C3.ai (NYSE:AI) Q4 2026 Earnings Call

0:00 Good day and thank you for standing by. Welcome to the C3.ai Fiscal Fourth Quarter and Fiscal Year twenty twenty six Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there'll be a question and answer session. Please

0:23 be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Amit Bery. Please go ahead. Good afternoon, and welcome to C3.ai's earnings call for the fourth quarter and full fiscal year 2026, which ended on 04/30/2026. My name is Amit Bery and I lead Investor Relations at C3.ai. With me on the call today are Tom Siebel, Chairman and Chief Executive Officer Stephen Ahikin, President and Hitesh Lath, Chief Financial Officer. After the market closed today, we issued a press release with details regarding our fourth quarter results, which can be accessed through the Investor Relations section on our website at ir.c3.ai.

1:09 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. We disclaim any obligation to update any 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

1:53 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. Please be advised that we may or may not continue to provide this additional detail in the future. And with that, let me turn the call over to Tom. Good afternoon everybody. This is Tom. And just when you thought it was safe, I'm back. We have an enormous opportunity before us and the opportunity is to create enormous value for our shareholders. The performance of this company has been staggeringly disappointing.

2:41 We're looking at a turnaround opportunity and the fundamental nature of this turnaround opportunity is to change everything about the way we manage this business. In the process, we're gonna create enormous financial returns for our shareholders. Along these lines, I've been working with the senior executive leadership and the board for the last couple of months. We have restructured the company. We have restructured sales. We have restructured products. We have restructured services. We have put together a strategic plan. We have put together the objectives and we have a clear plan in place to turn this company around and create value for our shareholders. The restructuring of the company first introduced by Steven Ahickey in February has been expanded and accelerated by my return.

3:33 Headcount has been reduced from a 75 to roughly 700. We have taken almost a $135,000,000 in annual operating cost out of the business structure. C3.ai Federal has been entirely reorganized through a new and highly experienced leader. The sales organization has been completely restructured globally under, again, a very highly experienced seasoned beef revenue officer. In the past weeks, we have reorganized the company top to bottom. We have new leadership throughout the organization. We have restructured the company. We have restructured C3 Federal under new leadership. We have restructured C3 sales under new leadership.

4:21 We have restructured products under new leadership. We have brought together end products, the platform group, the applications group, the product marketing group, okay, and the customer services group, all in one organization under senior seasoned leadership. We have restructured the service team. The objectives in place, the strategy is written, and we are now going to town. Just like the company, just like sales, the products group has been completely redesigned and reengineered. We brought together under one senior leader who's been with the company for fourteen years, four functions including the platform team, the applications team, the product marketing team, and the services team in one place. So we have one organization basically responsible for designing the product, coding the product, quality assuring the product, and delivering the product to make sure that customers are successful.

5:23 The services organization has also been completely reengineered and completely designed under a new senior leader who's been with the company for more than seven years. We've taken four layers out of that org structure from seven to three. The organization has been redesigned so that for every one of our customers where we're working on pilots or production deployments, we have a dedicated team assigned to the customer. They move in with the customer and they stay with the customer until the project is done and the customer is successful. I am absolutely satisfied that the new structure is gonna result in higher levels of customer satisfaction, more successful customer deployments, and more rapid expansion of our customer deployments into large enterprise expanding contract relationship.

6:14 As I look at the performance of the company in recent quarters and particularly the sales performance, I mean, it is just unspeakably horrible and it's surreal. Okay. This is resulting in, you know, in in market multiples for the company that are candidly well earned. Okay. And scathing analysis from analysts and sell side analysts that are candidly well deserved. I am here to fix that. Okay. And, you know, as it relates to enterprise sales, this is not an area which I'm entirely unfamiliar with. I think just to return the fundamental hygiene and fundamental sales protocol, just the basics will take this company a long, long way towards increasing their holder value.

