UiPath, Inc. — Q1 FY2024 Form 10-Q
Reporting period: Three months ended April 30, 2023; comparative period is the three months ended April 30, 2022. UiPath provides an end-to-end business automation platform, including software licenses, subscription services and professional services. Figures below are in U.S. dollars; financial statement amounts are converted from thousands to millions where appropriate.
Financial performance and position
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Revenue | $289.6 million | $245.1 million | +18% |
| Gross profit / gross margin | $245.9 million / 85% | $200.1 million / 82% | Margin +3 percentage points |
| Operating loss | $(46.4) million | $(116.0) million | Loss narrowed |
| Net loss | $(31.9) million | $(122.6) million | Loss narrowed |
| Net loss per share, diluted | $(0.06) | $(0.23) | |
| Cash provided by (used in) operations | $67.3 million | $(52.9) million | Improved |
- Revenue mix: Licenses were $134.0 million (+15%); subscription services were $146.4 million (+27%); professional services and other were $9.2 million (−27%). Management attributed growth primarily to subscription services, partly reflecting Flex Offerings, and license revenue. Approximately 75% of revenue growth came from existing customers and 25% from new customers.
- Expenses and margins: Total cost of revenue declined 3% to $43.7 million. Sales and marketing expense fell 15% to $160.4 million, while research and development rose 10% to $75.3 million and general and administrative expense declined 2% to $56.6 million. Stock-based compensation was $85.0 million, compared with $101.5 million a year earlier.
- ARR and retention: ARR was $1,248.9 million at April 30, up 28% year over year. Management said roughly 20% of ARR growth came from new customers and 80% from existing customers. Dollar-based net retention was 122%, down from 138%. ARR is a company-defined operating metric, not GAAP revenue or a forecast of future revenue.
- Cash, liquidity and debt: Cash and cash equivalents were $1,311.6 million and marketable securities were $474.8 million, totaling $1,786.4 million. Cash and securities increased from $1,759.8 million at January 31, 2023. The company had no borrowings on its $200 million revolving credit facility, which matures October 30, 2023. Management stated existing liquidity, customer payments and borrowing capacity should fund anticipated cash requirements for the next twelve months and the long term.
- Cash flows: Investing activities used $135.6 million, mainly reflecting net purchases of marketable securities; financing activities used $20.6 million, primarily for tax withholding on equity awards. Cash and cash equivalents decreased $90.5 million during the quarter.
- Other balance-sheet and contractual items: Total liabilities were $687.1 million; the filing reports no outstanding debt. Non-cancelable purchase obligations with terms of 12 months or longer totaled $238.6 million. Operating lease liabilities totaled $63.8 million.
Material changes versus the prior comparable period
- Revenue grew 18%, with subscription services growing faster than licenses; professional services revenue declined.
- Gross margin improved from 82% to 85%. Management cited revenue growth, lower personnel costs and reduced third-party professional-services costs.
- Operating loss narrowed substantially, reflecting lower sales and marketing expense and higher revenue. Net loss also narrowed; higher interest income ($13.8 million versus $1.0 million) and other income helped reduce the pre-tax loss.
- Operating cash flow improved from an outflow of $52.9 million to an inflow of $67.3 million. Management attributed the result principally to customer cash collections, approximately 39% higher than in the prior-year quarter; working-capital movements also affected cash flow.
- ARR growth remained strong, but incremental ARR was $271.8 million versus $324.5 million in the comparable trailing twelve-month period, and dollar-based net retention declined by 16 percentage points.
Outlook, risks and unusual items
- Outlook: The filing provides no specific quarterly or annual revenue, ARR or earnings guidance. Management expects a greater share of revenue to be recognized over time as subscription services as Flex Offerings expand. It expects subscription delivery costs to increase with customer growth and notes that greater SaaS adoption could pressure gross margin through hosting and cloud infrastructure costs. Management expects research and development spending to rise in absolute dollars over the foreseeable future.
- Macroeconomic and currency exposure: Management cited macroeconomic uncertainty, customer spending and foreign-exchange volatility as factors that may affect demand and predictability. About 58% of quarterly revenue and 35% of expenses were denominated in non-U.S. currencies; a hypothetical 10% currency-rate change was estimated to have a $14.8 million translation impact. The company reported $0.8 million of foreign-currency transaction losses.
- Restructuring: Prior workforce reductions totaled approximately 11% across two actions. The company recorded $0.9 million of restructuring expense in the quarter and reported $1.0 million of accrued termination benefits remaining; remaining activities were expected to be completed by July 31, 2023.
- Other notable items: The company recorded a $4.2 million charitable stock donation in general and administrative expense. It also reported $5.7 million in letters of credit and $4.9 million of commitments for real estate leases not yet commenced. Management stated it was not party to litigation expected to have a material adverse effect and that no material changes to previously disclosed risk factors occurred.
- Controls: Management concluded disclosure controls and procedures were effective at a reasonable assurance level as of April 30, 2023; it reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether ARR growth and customer expansion remain durable, given the decline in dollar-based net retention and lower incremental ARR.
- How the mix shift toward subscription and SaaS affects revenue timing, gross margin and hosting costs.
- Whether improved operating cash flow is sustained, considering collection timing, accrued compensation payments and other working-capital movements.
- How substantial stock-based compensation, share issuance and equity-award tax withholding affect per-share economics and cash flows.
- The status and terms of the revolving credit facility as it approaches its October 2023 maturity, along with liquidity and investment risks.
- Execution of the restructuring and the company’s ability to manage foreign-exchange exposure, customer spending uncertainty and contractual commitments.