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UiPath's (NYSE:PATH) Q2 Sales Top Estimates But Stock Drops 11.4% On Weak Guidance


Jabin Bastian /
2022/09/06 4:16 pm EDT
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Automation software company UiPath (NYSE:PATH) announced better-than-expected results in the Q2 FY2023 quarter, with revenue up 23.8% year on year to $242.2 million. However, guidance for the next quarter was less impressive, coming in at $244 million at the midpoint, being 9.47% below analyst estimates. UiPath made a GAAP loss of $120.3 million, down on its loss of $100 million, in the same quarter last year.

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UiPath (PATH) Q2 FY2023 Highlights:

  • Revenue: $242.2 million vs analyst estimates of $230.6 million (5% beat)
  • EPS (non-GAAP): -$0.02 vs analyst estimates of -$0.11
  • Revenue guidance for Q3 2023 is $244 million at the midpoint, below analyst estimates of $269.5 million
  • The company dropped revenue guidance for the full year, from $1.08 billion to $1 billion at the midpoint, a 7.63% decrease
  • Free cash flow was negative $30.3 million, compared to negative free cash flow of $62.5 million in previous quarter
  • Gross Margin (GAAP): 81.5%, in line with same quarter last year

“We are pleased to report that ARR surpassed $1 billion in the second quarter fiscal 2023 to reach $1.043 billion, achieving this important milestone in just seven years. I am proud of the Company we have built and our unwavering commitment to innovation including the upcoming platform release, 2022.10, which we will unveil at our user conference, FORWARD 5, later this month,” said Daniel Dines, UiPath Co-Founder and Co-Chief Executive Officer.

Started in 2005 in Romania as a tech outsourcing company, UiPath (NYSE:PATH) makes software that helps companies automate repetitive computer tasks.

The whole purpose of software is to automate tasks to increase productivity. Today, innovative new software techniques, often involving AI and machine learning, are finally allowing automation that has graduated from simple one- or two-step workflows to more complex processes integral to enterprises. The result is surging demand for modern automation software.

Sales Growth

As you can see below, UiPath's revenue growth has been very strong over the last year, growing from quarterly revenue of $195.5 million, to $242.2 million.

UiPath Total Revenue

This quarter, UiPath's quarterly revenue was once again up a very solid 23.8% year on year. But the revenue actually decreased again in Q2 by $2.84 million, compared to $44.6 million decrease in Q1 2023. While one-off fluctuations don't always have to be concerning, we have no doubt that shareholders would like to see the revenue rebound soon.

Guidance for the next quarter indicates UiPath is expecting revenue to grow 10.4% year on year to $244 million, slowing down from the 49.9% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 22.6% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. UiPath's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 81.5% in Q2.

UiPath Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.81 left to spend on developing new products, marketing & sales and the general administrative overhead. This is a great gross margin, that allows companies like UiPath to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity. It is good to see that the gross margin is staying stable which indicates that UiPath is doing a good job controlling costs and is not under pressure from competition to lower prices.

Key Takeaways from UiPath's Q2 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on UiPath’s balance sheet, but we note that with a market capitalization of $8.77 billion and more than $1.72 billion in cash, the company has the capacity to continue to prioritise growth over profitability.

We liked to see that UiPath beat analysts’ revenue expectations pretty strongly this quarter. On the other hand, it was unfortunate to see that UiPath's revenue guidance for the full year missed analysts' expectations and that cash burn increased. Overall, this quarter's results were not the best we've seen from UiPath. The company is down 11.4% on the results and currently trades at $13.8 per share.

UiPath may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.