{ "docId": "019dd923-622c-750b-8b99-3322bc9ae76c", "docSlug": "72469199073c", "documentTitle": "C3.ai, Inc. (AI)", "authorId": "54_Spruce_Point_Capital", "authorName": "Spruce Point Capital Management", "documentKindSlug": "activist-deck", "documentKindLabel": "Activist deck", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2022-02-16 00:00:00", "orientation": "landscape", "aspectRatio": 1.3333334, "pageNumber": 67, "pageCount": 88, "prevPage": 66, "nextPage": 68, "slideType": "expose_contradiction", "function": "expose_contradiction", "density": "overcrowded", "nDataPoints": 0, "notes": "The slide uses a red border to emphasize the negative findings regarding the CFO's past performance.", "elementsJson": [ "headline_text", "paragraph", "footnote" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b99-3322bc9ae76c/67", "deckHref": "/decks/019dd923-622c-750b-8b99-3322bc9ae76c", "deckJsonHref": "/decks/019dd923-622c-750b-8b99-3322bc9ae76c.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b99-3322bc9ae76c#slide-67", "components": [ { "bbox": null, "kind": "callout", "text": "The Audit Committee of the Board of Directors concluded that the Company has a material weakness in its internal control over financial reporting as of September 30, 2019 and December 31, 2019 related to a design deficiency in the Company's review controls over unusual or non-recurring and significant transactions.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-0f1c-754a-9dea-45a83c48733e", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.94, "x": 0.03, "y": 0.91 }, "kind": "paragraph", "text": "The Audit Committee of the Board of Directors concluded that the Company has a material weakness in its internal control over financial reporting as of September 30, 2019 and December 31, 2019 related to a design deficiency in the Company's review controls over unusual or non-recurring and significant transactions. Specifically, the Company's controls were not properly designed to provide reasonable assurance that it timely identifies and assesses the accounting implications of terms in unusual or non-recurring agreements. As a result of the material weakness, the Audit Committee has concluded that the Company's internal control over financial reporting and disclosure controls and procedures were not effective as of September 30, 2019 and December 31, 2019.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "382dc623-e3cc-489a-a60d-84cb72399db2", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.18, "w": 0.94, "x": 0.03, "y": 0.33 }, "kind": "paragraph", "text": "In August 2019, the Company entered into certain agreements with Grab, including: (i) a services agreement pursuant to which the Company agreed to provide certain services to Grab through certain of its employees designated to work on the Company's OpenTerra Platform; (ii) a license agreement pursuant to which the Company granted to Grab a perpetual license to certain intellectual property associated with the OpenTerra Platform; and (iii) an asset purchase agreement pursuant to which the Company sold certain intellectual property associated with the OpenTerra Platform to Grab and facilitated offers for employment or consulting arrangements by Grab of certain of the OpenTerra employees. The transactions contemplated by the services agreement, license agreement and asset purchase agreement together comprise the \"Grab Transaction.\"", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "55f2f82d-8bc6-42e1-9c8a-46fd2f838cd6", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.94, "x": 0.03, "y": 0.78 }, "kind": "paragraph", "text": "In addition, the Company received under the Grab Transaction consideration which included nonmarketable ordinary shares of Grab Holdings, Inc. To determine the fair market value of these ordinary shares, the Company used all information available from Grab regarding the assessment of its board of directors of the fair market value of the ordinary shares, including the limited number of arms' length sales of Grab ordinary shares and a review of recent Grab financial statements. Because there is no public trading market for Grab ordinary shares and because Grab does not prepare its financial statements in accordance with U.S. generally accepted accounting principles (\"GAAP\"), or file its financial statements with the SEC or another securities regulatory body, the Company relied on limited information to assess the fair market value of Grab's ordinary shares.