Shares of C3.ai (AI +6.29%) dropped 22.4% in after-hours trading on Wednesday, after the enterprise artificial intelligence (AI) application software company released its results for the fourth quarter of fiscal 2023 (which ended April 30).
The stock's decline is largely attributable to management's revenue guidance for fiscal 2024 coming in lower than Wall Street was expecting.
C3.ai's key quarterly numbers
| Metric | Fiscal Q4 2022 | Fiscal Q4 2023 | Change YOY* |
|---|---|---|---|
| Revenue | $72.3 million | $72.4 million | Flat |
| GAAP operating income | ($56.5 million) | ($73.3 million) | Loss widened 30% |
| Adjusted operating income | ($20.7 million) | ($23.5 million) | Loss widened 14% |
| GAAP net income | ($58.4 million) | ($65.0 million) | Loss widened 11% |
| Adjusted net income | ($22.6 million) | ($15.2 million) | Loss narrowed 33% |
| GAAP earnings per share (EPS) | ($0.55) | ($0.58) | Loss widened 5% |
| Adjusted EPS | ($0.21) | ($0.13) | Loss narrowed 38% |
Data source: C3.ai. GAAP = generally accepted accounting principles. YOY = year over year. *Calculations by author.
Wall Street was looking for an adjusted loss of $0.17 per share on revenue of $71.3 million. So the company exceeded both expectations. It also edged by its own revenue guidance of $70 million to $72 million, and beat its adjusted operating loss outlook of $28 million to $24 million.
Cash flows moved in the right direction. C3.ai generated cash of $27.1 million running its operations during the quarter, an improvement from using cash of $13.2 million in the year-ago period. It also generated $16.3 million in free cash flow, up from negative $14.8 million in the year-ago quarter. The company ended the period with cash, cash equivalents, and short-term investments of $731 million.
What happened with C3.ai in the quarter?
- Subscription revenue edged up 1% year over year to $56.9 million, while professional services revenue declined 3% to $15.4 million.
- The company closed 43 agreements, including 19 pilots.
- The average sales cycle for agreements was 3.7 months, down from 5 months in the year-ago period.
- The company released the C3 Generative AI solution to the market. Generative AI became an even hotter topic last week after Nvidia cited surging demand for this tech as one reason for its astoundingly strong guidance.
- It closed three C3 Generative AI application agreements, all of which are expected to be live in fiscal Q1 2024. The agreements are with pulp and paper manufacturing giant Georgia-Pacific; Flint Hills Resources, which manufactures transportation fuels and various other products and operates energy pipelines; and the U.S. Department of Defense's Missile Defense Agency. Georgia-Pacific and Flint Hills Resources are wholly owned subsidiaries of Koch Industries, one of the world's largest private companies.
NYSE: AI
Key Data Points
What the CEO had to say
Here's most of what CEO Thomas Siebel had to say in the earnings release:
I believe we now have broad consensus that the addressable market for Enterprise AI is extraordinarily large and rapidly growing; we have nearly 1,000 talented, dedicated employees; the C3 AI Platform is increasingly recognized as the gold-standard in enterprise AI; we have over 40 production enterprise AI applications that offer the market rapid time to value; our C3 Generative AI offerings are being enthusiastically received; our growing market-partner ecosystem provides us extraordinary reach; ... and armed with [$731 million in cash, cash equivalents, and short-term investments] -- we are well positioned to accelerate growth, gain market share, attain sustainable non-GAAP profitability, and establish a market-leading position globally in enterprise AI.
Guidance
|
Metric |
Fiscal Q1 2024 Guidance | Fiscal Q1 2024 Projected Change YOY* |
Full-Year Fiscal 2024 Guidance |
Full-Year Fiscal 2024 Projected Change YOY* |
|---|---|---|---|---|
|
Revenue |
$70 million to $72.5 million | 7% to 11% |
$295 million to $320 million | 11% to 20% |
|
Adjusted income from operations |
($30 million) to ($25 million) | Loss widening 107% to 72% |
($75 million) to ($50 million) | Loss widening 10% to narrowing 27% |
Data source: C3.ai. YOY = year over year. *Calculations by author.
Going into the earnings release, Wall Street had been modeling for Q1 2024 revenue of $71.6 million and an adjusted loss of $0.18 per share. So, the company's Q1 revenue guidance was in line with expectations.
However, the company's full-year revenue guidance (at the midpoint of $307.5 million) was lower than the $317.1 million that analysts had been projecting.
A mixed bag
On the positive side, C3.ai beat Wall Street's estimates for both Q4 revenue and adjusted EPS. That said, the revenue expectation bar was low and the company's quarterly revenue was only flat with the year-ago period. Cash flows were notable positives, as the company generated positive operating and free cash flows.
It's understandable that investors would be disappointed with C3.ai's full-year fiscal 2024 revenue outlook. After all, annual growth of 11% to 20% would seem somewhat light for a company that has a relatively small revenue base and operates in a space that, according to the CEO's statement, has an "extraordinarily large and rapidly growing" total addressable market. However, it's likely that management is being cautious with annual revenue guidance because of the uncertain macroeconomic environment.
The company said it remains on track to achieve a sustainable adjusted profit by the end of fiscal year 2024.
