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

All right. Thanks, everyone, for joining us today. My name is Scott Berg. I lead our enterprise software and SaaS research efforts here at Needham. Today with us, we have UiPath. We have the company's -- is it SVP of Investor Relations? I actually didn't write that part down.

Yes, it is. But that's [indiscernible]

Thank you so much for joining us, Kelsey. Normally, I have that written down because it's often CEO or CFO that I kind of just roll right off with that.

I wish I could be promoted but I don't think that's on the cards right now.

Well, we have 40 minutes. Maybe we can start working on that a little bit. So for those that may or may not have known, there is some last-minute changes on the personnel front from Rob and Ashim's attendance. But we're very happy to have you join. And it's a great story, I think the last 6 or 8 months. I've had a ton of questions on it and look forward to digging in even more.

Great. Thank you very much for having us.

I guess let's start off with a little bit of background on UiPath for those that are less familiar with the company. And I'm sure there's maybe only 1 or 2 people here that aren't familiar with you, just because [indiscernible] too but why don't we start there?

Yes. So we'll make it pretty brief. But we are the leading AI-powered enterprise business automation platform. And I do major on the enterprise because we do automation for complex, multistep processes. And really, the mission is to free knowledge workers like yourself and I'm sure many of you do a lot of data entry, removal, entry analysis that allow the knowledge workers to really focus on adding that incremental value. So our total addressable market, we estimate to be about $60 billion and we're over $1 billion in revenue, as well as ARR, which just gives you a sense of how much runway we have to continue to grow the business. And we offer a platform that covers the full life cycle of Automation from discover, to automate, to operate. And along that full cycle, we offer a multitude of products to help our customers but all with the underlying software robots to execute the automation.

Just from a point of housekeeping, we will take questions from the audience, when we're done here. So if you have questions, we'll just ask you to save them likely until that point.

And my little housekeeping is we are in the quiet period. So we'd appreciate during the open Q&A if we could stick -- stay away from the short-term financials.

Happy to. Good thing. I don't have anything around your fourth quarter financials in my questions.

Yes. It's good.

It's amazing how that worked out. So I guess let's start with products. I'm going to go back to a data point when I first started engaging with the company, it's been probably 5 or 6 years ago, at this point is, I've heard different people in the industry talk about how every white-collar employee or higher can benefit from the use of RPA bots in their corporate life out there. Difficult on the manufacturing end but maybe anyone in a white collar or better job. But can you talk about the broad use of bots? Because I think investors sometimes get bogged down on thinking this is just something for the office of the CFO.

Yes. I think that's actually a very good question and a great place to start. So I think investors get bogged down on 2 things. One is the office of the CFO or finance team and also is just the level of complexity of what we do. So yes, traditionally, the business did start about 5 or 6 years ago, as a typically finance and accounting business transformation office. As you all are well aware, there are a lot, a lot of processes in the process of servicing customers and sales and closing books, et cetera. But over time, we have transformed businesses across lines of business, which can be anything from actually manufacturing and operations and import/export, human -- people ops, operations, customer service, call centers, right? If you think about what we do, it's a truly ubiquitous technology. There are so many processes that can be automated. And I'll give you a good example, actually a couple. One is Sobeys, which is a large retail -- a grocery retailer in Canada. They started in finance accounting but now use us to automations in their supply chain management and in their merchandising. And recently expanded to use us actually in our document understanding technology as part of managing turnover and employment in their stores. That happens at a quick rate and they're using us to process applications and resumes. Another great example is ADT, where we handle not only their operations and customer services but we have now actually been deployed in their call center. It just gives you a good example of sort of the evolution of the technology.

Okay. I think one of the questions I get is kind of a pushback from a lot of investors over the last 3 years since you've been public, roughly 3 years, has been around the maturity of the market is, I think a lot believe that peak market growth has probably passed itself because this office of the CFO is fully penetrated, maybe the other areas don't have the same market size. I don't subscribe to that theory, that's been the pushback. But I think what's interesting in the last year is the introduction of some of these GenAI technologies. I think it's changed that viewpoint, changed what that opportunity looks like. I guess, when you think about that, is there a way to capture what this new catalyst does to your market, in terms of maybe expanding the TAM or even expanding those use cases that you get into.

