C3.ai’s third quarter was marked by a continued year-over-year revenue decline and a negative market reaction, despite meeting Wall Street’s top-line expectations. Management attributed the underperformance to a sharp drop in sales execution earlier in the year, compounded by the impact of a lengthy government shutdown on its federal business. CEO Stephen Ehigian described the sales issues as “totally unacceptable,” emphasizing that demand for enterprise AI remains strong and that the company is now focused on delivering measurable value to customers through disciplined execution and operational rigor.
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C3.ai (AI) Q3 CY2025 Highlights:
- Revenue: $75.15 million vs analyst estimates of $75.03 million (20.3% year-on-year decline, in line)
- Adjusted EPS: -$0.25 vs analyst estimates of -$0.33 (24.8% beat)
- Adjusted Operating Income: -$42.22 million vs analyst estimates of -$52.63 million (-56.2% margin, 19.8% beat)
- Revenue Guidance for the full year is $299.5 million at the midpoint, roughly in line with what analysts were expecting
- Operating Margin: -149%, down from -79.8% in the same quarter last year
- Billings: $79.9 million at quarter end, down 11.1% year on year
- Market Capitalization: $2.26 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From C3.ai’s Q3 Earnings Call
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Patrick Walravens (Citizens): asked CEO Stephen Ehigian to explain the sharp revenue and margin declines and what changes are being made. Ehigian pointed to past sales execution failures and outlined the new operational rigor focused on accountability and quick value delivery.
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Patrick Walravens (Citizens): followed up on confidence in returning to growth and profitability. Ehigian stated, “I’m confident in the opportunity ahead of us…we have the plan in place to go do so,” while acknowledging execution risks.
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Matt Calitri (Needham): requested clarification on the revenue mix, particularly around professional services. CFO Hitesh Lath explained the lower mix was due to opportunistic engineering services demand but expects a return to the 10-20% range over time.
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Matt Calitri (Needham): inquired about the durability of federal bookings growth and potential lingering impact from government shutdowns. Ehigian cited durable drivers: policy shifts toward commercial AI, the federal AI action plan, and broader reindustrialization efforts.
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Brian Esses (JPMorgan): asked about management’s accountability framework for improving execution. Ehigian described tying incentives and weekly tracking to operational objectives, with bookings and IPD conversion as main external indicators of progress.
Catalysts in Upcoming Quarters
Looking ahead, the StockStory team will monitor (1) the pace and scale of new federal contract wins and associated bookings growth, (2) evidence that initial production deployments are converting into larger, ongoing enterprise agreements, and (3) whether cost-saving initiatives can offset rising investment in sales, marketing, and partner enablement. Progress on product innovation and broader commercial adoption will also be key signposts.
C3.ai currently trades at $16.04, up from $15.18 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free for active Edge members).
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