UiPath Inc. (NYSE:PATH) Baird 2023 Global Consumer, Technology & Services Conference Transcript June 6, 2023 3:10 PM ET
Ashim Gupta – Chief Financial Officer
Mark Marcon – Baird
Good afternoon, everybody. My name is Mark Marcon. I follow human capital technology and solutions for Baird. Our next presenting company is UiPath, one of the absolute leading companies within the fast-growing RPA space. We are extremely pleased to have Ashim Gupta here with us, the CFO. Ashim is going to run through a small presentation, give an introduction to the company and then we will get into a fireside chat.
Awesome. And let me jump up into it. So, first of all, thanks everybody for having me today. So a quick 20 seconds background on me. I am lifelong person at GE for a long time, 19 years. I was the CFO and then I became the CIO for finance and shared services. It was a 20,000-person shared services arm and that’s where I came across UiPath.
They were one of my vendors and I had a pretty big portfolio and they were the highest returning, highest ROI. And frankly, the one that was the most empowering to our employees for process improvements and so I fell in love with it and I joined the company in 2018 as customer success. And then I got into the finance role and have been there ever since in terms of leading the company through the public piece.
I — when I was — when I joined UiPath, it was an RPA company and it was less than around — less than $40 million. This was like 2017, late 2017, early 2018. We are now crossed $1.4 billion — we are guiding to cross $1.4 billion of ARR.
But most importantly, we are not just an RPA company. We are a full-fledged business automation platform. Our platform, while RPA and computer vision is at the center of it. It is built on a foundation of AI.
And it does everything from discovering what to automate, doing the automations and being able to build it in a multi persona world and giving the right governance framework to be able to operate at scale across our enterprise. Close to 11,000 customers, high NPS and really something that we are proud of in terms of the ROI and the business impact across every industry, every vertical and frankly, every process.
So just what is the company built on. First is in our strategy is extending our market leadership. If you look at Everest, Gartner, Forrester, we are a clear leader in across all of the analysts in terms of the areas that we play in, even document understanding, which was not a part of the portfolio in 2018 is now number one with the Everest Peak that came out yesterday. Investing, as Daniel says, we are an engineering product company. He believes incredible, strong product and that really is the foundation and benchmark of where we are.
The second piece is positioning the platform. Everywhere we go, we talk about RPA. The real power is in the platform itself. If you can automate something, it’s great. It is incredibly powerful and it gives muscle to so many other areas.
Process mining without automation, it’s a partial win. Document Understanding, without automation, a partial win. AI components without that is a partial win. We really believe in the power of the platform and that it has broad appeal across the C level, and that is a lot of what we are positioning in the market and how we are skilling our teams.
The second is an efficient go-to-market model. You would see that we have now increased our estimates to 13% operating margin, $160 million of free cash flow versus neutral a year ago. That is not austerity. That is efficiency.
And from that perspective, we continue to invest in the company, but find ways to make sure we have a powerful machine and power is defined as both effective and efficient and that translates to driving operating leverage, at $1 billion plus of scale, 80% plus gross margins.
Profitability and cash flow is not something that is a reach. It is a right. It is a choice in terms of our investment and we will continue to both invest in the future while generating positive cash flow today.
And all of that is built on an incredible team that is global. That team is Romania is where we were founded. We have a huge corporate and engineering center there and we have employees across the globe in terms of the breadth of where we are.
At the foundation of our platform on the right side and I am not going to go through all of this, we will save some of this for Q&A. We talk about our capabilities as the ability to discover, automate and operate. That is the full life cycle of an automation.
Think about it this way. If you can discover what to automate, what do you do with it? People who have automation capabilities, what’s their number one question that many C levels ask. Where do I find the other automations to drive efficiency?
We were having about a conversation about that, Mark. I just sit back and if you can ever think about your own office or you think about offices that you have been to or people that — how many times are their hands clicking on a keyboard.
