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

Thanks, everyone, for joining us today. My name is Scott Berg. I lead the enterprise software and SaaS research efforts here at Needham. Today with us, we have UiPath. We have the company's relatively new co-CEO, Rob Enslin, with us. Rob, thanks so much for joining us. First time we met in person. So we're going to learn all this on the fly here. That's great. I guess, how about a brief overview of UiPath, what the company's platform does for the few people here that might not be familiar.

Yes. I mean, the company started in RPA space and really took off, I would say, around 2017 and since 2017, did a significant amount of investments in a broader space around Ui, around automation in general. So the platform today, the UiPath business platform today has 3 major categories: Discovery, which is process mining, task to mining; and a new acquisition we did around Re:infer, which is called Communication mining, but think of it as understanding e-mail, understanding sentiment in e-mail, understanding chart tickets and so on. So that's all in the discovery process and then it has a process called Automate, which is basically low-code, no-code workflow, the ability to create apps. It's got a studio development, environment for citizen developers, for professional developers and so on. It has great, so-called automations or bots and then it has an operating capability where it actually help you to manage your automations. It's got some significant, I would say, extensions when you look at the market where we actually do things like document understanding, text understanding, the ability to read documents and to process on documents. And then we built a test suite. Think of traditional tests, regression testing, things that are super exciting in the enterprise space. Test Suite to actually do -- to connect actually automations to testing so that you could actually scale automations really fast when things change and allows us to have some significant differentiation with companies. And I'd say this relatively new co-CEO, what's relative, by the way?

We'll go with that within a year.

Within year, yes, I think it's 8 months, I'm into it, 9 months, 8 months. And so the platform, we are driving the process of defining a category of automation or [indiscernible] automation in the space. And those are all pieces that actually put together. Largely, we see a TAM or a traditional TAM market, which we actually defined is roughly $93 billion of opportunity. Gartner has models that come up, anything between, I would say, a couple of hundred billion but we see the opportunity is significant.

Okay. Last time I checked your revenue level was, we'll call it, plus or minus $1 billion.

There was a lot of free runway.

Yes, exactly. That's exactly where I was going with.

There is a [ free ] way to ride.

We're going to start talking about the industry a little bit because I think investors' perception of this industry is still a little bit on the light side. When I first started doing research on you and your competitors several years ago in the space, the one comment that was made to me was every, call it, white collar employee or higher within a company can benefit from the use of an RPA bot in their corporate life. But can you talk about how broad the use of bots within an enterprise can be? Because I think a lot of investors tend to believe that it's really only regulated to the office of CFO.

Look, I mean, first of all, I think it makes a lot of sense in the CFO's office because it does repetitive, mundane task really well, right? So when you look at any other transaction-based systems, they all end up in the finance posting [indiscernible]. And what you find in the finance or the things that we can do really well in the finance organization or accounts payable, accounts receivable, invoice matching, invoice splitting, connecting different systems like signing on to an Ariba system or a Coupa system, creating a split invoice payment automatically and so on to SOX compliance really well generate stock-based compensation. So there are a lot of pieces in the finance that creates levels of efficiency. That CFOs are always trying to go after. So it's just a natural opportunity. But when you think about the way that companies have utilized it and you look at a couple of our customer cases, they've utilized the platform in a significant way. I mean I would use a couple of examples, different examples to give you some kind of an idea. Generali, for instance, the insurance company been around, I think, 140 years. In the last 3 years, they've saved EUR 80 million. They have a target to get EUR 125 million. These are public with [indiscernible] UiPath automation, not through anything else, UiPath automation. They're doing all of the claims payment processing automated -- through our automation. A bot is simply an app. So we use the word bot or automation. If you look at the New York State when COVID came, I mean they process -- they had to process 1.2 million claims in 2 weeks that could not have been achieved by providing humans. They utilized the technology from automation and bots to process it. And through that process, they were able to identify a possibility of $12 billion in fraudulent claims, right? So that's another example. And then if you look at a media company like Dentsu, everyone knows Dentsu, they do ads, media, they're fourth largest in the world. And they run -- they basically do automation at the citizen developer process to take away mundane task. So that the creative people are able to spend their time doing creative stuff. So cut and pay simple stuff, when they come to work in the morning, all the task for the day are already automated and ready for them to go and they don't actually have to do the do those tasks. Ernst & Young have over 125,000 automations running today. They do a lot of the SAP work, the consultants, advisory services, actually do not want to sign on to an SAP system. For a number of reasons, they don't spend a lot of time in it. It's once a quarter or so on. So that they've driven automations to actually build those processes and do the work for them so they can spend time with their client advisory services. And then Uber, I think there's a couple of phases. I've mentioned Uber a couple of times when Uber had to bring 460,000 drivers back. They used UiPath to go into security checks, department of transportation, make certain that they're validating. And their view is that they're saving about $2 million a day doing that. So there's significant use cases in different departments. We are -- when you look at where we have been very successful in the last 3 years, it's been in banking, financial services, insurance, healthcare, are a couple of the areas that we've been really successful in.

Okay. So from an industry perspective, you have, at least in terms of revenue, one larger competitor, there's a few smaller competitors that...

Who's the large competitor?

The initial's AA.

They aren't bigger than us. .

No, no, not bigger than you, just larger in general revenue, more than $100 million, certainly not larger than you. Just reasonable size. But there's also a large platform player based out of Seattle that's been trying to get in the space, at least a little bit .

Okay, that one I knew. .

