司是否有信心让业务回到增长和盈利的状态，而“restoring”可能更侧重于恢复，但整体意思相近。不过用户可能希望保持原问题的结构，所以使用“returning”更合适。此外，要检查是否有更简洁的表达方式，例如“How confident are you in returning the business to profitability and growth?”，但顺序调整可能不影响原意，但用户可能希望保持原顺序，所以“growth and profitability”更准确。最后 - Patrick Walravens(Citizens)

20251204-2026 Q2: While there's work to be done, the market and technology are strong. The focus is on executing the plan consistently. - Stephen Ehikian(CEO)

What's your confidence in restoring growth and profitability? - Patrick Walravens(Citizens)

20251204-2026 Q2: Q2 execution was strong. Confident in the opportunity ahead. Execution is key to returning to growth. There's work to be done, but the plan is in place for success. - Stephen Ehikian(CEO)

Contradiction Point 3

Sales Execution and Leadership Changes

It highlights challenges in sales execution and the transition of leadership, which directly impacts revenue performance and operational stability.

Why has the business's growth and profitability declined significantly, and what measures are being taken to restore it? - Patrick Walravens(Citizens)

20251204-2026 Q2: The biggest issue was sales execution, which dropped off due to health concerns of the previous CEO. - Stephen Ehikian(CEO)

Tom, how involved will you be in the sales process moving forward, and what steps are you taking to ensure a smooth transition to Stephen? - Radi Sultan(UBS Investment Bank, Research Division)

2026Q1: I am here to do everything I can to ensure that Stephen is successful. We have a new layer of senior leadership in the company who are tried and tested and proven at selling Enterprise AI globally. - Thomas Siebel(Founder, CEO & Chairman of the Board)

Contradiction Point 4

Optimism vs Reality in Business Recovery

It reflects differing levels of optimism and understanding of the company's ability to recover from sales disruptions and leadership changes.

How confident are you in returning the business to growth and profitability? - Patrick Walravens(Citizens)

20251204-2026 Q2: The demand for C3's enterprise AI is accelerating, and the product is world-class. Focus will be on disciplined execution, leveraging IPDs, and driving economic value. - Stephen Ehikian(CEO)

Tom, how would you rate the underperformance this quarter due to sales disruptions and their impact on the sales process? - Matthew Calitri(Needham & Company, LLC, Research Division)

2026Q1: I would put it probably 70% sales disruption and 30% my not being as involved in the details as I've previously been. - Thomas Siebel(Founder, CEO & Chairman of the Board)

Contradiction Point 5

Public Sector Bookings Growth

It relates to the company's expectations and experiences with public sector growth, which is a significant part of the business and important for investors' understanding of the company's long-term prospects.

What is your view on public sector bookings growth despite headwinds and lingering impacts from the government shutdown? - Brian Essex (JPMorgan)

20251204-2026 Q2: The federal business will be a durable growth engine due to trends like adoption of commercial off-the-shelf solutions, AI adoption, and reindustrialization. - Stephen Ehikian(CEO)

Can you provide an update on your health status and whether Jim Snabe is still assisting with travel limitations? Are you experiencing improvements that allow you to resume travel? - Patrick Walravens (Citizens)

2025Q4: While the government shutdown did have some impact, we believe that the impact was manageable. - Tom Siebel(CEO)