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

Thanks, everybody. Welcome. Delighted to be welcoming UiPath to the conference. We're very fortunate to have co-CEO, Rob Enslin, to join us. Thank you, Rob, for being here.

Thanks, Brad.

Looking forward to the discussion. I've got some questions that I'll go through, and we'll leave some time here at the end. If you have any questions, we'll give you an opportunity to ask, just feel free to raise your hand. And with that, Rob, good to have you here. Thanks, again.

Thank you. Let's have some fun.

Absolutely. So coming off of a nice Q1. Just curious to get your perspective on just what were some of the key highlights, what's been the investor feedback since then?

Yes. Thanks, Brad. We had a nice Q1. Now I would say the -- we had good return on operating income. And I think we continue to make significant progress in that space. And the investors are pretty happy to see some free cash flow coming through into the company, and we continue to commit to a disciplined approach around that. Our segmentation, the changes we made to the sales organization, which we announced in September of last year is starting to play, start to come through. We feel really good about some of the leadership we brought in, some of the work we've done around making certain that the platform actually plays a big part. NorthStar. NorthStar is coming through as well with customers or NorthStar, a value platform where we actually go into the board of how we really help companies drive super efficiencies and get significant benefits from the solution. And then I think the SAP partnership was kind of a highlight as well in our Q1 earnings. And then the discussion around why don't I bring it up for a change because I seem to get this question a lot. The discussion around generative AI was at the forefront of our earnings, and we actually showcased the live demo in earnings of something we called Wingman, and we're just really using generative AI to actually produce automations on the flight basically, which is actually really well. I think people were surprised, but I think they enjoyed seeing something instead of another announcement, something that was real and tangible and something that's in the works already, and you have that.

Since you mentioned that the SAP partnership was front and center. If you could elaborate on that and what was the reception at the conference?

So for those who know me, I spent 27 years at SAP, are going to do a keynote back at SAP, was kind of deja vu, I guess, probably the best way to describe it. It's with -- I think I must be the only board member that's ever gone back to do a keynote in a company that he was on the board of -- but it was actually -- it was awesome, actually the customer -- and I had an opportunity to witness the partnership live with the customer Adidas, who actually showcased how their SAP S/4 environment, together with automation, added significant value to Adidas. They gave some statistics. I actually didn't bring it with me. I don't have the facts with me, but they had some statistics. They have over 1,200 hours of automation running inside the SAP system, which means manpower and things being some really unbelievable returns for them. So that was really a showcase of why this partnership matters, why customers should care. And there was a lot of excitement from the SAP sales organization in driving this partnership forward because one is they're going to get paid for bringing it in. And second is customers really are excited about it because they've invested a significant amount in SAP and the processes and now they can see how they can add more innovation on top using the combination of the workflows that SAP have together with our automation and connecting it to Test Suite. And so it's a significant opportunity for everyone.

It's exciting. Great to hear. Thank you for that. Guidance for this year, and we just get into one of the metrics, ARR growth to decelerate by the end of the year to 19%. You just put up 28% growth this quarter. So I would love to get your thoughts on kind of what's assumed there from the macro standpoint, execution for that type of deal...

The way I look at it is we've laid out the guidance and we committed to the guidance. We continue to see variability in the marketplace, and we've been clear about that for some time. We made some changes. Well, we made significant changes to the sales organization, bringing new leadership segmentation and stuff, it's probably taking a little bit longer to embed into -- than we had hoped, but we feel really good that it's going to continue to accelerate in the back half of the year, we will accelerate in the back half of the year. And the things that we're putting in place, SAP partnership. In Europe, the T-Systems partnership is going to be big. Our solution accelerators are significant. We launched the SAP heat map with Test Suite to articulate where you can actually find automation in SAP that are in. So we feel like all the pieces we put in place around the segmentation model is going to have a significant benefit in the back half of the year. And remember, like when you're doing -- when you focus on -- more focused on Global 2000 than we've been, we're working with companies over a longer period of time, and we'll have significantly larger opportunities with those companies. And so that just takes a little bit more time to be done. And we feel good about the back half of the year, for sure.

Great. Great. And maybe if you could help us understand the level of partnership here with SAP. I mean, are there joint go-to-market resources that you have? Are there salespeople with quotas here? It sounds promising. So just anything.

