UiPath, Inc. (PATH) Earnings Call Transcript & Summary

Well, welcome. Welcome, everybody. I'm delighted to be welcoming UiPath to the conference. We're very fortunate today to have Daniel Dines, Co-Founder and Co-CEO; Ashim Gupta, CFO from UiPath. I've got some questions that I'll go through. And if you guys have any questions, we'll open it up at about 25 minutes or so in. So feel free to raise your hand if you'd like to ask a question. Daniel, Ashim, thanks for joining. Great to have you guys here.

Thank you for having us.

Thanks so much.

Absolutely. Absolutely. So very much looking forward to the conversation.

Maybe we could just start since you guys are fresh off of your Q1 results, anything you'd like to highlight from the earnings report?

Well, it was a very good Q1 for us. We've bitten all the metrics in our guide. And we've been able to raise the guide despite the FX impact. We've basically absorbed the FX impact in our guide for Q2. Overall, we are seeing signs of macro improvement. We have strengthened quite a bit our executives team with the addition of 2 great executives, Rob as Co-CEO and Chris Weber as our Chief Business Officer.

Yes. That's great. And you guys were one of the first companies to call out potential weakness coming in Europe on the Q4 earnings call. It sounds like that might be where this -- the source of upside was, perhaps maybe not as bad as you had thought this quarter in order to absorb that incremental currency impact that you described. Is that a fair assessment or would you describe something else as kind of the drivers of the constant currency upside?

Look, when we made the guide, it was almost 3 months ago. It's been, I think, kind of the most uncertain situation in Europe. The prospects of the work could have been much worse for the entire Europe. We were looking at the work that can be -- can affect more countries in Europe. Right now this has become like regional and it's confined within that region. So people are less worried right now about the work. And I think customers, especially in Europe, had the moment of pause a bit. Like when you are in an accident, in a shock, and then they pause basically everything. Now this is the new normal and people got really adjusted to it. And we are seeing our big deals moving through the pipe, like the health insurance company that we closed in April. May seems also a good one. But it's not like April it's here, May it's here. It's kind of consistent, maybe Ashim could...

Yes. I think we were incredibly consistent in terms of our guidance philosophy. We're guiding in front of what we saw. I think the biggest -- like at that time, we talked about Russia, FX and large deals. I think what was the biggest change for us is we do see the positive maturation of deals moving through the pipeline, and from that standpoint that gave us confidence to be able to raise the guide. And also, our execution continues to be strong. And with the addition of Rob and Chris, well, we've accounted for transition risk. That gives us confidence as well as we strengthen the team.

That's great to hear. And not to focus too much on the macro, but you did not call out any softness in the U.S. or China or Asia with the slowdown in China affecting the region or risk of recession in the U.S., it didn't sound like that. Anything to call out there?

U.S. was actually -- U.S. continues to be one of our high-growth regions actually, because we entered EMEA -- again, when we first started the company, we made a big bet in Japan and entered Europe first. So actually, America continues to be a source of strength. And in any economic condition, the ROI of our automation platform is very conducive to customer investment.

Absolutely. Why don't we just pull back bigger picture on just the RPA market. We all know it's big. How do you think about sizing the opportunity? What's your view of the addressable market?

Look, our view from a year ago, at the time of our IPO has not changed. It's a very big addressable market. We are looking at $60 billion TAM. We're the clear leader in this space. And we have progressed a lot from. RPA was just an entry gate for us in the big enterprise world. But we are offering an end-to-end process automation platform at this point and this platform is getting a lot of traction. It helped us to really increase our market share in the automation category overall.

Maybe we could drill into that topic a little bit more. I mean, you described UiPath as a platform. What are some of the components of that platform that you've built over the years? How do you think of -- how should we think about UiPath as a platform?

Yes. If you look at means to achieve automation, in general, there are 3 ways. Using user interface of applications like what RPA is, using APIs and using AI to emulate human user, like understanding documents, natural language. So we started with RPA. We combined it with API. We have a world-class API platform. We've built internally. We bought a great company called Cloud Elements. And our API story is really at the same level as our RPA story. And I know we are not seeing as an API company, but we power big enterprise software companies for their API by our underwriting software. So our API -- we invested quite a bit in API and also AI for documents, being capable of delivering the combination of 3 in the same low-code, no-code or workflow designer, it's very powerful. So we are -- these are the major pillars of our platform. Plus we made huge investments into the process discovery category that has process mining, and we established ourselves like a clear #2 in the process mining category, and we have test mining. We have different ways to help people identifying opportunities. And that's the where the flywheel of automation starts.

