C3.ai Q1 2027 Earnings Call Transcript

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September 2, 2026

Key Takeaways

  • Positive Sentiment: Turnaround initiatives showed early progress: Q1 revenue was $52.4 million, above guidance, while bookings grew 73% year over year and the company signed 22 enterprise agreements.
  • Positive Sentiment: Federal business was particularly strong, with bookings up 138% year over year. Management cited dissatisfaction with an incumbent provider, increased defense and intelligence spending, and additional greenfield opportunities as drivers of the pipeline.
  • Positive Sentiment: Cost reductions materially improved financial performance: non-GAAP expenses fell nearly $40 million year over year, gross margin increased to 50%, and free cash flow turned positive at $2.1 million versus negative $54.8 million in the prior quarter. The company ended the quarter with $651.1 million in cash and marketable securities.
  • Neutral Sentiment: Management is repositioning around its agentic AI platform and the early-stage C3 Code product, which it says can rapidly build enterprise applications with minimal manual coding. However, C3 Code is only beginning to be marketed, and near-term investment in forward-deployed engineering is expected to reduce gross margin to the mid-40% range next quarter.
  • Negative Sentiment: Fiscal 2027 guidance remains consistent with substantial losses, calling for revenue of $210 million to $240 million and a non-GAAP operating loss of $123 million to $155 million. The company said its priority is establishing consistent quarter-over-quarter growth and eventually reaching free-cash-flow and non-GAAP profitability, but it did not provide a specific timeline.
AI Generated. May Contain Errors.
Earnings Conference Call
C3.ai Q1 2027
00:00 / 00:00

Transcript Sections

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Operator

Please be advised that today's conference is being recorded. Now I'd like to hand the call over to today's host, Amit Berry. Please go ahead.

Amit Berry
Amit Berry
VP of Investor Relations at C3 AI

Good afternoon, and welcome to C3 AI's earnings call for the first quarter of fiscal year 2027, which ended on July 31, 2026. My name is Amit Berry, and I lead investor relations at C3 AI. With me on the call today are Tom Siebel, Chairman and Chief Executive Officer, and Hitesh Lath, Chief Financial Officer. After the market closed today, we issued a press release with details regarding our first quarter results, which can be accessed through the investor relations section on our website at ir.c3.ai. This call is being webcast, and a replay will be available on our IR website following the conclusion of the call. During today's call, we will make statements related to our business that may be considered forward-looking under federal securities laws. These statements reflect our views only as of today and should not be considered representative of our views as of any subsequent date.

Amit Berry
Amit Berry
VP of Investor Relations at C3 AI

We disclaim any obligation to update forward-looking statements or outlook. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For a further discussion of the material risks and other important factors that could affect our actual results, please refer to our filings with the SEC. All figures will be discussed on a non-GAAP basis unless otherwise noted. Also during today's call, we will refer to certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures, to the extent reasonably available, is included in our press release. Finally, at times in our prepared remarks, in response to your questions, we may discuss metrics that are incremental to our usual presentation to give greater insight into the dynamics of our business or our quarterly results.

Amit Berry
Amit Berry
VP of Investor Relations at C3 AI

Please be advised that we may or may not continue to provide this additional detail in the future. With that, let me turn the call over to Tom.

Tom Siebel
Tom Siebel
Chairman and CEO at C3 AI

Good afternoon, everyone, and thank you for joining us. Three months ago, I returned as Chief Executive Officer with a mandate to turn this company around. I returned as CEO because the company was candidly underperforming despite every advantage. The product offerings are exceptional, the market is huge and rapidly growing, and the balance sheet is rock solid. None of that was the problem. The problem was execution. One quarter into the turnaround, I believe the company is on track. In the past three months, we have restored fundamental management discipline to this business. We completely restructured the company, we restructured sales, we restructured products, we restructured services. We reset the cost structure, driving massive costs out of the business, and implemented rigorous cost controls. We reinstated the fundamental management practices necessary to run a serious business, clear ownership, hard deadlines, weekly reviews.

Tom Siebel
Tom Siebel
Chairman and CEO at C3 AI

We rebuilt the selling motion around disciplined account management and pipeline development rather than heroics. We now have experienced executives in charge of every aspect of the business, in sales, in products, in services, in finance, in legal. This is the leadership team that will execute the turnaround. We refocused the product offerings on our agentic AI stack, our greatest technical strength, and the largest and most rapidly growing segment of the market. This quarter showed meaningful progress. Revenue came in above our guidance. Bookings grew at 73%, and we took real costs out of the business to narrow our operating loss and generate free cash flow in the quarter. We closed 22 enterprise agreements in the quarter, including with Heidelberg Materials, Johnson & Johnson, Ford Motor Company, Seaspan, Holcim, the U.S. Department of Defense, the Defense Logistics Agency, and the U.S. Department of Agriculture.