Is that analytics, are they driving insights or are they doing work that can be automated that is repetitive, whether that is a micro task for them in the world of personal automation or a larger process like invoice to cash, claims processing, customs processing, et cetera.
And all of that, in a world where software and capabilities gets marketed really well, you need to be able to do it and operate with governance. You need to be able to go and make sure that you can run mission-critical processes at scale without fear and in a way that actually instills confidence in all of your stakeholders, whether customers, vendors, your Board, your auditors.
And so on the left side, you can see the profitability where we have had and that is why this chart is the way it looks. It’s not — you will get through different questions as you Google or you look at different companies. There are bursts that happen.
But we have been able to build a really highly scalable, perpetual or consistently growing model that has moved us close to crossing $1.2 billion. And like I said, we are guiding to north of $1.4 billion, $1.437 billion of ARR today and that is something that we believe is durable and sustainable.
And when you look at it, it is based on a great land and expand motion, 127% net dollar expansion rate, that’s at $1.2 billion of scale. That means customers see ROI and they are continually to invest in.
So just to close with that, I look kind of back at our business, market-leading product, a great customer base that validates the market and the market potential we will talk through more, a team that is executing for both growth and efficiency and something that we have shown in the numbers over a period of time.
So that’s the quick presentation. And with that, Mark, we can start.
Q – Mark Marcon
Great. That’s a terrific overview. One thing that we were talking about earlier. First of all, how many people are like deeply familiar with UiPath, like, really know it and understand it versus people who are new? So people who really know it, one, two and how many people are relatively new to the story? All right, so we are going to…
All right. It’s….
…creates an opportunity.
Yes. Okay. So let’s talk about generative AI and the TAM, all right? Because I think it was interesting on the last quarterly conference call, there was a discussion about like, hey, generative AI it’s like the mine but without the arms, legs…
… hands, you obviously have all sorts of different capabilities. Can you talk a little bit about the potential for generative AI to take your TAM, which is already $65 billion and growing and expand that even further?
Sure. I may take like one step to set the baseline for that.
So for those who are not familiar, UiPath is the core of what we — the core of the platform and where we started as RPA as we talked about, which means we have the ability to emulate what people do and the reason why I start there is AI has always been a foundational principle.
To be able to log into any screen, any application, see it the way a human does, which is computer vision and be able to emulate that the actions a human will take. That has required, that did require and does require AI all throughout it and we use that in the fulfillment of our core and how we have expanded.
Now to answer your question directly. There’s two pieces of our puzzle that we talk about. One is the developer experience in terms of when you, quote-unquote, code and automation, which is a low code. How do you do that in a way that is easier, more semantically oriented similar to how we interact or talk today, generative AI brings automation closer to the capabilities of more people.
I don’t need to know a heavy code. We demonstrated one of the concepts called Wingman, which if you are not familiar with the company, you can go and see our AI summit and see some of the demos there. Generative AI actually helps to be able to bring that closer to every person. If every person can code their automation easily, you bring that much more of the TAM into the world.
The second piece is expanding the use case potential that is out there. Why is the TAM so big? Think about every manual process that exists in every market. That reflects why the TAM is so large. It’s almost — if you just think about your own enterprise, you can come up with millions of dollars or millions of hours of save — of things that you can think where people spend their work.
So generative AI also expands the use cases. It allows us to be even more effective in a service task, even more effective in any use case that requires communication and it also gives capability that supplements what we would call domain-specific AI. So we can use foundational models, further enhance them so we can bring further capability to our customers.
Great. And when you think about like your experiences with clients, I mean, obviously, huge expansion. You mentioned how many clients you have now, back in 2019, you had 2,900 or so, it’s expanded dramatically. When we think about that expansion, what is that go-to-market level of experience? How do you get into a client to begin with and — because it seems like once you get into clients, I know of companies that use you, who are just absolutely huge fans started using it themselves and then they said, we are actually going to develop a practice to sell it to other people or get other people — other people involved? How do you get in, in the first place?