Sure. Why don't we talk a little bit about dollar-based net retention. With really good metric this quarter, 139%, it's just one of the best-in-class metrics by that measure. It did decelerate a little bit. So maybe we could talk about that. And then more importantly, what's driving that kind of expansion? What are you hearing from customers? What do they typically start with? What does the typical expand cadence look like in those types of deals and footprint?

Yes, great. I mean we're really proud of our net dollar expansion, right. Like I said, it is the growth driver for us, and it has been and it will continue to be. Deceleration for me, it's a little bit of the large numbers. I mean, we crossed $1 billion here this year. When you look at the trajectory of the company, I mean, we were -- rewind 6 years ago, we were in single digit in terms of revenue, and now we're moving past $1 billion. So you're going to have a lot of large numbers, including driving some of the -- like some of the metric deceleration, but it's still a best-in-class metric. When you look at the land and expand model for our customers, many of our customers start with just a really simple POC, right. Even though this is a very known technology now 5 years later, still people want to see is the ROI for real? Do I have the capabilities internally to be able to do it? So you typically end up with a land somewhere between $15,000 and $20,000. And then what's great about the software is the POCs and the time to value is very quick. Most of the time of POC can move from a couple of weeks to a couple of months max. So usually, within that first year, we see a lot of our customers double who are very committed to our automation platform. And then as the ROI starts increasing, they expand across departments. And now we're no longer an RPA company. I think it's really important to know we are a full-fledged automation platform from process discovery, including task mining and process mining to engagement, including AI features that we also sell and bundle together and across multiple personas. So what ends up happening is people look at that, it becomes a really critical part of their digital transformation effort. And then you end up with great customers in banking, health care across all the industries, really doubling down on the platform itself. And so when you look at our number of $100,000-plus customers, we crossed 1,500 this quarter and that's up 45% year-over-year and number of million dollar plus customers is now 157, up 64% year-over-year. So that's really kind of -- you can see that in those metrics in that progression.

That's great to hear. Around the time of IPO, I recall, you kind of had shifted a bit more focus towards expand away from land. I think now you might be going back towards expand, so maybe towards land rather. Maybe you could just talk a little bit about where the focus is on go-to-market? Is it a balanced approach now that you're embarking on more going after more of that new business, new customer win in addition to the expand opportunities? Has that changed at all or...

No, I would not say so. Our business was always very much expand oriented. We lend usually small, and over time. And if we are looking across all cohorts, they expand quite meaningfully. And also, if you think during the pandemic, it was a bit simpler for most companies to expand rather than lending new customers. In terms of strategy, right now, we look at both land-and-expand. We are making quite an investment in the emerging enterprise segment for us and also into the key accounts. But our thesis is that emerging enterprise will eat more and more from our enterprise segment, it's a much more efficient sales motion that we put in place, paired with the -- our investments in cloud and partners makes us more bullish on our ability to attract net new logos in the future.

And maybe we could drill in on that a little bit, just the investment in partners. Is this -- should we take this to mean this is a recruitment effort or you have -- do you feel you have the partner relationships today such that it's more about enablement. The focus is on enabling these partners getting to be more effective in selling.

Yes. I think the focus is on enablement and really focusing them on the opportunities that matter. So we decided to take the GSI partners of us. The more help them with penetrating in our key accounts where we already have great relationships, while we are looking to the long tail of partners more pairing to our emerging enterprise sector.

Thank you for that. And then why don't we pivot more towards just maybe some color on some of these large million dollar plus customers that you talk about. Maybe we could just start with just the evolution of the customer. When they come to UiPath, what's the pain point they're initially trying to solve for? What does that initial footprint look like? And then over time, how do they grow into that kind of $1 million plus level. Maybe just if you could frame it in terms of use cases, I think that would be helpful or any commonalities you see there in terms of those types of land-and-expand deals to get to that point?

Yes. Look, we traditionally landed within the CFO, COO suite. And it's very easy to find low-hanging fruit in that department. She knows very well, he was a customer and -- for us and then to becoming the CFO, he was also leading customer success. So I will ask him later to give the same perspective. But, typically, how we progressed from a small deal to million-dollar deal, it's kind of simple. Lending to a department, 50% plus is financed. And then show them the return on investment. It's easy to prove. You have to work with the -- like a controller, define a set of KPIs. And then you will see that the controller is willing to give you more budgets. Get the sponsor up in the company and then go enterprise way. Plus, the key, it's like connecting the dots between an executive sponsor, business person, an IT person and a partner, and that creates the momentum for large-scale adoption.

Sure. Ashim?

