Summary
C3 AI reported fiscal 2023 first-quarter revenue of $65.3 million, up 24.6% from the prior-year quarter. Gross profit rose 19.1% to $46.9 million, but gross margin fell 3.3 percentage points to 71.8%. The revenue gain did not carry through to the bottom line. The company also said RPO rose 57.7% to $458.2 million, while deferred revenue fell 56.3% to $43.7 million. C3 AI used the quarter to introduce consumption-based pricing, charging new customers by vCPU hour. The new entry point is a six-month pilot subscription. Management framed the change as a way to accelerate sales cycles and product adoption. CEO Thomas M. Siebel also noted that the economic downturn is real and that customers are scrutinizing big deals more than before.
Profitability deteriorated sharply. Operating loss widened 100.5% to $73.2 million. Net loss widened 91.9% to $71.9 million. Diluted EPS was -$0.67, and the loss per share widened 81.1%. Operating margin was negative 112.1%, down 42.4 percentage points from the prior-year quarter. Cash generation also reversed. Operating cash flow was negative $38.3 million, down 3,843.4%. Capital expenditures were $15.5 million, up 2,940.3%. On a non-GAAP basis, loss from operations was $14.5 million, compared with $21.8 million a year earlier. Non-GAAP net loss per share was $0.12, compared with $0.22. Non-GAAP gross margin was 81%.
Customer and partner activity gave the quarter some substance. Customer count was 228, compared with 180 a year earlier. Shell continues to expand its deployment; the system integrates over 1.2 million data streams each day and monitors over 13,000 pieces of equipment. The U.S. Missile Defense Agency placed its third order under a five-year, $500 million agreement. The U.S. Air Force Rapid Sustainment Office now has 14 aircraft platforms live on C3 AI software. Raytheon Technologies selected C3 AI for the U.S. Army's TITAN program. A top five global pharmaceutical manufacturer licensed the C3 AI Application Platform and C3 AI Reliability application. On the partner side, Google Cloud expanded its commitment for co-selling and funding customer pilots over the next three years. Microsoft generated more than 16 joint selling agreements in the quarter. AWS remains the largest installed base, and Baker Hughes signed a large Latin American petrochemical company. C3 AI also highlighted new applications including C3 AI CRM, C3 AI ESG, C3 AI Property Appraisal, C3 AI Law Enforcement, and C3 AI Ex Machina.
Guidance points to a slower second quarter. For the second quarter of fiscal 2023, C3 AI guided a non-GAAP loss from operations of $15.0 million to $20.0 million. For the full fiscal year 2023, the company guided a non-GAAP loss from operations of $90.0 million to $98.0 million. Management aims to be non-GAAP profitable during fiscal 2024. The outlook carries several risks. The economic downturn could further delay large deals. The shift to consumption pricing may change revenue timing. International customers contributed approximately 21% of total revenue in the quarter and 31% a year earlier. The company also remains exposed to the COVID-19 pandemic, customer concentration, and its Baker Hughes arrangement, which includes annual commitments of $85.0 million in fiscal 2023, $110.0 million in fiscal 2024, and $125.0 million in fiscal 2025. C3 AI's widening losses and negative operating cash flow show the transition is not without cost.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2023 | Q4 FY2022 | QoQ | Q1 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $65.3M | $72.3M | -9.7% | $52.4M | +24.6% |
| Gross profit | $46.9M | $55.0M | -14.7% | $39.4M | +19.1% |
| Gross margin | 71.8% | 76.0% | -4.2 pp | 75.2% | -3.3 pp |
| Research & development | $55.9M | $46.4M | +20.5% | $26.7M | +109.2% |
| Sales & marketing | $43.0M | $47.5M | -9.4% | $36.8M | +16.7% |
| General & administrative | $21.2M | $17.6M | +20.4% | $12.4M | +71.8% |
| Total operating expenses | $120.1M | $111.5M | +7.7% | $75.9M | +58.3% |
| Operating income (loss) | -$73.2M | -$56.5M | -29.5% | -$36.5M | -100.5% |
| Operating margin | -112.1% | -78.2% | -33.9 pp | -69.7% | -42.4 pp |
| Net income (loss) | -$71.9M | -$58.4M | -23.0% | -$37.5M | -91.9% |
| Net margin | -110.0% | -80.8% | -29.3 pp | -71.5% | -38.6 pp |
| Diluted EPS | -$0.67 | — | — | — | — |
Risks
The filing states it expects revenue growth to slow in future periods, and sales cycles can be long and unpredictable, approximately five months but extending over years for large subscriptions. MD&A notes revenue growth can vary significantly based on timing of customer acquisition, product mix, and contract durations, renewals, or terminations, and total revenue was up 24.6% in FY2023 Q1 versus FY2022 Q1.