Yeah. So the first thing, like, if you step back, and again, like I said, I was at GE and you mentioned some of the companies, most companies have been on a transformation journey for whatever. It’s almost like a perpetual journey. But pain points still exist.
So our primary entry point historically has been customers have come to say, I need help solving a pain point and I heard UiPath’s platform can solve that need. And so we typically go in and we pilot that use case and we show them that, yes, you can improve employee onboarding by X number of days.
You can go and create invoice processing with less touch and higher degrees of accuracy and we show them that. And the two reasons is we show them the effectiveness of that use case in the pilot, but we also demonstrate that it is broadly applicable across all processes.
The second step is once you get past that is then they go and build an automation pipeline. And that is both not difficult and difficult. One of the difficult — one of the areas why it’s not difficult, is like what you and I talked about or for the team. How many manual areas do you have?
If I say how many people log into an application or know somebody who logs into an application, download some data, manipulates it and then has to do something with it. That can all be automated, right?
So many companies start understanding, well, I can apply this broadly and use cases start to multiply. As those use cases multiply, they go across departments and they begin to unlock more parts of our platform and that’s where you see the net dollar expansion rate increase. They have more demand for more use cases going across and they turn on different elements like Document Understanding, like test automation for application testing within our platform.
Can you describe like what the journey has been like with, let’s take your largest client? How big is your largest client, you don’t have to name that client, but like how big are they from a revenue perspective and what was that stage of growth like?
We have talked about it as greater than $10 million of ARR is our largest. So I won’t give the specific number, but that’s era. And we have also said publicly that we still think that’s only 15% to 20% of the potential of what’s in a customer, because they still are not going across their entire enterprise.
The journey for that customer, that customer, as an example are greater than $10 million cohorts. We have customers who have been with us for six years, and we have also had customers in that cohort that have been there for four years. So like three years, four years, you can see that potential building up. The common traits of it is executive sponsorship, a strong understanding and building a strong foundation to scale their practice within their company.
And then the third piece is experimenting and challenging paradigms culturally of where that is. So one of our largest customers is SMBC. They have spoken on stage and they have talked about $250 million worth of savings, tens of millions of hours in terms of what they have talked about.
And that is the engagement and the challenging of the process, which if you ever have been around a great Japanese corporation. When they find something that drives efficiency, they are incredibly relentless about doing that. We also have U.S. customers now who have done the same.
That’s great. And then one thing that you talked about in our prior discussion was the time to pay back. That seems awful compelling. Can you talk a little bit about that just in terms of what’s typical, what’s the absolute home run, what the range of parameters are?
Less than one year is typical in terms of payback. To me, like, the top 25% to 30% of our, like, in terms of performance, they will pay back typically less than six months. And one of the reasons for it is you don’t need a big outlay. You can start small.
I mean think about large scale applications or other software. It’s kind of like, am I implementing the CRP, am I not? Am I implementing the CRM, am I not? I am biting off tens of millions of dollars and it’s not always clear what the value proposition back is. There are business requirements, there’s things that are there.
Here, you can say, I know this function and this process has opportunity to be more efficient and I can target it. And when you can target specific areas and quantify them, that’s really what leads to fast, efficient and tangible ROI.
Can you talk a little bit about how you price, because a lot of people are new to the story, wondering like, okay, you find out about a function, how do you set the pricing for something like that?
So we have multiple elements across our platform. At the core of it, we have two pricing models that are generally there. One is kind of like a server or a license based model. Our unattended robots and for people who don’t know what an unattended robots are, those are robots that are working in the background, they never interact with a human really.
Then we have attended robots, which are more assistant like, they interact with the robot. The unattended can deal with 20 processes and they are not functional. They — there’s no such thing as an HR robot, a finance robot, they have no resume, no LinkedIn profile, so to speak. They basically they can scale across. So those are like a server based, process mining is server based.
