Summary
C3.ai's fiscal third quarter showed a business in transition under new leadership. Revenue fell 46.1% to $53.26 million. Year-to-date revenue fell 29.1% to $198.67 million. Gross profit fell 84.2% to $9.24 million, and gross margin was 17.3%, down 41.7 percentage points. The operating loss widened to $140.41 million. Operating margin was negative 263.6%, down 175.0 percentage points. Net loss widened to $133.36 million. Diluted loss per share was $0.94, a wider loss than the prior-year quarter. The company closed 44 agreements in the quarter, including work with the U.S. Department of Agriculture, the U.S. Department of Energy, the NATO Communications and Information Agency, the Royal Navy, Thales Group, ExxonMobil, GSK, U.S. Steel, Plains All American Pipeline, Seaspan ULC, and McLaren Automotive. Initial production deployment agreements came to 14, down from 50 in the prior-year quarter.
Federal and defense momentum is the clearest bright spot. Bookings across federal, defense and aerospace rose 134% year over year and accounted for 55% of total bookings. The quarter included new and expansion agreements with the U.S. Department of Agriculture, the U.S. Department of Energy, the U.S. Navy, the Missile Defense Agency, the U.S. Intelligence Community, and the U.S. Department of War. The NATO Communications and Information Agency selected C3 AI as part of Team Squarcle for logistics planning. Commercial expansion continued with a large energy exploration and production company and with Driscoll's, while C3 Generative AI closed eight agreements, including six initial production deployment agreements. The C3 AI Strategic Integrator Program added Cathexis and stc Kuwait. The company will hold its C3 Transform 2026 user conference in Boca Raton from March 3 to 5, 2026.
Cash generation remains under pressure. Operating cash flow was negative $55.76 million for the quarter, a wider outflow than the prior-year quarter, and negative $135.79 million year to date, a wider outflow than the prior-year period. Free cash flow, a non-GAAP measure, was negative $56.2 million for the quarter. Capital expenditures were $0.44 million, up 21.3%. Deferred revenue was $40.00 million, up 21.2%. Remaining performance obligations were $225.40 million, up 8.3%. Non-GAAP gross profit was $19.6 million, a 37% non-GAAP gross margin. Non-GAAP net loss per share was $0.40.
Management launched a restructuring plan expected to reduce cash burn and deliver annual cost savings of approximately $135 million in non-GAAP operating expenses. The plan includes a 26% reduction in global workforce and a targeted 30% reduction in annualized non-employee costs. The company expects to substantially complete the plan by the second quarter of fiscal year 2027. Guidance covers the fourth quarter of fiscal 2026 and the full fiscal year 2026. The company points to a return to growth and a path to a profitable, cash-positive business, and it excludes pre-tax restructuring expenses from its non-GAAP outlook.
The main risks are execution and customer concentration. C3.ai has a history of losses and depends on a limited number of existing customers for a substantial portion of revenue. The sales and services reorganization has disrupted financial performance, and the company warns it may hurt sales results. The CEO transition adds another layer of execution risk. Macroeconomic conditions, U.S. federal government shutdowns, delays in budget approvals, tariffs, and global trade tensions could also weigh on results. The company expects to continue to incur operating losses and generate negative cash flows from operations in the next few quarters. The restructuring plan is meant to address those pressures, but the third quarter shows the turnaround is still early.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2026 | Q2 FY2026 | QoQ | Q3 FY2025 | YoY |
|---|---|---|---|---|---|
| Revenue | $53.3M | $75.1M | -29.1% | $98.8M | -46.1% |
| Gross profit | $9.2M | $30.4M | -69.6% | $58.3M | -84.2% |
| Gross margin | 17.3% | 40.4% | -23.1 pp | 59.1% | -41.7 pp |
| Research & development | $58.8M | $58.4M | +0.8% | $59.4M | -0.9% |
| Sales & marketing | $67.2M | $58.3M | +15.2% | $61.2M | +9.8% |
| General & administrative | $23.6M | $25.8M | -8.4% | $25.4M | -6.8% |
| Total operating expenses | $149.6M | $142.5M | +5.0% | $145.9M | +2.5% |
| Operating income (loss) | -$140.4M | -$112.1M | -25.2% | -$87.6M | -60.3% |
| Operating margin | -263.6% | -149.2% | -114.4 pp | -88.7% | -175.0 pp |
| Net income (loss) | -$133.4M | -$104.7M | -27.4% | -$80.2M | -66.3% |
| Net margin | -250.4% | -139.3% | -111.1 pp | -81.2% | -169.2 pp |
| Diluted EPS | -$0.94 | -$0.75 | -$0.19 | -$0.62 | -$0.32 |
Risks
Risk factors describe intense competition from larger software and cloud providers, internal IT teams, open source offerings, and companies developing their own AI features, including rivals that can bundle products or sell at zero or negative margins.
Long and unpredictable sales cycles for large subscriptions remain a risk, and MD&A reports 14 initial production deployment agreements in the quarter ended January 31, 2026 versus 50 in the prior-year quarter, with total revenue down 46.1% year over year.
The company attributes the decline in revenue and increase in operating losses in the first three quarters of fiscal 2026 partly to disruption from a comprehensive restructuring of its global sales and services organizations, the Executive Chairman's unanticipated health limitations, and unsatisfactory execution by those organizations.
The February 24, 2026 restructuring plan calls for a 26% reduction in global workforce and a targeted 30% reduction in annualized non-employee costs, and management notes implementation may not achieve expected benefits, could be disruptive, and could reduce employee morale or cause attrition beyond planned headcount reductions.
Stephen Ehikian succeeded Thomas Siebel as CEO effective September 1, 2025, while Mr. Siebel continues as Executive Chairman; the filing states changes from the CEO transition may disrupt strategy execution and that Mr. Siebel's inability to engage in key business initiatives may negatively affect results.
A limited number of customers have historically accounted for a substantial portion of revenue, the average total subscription contract value is decreasing and expected to continue decreasing, and non-renewal or reduced spending by large customers could cause revenue and remaining performance obligations to decline.
Gross margin fell to 17.3% in the quarter ended January 31, 2026, down 41.7 percentage points from the prior-year quarter, as revenue declined 46.1% while cost of subscription revenue increased 13% on higher payroll and contractor costs; risk factors also cite potential lower margins from third-party compensation or reimbursement requirements.
MD&A cites adverse macroeconomic conditions including U.S. federal government shutdowns, delays in budget approvals, tariffs, and global trade tensions, which are causing customers to optimize consumption, rationalize budgets, and prioritize cash flow management.
The shift to consumption-based pricing recognizes revenue on consumption rather than ratably, reducing visibility into revenue timing; customers may consume the platform more slowly than expected, and the risk may increase as more customers move to the consumption model.
RPO was $225.4 million as of January 31, 2026, up 8.3% versus the prior-year quarter, but MD&A states RPO may not accurately reflect future revenue growth, particularly for pay-as-you-go consumption pricing, and it excludes monthly usage-based runtime and hosting charges.
The company faces intense competition for executives, data scientists, engineers, software developers, and sales personnel, and the restructuring could reduce employee morale or cause attrition beyond planned headcount reductions, impairing its ability to attract and retain highly skilled employees.
Securities class action lawsuits were filed in March 2022 and August 2025 alleging violations of federal securities laws, and short seller reports can cause stock price volatility and regulatory inquiries; government contract audits may result in non-renewal, reduced revenue, or fines and liability.
SaaS KPIs
All quarters →Summary, forecast, risks and KPIs are extracted from C3.ai, Inc.'s SEC filings for Q3 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.