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

Thanks for attending to the UiPath session at our Citigroup TMT Conference. Day 1, we are pleased to have Ashim Gupta, who used to be a CEO and CFO. He just recently focused more on the COO role. Welcome. Thanks for coming.

Thank you for having me.

Yes. Ashim has been instrumental in driving a lot of the transition change at UiPath that's been go through. He's been here, I think more than 7 years in a row.

9 years.

Okay. So it would be great for you to maybe start a background of your role, how you're transitioning and the background of the company.

Yes. Look, my role -- I joined UiPath in 2018, and it's progressed. I've seen very different parts of the organization. I actually started in customer success because I was a customer of UiPath. It was the highest ROI software, and I really enjoyed it. I took the company public in 2019 as I got into the CFO job in 2021, sorry. And it has been a steady movement up 2 years ago, I took the COO role. And in addition to the finance organization, I led parts of go-to-market, different operational connectivity across the groups. And I'm super happy. He just walked in perfectly at that time. That's Hitesh Ramani. Hitesh has been my Chief Accounting Officer and then my Deputy CFO for the last 5 years. And I just am thrilled to have him ascend to the CFO position and allowed myself to focus and support the operations of the company in a more focused way.

Interesting, yes. No, perfect timing. I guess maybe we can start with the transition there, like what makes now is the right time for you to focus more slowly as COO and then for Hitesh to take over the CFO role?

Well, Hitesh gave me an interesting stat. I think the other day is the average CFO life span is 2.5 years, and it's been 7-plus years for me in the job. Look, I actually think this actually drives long-term stability from the company. When you were with the company for 9 years and Hitesh for 5, there needs to be continued growth for incredible talent like Hitesh. So I think that is really like one piece. It solidifies our leadership team, and it strengthens us overall. There's things that, frankly, like he's much better at, in my opinion, than me as we kind of move into these next chapters. The second piece is, look, I think I can use the cliche or the boiler plate line. It is kind of an unprecedented market with a lot of change. And I think that's a market, but it's also UiPath. We've really transformed from an RPA company, to a business automation and transformation company. And there is so much to do. Our product has expanded its surface area in an incredible way. We are structuring deals across the globe with the demand that we see coming in and really helping Daniel and the team just connect the functions and move through is it's a moment that I think requires more focus.

Interesting. Yes. No, that's definitely provide a lot of opportunity for the employees that make happy to continue to see a growth trajectory. Maybe I'll grab you one more time on the financial stuff while you're the only one on stage right now, you guys just reported a relatively stable quarter that will be characterized in a way. But I think investors look at it a little bit from a different lens, like can you give us like some of the put and takes that your recent quarter you just reported?

Look, I think delivering the sixth quarter where we beat and raised against consensus kind of continues to strengthen the credibility of our overall predictability and operating model as a company. ARR is $1.93 billion. It's up 12.5%. Revenue is up 13% and stock-based compensation is down 42%. We're GAAP profitable for the third straight quarter in a row. We're on track to be get profitable for the year. Of course, when you just kind of turn the path forward in a meaningful way, we're generating $400 million plus of free cash flow. So I would say a stable quarter and an unstable time is a good quarter. And a lot of people had us continuing to decelerate. When you look at this quarter and you look at kind of end of -- how we ended last year, end of last year, we were 106% net dollar retention rate. Today, we're 109%. So I think when you look at it, like we're really positive about our execution, the trajectory, the breadth of the platform that is getting in there and the customer feedback. From my standpoint, when you look at the puts and takes of the quarter, I think we had a huge run-up in the software market leading up to this. We're still in good position. And I do think like some of the questions that we get around customer count, I think those are some of the newer investors. People who know us can see that our $1 million and $100,000-plus customers are really the focus and the engine of the business. $1 million-plus customers are up 21%. $100,000-plus customers are expanding and actually that net dollar expansion rate is increasing. So we actually feel the fundamental underlying parts of the business, both from a growth and an economic perspective are there. And my last point is we're not satisfied at 12.5%. We've stemmed the stable -- sorry, the deceleration. We are planning to reaccelerate the company. And we think that the platform strategy that we have, the vertical products and test in terms of the motions that we have, those are real good fuels for what the future holds for us and we're really optimistic.

