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  "documentTitle": "C3.ai, Inc. (AI)",
  "authorId": "54_Spruce_Point_Capital",
  "authorName": "Spruce Point Capital Management",
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  "presentationDate": "2022-02-16 00:00:00",
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  "notes": "The slide uses a red arrow visual to denote a downward trajectory or negative critique of the company's financial health.",
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      "text": "We call on management to explain if this is truly a sales commission, or an inducement to keep BH from taking more adverse measures to reduce its JV commitment?",
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      "text": "Spruce Point observes a revolving door around the CFO function at C3. Notably, C3 is on its third CFO since filing to IPO. Current auditor Deloitte was appointed in 2018. We find troubling discrepancies of revenue growth claims in FY 2018 (60% vs. 88%). Current VP of Investor Relations Paul Phillips was C3's former CFO from Jan 2017 – June 2019, but fails to mention this role on his public biographies. Also, evidence suggests that in the past he may have misrepresented himself as CFO of vArmour Networks. CFO Marc Levine's name disappeared from SEC filings during the IPO registration process. He was the original CFO signatory on C3's first draft prospectus on September 18, 2020 and then never showed up in any future SEC filings. CFO David Barter, a former Microsoft financing executive, resigned as CFO in Dec 2021 and after the 3rd BH contract amendment. C3's recent CFO appointment is Adeel Manzoor, an executive which we believe has a troublesome past: As Chief Accounting and Financial Officer of Telenav (Nasdaq: TNAV), the Company restated revenues and issued a material weakness opinion for the period following his appointment. Mr. Manzoor was charged in California for domestic violence, and a document alleges a death threat was made. We believe C3's accounting team is thinly staffed with individuals with limited tenure at C3. It recently appointed a new CAO, and has been looking to hire an individual as a revenue manager to assist in revenue accounting and documentation",
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      "text": "Why did C3 recently agree to pay an exorbitant sales commission to BH in relation to sales that are being challenged and in the context of a fractured relationship? At the time of the 3rd amendment, C3 had recognized $36.7m of BH revenue through the H1'22, annualized at $73.4m. Therefore, we estimate the JV was not on pace to meet its minimum annual revenue requirement stipulated under the predecessor agreement of $75m. Yet, as part of the 3rd amendment, C3 agreed to pay BH a sales commission of $16m (by April 2022). The 3rd amendment had other onerous provisions to C3 including price discounts to prospective customers. We believe this may have resulted in a contract modification, and allowed C3 to do a revenue-catch up adjustment used to exceed Q2'22 revenue expectations. We observe a jump in unbilled receivables in the recent quarter highly correlated with the JV's professional service revenue. We also find an accounts receivable reporting discrepancy which highly correlates to changes in unbilled receivables. Sales commission are being amortized and recognized to the income statement as expense on a vastly different schedule than cash payments are being made. The $16m payment is being deferred over 5 years, though C3 says average contract durations are 3 years. A prior sales commission of $8.3m is being amortized over 3 years, but C3 paid $3.4m or 41% in the first 6 months. We further struggle to understand why C3 is paying Baker Hughes $24m of sales commissions on what we determined to be a maximum of $11m of eligible revenues for commission payments (could be as low as $2.6m). We call on management to explain if this is truly a sales commission, or an inducement to keep BH from taking more adverse measures to reduce its JV commitment? Lastly, related-party revenue directly under the umbrella of the JV is being recognized at more than 99% gross margins. Perhaps even more suspicious, the related-party revenues recognized as professional services is being recognized at 100% gross margin. How can the cost to deliver professional service revenue, which entails human cost and labor, be zero? A former employee we interviewed commented that it was \"impossible\"",
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      "text": "downside risk: 40% - 50%",
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      "kind": "other",
      "text": "Questionable Financial Maneuvering In Sales Commission Payments with the Baker Hughes JV. Potential Cookie Jar Revenue Accounting. 99%+ Gross Margin Revenue?",
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      "kind": "other",
      "text": "Multiple CFOs and Since IPO. VP of IR Appears To Have Misrepresented himself. Current CFO Should Give ESG Investor Jitters With A Domestic Violence History",
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      "text": "Spruce Point Estimates 40% - 50% Downside Risk To C3.ai (NYSE: AI) Share Price: ($12.85 - $15.40)",
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