C3.ai (NYSE:AI) executives struck a candid tone on the company’s fiscal third-quarter 2026 earnings call, with CEO Stephen Ehikian calling the quarter’s performance “clearly inadequate” and “well below our objectives,” citing missed deal closures and disappointing results in North America and Europe. Management outlined a restructuring and operating plan centered on cost reductions, changes to the sales organization, tighter product focus, and increased use of “agentic AI” internally to improve productivity.
Quarterly results and business mix
Chief Financial Officer Hitesh Lath reported third-quarter revenue of $53.3 million on a non-GAAP basis. Subscription revenue was $48.2 million, representing 90% of total revenue, while professional services revenue was $5.1 million, or 10% of the total. Lath added that combined subscription and prioritized engineering services (PES) revenue was $51.5 million, accounting for 97% of total revenue.
On profitability and cash flow, the company posted a non-GAAP operating loss of $63.4 million and a non-GAAP net loss of $56.4 million, or $0.40 per share. Free cash flow was negative $56.2 million. Lath said C3.ai ended the quarter with $621.9 million in cash equivalents and marketable securities.
Restructuring plan targets $135 million in annual non-GAAP operating expense reductions
Ehikian said he concluded the company’s cost structure was “simply too high” and the organization was not aligned for the opportunity in enterprise AI. He and the management team identified “expense reductions of $135 million in non-GAAP operating expenses in the coming year,” including $60 million tied to headcount changes. The headcount-related portion represents approximately a 26% reduction in workforce, which he said is “now substantially complete.”
Lath provided additional detail, saying the plan is designed to generate approximately $135 million of full-year cost savings and to reduce annual cash burn by approximately the same amount. He said the company expects to substantially complete implementation by the second quarter of fiscal 2027, with the cost savings expected to be fully realized starting in the second half of fiscal 2027.
According to Lath, the workforce reduction is about 26% or approximately 280 employees, broken down as follows:
- 25% headcount reduction in cost of revenue
- 36% headcount reduction in sales and marketing
- 25% headcount reduction in R&D
- 13% headcount reduction in G&A
Lath said the headcount reduction is substantially complete and is expected to result in approximately $60 million of annualized cost savings. The plan also includes eliminating about $75 million from non-employee expenses, expected to be fully realized beginning in the second half of fiscal 2027.
Sales reorganization and focus on “proof of value”
Ehikian said the company is flattening its sales organization, with sales leadership now reporting directly to him. He described the move as intended to remove friction, increase accountability, improve qualification discipline, and accelerate proof of value for customers.
Asked about the quarter’s weakness in North America and Europe, Ehikian attributed it to “sales execution, full stop,” adding, “that falls on me.” He said the company will apply a playbook it used in the federal business—where he said a similar reporting change helped drive faster execution—to North America and EMEA.
On deal motion, Ehikian said the company is prioritizing “large-scale, enterprise-wide transformations,” using accelerated proofs of concept and initial production deployments to demonstrate economic value earlier in the process. In response to an analyst question about GenAI activity, management said the company has implemented more selective qualification criteria for IPDs, with the aim of increasing the likelihood of delivering customer value and converting pilots into production contracts.
Federal strength, customer activity, and IPD metrics
Despite the quarter’s shortfall, management pointed to customer validation and activity. Ehikian said the company closed 44 agreements in the quarter, including new and expansion agreements with organizations such as the U.S. Department of Agriculture, U.S. Department of Energy, the NATO Communications and Information Agency, the Royal Navy, GSK, Talos, ExxonMobil, U.S. Steel, C-SPAN, and McLaren.
He also highlighted improved traction in the federal business, saying bookings across federal defense and aerospace increased 134% year-over-year and accounted for 55% of total bookings during the quarter.
Lath reported the company signed 14 IPDs in the quarter, including five GenAI IPDs. At quarter-end, C3.ai had cumulatively signed 408 IPDs, with 258 still active—meaning they remain in an initial term or extension, have converted to ongoing subscription or consumption contracts, or are being negotiated for conversion.
Guidance and model-agnostic approach
For the fourth quarter of fiscal 2026, Lath guided to revenue of $48 million to $52 million and a non-GAAP loss from operations of $56 million to $64 million. For fiscal 2026, the company guided to revenue of $246.7 million to $250.7 million and a non-GAAP loss from operations of $219.5 million to $227.5 million. The operating loss guidance excludes pre-tax restructuring expenses of approximately $10 million to $12 million.
In response to questions about AI model selection, management said the company’s architecture is model-agnostic, allowing customers flexibility to choose models based on use case and requirements. Internally, Ehikian said employees also have flexibility to use the models that work best for them across functions including engineering, products, marketing, and sales.
Ehikian closed by reiterating the company’s five-part execution plan—reducing cost and burn, restructuring sales, concentrating on fewer applications where it has leadership, prioritizing enterprise-wide transformations, and increasing product delivery velocity—while emphasizing that the company has “implemented a path to non-GAAP profitability and a return to growth.”
About C3.ai (NYSE:AI)
C3.ai, Inc is a leading enterprise software provider focused on delivering scalable artificial intelligence (AI) and Internet of Things (IoT) solutions to large organizations. The company’s core offering, the C3 AI Suite, is a comprehensive, model-driven platform that unifies data ingestion, model development, and application deployment. Through its suite of tools, C3.ai enables customers to accelerate digital transformation initiatives by applying advanced machine learning, predictive analytics, and AI-driven insights across a broad range of business functions.
The C3 AI Suite provides a low-code environment for data scientists and application developers to rapidly design, test, and deploy enterprise-scale AI applications.