7:06 And the company is sufficiently well capitalized to basically obviate any question of the need for a financing in Fed. We have enough capital there to meet the mission that is before us. I wanna give you an update on the restructuring that Steven introduced last quarter. We have expanded those objectives and we have accelerated those objectives. We have reduced headcount by approximately 35% across all organizations. The workforce actions are in place. They are done. The cost controls are in place. The budget is in place. The plans are in place. The costs have been reduced by order of $135,000,000 a year. And we are well on our way to becoming a fully agentic enterprise, adopting these agentic tools to fundamentally change the way we do business across the enterprise and to dramatically increase productivity in every aspect of our business.

8:10 The products organizations today are largely leveraging AI tool, for all programming activities. These are genetic tools have been adopted across the organization, legal, finance, sales, marketing, wherever it may be to increase productivity,

8:29 really dramatically, across the enterprise. Sales in particular are leveraging these agenda tools to focus on market development, business development, okay, and and and strategies to increase their penetration of existing customers and large global new customers across every function. Okay. Our people in the organization are operating with an agentic AI first mindset, increasing productivity across all business functions. This is now all about execution. And we're going to have our heads down every hour, every day, every month, every quarter. And the early indications are that this is moving in the right direction.

9:15 Our priorities are clear. They are well understood. They are articulated. The objectives are distributed and they're understood. If we look at sales, for example, our go to market activities have changed significantly. We're focusing on using technologies and the genetic technologies focused on penetrating territories, penetrating large accounts with the campaigns that will develop over multiple quarters and multiple years rather than the narrow focus that was in place in before focused on relatively small opportunities that might be in place for any given quarter. The executive team, all of the employees at C3.ai are laser focused on doing whatever it takes with the objectives in place to turn the company to significant quarter to quarter top line revenue growth, to establish the company as one that generates free cash flow every quarter, and to establish the company as a company that generates non GAAP profitability quarter after quarter after quarter.

10:23 The opportunity to increase shareholder value at C3.ai is enormous, and that is exactly what we're gonna do. Talk is cheap. And rather than rain forth with idle promises that everybody will largely ignore, we're gonna accept the challenge to deliver acceptable financial results, to deliver growth, to deliver cash generation, non GAAP profitability generation, and let the results speak for themselves. Game on. With that, let me turn this over to my colleagues. Our CFO, Akash Lath, is gonna talk about the results of the quarter. Okay. And Akash and Steven Akikian will be available to answer questions they may have. Thank you very much, for your interest, and I look forward to updating you as this develops at the end of Q1 and the end of Q2.

11:19 Thank you. Thank you. Thank you, Thank you, Tom. Total revenue for the quarter was $51,600,000 Subscription revenue was $48,400,000 representing 94% of total revenue. Professional services revenue was $3,200,000 of which $2,100,000 was revenue from Prioritized Engineering Services or PES. Professional services represented 6% of total revenue during the quarter. Our subscription and PES revenue combined was $50,500,000 and accounted for 98% of total revenue. Non GAAP gross profit for the quarter was $19,300,000 and non GAAP gross margin was 37%.

12:11 Non GAAP gross margin for professional services was 78. Non GAAP operating loss for the quarter was $54,400,000 Non GAAP net loss for the quarter was $48,800,000 and $0.33 per share. Our non GAAP operating expenses for the quarter were $106,000,000 This reflects a reduction of $33,900,000 as compared to the actual non GAAP operating expenses of $139,900,000 same quarter last year. Free cash flow for the quarter was negative $54,800,000 We continue to be well capitalized and closed the quarter with $575,400,000 in cash, cash equivalents and marketable securities.

13:07 During the quarter, we signed nine initial production deployments for IPDs.

13:13 At the end of the quarter, we had cumulatively signed four seventeen IPDs, of which two fifty one are still active. This means they are either in their original three to six month terms or extended for some duration or converted to ongoing subscription or consumption contracts or are currently being negotiated for conversion to ongoing subscription or consumption contract.

13:43 Last quarter, we launched a restructuring plan which included expense reductions across our business to produce full year cost savings of approximately $135,000,000 As Tom said, our headcount has been reduced from roughly 1,075 in January 2026 to about 700 today. And we have already completed actions to realize almost 130,000,000 of total planned savings. We are on track to meet or exceed our original cost savings target. As we said on the last quarter's earnings call, some of the cost savings associated with the non employee expenses will be fully realized starting with the second half of fiscal year twenty twenty seven.

