Automation software company UiPath (NYSE:PATH) reported results ahead of analysts' expectations in Q2 FY2024, with revenue up 18.6% year on year to $287.3 million. The company also expects next quarter's revenue to be around $315.5 million, in line with analysts' estimates. Turning to EPS, UiPath made a GAAP loss of $0.11 per share, improving from its loss of $0.22 per share in the same quarter last year.
UiPath (PATH) Q2 FY2024 Highlights:
- Revenue: $287.3 million vs analyst estimates of $282.1 million (1.86% beat)
- EPS (non-GAAP): $0.09 vs analyst estimates of $0.03 ($0.06 beat)
- Revenue Guidance for Q3 2024 is $315.5 million at the midpoint, roughly in line with what analysts were expecting
- The company slightly raised its revenue guidance for the full year, which now stands at $1.28 billion at the midpoint
- Free Cash Flow of $43.3 million, down 33.9% from the previous quarter
- Gross Margin (GAAP): 82.9%, up from 81.8% in the same quarter last year
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 $195.5 million in Q2 FY2022 to $287.3 million this quarter.
This quarter, UiPath's quarterly revenue was once again up 18.6% year on year. However, its revenue actually decreased again in Q2 by $2.28 million, following the same trend as its $19 million decrease in Q1 2024. While one-off fluctuations aren't always concerning, we have no doubt that shareholders would like to see its revenue rebound soon.
Next quarter's guidance suggests that UiPath is expecting revenue to grow 20.1% year on year to $315.5 million, in line with the 19% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 19.5% 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 82.9% in Q2.
That means that for every $1 in revenue the company had $0.83 left to spend on developing new products, sales and marketing, and general administrative overhead. Despite its recent drop, UiPath still has an excellent gross margin that 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 $43.3 million in Q2, turning positive over the last year.
UiPath has generated $167.9 million in free cash flow over the last 12 months, a solid 13.7% of revenue. This strong FCF margin stems from its asset-lite business model, giving it optionality and plenty of cash to reinvest in its business.
Key Takeaways from UiPath's Q2 Results
Sporting a market capitalization of $9.08 billion, UiPath is among smaller companies, but its more than $1.83 billion in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.
UiPath's ARR (annual recurring revenue) was roughly in line with estimates, and the company narrowly top analysts' revenue expectations this quarter. However, non-GAAP operating profit beat by a large magnitude, showing that expense leverage came in strong strong. We were also glad that its full-year guidance was raised across the board and came in higher than Wall Street's estimates, especially on non-GAAP operating profit. Zooming out, we think this was still a solid quarter, showing that the company is staying on track. The stock is up 5.37% after reporting and currently trades at $17.08 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, and analysts believe that sort of growth is 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 and its strong free cash flow generation gives it re-investment options.
The market is certainly expecting long-term growth from UiPath given its price to sales ratio based on the next 12 months is 6.7x. There's definitely a lot of things to like about UiPath and looking at the tech landscape right now, it seems that the company trades at a pretty interesting price point.Wall Street analysts covering the company had a one year price target of $18.9 per share right before these results, implying that they saw upside in buying UiPath even in the short term.
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