Yes. That's a great question. This has been a -- GenAI and the evolution of AI has been a great thing for the business, right? It's brought a lot of attention. When we think about GenAI, right and this next evolution of AI, we think about it as the body -- I mean, as the brains where GenAI can conceive but automation is the execution engine. So we're the body. And when we really break it down into 3 different categories, the first is really democratizing access to automation, making it simple to identify and to allow both sophisticated engineers, as well as knowledge workers with the same skill set, you -- all might have to build their own automations. And we have introduced a line, a family of products, which are called Autopilot. And essentially, there will be Autopilot for products across the platform and it is a natural language processing tool that will accelerate. So first up, democratization. Second is making our products easier to use and deliver faster time to value. So think about our -- in our document understanding technologies, we deliver approximately 70 out of the box, large -- what we refer to as specialized large language models. And we've actually been able to recently with this advent of technology, speed time to value and deployment of document understanding by 8x. So enhancing our products and accelerating ROI for customers. And then the third piece is new use cases, as you mentioned. So we have a technology that we call Communications Mining, which essentially can mine both structured and unstructured data for sentiment and also for intent. Which is, if you imagine large insurance companies, financial services companies, anything that has a lot of incoming e-mails. Communications Mining is a fantastic tool to do that analysis and start the automation. So it's actually a really exciting time for us.

Sticking on the mining process. You're not into -- miners by chance? Are you into oil and...

No, although we do have customers that do that.

You might but process and task mining are 2 modules that, when I first really saw you get into them, I thought that they were kind of nice add-ons. I could see where they'd be helpful to identify some use cases. But I think that's changed over the last year in some of my work, is there -- super important customers are really gravitating towards those in particular? I guess, how do customers use them? And why has that been such a benefit to actually drive additional bot usage on the platform?

Sure. So initially think about the early stages of the platform as crowd sourcing. So it was a fairly manual process. Someone would identify a multistage process that they wanted to automate, they've reached out to the Center of Excellence and it would get upvoted or downvoted, right, in terms of how much business value you can add. Process Mining has really changed the game there. And I'd like to say it's automated the ability to identify automations and kick off the process. So essentially, think of Process Mining as a discovery tool, that monitors logs in your back-office activities. It's business process automation, quite frankly. It follows a process. It can diagram. It's very complex and it actually can suggest improvements to processes and then all that information can be fed straight into the Center of Excellence to build the automations. And our focus here is really sort of increasing throughput but also what part of those processes and improvements can deliver the most value, the most quickly. So that's in the discovery pillar and we actually have an additional technology called Task Mining that can do the same thing by sitting on an employee's desktop.

So you mentioned Autopilot a few minutes ago. That was one of the new product announcements that came out of your customer conference in October. Can you talk about what that product does a little bit more relative to what copilots do out there because when I first saw the light bulb came on in me in terms of -- customers I've spoken with have talked about how adoption in some areas is really good. Sometimes adoption in other areas is not good. But sometimes that adoption is more about not knowing how to use it. How does Autopilot change the use of the platform?

Sure. So in the fall, at our annual user conference, we shared the capabilities of our new family of autopilots. And those autopilots actually go from autopilot for anyone, which would basically be -- is basically designed to improve your personal productivity, right? Read your calendar, understand that you're about to go to a meeting. It's labeled lunch and it knows the general location. It can go to LinkedIn, pull the profiles of the people you're meeting with, identify potential restaurants and make your reservation, so right? That's a very personal ecosystem. But it spans the gamut across our entire platform. So test suite, apps, I mentioned, Studio, which is our design platform. And it essentially is designed to simplify the experience, right, with the technology and make it, as you mentioned, right, much easier and quicker for anyone of any skill set to identify and program. And on the studio side, right, it's not just for individual users. We talk about -- we offer a platform that is called Studio, which is focused completely on automation experts and then there is a studio for professional developers. And we will offer Autopilot at all those different levels. And then obviously, will then has different levels of complexity but the whole point of it is to just reduce the barriers to entry.

Your relationship with Microsoft has been an interesting one, as they've been a player in the space. They have their own RPA technology. But you also maintain a pretty tight partnership with them, is -- can you just touch on this kind of coopetition? And how do you think it develops over a period of time?

Sure. So this is a question we get a lot.

I can imagine why.

We are actually Microsoft's stated preferred automation -- enterprise automation vendor. And Guthrie actually presented us on their chart at a recent conference, as sort of a small circle of strategic partnerships for them. So we have very tight relationships with them. We are tightly integrated and are actually talking with them about integrations with their Copilot and we offer dozens of out-of-the-box integrations, right? Our primary value proposition is being an open ecosystem that allows customers to develop on anywhere they want, leverage any application that they need to. And so obviously, Microsoft is a piece of that. But our value proposition is about complex, multi-application, high-value, enterprise-grade automations. And the interesting thing also with them is that we're actually a very large customer and consumer on Azure. So there is a -- I sort of refer to it as a Machiavellian, which, where we also drive customer -- well, if customers ask where to deploy, automation consumes a lot and Azure is a -- we're driving a fair amount of business to Azure. So I think that will continue to be the relationship but we're really pleased with the level of communication and integration and partnership.

