Summary
C3.ai reported $66.7 million of revenue for its fiscal third quarter ended January 31, 2023, down 4.4% from $69.8 million in the prior-year quarter. Revenue for the nine months ended January 31, 2023 rose 7.7% to $194.4 million from $180.4 million. Subscription revenue was flat year over year and made up 86% of the quarter's total, while professional services revenue fell 24% on the timing and mix of service projects. Management tied the soft quarter to the shift to consumption-based pricing, which starts new customers on a two-quarter pilot at a smaller initial contract size. Average selling prices are falling, and total revenue growth for fiscal 2023 is expected to stay below historical rates until a meaningful number of customers finish pilots.
Margins and profits moved the wrong way. Gross profit fell 15.3% to $44.4 million from $52.4 million, and gross margin fell to 66.6% from 75.1%. Subscription margin dropped to 63% from 78% on higher personnel costs, more stock-based compensation, and rising amortization of capitalized software. Operating loss widened to $72.0 million from $47.4 million, and operating margin was -108.1%, compared with -67.9% a year earlier. Net loss widened to $63.2 million from $39.4 million, and diluted net loss per share was $0.57 versus $0.38. Cost of subscription revenue rose 73% in the quarter, and research and development expense rose 34% on higher headcount and stock-based compensation. Non-GAAP loss from operations was $15.0 million, and non-GAAP net loss per share was $0.06.
Cash generation was mixed. The quarter used $51.9 million of operating cash flow, an improvement from the $55.4 million used a year earlier, but the nine-month figure deteriorated to $142.7 million used from $73.3 million. Capital expenditures jumped to $19.8 million in the quarter from $0.8 million, mostly leasehold improvements on new leased space. Free cash flow for the nine months was negative $203.5 million. C3.ai closed the quarter with $789.8 million in cash, cash equivalents, and investments, alongside an accumulated deficit of $745.3 million.
Backlog and customer metrics show both stress and progress. Remaining performance obligations were $403.2 million, down 14.1% from $469.3 million a year earlier, and deferred revenue fell 34.6% to $38.9 million. Current RPO of $176.3 million was up 7% from $164.5 million one quarter ago. Customer count rose to 236 from 218. The expanded Baker Hughes arrangement added $32.5 million in incremental bookings and accelerated payment timing, and gives Baker Hughes more flexibility in how it resells. With Google Cloud, the companies closed deals with eight new customers and identified 291 enterprise opportunities, over 100 of which are in licensing discussions. C3.ai and AWS are jointly pursuing 75 opportunities, and the qualified pipeline exceeds 500.
Guidance covers both the next quarter and the full fiscal year. For the fourth quarter of fiscal 2023, the company guided to a non-GAAP loss from operations of $24 million to $28 million. For the full fiscal year 2023, it guided to a non-GAAP loss from operations of $69 million to $73 million. Management repeated its goal of becoming cash positive and non-GAAP profitable by the end of fiscal 2024, and described tailwinds from improved business optimism heading into the fourth quarter.
The main risks are the ones the filings flag. C3.ai depends on a limited number of customers that account for a substantial portion of revenue, and Baker Hughes remains a related party with $188.5 million of non-cancellable commitments sitting inside RPO. Macroeconomic conditions, including inflation, higher interest rates, and budget scrutiny, are pushing customers to optimize consumption. The company carries a history of operating losses and expects to keep incurring them, which leaves open the possibility of raising additional capital. On the product side, C3 Generative AI for Enterprise Search is slated for general availability in Spring 2023 and is already deployed at Koch Industries and Baker Hughes.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2023 | Q2 FY2023 | QoQ | Q3 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $66.7M | $62.4M | +6.8% | $69.8M | -4.4% |
| Gross profit | $44.4M | $41.7M | +6.6% | $52.4M | -15.3% |
| Gross margin | 66.6% | 66.8% | -0.2 pp | 75.1% | -8.5 pp |
| Research & development | $55.1M | $50.1M | +10.0% | $40.9M | +34.5% |
| Sales & marketing | $43.5M | $44.9M | -3.2% | $43.1M | +0.8% |
| General & administrative | $17.9M | $18.6M | -4.0% | $15.7M | +13.6% |
| Total operating expenses | $116.4M | $113.6M | +2.5% | $99.8M | +16.6% |
| Operating income (loss) | -$72.0M | -$72.0M | -0.1% | -$47.4M | -52.0% |
| Operating margin | -108.0% | -115.3% | +7.3 pp | -67.9% | -40.1 pp |
| Net income (loss) | -$63.2M | -$68.8M | +8.3% | -$39.4M | -60.1% |
| Net margin | -94.7% | -110.3% | +15.6 pp | -56.5% | -38.2 pp |
| Diluted EPS | -$0.57 | -$0.63 | +$0.06 | — | — |
Risks
In Q2 FY2023, the company announced a change to its go-to-market strategy, introducing a consumption-based pricing model (vCPU hours) for new customers. This lowers immediate revenue growth and decreases RPO, as revenue is recognized on consumption with less visibility. Total revenue decreased 4.4% for the quarter ended Jan 31, 2023, and RPO decreased 14.1% to $403.2 million from $469.3 million in the prior-year quarter.
A limited number of customers account for a substantial portion of revenue, and certain customers have reduced spend or not renewed. The average total subscription contract value is decreasing, and the company expects it to continue to decrease. The January 2023 revision of the Baker Hughes arrangement accelerated payments and increased transaction price by $32.5 million. Total RPO decreased 14.1% to $403.2 million as of Jan 31, 2023 from $469.3 million in the prior-year quarter.
Gross margin decreased to 66.6% for the quarter ended Jan 31, 2023 from 75.1% in the prior-year quarter, and operating margin declined to -108.1% from -67.9%. Net loss widened to $63.2 million from $39.4 million. The decline was driven by higher personnel costs, stock-based compensation, and amortization.
Adverse macroeconomic conditions, including labor shortages, inflation, higher interest rates, and capital markets volatility, are causing customers to optimize consumption, rationalize budgets, and prioritize cash flow management. The COVID-19 pandemic had a significant adverse impact on the conclusion of new and additional business agreements in FY2023, 2022, 2021, and 2020.
Sales cycles are long and unpredictable (approximately five months but can extend over years), and an individual sale typically represents a large proportion of overall sales. The shift to consumption-based pricing further reduces visibility into the timing of revenue recognition, as customers have flexibility in the timing of their consumption.
Deferred revenue decreased 34.6% to $38.9 million as of Jan 31, 2023 from $59.45 million in the prior-year quarter, and RPO decreased 14.1% to $403.2 million from $469.3 million. The company expects total revenue growth for fiscal year 2023 to be lower than historical rates until a meaningful number of customers have concluded pilots and ongoing revenue driven by consumption.
In March 2022, a putative class action lawsuit was filed alleging violations of federal securities laws for allegedly making material misstatements or omissions about the Baker Hughes partnership and other strategic alliances, market potential, and product uptake. Securities litigation could result in substantial costs and diversion of management's attention and resources.
The company must attract and retain highly qualified personnel, and competition is intense. The perceived value of equity awards may decline, affecting recruitment and retention. Stock-based compensation expense increased to $55.8 million for the quarter ended Jan 31, 2023 from $31.4 million in the prior-year quarter.
SaaS KPIs
All quarters →RPO
Non-GAAP Gross Margin
Non-GAAP RPO
Customer Count
Summary, forecast, risks and KPIs are extracted from C3.ai, Inc.'s SEC filings for Q3 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.