14:36 With these actions, we are well positioned to materially improve our operating efficiency, free cash flow, and position the company for long term success. Our founder and CEO, Tom Siebel, purchased 6,170,000 shares of C3.ai stock at a price of $11.16 per share for net cash proceeds of approximately $69,000,000 The company has received the cash and as of today, our total cash, cash equivalents and marketable securities balance is $673,000,000 Now,

15:15 I'll move on to our guidance for Q1 and fiscal year twenty seven. Our revenue guidance for Q1 of fiscal year twenty seven is $50,000,000 to $54,000,000 Our guidance for non GAAP loss from operations for Q1 is 40,500,000 to $48,500,000

15:39 Please note that the midpoint of this guidance is based on non GAAP operating expenses of $96,500,000 which is $31,600,000 lower than the actual non GAAP operating expenses of 128,100,000 same quarter last year. Our revenue guidance for fiscal year twenty seven is $210,000,000 to $240,000,000 Our guidance for non GAAP loss from operations for fiscal year twenty twenty seven is $128,000,000 to $160,000,000 Now, I'd like to turn the call over to the operator to begin the Q and A session.

16:26 Operator? Thank you. Our first question for the day will be coming from the line of Patrick Walworth of Citizens. Please go ahead.

16:51 Oh, great. Thank you. And Tom, it's good to see you back, and it's it's good to see the the insider buying. Can can you just start very big picture and help us you know, you can't fix something until you understand what went wrong, and you've spent a lot of time figuring out what went wrong. So in fiscal twenty five, this company was doing, you know, $389,000,000 revenue and this year you're guiding to, you know, $2.35 ish, $2.30 at the midpoint. So just fundamentally, what happened? Where did the revenue go?

17:26 Well, you know, thanks, Pat, for the for the question. And, you know, if you look at this scenario, I mean, the company used to do, you know, $90,100,000,000 in a quarter. It used to do 43 deals. It used to do, you know, bookings were very large numbers. You look in the last 1.25, I mean, sales just fell off the cliff. And the product is great. The customers are

17:56 happy. There's no question of market size. I mean, come on. I've been talking about enterprise AI since 2010, I was the only person in the world talking about it until probably 2022 when till November 2022 when we had a little inflection point there. And now Tom's not the only person in the world who thinks there's a market in enterprise AI. It's the it's so we have a great product. We have a huge market. We have satisfied customers, and the sales discipline has just been surreal, Pat. I mean, this is this is and

18:28 that's you know, that's where the revenue numbers come from. That's where the RPO comes from. That's where the the the the profitability or the lack thereof comes from. It's basically sales execution that it's been miserable. It's reflected in the all the operating results. It is completely unacceptable, and it's not that hard to fix. It is a you know, I accept all the criticism the company has received. I think it's well deserved. Okay. I really do. I think the revenue multiple is well earned. It is. But the good news

19:00 not that hard to turn around. And so, I think we fixed the sales problem. You know, it fixes revenue growth. It fixes RPO. It fixes, you know, cash generation. It fixes everything. And so, you know, for those Pat, you know me a little bit. And, you know, I'm not entirely unfamiliar with enterprise sales. Maybe I have a little experience in that. So, you know, I think this is definitely a turnaround situation. We know how to fix it. The plan's in place and, standby. Great. Thank you. And then as a follow-up, so totally hear you on the sales side, but, you know, for the company's churn must have been bigger than you wanted to and nonrenewals must have been bigger than you wanted. What what did you learn about that? Like, what was causing what was causing the the the existing customers to spend so much less with you than they did before?

19:54 No. There's a number of issues there. I'm not actually sure that this churn issue is really true. Could somebody help me with that? I don't I'm not I'm not I'm sure that's true, Pat. I think it I think it really is sales execution. But Yeah. We have not experienced a significant loss of production cost. I'm not sure that's true, Pat. I think it it it really is sales execution. Market's huge. Product's great. Customers are happy. This I think this is pretty fundamental. No question, we see this as a turnaround situation, and that's what we're focused on. They we're coming off of yeah. We're coming off of performance that is just completely unacceptable, laughably unacceptable.

