UPDATED 11:42 EDT / MARCH 26 2021

AI

Automation juggernaut UiPath files for initial public offering

Automation services provider UiPath Inc. today filed paperwork to offer its shares to the public for the first time, revealing stronger revenue growth and even stronger cash flow than expected.

The company, which offers so-called robotic process automation automation or RPA services, didn’t say how much it plans to raise beyond a placeholder amount of $1 billion, or the number of shares or the share price, and it follows a confidential filing in December of its S-1 paperwork for an initial public offering of shares. But it seems likely to be one of the biggest offerings of 2021 given its momentum. It will list under the ticker symbol “PATH.”

RPA products such as UiPath’s platform use artificial intelligence “bots” to automate a variety of tasks done manually. UiPath builds these software robots to monitor users’ individual keystrokes as they interact with applications such as enterprise resource planning and customer relationship management tools, then identify repetitive patterns and suggesting ways to automate them. The savings can be huge when they’re applied to hundreds or thousands of users over long periods of time, and this automation also reduces errors and improves speed.

These tools were already popular before the COVID-19 pandemic, but that interest has accelerated as enterprises look for ways to make their workers more productive during the pandemic. That has boosted not only UiPath but also rivals such as Automation Anywhere Inc. and Blue Prism Group plc. The market has also attracted the attention of large tech leaders such as Microsoft Corp. and IBM Corp., which have each made significant RPA acquisitions in the past year.

“I believe that [RPA] can do for business processes what the cloud has done for IT processes,” Daniel Dines (pictured), founder and chief executive officer of UiPath Inc., recently told SiliconANGLE.

UiPath has already raised some $2 billion in a series of large funding rounds, most recently last month, when it raised a $750 million round that valued it at more than $35 billion. And it has used that money to become more acquisitive, buying a company called Cloud Elements Inc. just this week.

The timing for the IPO may be good, despite some wariness by investors of fast-growth companies that aren’t yet profitable. The company’s performance spelled out in its S-1 showed perhaps even stronger growth than market observers expected. Revenue jumped 81%, to $607.6 million, for the fiscal year ended Jan. 31.

UiPath also said it became cash-flow positive, to the tune of $29 million, way down from burning $350 million in cash the year before. Net loss fell from $519.9 million in fiscal 2020 to $92.3 million in fiscal 2021.

In another telling statistic, the company reported annualized renewal run rate, a variant on a key metric for subscription-based cloud companies, of $580 million, or 95% of revenue, up 65% year-over-year.

“UiPath is kicking butt and this should be an extremely successful IPO and I predict it will only extend its market-leading position,” said Dave Vellante, chief analyst at SiliconANGLE sister market research firm Wikibon. “Going public not only brings capital, it brings a presence and awareness, which is critical to compete with companies like Microsoft and other incumbent players.”

Although the company, started in Bucharest, Romania, is 16 years old, it has revved up especially in the last five years, noted Vellante, making it more of a startup, albeit a very large one. “About five years ago it realized it had lightning in a bottle and embarked on a really aggressive strategy to run the table on the market,” he said.

All that said, Vellante said the success of the IPO is not guaranteed. “Tactically, given the market sentiment right now, UiPath is going public when there’s a rotation away from high-growth companies like UiPath that are losing money,” he said. “The reason is rising interest rates make the future cash flows of high-growth companies less attractive than companies that are throwing off tons of cash today.”

There’s little doubt about the overall market for RPA and automation generally. “In that regard, UiPath’s timing couldn’t be better,” Vellante said. “We’re entering a new era of digital that is real. The post-isolation economy will be supported by high degrees of automation that shift human capital to things that machines can’t do well — those fuzzy judgment calls that require experience, relationships, gut feels, collaboration, management expertise, inspiration and wisdom. Machines will increasingly take over for mundane tasks and perhaps more importantly, organizations are beginning to redesign their processes to combine the best of machines and humans for the digital era.”

Vellante said he thinks UiPath has the vision, the technology, the customer base, the community and, he added, “the chutzpah” to gain a leadership position. “The only major risk I see is execution risk,” he said. “The company has beefed up its board and appears to be putting in the controls to manage execution, so I’m sanguine in that regard.”

One interesting wrinkle in the filing is that although the company is offering standard Class A shares to the public, Dines’s Class B shares have a 35-to-one voting ratio compared with the Class A shares, so he will retain considerable control even if he doesn’t keep more than 50% of the shares. Such voting arrangements are often not seen as optimal by investors, who may wish to have more control.

“I think investors will overlook this because of the growth, but it’s a consideration,” Vellante said. “In addition, the company has chosen not to take advantage of the ‘controlled company’ provision, which it has the right to do given Dines’ controlling interest. As a controlled company, UiPath could waive the need to have independent directors. It has chosen not to do so, which should placate investors to a great degree.”

Nonetheless, he added, “Dines is in control so the execution is on his shoulders — the buck stops there. There are no excuses” if the company doesn’t perform.

One other metric that stands out is that 38% of UiPath’s revenue comes from maintenance. “I see a shift happening in the market moving toward a consumption pricing model as the result of cloud-only software from companies like Snowflake, Stripe, Twilio and Datadog, among others,” Vellante said. “This could be disruptive going forward for companies that sell on a term license basis like Workday, Oracle, SAP and ServiceNow. I don’t think it’s a huge risk, but it’s worth noting that if UiPath has to change its pricing model as a public company, it could confuse investors.”

That’s something faced by companies such as Tableau Inc., which was acquired by Saleforce.com Inc., and with Splunk Inc. “It’s a tricky transition,” he said. “But UiPath is already using an ARR model so it’s most of the way there, whereas Oracle, for example, is having to shift from a perpetual license to a subscription model. UiPath doesn’t have that problem, but it’s worth paying attention to especially as cloud vendors like Microsoft enter the market with products like Power Automate.”

The company also revealed it has almost 8,000 customers, including the likes of Amazon.com Inc., Uber Technologies Inc. and Bank of America Corp. A positive angle from an investor point of view is that it’s diversified, with no one customer accounting for even 10% of revenue.

Dines spoke with theCUBE, SiliconANGLE Media’s video studio, at the recent theCUBE on Cloud event:

Photo: SiliconANGLE

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