Thanks, everyone for joining us today. My name is Scott Berg. I lead the enterprise software and SaaS research efforts here at Needham. Today with us we have UiPath. We have the company's relatively new, Co-CEO, Rob Enslin, with us. Rob, thanks so much for joining us.
Yeah.
First time we've met in person.
Indeed.
We're gonna learn all this on the fly here. Great. I guess how about a brief overview of UiPath, what the company's platform does for the, you know, few people here that might not be familiar?
Yeah. I mean, the company started in the RPA space, and really took off, I would say around 2017. And since 2017, did significant amount of investments in a broader space around UI, around automation in general. The platform today, the UiPath Business Automation Platform today has three major categories. Discovery, which is process mining, task mining, and a new acquisition we did around Re:infer, which is called communication mining, but think of it as understanding email, understanding sentiment in email, understanding chat tickets, and so on. That's all in the discovery process. Then it has a process called Automate, which is basically low-code, no-code workflow, the ability to create apps.
It's got a studio development environment for citizen developers, for professional developers and so on to create so-called automations or bots. Then it has an operate capability where it actually allows you to manage your automations. It's got some significant, I would say, extensions when you look at the market where we actually do things like Document Understanding, text understanding, ability to read documents and to process on documents. Then we built a Test Suite. Think of traditional tests, regression testing, things that are super exciting in the enterprise space. Test Suite to actually connect actually automations to testing so that you could actually scale automations really fast when things change. It allows us to have some significant differentiation with companies. You know, I'd say this relatively new co-CEO. What's relative, by the way?
I don't know. Within a year.
Within a year. Yeah. I think it's eight months I'm into it.
Yeah.
Nine months, eight months. And so the platform, you know, we are driving the process of defining a category of automation or hyperautomation in this space, and those are all the pieces that are actually put together. Largely, we see a TAM or a traditional TAM market, which we actually define as roughly $93 billion of opportunity. Gartner has models that come up anything between, I would say $100 billion, but we see the opportunity as significant.
Okay. Last time I checked, your revenue level was, we'll call it billions, so.
There was a lot of runway.
Yeah, exactly. That's exactly where I was going with it, so.
It's a freeway to ride.
We're gonna start talking about the industry a little bit because I think investors' perception of this industry is still a little bit on the light side. You know, when I first started doing research on you and your competitors several years ago in the space, the one comment that was made to me was every, we'll call it white collar employee or higher within a company can benefit from the use of an RPA bot in their, you know, corporate life. But can you talk about how broad the use of bots within an enterprise can be? Because I think a lot of investors tend to believe that it's really only regulated to the office of the CFO.
Yeah, look, I mean, first of all, I think it makes a lot of sense in the CFO's office because it does repetitive, mundane tasks really well, right. When you look at any other transaction-based systems, you know, they all end up in a finance posting in a GL. What you find in the finance, The things that we can do really well in a finance organization are accounts payable, accounts receivable, invoice matching, invoice splitting, connecting different systems like signing on to an Ariba system or a Coupa system, creating a split invoice payment automatically and so on. Do SOX compliance really well, generate stock-based compensation.
There's a lot of pieces in the finance that creates levels of efficiency that CFOs are always trying to, trying to go after. It's a natural opportunity. When you think about the way that companies have utilized it, and you look at a couple of our customer cases, they've utilized the platform in a significant way. I mean, I would use a couple of examples, different examples to give you some kind of an idea. Generali, for instance, the insurance company, been around, I think 140 years. In the last three years, they've saved EUR 80 million. They have a target to get EUR 125. These are public, through UiPath automation, not through anything else, through UiPath automation. They're doing all of their claims payment processing automated through our automation.
You know, a bot is simply an app, so we use the word bot or automation. If you look at the New York State when COVID came, I mean, they had to process 1.2 million claims in two weeks that could not have been achieved by providing humans. They utilized the technology from automation and bots to process it, and through that process, they were able to identify possibility of $12 billion in fraudulent claims. Right. That's another example. You look at a media company like Dentsu. Everyone knows Dentsu. They do ads, media, third, fourth largest in the world. They run, they basically do automation at the citizen developer process to take away mundane tasks so that the creative people are able to spend their time doing creative stuff.
Cut and paste, simple stuff. When they come to work in the morning, you know, all the tasks for the day are already automated and ready for them to go, and they don't actually have to do those tasks. Ernst & Young have over 125,000 automations running today.