Yes. So there's a couple of pieces to the partnership. One is we bought something called Endorsed Applications. So basically, it's an Endorsed. It's a SKU that is specific for SAP customers. And the SAP sales reps and our sales reps will be selling the SKU, and they'll both be compensated on it. Its marketing arrangements where we will actually have dedicated people in the field. We actually already have dedicated people in the field, and we've made some significant hires around that in every single market. We are already on the marketplace. So as of in June, right? That we in June, right? I think June 1. I think at the beginning of the week or early -- or late last week, we were in the marketplace, we're already starting to see pipeline come into that. And we have engineers working together to build out the product set and the connectors specifically with a Signavio product and how that fits into our solutions so that customers see it from a holistic point of view. And ultimately, our goal is to make certain that those products are fully integrated into each other seaminglessly.

Great. You alluded to this a little bit earlier on some go-to-market changes. I think in Q1, there was quite a bit of that underway. Could you just elaborate on that? Where are we with that, is some of the disruption that you saw that you alluded to in the past?

Yes. So we've done with it. We're done with the changes. We are now focused on embedding the relationships, making certain the customer relationships are more meaningful. It takes them more time to get new sales reps into new customers to make certain that they connect it. So that's embedded. The changes that we needed to make. They've been made. The changes of the partners have been made. So I would say we passed that now. Now it's about execution, making certain we can execute against that model making certain that the platform is at the forefront of that model that the distribution piece that we said we would get scaled globally and is scaling through our partners. So we feel great about -- it's a matter of execution. We also feel good that we actually have the right resources in place globally, and we're actually bringing out the right types of solutions for customers. I was asked the question early on, which solution set, is it RPA that's driving the platform? And so we've got significant solution sets in the platform like document understanding, communication mining tests, which, in many cases, is driving that. And those require a bit of a higher-level sales motion than pure RPA. And so we're starting to see some significant opportunities in that space. We mentioned previously [ Arica. ] We've mentioned Bank of New York Mellon. We mentioned HCA. I think we mentioned Pfizer. These are all driven by these products like process mining, document understanding and so on.

Wonderful. Great. A lot of debate across software as to which categories is AI additive to, which ones is it deflationary. How do you think about that for RPA? And how should we be thinking about the AI opportunity and where might there be some deflationary...

Certainly on the forefront of everybody's tongue. Even at breakfast this morning, I try to shut up the 2 tables next to me but I was just -- like everybody is talking about generative AI. It's like talk about scrambled eggs for a change. I mean -- but it is the topic digital of the day. I would say we benefit from it because we've always been focused on AI, not generate AI, but we've been focused on AI. If you look at Computer Vision, the work we've done with Computer Vision to understand how people interact with screens, and I think this has allowed us to collect that data, understand it in meaningful ways that allow us to do things and create a little bit of a moat around the RPA for certain... But we've also got other solution sets in AI. Our infer acquisition through core communication mining is largely NLP driven, natural language process with both on the Google Cloud platform with active learning book into it. Active learning being the ability to actually interpret e-mails, understand e-mails, be able to take contextual pieces of the e-mail and then be able to understand how to repurpose and rewrite something back in the language that you were written. And so we've got a lot of that kind of technology. We've been used -- we launched for those that were at FORWARD 5. FORWARD 5 being the fifth forward we've done in Vegas last year in September. We showcased ChatGPT -- not ChatGPT, SAP with AI. And when we showcase that, I mean, that was built on GPT-3. But if we had launched and said, yes, GPT-3, everybody would say, what are they talking about, right? And so we've been showcasing a little bit of OpenAI's technology early on. That product comes to market in October now, in productive, so product we showed. We showcased some work we're doing in the earnings call around GPT-3 and 4 with Java. We've got Wingman, and we've got something called Java in the works, and we're working with customers on use cases so that they can use our automation with some generative AI technology. So we've kind of built the methodology to both real showcases. So we feel like we get a tailwind out of it. We feel we've got real good capabilities on the engineering side, really good understanding from our research side. Our research is largely run by Dr -- Professor David Barber, who runs the UCL in London. He's the Head of AI there on the first slide. So we feel like we've got really good capabilities in this space. We feel like we've got really good talent in the space. We've been doing it for a long time. We feel like this accelerates our opportunity in this space, and we actually really focused on bringing up more and more product now in this space as well.

