C3.ai (AI) lost roughly a fifth of its market cap following poor earnings last week and could be facing further rough seas.
AI software company C3.ai’s longtime partnership with oil and gas giant Baker Hughes (BKR), which accounts for more than a third of its revenue, is set to end in April 2025. The executive who oversaw the partnership has left the company, Yahoo Finance has learned.
“This is the canary in the coal mine,” said one former executive, who asked not to be named for fear of retaliation. “If Baker Hughes goes away, it’s game over.”
Baker Hughes has been involved in C3.ai’s history since its IPO. When the company went public on the New York Stock Exchange, Baker Hughes represented 10% of the company’s revenue. Two years later, it represented 45% of the company’s total revenue. The partnership has gone through several extensions, revisions, and various iterations.
The two companies announced a joint venture agreement in June 2019 under which Baker Hughes would sell C3.ai’s solutions across the oil and gas industry. Since then, the agreement has been amended multiple times, with Baker Hughes negotiating lower annual revenue commitments in recent years.
C3.ai’s relationship with Baker Hughes has also been a source of controversy. Last year, I reported on the turmoil it was facing following comments CEO Tom Siebel made about its sales force. Over the course of several months, we spoke with more than 20 former C3.ai and Baker Hughes employees about their time at the company and the details of its most significant partnership.
At the time, some C3.ai investors accused Siebel of misrepresenting the size of the sales organization involved in the deal: Our report noted that Siebel said it had access to Baker Hughes’ 12,000-person sales force, but former employees said those 12,000 people were not trained to sell C3.ai products.
Since then, C3.ai has faced more lawsuits from investors who claim they were misled about the company’s relationship with Baker Hughes. A derivative lawsuit recently filed by C3.ai shareholder Michelle Pankow alleges that Siebel and members of its board of directors “fully knew that numerous public statements alleging that more than 12,000 Baker Hughes employees were selling C3’s products were false.”
Pankow is suing several C3.ai executives and directors, including Siebel, for breach of fiduciary duty and unjust enrichment in connection with its partnership with Baker Hughes. Internal company documents made public last month revealed that C3.ai’s board of directors met on May 25, 2021, to discuss sales targets in detail.
The story continues
According to the lawsuit, “materials provided to board members in connection with this meeting included a detailed PowerPoint slide presentation outlining ‘sales goals’ for the Oil & Gas division, with the second ‘goal’ described as ‘having BH hire ten (10) qualified sales executives into direct quota positions by July 31.'”
“Of course, any rational director would realise that it would be completely unnecessary to simply recruit 10 talented sales executives to Baker Hughes when all of Baker Hughes’ sales force of over 12,000 salespeople are already selling C3’s products.”
C3.ai did not respond to Yahoo Finance’s request for comment.
Dan Brennan, former senior vice president of joint venture BakerHughesC3.ai, was considered a key leader in the partnership. According to his LinkedIn, Brennan has left the company, raising doubts about the future of the partnership.
“Tom used his relationship with Baker Hughes to basically demonstrate that C3 was legitimate and would become the standard for enterprise AI,” the former executive said, “but my understanding is that the C3/Baker Hughes effort is riddled with problems. They may resume their partnership, but it will be weakened in a way that dilutes Baker Hughes’ involvement.”
Brennan did not respond to a request for comment.
C3.ai reported its fiscal first quarter 2025 results on Wednesday, which came in slightly ahead of expectations. Revenue was $87.2 million, in line with expectations. EPS beat expectations with a loss of $0.05 per share. However, subscription revenue came in below analyst expectations, coming in at $73.5 million.
Four firms — Canaccord, Piper Sandler, Morgan Stanley and Deutsche Bank — lowered their price targets for C3.ai following the results. “While net income remained stable year over year, this quarter’s subscription revenue performance highlights the volatility of the model,” JPMorgan wrote.
Siebel fired back on Yahoo Finance’s Morning Brief last week. “Nothing was good this quarter,” he said, adding that the market was “overreacting to the fact that professional services was a little bit bigger than expected.”
Siebel was also asked about Brennan’s quiet departure and what it means for the firm’s partnership with Baker Hughes.
“Dan Brennan was a dear friend and a great professional,” said Siebel. “I enjoyed working with him. Baker Hughes has thousands of professionals and we work with all of their senior management, and we are confident that we interact with them daily. They’ve been a great client and a great partner, and we continue to have a close and productive relationship.”
“We have no plans to terminate the partnership early,” said Mr. Siebel, but he did not say whether the partnership would be renewed.
Yasmin Khorram is a senior reporter at Yahoo Finance. Follow Yasmin on Twitter/X @YasminKhorram and LinkedIn. Send your newsworthy tips to Yasmin at yasmin.khorram@yahooinc.com
For the latest technology news impacting the stock market, click here
Read the latest financial and business news from Yahoo Finance