This just occurred to me off the top of my head. If I go back to Microsoft's, let's say partnerships back in the '90s. They were pretty well known for developing these partnerships with companies, getting the opportunity to take a look at the technology, maybe under the hoods a little bit. It's amazing how they built that in over a couple of years and crushed their partners, in a couple of areas. Is that something -- is that a risk that you as a company are concerned about? Because I've seen them take a different approach over the last maybe 10 or 15 years but they're a pretty big partner and they do have a product. Do you think there's an opportunity there for them to get substantially more competitive or you don't worry about that very much.

Well, any enterprise software company would be foolish not to worry about Microsoft. So I wouldn't -- I think this is just a blanket statement. But I think it's important to differentiate where we do compete with them. They are very much about creating automations in power platform, which is the personal productivity space, right, inside their sort of user-based ecosystem and inside their applications, Excel, Microsoft Word, Teams, et cetera. So very simple automations that might make it easier for you to do business or to perform your work but is a very low ROI for your employer. Where we really focus is this multistep cross-application, right, outside of any particular ecosystem, automation. And when we look at productivity -- our personal productivity, yes, we offer it but it's a tiny portion of our revenue stream. And it's the tiny ROI for our customers, who are really focused on the things that can deliver the most value, the most quickly.

I think a common topic of discussion, during your most recent earnings release surrounded industry verticalization. I love industry verticalization for the companies I cover because it can usually drive a couple of positive things for these companies going forward. I think about ARPU growth, because you can usually charge more for that. I think about shortening sales cycles. I think about partners that can get involved because they have those ties to those industries. As you think about your verticalization strategy, do you, I guess; a, have to change much of the product to get there but then; b, can you realize those benefits over a period of time?

Yes. So we're super excited actually about formalizing the industry verticalization approach. We have had sort of a loose verticalization approach in North America but really invested in that in the beginning of this fiscal year, so just about 1 year ago. And we will be transferring a lot of the knowledge and capabilities into the rest of the world. So our focus on specific industries, which right now is very North American-focused, will actually be something that we adopt rest of world because it's paying dividends. So to your point, it's interesting, it does all of those things, right? It increases focus with partners. It drives acceleration and it's really the cross-pollination of our knowledge of what similar industries are doing, right? And we think about it as both expertise, right? So, we built a federal team about 1 year ago. It's rich in relationships and knowledge about federal. After about 1 year, that team actually reported a record quarter of -- period for our federal business. So the investment there is in knowledge and capability and marketing and tools, is really paying off. And we're doing similar things in financial services, et cetera. Two good examples actually is NorthStar, which is our value go-to-market selling notion, which is basically tailored for all of these industries, to help our reps articulate the value drivers and the opportunities that they -- inside each of these organizations. The second thing, just as another example, is actually solution accelerators. So think about them as blueprints and road maps for our customers, where we leverage our knowledge about other industries, right? And these are free. They're available on our marketplace to be downloaded. And I think, we have multiple dozens of them available right now and we will continue to build more.

Last question on product, for me at least, is CloudBots. You released your kind of first CloudBots last year. I know it was a couple of years in the making because you certainly discussed them before. But how should we think about the adoption of CloudBots relative to your perpetual model, I guess it's more of a term model but behind the firewall model that most of your customers use, are they highly demanded today? Is it still more of a opportunity that's on the horizon versus near term? Just what does that traction look like?

Sure. So let me bifurcate that for you a little bit. Automation Cloud robot, we did deliver last year. From a financial perspective, that's a SaaS revenue model. And I would say more on the come, than a current contributor. So as far as a SaaS transition headwind, it's not something that we anticipate to affect the model too much in the short or shorter term. Our customers really -- and I keep using this word but it's so true, want flexibility. So we offer what's called a flex model right now, which essentially allows them to deploy our Automation Suite, which is our end-to-end automation platform, anywhere they want, on-prem, exclusively in the cloud, which we have a lot of customers like Uber and Amazon and Dentsu doing or some sort of hybrid model or they can quite frankly go back and forth. So this model gives them a lot of flexibility. From a cloud ARR perspective, approximately $500 million, as of the end of the second quarter, of ARR came from the cloud and that had grown about 125% year-over-year. We're also a cloud-first company just to know quickly. We do all of our development and releases for our customers every 2 weeks in the cloud.

Moving on to some of the go-to-market changes that the company has made over the last year or 2. One of the notable shifts, I've heard in some of the industry work that had done is, you guys are trying to sell more of the platform versus your spots. And that's kind of how the platform has grown over the last couple of years, right? It makes it easier to sell. Does that add or extend sales cycles significantly and it probably drives more value over a period of time? Or does it actually help your customers buy into the -- your strategy a little bit better because they can see a holistic view?