Founder & Executive Chairman, C3.ai
C3.ai Drops After Subscription Sales Miss Estimates
Data analysis software company C3 AI, plunged 18% in extended trading after reporting quarterly subscription revenue that missed estimates. C3 AI CEO Tom Siebel joins Caroline Hyde and Ed Ludlow on "Bloomberg Technology."
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About Thomas Siebel
On C3.ai's Q4 2026 earnings call, Thomas Siebel described the company's recent performance as "staggeringly disappointing" and "unspeakably horrible," stating that sales had "fallen off a cliff" in the last five quarters. He attributed the decline to execution failures rather than product quality or market size, saying the company intends to "change everything about the way we manage this business." Siebel noted that head count has been reduced from 775 to roughly 700 and that $135 million in annual operating costs have been removed from the business structure. He emphasized that management is focused on software revenue, not services, and stated that the company aims to create "enormous financial returns for our shareholders" through the turnaround effort.
Transcript (10 segments)
✨ AI-enhanced transcript with speaker attribution
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Caroline0:00
It is a painful sell off. And in fact, you are now trading at the lowest since May 2023. I'm sure you'll tell me you don't look at the share price, but it's trying to tell you something. What is it? That wasn't enough in the numbers for the investor today, Tom.
T
Thomas Siebel0:10
It was a great quarter, Caroline. I mean, year over year growth, 21%. And that makes us, I think, one of the ten fastest growing companies in the public software universe. Cash up, transaction volume up, I think 21%, pilot volume up 115%. I think it was a solid quarter. And, you know, sometimes markets react in funny ways. Here we have been very hard growing over the announced growth, I think well over 100% year over year growth rate. What's not to like? The market reacts by taking, what, $270 billion off their stock price the next day. So, you know, markets react in funny ways and it'll all sort itself out in the long run.
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Caroline0:57
Tom, I'm still trying to understand the business model, right? Yet the subscription part and software and then services. Services seems to be strong. What is the story behind software with you?
T
Thomas Siebel1:09
It's a little bit confusing because 70% of that services revenue, the number is actually software delivered to the customer as part of our core product that they pay for over a long period of time. So it's the core product functionalities. 70% of the services, never like order of $10 million, 13.8 I think. But due to new accounting regulations that came out called ASC 606, we have to treat these functional enhancements as professional services. But it looks like software, it smells like software, it is compiled. It's part of the core product. It is software. But under the accounting regulations, which we do comply with, I assure you, it is where it gets recorded as professional services.
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Caroline2:00
Stripping away accounting, what people are trying to peel back is profitability and how long they have to really wait for that profitability to kick in. You have to invest the time to scale. I know, but you just have to tell investors to be patient, Tom.
T
Thomas Siebel2:13
Well, let's look at profitability. The profit margins on their professional services, I think, is 93% gross margin. I mean, it's good work if you can get it. Now, our revenue growth rates are substantially greater than our expense growth rates. Historically, I think going forward, our revenue growth rates will continue to generally be greater than our expense growth rates. Our gross profit margins are substantially greater than our cost of sales. So non-GAAP profitability is simply a matter of scale. This just happens with time.
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Caroline2:46
Tom, I've been reading through the regulatory filings. It's the kind of guy I am. And the disclosures and the lawsuits against NL. It seems to center around a trade secret issue. But can you help us understand more of what's going on there, please?
T
Thomas Siebel3:03
Yes, this is a very unfortunate situation. This is a very sad and now with a really valued customer that licensed a lot of our technology, and it appears that they may have copied literally thousands of lines of our source code into a copy of it and basically copied our product. So that's what this complaint is about. It appears to be a very significant kind of intellectual property theft. And we're pursuing that in civil courts in Italy. And it's sad. And, you know, it's actually the first time I've seen this in my professional career that a company would do such a thing. But we have to protect our intellectual property rights for the benefit of our shareholders. And we are doing that and we will seek comment from now.
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Caroline3:59
You are seeking $2 billion from them in compensation. Tom, just going back to ultimately the winning of clients. How is market share? How are you able to compete with the big companies out there trying to compete with you?
T
Thomas Siebel4:14
Well, I think the companies that are perceived as competing with us would be those would be Microsoft with us or AWS and Google, because the real competition is build it yourself. But understand, Caroline, 71% of our transactions in the last quarter we closed with one of Google Cloud, Adobe, or AWS. So we joint market with them, we joint sell with 71%. So these are great marketing partners and they're perceived by some as being competitors, but they look at me like partners and they look to our customers like partners. So we appreciate the partnership that we go to market with them very actively all around the world.