Tom Siebel
Tom Siebel
Chairman and CEO at C3 AI

Federal business was particularly strong, with federal bookings growing 138% year over year. These results are early evidence that the turnaround is taking hold. The C3 Agentic AI Platform remains the starting point of every sales engagement. It reflects over 15 years of software development in which we invested in excess of $3 billion. Last month, Forrester Research released a very significant study in which they evaluated the strengths of all the AI platform providers. In that evaluation, they ranked C3 AI at the top of the stack. Forrester ranked the C3 AI platform number one in data modeling, number one in agent development, number one in application development tools, number one in cohesive experience, number one in governance controls, number one in platform management, number one in security certification, and number one in supporting services and offerings.

Tom Siebel
Tom Siebel
Chairman and CEO at C3 AI

The other companies evaluated in this study include a who's who in software, Palantir, Google, Databricks, and 11 others. So this study is a pretty significant benchmark and really a hallmark to the technology of achievement of C3.ai in the marketplace over the last 15 years. Our primary offerings today include the C3 Agentic AI Platform, C3 Generative AI, C3 AI Studio, and importantly, C3 Code. The C3 AI Studio is our control plane for developing and operating large-scale enterprise AI applications. C3 Code is our agentic AI application builder that turns a natural language prompt into a working enterprise AI application in minutes to hours. C3 Code will be at the vanguard of our growth engine going forward. This product is absolutely remarkable, and I encourage you to go onto the web, take a look at it, and take it for a try.

Tom Siebel
Tom Siebel
Chairman and CEO at C3 AI

As an example of the power of C3 Code, you can take an RFP or you can take a six-inch thick product specification. You can provide it to C3 Code. It assembles the data, it does the data aggregation, it autonomously builds the ontology, it develops the pipeline, it builds the machine learning models, it designs the user interface, and it autonomously delivers a working enterprise AI application without writing one line of manual code. This is really remarkable, and you have to see it to believe it. C3 Code, broader platform adoption, federal systems growth, and sales discipline are at the heart of our growth engine going forward. In closing, let me be clear about where we are going. Our priorities are clear. They are measured. The turnaround is on track. We have a well-designed plan, and this is all about execution.

Tom Siebel
Tom Siebel
Chairman and CEO at C3 AI

Return the company to quarter-over-quarter consistent revenue growth, attain free cash flow from operations, and reach non-GAAP profitability. Every objective in this company ties to those goals every day, every week, every month. We're not going to ask the market to underwrite a story. Our plan is to deliver results quarter over quarter and let those results speak for themselves. With that, let me turn the call over to Hitesh Lath to talk about the specific financial results of the quarter.

Hitesh Lath
Hitesh Lath
CFO at C3 AI

Thank you, Tom. Total revenue for the quarter was $52.4 million. Subscription revenue was $49.2 million, representing 94% of total revenue. Professional services revenue was $3.2 million, of which $1.8 million was revenue from prioritized engineering services or PES. Our subscription and PES revenue combined was $50.9 million and accounted for 97% of total revenue. Non-GAAP gross profit for the quarter was $26.1 million, and non-GAAP gross margin improved sequentially from 37% last quarter to 50%, primarily due to cost reduction actions we've taken over the last few months. Next quarter, as we make selective investments in a forward deployed engineering organization, we expect our non-GAAP gross margin to moderate to mid-40s. Non-GAAP operating loss for the quarter was $36.2 million. This was $8.3 million better than the midpoint of our guidance. Non-GAAP net loss for the quarter improved to $30.7 million and $0.20 per share.

Hitesh Lath
Hitesh Lath
CFO at C3 AI

Our non-GAAP expenses for the quarter were $88.5 million. This reflects a reduction of almost $40 million as compared to the actual non-GAAP expenses of $128.1 million same quarter last year, and a reduction of over $17 million as compared to the last quarter. Free cash flow for the quarter was positive $2.1 million as compared to negative $34.3 million same quarter last year, and negative $54.8 million last quarter. This was due to a significant reduction in our quarterly cash expenses as well as strong collections. We continue to be very well capitalized and closed the quarter with $651.1 million in cash equivalents, and marketable securities. Now a quick update on our restructuring plan. Our restructuring is almost complete, and we have been able to achieve annualized cost savings of approximately $135 million across our business.

