The News: C3 AI recently announced its fiscal fourth quarter 2022 earnings results that closed at the end of April. The firm increased its year-over-year revenues by 38 percent, with subscription revenues growing at 31 percent. The firm also pruned its top-line revenue guidance in the coming months due to some sales pipeline issues coupled with uncertainties in the overall economy. Read the full earnings release on C3 AI’s website.
Here’s a quick breakdown of the C3.AI’s Q4 2022 Key Figures:
- Net revenues: Revenues for the quarter were $72.3 million versus $52.2 million which is an increase of thirty-eight percent versus the prior-year period.
- Gross Profit: Non-GAAP gross profit was $58.52 million versus $40.95 million or a 43 percent change versus the year ago period.
- Gross Margin: Non-GAAP gross margins were 81 percent versus 78 percent in the year ago quarter.
C3 AI Beats FY Q4 2022 Earnings Expectations, Continues to Diversify and Work to Improve Profitability
Analyst Take: C3 AI beat FY Q4 2022 earnings expectations for the quarter, but initially raised eyebrows when it updated its fiscal 2023 revenue target percent range in the mid-twenties versus the mid-thirties. Management indicated downward guidance was due to some deals being delayed in the pipeline, coupled with being more cautious since there are still unknowns in the overall economy along with supply chain issues. Really no surprise given the macroeconomic conditions, but also a conservative proactive play versus a potential disappointment when the next quarter comes around.
On the earnings call, it was good to see C3 AI responding with a greater focus on penetrating larger accounts, expansion into new verticals, greater geographical expansion, and a stronger emphasis on cost containment that should translate into reaching operating profit goals. From a customer perspective, C3 AI has grown its customer base from 151 customers in FY 2021 to 223 in FY 2022, or 48 percent growth. Although its customer base is highly dependent on the oil and gas vertical, C3 AI has reduced this dependency from 57 percent in FY 2021 to 54 percent and expects to widen its net into segments such as management consulting where those organizations are heavy users of artificial intelligence and tend to leverage those best practices for other Fortune 500 clients, ultimately driving greater demand for C3 AI. From cost savings perspective, C3 AI indicated it will wind down some of its marketing and branding initiatives, coupled with expanding the bulk of its engineering and services capacity in their new Latin America facilities.
The trend toward diversification has been consistent for C3 AI over the past several quarters. Due to the strong need for enterprise AI capabilities in specific industries like O&G, Financial Services, and Healthcare, these have been strong early adopters of the platform. Having said that, the small customer base and large deal size is likely to create a slightly more difficult forecasting and growth because large deals tend to slip — especially when economic headwinds pick up.
Wrapping it up, C3 AI beat FY Q4 2022 earnings expectations for the quarter (and year) but it also revised its FY 2023 revenue guidance downward, which could be indicative of its customers halting or pruning expenses in anticipation of a potentially slow or stagnant economy. However, C3 AI assured analysts that their deal pipeline is strong and that it is taking measures to improve profitability while diversifying its customer base. Furthermore, we believe that C3 AI has a unique opportunity to capitalize on a likely increase in outflow for deflationary technologies like scalable AI/ML/Analytics that will enable businesses to operate more efficiently and deal with macroeconomic headwinds.
Overall, the strategies and focal points that we heard from C3 AI this quarter are in line with what a company needs to do in the current economy. While the short-term is likely going to be choppy, the demand for AI is in its infancy. And furthermore, companies are looking for out of the box solutions that meet complex enterprise and industry requirements, so we expect them to be in even greater demand. C3 AI is in a good position to grab greater market share in a very large and fast growth market over the next several years.
Disclosure: Futurum Research is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of Futurum Research as a whole.
Other insights from Futurum Research:
Image Credit: The Street
The original version of this article was first published on Futurum Research.
Daniel Newman is the Principal Analyst of Futurum Research and the CEO of Broadsuite Media Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise. From Big Data to IoT to Cloud Computing, Newman makes the connections between business, people and tech that are required for companies to benefit most from their technology projects, which leads to his ideas regularly being cited in CIO.Com, CIO Review and hundreds of other sites across the world. A 5x Best Selling Author including his most recent “Building Dragons: Digital Transformation in the Experience Economy,” Daniel is also a Forbes, Entrepreneur and Huffington Post Contributor. MBA and Graduate Adjunct Professor, Daniel Newman is a Chicago Native and his speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
Michael Diamond is an industry analyst and foresight professional with 25 years of experience in the IT channel and market research industry. He is a route-to-market expert covering desktop and mobile devices, collaboration, contact center, ProAV, data center infrastructure, and cybersecurity. Prior to joining Futurum Research, Michael worked for The NPD Group as the sole industry analyst covering indirect channels, cybersecurity, SMB and vertical market trends, data center infrastructure (e.g., enterprise storage, servers, networking), ProAV and PCs. He has been quoted by media outlets such as Bloomberg, Kiplinger, TWICE, OPI (Office Products International), Apple World today, Dark Reading, Enterprise Storage Forum, Credit-Suisse, Footwear News, CRN (Computer Reseller News), Channel Futures and Into Tomorrow. Michael has presented at myriad events including The Channel Company’s Xchange, The Global Technology Distribution Council’s summit, SMB TechFest and more.