Summary
C3.ai opened fiscal 2022 with first quarter revenue of $52.4 million, up 29% from $40.5 million in the same quarter a year earlier. Gross profit rose 31% to $39.4 million from $30.0 million, and gross margin improved to 75.1% from 74.1%. Subscription revenue made up 88% of the total, unchanged from a year ago. The top line grew at a healthy clip. Almost everything below it moved the other way.
The operating loss widened to $36.5 million from $3.3 million. Net income of $0.15 million a year ago turned into a net loss of $37.5 million. Diluted loss per share was $0.37. Operating margin fell to negative 69.7% from negative 8.2%, a drop of 61.5 percentage points. The 10-Q points to spending: sales and marketing expense rose 156%, research and development 101% and general and administrative 117%. Management expects operating expenses as a percentage of revenue to increase while it invests, then stabilize and move lower as the business matures.
Cash generation thinned out. Operating cash flow was $1.0 million, down 94% from $17.1 million a year earlier. Capital expenditures were $0.5 million, down from $0.7 million. On the free cash flow measure defined in the 10-Q, which subtracts purchases of property and equipment and capitalized software development costs from operating cash flow, the quarter produced $11 thousand against $16.4 million a year ago. Deferred revenue was $99.9 million at July 31, 2021, down 6.9% from $107.2 million a year earlier. Weak operating cash flow combined with a year-over-year decline in deferred revenue is the soft spot in an otherwise strong growth quarter.
Backlog metrics carried the story. Remaining performance obligations were $290.6 million at July 31, 2021, up 6% from a year earlier. Non-GAAP RPO, which adds cancellable contracted backlog, was $357.3 million, up 28% from $279.5 million. Customer count reached 98 at quarter end, an increase of 85%. Production applications totaled 101, up from 67, and the customer base spanned 12 industries versus 7 a year ago. The spread between 6% growth in RPO and 28% growth in non-GAAP RPO comes down to the $66.6 million of cancellable backlog that RPO leaves out. That cancellable backlog was $51.3 million at April 30, 2021. International customers produced about 31% of revenue, up from 29%.
Guidance for the second quarter of fiscal 2022 calls for a non-GAAP loss from operations of $30.0 million to $37.0 million. For the full fiscal year 2022, the company guided to a non-GAAP loss from operations of $107.0 million to $119.0 million. Revenue targets were also issued for both periods. The release does not offer a reconciliation of the non-GAAP outlook to GAAP measures, saying that is not available on a forward-looking basis without unreasonable effort. The first quarter non-GAAP loss from operations, per the reconciliation in the press release, was $21.8 million, against $0.8 million a year earlier.
On the operational side, the centerpiece was a global strategic alliance with Google Cloud, which allows the Google Cloud global sales and service organization to co-sell and service the family of C3 AI applications. C3 AI also said deals worth over $200 million have been closed to date under its Microsoft partnership, and it named new production deployments at LyondellBasell, Shell, ENGIE and Con Edison. Risks remain concentrated. Management flagged the pandemic's continuing drag on signing new agreements and on sales cycles. The Baker Hughes arrangement carries $204.4 million of remaining minimum revenue commitments as of July 31, 2021, and Baker Hughes related RPO includes $69.9 million of commitments from non-cancellable contracts. A relatively small number of large customers still drives the business, and the company expects to keep incurring operating losses and may generate negative cash flow from operations for the foreseeable future.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2022 | Q4 FY2021 | QoQ | Q1 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $52.4M | $52.3M | +0.2% | — | — |
| Gross profit | $39.4M | $40.6M | -2.9% | — | — |
| Gross margin | 75.2% | 77.6% | -2.4 pp | — | — |
| Research & development | $26.7M | $20.7M | +29.0% | — | — |
| Sales & marketing | $36.8M | $32.1M | +14.7% | — | — |
| General & administrative | $12.4M | $11.7M | +5.9% | — | — |
| Total operating expenses | $75.9M | $64.5M | +17.7% | — | — |
| Operating income (loss) | -$36.5M | -$23.9M | -52.7% | — | — |
| Operating margin | -69.7% | -45.7% | -24.0 pp | — | — |
| Net income (loss) | -$37.5M | -$24.1M | -55.8% | — | — |
| Net margin | -71.5% | -46.0% | -25.5 pp | — | — |
| Customers | 98 | 2,000 | -95.1% | — | — |
Risks
Our top two market partners together accounted for 36% and 28% of revenue for the three months ended July 31, 2021 and 2020, respectively, and Baker Hughes and Engie each exceeded 10% of revenue in both periods. If these customers do not renew or reduce spend, revenue could decline materially.
The market is intensely competitive, and larger competitors may bundle offerings, sell at zero or negative margins, or leverage broader product lines. We may lose market share or face reduced gross margins if we cannot differentiate the C3 AI Suite and C3 AI Applications.
The COVID-19 pandemic had a significant adverse impact on our conclusion of new and additional business agreements in 2021 and 2020 and may continue to lengthen sales cycles and reduce demand for the C3 AI Suite and C3 AI Applications during fiscal 2022.
We rely on channel partners, including Baker Hughes as the exclusive reseller in oil and gas with an arrangement expiring in fiscal 2024. Termination or renegotiation of the Baker Hughes arrangement could cause loss of co-branding rights and sales opportunities in oil and gas.
Operating expenses increased significantly for the three months ended July 31, 2021: sales and marketing rose 156%, research and development rose 101%, and general and administrative rose 117% compared to the same period last year. This contributed to operating loss widening to $36.5 million, or negative 69.7% operating margin.
Operating cash flow decreased 94.0% to $1.02 million for the three months ended July 31, 2021 compared to the prior-year quarter, and free cash flow was $11 thousand. This reduced cash generation may limit funding for growth initiatives.
The sales cycle is generally six to nine months and can extend over multiple years, especially for large subscriptions. Delays or failures to close large deals can cause revenue and cash flow to fluctuate significantly.
Deferred revenue decreased 6.9% to $99.90 million at July 31, 2021 compared to the prior-year quarter, and RPO was $290.6 million as of July 31, 2021, compared with $293.8 million as of April 30, 2021. A decline in deferred revenue and RPO could signal slower future revenue recognition.
Our average total subscription contract value is decreasing, and we expect it to continue to decrease as we expand our customer base beyond a small number of large customers to a larger number of smaller customers. This may reduce revenue per customer and increase volatility.
Our success depends on key senior management, particularly founder and CEO Thomas M. Siebel, who is critical to management, sales strategy, and product development. We do not maintain key person life insurance policies, and the loss of Mr. Siebel could harm execution of our business strategy.
As of July 31, 2021, Mr. Siebel and related entities controlled approximately 66.3% of the voting power of our outstanding capital stock due to the dual class structure. This concentrated control limits other stockholders' ability to influence corporate matters.
We expect to cease qualifying as an emerging growth company effective as of April 30, 2022, which will subject us to additional reporting and financial requirements. We have commenced planning for these related additional reporting and financial requirements.
SaaS KPIs
All quarters →Remaining Performance Obligations (RPO)
Non-GAAP Gross Margin
Non-GAAP RPO
Non-GAAP loss from operations
Summary, forecast, risks and KPIs are extracted from C3.ai, Inc.'s SEC filings for Q1 FY2022 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.