8-K: C3 AI Q2 FY26: Federal Bookings Soar, Revenue Up QoQ Amidst Losses

C3 AI reports fiscal Q2 2026 results with 7% sequential revenue growth and 89% year-over-year Federal bookings increase, despite continued GAAP and non-GAAP net losses.

Summary

• Total revenue for fiscal Q2 2026 was $75.1 million, a 7% increase quarter-over-quarter.
• Subscription revenue reached $70.2 million, accounting for 93% of total revenue.
• GAAP gross profit was $30.4 million (40% margin), while non-GAAP gross profit was $40.9 million (54% margin).
• The company reported a GAAP net loss per share of $(0.75) and a non-GAAP net loss per share of $(0.25).
• Cash, cash equivalents, and marketable securities stood at $675.0 million as of October 31, 2025.
• Total bookings increased by 49% quarter-over-quarter, including 17 agreements over $1 million and six over $5 million.
• Federal, defense, and aerospace bookings grew 89% year-over-year, representing 45% of total bookings.
• The partner ecosystem contributed to 89% of total bookings, with the joint 12-month qualified opportunity pipeline increasing by 108% year-over-year.
• C3 AI launched C3 AI Agentic Process Automation, a new solution for automating complex business workflows using autonomous AI agents.

Sentiment

Score: 4

Explanation: The company shows strong operational momentum in Federal bookings and partner engagement, and has a substantial cash reserve. However, significant year-over-year declines in revenue and worsening net losses, coupled with a full-year outlook for continued substantial losses, indicate ongoing financial challenges and a lack of clear path to profitability in the near term. The positive QoQ revenue growth is overshadowed by YoY declines and increasing losses.

Positives

• Total revenue increased 7% quarter-over-quarter to $75.1 million.
• Federal, defense, and aerospace bookings grew significantly by 89% year-over-year, representing 45% of total bookings.
• Total bookings increased by 49% quarter-over-quarter, indicating strong sales activity.
• Closed 46 agreements, including 17 greater than $1 million and six greater than $5 million, with major clients like AMD, GSK, and U.S. Steel.
• The partner ecosystem (Microsoft, AWS, Booz Allen) is a strong source of operating leverage, driving 89% of total bookings and a 108% year-over-year increase in the joint qualified opportunity pipeline.
• Strategic alliances, such as with Microsoft, have generated over $130 million in C3 AI bookings over the past year.
• Launched C3 AI Agentic Process Automation, a new solution for automating complex business workflows.
• Verdantix named C3 AI a Leader in industrial AI in its 2025 Green Quadrant report.

Negatives

• Total revenue of $75.1 million for Q2 FY26 is a decrease from $94.3 million in Q2 FY25.
• Subscription revenue of $70.2 million for Q2 FY26 is a decrease from $81.1 million in Q2 FY25.
• GAAP net loss per share worsened to $(0.75) in Q2 FY26 from $(0.52) in Q2 FY25.
• Non-GAAP net loss per share worsened to $(0.25) in Q2 FY26 from $(0.06) in Q2 FY25.
• GAAP gross margin decreased to 40% in Q2 FY26 from 61% in Q2 FY25.
• Non-GAAP gross margin decreased to 54% in Q2 FY26 from 70% in Q2 FY25.
• Net cash used in operating activities for the six months ended October 31, 2025, was $(80.031) million, an increase from $(30.651) million in the prior year period.
• Free cash flow for the six months ended October 31, 2025, was $(81.177) million, an increase from $(32.390) million in the prior year period.
• Full-year fiscal 2026 revenue guidance of $289.5 $309.5 million implies flat to slightly lower revenue compared to the prior fiscal year.
• Full-year fiscal 2026 non-GAAP loss from operations guidance of $(180.5) $(210.5) million indicates continued significant losses.

Risks

• History of losses and uncertainty regarding the ability to achieve and maintain profitability in the future.
• Historic dependence on a limited number of existing customers for a substantial portion of revenue.
• Challenges in attracting new customers and retaining existing ones.
• Uncertainty regarding the ability of the restructured global sales and services organization to achieve desired productivity levels within a reasonable timeframe.
• Potential impact of the transition of the Chief Executive Officer role.
• Reliance on the continued involvement of the Executive Chairman and the ability to retain key members of senior management.
• Market awareness and acceptance of enterprise AI solutions in general and C3 AI products in particular.
• Length and unpredictability of sales cycles and the associated time and expense required for sales efforts.

