UiPath Starts Path To $1 Billion IPO
Summary
- UiPath has filed to raise $1 billion in an IPO.
- The firm provides software robots to automate processes within the enterprise.
- PATH has produced impressive results and is growing at an incredibly efficient rate of growth.
- Looking for more investing ideas like this one? Get them exclusively at IPO Edge. Learn More »
Quick Take
UiPath (NYSE:PATH) has filed to raise $1 billion in an IPO of its Class A common stock, according to an S-1 registration statement.
The firm provides robotic intelligent process automation software for enterprises.
PATH is producing high growth efficiently, a hallmark of a top technology company in the making.
I’ll provide a final opinion when we learn more about the IPO from management.
Company & Technology
New York, NY-based UiPath was founded to create a robotic software platform that seeks to automate every aspect of enterprise activity that can be automated using low code application technologies.
Management is headed by co-founder, Chairman and CEO Daniel Dines, who was previously a software development engineer at Microsoft
Below is a brief overview video of the firm's elastic robot orchestration approach:
Source: UiPath
The company’s primary product pillars enable companies to: discover, build, manage, run, engage, measure and govern their processes more intelligently and automatically.
UiPath has received at least $1.2 billion from investors including Accel Partners, Earlybird and CapitalG.
Customer/User Acquisition
The firm pursues enterprise customers inside its primary geographic territories through direct sales and market efforts and outside its geographic territories via channel partners.
Additionally, the firm pursues small and mid-sized customers through an inside sales force and global accounts through a strategic sales team.
Sales and Marketing expenses as a percentage of total revenue have decreased as revenues have increased, as the figures below indicate:
Sales & Marketing | Expenses vs. Revenue |
Period | Percentage |
FYE January 31, 2021 | 62.6% |
FYE January 31, 2020 | 143.8% |
Source: Company registration statement
The Sales and Marketing efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Sales and Marketing spend, was 0.7x in the most recent reporting period
The Rule of 40 is a software industry rule of thumb that says that as long as the combined revenue growth rate and EBITDA percentage rate equal or exceed 40%, the firm is on an acceptable growth trajectory. PATH’s most recent calculation was 63% as of January 31, 2020, so the firm has performed well in this regard.
The firm’s dollar-based net revenue retention rate has been impressive, per management: “our dollar-based net retention rate was 153% and 145% as of January 31, 2020 and 2021, respectively.”
These are extremely high figures and show the firm is sharply growing revenue within the same customer cohort, indicating tight product market fit and very efficient sales & marketing efforts.
Market & Competition
According to a 2018 market research report by MarketsAndMarkets, the global market for intelligent process automation [IPA] was an estimated $6.25 billion in 2017 and is expected to reach $13.75 billion by 2023.
This represents a forecast CAGR of 12.9% from 2018 to 2023.
The main drivers for this expected growth are the strong benefits from automation that corporate IT teams can receive across all aspects of software development.
Also, the BFSI (Banking, Financial Services and Insurance) industries are expected to dominate demand for process automation through 2023 since automation can reduce costs and improve regulatory compliance while enabling employees to focus on higher value business projects.