Our attended or anything that is user based, we do have user based pricing on that as well. And then we offer different types of agreements that let you buy multiple components of the platform across. And so we have those a la carte as both server and user and then we have the ability to create larger, more wider spread platform agreements that are there.
Great. And then can you talk a little bit about to what extent influencers promote you, to what extent do consultancies come in, talk about you? What sort of partner networks do you have?
We have a really tremendous partner network. If you look at GSIs, if you go back and look like Accenture stood on stage saying they are going to train 10,000 people in UiPath, right? So the GSIs find it very compelling.
We signed an incredible partnership with SAP. We are very excited about it. SAP reps are going to be compensated to endorse and promote UiPath, because they see the value in us both for the transition to S/4HANA, but also being a part of the architecture post implementation. That the GSIs are tremendously interested obviously and engaged in those areas.
We also have a strong regional partner network. We often forget about them in the GSI world, but the regional partners like T-Systems. They actually have specked us in now with making the Deutschland train project touchless and using RPA and using UiPath’s automation platform, full-fledged at its core.
And regional partners have a very strong influence as well and they are training their people on being able to develop and implement, because they see it as a really good value proposition of a lot of projects that they drive across digital transformation.
That’s great. And we have got these GSIs and partners like SAP that have selected you. One thing that we found is that a lot of people who are newer to the space, don’t have a clear perspective of what the competitive advantages are of UiPath versus some of your competitors. I am wondering if you can just elaborate on some of your distinguishing features and why and various clients pick you?
Yeah. So the first is, we are a full business automation platform. If you ever try, try to find a company that has process mining, which is log based, like you can ingest system logs and identify manual processes; task mining, which can trace human steps and identify; and communications mining using AI to ingest e-mails or using AI as you ingest emails to identify, where are all the manual processes and interactions happening, discover.
Persona based ability to automate in terms of multi personas, both personal automation, enterprise grade automation and powerful persona based tools from developer, ProDevs to citizen developers. Document Understanding, Test Suite, test automation. You won’t find another competitor. So the first is the full breadth of our platform.
The second is our governance, when you look at many other customers that are out there, we have enterprise-scaled governance capabilities that are there.
Third is just the sheer depth of our computer vision and our domain specific AI capabilities. Through a lot of work, Daniel started the company actually from an engineering standpoint in 2012.
The technology to be able to read almost any screen and interact with it. That is not something that is commoditized. That is not something that is commoditizable, because a lot of it is customer related data. We have amassed that over time, and it makes us credible.
The fourth and fifth, I will go through quickly is, our developer experience, you can have an impact with 50% less time than other platforms.
And then the last piece is the openness of our architecture. You can deploy on any cloud. We are not Azure only. You can go and have multiple areas and integrate your own applications. Some companies restrict which OCR engines can go into us, we don’t and those are the main reasons why we are selected amongst every company that’s out there and why we continue to have high win rates.
That’s great. And one thing that also distinguishes you is your global.
So can you talk a little bit about your global footprint and I think it’s really interesting, because, like, you mentioned the TAM and unlike, hey, you could actually be a lot bigger. When you think about all the different things that could end up being automated worldwide. Could you describe a little bit about like how are the opportunity sets different in North America relative to EMEA relative to APJ and how you think about that?
Yeah. So one is we are a born global company, I just emphasize, like, really Japan is one of the largest countries in our portfolio. That’s uncommon for companies at our area and we have like one-third of our ARR coming from or almost half coming internationally.
One of the areas why that is also a competitive advantage is think about it, if you have a call center in the Philippines, we have that global reach to be able to support and help automate that call center in the Philippines. At the same time, by being able to automate their financial processes in North America. So automation is not a geographically restricted events.
And if you think about BPOs, many of them are customers of ours. You need to be able to go into countries like India and support them well, into Hungary, into Poland, into Romania, like those are great competitive advantages. Processes are not defined by borders. So that gives us global reach to support global processes.
