Q2 2022 UiPath Inc Earnings Call
[music].
Hello, and welcome to the Europe have second quarter 'twenty 'twenty, two earnings conference call and webcast.
At this time, all participants are listen only mode. If anyone should require operator assistance. Please press star zero on your telephone keypad, a question and answer session will follow the formal presentation. We ask you. Please ask one question and then return to the queue. As a reminder, this conference is being recorded its now my pleasure to turn the call over.
Kelsey Turcotte of Investor Relations. Please go ahead.
Good afternoon, and thank you for joining us today to review U Ipass second quarter fiscal 2022 financial results, which we announced in our earnings press release issued after the close of the market today.
On the call with me are Daniel Dina, you Ipass co founder and Chief Executive Officer, and Ashish Gupta, Chief Finance Officer will open with prepared remarks, followed by a Q&A session.
Our earnings press release and financial supplemental are posted on the you Ipass Investor Relations website IR Dot you I passed dot com is.
Materials include reconciliations of non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with U S. GAAP.
Otherwise specified we will refer to non-GAAP metrics on today's call non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with U S. GAAP. They are included as additional clarifying items to aid investors in further understanding the comps.
<unk> second quarter fiscal year 'twenty 'twenty two performance. In addition to the impact of these items and events have on the financial results. In addition, please note that we define a R. R as annualized renewal run rate.
This afternoon's call includes forward looking statements about future events, including statements related to our market and future growth opportunities our planned investments.
Our vision and the benefits of our product platform customer behaviors are customers potential automation spend the ability of our platform to deliver a return on investment to our customers.
And our financial guidance and the assumptions underlying such guidance.
Actual results may differ materially from those expressed in the forward looking statements due to many factors and therefore investors should not place undue reliance on these statements for a discussion of the material risks and uncertainties that could affect our actual results.
Please refer to our earnings release and other reports filed with the SEC.
Forward looking statements made on this call reflect our views as of today, we undertake no obligation to update them before I turn the call over to Daniel I would like to highlight that this webcast is being accompanied by slides, we will post the slides and the copy of our prepared comments to our Investor Relations website.
Finally, we'd like to invite you to attend forward for our annual user conference. We will be holding this event in person in Las Vegas on October four through six to register. Please go to the homepage of our Investor Relations website for further information now I would like to hand, the call over to Daniel Thank.
Thank you Kelsey and thank you to everyone for joining us this afternoon.
The old business continued in our second fiscal quarter increased 60% year over year to $726 five media so easily.
And then you have.
$82.0 million.
We believe we have a long term opportunity to drive durable growth and build a company that will transform how organizations compete employees experienced war and companies interact with their customers.
The opportunity look human.
Human potential is there.
When we add in the very early stages of the market ahead of US. This is why we plan to continue to invest across the business.
We're hiring the best engineers to deliver market leading capabilities across our platform.
We view our sales teams to reach more customers faster investing importantly, make room to help our customers keep on growing our vibrant community be equal system. This has crossed $6.0 million members.
These are just a few of the investments that we expect Florida to widen the competitive moat and sustain our leadership position.
Just a few short years ago, we aim to abuse. Our first set of capabilities built on our unique combination of UA automation API management and AI based computer vision.
The best the needs of the quarter IPA Mark.
Back then our customer want a car one number in the hundreds since then we have evolved those capabilities into one end to end platform, let's cut.
The full lifecycle of automation drives fast time to value and ROI for customers.
The end of the second quarter, our customer base for more than 9100 <unk>.
And the number of our customers who are leveraging our platform to accelerate automation is growing quickly.
We have 1002.
<unk> hundred 47 customers that.
Accounted for at least 100000 EMEA.
Up 59%.
785 in the second quarter of last year.
This includes <unk> hundred 18 customers.
<unk>, plus and that all up 100% from 59.
As these numbers demonstrate not only the significant demand for automation.
But demand for automation that scale.
