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C3.ai (NYSE:AI) Reports Sales Below Analyst Estimates In Q1 Earnings, Stock Drops 13.2%


Radek Strnad /
2022/08/31 4:31 pm EDT
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Artificial intelligence (AI) software company C3.ai (NYSE:AI) missed analyst expectations in Q1 FY2023 quarter, with revenue up 24.6% year on year to $65.3 million. Guidance for the next quarter also missed analyst expectations with revenues guided to $61 million at the midpoint, or 14.9% below analyst estimates. C3.ai made a GAAP loss of $71.8 million, down on its loss of $37.4 million, in the same quarter last year.

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C3.ai (AI) Q1 FY2023 Highlights:

  • Revenue: $65.3 million vs analyst estimates of $66 million (1.08% miss)
  • EPS (non-GAAP): -$0.12 vs analyst estimates of -$0.24
  • Revenue guidance for Q2 2023 is $61 million at the midpoint, below analyst estimates of $71.7 million
  • The company dropped revenue guidance for the full year, from $312 million to $262.5 million at the midpoint, a 15.8% decrease
  • Free cash flow was negative $54.7 million, compared to negative free cash flow of $14.7 million in previous quarter
  • Gross Margin (GAAP): 71.8%, down from 75.1% same quarter last year

“I’m pleased to announce that C3 AI is transitioning from a subscription model to a consumption-based pricing model, bringing us in line with what is becoming the standard among enterprise SaaS companies,” said CEO Thomas M. Siebel.

Founded in 2009 by enterprise software veteran Tom Seibel, C3.ai (NYSE:AI) provides software that makes it easy for organizations to add artificial intelligence technology to their applications.

Generating insights from system level data is an increasing priority for most businesses, but to do so requires connecting and analyzing piles of data stored and siloed in separate databases. This is the demand driver for cloud based data infrastructure software providers, who can more readily integrate, distribute and process information vs. legacy on-premise software providers.

Sales Growth

As you can see below, C3.ai's revenue growth has been very strong over the last year, growing from quarterly revenue of $52.4 million, to $65.3 million.

C3.ai Total Revenue

Even though C3.ai fell short of revenue estimates, its quarterly revenue growth was still up a very solid 24.6% year on year. But the revenue actually decreased by $7 million in Q1, compared to $2.54 million increase in Q4 2022.Shareholders might want to pay closer attention to this as the management is guiding for the decline in sales to continue in the coming quarter

Guidance for the next quarter indicates C3.ai is expecting revenue to grow 4.69% year on year to $61 million, slowing down from the 40.9% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 24.5% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. C3.ai's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 71.8% in Q1.

C3.ai Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.71 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite it going down over the last year, this is still around the lower average of what we typically see in SaaS businesses. Gross margin has a major impact on a company’s ability to invest in developing new products and sales & marketing, which may ultimately determine the winner in a competitive market so it is important to track.

Key Takeaways from C3.ai's Q1 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on C3.ai’s balance sheet, but we note that with a market capitalization of $1.99 billion and more than $907.2 million in cash, the company has the capacity to continue to prioritise growth over profitability.

C3.ai delivered solid revenue growth this quarter. That feature of these results stood out as a positive. On the other hand, it was unfortunate to see that C3.ai's revenue guidance for the full year massively missed analyst's expectations. Overall, it seems to us that this was a complicated quarter for C3.ai. The company is down 13.2% on the results and currently trades at $15.58 per share.

C3.ai may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.