C3.ai stock rallied after earnings report

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

Investor interest in C3.ai has surged in recent weeks as the market scrambles for ways to play the growing artificial intelligence trend.

Built by Siebel Systems founder Thomas Seibel, C3.ai delivers AI applications to 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 added to the company’s apps starting this spring.

In an interview Baron’s, Siebel said he sees his company as an integrator of AI technology rather than a primary innovator. The CEO sees Microsoft and Open AI, Google and IBM as key technology developers. “We’re taking advantage of people who are very technical, and we’re taking advantage of that, like with encryption and machine learning services,” he says.

Seibel says the company’s secret sauce is the “orchestration layer,” which pulls applications and services from various providers into a cohesive whole.

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Seibel says C3.ai is seeing widespread enthusiasm for its new search tool, which uses a Google-style search box interface to access content from enterprise applications that are often difficult to master. Seibel notes that the company is including the new search capability in all C3.ai apps, but the search feature works with third-party apps as well. He says the company may make the tool available to an enterprise that doesn’t run any C3.ai applications, but admits “we haven’t figured it out yet.”

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In its fiscal third quarter ended Jan. 31, C3.ai (ticker: AI ) reported revenue of $66.7 million, down 4% from a year ago, but above the company’s guidance range of $63 million to $65 million and above the Street consensus estimate of $64.3 million. . On an adjusted basis, the company posted a loss from operations of $15 million, narrower than the forecast range of a loss between $25 million and $29 million.

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

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The company says it has successfully converted most of its customers to a subscription-based business model. Subscription revenue for the quarter was $57 million, or 85% of overall revenue. Non-GAAP gross margin was 76%. The remaining performance obligations are $403.2 million.

“We are seeing improved business confidence and increased interest in deploying C3 AI solutions to address increasing applications across a wide range of industries,” Siebel said in an earlier statement. “Overall business sentiment is improving. This is a dramatic change from what we experienced in mid-2022.

The company said it is on track to be cash positive and non-GAAP profitable by the end of fiscal 2024. Siebel says the company’s high gross margins — 78% to 80% — suggest a clear path to profitability as revenues grow. The company spends less on sales, marketing and R&D on a percentage basis. The company, unlike other tech firms, has not cut staff and continues to hire, he adds.

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For the fiscal fourth quarter, C3.ai forecast revenue between $70 million and $72 million, slightly ahead of Wall Street’s estimate of $69.9 million, with a non-GAAP loss of $24 million to $28 million.

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For the full year, the company now sees revenue between $264 million and $266 million, with a non-GAAP loss from operations of $69 million to $73 million. Previous guidance was 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 getting started: “We’re in the first half of the first innings, and the first guy is batting.”

Eric J. Write to Savitz at [email protected]

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