C3.ai (AI $11.69 +2.72%) reports its fiscal second quarter of 2027 (August to October 2026) in early December. The company has not announced the date yet; last year's second-quarter report came on Wednesday, December 3, after the close, so Wednesday, December 2, is the likely slot. The stock closed at $11.69 on November 6, up 27% from $9.18 at the end of July and 47% above the $7.95 low close of February.
This is a turnaround quarter, not a growth quarter. Revenue fell from $75.1 million a year ago to $52.4 million in the first quarter, Tom Siebel came back as chief executive in May, and the company cut about 40% of its staff. The first quarter came in above guidance, bookings rose 73% from the prior quarter and free cash flow turned positive at $2.1 million. Our model says the second quarter lands slightly above the $53.2 million consensus, with a smaller loss than guided. The harder question for the call is the second half: the full-year guide of $210 million to $240 million needs $104 million to $134 million from the last two quarters, against $106 million in the first two.
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C3.ai Q2 FY27 earnings: quick answers
- When does C3.ai report? In early December 2026, after the close; the date is not announced. Our estimate is Wednesday, December 2, the same week as last year's December 3 report. The investor relations page will list the event once the company posts it.
- What do analysts expect? Revenue of $53.2 million and EPS of -$0.21 for the quarter, and $221.7 million of revenue for the fiscal year ending April 2027, on the analyst estimates page (snapshot of October 29).
- What did C3.ai guide? Revenue of $51 million to $55 million and a non-GAAP operating loss of $34.5 million to $42.5 million for the quarter; revenue of $210 million to $240 million and a non-GAAP operating loss of $123 million to $155 million for the year.
- What do we forecast? $53.6 million of revenue, a $36.9 million non-GAAP operating loss and EPS of -$0.20: a small beat on both lines.
Why Q2 revenue will come in slightly above consensus
C3.ai sells subscriptions and recognizes them over the contract term, so most of a quarter's revenue is already set by contracts signed before it began. Subscriptions were 94% of first-quarter revenue. That makes the subscription line the place to start.
Three numbers in the first-quarter 10-Q point to a small sequential rise:
- Deferred revenue rose $17.3 million in three months, from $36.4 million at the end of April to $53.7 million at the end of July. Customers paid ahead for service the company has not yet delivered, and that service turns into revenue over the following quarters.
- Bookings rose 73% from the fourth quarter, and federal bookings rose 138% from a year earlier. Contracts signed in May, June and July add a full quarter of revenue in August to October.
- Remaining performance obligations held at $200.0 million, against $203.1 million in April, so the signed backlog did not shrink while the company recognized $52.4 million of revenue.
The fourth quarter of fiscal 2026 figure, $51.6 million, is the reported full year of $250.3 million less the first three quarters.
Against that, the weak signal is new business. The 10-Q says about 1% of first-quarter subscription revenue came from new customers, against 32% a year earlier. The company also stopped reporting initial production deployments as a key metric. So the second quarter rests almost entirely on existing customers renewing and expanding, which suits a small beat but not a large one.
Professional services, mostly prioritized engineering services that customers pay for to get features built, fell 68% in the first quarter to $3.2 million. Management said it will invest in forward-deployed engineers, but those engineers support subscriptions rather than bill as services, so we keep services near $3.0 million.
Our forecast for Q2 and Q3
| Line | Q1 FY27 actual | Q2 FY27 forecast | Q2 consensus | Q2 guide | Q3 FY27 forecast | Q3 consensus |
|---|---|---|---|---|---|---|
| Subscription | $49.2M | $50.6M | n/a | n/a | $52.8M | n/a |
| Professional services | $3.2M | $3.0M | n/a | n/a | $3.2M | n/a |
| Total revenue | $52.4M | $53.6M | $53.2M | $51M to $55M | $56.0M | $56.9M |
| Non-GAAP gross margin | 50% | 45% | n/a | mid-40s | 46% | n/a |
| Non-GAAP operating loss | -$36.2M | -$36.9M | n/a | -$34.5M to -$42.5M | -$34.0M | n/a |
| Non-GAAP EPS | -$0.20 | -$0.20 | -$0.21 | n/a | -$0.18 | -$0.19 |
The non-GAAP operating loss is revenue less non-GAAP expenses. In the first quarter, non-GAAP cost of revenue was $26.3 million and non-GAAP operating expenses $62.3 million. We hold operating expenses near $61.0 million in the second quarter and let the gross margin fall to 45%, as the CFO guided, which gives a loss of $36.9 million. Interest income of about $5.6 million on the cash pile and 157 million weighted shares turn that into -$0.20 a share.