Future Outlook

For the third quarter of fiscal 2026, C3 AI expects total revenue between $72.0 million and $80.0 million, with a non-GAAP loss from operations ranging from $(44.0) million to $(52.0) million. For the full fiscal year 2026, the company anticipates total revenue between $289.5 million and $309.5 million and a non-GAAP loss from operations between $(180.5) million and $(210.5) million. Management believes the execution of its detailed plan will facilitate a return to growth and provide a pathway to cash generation and non-GAAP profitability.

Management Comments

• "We delivered a solid quarter driven by excellent performance in our Federal business and increased high-value deal activity across our customer base. The Federal market continues to be a large growth vector for us."
• "Both Federal and commercial customers want to move faster, scale sooner, and embed AI as a core operating capability that delivers measurable economic value – and our platform is built for this moment."
• "We have crafted a detailed execution plan and put in place precise operational objectives for each business unit. This plan prioritizes our execution in areas where we have demonstrable leadership, clear customer success, and the right to win, and concentrates our efforts on our fastest-growing sectors. I believe the execution of this plan will facilitate our return to growth and provide a clear pathway to cash generation and non-GAAP profitability."

Industry Context

C3 AI's strong performance in the Federal market, driven by the shift from GOTS to COTS solutions, aligns with broader government initiatives to adopt commercial AI technologies for efficiency and modernization. The increased partner activity with major integrators like Booz Allen Hamilton and cloud providers like Microsoft and AWS reflects a growing trend of ecosystem-driven enterprise AI adoption. The launch of C3 AI Agentic Process Automation positions the company to capitalize on the increasing demand for autonomous AI solutions that streamline complex business workflows across industries.

Comparison to Industry Standards

• The 89% year-over-year growth in Federal bookings is a strong indicator of C3 AI's competitive advantage in the government sector, especially given the general push for COTS solutions. This compares favorably to general enterprise software growth rates, which are typically lower.
• The strategic alliance with Microsoft, generating over $130 million in C3 AI bookings over one year, demonstrates effective co-selling and market penetration, a benchmark for successful enterprise software partnerships.
• Being named a Leader in industrial AI by Verdantix in its 2025 Green Quadrant report positions C3 AI favorably against competitors in the industrial AI analytics software space, such as Siemens, GE Digital, and IBM, indicating strong product capabilities and market recognition.
• The significant net losses and negative free cash flow, however, contrast with more mature, profitable enterprise software companies and highlight the investment phase C3 AI is currently in, similar to many high-growth AI companies prioritizing market share over immediate profitability.

Stakeholder Impact

• Shareholders: Face continued dilution from stock-based compensation and significant losses, but may benefit from long-term growth in Federal and Generative AI markets if the company achieves profitability.
• Employees: The mention of a "restructured global sales and services organization" and the risk of retaining key management suggest potential impacts on employee roles and morale.
• Customers: Benefit from new agreements, expanded partnerships, and the launch of new AI solutions like C3 AI Agentic Process Automation, enhancing their operational capabilities.
• Partners: Experience increased opportunities and pipeline growth through the expanding C3 AI partner ecosystem, leading to more joint agreements and revenue potential.
• Creditors: The substantial cash reserves ($675.0 million) provide a buffer, but continued negative free cash flow and losses could be a long-term concern if not addressed.

Next Steps

• Execute the detailed operational plan to prioritize execution in high-growth sectors.
• Continue efforts to return to growth and achieve cash generation and non-GAAP profitability.
• Host a conference call on December 3, 2025, at 2:00 p.m. PT / 5:00 p.m. ET to discuss financial results.
• File the Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2025.

Key Dates

Recommendation

While C3 AI demonstrates strong operational progress in its Federal business (89% YoY bookings growth) and expanding partner ecosystem, the financial results show a concerning trend of year-over-year revenue decline and worsening GAAP and non-GAAP net losses. The full-year guidance also projects continued significant losses. The company has a substantial cash runway, which provides flexibility to execute its strategic plan, including new product launches like C3 AI Agentic Process Automation. However, the lack of a clear near-term path to profitability and the ongoing financial deterioration warrant a cautious stance. A 'hold' recommendation allows investors to monitor the execution of the strategic plan and observe if the strong bookings and pipeline growth translate into sustainable revenue growth and improved profitability in future quarters, without committing further capital or exiting a potentially long-term growth story prematurely.

Keywords

Enterprise AI, AI Software, Federal Contracts, Generative AI, Agentic AI, C3 AI, Artificial Intelligence, SaaS, Financial Results, Bookings Growth