Hitesh Lath
Hitesh Lath
CFO at C3 AI

This includes cost savings from approximately 40% headcount reduction across all organizations, as well as from reduction in non-employee expenses. As we said on the last quarter's earnings call, some of the cost savings will be fully realized starting with the second half of fiscal year 2027. With a substantially improved cost structure, reorganized, and focused sales services and products organizations, we are well-positioned to achieve revenue growth, materially improve our operating efficiency and free cash flow, and position the company for long-term success. Now I'll move on to our guidance for second quarter and fiscal year 2027. Our revenue guidance for second quarter of fiscal year 2027 is $51 million to $55 million. Our guidance for non-GAAP loss from operations for second quarter is $34.5 million to $42.5 million. Our revenue guidance for fiscal year 2027 is $210 million to $240 million.

Hitesh Lath
Hitesh Lath
CFO at C3 AI

Our guidance for non-GAAP loss from operations for fiscal year 2027 is $123 million to $155 million.

Hitesh Lath
Hitesh Lath
CFO at C3 AI

For the remainder of fiscal year 2027, we expect our free cash flow to broadly align with our guidance range for non-GAAP loss from operations. Now I'd like to turn the call over to the operator to begin the Q&A session. Operator?

Operator

Certainly. Our first question for today comes from the line of Patrick Walravens from Citizens. Your question, please.

Patrick Walravens
Patrick Walravens
Head of Technology Equity Research at Citizens

Oh, great. Thank you. Tom, congratulations on the beginning of the turnaround here. With federal up 138%, I think I have to start with that, which is, what was sort of the biggest thing that you won? How did you win it, and what does the pipeline look like for more things like that in federal?

Tom Siebel
Tom Siebel
Chairman and CEO at C3 AI

The pipeline in federal looks very good. I would say, there is an incumbent there that has a large market share with very high levels of dissatisfaction, both with their product and their business practices. A lot of that dissatisfaction is spinning off now in opportunities for us. In addition, the government is spending a lot of money on these types of technologies, particularly in the intelligence and the defense sectors. I think the defense budget is about to go from $1 trillion to $1.5 trillion this month, or next month. I am sorry, trillion. Okay. $1 trillion to $1.5 trillion. Thank you. There is a lot of spending there, and we are getting a lot of traction.

Patrick Walravens
Patrick Walravens
Head of Technology Equity Research at Citizens

Great. As a follow-up, Tom, and Hitesh, you mentioned this in your remarks, too. You are going to invest more in a forward-deployed engineering organization. What does that mean for C3.ai? Did you have forward-deployed engineers before? If not, what are you doing differently here?

Tom Siebel
Tom Siebel
Chairman and CEO at C3 AI

Well, we have had forward-deployed engineers, I think going back to about 2014. I could be wrong by a year or two. We have always had that function. We need to be absolutely sure that each and every one of them are satisfied, our customers are achieving what they need to achieve. We are going to increase our investment in people to help them with these deployments. I think that investment in people is going to be offset in the medium run by this C3 Code product that you just have to see, where it is doing all of these data aggregation, pipeline building, machine learning development, user interface without any programmers. It is way cool. That is going to mitigate the need for forward-deployed engineers in the medium and the long run.

Tom Siebel
Tom Siebel
Chairman and CEO at C3 AI

But in the short run, near term, we're going to over-invest in existing customers to assure they continue to realize the returns they're looking for.

Patrick Walravens
Patrick Walravens
Head of Technology Equity Research at Citizens

All right, great. Thank you. We did see it, by the way. We came in and did the demo, and it was remarkable, but that was six months ago, so I'm sure it's evolved a lot since then, but it was really-

Tom Siebel
Tom Siebel
Chairman and CEO at C3 AI

It is-

Patrick Walravens
Patrick Walravens
Head of Technology Equity Research at Citizens

Pretty amazing. Thank you.

Tom Siebel
Tom Siebel
Chairman and CEO at C3 AI

Thank you, sir.

Operator

Thank you. Our next question comes from the line of Radi Sultan from UBS. Your question, please.

Radi Sultan
Radi Sultan
Director of Software Equity Research at UBS

Awesome. Yeah. I guess maybe just to follow up on the Fed opportunity, I am curious how much of that opportunity is in sort of displacing incumbents, like you mentioned, versus sort of greenfield work. Then what gives you confidence that you can displace that incumbent or those incumbents successfully?

Tom Siebel
Tom Siebel
Chairman and CEO at C3 AI

Well, we have been doing it for a while, and I think it accelerated last quarter. I think they are a fine company and they have a good product, but there are people who want to replace them, and that creates an opportunity for us, I would say. Then there is lots of greenfield opportunity where we compete with them and win. So Federal just has been and remains a really good business sector for us.