A market research report by Grand View Research shows the global robotic process automation market share by application in 2019:
Major competitive or other industry participants include:
BMC Helix with Automation Anywhere and BMC
Blue Prism & Wipro
NICE
Pegasystems
KOFAX
NTT Advanced Technology
EdgeVerve Systems
FPT Software
OnviSource
HelpSystems
Financial Performance
UiPath’s recent financial results can be summarized as follows:
Strong growth in topline revenue
Increasing gross profit and high gross margin
Reduced operating losses
A swing to positive cash flow from operations
Below are relevant financial results derived from the firm’s registration statement:
Total Revenue | ||
Period | Total Revenue | % Variance vs. Prior |
FYE January 31, 2021 | $ 607,643,000 | 80.8% |
FYE January 31, 2020 | $ 336,156,000 | |
Gross Profit (Loss) | ||
Period | Gross Profit (Loss) | % Variance vs. Prior |
FYE January 31, 2021 | $ 541,786,000 | 95.8% |
FYE January 31, 2020 | $ 276,751,000 | |
Gross Margin | ||
Period | Gross Margin | |
FYE January 31, 2021 | 89.16% | |
FYE January 31, 2020 | 82.33% | |
Operating Profit (Loss) | ||
Period | Operating Profit (Loss) | Operating Margin |
FYE January 31, 2021 | $ (110,323,000) | -18.2% |
FYE January 31, 2020 | $ (517,283,000) | -153.9% |
Net Income (Loss) | ||
Period | Net Income (Loss) | |
FYE January 31, 2021 | $ (92,393,000) | |
FYE January 31, 2020 | $ (519,933,000) | |
Cash Flow From Operations | ||
Period | Cash Flow From Operations | |
FYE January 31, 2021 | $ 29,177,000 | |
FYE January 31, 2020 | $ (359,436,000) | |
Source: Company registration statement
As of the fiscal year ended January 31, 2021, UiPath had $358 million in cash and $448 million in total liabilities.
Free cash flow during the twelve months ended fiscal year ended January 31, 2021, was $26 million.
IPO Details
UiPath intends to raise $1 billion in gross proceeds from an IPO of its Class A common stock, although the final figure may differ.
Class A common stockholders will be entitled to one vote per share and Class B shareholders - the founder/CEO and related entities - will get 35 votes per share.
The S&P 500 Index no longer admits firms with multiple classes of stock into its index.
No existing shareholders have indicated an interest to purchase shares at the IPO price.
Management says it will use the net proceeds from the IPO as follows:
...we currently intend to use the net proceeds we receive from this offering for general corporate purposes, including working capital, operating expenses, and capital expenditures. We may also use a portion of the net proceeds to acquire complementary businesses, products, services, or technologies. At this time, we do not have agreements or commitments to enter into any material acquisitions.
Management’s presentation of the company roadshow is not available.
Listed bookrunners of the IPO are Morgan Stanley, J.P. Morgan, BofA Securities, Credit Suisse, Barclays, Wells Fargo Securities, SMBC, Nikko, BMO Capital Markets, Mizuho Securities, KeyBanc Capital Markets, TD Securities, Truist Securities, Cowen, Evercore ISI, Macquarie Capital, Nomura, RBC Capital Markets, Canaccord Genuity, D.A. Davidson & Co., Oppenheimer & Co. and Needham & Company.
Commentary
UiPath is seeking public market funding for its general corporate expansion purposes and to provide a more liquid market for its existing investor base.
The firm’s financials are impressive and show strong topline revenue and gross profit growth, reduced operating and net losses and a swing to positive cash flow from operations.
Free cash flow for FYE January 31, 2021 was $26 million.
Sales and Marketing expenses as a percentage of total revenue have dropped sharply as revenues have increase; its Sales and Marketing efficiency rate was 0.7x
Most impressively, its Rule of 40 results were high and its dollar-based net retention rate has been extremely high.
The market opportunity for providing software-based process automation for enterprises is large and expected to grow at a substantial rate of growth over the coming years.
Morgan Stanley is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 42.4% since their IPO. This is a mid-tier performance for all major underwriters during the period.
I am extremely impressed by PATH’s growth trajectory and operating metrics. It is growing at a high rate while at the same time growing efficiently.
When we learn more about the IPO’s valuation assumptions, I’ll provide a final opinion.
Expected IPO Pricing Date: To be announced.
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This article was written by
Donovan Jones is an IPO research specialist with 15 years of experience identifying opportunities for IPOs. He focuses on high-growth technology, consumer, and life science companies.
He leads the investing group IPO Edge which offers: actionable information on growth stocks through first look S-1 filings, previews on upcoming IPOs, an IPO calendar for tracking what’s on the horizon, a database of U.S. IPOs, and a guide to IPO investing to walk you through the the entire IPO lifecycle - from filing to listing to quiet period and lockup expiration dates. Learn more.Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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