Summary
C3 AI's fiscal second quarter, ended October 31, 2023, showed accelerating topline growth. Revenue was $73.23 million, up 17.3% from the prior-year quarter. Year-to-date revenue was $145.59 million, up 14.0%. Customer Engagement reached 404, an 81% increase from 223 a year earlier. The company closed 62 agreements in the quarter, including 36 pilots. That compares with 13 pilots in the year-ago quarter. Federal bookings represented almost half of total bookings and rose nearly 187% from the prior year. C3 AI signed 20 new federal agreements, five for C3 Generative AI, and closed 20 new C3 Generative AI agreements overall. The generative AI qualified pipeline grew to over 225, up more than 55% from the first quarter. Partner-driven agreements totaled 40, and the qualified opportunity pipeline with partners increased 75% over the past year. The company entered new agreements with GSK, Indorama, and First Business Bank and expanded agreements with Con Edison, Roche, Nucor Corporation, and Hewlett Packard Enterprise. It expanded its Strategic Collaboration Agreement with AWS and launched the no-code, self-service C3 Generative AI AWS Marketplace Edition under a 14-day free trial. The Administration for Children and Families made the first order under a $90 million blanket purchase agreement.
Growth came with continuing GAAP losses. Gross profit was $41.11 million, down 1.3% from the prior-year quarter. Gross margin was 56.1%, down 10.6 percentage points. The GAAP operating loss was $79.40 million, wider by 10.3% from the prior-year quarter. Operating margin was -108.4%, up 6.9 percentage points. Net loss for the quarter was $69.78 million, a wider loss by 1.4%. Diluted EPS was -$0.59, up $0.04 from the prior-year quarter. Year to date, net loss was $134.14 million, a narrower loss by 4.7%, and diluted EPS was -$1.15, up $0.15 from the prior-year period. Non-GAAP gross profit was $50.4 million, or 69% non-GAAP gross margin, and non-GAAP net loss per share was -$0.13.
Cash use improved. Operating cash flow was -$48.59 million for the quarter, up 7.6% from the prior-year quarter. Year-to-date operating cash flow was -$44.65 million, up 50.8%. Capital expenditures were $5.29 million for the quarter, down 78.3%, and $16.63 million year to date, down 58.4%. Deferred revenue was $40.60 million, up 32.7% from the prior-year quarter. RPO was $303.60 million, down 27.2% from the prior-year quarter. Management ties the RPO decline to the shift to consumption-based pricing, which lowers average selling prices and multiperiod commitments. MD&A reports average selling price of $665 thousand for the quarter ended October 31, 2023, compared with $825 thousand for the quarter ended October 31, 2022.
Guidance points to more growth but continued non-GAAP operating losses. For the third quarter of fiscal 2024, C3 AI guides a non-GAAP loss from operations of $40.0 million to $46.0 million. For full-year fiscal 2024, it guides a non-GAAP loss from operations of $115.0 million to $135.0 million. The company also issued revenue guidance for both the third quarter and the full fiscal year, and both ranges sit above the revenue reported for the just-completed quarter and year-to-date period. Plans call for accelerating investment in generative AI, lead generation, branding, market awareness, and customer success. Risks include a history of operating losses, dependence on a limited number of customers that account for a substantial portion of revenue, the ability to attract and retain customers, and market acceptance of enterprise AI. Macroeconomic conditions such as inflation, higher interest rates, supply chain disruptions, and capital market volatility are causing customers to optimize consumption and prioritize cash flow management. C3 AI expects to keep incurring operating losses and negative cash flows from operations for the next few quarters.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2024 | Q1 FY2024 | QoQ | Q2 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $73.2M | $72.4M | +1.2% | $62.4M | +17.3% |
| Gross profit | $41.1M | $40.5M | +1.4% | $41.7M | -1.3% |
| Gross margin | 56.1% | 56.0% | +0.1 pp | 66.8% | -10.6 pp |
| Research & development | $50.4M | $50.9M | -0.9% | $50.1M | +0.7% |
| Sales & marketing | $49.9M | $43.9M | +13.7% | $44.9M | +11.0% |
| General & administrative | $20.2M | $19.9M | +1.6% | $18.6M | +8.5% |
| Total operating expenses | $120.5M | $114.6M | +5.1% | $113.6M | +6.1% |
| Operating income (loss) | -$79.4M | -$74.1M | -7.2% | -$72.0M | -10.3% |
| Operating margin | -108.4% | -102.4% | -6.0 pp | -115.3% | +6.9 pp |
| Net income (loss) | -$69.8M | -$64.4M | -8.4% | -$68.8M | -1.4% |
| Net margin | -95.3% | -88.9% | -6.4 pp | -110.3% | +15.0 pp |
| Diluted EPS | -$0.59 | -$0.56 | -$0.03 | -$0.63 | +$0.04 |
Risks
Transition from subscription-based to consumption-based pricing is expected to have a short-to-medium term negative effect on revenue growth and RPO. Average selling price declined to $665 at October 31, 2023 from $825 at October 31, 2022, and customers on consumption-based pricing have flexibility in timing that reduces visibility into revenue recognition.