Wonderful. And what has the impact been since all the attention on AI beginning of this year, end of last year. Has that changed at all your kind of velocity in the pipeline, if you will, or deal sizes or anything of that nature? I mean, what impact has this had on the business? What kind of -- with this attention among CIOs and lines of business that are adopting RPA?

So when you're talking -- when you -- so first, when you look at this, many boards now are going through a process to try to understand how does this impact their company or how can it impact the company, how do they utilize it? Are they going to miss out on opportunities and so on. In our case, we added on to the discussion around the platform and why the platform is important, having the right baseline around transaction systems, how you understand automation. It's not only AI, it's API, it's UI. The combination of all of these are important. You have to have integration services included if you truly want to add generative AI on top of it. And our order is going to be an order. In generate AI [indiscernible] whatever, it doesn't understand how to create it, right? So those kind of pieces are really important. So then it's about how do we help -- the discussions we have, how do we help you drive these business processes, these systems to a different level, utilizing our platform. And then on top of it, how do we scale certain cases where you've got information, where you want to build your LLM model, proprietary version, right? And how do we use some of our tools to actually build that on top of automation. And that conversation now, I would say, is happening actually across all aspects of the C suite. Certainly, the CIO has been asked to come up with a plan, come up with how it's going to impact it. The CFO wants to understand how can they utilize it and the company in general wants to understand it. And we're benefiting from it right now because we actually -- are able to actually take it to the case of let's pull something with you. Let's pull the use case on top of the existing platform we have and let's scale that up.

Right. Okay. Great. There's always an analogy here to RPA as kind of that 11th mile, if you will, beyond what system to system integration can accomplish. System-to-system integration can only accomplish so much. Beyond that, you need -- there's some human intervention, some manual processes involved. So where do you think of that line falling between system to system integration and where RPA picks up? And do you see the limitations there of systems and system integration such that this is an ongoing need for that? Or do you see that is improving over time?

I might see it a little different than most. Having been an engineer in my prior life time, and having both APIs. Every cloud product needs to be API-driven and every cloud product today is API-driven . If you go back a little further, that's not actually 100% accurate. And if you go back into the early '90s and '80s, you generally don't have any kind of real technology you can utilize. But if you really want to make a difference in automation, you have to be AI-driven. You have to be UI-driven, and you have to be API-driven. So when you think about how we build automations across -- if you do not take the user or the consumer or the person into account when building system to system, you're only going to get 10% or 20% of the answer to your problem. So if you're in sales -- if you're a head of sales, the biggest challenge you have is how do you make certain your salespeople are most productive. It's pretty easy to get the system to system stuff working. The piece that's going to be really slow or cumbersome or where you need to really get productivity is with the human. So you need to -- you absolutely need a combination of both to be -- to make substantial progress. And I think if you only focus on system to system, you'll get process mining type understanding, but you're not going to be able to solve the really big implication. And I think it's going to be a bigger challenge when you're using GPT as well because GPT really helps accelerate the user piece as well. So for me, it's a case of -- and we actually have inside our UiPath business platform, we had something called integration services. We actually connect over 240 systems, fully content. We use it for test mining. We use it to actually build the automation on the fly. So you can connect the Salesforce, SAP, Oracle, Workday and so on, and you can connect the human and the human doesn't have to know how... So we don't separate system to system or API to API to the human because we actually want that included in an actual fact of communication mining. So that's the Re:infer acquisition, communication mining. We also do the same with e-mails. We actually automatically can understand an e-mail that's an invoice number or that's a customer order number. We can go into a Salesforce assistance, is it validated, they automatically and both into the automation. So it's not -- for me, it's not RPA, there is only one -- or system is the only answer. I think if you don't answer the full spectrum, you're not going to really solve the problems you have to solve.

Great. Thanks, Rob. And since coming in as Co-CEO over a year ago, what have been some of the key focus areas for you? And now looking back over a year later, what are some of the successes? What are the some of the areas that you're still working on here?