Yes. I mean that sounds like there's a lot of positive in the quarter based on the customer count, the growth in the large customers. I think one of the investor top question is like based on the implied ARR there seems to be a deceleration. I know there's a lot of noise. In the net new ARR this quarter, could you talk more about what is baked into the second half net new ARR guide? And how should investors be looking at it?

Look, I actually think this was a clean quarter to be super clear. I know in first quarter, we had an acquisition and there are some questions. We increased our FX disclosure this quarter where we showed clearly kind of the impact of FX, and it was actually a headwind for us this quarter, and it's a headwind for the rest of the year. So from my standpoint, it was actually a very clean ARR quarter. As you look forward, to the second half, I think people are comparing all those apples and oranges between actuals and guided. And I don't mind talking about that, right? When you look at it in terms of what that means, that means like in a world where Hitesh is calling the guide now, and as we come together as a leadership team, we're calling to what's in front of us. And we see kind of a proven case of stabilization in front of us which means if we execute, obviously, there is the ability to reaccelerate the business. We're not -- we're going to look at what's in front of us, and we're going to guide prudently to how we have been and continue that guidance philosophy as the way Hitesh wanted to run things. And at the same time, you look at the second half, it shows continued strength and expansion of our platform across our top accounts. It shows continued momentum in our core verticals, which is financial services, health care and office of the CFO. And frankly, it continues to assume a variable environment. So those 3 things are what's baked into the second half. And we're really focused on continuing to execute a seventh stable quarter.

I think you touched on a few growth trajectory that you see stabilization and then you expect it to grow. Can you talk about what has the trend been that you're seeing, like either within the consumption because you talk about like deal count with AI, like how has the trend been over the last couple of quarters versus the deceleration in net new ARR that you saw last year?

It's positive. I think when you look at last year, everybody was coping with a ton of AI confusion. What we see is there's still AI confusion in the market, but our customers, that confusion is less. So 18 out of our 20 deals this quarter included broader parts of our platform in our AI areas. Those things are uptime -- multiples of deal value up like 4 to 6x higher than our old typical deal values. That feels really good from our standpoint. So we see that dynamic of customers understanding that they need both deterministic and probabilistic, that they need a broad platform and that it is not competitive with Frontier models. We are essentially going to solve enterprise-wide processes, which Frontier model will solve a piece of. We are really trying to go and orchestrate and run the long-running workflows of companies and moving from task to process, we see that across our top deal.

Okay. Hopefully, we see a better trajectory that continue to improve in the business. I guess maybe now we can tip a little bit over to like more product questions. Now that you are focus on the COO role, can you tell us what are your key priorities -- also we have an upcoming Investor Day, I'd love to get a little bit of flavor from there, too.

I'll -- like my priority is one is to continue to support Hitesh to have a really smooth and seamless transition. I think he's been the right hand for the last 2 years plus. So I'm not too worried about that, but I think we'll never take that for granted, neither Hitesh nor myself nor Daniel, we want a really smooth transition for the investor community and for the business. The second piece is really connecting product sales -- product go-to-market and our core functions to drive this reacceleration that we're talking about. And I think as I mentioned it earlier, as we get into a broader set of use cases as we're expanding our business, that requires that level of connectivity. That can be everything from driving the strategic priorities around how do we attach orchestration in all of our installed base. What's the right strategy to expand and continue to drive test? Like continuing to help with that and connect and maintain the operating rigor, that's really where my focus is going to be. In terms of Investor Day, I kind of say it flippantly, you got to come to Investor Day to see Investor Day. There's no trailer. But what I can tell you is what I -- if I could imagine you there and you walking out of the room, I really feel like there's going to be an optimistic sense of energy that goes that gets to see a company that was a stand-alone RPA company and how far from that paradigm this company has grown and what the capability of the platform is? What is the level of detail we are in the right execution strategy? And kind of what gives us confidence in a durable -- that we have a durable growth engine here as a company. And I think we're really looking forward to telling that story to everybody.

Yes. I know like we are still -- I think a lot of the research out there is to assume we are in very early stages of agentic. I think UiPath is like going towards agents, agent builders, most this year, like how -- what do you think of the cycle that enterprises is at? How is enterprise readiness? And what is UiPath ready to participate in?