They do a lot of the SAP work. The consultants advisory services actually do not wanna sign on to an SAP system for a number of reasons. You know, they don't spend a lot of time in it. It's once a quarter or so on. They've driven automations to actually build those processes and do the work for them so they can spend time with their client advisory services. And in Uber, I think there's a couple of faces. I've mentioned Uber a couple of times. When Uber had to bring 460,000 drivers back, they used UiPath to go and do security checks. The Department of Transportation make certain that they're validating them. You know, their view is that they were saving about $2 million a day doing that.
Oh, wow.
So these significant use cases in different departments. When you look at where we have been very successful in the last three years, it's been in banking, financial services, insurance, healthcare, are a couple of the areas that we've been, you know, really successful in.
Okay. From an industry perspective, you have, at least in terms of revenue, one larger competitor. There's a few smaller competitors that are.
Who's the larger competitor?
The initials AA.
They're not bigger than us.
No, no, not bigger than you.
Oh.
Just larger in general revenue, more than $100 million. Certainly not larger than you.
Oh.
Yeah, just reasonable size. But there's also a large platform player based out of Seattle that's been trying to get in the space at least a little bit.
Okay. That one I knew.
Yeah. Yeah. How do you think about UiPath's competitive positioning and differentiation relative to those other vendors?
Yeah. When you look at the RPA environment, I don't feel like, you know. I think we feel like in many cases, we replace Blue Prism, especially in the financial services in the banking institution.
Mm-hmm.
On a consistent basis. We had two we announced in our Q3 results with Bank of New York Mellon and Orica, where that we replaced the company. We see that consistently and, you know, that's a case of innovation technology. We don't see as much Automation Anywhere in the market. We feel in the RPA space, we continue to take market share from all of them. Specifically in the RPA space, not in the full platform space, but in the RPA space, we feel like we continue to take market share. Gartner have basically published, it's probably a year old, but have published that, you know, we have 36% of the market share. We're the only one that's growing at roughly six percentage points.
Mm.
In the RPA space, we feel like we've differentiated ourselves significantly from the two competitors that are in that space, by driving the platform play, having UI-type automation at a significantly different level than. We have Process Mining today and Task Mining, Communications Mining. They don't have those kind of technologies in place, so we can actually service a much broader audience.
Mm.
than either of those competitors. You know, with Microsoft, we are both partners. We co-opt with them.
Yep.
We do a lot of technology work with them. You know, we made the announcement that we are their preferred enterprise automation platform for their customers. You know, that largely would tell you that their Azure salespeople actually enjoy driving UiPath into their customer base because we drive a significant amount of commits off their cloud platform.
Mm.
for them. They don't have an enterprise platform. Here, we actually have we live side by side when they have an ELA-type license agreement in, with Power Automate and on the Office 365 and customers. The moment customers wanna scale, then they look to UiPath to scale in the enterprise space.
Okay. Let's talk about the UiPath product specifically. UiPath and RPA really began with, you know, larger enterprises adopting an on-premise deployment of bots. Last year, you all released your first kind of cloud-native bots in particular. Can your cloud bots do everything that the behind the firewall bots could, or are there some limitations there?
No.
just 'cause it's new?
No. They've been developing the cloud-based environment for quite some time. They actually have the same capabilities between the cloud and on-premise bots. We actually just. I mean, we have followed and adopted a policy of your customer can decide where to, where to drive it, what makes sense for them. When you, when you look at the smaller customers, really clearly they're driving more cloud. When you look at more regulated financial institutions, they've continued to drive the on-premise version. Customers can also take the on-premise version, and there's no reason why they can't run it in a cloud environment.
Mm.
In an AWS, in a Google, in an Azure environment. Our product is built on Azure. Right, the full cloud product. Yeah, it has the same. We also have benefits in the sense that when you have a sovereign environment or you need to position your solution set into a sovereign type environment where they want the data, or they want the thing running in a sovereign environment, we can actually run in a sovereign cloud.
Okay.
Which allows us to, you know, support, you know, governments the way they require those kind of environments, which are quite a few today.
Yeah. What would be the maybe pushes or pulls over a period of time of why more of the market would or would not go towards a cloud deployment or cloud bot deployment versus, you know, the current on-premise?
I'm a huge fan, coming from Google.
I kinda knew that, so...
I have 100 reasons why I think cloud is for me the preferred model, right. I think it's scalable. It's very secure. You have lots of flexibility with it in terms of deployments. I think customers, the same thing. What you take away, you know, from a serverless point of view, you take away a lot of the management capabilities, the need to management. It's all managed for you.
Mm-hmm.
in that environment. It's a lot simpler and a lot easier to scale. I think more and more companies will be doing that in the future. I mean, it's just easier to deploy, faster to deploy, simple to deploy in a cloud than it is in an on-premise world.