Yes. So I feel -- coming over a year ago, I view that UiPath had a unique opportunity to build category for automation. Automation for me covers the how to discover, what I want to automate, how do I understand which processes, human beings how they interact with the system, how do I make certain that I can really understand that. So I know I can build automation to provide unique capabilities back to the company at speed, really fast and so on. And so I think we've done a really good job positioning UiPath is more than RPA, and that it's a platform piece. We've got now some significant wins in that space. We are relevant in customer conversations, C-level executives. We held a summit, a C-level summit that we actually had stock folks coming to. It looks to have too many in attendance. And when I say C-levels, CIOs and CEOs attended the event. And I feel like that's lifted us out of just pure COEs and RPA in a big way. We -- I view we've handled the macroeconomic state that we actually have over the last 12 months really well and whether they're well compared to pure competitors in that space because we're focused on driving value for customers and efficiencies. And I think that will absolutely continue. I feel really good about that we have a model in place that the investments we're making are actually paying and we're actually able to drive it at a profitable level and a highly efficient model, and that will continue to scale over time. And then we've got the right balance between how we invest and how we focus on margin. And we've been clear that we'll continue to focus on driving to a Rule of 40, right? And we made progress in terms of the margin, as I said earlier on, and we'll get back to growth in the back half of the year. So I think those are all things that are really good, and I feel like the company continues to be relevant for customers, and that's really important in this market.

Wonderful. And there's been a bit of a pivot back towards expand, I think, land versus expand coming out of the IPO, the focus is more on the expand motion like you have those big enterprise customers and the focus is more on selling into the base. I think now you're kind of back to more balanced land and expand. If you could just elaborate on kind of where you are there and where is the focus? And then also, you talked about that some of the reorganization earlier this year, but what has changed about the go-to-market just generally? How are you -- how is that?

Yes. So maybe it's kind of in the same context, right? I mean, the couple of basics around the segmentation was getting higher density with larger companies. In other words, having more people focused on the larger companies so we can expand fast into those companies and expand the revenue streams much quicker. So we can mature the customer base, felt like we needed to help customers drive automation faster inside the organization. And in order to do that, we needed to be more relevant with the C level. So we actually changed the segmentation from a quota carrier having up to 80 accounts, 8-0, to 10 to 12 accounts. And now we're having deeper relationships much more deeper because we've also gone by industry a little bit. So we've driven it by industry. Now we can actually really solve really problems by industry, by environment. And then we've actually kind of expanded our footprint around what we call managed service providers. So they are companies that can't really focus on the full platform. We can actually build services that can use the services with our partners and get the benefit of the full platform, but don't necessarily need the technical skills. And in the acquisition side, we've gone with our emerging industries where they will continue to acquire net new customers. So we don't want to -- we didn't want to stop doing that because RPA is a great place to acquire customers. But once you've acquired them, how do we quickly get them into an expansion model so we can. And that also depends that we actually have to acquire the right customers, right? It doesn't mean that we actually say we're not going to acquire a customer. We have to -- when we acquire a customer, we have to determine the propensity that, that customer has to expand because they fit business model around automation. Well, and if we get really good at that, then we'll actually acquire the right customers. So we feel like that model is absolutely the right model, and we've seen the benefits of that model. Where we have those close relationships now because things are document understanding, Test Suite become relevant because that person is not understanding how it connects to all pieces of that company. And so that's the biggest pieces of the go-to-market that we put in place. Then obviously, we had a higher talent that actually -- could actually connect with C-level executives, understood our business processes worked, understood our automation can benefit the companies, and we've put that in place globally. So when you look at the leadership now in Europe and in Asia, more kids being -- they're probably 7 or 8 months now. Lee Hawksley has been 5 or 9 months. We've got [ Ryan ] in emerging markets. So we feel really good that we've got the right talent in the business to actually have scale it.

Great. Great. Maybe back to partnerships. You touched on SAP a bit, Snowflake, AWS. There's a relationship there. If you could elaborate on those. And then also where is the focus on the SI channel...