A great example is handelsbanken one of the largest banks in the Nordics, which chose to work with you Paul is the strategic part of their digitalization journey.
Our entire platform offering and vision.
Was the key factor in their selection.
They have plans to utilize attended robots.
Process mining and Thats mining with the goal of automating at least 75 processes within the next year.
That's mining, which was introduced this past spring is generating a lot of interest from both new prospects and existing customers. It is a great example of our commitment to innovation and how we can help take the friction out of adoption with test mining customer.
Cannot discover.
Come in new automation, so with the help of AI.
And when combined with process mining like Handelsbanken has done.
Automation hub in the discovery pillar of our platform. We expect this will accelerate our customers automation journey and drive adoption across our platform.
Another example of scaling customers Chipotle, which continues to lead digital transformation in retail and deliver on the vision for intelligent restaurants, Chipotle has been the UA powerful formation cloud customer since 2019 and in the second.
Quarter, they added automation hub and additional unattended robots to help manage and support the growing pipeline of automation opportunities. They are also investigating UA, thus mining for automation opportunities in there.
Restaurants.
Not only for Chipotle.
But for most of our customers flexibility of deployment is an important consideration when they are choosing an automation partner.
This is where automation cloud plays a key role in our aim to win strategy at the lowest customers to manage software robots, where theyre needed on premise where in the cloud through a single web portals delivered as a service.
And we continue to make automation cloud even easier to use recently, creating a tool to simplify the process of moving on premises orchestrator to automation cloud.
This has helped customers such as dense with strategic vision is to elevate its employees potential by integrated automation and AI in both internal processes and client facing services.
Automation cloud is growing at an amazing pace from G. In December of 2019 to approximately.
<unk> thousand 850 customers in 2021.
In fact.
More than 45% of our new customers.
Just automation cloud in the quarter many of them deploying in a hybrid environment.
Cause of our ability to support customers across deployment sponsors weekend customer requirements first every time.
With all of this recent innovation, including the spring release of $21, four which has more customers using it we've been Fremont any release in our history. We are constantly pushing to see what we can achieve next.
One of those challenges.
Racing unstructured data, which if we can accomplish it substantially broadens with customers can accomplish with automation and increases our total addressable market right now we leverage AI ml across our platform offering.
More than 25 pre build machine learning models to help customers automate more quickly customers of all sizes and see the value in AI and ml and frequently ask us to deliver new functionality in the platform and.
In the second quarter. This led to the introduction of our new ml to public preview that identifies key elements from text then classifies them to enhance automation in use cases like email processing. It also led to delivery.
Highly requested new feature and document understanding document understanding now since validation test to end users.
<unk> action Center and also enables the auto training of ml models for continuous learning and accuracy improvements overtime. This is where we see the potential for semantic automation.
We believe the market will evolve from what is known rules on instructions base frequently requiring human intervention.
After that follows the process.
Yes.
Emulate few months, achieving cementing automation as we envision it is not going to be easy and it is going to take time, but we have always been at the forefront of automation and we are excited by the challenge.
Our constant innovation results in broad recognition of our market leadership by practitioners thought leaders industry analyst.
Also attract partners to either join our go to market ecosystem will expand the depth of their relationship with us.
Investing in partners to promote their success is fundamental to our strategy.
Our UA buff services network or U S.
Was designed to provide our partners with training certification and marketing programs U S recognizes.
A lyft network of service and delivery partners.
Work with our customers to offer skills on par with our professional services team.
This quarter, both E Y and cognizant successfully completed the rigorous requirements of U S certification.
Before I turn the call over to assume.
I want to quickly highlight automation for good one of the many initiatives that demonstrate how we put our values into action.
We believe in the transformative power of automation to bring out the best in people and the potential of people to bring out the best in our world.
By way of example, automation has the power to help neuro diverse individuals finer retained meaningful employment.
Unemployment rate for autistic individuals is staggering.
