C3.ai stock rallies on strong results, guidance boost

Shares of C3.ai jumped on Friday after the provider of artificial intelligence software posted better-than-expected earnings.

Investor interest in C3.ai has grown in recent weeks as the market scrambles for ways to drive the emerging artificial intelligence trend.

Created by Thomas Siebel, founder of Siebel Systems, C3.ai provides AI applications for large businesses and government agencies. The company recently announced C3 Generative AI for Enterprise Search, a tool that incorporates technology from ChatGPT Creator Open AI. The new search tool will be incorporated into the company’s applications starting this spring.

in an interview with Baron’sSeibel said he sees his company as an aggregator of AI technology rather than a primary innovator. The CEO sees Microsoft and Open AI, Google and IBM as key technology developers. “Whoever has the hottest technology, we take advantage of it, and we leverage it, just like we do in encryption and machine learning services,” he says.

Siebel says the company’s secret sauce is the “orchestration layer” that pulls together applications and services from different providers into a coherent whole.

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Siebel says C3.ai is finding widespread enthusiasm for its new search tool, which uses a Google-style search box interface to access content from enterprise applications that are often hard to master. The company is including the new search capability in all C3.ai applications, but Siebel notes that the search feature works with third-party apps as well. He says the company may provide equipment to a firm that isn’t running any C3.ai applications, but admits that “we haven’t figured that out yet.”

For its fiscal third quarter that ended Jan. 31, C3.ai (ticker: AI) posted revenue of $66.7 million, down 4% from a year ago but beating the company’s guidance of $63 million to $65 million. Beyond the range, and beyond. Street Consensus Estimate at $64.3 million. On an adjusted basis, the company reported a loss from operations of $15 million, which was below the forecast range of a loss of between $25 million and $29 million.

Shares of C3.ai rose 29% to $27.52 in Friday afternoon trading.

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The company said it has successfully transitioned most of its customers to a subscription-based business mode. Subscription revenue was $57 million in the quarter, or 85% of total revenue. Non-GAAP gross margin was 76%. Remaining performance obligations were $403.2 million.

“We are seeing tailwinds from improved business optimism and increased interest in implementing C3 AI solutions to address a growing range of applications across a wide range of industries,” Siebel said in an earlier statement. “The overall business sentiment seems to be improving. This is a dramatic change from what we experienced in mid-2022.

The company said it remains on track to be cash positive and non-GAAP profitable by the end of fiscal 2024. Siebel says the company’s high gross margin—in the 78% to 80% range—suggests a clear path to profitability as revenue grows and the company spends less on sales, marketing and R&D on a percentage basis. The company, unlike other tech companies, is not cutting staff, and continues to recruit, he says.

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For the fiscal fourth quarter, C3.ai anticipates revenue of between $70 million and $72 million, slightly ahead of Wall Street at $69.9 million, with a non-GAAP loss from operations of $24 million to $28 million.

For the full year, the company now sees revenue between $264 million and $266 million, with non-GAAP loss from operations between $69 million and $73 million. Previous guidance called for revenue of $255 million to $270 million and a loss of $90 million to $98 million.

As for the recent explosion of interest in AI software, Seibel says the story is just beginning: “We’re in the first half of the first innings and the first man is batting.”

Write to Eric J. Savitz at [email protected]

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