Yeah. At your recent Analyst Day, that I attended in Vegas, you had a number of new product innovations that you announced that helped expand the TAM to the $90 billion that you talked about. New paths, low-code automation platforms, and new business process management capabilities. How are these products complementary to your core RPA platform? You know, how should we think about their growth trajectory relative to what you do with bots?
I think that's a great question, right? Because I think, you know, if you look at what we said we're going to do at Investor Day, we said we would launch platform pricing, right? Which we did.
Mm-hmm.
Platform pricing changes the way we price because we were pricing previously at a line item level. Every product was a different sales cycle. It's kinda tough. With the platform basically gives you capabilities to do all of the management stuff, gives you Document Understanding. Test Suite is part of the platform.
Mm-hmm.
The ability to utilize that to create automations. So putting that into the platform, we believe you need low-code, no-code. You need to have a workflow engine. You need to be able to do integration services through API management. Like, in the world of automation, you cannot only do UI, you have to do API because API is the piece that connects all these SaaS systems, SaaS applications together, and it's really what's gonna drive automation in the future. It's incredibly important to have the UI piece as well, but those product sets are really important as part of the overall platform piece. That includes things like Process Mining, Task Mining, and our Communications Mining and Automation Hub thing.
We believe that in the next couple of quarters or months or in the next year, you will see the analysts come up with a very clearer definition.
Yeah.
of automation and hyperautomation
Mm-hmm.
-and what companies need to have in those places. We think that we have the majority of those, solution sets to create an automation platform. That's why we actually launched the UiPath Business Platform at the Investor Day. It was very clear to everybody that These are not line item. That actually accelerates the revenue growth in our customer base because they are. We have fully integrated the utilization and the use of these products together so that they're all one common environment, and you're able to determine which processes you should be automating and which returns you can get.
You can actually see in the system if you automate through process mining, you can go back and look and see what benefits you got. How much of the process is going? How much faster is it going than it was going last year? What kind of improvements you can still continue to do? It creates a continuous loop for customers to do automation and to continue to have automation going. The companies that have done really well, like Generali and Orange, have really been doing that for a couple. I mean, it's not. We didn't. They've been doing this because they figured it out how to do this over time.
What's the customer feedback been like on the platform pricing? I know it's still early.
Yeah. I mean, really, surprisingly positive. It actually changes the discussion we have. You know, customers have been interested because I mean, if you've been in enterprise software for a while, you know that over time things consolidate, right? At certain point, best-of-breed solutions become complex to manage 'cause there's too many pieces to it. If you look at our UiPath platform, business platform, you could probably plug in 20, 30 different product vendors into that platform. If you go to many of these Global 2000 companies, they've got 10, 15, 20, you know, vendors running from process modeling to process mining, another one for task mining, something else for testing, right? Somebody else for document understanding, and so on. You can go through the whole process. Then they have logs going to Splunk to manage the thing.
It's just very complex for them to manage, and it's very complex for them to bring in a systems integrator because they don't have somebody that has that kind of skill set. They don't have. They don't wanna bring in 10 people. It's just not cost-effective. It's been really positive what companies have. As we've gone through the conversation, they've actually wanted us to prove out that we good enough. Like, are we, in our process mining, how close do we get to Celonis? Are we close enough to Celonis where they say, "Look, I can get enough benefit out of UiPath, I don't need Celonis anymore. I'm not gonna go down that path." A lot of customers in that space.
In the testing environment, it's like, "If I can use it for the full automation stack, yeah, then I'm gonna replace my existing testing tool. I'm not gonna just use you for testing. I wanna use you for the whole piece." It's been extremely positive in the larger companies. We are extremely busy. It's changed our conversation and who we're talking to in many of these companies.
At your customer conference, I heard of several changes to your go-to-market strategy.
Mm-hmm.
Fast-forward, we'll call it, you know, four, five months, have these changes been more subtle in nature? Have they been more significant maybe? Are you kind of through what those changes look like? 'Cause I always think it'd take a sales cycle or two to really take effect.
Yeah. I don't think anybody thought it was subtle.
Trying to throw a softball.
I know. Look, and, yeah, first of all, I think if you're gonna do changes, and you know what, and you know what changes you need to do, and you think through it, you gotta do it as fast as possible because you want your organization to get stable as quickly as possible.
Mm-hmm.
Having an organization constantly in change creates disruption for a very, very long time. You know, we spent a lot of time before Investor Day validating. Chris and I came in, and we kind of looked at this and, you know, we looked and said, "You can't continue to sell the pricing the way we're doing. It's just, it's too complex." Like, we'll never find enough salespeople to be able to understand it, and customers are gonna just take a long time to buy. Sales cycle is gonna be long. The challenge we had was when we looked at the numbers, like we shared with you our top 25. You look at our Investor Day, the top 25 customers, and you can see their scale. They scale in year three and four and five.