Over 80% of individuals unable to find work.
To help address this challenge.
Buffy supporting autonomy works a company that employs people with autism to deliver business services.
You may have seen them on 60 minutes by creating software road was designed to make more growth manageable.
So loss those with autism the opportunity to flourish in highly skilled rules.
War with cutting edge automation software.
We are proud of this partnership which is just one example of the impact of our efforts around the world.
Finally.
We invite you to join our user conference for war for next month in Las Vegas, where you will get to see.
All of our latest innovations firsthand, we're very excited about the upcoming introduction of 'twenty one hour.
Our newest platform release, which will include multi cloud multi platform capabilities that we believe will further expand our addressable market leadership position with that I'll turn the call over to <unk> to discuss our Q2 performance and guidance in more detail.
Dale.
Thank you Daniel and thank you everyone for joining us today.
Before I get started please note that all growth rates are year over year, unless otherwise indicated.
I am pleased with our second quarter results, which yet again delivered meaningful growth at scale driven by our market, leading automation platform that drives fast time to value intangible benefits in fact in an upcoming IDC White papers sponsored by your APAC IDC estimates that the economic benefits driven by you Ipass will grow from $7 billion World.
<unk> in $2021.0 billion to $55 billion in 2025.
Of the three benefit vectors increase revenue decreased expenses and increased quality. They expect to benefit from revenue gains will be larger than expense cuts and job growth from increased revenue to outpace job losses from expense reduction.
We ended the second quarter with <unk> of $731.0 million up 60%.
Net new <unk> was $82.0 million growing 33% driven by increased adoption of our core product portfolio automation cloud as well as new product offerings.
We run the business and evaluate our performance based on IRR.
This quarter's strong results were driven once again by our world class land and expand go to market model.
New logos included the state of New Mexico, The New York Power Authority, and the University of Washington Medicine.
In the second quarter prospect medical started their automation journey with broad platform adoption, including test suite and insights.
Ah Lexisnexis risk solutions company selected you Ipass automation cloud and plans to utilize automation hub as well as task mining among other products to standup a citizen developer program.
The expand side, our second quarter dollar based net retention rate of 144% continues to be best in class as customers expand platform adoption add users and deploy more software robots.
And even with the strong expansion metrics the opportunity for our installed base to grow remains significant as we estimate that we have only captured 3% to 5% of their potential automation spend.
Another way to look at this expansion dynamic as are our lifetime value or LTV and the purchasing frequency of our largest customers.
For those of you who are not on the webcast. We have added two slides to our earnings deck for reference.
First our customers buy annual cohort.
These cohorts demonstrate continual year over year expansion with many of them, making repeat purchases within the first 12 months. This kind of growth comes from our ability to quickly create value and drive meaningful ROI for our customers.
Second our top 25 customers, where we see the momentum driven by automation at scale. This lens on our customer base shows not only the applicability of automation across a diverse set of business verticals, but also the repetitive nature of buying which happens quarter after quarter.
For example, a top 25 customer in the health care industry made their initial purchase to automate a handful of used cases.
Over time, they found additional automation opportunities across insurance services, ultimately setting up a center of excellence to service numerous federated automation teams around the globe.
And while they have tied automation to an enterprise objective of saving more than $1 billion. They've also expanded their adoption by leveraging automation across subsidiaries acquisitions and to drive topline revenue having adopted capabilities across our platform.
And finally, our LTV multiples among our top customers are our expansion has been strong a theme that carries through to our top 25 customer cohort, which has grown to approximately 233 times our initial investment.
If we expand the AOR LTV analysis to include our top 50 customers. They have an LTV of 90 times and what I see as the most illustrative of the potential of our customer base is the LTV for our top 100 customers of 63 times.
All of the customers in the top 100 cohort are included in the 118 customers that account for $1 million plus an IRR.