That’s great. In the time that we have got remaining, can you talk a little bit about the longer term financial goals and how we should think about the margin profile, because your gross margins are really high. You are obviously still investing, scaling, but how should we think about that from a longer term perspective?
Yeah. I will start actually more, like, the highest level is we look at ourselves and we are committed to be a rule of 40 plus company. And we have talked about 20% operating margin as our — part of our goal.
When we discussed that back in October of last year, we were targeting about 6% this year. We have subsequently increased that to 13% for the year in our last earnings. We have increased that. We are really pleased with the acceleration of — and the execution of our profitability.
20% is right now where we are targeting and we will continue to update that. We don’t look at hitting a threshold and just stopping necessarily. We are always going to be looking for efficiencies. That said, rule of 40 plus with 20% operating margin is what we are targeting and free cash flow correlating very closely to that.
And when you are thinking about really, really long-term, I mean, you take a look at that TAM, you take a look at your competitive advantages five years, seven years out, not guidance or anything like that, but when you think about, like, what would cause the growth rate of the company to slow down?
Yeah. I — it’s hard for me to fully imagine, that’s why I actually give a big chunk of my life to the company. That being said, I think, that the areas just distraction in terms of automation is a priority.
If automation is a priority for a company, I see the durability of our growth rate, and I believe in the durability of our growth rate. When COVID hit, some — like we were a tailwind for some and there was a headwind for others because it’s a priority discussion, right?
So for me, it’s only the question of where does automation fall and digital transformation fall in prioritization that would slow our growth rate tremendously. Of course, you have a lot or large — a lot of large numbers factor that’s there.
But I see — we continue to believe that with the TAM where it’s at, like you said our gross margin profile, we are executing not to build a company for our commitments in the next year, but we see a lot of upside in the long-term value creation that we can provide.
I mean one other thing that I would imagine would help to drive that growth is if you have one company in an industry that applies you and suddenly has higher margins than the other players because of that and there’s companies that I follow, this exact dynamic occurred. So I won’t name the specific two companies I am thinking of, but one ended up implementing you, their margins went up by 7%, 8%…
… relative to the other company and then the other company is now implementing you to catch up. I would imagine that, that could scale in…
… multiple industries?
We believe in the viral impact and we have a lot of companies that we think are already done on the path. We have a leading insurance provider that they have set a $1 billion goal and we are at — we are a central part of reaching that efficiency goal for them. I think as those stories make it to the market and one of them did and we all of a sudden, you get another person interested, you are exactly right.
And I think we are still in the early innings. I mean, just if you — the way you think about it, how many people raise their hand saying, we are still learning about UiPath. You could take that across the enterprise space that’s out there. So we are in the early innings. And I think as more examples are coming through, that is going to be something we really look forward as that kind of that flywheel — industry flywheel will start spinning.
And one thing that also distinguishes you is you have got $1.8 billion in cash. How should we think about capital allocation?
I think you got, one, you got a management team that is showing that they can lead and execute in terms of efficiency and strong capital allocation. So you don’t have to worry about us burning it first in efficiency.
The second piece is we have optionality and I think the most powerful thing to have in a variable macro environment is optionality. We don’t see ourselves doing large scale acquisitions that create risk for the company. We are responsible in the way we think.
But one is we are highly solvent and therefore, very safe. I think that’s important in a world where you have seen things that are there. The second is, we have the ability to do M&A, especially on a tuck-in basis that we think is opportunistic.
And third is we can — we will consider other forms that are beneficial to ourselves and the shareholders over time, but we have optionality and we will preserve that optionality and make the appropriate decision every quarter is something we talk about, about how to deploy that capital.
That’s terrific. Unfortunately, we have run out of time. So please join me in thanking Ashim for a terrific discussion.
Thank you so much.
Ashim, thank you so much for coming. We really…
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