C3.ai, Inc. (AI.US), an enterprise AI software company, reported better-than-expected fiscal Q2 2026 results on Wednesday, driven by a rebound in federal government demand and partner-led deal activity. However, concerns over persistent revenue pressures and operational challenges triggered volatile after-hours trading.
The company posted an adjusted loss per share of $0.25, beating the consensus estimate of a $0.33 loss. Revenue reached $75.1 million, slightly above the $74.93 million forecast, up 7% sequentially but down 20% year-over-year. Subscription revenue—the core business—fell 13% YoY to $70.2 million, accounting for 93% of total revenue, highlighting ongoing stabilization struggles. GAAP gross margin stood at 40%, while Non-GAAP margin improved to 54%. Cash and marketable securities totaled $675 million at quarter-end.
C3.ai is increasingly betting on federal contracts, which now represent nearly half of its bookings. CEO Stephen Ehikian cited "exceptional performance" from federal clients and larger deal momentum as key growth drivers, calling the federal market a "significant growth engine."
"Strong federal execution delivered solid quarterly results," Ehikian said, expressing optimism that government contracts could offset commercial softness. Federal bookings surged 89% YoY despite government shutdown disruptions, making up 45% of total orders. New or expanded agreements were signed with agencies like the U.S. Department of Health and Human Services, the U.S. Army, and intelligence communities.
Partner-led initiatives also gained traction, particularly through collaborations with Microsoft (MSFT.US) and Amazon (AMZN.US) AWS, driving a 146% and 172% increase in respective partner-related sales. Total bookings rose 49% sequentially, including 17 deals over $1 million and six exceeding $5 million.
Despite strategic moves, financial hurdles remain. Full-year guidance was largely unchanged, offering no clear signs of a subscription revenue turnaround. The earnings report stressed the need for operational efficiency in new contracts to improve financial health.
For fiscal 2026, C3.ai expects revenue between $289.5 million and $309.5 million (consensus: $299.5 million). Q3 revenue is projected at $72–80 million versus estimates of $75.6 million. Ehikian outlined "clear operational targets" for all units and a "defined path" to growth, cash flow positivity, and Non-GAAP profitability.
Post-earnings, shares initially dropped over 6%, then rebounded 4%, before paring gains to trade down 2% at press time.
