Advanced Computing in the Age of AI | Saturday, January 22, 2022

C3 AI Gets $500M Deal with DOD in Midst of Stock Price Struggles 

Enterprise AI vendor C3 AI announced the receipt of a $500 million AI modeling and simulation software agreement with the U.S. Department of Defense (DOD) that aims to help the military accelerate its use of AI in the nation’s defense.

For C3 AI, the five-year deal could not have come at a better time as the company has watched its stock price decline by almost 80 percent over the last 52 weeks, ranging from $183.90 to a low of $27.52, according to CNBC.com. At today’s close, the stock price perked up slightly by 4.83 percent, rising to $33.64 per share. After-hours trading, however, saw the stock price down by three cents per share or -0.09 percent by 4:20 PM EST.

The COVID-19 pandemic, combined with supply chain challenges and business pressures from customers whose businesses were also adversely affected by the pandemic, combined to sag the fortunes of C3 AI and other companies, even while other companies did well during the same period.

The deal with the DOD, which was unveiled Dec. 9, “allows for an accelerated timeline to acquire C3 AI’s suite of Enterprise AI products and allows any DOD agency to acquire C3 AI products and services for modeling and simulation,” the company said in a statement.

“The new agreement has a DOD-wide scope, accelerating research projects in simulation and modeling and production deployments for operations and sustainment,” Thomas M. Siebel, the CEO of C3 AI, said in a statement. “We are thrilled to have been selected for these important initiatives and look forward to expanding our work and finding new ways to better serve the U.S. federal government.”

The U.S. Air Force Space Force and other DOD agencies are already C3 AI customers, and the new $500 million agreement will accelerate the adoption of the C3 AI Suite and C3 AI defense and intelligence applications across a broader group of DOD agencies, according to the company.

C3 AI defense and intelligence applications in use today include insider threat, security clearance adjudication, readiness, AI predictive maintenance, modeling and simulation, missile trajectory modeling and data fusion, the company said.

“These enterprise capabilities are critical to DOD and intelligence agencies as they accelerate their transformation towards large-scale deployments of increasingly vital artificial intelligence capabilities,” C3 AI stated.

The deal is a "Production-Other Transaction Agreement" for $500 million, which means that agencies within the DOD can acquire AI software and services from the company at any time without having to bid contracts or go through further acquisition procedures including RFPs, Siebel told EnterpriseAI in an interview. The DOD agencies can acquire the software and services until the $500 million limit is reached, which can renewed if needed, he said. The agreement will enable the DOD to add C3 AI's software into additional military aircraft to give them broader AI capabilities, according to Siebel.

"It's going to dramatically accelerate the rate at which the U.S. defensive entities can adopt AI without going through these lengthy, burdensome annual procurement processes that are mandated by the federal acquisition regulations," he said.  "I think in the long run, the stock price takes care of itself so I am not really worried about that. But this [contract is] huge. It is a staggering amount of money for a relatively small company like C3 AI and we feel privileged to receive the award and proud to be able to serve United States Defense Department."

Several IT analysts said the deal is good news for the company.

R. Ray Wang, analyst

“This the first of many wins to come,” said R. Ray Wang, principal analyst with Constellation Research. “The space will come back post-pandemic. Most folks have been focused on blocking and tackling during the pandemic, such as remote work, safety and security. Part of the reason C3 AI wins is the nature of their offering. It is software-based and not as heavy on services as other offerings.”

Marc Staimer, the president of Dragon Slayer Consulting, said it is notable that the U.S. Air Force is already a customer, and reiterated that the deal will help the Air Force accelerate their acquisition timeline.

“That should be good news for C3 AI stockholders,” said Staimer. “It should help their stock.”

A Dec. 7 post by The Motley Fool reported that C3 AI’s stock recently “plunged to an all-time low” on Dec. 2, but also noted that the company’s “fundamentals are gradually improving. The stock is no longer overvalued relative to its growth potential,” the post reported.

C3.ai's (NYSE:AI) second-quarter results reported revenue rising 41 percent year-over-year to $58.3 million, which beat estimates by $1.4 million, according to The Motley Fool report. “It’s adjusted net loss widened from $9.7 million to $23.6 million, or $0.23 per share, but still, beat expectations by six cents.”

It was a tough pandemic year for the company, the report continued. “The company's revenue growth decelerated in fiscal 2021, which ended in April, as the pandemic disrupted its orders from large energy, industrial, and financial companies. Yet, its revenue growth appears to have rebounded in the first half of fiscal 2022,” with a projected rise from 34 percent to 38 percent in the third quarter.

A Dec. 10 story by Barron’s on the DOD-C3 AI deal said that while the announcement is a plus for the company, several financial analysts still expressed caution.

Jack Andrews, an analyst with Needham, told Barron’s that the deal was a “clear positive development,” but that it will not change current financial estimates.

“Based on our conversation with management … this announcement is not in fact a $500 million order, but rather an authorization, or contracting vehicle, that makes it seamless for the DOD to purchase software from [C3 AI],” Andrews told the publication.

Another analyst, Michael Turits of KeyBanc Capital Markets told Barron’s that while the agreement represents up to $500 million over five years, there is no required minimum spend by the DOD under the deal.

“We view the announcement as a positive endorsement of C3’s business, although we have no visibility into the amount of revenue that will ultimately come from the agreement,” Turits told Barron’s. “We do not expect the agreement to materially impact current FY22 business.”

C3 AI announced its IPO in November of 2020, with the IPO opening less than a month later and going up and down actively over the year. The company was founded in 2009 as C3 IoT.

In March, C3 AI announced the creation of a technology licensing office to license its model-driven architecture and other technologies. The move was made after the company received a broad “omnibus” U.S. patent for its flagship product, the C3 AI Suite. The patent, No.10,817,530, was granted for “systems, methods, and devices for a cyber-physical (IoT) software application development platform based upon a model-driven architecture and derivative IoT SaaS applications,” according to the application.

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