After seeing its shares crumble following its first-quarter earnings report, UiPath (NYSE: PATH) fared better when it reported its second-quarter results. And yet, the shares still traded lower.
With the stock still down about 45% on the year, let's take a close look at Q2 results for this robotic process artificial intelligence (AI) automation software company's and see whether now is a good time to buy shares.
Getting back on track
UiPath's Q1 report was a complete disaster, with the company greatly reducing its full-year outlook and announcing the resignation of its CEO. However, things appear to be getting back on track, with the company reporting better-than-expected Q2 results and increasing its full-year guidance this time around.
UiPath saw its Q2 revenue rise 10% year over year to $316 million, which was ahead of the $300 million to $305 million it had previously forecast.
Its annualized renewal run rate (ARR) jumped 19% year over year to $1.55 billion. ARR is an important measure for predicting future revenue growth, according to the company. It is defined as its annualized invoiced amounts from subscription licenses as well as maintenance and support obligations, although it does not include perpetual licenses or professional services.
Dollar-based net retention was 115% on a trailing 12-month basis, which was down from 118% last quarter. Numbers over 100% show growth within existing customers after taking any churn into consideration. The company highlighted a number of new large expansion deals with customers on its conference call.
Image source: Getty Images.
Expanding within its existing customer base has been a strength of UiPath although it has struggled to add new net customers. The company ended the quarter with 10,810 total customers, which was a modest increase of 10 net new customers for the quarter. Gross retention was 97%. However, it continued to increase its number of large customers, whether through upselling or new additions.
UiPath added 71 customers with $100,000 or more in ARR in the quarter, bringing the total to 2,163. That was a 12% increase from the 1,930 it had a year ago. The number of customers with $1 million or more in ARR rose by five quarter over quarter to 293, and increased 15% from 254 a year earlier.
Turning to its balance sheet, UiPath ended the quarter with $1.7 billion in cash and marketable securities. It bought back 16.3 million shares in the quarter and also announced a new $500 million stock buyback plan.
Looking toward the third quarter, the company has forecast revenue in the range of $345 million to $350 million, with the midpoint slightly ahead of the $347.3 million analyst consensus. It guided for ARR to be between $1.600 billion to $1.605 billion.
For its full fiscal year, UiPath projects revenue to be between $1.420 billion to $1.425 billion, up from a prior outlook of $1.405 billion to $1.410 billion. However, that was still well short of its original revenue guidance of between $1.555 billion to $1.560 billion. It is looking for ARR of between $1.665 billion and $1.670 billion at fiscal year end, up from previous guidance of $1.660 billion and $1.665 billion.
Is it time to buy this beaten-down stock?
UiPath is one of the more inexpensive software stocks out there, trading at a forward price-to-sales ratio of 4.6 based on next year's analyst estimates. However, when taking out its $1.7 billion in cash, it trades at an enterprise-value-to-forward-sales ratio of only 3.4.
PATH PS Ratio (Forward 1y) data by YCharts.
While growth has slowed, some of this is due to accounting rules related to revenue recognition, which is why its ARR is growing at a much faster pace than revenue. But for a company growing revenue by double digits and ARR by nearly 20% with gross margins of 80%, UiPath's stock is in the bargain bin.
There is some worry that AI is more of a threat than an opportunity. However, the company's strong net dollar retention demonstrates how much customers value its solutions. At the same time, UiPath has been adding a number of new AI innovations to its products.
Its main goal is to combine robotic automation with "agentic automation" so that its users can navigate between robots, agents, and humans. It sees this as a big differentiator. Agentic automation uses AI agents to make decisions without predefined rules and does not need a human overseeing it.
Given UiPath's valuation -- along with some solid underlying metrics such as its net dollar retention, gross margins, and ARR growth -- I would be a buyer of the stock on the current weakness it has been seeing.
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Geoffrey Seiler has positions in UiPath. The Motley Fool has positions in and recommends UiPath. The Motley Fool has a disclosure policy.