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "796a9f88-5f30-4e4f-bd30-063be447b0b8", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.94, "x": 0.03, "y": 0.17 }, "kind": "paragraph", "text": "C3's CFO Adeeel Manzoor was previously appointed on July 8, 2019 CFO and Chief Accounting Officer of Telenav (Nasdaq: TNAV) a provider of connected-car and location-based services.(1) On February 11, 2020 TNAV filed an NT 10-Q.(2) In the filing, the Company evaluated whether revenue had been \"faithfully depicted\" related to a transaction that occurred under Mr. Manzoor's tenure and determined a revision was necessary. In addition, the Audit Committee issued a material weakness of internal controls. The periods covered by these actions were subsequent to Mr. Manzoor being appointed CFO/CAO.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "8331b5ef-78de-4378-ac0f-a431142fdc29", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.25, "w": 0.94, "x": 0.03, "y": 0.52 }, "kind": "paragraph", "text": "In determining revenue the Company would recognize in connection with the Grab Transaction, the Company allocated consideration, which included cash and equity, between products and services, as well as the identified assets, which allocation the Company determined subject to ASC 606. Subsequent to the Company's issuance of its press release, investor letter and commentary on February 6, 2020, the Company reassessed whether the methodology it used to determine and allocate consideration in order to determine revenue associated with the Grab Transaction faithfully depicted the portion of the consideration the Company would be entitled to when satisfying each obligation and, specifically, the revenue the Company would recognize in exchange for the rights transferred under the perpetual license (as compared to the incremental rights transferred upon the asset purchase). As a result of this reassessment, the Company determined the stand-alone selling price for the rights transferred to Grab upon purchase should reflect what the Company would sell such incremental rights for separately in similar circumstances and to similar customers. This resulted in a correction of the revenue the Company recognized under the Grab Transaction for the three months ended September 30, 2019 and revision of the revenue the Company would recognize for the three and six months ended December 31, 2019, as well as an adjustment to the net income the Company provided in its outlook for the three months ending March 31, 2020.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c2a55693-4946-41f8-8351-451ed13a1ff7", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.03, "w": 0.15, "x": 0.03, "y": 0.97 }, "kind": "source-note", "text": "1) TNAV 8-K\n2) TNAV NT 10-Q", "attrs": { "numbered": true }, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "8ab56c54-7046-42ea-828a-2749a98fe393", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.65, "x": 0.28, "y": 0.05 }, "kind": "title", "text": "CFO's Prior Role At Telenav Marked By Revenue Revisions And A Material Weakness", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "ca99c5ca-860a-47d4-a220-e59fa0a86638", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [ { "name": "fraud-exposure", "slug": null, "matchId": "d689449f-20a6-4185-80fa-ef585b88af1f", "evidence": "The slide explicitly links a specific executive to past accounting failures and material weaknesses at a previous firm.", "confidence": 0.9 } ], "arcBeats": [ { "to": 75, "from": 51, "beatId": "9ec9cd11-628e-4821-81da-1847df73caa4", "arcName": "Overcoming the Monster", "arcSlug": "overcoming-monster", "beatName": "Analysis and Evidence", "beatSlug": null, "evidence": "Spruce Point provides analysis and evidence to support its claims.", "position": 3, "confidence": 0.8, "parentBeatName": null, "parentBeatSlug": null } ], "loops": [ { "to": 70, "from": 61, "name": "Hypothesis Test", "slug": "42-hypothesis-test", "bestFor": "Strategy validation, due diligence, research presentations", "matchId": "ae9a5c50-0864-4113-a5df-762b5e26b5b7", "evidence": "Spruce Point presents analysis and evidence to support its claims.", "position": 2, "objective": "To test the hypothesis that C3.ai's financials and business practices are flawed", "structure": "The Hypothesis -> Test 1 (Supports/Refutes) -> Test 2 (Supports/Refutes) -> Conclusion (Validated/Pivoted)", "confidence": 0.8, "description": "State a hypothesis upfront, then systematically prove or disprove it with evidence" } ], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }