UiPath (PATH) had a pretty good quarter. Revenue beat, guidance went up, and the company even promoted someone to CFO. So why did the stock drop 7% in premarket trading on Friday?
Sometimes a good story is already priced in. UiPath shares had climbed 64.59% over the past six months heading into the earnings report. That kind of run-up can make investors nervous, and when the numbers come out, some folks decide to take their profits and run. It's a classic case of "buy the rumor, sell the news."
Let's dig into the numbers, because there's a lot to like here. Adjusted earnings came in at 15 cents per share, right in line with what analysts were expecting. Revenue rose 13% year over year to $410.26 million, beating the $397.95 million consensus estimate. Not bad.
The company also announced that Hitesh Ramani is taking over as chief financial officer. Ramani has been with UiPath since 2021, serving as chief accounting officer and, for the past two years, as deputy CFO. So it's an internal promotion, which usually signals continuity.
Looking at the underlying metrics, remaining performance obligations (RPO) grew 14% to $1.378 billion, and current RPO also rose 14% to $901 million. That's a good sign for future revenue. Adjusted operating income climbed to $89 million, representing a 22% margin, which is more than 400 basis points of year-over-year margin expansion. The company is getting more efficient.
One blemish: adjusted free cash flow fell to $31 million from $45 million a year earlier. But that was mainly due to the timing of tax payments, not a deterioration in the business. UiPath ended the quarter with $1.4 billion in cash, cash equivalents, and marketable securities, and no debt. It also repurchased 2.4 million shares during the quarter.
ARR Growth Remains Strong
Annual recurring revenue (ARR) grew 12%, supported by $37 million in net new ARR, up from $31 million a year earlier. Cloud ARR, which includes hybrid and SaaS offerings, reached about $1.3 billion, up more than 19%.
UiPath ended the quarter with about 10,350 customers. Attrition was concentrated among its smallest accounts, which is typical. Customers generating more than $30,000 in ARR increased 6%. Those with at least $100,000 in ARR rose 10% to 2,660, and customers generating at least $1 million increased 21% to 387. The company is moving upmarket.
Dollar-based gross retention held steady at 97%. Dollar-based net retention improved to 109%, up 2 percentage points year to date. On a foreign exchange-adjusted basis, net retention was 108%. That means existing customers are spending more, which is a healthy sign.
AI Drives UiPath's Largest Deals
AI is becoming a major growth driver. AI products were included in 18 of UiPath's top 20 deals. Customers are increasingly moving from individual automation projects to broader, end-to-end processes that combine automation and AI.
Key wins included a seven-figure expansion with a global insurer and the Department of War's Clean Audit initiative. UiPath also secured deals with several financial institutions that are consolidating their automation programs.
The company said its forward-deployed engineers found that coding agents reduced development effort by nearly 60%. That's a big productivity boost. UiPath also introduced a developer workflow automation tool that supports Cloud Code, Codex, Cursor, and GitHub Copilot.
One customer story stands out: a Fortune Global 500 manufacturer is using UiPath to automate about 700,000 invoices annually. The system has achieved 96% document-processing accuracy and cut invoice handling time and support needs by 50%. That's the kind of tangible ROI that sells software.
A major U.S. health system also selected UiPath to automate claims denials and appeals. The deployment could address millions of dollars in previously unreviewed claims. Healthcare is a big opportunity for automation.
UiPath Raises Fiscal 2027 Revenue Outlook
For the third quarter, UiPath expects revenue of $440 million to $445 million. The midpoint is roughly in line with the $442.2 million consensus estimate. The forecast includes a $10 million year-over-year foreign exchange headwind.
The company expects ARR of $1.992 billion to $1.997 billion and adjusted operating income of about $100 million.
For the full fiscal year 2027, UiPath raised its revenue outlook to $1.789 billion to $1.794 billion, up from the previous range of $1.776 billion to $1.781 billion. The new range is above the $1.778 billion consensus estimate. The company also expects fiscal-year ARR of $2.065 billion to $2.07 billion.
So the guidance is solid, the AI story is compelling, and the balance sheet is clean. But the stock is down 7.35% at $16.88 in premarket trading on Friday. Sometimes the market just needs a breather. For long-term investors, the fundamentals look strong.
