Summary
Fiscal second quarter revenue at C3 AI was $75.1 million, down 20.3% from the prior-year quarter. For the first six months, revenue was $145.4 million, down 19.9%. Gross profit fell to $30.4 million, and gross margin was 40.4%, down 20.9 percentage points from the prior-year quarter. The operating loss widened to $112.1 million. Net loss widened to $104.7 million. Net loss per diluted share was $0.75. Net cash used in operating activities was $46.5 million for the quarter, down 20.2%, and $80.0 million for the first six months. Subscription revenue represented 93% of total revenue, up from 86% in the prior-year quarter.
Bookings were the clearest counterpoint. C3 AI closed 46 agreements in the quarter, including 17 greater than $1 million and six greater than $5 million. Total bookings increased 49% quarter over quarter. Bookings across federal, defense, and aerospace grew 89% year over year and represented 45% of total bookings. The partner ecosystem drove 89% of total bookings, with 38 agreements closed through partners. The Microsoft alliance surpassed 100 joint customer agreements across 17 industries and over $130 million in C3 AI bookings, and the two companies closed 24 agreements in the quarter. The AWS partnership closed nine agreements and increased joint qualified pipeline by 172% year over year. The company entered eight new and expanded agreements for C3 Generative AI with the U.S. Intelligence Community, Cargill, Bristol Myers Squibb, and TRAC Intermodal. The U.S. Department of Health and Human Services selected C3 AI to build a unified data foundation for Enterprise AI, and Booz Allen Hamilton joined the C3 AI Strategic Integrator Program. The company also entered agreements with BAE Systems, the U.S. Department of War, the U.S. Intelligence Community, the U.S. Army, and Los Alamos National Laboratory, among others. Even so, remaining performance obligations were $232.5 million, down 10.7% from the prior-year quarter, and deferred revenue was $34.7 million, down 3.1%.
Guidance points to continued pressure. For the third quarter of fiscal 2026, management guides a non-GAAP loss from operations of $44.0 million to $52.0 million. For the full fiscal year 2026, the company guides a non-GAAP loss from operations of $180.5 million to $210.5 million. The CEO said a detailed execution plan prioritizes business units where C3 AI has leadership and customer success. Management believes the plan can facilitate a return to growth and a pathway to cash generation and non-GAAP profitability. The company also expects to keep incurring operating losses and negative cash flows from operations in the next few quarters. The non-GAAP loss guidance excludes stock-based compensation and related employer payroll taxes, and management says a reconciliation to GAAP measures is not available without unreasonable effort.
Execution risks are material. The restructuring of the sales and services organization during the three months ended July 31, 2025 disrupted financial performance. The CEO transition, the Executive Chairman’s health issues, and the U.S. federal government shutdown may continue to weigh on sales. Gross margin pressure came from lower subscription revenue and higher payroll and contractor costs. Professional services margin fell because prioritized engineering service projects declined and payroll and contractor costs rose. Operating expenses rose, with sales and marketing, research and development, and general and administrative all increasing. International customers contributed about 5% of total revenue for the quarter, down from 13% in the prior-year quarter. C3 AI executed 20 initial production deployment agreements in the quarter, compared with 36 in the prior-year quarter. The company has a history of losses, depends on a limited number of large customers, and faces long and unpredictable sales cycles. Macroeconomic risks include potential future federal government shutdowns, delays in budget approvals, and global trade tensions.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2026 | Q1 FY2026 | QoQ | Q2 FY2025 | YoY |
|---|---|---|---|---|---|
| Revenue | $75.1M | $70.3M | +7.0% | $94.3M | -20.3% |
| Gross profit | $30.4M | $26.4M | +14.9% | $57.8M | -47.5% |
| Gross margin | 40.4% | 37.6% | +2.8 pp | 61.3% | -20.9 pp |
| Research & development | $58.4M | $64.7M | -9.7% | $55.7M | +4.7% |
| Sales & marketing | $58.3M | $62.5M | -6.7% | $55.6M | +4.8% |
| General & administrative | $25.8M | $24.1M | +7.1% | $21.8M | +18.5% |
| Total operating expenses | $142.5M | $151.3M | -5.8% | $133.1M | +7.0% |
| Operating income (loss) | -$112.1M | -$124.8M | +10.2% | -$75.3M | -48.9% |
| Operating margin | -149.2% | -177.7% | +28.5 pp | -79.8% | -69.4 pp |
| Net income (loss) | -$104.7M | -$116.8M | +10.4% | -$66.0M | -58.7% |
| Net margin | -139.3% | -166.2% | +26.9 pp | -69.9% | -69.3 pp |
| Diluted EPS | -$0.75 | -$0.86 | +$0.11 | -$0.52 | -$0.23 |
Risks
Net loss widened to $104.7 million in the quarter ended October 31, 2025 and $221.4 million for the six months ended October 31, 2025. Revenue decreased 20.3% in the quarter and 19.9% year to date versus the prior-year periods, and the company had an accumulated deficit of $1.6 billion as of October 31, 2025.