Yes. No. I think Daniel talked about the expand motion well. When you rewind 3 or 4 years ago, the most common use cases to be used or 4 years ago was like know your customer invoice to cash, like Daniel said within the CFO suite. What's exciting right now is if you go -- like, 4 years ago, I think 70% of the used cases was centered around finance and accounting. Now it's 40%. And that's not because finance and accounting is going down, it's the rest of the pie has grown. So like we had Amazon on stage at our Forward IV event last October in Las Vegas. They talked about hiring 1 million people using our software because it just created ease of recruitment processes and it sped them up, gave them better accuracy. We talked a lot about Cleveland Clinic scheduling patient calls. So really the pain point can be anything because we are a horizontal company. And that evolution is one of the things that has supported both our growth as well as our expansion. Being able to enter into multi departments and also expand across multi departments is a great strength of ours.

Absolutely. Dan, you alluded earlier to the Co-CEO arrangement with Rob. Can you talk about a little bit how you plan to share responsibilities? What will be your focus? What will be Rob's focus I think that will be helpful, please.

I was looking for a partner over quite some time and very happy to find Rob actually. So my number one criteria when looking for a partner was cultural alignment, chemistry. So working with Rob I feel really like we know each other forever. So it's really a great feeling to have a partner to -- yes, like Ashim was for me a long-time partner for us. Now we have Rob and all of us are feeling really good about it. In terms of splitting the role and responsibilities. My passion is product and keeping the cultural life, talking to our employees, understanding what's -- what they like, what they don't like. And it's similar with customers. I'm a product guy that want to go and talk to customers, understand what can we do for them? And I want to make this feedback look working, while Rob will take day-by-day operations function and oversee everything that is go to market.

Sure. While we're on the topic of culture, I know UiPath is unique and that you have a very distributed workforce, you always have even before the pandemic. Maybe you could talk a little bit about that kind of strategy to hire the best talent regardless of location and enabling that kind of distributed work environment.

That's true. That was one of the vectors of growth for us. We expanded quickly, and we have significant presence on all 3 continents. And I'm really proud that we've built such a diverse culture in UiPath that is very inclusive for everybody. And since one of my -- I think this is one of my biggest achievement. I want our people to come to work with joy. And also its -- we've built a rather mission-driven company, because people feel very passionate about delivering this platform, that really address one of the major issue in the way people work today. We are all -- it's the amount of manual work, it's a big headwind to productivity. Think about it in the current context, we're increasing productivity. It's maybe the best way to cope with inflation. This is the time when our platform helps the entire society.

Absolutely. And maybe we could just dive into that a little bit. I mean, in this inflationary environment, now things potentially changing with the macro slowdown, but how does UiPath help companies solve for the current environment. There's a lot of moving parts. So we head into the year with a difficult hiring environment. Companies could find talent. Obviously, things are slowing down a bit here. In this environment, how does UiPath address the problems of companies?

Besides stating the obvious that when you automate certain unpleasant tasks, it acts like a retention tool, and your need more headcount decreases. It's also a great -- automation is becoming a great upskilling pool. So I will give you an interesting anecdotes recently from my trip in Europe. So I was talking with one of the largest public institution in European Union. And he told me, we hired -- we have 500 management assistants, many of them are having a PhD in economy. Why they come on working this job? This is the only way to get into this institution that they -- it's very prestigious and they feel it's an improvement in their career. But to keep these people occupied, that's making sense of their brain, they want to come with the -- like developer -- citizen developer program for all of them, to basically automate, to take this task force and automate everything in that big public institution. So this is the type of story that gives me a lot of energy. You put people, you get the best of people by removing the bottleneck of menial tasks.

And any other RPA companies have tried to do what you're doing with that enablement effort that you're describing, where you can put this in the hands of the line of business manager, and they can go build the bots. Can you help us understand what is it about the UiPath platform that enables that no-code, low-code capability, I think that would be helpful.

Look, in theory, if you look at different competitive software, all look the same. So why have we won against everybody else? And we -- to put things in perspective, in 2015, we were just 10 people in a small apartment in Bucharest. 7 years, we are looking to cross $1 billion in revenue. It's kind of almost unheard story. So it's clearly, it's about something in our technology makes it -- it's easier to use. And also, it's much more powerful. When you find yourself to nail down a use case. It's always the 20% -- the last 20% that matters. You cannot say, I have automated only 80% of a task. This is not working. You need to completely in order to really take it out of one's plate. This 20% is where we excel. So -- and we've always excelled on this. We must take every task. Our sales strategy early on was very simple. Going to a customer, say take whatever process you want -- simple, complex, doesn't matter, put the best people from competing platform, put the best people from us, or put average people, it doesn't matter, just create a leveling playing field where the competition. We'll always automate more processes and always we'll automate in half of the time. In the return on investment game, when -- you over a few years, you will automate thousands of processes that compounds to an enormous difference. It makes even the license cost completely irrelevant when you look at the compounding return on investment over time. So it was -- we were kind of fortunate that the company built only by engineers. No sales jobs. We're capable to scale as fast, particularly because we could improve return on investments extremely easy.

