Shares of C3.ai (AI 1.18%) dropped 7.8% in after-hours trading on Wednesday, after the enterprise artificial intelligence (AI) application software company released its results for the first quarter of fiscal 2024 (which ended July 31).
The stock's decline is largely attributable to management withdrawing its guidance for reaching adjusted positive earnings by the end of fiscal year 2024. Relatedly, it increased its expected adjusted operating loss for the full year.
C3.ai's key numbers
| Metric | Fiscal Q1 2023 | Fiscal Q1 2024 | Change* |
|---|---|---|---|
| Revenue | $65.3 million | $72.4 million | 11% |
| GAAP operating income | ($73.2 million) | ($74.1 million) | Loss widened 1% |
| Adjusted operating income | ($14.5 million) | ($20.7 million) | Loss widened 43% |
| GAAP net income | ($71.9 million) | ($64.4 million) | Loss narrowed 10% |
| Adjusted net income | ($13.2 million) | ($11.0 million) | Loss narrowed 17% |
| GAAP earnings per share (EPS) | ($0.67) | ($0.56) | Loss narrowed 16% |
| Adjusted EPS | ($0.12) | ($0.09) | Loss narrowed 25% |
Data source: C3.ai. Fiscal Q1 2024 ended July 31, 2023. GAAP = generally accepted accounting principles; non-GAAP and adjusted are synonymous terms. *Calculations by author.
Wall Street was looking for an adjusted loss of $0.17 per share on revenue of $71.6 million. So C3.ai exceeded both expectations. Revenue came in at the high end of management's guidance of $70 million to $72.5 million, and beat its adjusted operating loss outlook of $30 million to $25 million.
The company generated cash of $3.9 million running its operations during the quarter. That's an improvement from the year-ago period when it used cash of $38.3 million, but it's down from the prior quarter when it generated cash of $27.1 million. Free cash flow was negative $8.9 million. The company ended the period with cash, cash equivalents, and short-term investments of $809.6 million.
What happened with C3.ai in the quarter?
- Subscription revenue rose 7.6% year over year to $61.4 million, while professional services revenue jumped 33% to $11 million. Subscription revenue accounted for 85% of total revenue.
- The company entered into new and expanded agreements with 11 diverse entities, including steelmaker Nucor, oil and gas giant Shell, Tyson Foods, and Riverside County, California.
- It closed 20 agreements with and through its partner network, including Alphabet's Google Cloud, Amazon's AWS, Microsoft, and consulting company Booz Allen Hamilton.
- Its federal government business has been particularly strong, with bookings up 39% year over year. Much of this business is with the U.S. Department of Defense.
- In Q1, the company closed eight new agreements for its C3 Generative AI product, which was just released in March. Generative AI is the technology behind the enormously popular chatbot ChatGPT that launched late last year. Nvidia is a big player in this fast-growing market, as its recently released phenomenal fiscal Q2 results show.
Launch of C3 Generative AI Suite
Along with releasing its quarterly results, on Wednesday the company also announced "the immediate availability of the new C3 Generative AI Suite including 28 new domain-specific generative AI solutions for industries, business processes, and enterprise systems, all of which can be fully deployed within 12 weeks for $250,000," it said in the earnings release.
C3.ai indicated that there was a "market demand" for this product. The proof will be in future quarterly results.
What the CEO had to say
Here's part of what CEO Thomas Siebel had to say in the earnings release:
The market response to our Generative AI offerings is staggering. C3 Generative AI provides fine-tuned tailored Generative AI solutions that address the crippling problems that prevent widespread industry adoption of LLMs [large language models]. We believe that advent of Generative AI may more than double the addressable market immediately available to C3 AI. [N]ow with our new C3 Generative AI Suite of products out the door, you can expect that we will be investing in the coming quarters to promote, market, and support these initiatives.
Guidance issued for Q2 and lowered for the full fiscal year
For fiscal 2024, management lowered its adjusted operating result guidance. It cited plans to increase its spending on marketing and related initiatives for its generative AI products.
Relatedly, the company no longer expects to reach a sustainable adjusted profit by the end of fiscal year 2024. However, it still expects to be cash-flow-positive for Q4 fiscal 2024 and for full fiscal year 2025.
|
Metric |
Fiscal Q2 2024 Guidance |
Fiscal Q2 2024 Projected Change YOY* |
Prior Full-Year Fiscal 2024 Guidance |
New Full-Year Fiscal 2024 Guidance |
Full-Year Fiscal 2024 Projected Change YOY* |
|---|---|---|---|---|---|
|
Revenue |
$72 million to $76.5 million |
15% to 22% |
$295 million to $320 million |
No change | 11% to 20% |
|
Adjusted operating income |
($40 million) to ($27 million) |
Loss widening 167% to 80% |
($75 million) to ($50 million) |
($100 million) to ($70 million) | Loss widening 47% to 3% |
Data source: C3.ai. YOY = year over year. *Calculations by author.
Going into the earnings release, Wall Street had been modeling for Q2 revenue of $73.8 million and an adjusted loss of $0.12 per share. So, the company's Q2 revenue guidance was in line with the analyst consensus estimate.
A mixed bag
That C3.ai's quarterly results exceeded Wall Street's estimates is a positive. But it's understandable investors were disappointed about management withdrawing its prior guidance about reaching a sustainable adjusted profit by the end of the fiscal year.
At this early stage in C3.ai's journey as a public company (it held its initial public offering, or IPO, in December 2020), investors should be more concerned with revenue growth than profitability, in my view. The metric to watch closely is revenue growth over the next three quarters of fiscal 2024. Accelerating year-over-year revenue growth would be a positive, as long as the adjusted operating loss isn't widening significantly.