Yes. How do you think about UiPath competitive positioning and differentiation relative to those other vendors?

Yes. So when you look at the RPA environment, I don't feel like -- I think we feel like -- in many cases, we replace Blue Prism, especially in the financial services and the banking institution on a consistent basis. We had 2 we announced in our Q3 results with Bank of New York Mellon and Orica that we replaced the [ competitor ], and we see that consistently. And that's the case of innovation technology. We don't see as much automation anywhere in the market. We feel in the RPA space, we continue to take market share from all of them, specifically in the RPA space, not in the full platform space. But in the RPA space, we feel like we continue to take market share. Gartner have basically published. It's probably a year old, but have published that we have 36% of the market share. We're the only one that's growing at roughly 6 percentage points. So in the RPA space, we feel like we've differentiated ourselves significantly from the 2 competitors that are in that space by driving the platform play, having Ui type automation at a significantly different level than we have process mining today, task mining, communication mining. They don't have those kind of technologies in place so we can actually service a much broader audience than either of those competitors. With Microsoft, we are both partners, we co-oped with them. We do a lot of technology work with them. We made the announcement that we are their preferred enterprise automation platform for their customers. That largely would tell you that the Azure salespeople actually enjoy driving UiPath into their customer base because we drive a significant amount of commits off the cloud platform for them. And they don't have an enterprise platform. So here, we actually have -- we live side by side when they have an ELA type license agreement in the Power Automate and on the Office 365 and customers. But the moment customers want to scale, then they look to UiPath to scale in the enterprise space.

So let's talk about the UiPath product specifically. UiPath and RPA really began with larger enterprises adopting an on-premise deployment of bots. The last year, you all released your first kind of cloud-native bots in particular. Can your cloud bots do everything that behind the firewall bots could? Or are there some limitations because it's new?

No. I mean they've been developing the cloud-based environment for quite some time. They actually have the same capabilities between the cloud and on-premise. But we actually just -- I mean, we have followed and adopted a policy of the customer can decide where to drive it, what makes sense for them. When you look at the smaller customers, really clearly, they're driving more cloud. When you look at more regulated financial institutions, they've continued to drive the on-premise version. But Customers can also take the on-premise version, and there's no reason why they can't run it in a cloud environment, in an AWS, Google, in an Azure environment. Our product is built on Azure, right, the full cloud product. And yes, it has the same. It also has -- we also have benefits in the sense that when you have a sovereign environment or you need to position your solution set into a sovereign type environment where they want the data or they want the thing running in the sovereign environment, we can actually run in a sovereign cloud, which allows us to support governments where they require those kind of environments, which are quite a few today.

So what would be the maybe pushes or pulls over a period of time of why more of the market would or wouldn't go towards a cloud deployment -- cloud bot deployment versus the current on-premise?

I'm a huge fan coming -- come from Google.

I kind of knew that. So...

My -- I have 100 reasons why I think cloud is for me the preferred model, right? I think it's scalable, it's very secure. You have lots of flexibility with it in terms of deployments. And so I think customers the same thing. We take away -- from a serverless point of view, you take away a lot of the management capabilities, the need to management, it's all managed for you in that environment. It's a lot simpler and a lot easier to scale. And I think more and more companies will be doing that in the future. I mean, it's just easier to deploy, faster to deploy, simple to deploy in the cloud than it is in an on-premise world.

At your recent Analyst Day that I attended in Vegas, you had a number of new product innovations that you announced that helped expand the TAM to the $90 billion that you talked about. New PaaS, low-code automation platforms, new business process management capabilities. How are these products complementary to your core RPA platform? And how should we think about their growth trajectory relative to what you do with platform?

It's a great question, right? Because I think -- so if you look at what we said we're going to do at Investor Day, we said we would launch platform pricing, right, which we did. And platform pricing changes the way we price because we were pricing previously at a line item level. So every product was a different sales cycle. It's kind of tough. And we -- with the platform basically gives you capabilities to do all in the management staff gives you document understanding, Test Suite as part of the platform and the ability to utilize that to create automations. So putting that into the platform, we believe you need low-code/no-code. You need to have a workflow engine. You need to be able to do integration services through API management. Like you cannot -- in the world of automation, you cannot only do Ui. You have to do API because API is a piece that connects all these SaaS systems, SaaS application together, and it's really what's going to drive automation in the future. It's incredibly important to have the Ui piece as well. But those product sets are really important as part of the overall platform piece. And that includes things like process mining, task mining and our communication mining and automation hub thing. We believe that in the next couple of quarters or months or in the next year, you will see the analysts come up with a very clearer definition of automation and hyperautomation and what companies need to have in this place. We think that we have the majority of those solution sets to create an automation platform. And that's why we actually launched the UiPath business platform at the Investor Day. So it was very clear to everybody that these are online items. And that actually -- it actually accelerates the revenue growth in our customer base because they are -- we have fully integrated the utilization and the use of these products together so that they look like one common -- they're all one common environment, they don't look like one -- they all 1 common environment, and you're able to determine which processes you should be automating and which returns you can get. You can actually see in the system, if you automate through process mining, you can go back and look and see what benefits you got. What -- how much of the process is going, how much faster is it going that it was going last year? What kind of improvements you should still continue to do. So it creates a continuous loop for customers to do automation and to continue to have automation going. And the companies that have done really well, like Generali and Orange have already been doing that for a couple of -- I mean it's not -- we didn't -- they would -- they've been doing this because they figured it out how to do this over time.