Ashim, why don't we shift to international. The company already has a very balanced international footprint, 57% of revenue international. What are some of the geographies that you feel you've got that foothold already, others that maybe you're underpenetrated or you could be investing more to go after more incrementally? Just any comment on just the regions and --

Yes. I mean, so 57% of our revenue comes international. We're in over 100 countries. We have customers in over 100 places. Overall, what's great about UiPath is it was born global. I think not being a U.S. native country, there wasn't an immediate bias to just be in the U.S. So like actually, Japan was one of our largest geographies for the long time, including one of our largest companies -- or customers in SMBC. They really showed the world of what's possible using UiPath's platform. Within Europe, we have a strong presence in all of the major geographies that we feel like between U.K., France, like all developed -- all of the major economies, we feel like a strong foothold. In fact, America is the area -- is the region where we have had to ramp investment to catch up, because the first 3 years was really in Japan and Europe. So Americas, ironically, is the area that we are driving the majority of our investment today. We look across it, we see it as a great source of strength. We have a strong infrastructure ready to scale. I don't think we have to -- like, when we just started talking about operating leverage, we have built the foundation. So when people look back and see our cash burn in our early days, what I really think the company has done very well is it took the early moments to build the infrastructure, which is why we look at the next year's and operating leverage is something that we can go after, because we've built the infrastructure across the major geographies we want to play in.

Sure. And why don't we shift a little bit towards the balance of growth and margin. Obviously, the company is growing ARR 55% plus. So you're going to be investing for growth. How do you think about that balance of growth and margin? What are some of the sources of leverage over time? Is there a long-term target you kind of have in your mind and --

We've talked about 20% plus operating margins as kind of what is entitlement for us. I think when you look at our financial statements, we command 80% plus gross margins, and that is with cloud really scaling well for us. It's not -- now 3 years ago, we were at 90% with a full on-prem deployment. But now we have -- we talked about over 3,800 customers using some element of our cloud platform. So our gross margins are extremely strong. That gives us an advantage in terms of where we are. I think sales and marketing and G&A, like we talked about, we've spent the last couple of years building a foundation. I think with Chris Weber here, we're going to fine-tune that foundation, using his expertise and learning, particularly as Daniel talked about, emerging enterprise and digital sales. So I think between sales efficiency and then just using our own automation, which we have over 300 robots just in finance that are working. We feel like we have a very leverageable cost structure. And so as we think about this year, like 2 years ago, we had significant cash flow negativity. We went to cash flow to neutral last year, and we're talking about cash flow or profit neutral to positive this year. And we're committed to driving operating leverage. That being said, we talked about a $60 billion plus TAM. We look at the market, we'll invest for growth. We're crossing $1 billion. We feel like we can drive the appropriate balance of investing, while still realizing operating leverage with 20% being a good long-term target for us.

I'll open it up to the audience if there are any questions in a second. Why don't I ask one more before we do that? Just on that topic of the sales leadership change with Chris Weber coming in. What was the motivation there? And what do you think Chris will do coming in, what kind of changes perhaps or not will Chris be making?

We knew Chris for almost 3 years, actually tried to recruit him for this role before and we keep close -- not close, but we were talking maybe once a quarter. And now when he was ready to leave Microsoft, it was a great opportunity for us to bring him. We were actually joking, because it was the only sequence of events that could have got us both Chris and Rob, which are 2 amazing really leaders that we could have got. And look, it's working really well right now. I think we, as a team, we gel better than before, it's much more fluid. I think decisions are faster, feels like really a big step up for us.

And it feels like in terms of change -- I think Chris really loves our product. He loves our overall strategy. To me, like when we laid out our operating plan and guidance in the first quarter, nothing really that we see changing, except for the benefits of taking Chris' knowledge discussed earlier around digital sales and going higher with him and Rob into the [ sea level ], I think those are 2 things that I'm really excited to see starting to reflect in our pipeline and just in our overall approach.

