UiPath - Q2'FY22 Earnings

Another disappointing earnings results from UiPath, which sent its share price -8% afterhours. Although most of us here do not have a position, I thought I would summarize today’s results as I introduce it to the board [1].

ARR [2]: Reached $726M, which represents +60% YoY and +11.3% QoQ.This is a significant slowdown from Q2’FY21 and Q2’FY20 YoY growth of +87% and +159%, respectably.

Net-New ARR: $73.9M, a slight increase from last quarter’s $72M (+33% YoY).

Revenue: Topped $195M, which represents +40% YoY and +5.0% QoQ. Again, a dramatic slowdown from Q2’FY21 YoY growth of 81%.

Remaining Performance Obligations: Totaled $520M, representing +80% YoY and +12.1% QoQ.

Non-gaap Gross Margin: Shrunk from 88% last quarter, to 86%.

Non-gaap Adjusted FCF [3]: Improved moderately from -$24.6M this quarter last year, to -$20.1M.

Net Retention Rate: Hit 144%, a slight slowdown from 145% two quarters ago at the time of IPO.

Customer Count: Increased moderately (+7.0% QoQ, 36% YoY) from 8,500+ to 9,100. More importantly, customers with ARR > $100k increased more notably from 1,105 to 1,247 (+12.8% QoQ, +59% YoY); and those with ARR > $1M increased from 104 to 108 QoQ (+126% YoY). These customers are imperative for UiPath as they constitute ~75% and ~35% of revenue, respectably.

New Logos: Included the State of New Mexico, the New York Power Authority, and the University of Washington Medicine.

Despite being the clear market leader in process automation, it is clear that some of UiPath’s issues with its business model are becoming a bigger issue as they scale. Perhaps the clearest example is comparing its growth endurance, to a few other companies – and this is even using the ARR they tell us to look at! [5]

Docusign: 111%
Bill: 96%
Zoominfo: 91%
Snowflake: 87%
Crowdstrike: 80%
UiPath: 69%

In addition to their business model concerns, it seems like they are succeeding with expanding their very large customers, while having trouble growing their mid-tier customers and acquiring net new customers. There may be other issues at play, but based on these results it is clear that the business looks very different than it did a year ago.

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[1] https://discussion.fool.com/uipath-path-34792441.aspx

[2] There was a continuous emphasis to focus on ARR as opposed to revenue growth, “as a reminder, given the variability introduced by ASC 606, we do not focus on the business on short-term revenue growth which can be lumpy quarter to quarter, and dislocated from ARR and the long-term growth and health of the business.”

[3] While at first glance it looks like FCF improved significantly, a closer look reveals that they reported “non-gaap adjusted FCF” compared to “non-gaap FCF” last quarter. It is difficult to compare since last quarter showed a three month period vs. six month period this quarter – but this caught my eye.

[4] https://discussion.fool.com/growth-retention-rate-34776232.aspx?..

[5] Using subscription revenue for comparables (product revenue for Snowflake).


Thank you for the earnings write up. Path is an interesting one for me. Here’s why:
If one is a strict devotee to the growth numbers and agnostic to the industry and function of the actual business, PATH is barely a Saul Stock at all, probably has no place in an actively traded, 8-10 equity portfolio, and if held in such a port can thus can easily be swept aside as a company not worthy of investment – “better places for the money!” (BPFM) goes the board mantra.

But of course even thinking there are BPFM doesn’t guarantee better returns. It’s the reason WHY I think there are BPFM that drive my decision. If I think there are BPFM because I don’t trust management (Fastly), if I think so much growth was pulled forward that investors will consider it a mature business (DOCU) or perhaps if you don’t understand what they do (Nutanix) then there are reasons why your BPFM instinct is activating, and maybe it’s time to get out.

But here is when I don’t act on the BPFM mantra: When the investing public is perceiving that a growth deceleration is reason to sell for no good reason other than a mistaken belief that companies can hyper grow forever. For me, I want growth stocks with some long-term fundamental upside, too, so that I don’t really have to watch the market every. single. day. I don’t want to read the tea leaves forecasting next quarter’s growth, and be worried that my company previously growing at 100% yoy is now going to tank because they’re “only” growing now 88% yoy.

Today, PATH disappointed strict, by-the-numbers agnostic technicians out there. But when ?I consider their moat, TAM, and what they actually do, I can’t imagine not owning this company for the next decade. It is clear to me that this company is poised to be a generational winner. For me, this earnings report confirmed revenues and customer base continue to expand at acceptable rates, FCF is improving, and NRR is still humming along… all while management sings very loudly that they will continue to plow large chunks of revenue into R&D.

A company in a concentrated stock portfolio of 8-10 actively traded quarter to quarter? Probably not.
But a stock in a portfolio of 14-20 companies that is a hybrid portfolio of growth investing and LTBH strategy?

I think so.

-RWW (long PATH 5%)