UiPath Duped Shareholders About Success of Turnaround Strategy: Class Action
UiPath, a business automation software company, mispresented the success of its AI-themed turnaround strategy, alleged a Securities Exchange Act class action Thursday (docket 1:24-cv-04702) in U.S. District Court for Southern New York in Manhattan. The suit names CEO Daniel Dines, former CEO Robert Enslin and Chief Financial Officer Ashim Gupta as defendants.
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On Sept. 27, 2022, “after a period of stagnant growth and declining demand” for its robotic process automation tools, UiPath announced a turnaround strategy that included rebranding UiPath as an AI-powered business automation platform and overhauling the firm’s marketing strategy, said the complaint. Elements of the turnaround strategy included prioritizing sales of UiPath’s product platform vs. allowing customers to pick and choose single product offerings; increasing sales resources dedicated to the largest customers; and focusing sales efforts on customers’ “C-suites,” the complaint said.
During the Dec. 1-May 29 class period, the defendants stated that UiPath’s business automation platform enables the company to close “larger, more strategic deals” and that its AI-powered products set the company apart from the competition, said the complaint. Defendants said the company was executing and seeing results from its go-to-market strategy in both deal and customer quality, and that strategic investments in innovations and the “go-to-market ecosystem positions us well for continued momentum,” the complaint said. Executives said, “'There’s no doubt there’s [been] better execution’" since implementation of the turnaround strategy, it said.
In truth, the turnaround strategy “failed,” due to “fruitless investments and inconsistent execution,” alleged the complaint. The AI-powered business automation platform, “caused 'confusion’ among customers and was not able to be adequately scaled,” it alleged. As a result, the company had “significant difficulties” closing or expanding large, multiyear deals, it said.
On Dec. 1, the day after UiPath posted Q3 fiscal ’24 financial results, it reported $326 million in revenue, a 24% year-on-year increase, which executives largely attributed to execution of the turnaround strategy, the complaint said. The stock price rose 27% on the news to close at $25.04. On a March 13 earnings call, UiPath reported record quarterly revenue of $405 million, a 31% increase, and marked its first quarter of GAAP profitability as a public company, the complaint said. It gave FY ’25 revenue guidance of $1.55 billion-$1.56 billion, again citing the “successful execution of its turnaround strategy.”
On May 29, the company announced the “sudden departure” of defendant Enslin as CEO and the reappointment of defendant Dines in that role, the complaint said. On the same day, it announced “disappointing” Q1 ’25 financial results and “significantly cut” full-year revenue guidance by 10% to $1.405 billion-$1.410 billion, the complaint said. The company attributed the “poor results” to “'contract execution challenges on large deals,’” an inadequate ‘execution strategy to scale’ the Company’s AI-powered growth products 'to reach their full potential,’ and investments made to reaccelerate growth that fell "short of our expectations." All that combined to make the company "less agile in responding to customer needs,’” the complaint said, citing company reports.
Dines “indicated that the turnaround was a failure,” alleged the complaint. He said the company planned to drive higher efficiency, drive a “deeper and more execution-oriented strategy” for its AI products, shift the way it engages with customers and “reinvigorate our line of business engagement with an industry tailored approach.” The executive said UiPath would “go back to our roots, building a truly customer-centric organization.”
AI, Dines said, was “creating a little bit of confusion with our customers” and rather than closing deals, customers were continuing to evaluate which tasks were more suitable to AI and which performed better “using our platform,” the complaint said. On that news, UiPath stock dropped more than 34%, from $18.30 on May 29 to close at $12.07 the next day, it said.
Plaintiff Zack Steiner bought UiPath shares during the class period and alleges the defendants made “misleading statements and omissions and engaged in a scheme to deceive the market.” Those statements artificially inflated the price of UiPath securities and operated as a fraud on the class, it said. Steiner and the class suffered damages in the form of economic loss, the complaint said. Steiner seeks for himself and the class compensatory damages in an amount to be determined at trial, with interest, attorneys’ fees and legal costs and other relief the court deems proper.