Well, if you do have a question, please feel free to raise your hand. If not, I can continue on. Okay. Why don't we shift to Process Mining. It's a category that's getting a lot of attention. Maybe if you could just start high level, what is Process Mining? And why is it strategic to the platform? What does UiPath have in that regard?

Let me give you a more extended answer about what this drives is discovery, because we play this is the overarching category where we play. So process discovery is the ability of an organization to monitor and understand processes and tasks within an organization. And there are 2 ways to do this. One is to look into the back-end systems looking to the locks of the back-end systems and understand the transaction flows -- our transaction flow through the system. The other way is to look at -- talk to people, look how people are working, how people are using applications. And we've automated both of this. One of the very interesting technology that we are building is called Task Mining, which is literally like watching someone over their shoulder and understanding what they are doing. And imagine watching hundreds of people and then finding the patterns of work, and plus bearing it with Process Mining technology. It's the only way to get a 360 view of what's going on in an enterprise. So we knew this is an important pillar of an automation platform. So this is how it helps you expand, it helps you find faster opportunities. So our investments there was really in the past 3 years, we invested quite a bit. We re-platformed the process mining technology that we acquired 3 years ago. It's working on cloud, it's scalable, built a lot of connectors. So it's easy to get into the data and into the back-end systems. We integrated with Task Mining. And it's -- we've built kind of a very solid offering. Our strategy in Task Mining is to address the needs of 80% of our customers and make it a very smooth, easy way to consume it as part of the automation platform.

And why don't we just shift to competition? I think you've described this platform advantage. Who do you see as competitors when you win an initial deal and then over time as you expand these accounts, does that change in the enterprise versus kind of as you've moved up market, has the environment changed at all? Who do you view as your primary competitors? And what are the advantages to the platform?

So, historically, we competed to mostly with 2 companies, they are Automation Anywhere and Blue Prism. Now Blue Prism faded out over time very quickly. So we have not seeing them in the new opportunities so much. And 3 years ago, Microsoft announced their intention to get into RPA space. And they were followed by a slew of other enterprise companies. SAP has -- 3 years ago -- SAP was actually the first that entered this space. And then ServiceNow, Salesforce. So everybody announced intentions to be an RPA and they usually bought a small company to integrate. That was basically the strategies we've seen in the market. Now in terms of where we are today in the market, according to Gartner, we are the only company that last year's get 6 points of market share. And we get more revenue than I think almost everyone in the RPA space combined. So it's -- whilst it's really in the RPA space, it's not like we are having a competitor that is hurting us. Microsoft. Again, Microsoft entered the space 3 years ago, right? According to Gartner, they have 2% market share. And we are seeing Microsoft in deals. But as we split the industry into enterprise automation, that means automation built by professional developers deployed enterprise-wide. This is not where Microsoft plays. They build power platform it's citizen developer platform. It's not for creating enterprise automation. On the personal automation, our tool is really way more advanced and this is only a fraction personnel automation. And it makes a lot of sense if you feel for when you build an automation program for an enterprise. It makes a lot of sense to have the same technology power in personnel automation and enterprise. So you can progress also a lot of your citizen developers may be into professional developers. So we are -- this is -- so right now, if we look at our opportunities, it's Microsoft and Automation Anywhere that we are seeing the most. The other company's sales services now we are not seeing. It's less than 1% of our opportunity. And we'll see how things go over time. But right now, given our investments in and our the progress of innovation, I really feel confident.

You alluded earlier to the cloud offering. You recently revamped it. What are you hearing from customers with regard to their willingness to put RPA in the cloud? How early is this? Is this more of a mid-market play, you can get the cloud installed more easily at a smaller footprint to kind of bring in that top of funnel type account that is the next cohort of expand opportunity. Or how do you see the cloud platform evolving in terms of the initial target market and then over time?

Well for us is the fastest-growing part of our technology that we have right now. And it addresses both high end of the market as mid-market. Over time, if I take my vision of the company, we will be split into 2 types of deployments. It will be airgap deployments, completely airgap for maybe very sensitive projects, and everything else will be cloud. I don't see any reason -- not even something like a mixed like hybrid deployment. So this is why our thesis was 3 years ago that we will get everyone into the cloud. And we are -- it's the -- we made a good business decision to build cloud in Bellevue. So we've been capable of collecting great talent. We built a world-class cloud offering. So it's doing very well for us at this point.

That's great. It's exciting. Well, Daniel, Ashim, we're out of time here. Thanks so much for joining us. Great conversation, learned a lot. Thank you all for joining us as well.

Awesome, Bro. Thank you.

Thank you.

Thanks Dan, thanks for just doing it, Ashim.