UiPath’s IPO filing suggests robotic process automation is booming

Robotic process automation platform UiPath added its name to the list of companies pursuing public-market offerings this morning with the release of its S-1 filing. The document details a quickly growing software company with sharply improving profitability performance. The company also flipped from cash burn to cash generation on both an operating and free-cash-flow basis in its most recent fiscal year.

Companies that produce robotic process automation (RPA) software help enterprises reduce labor costs and errors. Instead of having a human perform repetitive tasks like data entry, processing credit card applications and scheduling cable installation appointments, RPA tools employ software bots instead.

The phrase that matters most when digesting this IPO filing is operating leverage, what Investopedia defines as “the degree to which a firm or project can increase operating income by increasing revenue.” In simpler terms, we can think of operating leverage as how quickly a company can boost profitability by growing its revenue.

The greater a company’s operating leverage, the more profitable it becomes as it grows its top line; in contrast, companies that see their profitability profile erode as their revenue scales have poor operating leverage.

Among early-stage companies in growth mode, losing money is not a sin — after all, startups raise capital to deploy it, often making their near-term financial results a bit wonky from a traditionalist perspective. But for later-stage companies, the ability to demonstrate operating leverage is a great way to indicate future profitability, or at least future cash-flow generation.

So, (Read more...)