To ensure that as many of our customers as possible see these kinds of results. We work side by side with our partners, which now number more than 4700 to enable and accelerate adoption.
Partners also expand our global reach and bring us into strategic digital transformation programs are Great example of this is shopify. Our recently acquired you Ipass customer working with one of our Big four partners Shopify selected our automation platform to enable them to deliver an even better experience to their users.
As always we also look at ways to innovate and in the second quarter, we signed a strategic partnership with Deloitte to invest in their smart factory at Wichita State.
Disjoint ecosystem play is focused on creating the factory of the future and integrating industry, leading capabilities like UI path to redefine how factories operate.
This will be a groundbreaking showcase of the benefits of software and physical robot collaboration.
We are committed to investing in our partners and helping them scale their UI pass business.
Now turning to our second quarter I will be discussing results on a non-GAAP basis, unless otherwise noted.
Second quarter revenue increased 40% to $200.0 million compared to $143.0 million in the prior year period.
Looking at our pipeline, which is strong across geographies, we see the opportunity to move customers to deal structures with annual ramping which we expect will lower our overall guest counts.
This structure creates better ROI for our customers long term engagement opportunities for our partners and will yield better overall margins for you on that.
It is also positive for our growth, which is our most important metric, but it can create short term revenue variability due to the timing of license delivery in GAAP revenue recognition.
Durability of our long term growth can be seen in our remaining performance obligations or RPM, which were $528.0 million in the second quarter, an increase of 80% year over year.
Gross profit margin in the quarter was 86% compared to 90% in the prior year period software gross margin of 94% was offset by services gross margin of negative 65%, while we continue to run the services business to be approximately cash flow neutral, we expect the timing of revenue recognition.
As well as investment in customer adoption through partner enablement to create fluctuations in service gross margin over time.
Operating expenses for the second quarter totaled $161 million, we continue to invest in head count across our Salesforce and customer success teams as well as engineering.
GAAP operating loss of $105.0 million included $98.0 million of stock based compensation expense related to our equity program.
Non-GAAP operating income was $13.0 million compared to a loss of $13.0 million in the prior year period.
Adjusted free cash flow in the quarter was negative $8.0 million compared to a positive $29.0 million in the prior period as we continue to invest in the business.
We ended the quarter with $10.0 billion in cash cash equivalents and marketable securities and no debt.
Turning to our financial outlook guidance reflects our confidence in our market leadership differentiated technology and focused execution.
For the third quarter fiscal 2022, we expect <unk> to be in the range of $796 million to $798 million as I have emphasized repeatedly.
Or is the key metric for measuring UI path and it lays a strong foundation for the company as we scale, we expect revenues to be in the range of $207 million to $209 million. As a reminder, given the variability introduced by ASC 606, we do not focus the business on short term revenue growth, which.
Can be lumpy quarter to quarter, and dislocated from <unk> and the long term growth and health of the business.
And we expect non-GAAP operating loss to be in the range of negative 30 to negative $15 million as we continue to invest in the business, while still driving efficient operations for fiscal 2022, we expect <unk> to be in the range of $876 million to $881 million an increase.
<unk> from prior guidance of $850 million to $855 million provide.
Provided on our fiscal first quarter 2022 earnings call.
Before I conclude I'd like to provide a few incremental modeling points.
First we expect sales and marketing spend to increase in the back half of the year. This includes expenses related to our third quarter user conference forward as we start to return to some of our pre COVID-19 marketing activities.
Second our guidance includes an assumption that there will be a return to office when possible. We continue to monitor the impact of the Delta <unk> on our teams worldwide and are actively supporting employees and their families where needed.
And finally, we expect basic share count for the third quarter to be approximately 531 million shares outstanding in summary, the team delivered a strong second quarter, reflecting our market leadership and focus on execution.
Looking ahead, we have a very strong pipeline and we expect to continue our momentum in the second half of the year in.