We've had a lot of focus on the SI channel. I'll start then I'll come back to it. So when you look at -- I mean we've been -- when you look -- we announced the SageMaker partnership. We just think that's the right thing to do with AWS. We did quite a bit of work on the engineering side with SageMaker and with AWS. But the same is true for Google, by the way. I mean, it's just not a -- we didn't make a public announcement. The same is true for Google. The same is true for Microsoft Azure and OpenAI. And Snowflake in particular, we're working with them together around building out the manufacturing cloud and building automation on top of supply chain. So the customers that are using the manufacturing cloud can actually then benefit from our automation on top of that. So that's how we're looking at the partnerships. We're also looking at these partnerships in terms of industry and where they -- these companies that are focused on particular industries or they have skill sets in industries, we can put the automation pieces together with them and add more value in that space. I did not answer the question around the big SIs that I was intending to start there. I didn't...

I know it's a new focus. So that's why I...

Well, it's -- yes, I think if you -- we've had -- we're making significant progress with companies like Accenture, Deloitte, PwC, E&Y, I mean E&Y have been with UiPath for a long time. And what does progress look like? So when you look at -- we're now included as part of many of the big transformation projects. I'm busy with a project in Australia right now with E&Y with helping the company take out $1 billion of cost and we are an integral part of that. They're leading it. They're actually going through with the company, which processes they can not automate, which processes need to be worked on, how they need to change those processes and then how does automation help the business drive through. And we're seeing more and more of those -- with Accenture, we're working more in financial services and insurance space, health care space with them. But we're starting to see a significant amount of traction in this space. And by the way, the SAP partnership really helps because many of them have huge SAP practices. In one case, one of the partners has decided to combine the automation and SAP practice because of the SAP partnership, because they now want to actually drive their focus. So the big global SI providers are doing significantly more business with us today than they had previously done. And then we're also doing some work with BPO. BPO continues to be an interesting opportunity in the automation space, probably more in the RPA space than test mining and document understanding and those kind of solutions sets.

Sure. Thank you, Rob. We'll see if there are any questions from the audience. If you do, please raise your hand, and we'll get a mic over to you. We've got a few minutes here. If not, I'll keep going. Maybe just -- you talked about the platform. Can you elaborate on what that means exactly? How is UiPath, the platform? What are the components that make that up.

Yes. So the way we look at a platform, we look at it in 3 phases. We look at the discovery phase, we look at automation phase and we look at operations phase. Discovery phase basically says how can I go into a company and figure out how to help them, drive more efficiencies in terms of their business processes and how users interact with the system, how they interact with their customers and so on. And how can I find unique pieces of information in that so that we can do it on a continuous basis. In the automation, [indiscernible] discovery, and that's what we call process mining, thought mining, communication mining. We are the only company -- software company that has all 3 of those pieces together fully integrated into automation. In the automation phase, we have low code, no code. We have workflow. we have our products to build automation. We have something called Test Suite in there. I think Tricentis, right? Test Suite basically combines test, any kind of testing, environments, regression testing, not only for UiPath, but for other products. We have [indiscernible], we have over 240 integrations into other companies' products, including content to build. We're actually building some GPT technology into the Test Suite to create synthetic data and so on so that you can drive it, but it creates a closed loop around automation. And automation is really about the build piece. How do I build these automations, how to help customers build these automations, whether it's citizen developer, whether it's analysts or whether it's a professional consultant building out a new. And in order to run it at scale in an enterprise, you need to have an operation. You need to have analytics to understand what automation that in run. Are they auditable? Can they be traceable? Did they run? Why didn't they run, when they break, how did they break, who picked it up, did it go to -- was a ticket created. And so on because you can't drive mission-critical system at scale, connected to SAP environments to Oracle environments, the Salesforce environment, if you're unable to determine, in many cases, you also connect to -- the logs, we put the logs into Splunk and so on so that you actually have security connections to it, Okta, Zscaler and so on. So our automation platform encovers all of those pieces. We can share diagram with you. And then we ingest in many of those pieces, all the AI that I've been talking about actually part of the technology platform. The piece that we don't showcase that much is that -- we haven't showcased a lot in the platform is the open part of the platform, which allows us to connect in Google Vision directly AWS, SageMaker, OpenAI, Microsoft open AI directly to think. And we have with our automation cloud, we have the ability to actually have your large language models or models, ML models that you want to create and store, you can store inside of our UiPath business platform. So I hope that gives you -- it was exactly 2 minutes and 36 seconds of our platform. I hope I did justice.

Yes, right on the mark. Rob, thank you so much. Great to have you here. Great discussion.

Thank you, everybody. Thank you.