Total gross margin decreased to 40.4% in the quarter ended October 31, 2025 from 61.3% in the prior-year quarter, and gross profit decreased 47.5% to $30.4 million. MD&A attributes the subscription margin decline to lower subscription revenue and higher payroll and contractor costs.
The company restructured its global sales and services organization in the first quarter of fiscal 2026, and MD&A states the restructuring has had a disruptive effect on financial performance and may continue to negatively affect sales results. Current-quarter revenue decreased 20.3% versus the prior-year quarter.
Stephen Ehikian became CEO effective September 1, 2025, succeeding Thomas Siebel, and the company cites the CEO transition and Mr. Siebel's unanticipated health limitations that prevented him from participating in the sales process as actively as in the past. MD&A says future success depends on integrating the new CEO and the restructured sales organization achieving desired productivity.
The company executed 20 initial production deployment agreements in the quarter ended October 31, 2025, compared with 36 in the prior-year quarter. MD&A identifies this metric as reflecting trends in market penetration and customer acquisition.
A limited number of customers have historically accounted for a substantial portion of revenue, and the average total subscription contract value is decreasing and is expected to continue to decrease. RPO decreased 10.7% to $232.5 million and deferred revenue decreased 3.1% to $34.7 million versus the prior-year quarter.
The market is intensely competitive, and larger competitors may bundle offerings or sell at zero or negative margins. The company must continue substantial investment in research and development to avoid its C3 AI Software becoming less marketable or obsolete.
The shift to consumption-based pricing means revenue is recognized on consumption, providing less visibility into timing than subscription-based ratable revenue. If customers consume the platform more slowly than expected, actual results may differ from forecasts, and this risk may increase as more customers move to the consumption-based model.
Sales cycles can be long and unpredictable, particularly for large subscriptions, and individual sales have historically represented a large proportion of overall sales in a period. This makes it difficult to project when deals close and to adjust a largely fixed cost structure on a timely basis.
MD&A cites adverse macroeconomic conditions including U.S. federal government shutdowns, delays in budget approvals, inflation, higher interest rates, and global trade tensions that are causing customers to optimize consumption, rationalize budgets, and prioritize cash flow management.
Operating cash flow was negative $80.0 million for the six months ended October 31, 2025, down 161.1% versus the prior-year period. MD&A states the company expects to continue incurring operating losses and negative cash flows from operations in the next few quarters and may require additional capital.
In March 2022 and August 2025, the company and certain current and former officers and directors were sued in putative class action lawsuits alleging violations of federal securities laws. Such litigation could result in substantial costs and diversion of management's attention and resources.
The company faces intense competition for executives, data scientists, engineers, software developers, and sales personnel, and is extremely selective in hiring. If the perceived value of its equity awards declines or its compensation mix is unattractive, it may be unable to attract and retain highly skilled employees.
SaaS KPIs
All quarters →Remaining Performance Obligations (RPO)
Summary, forecast, risks and KPIs are extracted from C3.ai, Inc.'s SEC filings for Q2 FY2026 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.