Historically a limited number of customers have accounted for a substantial portion of revenue, and average total subscription contract value is decreasing and expected to continue decreasing as the company expands to smaller customers. Baker Hughes related RPO included $195.9 million of commitments from non-cancellable contracts as of July 31, 2022, and the arrangement as exclusive oil and gas channel partner runs through April 30, 2025.
The Baker Hughes arrangement is material, with Baker Hughes related RPO of $2.1 million of deferred revenue and $195.9 million of non-cancellable commitments as of July 31, 2022. The risk factor says termination, expiration, or renegotiation could impair co-branding and oil and gas sales, and the company may be unable to replace the channel partner in a timely manner.
Net loss widened to $71.9 million in FY2023 Q1 from $37.5 million in FY2022 Q1, operating loss widened to $73.2 million from $36.5 million, and operating cash flow was negative $38.3 million versus positive $1.0 million. MD&A says it expects to continue incurring operating losses and negative cash flows for the foreseeable future, with an accumulated deficit of $613.3 million as of July 31, 2022.
Cash and cash equivalents were $221.9 million as of July 31, 2022 compared with $339.5 million as of April 30, 2022, and MD&A reports a net decrease in cash, cash equivalents, and restricted cash of $117.6 million for the quarter. MD&A also says the company may require additional capital and may not be able to raise financing on acceptable terms or at all.
The market is intensely competitive, with larger competitors able to bundle offerings, sell at zero or negative margins, and leverage broader product lines. The filing also cites new innovative start-ups and larger companies investing in R&D that may introduce products with greater performance or functionality.
In March 2022, the company and certain current and former officers and directors were sued in a putative class action alleging violations of federal securities laws regarding the Baker Hughes partnership, other strategic alliances, market potential, and product uptake. The filing states this could result in substantial costs and divert management attention and resources.
Deferred revenue was $43.7 million, down 56.3% from $99.9 million in the prior-year quarter, while RPO was $458.2 million, up 57.7% from the prior-year quarter. The risk factors note revenue is recognized over subscription terms, so declines in new or renewed subscriptions may not immediately affect revenue but will negatively affect future periods.
The company faces intense competition for executives, data scientists, engineers, and sales personnel. Stock-based compensation expense was $56.6 million in FY2023 Q1, and the filing notes that if the perceived value of equity awards declines, or if the mix of equity and cash compensation is unattractive, recruitment and retention may be adversely affected.
The company processes personal data and sensitive information subject to evolving U.S. and foreign laws, including CCPA, CPRA effective January 1, 2023, HIPAA, and other state privacy laws becoming effective in 2023. Noncompliance could lead to regulatory investigations, litigation, fines, reputational harm, and loss of customers or sales.
The dual class structure concentrates voting control: as of July 31, 2022, Mr. Siebel and related entities had approximately 57.3% of voting power. This limits other stockholders' ability to influence corporate matters, including election of directors and significant corporate transactions.
The ongoing COVID-19 pandemic caused global business disruption and had a significant adverse impact on conclusion of new and additional business agreements in 2022, 2021, and 2020. MD&A says it may continue to affect global IT spending, lengthen sales cycles, reduce subscription renewals, and negatively impact collections.
SaaS KPIs
All quarters →Non-GAAP Gross Margin
Non-GAAP RPO
Cancellable backlog
Free Cash Flow
Non-GAAP loss from operations
Customer Count
Summary, forecast, risks and KPIs are extracted from C3.ai, Inc.'s SEC filings for Q1 FY2023 (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.