Like, we don't wanna wait to years three, four, and five. We need to bring that way up front. When we looked at this, like, okay, what do we do really well? We acquire customers really well. Challenge is we acquire them in small departments. We don't scale it well. The reason we don't scale is because we've got quota carriers that have 40 to 50 accounts. They're never gonna have focus. Like, they're never gonna focus on where they need to put all eight hours of a day into. When we decided to actually do it, we decided, like, we'll make the announcement at Investor Day.
We'll run it through the year, and we'll drive the changes as we go through the year and not wait, like most companies do, to the next fiscal year.
Yeah.
To be like, "Hey, next fiscal..." We think that would've been so disruptive because people would've known what we were doing. We did it, and we had a good Q3.
Mm-hmm.
I think we managed the complexity. We are, I would say, not. You're never done with changes, but we are pretty much done with the changes. Pricing's rolled out. Solution packaging is part of our day thing. All the segmentation's been done. You know, everybody knows which accounts they're gonna have at Feb one. We've got new leadership in Europe that's doing really well. Yeah, so I would say you're never done, but we are mostly complete with that, and we feel like we got a good handle on the complexity of the changes and the disruption, and we think we've managed the disruption pretty well. I would also tell you, I think our salespeople initially were very concerned.
Like, whenever you take something away from a salesperson, they cry, right? It's the first thing. It's like, "I'm not gonna make my numbers." You know? Like, the reality is when you show them what they can do with the platform and the pricing, and when you close Bank of New York Mellon, and you close HCA, and you close Orica at the kind of type deals they are, salespeople then see a different world. They see, "I can actually really get significant opportunity inside of my existing customer. Guess what? I know them. I work there every day. I go and knock on their door. I walk down the passage. I know who John is. I know who Shelly is," right? Versus, "All I see is the name on the door. I've never been here.
I've got to figure out who..." There's no way that they will actually... Our salespeople today, I think, have a much more positive attitude on how they're gonna get money, how they're gonna drive their quotas, how they're gonna get commission in the future. You know, their task will be like most sales organizations. I want the best eight accounts. I want the best 10 accounts. Which is natural.
So you're changing tiers to cheers.
Yeah.
Hopefully, at least.
Yeah, yeah. Yeah.
Okay.
Exactly.
Good. On the go-to-market changes, you have a very robust partner ecosystem. You have for several years. You already sell large deals directly. How are you changing, if at all, your relationship or how you interact with partners as part of your overall go-to-market changes?
Yeah. We've put a lot of effort into driving more with partners this year, like, in different ways. For instance, right at the bottom, we feel like we've expanded our distribution channel with distribution folks that now actually understand where their pipeline's coming from and how they're gonna get it and why they're getting it. On the distribution side, which is in the smaller market, these companies are good at that. Like, they can afford to close a $10,000 deal and still make money. It makes sense for them and so on. So that, that part we continue to invest in. The partners that have been around the ecosystem for quite some time, they're mostly local or regional type partners.
They're super excited about the opportunity of presenting a platform and expanding their business because They know where we're going, so they're very good in RPA and so on. In the other partners we've been working with, the EYs of the world, the Capgeminis of the world, Accentures, Deloittes, et cetera, because automation is becoming a major category as well for them to drive. That's very important for us to have global systems integrators that actually can work with the Global 2000, that wanna work with them, that have relationships with those type of companies, 'cause that also elevates us up into the C-suite of many of these companies.
All right. I'll ask probably two, maybe three more questions, and happy to open it to audience Q&A if there are any. The company announced some cost cuts, you know, given the more challenging macro environment. How do you look at those cost changes relative to your ability to grow? Are you doing anything that might unnaturally change your ability over the next couple years?
Yeah we, we don't wanna cut... This is the way I would look at it like. You know, we said we would drive profitable growth. Like we wanna make certain the company continues to grow and I believe there's a significant amount of innovation still ahead of it, and innovation should be the way to grow. You obviously you don't wanna cut your engineering capabilities in a way that actually harms you.
Mm-hmm.
I think hard to get, hard to get back. I think many folks that know UiPath, you know, probably don't realize that a lot of the last few years was about getting architecture right for different type of product sets, right? The ProcessGold acquisition required a redo on the architecture to be able to standardize. That's taken a while. That's just now we've been able to actually really drive it for Process Mining and Task Mining. Cloud Elements, we actually built into an integration, recreate the integration and so on. We feel like we've got to a point where there's a lot of technical debt that we don't have.