In the near term we are excited to host our user conference forward four we invite you to come and speak with our executive team customers and partners, which include global Tech sponsors AWS and Microsoft as well as Diamond sponsors Accenture CGI cognizant, Deloitte and Pwc. This.
This significant partner presence underscores their strong support for you on that and the industry's largest dedicated automation event, we hope to see you there.
We will now take questions and I'll turn over the call to the operator, operator, please poll for questions.
Thank you will now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad.
You. Please ask one question and return to the queue. Once again Thats star one to be placed in the question queue, if you'd like to remove your question from the queue. Please press star two one moment. Please pull for questions. Our first question today is coming from Raimo <unk> from Barclays. Your line is now live.
Thank you and congrats from me on a great quarter.
One question on the demand signals, you're seeing you're obviously.
Delivered really well throughout the pandemic, but now that we're coming out what are you seeing in terms of customer appetite to accelerate even further the digital transformation do more around.
Your RP offering a process mining offering etcetera. So so.
How do you see this demand is it going to be stable for you or would you kind of think this could accelerate even further thank you.
Thank you for the question.
We always said that.
Covid was net neutral for us we've seen some more business.
Industry is accelerating where some deceleration in other industries.
Gifting hopefully in the last phase of Covid, we see solid demand in.
For our technology for our cloud.
Seeing quite a solid pipeline for the second part of the year and our extended line of products like process mining and mining are starting to show really good traction with our customers maybe assume you want to add something.
I concur on the like I look at the long term demand signals that we see Daniel talked about the strength of our pipeline, we love our competitive position the awareness in the market around our platform is higher than ever as you can see from a lot of the industry reports that have also come out. So we actually feel very positive about the long term demand coming out of Covid.
Sure.
Thank you. Our next question is coming from Keith Weiss from Morgan Stanley. Your line is now live.
Excellent. Thank you guys for taking the question and congrats on the very nice quarter.
Steve I, just wanted to dig in a little bit on the guidance.
You raised the full year guide by about $26 million in IRR after beating Q2 by $24 million and Q3 is about $20 million ahead of where consensus was so I was just wondering with that setup.
Are you signaling to us like consensus was a little bit too.
A week for Q3 and strong for Q4, and you're trying to readjust it or is there a demand signal in Q4, you are trying to make us aware because implicitly Q4 comes down a little bit in terms of IRR. Thank you.
Keith we can we can follow up with the way that I look at it is I really flowed through the <unk>.
<unk> from third quarter in terms of what we saw is consensus that was through there as we look out.
In terms of just the overall demand signal I would say everything that we talk about is from a macro trends, we still see in line for the year, which is.
<unk> healthy best in class dollar based net retention rate, a really steady execution on new logos.
In terms of the specific guidance really as I look out to third and fourth quarter I continue to guide based on what I see right in front of me and our teams are continuing to execute in terms of driving the demand driving the expansion in the field and I feel like we're set up to continue to execute well in the second half.
Thank you. Our next question is coming from Mark Murphy from Jpmorgan. Your line is now live.
Yes, Thank you very much and I'll add my congrats.
So Ashish you had commented on seeing an opportunity to move customers. I think you said two contracts with annual ramping but I'm not sure if I.
Assimilated that correctly or I heard that correctly could you just walk us through how those contracts are structured and maybe how quickly the mix might change any kind of.
Any way, we might play that through a roll that forward into.
Our revenue forecast.
Yes sure.
When I talk about an annual ramping contract one of the things that is really positive for us is.
Digital transformation is a long term trend and what has happened with the strength of your Ipass platform is automation is a staple for the long term requirements for our customers to transform the way they work and digital transformation. So what that means is instead of buying simple annual contracts, what we see a larger demand for.
Is getting larger term commitments from some of our customers, but the way. They look at that is instead of buying 10000 robots today. They may buy a thousand robots today of 5000 next year 10000 in Europe, III and there's the license deliveries would happen into those years as we go down.