Historically a limited number of customers have accounted for a substantial portion of revenue, and some significant customers have reduced spend or decided not to renew. RPO decreased 27.2% to $303.60 million in FY2024 Q2 from $417.30 million in FY2023 Q2, and average total subscription contract value is decreasing.
Sales cycles can be long and unpredictable, particularly for large subscriptions, with the cycle from initial evaluation to payment approximately 3.5 months but potentially extending over years. Large individual sales can cause quarterly results and cash flows to fluctuate, and most expenses are relatively fixed or require time to adjust.
Total gross margin decreased to 56.1% in FY2024 Q2 from 66.7% in FY2023 Q2, down 10.6 percentage points, driven by subscription margin decline from higher personnel, stock-based compensation, and cloud services costs. The risk factors also note that new applications or partner relationships may increase third-party compensation or reimbursement and lower profit margins.
The Enterprise AI market is intensely competitive, with larger competitors able to bundle products, sell at zero or negative margins, or acquire businesses to offer more comprehensive solutions. The company also expects to invest heavily in generative AI, increasing execution risk if new offerings do not gain market acceptance.
In March 2022, the company and certain current and former officers and directors were sued in a putative class action alleging material misstatements about the Baker Hughes partnership, strategic alliances, market potential, and product uptake. A short seller report was published April 4, 2023, and any governmental inquiry or SEC or DOJ investigation could divert management and harm the business.
Success depends on founder and CEO Thomas M. Siebel, who is critical to overall management, sales strategy, culture, strategic direction, engineering, and operations; all executive officers are at-will and no key person life insurance is maintained. Competition for AI talent is intense, and the perceived value of equity awards or cash compensation mix may affect recruiting and retention.
Customers generally have no obligation to renew, upgrade, or expand subscriptions after their terms expire, and the company has limited experience with customer renewals of AI products and services. If customers do not renew or expand, revenue may grow more slowly than expected or decline.
Adverse macroeconomic conditions including labor shortages, supply chain disruptions, inflation, higher interest rates, and capital markets volatility are causing customers to optimize consumption, rationalize budgets, and prioritize cash flow management. This may slow customer spending and revenue growth.
Growth depends on strategic relationships including Baker Hughes as exclusive channel partner and reseller in oil and gas through April 30, 2025, and alliances with AWS, Google Cloud, Microsoft, and Raytheon. Partners may offer competing platforms or fail to prioritize selling C3 AI software, and agreements may not renew on comparable terms.
The dual-class common stock structure concentrates voting control with holders of Class B common stock. As of October 31, 2023, Mr. Siebel and related entities had beneficial ownership representing approximately 55.2% of the voting power, limiting other stockholders' ability to influence corporate matters.
The company expects to continue incurring operating losses and negative cash flows from operations in the next few quarters due to investments and may require additional capital. Operating cash flow was negative $44.65 million for FY2024 year to date, although it improved 50.8% versus FY2023 year to date, and existing cash is believed sufficient for at least the next 12 months.
Substantially all revenue derives from subscriptions to C3 AI Software and COE support services, so market acceptance of Enterprise AI and C3 AI Software is critical. If the market fails to grow as expected or businesses fail to adopt C3 AI Software, operating results and financial condition could be adversely affected.
The company has limited historical experience supporting or selling to smaller, non-enterprise customers and intends to grow via lower entry price offerings such as C3 AI Ex Machina. If smaller customers do not renew or expand their subscriptions, revenue may grow more slowly than expected.
SaaS KPIs
All quarters →RPO
Cancellable backlog
Summary, forecast, risks and KPIs are extracted from C3.ai, Inc.'s SEC filings for Q2 FY2024 (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.