For the full year we get $221.0 million: $52.4 million, $53.6 million, $56.0 million and $59.0 million. That is 0.3% below the $221.7 million consensus and below the $225.0 million middle of the guide. Hitting it needs revenue to grow every quarter from here, which is exactly what Siebel says he is building towards.
- Upside case, $55.5 million: federal contracts signed in the first quarter start billing in full, and engineering services recover part of the way back towards the $10.0 million of a year earlier.
- Downside case, $51.5 million: renewals keep shrinking at the pace of the past year and new customers stay near zero; that would sit near the bottom of the guide and below every analyst.
The cost reset is the story
The revenue line is flat. The cost line is not. Non-GAAP expenses, which strip out stock pay, the payroll tax on it and restructuring, fell from $128.1 million in the first quarter of fiscal 2026 to $106.0 million in the fourth quarter and $88.5 million in the first quarter of fiscal 2027, a drop of almost a third in a year.
The CFO said the restructuring is almost complete, with about $135 million of annual savings from a headcount cut of about 40% and lower outside spending, and that some of those savings arrive only from the second half of the fiscal year. Stock pay is still large: $59.2 million in the first quarter, or 113% of revenue, which is why the GAAP net loss of $92.8 million is three times the non-GAAP loss of $30.7 million.
Margins
GAAP gross margin fell from 40.4% in the second quarter of fiscal 2026 to 17.3% in the third, as revenue dropped faster than the cost of running customer deployments. It recovered to 31.8% in the first quarter of fiscal 2027 as the cuts reached the cost of revenue. On the non-GAAP basis management uses, gross margin went from 37% in the fourth quarter to 50% in the first.
Management has already told investors that the second quarter gives some of that back. Forward-deployed engineers sit in cost of revenue, so hiring them lowers the margin before it raises revenue. We use 45%, the middle of "mid-40s".
Balance sheet and dilution
- Cash and securities: $651.1 million at July 31 ($136.4 million of cash and $514.6 million of short-term investments), with total liabilities of $179.9 million and no borrowings.
- Cash burn: free cash flow was $2.1 million in the first quarter, against -$34.3 million a year earlier and -$54.8 million in the fourth quarter. Management expects free cash flow for the rest of the year to broadly track the non-GAAP operating loss guide, which points to a burn of roughly $35 million a quarter.
- Dilution: weighted shares rose from 138.7 million a year ago to 155.0 million, up 11.8%, mostly from stock pay. Shareholders approved an amended equity incentive plan at the October 26 annual meeting.
- Valuation: at $11.69 and 155.0 million shares, the market value is about $1.81 billion and the value net of cash about $1.16 billion, or about 5.3 times our $221.0 million revenue forecast for the year.
What management said
On the first-quarter call, Siebel set the bar for the year as steady growth rather than the top of the range:
“I'm less interested in hitting the high end of that guide than I am making sure that we've built the pipeline … to demonstrate consistent quarter-over-quarter revenue growth from Q3 on into perpetuity.”
Thomas M. Siebel, CEO, Q1 FY27 earnings call
On where the bookings came from:
“Federal business was particularly strong, with federal bookings growing 138% year over year.”
Thomas M. Siebel, CEO, Q1 FY27 earnings call
On the second-quarter margin:
“Next quarter, as we make selective investments in a forward-deployed engineering organization, we expect our non-GAAP gross margin to moderate to mid-40s.”
