C3.ai, Inc. (AI) - Q2 2026 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended October 31, 2025 (Q2 of Fiscal Year 2026). C3.ai is an enterprise artificial intelligence (AI) software provider offering the C3 Agentic AI Platform, C3 AI Applications, and C3 Generative AI. The company operates as a single reportable segment. During the quarter, the company completed a CEO transition, appointing Stephen Ehikian to succeed Thomas M. Siebel, who remains Executive Chairman. The company also restructured its global sales and services organization, which management noted had a disruptive effect on financial performance.
Key Financial Metrics
| Metric | Q2 2026 (3 Months) | Q2 2025 (3 Months) | YTD 2026 (6 Months) | YTD 2025 (6 Months) |
|---|---|---|---|---|
| Total Revenue | $75.1 million | $94.3 million | $145.4 million | $181.6 million |
| Subscription Revenue | $70.2 million | $81.2 million | $130.5 million | $154.6 million |
| Professional Services Revenue | $4.9 million | $13.2 million | $14.9 million | $26.9 million |
| Gross Profit | $30.4 million | $57.8 million | $56.8 million | $110.0 million |
| Gross Margin | 40.4% | 61.3% | 39.1% | 60.6% |
| Net Loss | $(104.7) million | $(66.0) million | $(221.4) million | $(128.8) million |
| Diluted Net Loss Per Share | $(0.75) | $(0.52) | $(1.62) | $(1.02) |
| Cash and Cash Equivalents | $103.2 million (as of Oct 31, 2025) | |||
| Marketable Securities | $571.8 million (as of Oct 31, 2025) | |||
| Free Cash Flow (6 Months) | $(81.2) million |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 20% year-over-year for both the quarter and the six-month period. Subscription revenue fell 13% for the quarter and 16% YTD. Professional services revenue dropped significantly, down 63% for the quarter and 45% YTD, primarily due to a decrease in prioritized engineering services.
- Margin Compression: Gross margin declined from 61% to 40% for the quarter. This was driven by lower revenue volumes and increased payroll and contractor costs in the cost of revenue.
- Operating Expenses: Total operating expenses increased 7% for the quarter and 14% YTD. Sales and marketing expenses rose due to higher payroll and stock-based compensation, partially offset by lower advertising costs. Research and development expenses increased due to higher payroll and contractor costs.
- Stock-Based Compensation: Total stock-based compensation expense increased to $68.9 million for the quarter (from $57.0 million) and $133.6 million YTD (from $111.7 million), reflecting additional equity awards granted to current and new employees.
Guidance, Outlook, and Risks
- Management Commentary: Management attributed the revenue decline and increased losses to the disruption caused by the restructuring of the sales and services organization, the onboarding of new leadership, and the Executive Chairman's unanticipated health issues limiting his participation in the sales process. The company expects to continue incurring operating losses and generating negative cash flows in the near term.
- Strategic Initiatives: The company is focusing on a consumption-based pricing model to lower entry barriers for new customers. It continues to invest heavily in Generative AI, including the launch of "C3 AI Agentic Process Automation" and a "Deep Research Agent."
- Liquidity: As of October 31, 2025, the company held approximately $675 million in cash, cash equivalents, and marketable securities. Management believes this is sufficient to support operations for at least the next 12 months.
- Key Risks:
- Profitability: The company has a history of losses and may not achieve profitability in the foreseeable future.
- Customer Concentration: A limited number of customers account for a substantial portion of revenue. One customer accounted for 13% of revenue in Q2 2026.
- Legal Proceedings: The company is involved in multiple securities class actions (including the *Reckstin* and *Liggett* cases) and shareholder derivative actions. Additionally, a lawsuit against Enel Global Services in Italy seeks €2.1 billion in damages.
- CEO Transition: Risks associated with the transition from Thomas Siebel to Stephen Ehikian and the integration of new leadership.
Investor Verification Checklist
- Verify the impact of the sales organization restructuring on future revenue recognition and sales cycle lengths.
- Monitor the conversion rate of "Initial Production Deployment" agreements into recurring subscription or consumption-based contracts.
- Review the status of ongoing securities litigation (*Reckstin*, *Liggett*) and the Enel trade secret lawsuit for potential financial exposure.
- Assess the sustainability of the current burn rate given the $1.6 billion accumulated deficit and the timeline to profitability.
- Confirm the extent of the Executive Chairman's continued involvement in strategic sales and oversight post-transition.