20:39 And, we're we're gonna we're gonna take a bat in the teeth for that. We deserve it. And now we're focused on turning this business around and, and and focused on return to shareholders, and I think we can do that in a pretty big way.

20:57 Okay. Thank you. I'll pass it on. Thank you. Thank you. One moment for the next question. And our next question will be coming from the line of Rade Sultan of UBS. Please go ahead. Thanks for taking the question. And Tom, good to see you back in the saddle. I want to start on the federal side. So your comments on C3.ai Federal, how is the ramp of the $450,000,000 contract ceiling with the US Air Force tracking relative to your expectation and and how is sort of the restructuring of C3.ai Federal impacted that?

21:37 Wasn't the RSO a $100,000,000 contract ceiling? You know, the honest answer is I am not you know, I have not been that in touch with the operating details of the business in the last four quarters. And, you know, I haven't looked into that. I think the RSO contract was a $100,000,000. But, honestly, I I'm sorry? It got increased after. Oh, did it? Yeah. Okay. I I you know, I'm sorry. It's a legitimate question, and and I don't know. And I'll find out, and we'll get back to you.

22:11 No problem. No problem. Yeah. No no problem at all. Just just to touch maybe on the fiscal twenty seven guide as we calibrate our models, could just you help us understand the moving parts around license and PES embedded in the guide this year? And maybe just post restructuring, how should we be thinking about the role of demonstration licenses in the growth strategy post restructuring? Thank you. Yeah, hi Roddy. As you know, we guide to total revenue and as it relates to PES or prioritized engineering services, we expect PES to continue to contribute a wash share of our total professional services revenue. And in terms of professional services mix,

22:56 expect it to be between 10 to 15% of total revenue. Including PES. Including PES. And as it relates to revenue from demo licenses Let me let me try this. Okay? It's a very legitimate question, ladies and gentlemen. I think it's a don't know. I mean, we have changed everything about the sales organization. We have changed everything about go to market. And I think that while it's a very legitimate question, how much gonna be professional services? How much were was demo licenses? How much gonna be PS?

23:29 I don't think we really know. Okay? We have a plan to grow revenue, but we really don't and I'm sorry that this doesn't work in helping you fill out your spreadsheet, but we don't know. All we can assure you is that it's gonna be the revenue will be properly accounted for. And we can't really tell you what that mix is. Make no mistake. We are focused on software revenue guys, not services, ladies and gentlemen. Software revenue. We understand the difference, and that's what we're focused on. But it's it's hard to tell how this is gonna shake out. And I know that's not the answer you wanna hear, but it's true. Got it. Thanks. Thank you. One moment for the next question, please. And our next question is coming from the line of Matthew, Calciari of Needham and Company. Please go ahead.

24:19 Hey guys, this is Matt Cocciuri on for Mike Cicos over at Needham. Thanks for taking our questions. Tom, welcome back and great to hear that your health issues have been largely resolved. You mentioned in your prepared remarks that you're gonna look at penetrating territories and large accounts rather than the more narrow focus on relatively small opportunities that was put in place. In in the past, you guys had sort of run, like, a small amount of deals that were large in size, and then we pivoted over to the pilot model. What exactly do you have in mind going forward? Is there sort of a sweet spot in the middle there, or how are you thinking about that balance?

25:08 How do I describe this? There was kind of a funny issue. I'm sorry. Your first name one more time? Matt. Matt, this is kind of a funny issue, matt. Okay. When we looked into it, in the way the territory assignments have worked, okay, in the last year. And the truth of the matter is they had a focus on a limited number of major accounts rather than looking at the entire market opportunity. So I would say if you look at Europe or North America, they might have been only focused on really, I know this is hard to believe, but the sales organization might have been focused on total of a 100 to a 150 accounts, in each of those organizations.

