Updated with Thursday stock price:

Shares of the automation software company UiPath Inc. were battered in after-hours trading today and were falling more than 35% Thursday after it shocked investors with a surprise leadership change and followed up with poor guidance.

The company said Chief Executive Rob Enslin (pictured) will resign, effective June 1. He will be replaced by Daniel Dines, who formerly worked as co-CEO alongside Enslin before switching to become executive chairman and chief innovation officer at the end of January.

Enslin said he made the difficult decision to resign after much reflection, but insisted he was optimistic about the company’s future prospects. “Daniel’s inspirational leadership and customer-obsessed mindset will be game-changing, and I am convinced that UiPath will continue to define what’s possible for our customers and partners in the AI and automation market,” he said.

UiPath will be led by an experienced hand in Dines, who co-founded the company along with Marius Tirca back in 2005, and served as its CEO for many years before inviting Enslin to join him in the role in April 2022.

The company is considered a leader in the market for robotic process automation software. It sells tools that help companies reduce costs and operational errors by automating many repetitive work-related tasks, such as data entry. The platform is powered by artificial intelligence models that learn how employees perform common tasks in their business applications.

Its software has been hailed as a game-changer for organizations, but the stock has suffered ever since the company went public in 2021 following one of the most successful initial public offerings in U.S. history. Prior to today’s move, its stock was down 26% in the year-to-date, at a time when most other AI companies are seeing enormous growth.

In its first-quarter report today, UiPath reported earnings before certain costs such as stock compensation of 13 cents per share, beating the analyst consensus estimate of 12 cents per share. Revenue was up 16%, to $355 million, ahead of the Street’s forecast of $333 million.

The company’s bottom line benefited slightly as a result of today’s beat, with its net loss narrowing to $28.7 million, from $31.9 million in the same period one year earlier.

Enslin came to Uipath with a great track record. He joined the company from Google Cloud, where he had served as president of cloud sales. During his three-year tenure there he helped to drive significant revenue growth while tripling its sales organization. Prior to that, he served in various roles at the enterprise software giant SAP SE, including overseeing that company’s former subsidiary Qualtrics, which also grew rapidly and was ultimately spun off as a standalone company after raising $1.5 billion in an IPO.

At the time he was hired, Dines heralded Enslin as the perfect man to take the company forward, saying he had the “right balance of experiences and skills” together with the necessary operations background to grow UiPath. The hiring would leave Dines with more time to focus on the company’s culture, vision and product innovation.

But the plan seems to have failed, for UiPath’s stock has never traded above its IPO debut price, barring a brief post-IPO bump. Including today’s after-hours action, UiPath’s stock is down 76% from its May 2021 all-time high.

On a conference call with analysts, Dines was quite open about the problems faced by the company, which likely contributed to Enslin’s decision to quit. He noted that the company had seen a number of large expansion deals close with reduced sizes, while the previous quarter also took a hit from “sales compensation changes” that it’s now working to address.

Dines also conceded that the company’s sales execution has been lacking, and said some of its investments there have made it less agile than it was before.

Holger Mueller of Constellation Research Inc. told SiliconANGLE that something is clearly amiss when a board of directors turns on a CEO it had hired just two years prior. He pointed out that Enslin was enlisted for his commercial acumen and there was an expectation that he would help the company to grow much faster, yet he failed to deliver on that.

“Given the increase in spend during the quarter, I guess there must have been some late surprises in a quarter of larger deals not coming through,” Mueller added. “The odd thing is that the board didn’t want to have Dines leading the company two years ago, but it has now put him back in place. Potentially, the board might be looking for a new CEO, or else it’s going to focus its efforts on building a next-generation product for the generative AI era under Dine’s leadership.”

Dines said Enslin’s sudden departure will likely cause some short-term disruption, but he insisted that the long-term prospects remain good. Under his renewed leadership, he said the company will go back to its roots of driving product innovation.

“During the past year, I had the privilege of immersing myself in our product and engineering efforts,” Dines told analysts. “This experience gave me invaluable clarity on our path forward at the time when companies are looking to optimize cost and drive efficiencies without sacrificing innovation, especially around generative AI. We view generative AI as a secular trend that will continue to benefit our business.”

The short-term prospects aren’t quite so promising, though, as the company is struggling with “elongating” sales cycles for larger, multiyear deals with customers, said UiPath Chief Financial Officer Ashim Gupta. He added that customers are subjecting those deals to “increased scrutiny,” and that has had a negative impact on its sales guidance.

TheCUBE Research Chief Analyst Dave Vellante said it’s not clear what led to Enslin’s departure, but Dines’ reference to multiyear deals may suggest a need to adjust priorities. “On the one hand, they ensure a longer-term relationship, but on the other hand customer’s typically want some concessions on price to sign up for longer term contracts. And that can negatively impact future revenue. So I think the company needs to find a balance with multiyear deals.”

For the next quarter, UiPath expects sales to range from between $300 million and $305 million, well below the Street’s forecast for $342.3 million in revenue.

For the full year, UiPath has lowered its sales guidance, saying it now expects annual revenue of between $1.405 billion and $1.41 billion, down from its prior guidance of $1.55 billion to $1.56 billion. Wall Street had previously forecast $1.56 billion in annual sales.

Investors also may be concerned that generative artificial intelligence upstarts and tech giants alike could steal business from UiPath’s older technology. But Vellante said UiPath has more of a complete offering than investors and prospective customers realize.

“In the long run, AI will be a tailwind for companies that can apply machine intelligence to end-to-end automation,” he said. “In the near term customers may feel it’s easier to do full automation with gen AI, but I think they’ll find they need deeper relationships and tech to actually realize significant value. In the meantime, firms like UiPath have to educate customers on how gen AI combined with end-to-end automation can be achieved.”

Photo: Google