NOTE TO EDITORS: The Following Is an Investment Opinion Issued by Spruce Point Capital Management
Highlights Growing Risk of Additional Revenue Deferment or Contract Elimination from Baker Hughes, C3.ai’s Largest Customer Accounting for Over 30% of Sales
Observes Financial Reporting and Accounting Issues Related to Baker Hughes Joint Venture Sales Commissions, Accounts Receivables and Gross Margins
Uncovers Significant CFO Turnover at C3.ai, Including Three Different CFOs Since Registering to Go Public in Late 2020
Finds a Pattern of Exaggeration and Irreconcilable Statements Regarding C3.ai’s Customers, Technology Development Cost, Total Addressable Market Size, Pace of Market Growth, Market Share, Alliances and Sales Cycle to Close Deals
Believes Investor Expectations for Revenues Are Too High Given Significant Salesforce Turnover and Recent Restructuring
Raises Corporate Governance Concerns Related to the Board’s Objectivity Given Directors’ Past and Current Financial Dealings With Chairman and CEO
Sees 40% to 50% Downside Risk to C3.ai’s Share Price and Urges Investors to Visit www.SprucePointCap.com and Follow @SprucePointCap on Twitter for the Latest on $AI
Spruce Point Capital Management, LLC (“Spruce Point” or “we” or “us”), a New York-based investment management firm that focuses on forensic research and short-selling, today issued a detailed report entitled “Real Intelligence: Sell C3.ai” that outlines why we believe shares of C3.ai, Inc. (NYSE:AI) (“C3.ai” or the “Company”) face up to 40% to 50% downside risk, or $12.85 – $15.40 per share. Download or view the report by visiting www.SprucePointCap.com and follow us on Twitter @SprucePointCap for additional information and important updates.
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Spruce Point Report Overview
Founded in 2009 by Thomas Siebel and certain Siebel Systems business associates, Patricia House and Edward Abbo, we believe C3.ai has since gone through multiple rebrands and a restructuring in search of a sustainable business model. Initially, the Company was named C3 Energy, an energy management software solution, and subsequently became C3 IoT when hype around “Internet of Things” took off.
Currently, the Company positions itself as a leader in the enterprise artificial intelligence (“AI”) platform market. Amid surging interest in technology stocks, C3.ai IPO’ed at $42 per share in December 2020 and peaked at $177 per share. Now with the Federal Reserve projected to raise interest rates and institute tapering, we believe investors will more closely scrutinize the statements made by, and financial prospects of, once high-flying technology stocks such as C3.ai. Key findings from our report on C3.ai include:
Evidence of a severely challenged partnership with Baker Hughes, a related-party and C3.ai’s largest customer. In June 2019, Baker Hughes/GE (“Baker Hughes”) purchased equity, which at pre-IPO accounted for approximately 15% of Class A shares, at an implied $460 million valuation, and agreed to both use and resell C3.ai’s product suite to its oil and gas customers with a minimum annual revenue guarantee over three years to reach $170 million by April 2022. Baker Hughes’ Chief Executive Officer Lorenzo Simonelli also joined C3.ai’s Board of Directors (the “Board”). The contract has since been amended three times, most recently in October 2021, resulting in peak purchase commitments being deferred …