Radi Sultan
Radi Sultan
Director of Software Equity Research at UBS

Got it. Then just one quick follow-up. If we think about the high end of the full-year guide, it does imply a pretty steep acceleration if you hit that. I guess my question is fundamentally, what needs to happen, what needs to go right for you to hit that high end of the guide? I guess, what gives you confidence that could happen?

Tom Siebel
Tom Siebel
Chairman and CEO at C3 AI

I will be honest with you, I am less interested in hitting the high end of that guide than I am making sure that we built the pipeline and we have the sales organization in place to demonstrate consistent quarter-over-quarter revenue growth from Q3 on into perpetuity. I think that if we are able to demonstrate consistent revenue growth, if we are able to get to the point where we are running free cash flow operations and get the company to non-GAAP profitability, I think it is highly likely this company will not be trading at a revenue multiple of like 3.5. It will be trading at a revenue multiple of 10, 15, 20, or 25, and I think that will bode well for our investors.

Radi Sultan
Radi Sultan
Director of Software Equity Research at UBS

Thank you.

Operator

Thank you. Our next question comes from the line of Mike Latimore from Northland Capital Markets. Your question, please.

Mike Latimore
Mike Latimore
Managing Director and Equity Analyst of Artificial Intelligence at Northland Capital Markets

Yeah. On the C3 Code, obviously sounds really interesting. Is that a meaningful part of the pipeline, or are you still kind of in early stages of marketing that?

Tom Siebel
Tom Siebel
Chairman and CEO at C3 AI

Honestly, Mike, we're in the early stages of marketing that, but hold onto your socks because it doesn't have to be a multimillion-dollar acquisition. People would start small and then grow and grow. The initial customers who are using it just love it. I used it here to replace a pretty substantial piece of enterprise software that we have in place that will remain unnamed. These guys, and we pay a lot of money for this application. It's in the kind of HR management space. These guys built an application in a day, okay, that replaces an enterprise application here. In a day. It's unbelievable.

Mike Latimore
Mike Latimore
Managing Director and Equity Analyst of Artificial Intelligence at Northland Capital Markets

Yeah. That was great. In the past, you've sort of promoted selling enterprise AI applications. It feels like you're maybe moving more towards a little bit of a platform strategy here, or is that the wrong interpretation?

Tom Siebel
Tom Siebel
Chairman and CEO at C3 AI

No, I think you've picked on I think you nailed it, Mike, and we weren't that explicit about it. In the past, we have sold the AI platform, and then we have used the AI platform to build enterprise AI applications, which are kind of big applications that do things like predictive maintenance or demand forecasting or fraud detection or supply chain optimization. Going forward, all these applications have been broken down into their atomic particles. Their atomic particles are, if you will, are embedded in the AI platform. If you want to build one of these applications for predictive maintenance for aircraft or process optimization in oil refining, whatever it might be, you can basically assemble those atomic particles in real-time that become that application.

Tom Siebel
Tom Siebel
Chairman and CEO at C3 AI

It's not they're just there, and there are thousands of those elements that kind of reassemble on demand, either because you asked them to do it or you did it through C3 Code. What's going forward is a little bit different. It's very insightful what you caught there.

Mike Latimore
Mike Latimore
Managing Director and Equity Analyst of Artificial Intelligence at Northland Capital Markets

Great. Thanks. Just last on customer concentration, any kind of metric you can provide there? Do you have any customer over 5% or over 10% of revenue? What are your top 10 customers or percentage, something like that?

Hitesh Lath
Hitesh Lath
CFO at C3 AI

Mike, not a meaningful change from before. We'll disclose that to the extent appropriate in our 10-Q, which will be out in a few days.

Tom Siebel
Tom Siebel
Chairman and CEO at C3 AI

I don't think there's any one customer.

Mike Latimore
Mike Latimore
Managing Director and Equity Analyst of Artificial Intelligence at Northland Capital Markets

Okay. Okay, great. Thank you.

Tom Siebel
Tom Siebel
Chairman and CEO at C3 AI

Thanks, Mike.

Operator

Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Mr. Siebel for any further remarks.

Tom Siebel
Tom Siebel
Chairman and CEO at C3 AI

Thank you, everybody, for your time. We appreciate it, and keep your eye on the ball. We're very focused here. All of these executives have their eye on the ball. I think if they continue to execute their plans as they have been, this will bode well for C3 investors, and that's the game we're playing. So thank you for your interest.

Operator

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Executives
Analysts
    • Amit Berry
      VP of Investor Relations at C3 AI
    • Tom Siebel
      Chairman and CEO at C3 AI
    • Patrick Walravens
      Head of Technology Equity Research at Citizens
    • Radi Sultan
      Director of Software Equity Research at UBS
    • Mike Latimore
      Managing Director and Equity Analyst of Artificial Intelligence at Northland Capital Markets
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