Automation software company UiPath (NYSE:PATH) reported Q3 FY2024 results exceeding Wall Street analysts' expectations, with revenue up 24% year on year to $325.9 million. The company expects next quarter's revenue to be around $383.5 million, in line with analysts' estimates. It made a GAAP loss of $0.06 per share, improving from its loss of $0.10 per share in the same quarter last year.
UiPath (PATH) Q3 FY2024 Highlights:
- Revenue: $325.9 million vs analyst estimates of $315.6 million (3.3% beat)
- ARR: $1.38 billion vs. analyst estimates of $1.36 billion (1.1% beat)
- EPS (non-GAAP): $0.12 vs analyst estimates of $0.07 ($0.05 beat)
- Revenue Guidance for Q4 2024 is $383.5 million at the midpoint, roughly in line with what analysts were expecting (although ARR guide beat)
- Free Cash Flow of $41.17 million, similar to the previous quarter
- Gross Margin (GAAP): 84.7%, up from 83.7% in the same quarter last year (beat vs. expectations of 84.3%)
Started in 2005 in Romania as a tech outsourcing company, UiPath (NYSE:PATH) makes software that helps companies automate repetitive computer tasks.
A lot of jobs involve repeating the same rules-based tasks, requiring only simple decision making and little creativity. Not only do these tasks become tedious over time, resulting in a loss of productivity and errors but with the rising cost of labour are also becoming more expensive to perform.
UiPath’s robotic process automation (RPA) software uses technologies such as artificial intelligence and machine learning to learn how users perform regular tasks. Then, the software creates bots that replicate these tasks such as copying and pasting data, filling out forms, and clicking through user interfaces. For example, using UiPath’s software, a bookkeeper can automatically extract financial data from digital invoices, attach any other necessary information, arrange the output in a folder and send it to his manager at a specific time daily. Given the many tasks that can be automated with UiPath, it drives significant value to businesses by cutting down processing time, reducing errors, and enabling workers to focus on higher value (and more engaging) work.
UiPath became Romania's first technology unicorn, despite several challenges in its early years. Its rapid pace of innovation has led to a lot of success in the automation software space, with founder Daniel Dines being nicknamed the “first bot billionaire” by Forbes. The initial seed round investment in the company by the Czech VC firm Credo Ventures was called the greatest ever European venture bet.
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.
Other players in the automation software space include Microsoft (NASDAQ: MSFT), Blue Prism, IBM (NYSE: IBM), and SAP (NYSE: SAP).
As you can see below, UiPath's revenue growth has been strong over the last two years, growing from $220.8 million in Q3 FY2022 to $325.9 million this quarter.
This quarter, UiPath's quarterly revenue was once again up a very solid 24% year on year. On top of that, its revenue increased $38.61 million quarter on quarter, a strong improvement from the $2.28 million decrease in Q2 2024. This is a sign of re-acceleration of growth and very nice to see indeed.
Next quarter, UiPath is guiding for a 19.5% year-on-year revenue decline to $383.5 million, a further deceleration from the 6.5% year-on-year decrease it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 19.7% over the next 12 months before the earnings results announcement.
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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 84.7% in Q3.
That means that for every $1 in revenue the company had $0.85 left to spend on developing new products, sales and marketing, and general administrative overhead. Significantly up from the last quarter, UiPath's excellent gross margin allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity.
Cash Is King
If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. UiPath's free cash flow came in at $41.17 million in Q3, turning positive over the last year.
UiPath has generated $241.7 million in free cash flow over the last 12 months, an impressive 20% of revenue. This high FCF margin stems from its asset-lite business model and strong competitive positioning, giving it the option to return capital to shareholders or reinvest in its business while maintaining a cash cushion.
Key Takeaways from UiPath's Q3 Results
Sporting a market capitalization of $11.26 billion, more than $1.82 billion in cash on hand, and positive free cash flow over the last 12 months, we believe that UiPath is attractively positioned to invest in growth.
It was good to see UiPath beat analysts' ARR (annual recurring revenue), reported revenue, and non-GAAP operating profit expectations this quarter. Guidance for next quarter was fine, with ARR ahead while revenue and non-GAAP operating profit were roughly in line. Lastly, management highlighted that the most recent platform release "delivered scores of new capabilities that seamlessly translate the potential of AI into tangible action, accelerate productivity, spark innovation, and drive business outcomes for our customers." Overall, this quarter's results were solid and shareholders should feel optimistic. The stock is up 8.4% after reporting and currently trades at $21.41 per share.
Is Now The Time?
When considering an investment in UiPath, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.
We think UiPath is a good business. Its revenue growth has been solid over the last two years, and analysts believe that's sustainable for now. And while its customer acquisition is less efficient than many comparable companies, the good news is its impressive gross margins indicate excellent business economics. On top of that, its bountiful generation of free cash flow empowers it to invest in growth initiatives.
The market is certainly expecting long-term growth from UiPath given its price to sales ratio based on the next 12 months is 7.7x. There's definitely a lot of things to like about UiPath and looking at the tech landscape right now, it seems that it doesn't trade at an unreasonable price point.
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