Hitesh Lath, CFO, Q1 FY27 earnings call
The full exchange, including the UBS question on what it takes to reach the top of the guide, is on the call page.
Positioning
- Short interest: 42.2 million shares on October 15, down 12.4% from 48.1 million on August 14, with 7.6 days to cover on FINRA's figures. Our model, not a FINRA figure, estimates about 41.2 million for October 30; FINRA publishes that settlement on November 10. History is on the short interest page.
- Options: the December 4 expiry, the first after the likely report date, prices a move of $1.88, or 16.1%, from the at-the-money straddle, with implied volatility of 76.4%. Call open interest is 5.7 times put open interest in that expiry, on the options chain.
- Insiders: no open-market buys. Siebel exercised and sold 435,363 shares at $11.82 on October 13, and the CFO sold 20,000 shares at $12.37 on October 12, both under 10b5-1 plans, on the insider trading page. Directors received their annual stock awards on October 26.
Our assumptions
| Assumption | Value | Basis |
|---|---|---|
| Q2 subscription revenue | $50.6M (+2.9% q/q) | $17.3M deferred revenue rise, 73% q/q bookings growth |
| Q2 professional services | $3.0M | Q1 $3.2M after a 68% fall; forward-deployed engineers are a cost, not billed services |
| Q2 non-GAAP gross margin | 45% | CFO: "moderate to mid-40s" |
| Q2 non-GAAP operating expenses | $61.0M | Q1 $62.3M, savings still landing |
| Interest income | $5.6M | Q1 $6.0M on a slightly smaller cash balance |
| Weighted shares | 157M | Q1 155.0M plus stock pay |
| Q3 and Q4 revenue | $56.0M and $59.0M | Sequential subscription growth of about 4% and 5% |
Risks to our call
- Renewals: with almost no revenue from new customers, one large renewal that shrinks or lapses can move the quarter by several million dollars. The 10-Q warns that the company depends on a small number of high-value contracts.
- Federal timing: the 138% federal bookings growth helps only if those contracts start on time; a government budget delay pushes revenue out.
- Cloud commitments: the 10-Q describes multi-year minimum spend agreements with cloud providers and partners; if usage falls short, the shortfall is a cost with no revenue against it.
- Guide reset: a new management team often resets the full-year range at the second quarter. A cut to the $210 million to $240 million range would matter more to the stock than a $1 million beat.
What to watch on the call
- Subscription revenue against $50.6 million, and whether new-customer revenue rises above the 1% of the first quarter.
- The full-year range: kept, narrowed or cut, and whether the middle stays at $225 million.
- Bookings and federal wins, after 73% sequential bookings growth and 138% federal growth in the first quarter.
- Remaining performance obligations against $200.0 million, and deferred revenue against $53.7 million.
- Free cash flow after the positive first quarter, and how fast the $651.1 million cash balance falls.
- C3 Code, the app-building product Siebel promoted on the last call, and whether it shows up in bookings.
Sources
- C3.ai 10-Q for the quarter ended July 31, 2026, filed 9 September 2026 (accession 0001577526-26-000126): document.
- First-quarter fiscal 2027 results, 8-K filed 2 September 2026 (accession 0001577526-26-000119): document.
- C3.ai Q1 FY27 earnings call transcript, 2 September 2026: transcript.
- C3.ai 10-K for the fiscal year ended April 30, 2026, filed 24 June 2026 (accession 0001577526-26-000078): document.
- Annual meeting results, 8-K filed 30 October 2026 (accession 0001577526-26-000179): document.
- Analyst consensus from C3.ai's estimates page, snapshot of 29 October 2026; short interest from FINRA; options from the 6 November 2026 session; guidance history on the financials page.
This article is our analysis of public filings and our own financial model. It is not investment advice, and forecasts can be wrong. Equibles staff may hold positions in the securities discussed.