I think we're ready to participate in the broadest transformation that is there. I think it's evidenced by some of the deals and the customers that we're talking about. We had -- we signed one of our largest new logos, LAMs. It had some element of competitive replacement, but what they're asking us to do is competitors of historical competitors cannot tackle the hardest problems that they're trying to solve. They need the breadth of our platform. And so we are super -- we are already solving those problems. If you look at some of the leading health care institutions that we have as a company, we are in revenue cycle management. We are in prior authorization. We are in claims denials. Like those are multibillion-dollar problems for these customers. And so we are talking more and more at the C level, again, but without ignoring the grassroots, we have a really good balance of it. And I think we're eating the apple from both ends. We have some really good transformative projects where we're deploying our forward deployed engineers, where we're experimenting with different outcome-based models. And at the same time, we have kind of the grassroots power of our platform that is continuing to generate ROI for our customers.

Got you. I do want to touch on the outcome-based pricing a little bit later. But I guess at what inning that a customer could drive a potential inflection in their spend with UiPath. I think a lot of customers now you have an NRR of like 109 that continue to improve. Is there an inflection point in coming anytime soon?

Yes. So I have the privilege of seeing our entire 10,000-plus customer base. The inflection point is there for many of those customers. When you look at some of the some of the areas and the things that we're tackling. When you look at some of the funding bills that are out there in Congress for some of the -- for many of the agencies, when you look at the major -- the top 10 banks, I see that inflection point. When you look at our $100,000 to $1 million-plus customers, that net dollar retention rate is not just stronger, but it is uplifting. And so we see that. The question I would ask is -- or that I would say is, when does the entire market inflect? And I would say we're still in the early innings of that, which is exciting because if you take a $1.93 billion ARR company, that's growing 13%, that has strong operating rigor, as that market begins to become clearer, like that has nothing but goodness for us, and we're looking forward to that.

Yes. I think because UiPath has a strong penetration, especially within the Fortune 500 companies. Like how do you view the opportunity between your expansion with current customers versus opportunity of net new logos?

Yes. We are super selective of net new logo. So let me break it down. I think historically, it's been 80-20 in terms of where that growth rate is, the contribution I don't think I would say at this time there's a change to that. Like those are things that ebb and flow every quarter. But the reality is, we have greater than 2,000 customers greater than $100,000. We're approaching 400 customers greater than $1 million. That is an engine that in itself can fuel where we want to go to. It's -- we're not a mid-market company. We are an enterprise company. We were willing -- we're winning our fair share in the mid-market to be clear. New logos, we want to be super selective on. It's not like in the old days, you'd say, what's the cost of acquisition. There's also a cost of acquisition and a cost of maintenance, right, like that you have that's in that area. So I think when you look at our last 3 earnings scripts, or 5 earnings scripts, you're going to see federal credit unions. There are 5,000 federal -- 4,000 federal credit unions in America. We love that business. We'll go after those types of businesses. There's X thousands of hospitals. We love that business. We're going to go after it. We're not going to go after every bush that seems to wiggle and shake. We kind of let our distributors and our partners do that. And that is gravy to what we really need to drive the -- for the overall company.

Okay. Now I got it. Maybe dive in a little bit deeper on some of the products that -- because orchestration is a brand layer where there's also a lot of competition out there. How do you view UiPath going to tackle orchestration and then there is AI agents and agent builder. Can you kind of break it out which -- like the main pillars between these newer products sets?

Yes. I think orchestration is like saying liquid. So I think there's a lot of competition, but what is the liquid? Is it milk? Is it water? What is that? And so where we -- where people talk about orchestration and all the competition that they say agentic orchestration, managing the swarm of agents is typically where it is. Where UiPath this plan is business process orchestration. And there's a difference between that. Like we're not just a governance layer for agents. We really look at orchestration as a way to govern and drive the end-to-end workflow for enterprise processes. Invoice to cash, in invoice to cash on any major enterprise, you're going to have robots, agents and humans and you're going to have APIs and different technology and applications that are there. Putting that together, and if you ever get to Google Maestro, just Google, UiPath Maestro, you're going to see visually the process in front of you. So it is not about an orchestration engine for agents, it is across the entire business process. That for us is actually pretty competitively unique. Very few people have the ability to manage third-party agents, manage third-party systems, has their own tokenless automation, which is our RPA platform and deterministic automation, and the ability to create agents on our platform and have coding agents be able to accelerate the productivity of building on our platform. Those are some of our differentiators in terms of where we are, and we feel really uniquely positioned actually from an orchestration perspective to be able to have both the breadth and depth of that offering for business process orchestration.