25:56 And so I know it's hard to believe, but it really is true. And so now you will see those North American and, and and federal and European sales organizations focused on, you know, order of a thousand account account opportunities rather than maybe even more than that, rather than order of a 100. So, I mean, it's hard to believe that's the way it was set up, but it really was set up, and we've that way, and we fixed it. Now within that, they'll be focused on large deals. What's a large deal? I would say, you know, 50,000,000 to a couple of billion. They'll be focused on medium sized deals, which might be 5,000,000 to 50, and they'll be focused on smaller deals, which might be, you know, 500,000 to 2,000,000. I know there's a big gap there, but you get the idea.

26:50 Got it. Yeah. That's that's very helpful. And then just broadly, like, where are you seeing customers find budget for AI initiatives? And are you seeing any change in sales cycles or just the pace of adoption as organizations race to capture ROI and and push AI initiatives? Well, as you do your market analysis, as I'm sure you've done, Matt, on the pure kinda enterprise AI market, which would include Palantir, C3, and others, It was about a $6,000,000,000 market in 2025. It's about a $10,000,000,000 market in 2026, and it's projected to be about a $15,000,000,000 market in 2027.

27:36 So, you know, it doesn't look like these people are being too starved for opportunities. It's a, you know, $10,000,000,000 market growing at a 50% compound annual growth rate, you know, it's people are finding the budgets. That's for sure. Great. Thanks so much. Thank you. One moment for the next question. And our next question is coming from the line of Koji Akeda of Bank of America. Please go ahead. Hi, this is George McGreehn on for Koji Akeda. Thanks for taking our question. And, you know, I kind of wanted to ask maybe kind of a two in one. And and when we think about IPDs and and kind of over time how how the quantity of IPDs has kind of trended downwards.

28:34 Where would you say are there use cases or customer profiles that have been kind of harder to get recently? And then conversely, which which which type of customers or use cases are are you most excited about about kind of driving and and capturing over the next few quarters? Thank you. Well, it's you know, as in as in the as evidenced from Palantir, okay, and others, and Palantir has a go to market motion that is very much analogous to an IPD. I mean, the idea that the market opportunity isn't big is, I think, inconsistent with the performance you've seen out of Palantir.

29:22 The the market is clearly there, and the execution is pretty damn good. I mean, pretty pretty impressive. So I don't know there's the question of the market being there. Where do we see market being there? Do I think the execution on the behalf of C3 has been acceptable? It has been completely unacceptable, George. And, you know, if you want us to, like, fall on our sword or, you know, eviscerate ourselves in a public audience, you know, put me on stage. Give me the stage. Give me a sword, and I'll do it. Okay? The but, you know, the opportunity going forward, you know, lift the pure enterprise AI market, which we're enterprise AI application market, which we are most certainly in, looks like a $10,000,000,000 market growing at a 50% compound, you know, growth rate. We're not even growing. Okay? And so we're not growing off a small base number, and we're growing at a at a level, you know, smaller than the market at large. I mean, that's just unacceptable.

30:18 Do we think we know how to fix it? Yeah. Where's the market opportunity? It's in financial services. Okay. Is it a consumer packaged goods? It is. Is it in defense and intelligence? It is. Is it in agribusiness? It is. Is it in aerospace? Yes, sir. It is. So I don't think as we get into twenty eight, twenty nine, thirty, I don't think there's anybody who believes that all of those markets don't don't address, enterprise AI. You know they do, and you believe even even you Bank of America probably believes that today. Okay? And I and and you didn't in 2016, seventeen, eighteen, nineteen, twenty, or '21. I think even Bank of America believes that today, and we just intend to play our full full role in. Thank you. And that ends the q and a session for today. I would like to turn the call back over to mister Siebel for closing remarks. Please go ahead.

31:16 Ladies and gentlemen, thank you for the courtesy of your time. We we really appreciate it. We hope we used it effectively. I, you know, I hope you have a feel for the plan, and we look very much forth forward to reporting on you in to you in the progress in the next three months and six months. Thank you very much. Thank you for your participation today. You may now disconnect.