Mm.
Right? When you look at the revenue streams on the-- from a product point of view, you know, a significant portion of the revenue came from RPA, and there's a significant opportunity around Document Understanding and Test Suite and integration services that we actually haven't tapped yet. Those products are mature, and they have customers, and there's a market out there. Yeah. We're now positioning it as a platform. We feel that's really cool. When we're looking at where we're going with innovation and what we're doing in the innovation space, you know, we continue to spend a lot of time doing a lot of work around AI and ML activity especially.
We spoke a little bit up to some of you folks around GPT-3 and what we've done with GPT-3 and what we're doing with OpenAI. We've been doing that for the last 18 months, and we see that as significant opportunity in the future. We've also got a lot of research AI folks. David Bader from UCLA is actually working with us directly because we think that's kind of where the next generation of technology will be headed. We think automation benefits significantly from that because we've got some massive levels of information around data, how people use things, what they do with information. Together that with, you know, large language models, we think there's unbelievable opportunity in this space.
That's where we've gone from an innovation point of view. We haven't scaled back. In many cases, in the restructure, we did not cut a significant amount of engineers at all. We actually went to lower cost locations and things like that. On the sales side, we feel like we have more than the capabilities to be much, much more productive with the existing organization that we have in place, that we're going into next year. Remember, our head count is gonna be literally basically flat year-over-year.
We don't feel like we need investments in from a go-to-market point of view because we feel like we built a highly efficient model and an engine that we think we can drive. If we are successful in the markets that we're going after, we believe we can expand because we'll be able to invest and pay for that kind of growth going forward. I'll just add, I think UiPath just over-invested early, too early, in headcount and, you know. That was an opportunity to make certain we had the right scale and right size.
Okay. Last question from me, I think it's an important financial one over the next couple years, is the company has already guided to a five-point negative impact or headwind around revenue growth into your fiscal 2024 based on selling cloud versus or maybe with some cloud transitions, right? How do we think about maybe the progression of booking mix between the delivery models more, you know, with the bots over the next two or three years? Is this kind of a... Maybe it's five years. Is this a one-time headwind, you know, in terms around its revenue recognition basis? I get it's all short term, but what does that adoption progression look like that might commit-?
Kelsey, what is that progression?
Well, $215 million in ARR.
Yeah
...now in terms of SaaS. The SaaS portion of the model, the pure SaaS portion of the model is relatively small.
It's small, right?
Yeah.
I mean, it's tiny. We'll have some headwinds on that, but it's not gonna be significant, in my opinion.
How do you think about the adoption of the cloud bots maybe over the next three or four years in terms of, like, a percentage of bookings? I know your larger customers really don't do that, you know, aren't gonna adopt that today. Does that change one or two years out, do you think? This mix be pretty consistent?
I don't have the exact number on that. Do you?
That was offered in spring. Things like that starting to ramp is where we'll really get the SaaS business going. Right now we offer Flex SKUs for our customers. We give them sort of we're agnostic about deployment model, and we give them options between cloud and on-prem, and they can flex back and forth. That's the name. That's where the rev rec comes into play.
Yep.
The SaaS piece is small and it's growing. We saw triple digits, year-over-year this last quarter.
Okay. Great. With that, we have about six minutes. Happy to take any questions from the audience if there are any.
Been a long day?
We have a shy group all of a sudden.
Hope your planes are there.
Yes. Back there.
Yeah. At the analyst day, you guys put out the initial fiscal 2024 ARR number, which on your new fiscal year 2023 ARR guidance implies pretty sharp deceleration now down to 16% growth. I guess what would have to go wrong for you guys to hit that number?
That's a good way to ask that question. We call it an anchor point, right? I would say we were thoughtful in how we positioned the anchor point to put it out there. I mean, a lot of companies don't put it out there. We just decided to put it out there. We took into account that we wouldn't see much benefit out of Europe and the macro situation, and we would have to deal with that. We also took into account that we could have significant disruption from the changes that we were making and so on. If you go back to when we put it out and we actually haven't gone back to relook at that model, you know, we'll obviously guide when we do the announcement. That was all built in.
We built in more macro issues, tougher macro issues coming out of Europe that we would, disruption in the sales organization and so on. It was, I would say, a thoughtful anchor point. That's the way I would look at that.
Any other questions? We certainly have time for one or two more. Well, with that, I guess we'll wrap it up, and everyone can have a couple minutes left to get to their next meeting.
Thank you. Thanks, Scott.
Thanks for joining us.
Appreciate it.
It's great.
Thank you very much.