UiPath Inc. (NYSE:PATH ) Bank of America 2022 Global Technology Conference June 7, 2022 11:45 AM ET
Daniel Dines - Co Founder and Co Chief Executive
Ashim Gupta - Chief Financial Officer
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.
You bet, thank you for having us.
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 beaten all 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 executive team with the addition of two 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 these, 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?
When we made the guide, it was almost three months ago.
It's been, I think, kind of the most uncertain situation in Europe. The prospects of the world could have been much worse for the entire Europe. We were looking at world that can be -- can affect more countries in Europe.
Right now, this has become like a regional war, and it's confined within that region. So people are less worry right now about the war. 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. That is not like April this year, May it's here. It's kind of consistent, maybe Ashim you can --
Yes. I think we were incredibly consistent in terms of our guidance philosophy. We're getting 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 risks 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 US or China, or Asia with a slowdown in China affecting the region or risk of recession in the US, it didn't sound like that. Anything to call out there.
US was actually, US continues to be one of our high growth regions, actually, because we entered a May, Daniel, when he first started the company made a big bet in Japan and entered Europe first. So actually, America continues to be a source of strength and what in any economic condition, the ROI of our automation platform is very conducive to customer -- continued customer investment.
Absolutely, makes a ton of sense. Thanks for that. Great, 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? How, what's your view of the addressable market?
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 are the clear leader in this space. And we have progress 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.
Yes. Makes a lot of sense. Maybe we could drill into that topic a little bit more. And then you describe UiPath as a platform. What are some of the components of that platform that you 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 three ways. Using user interface of applications, like what RPA is, and 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 the world class API platform. We build internally, we bought a great company called Cloud Elements. And our API story is really the same level as our RPA story. And I know we have not seen as an API company, but we powered big enterprise software companies for their API by our underwriting software. So all our API we invested quite a bit in API and also AI for documents, being capable of delivering the combination of three in the same local note foot or flow designer, it's very powerful. So these are the major pillars of our platform. Lastly, we made huge investments into the process discovery category that has process mining, and we established ourselves like a clear number two 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 start.
Sure. That makes a lot of sense. Why don't we talk a little bit about database net retention, 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 is a 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 you said, it's a, it is the growth driver for us. And it has been, and it will continue to be. Deceleration from it, a little bit of large numbers. I mean, we crossed a $1 billion here, this year, when you look at the trajectory of the company, I mean, we were, rewind six years ago, we were in single digit in terms of revenue, and now we're moving past to $1 billion. So you're going to have 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 five 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 the land somewhere between $15,000 and $20,000. And then what's great about the software is the POC is and the time to value is very quick, most of the time a POC can move from a couple of weeks to a couple 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 note. 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 bundled 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, healthcare across all 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 $1 million 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. Thanks Ashim. Thanks Daniel. Around the time of IPO, I recall you kind of had shifted a bit more focus towards expand away from land. I think now might be going back towards expand. So maybe the first 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 land 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 than landing 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 the our enterprise segment, because it’s much more efficient sales motion that we put in place there with the our investments in cloud and partners makes us more bullish on our ability to reflect net new logos in the future.
Makes a lot of sense. And maybe we could drill in on that a little bit this, the investment in partners. Is this, should we take this to mean this is a recruitment effort? Or are you have, you feel you have the partner relationships today is such that it's more about enablement? The focus is on enabling as partners getting up to, you’d 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 GSIs partners of us and then 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 paring to our emerging enterprise sector.
Sure. Okay. Makes a lot of sense. 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 talked about. Maybe we could just start with just the evolution of the customers. When they come to UiPath, what’s the pain point they are initially trying to solve for? What does that initial footprint look like? And then, over time, how do they grow into that kind of million dollar plus level? Maybe just if you could frame it in terms of use cases, I think that will 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've traditionally landed within the CFO CEO suite. And it's very easy to find the low hanging fruit in that department. Ashim knows very well, he was the customer and for us, and then becoming the CFO, he was also leading customer success. So I will ask him later to give the same perspective. Typically, how we progress from a small deal to a $1 million deal. It's kind of simple, landing to a department 50% plus is finance. And then show them the return on investment. It's easy to prove, it’s, you have to work with the like the 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 wide. Plus the key, it's like connecting the dots between an executive sponsor, a business person, an IT person and a partner. And that creates the momentum for large scale adoption.
Yes, no, I think Daniel talked about the expand motion well, when you rewind three or four years ago, the most common use cases to be used or four 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 four years ago, I think 70% of the use cases was centered around finance and accounting. Now it's 40%. And that's not because new finance and accounting is going down it’s the rest of the pie has grown. So like we had Amazon onstage at our FORWARD IV event last October in Las Vegas. They talked about hiring a million people using our software because it just created ease of recruitment processes and it sped them up good give 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. And being able to enter into multi-departments, and also expand across multi-departments is a great strength of ours.
Absolutely. Thanks, Ashim. Thanks Daniel. Daniel, 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'll be helpful, please.
I was looking for a partner for 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 when working with Rob, I feel really like we know each other forever. So it's really a great feeling to have a partner who has, like Ashim was for me a long time partner for us. Now we have Rob, all of us are feeling really good about. In terms of splitting the role and responsibilities, my passion is product, and keeping the culture alive, talking to our employees, understanding 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 loop work, while Rob will take real day-by-day operations function and oversee everything that is go- to-market.
Sure. That makes a lot of sense. Thank you for that. 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, 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 three continents. And I'm really proud that we've built such a diverse culture in UiPath, that is very inclusive for everybody, and this is one of my, I think this is one of my biggest achievement, I want our people to come to work with joy. And also, it's, we've built, we are a mission driven company, because people feel very passionate about delivering this platform that really address one of the major issue in 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 entire society.
Sure. Absolutely. 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 and we headed into the year with a difficult hiring environment, companies couldn't 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 for headcounts decreases. It's also a great automation is becoming a great upskilling tool. So I'll give you an interesting anecdote recently from my trip in in Europe. So I was talking with one of the largest public institution in European Union. And he told me, we hire, 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 is very prestigious, and they feel it's an improvement in their career. But to keep these people occupied and making sense of their brain, they want to come with the like, developer, citizen developer program for all of them. So 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.
Yes, that makes a lot of sense. And other RPA companies have tried to do what you're doing with that enablement effort that you're describing where that 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? That 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 way to put things in perspective, in 2015, we were just 10 people in a small apartment in Bucharest, seven 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 complete it in order to really take it out of one's plate. This 20% is where we excel. So we've always excelled on this, we 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 your 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 will always automate more processes. And always we automate in half of time. In return on investment gain, when you over a few years, you will automate 1000s of processes that compounds to an enormous difference. It makes even the license costs completely irrelevant when you look at the compounding return on investment over time. So it was, we're kind of fortunate that the company built only by engineers, no sales chaps were capable to scale as fast particularly because we could improve return on investments extremely easy.
It makes a lot of sense. Thank you, Daniel. Ashim, why don't we shift to international, company already has a very balanced international footprint 57% of revenue international. What are some of the geographies where you feel you've got that foothold already others that maybe, you're under penetrated, or you could be investing more to go after more incrementally? Just any comment on just the regions?
Yes, I mean, so 57% of our revenue comes international now. 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 US native country, there wasn't an immediate bias to just be in the US. So like, actually, Japan was one of our largest geographies for a long term for a long time, including one of our largest companies. Our customers in SMBC that really showed the world of what's possible using UiPath platform. Within Europe, we have a strong presence in all of the major geographies that we feel like between UK, 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 three years was really in Japan and Europe. So America is 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 start 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 years and operating leverage is something that we can go after, because we built the infrastructure across the major geographies we want to play.
Sure. That makes a lot of sense. And thanks for that. And why don't we shift a little bit towards the balance of growth and margin? Obviously, the company's growing ARR 55% plus, so if 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?
Yes. We've talked about 20% plus operating margins is 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, three years ago, we were 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 are 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, two 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, where we talked about a $60 billion plus Tam, we look at the market will invest for growth, we're crossing a $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.
That's great. That's great to hear. I'll open it up to the audience. If there 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?
Look, we knew Chris, for almost three years, we 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 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 two 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 like in terms of changes, I think Chris is 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, especially around digital sales and going higher with him and Rob into the C level. I think those are two things that I'm really excited to see starting to reflect in our pipeline and just in our overall approach.
Sure. That makes a lot of sense. 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 finding? And why is it strategic to the platform? What does UiPath have in that regard?
Let me give you a more extended answer about [Indiscernible] discovery, because we played, this is the overarching category or replay. So, process discovery is the ability of an organization to monitor and understand processes and tasks within an organization. And there are two ways to do this. One is to look into the backend systems, look into the logs of the backend systems and understand the transaction flow. Some transaction flows 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 Test mining, which is literally like, watching someone over their shoulder and understanding what they're doing. And imagine watching hundreds of people and then finding the patterns of work. And plus, pairing 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 three years, we invest in quite a bit, we re-platform the process mining technology that we acquired three years ago. It's working on cloud, it's scalable, built a lot of connectors. So it's easy to get into the data, into the backend systems, we integrated with test mining. And it is way we've built kind of a very solid offering. Our strategy in test 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.
Makes a lot of sense. That's great. 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 went into 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 mostly with two companies, they are Automation and Blue Prism. Now Blue Prism faded out over time very quickly. So we have not seen them in the new opportunities so much. And three years ago, Microsoft announced their intention to get into RPA space, and they were followed by a slew of other, enterprise companies, SAP has, three years ago they, actually that was first that entered the space. And then ServiceNow, Salesforce. So everybody announced intentions to be an RPA. And they usually bought a small company to integrate with 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 six points of market share. And we get more revenue than I think almost everyone in the RPA space combined. So it's a -- was 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 three years ago, right. According to Gartner, they have 2% market share. And we're 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 a citizen developer platform. It's not for creating enterprise automations. On the personal automation, our tool is really way more advanced and it's only a fraction personal automation. And it makes a lot of sense if you feel for, when you build an automation program for an enterprise makes a lot of sense to have the same technology powering personal automation and enterprise. So you can progress. Also, a lot of your citizen developers may be into professional RPA 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 say for ServiceNow, 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 and our progress of innovation, I really feel confident.
That's great. Thank you, Daniel. 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 get the cloud installed more easily at a smaller footprint to kind of bring in that top of funnel type account that you, is the next cohort of expand opportunity or what, or how do you see the cloud platform evolving in terms of the initial target market and then over time?
Well, so 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 two types of deployments. It will be air gapped deployments, completely air gapped for maybe very sensitive projects. And everything else will be will be cloud. I don't see any reason not to even something like mixed, like hybrid deployment. So this is why we, our thesis was three years ago that we will get everyone into the cloud. And we are, it's the -- we made the good business decision to build cloud in Bellevue. So we've been capable of attracting great talent to build 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.
Good to see you. Thanks for doing it.