And so one of the things that we look at is that we like that because that has better ROI for our customers.
And when we think about the impact on our financial metrics.
Two things one is remember and I repeat this we really drive our company to <unk> from the <unk> perspective, there is no impact that is there based on based on the way the contracts are structured if license deliveries happens in the out years, then that does have that creates variability in revenue because we only can recognize the red.
Upon delivery of the license.
And so that is kind of a way that I think about it from a modeling perspective, the revenue, but again I stress are really there is no impact and that's how we drive the business.
Thank you. The next question today is coming from Terry Tillman from <unk> Securities. Your line is now live.
Yes, Thanks, Danielle assume and Kelsey for taking my question and congrats on the $1 billion plus deal productivity I really like seeing that my question just relates to all the partner activity Theres been lots of press releases from you and your partners in terms of working together and I think you said you are up to 4700 now.
A two part question in terms of are they more helpful. This emerging partner ecosystem with landing customers or more of the strategic expansion and where are you with the productivity curve of these partners. Thank you.
We have a very broad with the growing our partner network, we've been able to grow to more than 4700 partners up from $4400 last quarter and the partner network is quite.
A big focus.
A central piece of our growing strategy.
All four bringing.
Bringing new logos, but also quite a bit in expanding into our existing customers.
And then just to add on is in terms of the productivity curve, we see a lot of customers investing so that is why you see a lot of the U S than press releases that we have out there Ian why Pwc cognizant. These just underscore the commitment.
Of our customer of our partners to come up the productivity curve at the same time relative to the importance of this is going to play for our customers. We look at this as a tremendous opportunity that we will continue to invest in and we invest in that directly with our partners as well as with our organizations to help enable our partners come up the curve and ensure the right.
Service quality to our customers, who are really counting on this to meet their ROI needs.
Thank you next question today is coming from Kirk <unk> from Evercore ISI. Your line is now live.
Hi, yes, thanks, very much and congrats on the strong air numbers Dave.
Daniel can you just talk about actually it follows up on Terry's question around partners, but are the partners getting trained up on the full portfolio I guess are they starting just with sort of the more basic automation and then moving into process mining. It would seem to me that you are having your partners fully equipped understanding process mining the cloud automation technologies.
Youll could help accelerate customer adoption of that I guess, how influential are there in terms of customers taking on the whole platform versus maybe just the.
Starting automation points. Thanks.
Yes, great question.
Looking always to today, our partners and the full array of components of our platform and.
Especially we are seeing.
The growth into us and the mining technology was.
Catching up quite well with our customers and we aim to may.
All of them.
Capable of.
We were in.
Boost to the entire network of customers.
I believe that understanding the entire plus four as a whole.
It's a central to how we want to scale our big customers. This is why we basically invested in all the dealer.
Delivering automation you cannot just.
If you start with the core with traditionally was used to be called RFP that is just a certain number.
You can.
And to really.
Automated most of the menu repetitive tasks, but bringing all the pieces together.
With the increases.
Rusty.
<unk> spread adoption within our enterprise customer.
Okay.
Thank you. Our next question is coming from Michael carrier from Wells Fargo Securities. Your line is that right.
Hey, there good afternoon, thanks for taking the questions I appreciate it.
Certainly appreciate it and it is clear the focus on IRR given the moving pieces I wanted to hopefully just focus in on the net new number there as well our growth has been pretty consistent at 60% that net new number has bounced around a bit more of the past few quarters. Just wondering if there's anything you can add to help us smooth those trends.
Maybe if there's any impact on the uptick in automation cloud is having there or anywhere else in the model would be would be helpful. As well. Thank you.
Yes look.
I look at our incremental air our debt numbers, the net new the IRR that we've been posted we're very pleased with it.
It reflects the investment in reflects both a strong dollar maintenance impacted the strong dollar based net retention rate as well as the steady execution of new logos, we continue to invest in our salesforce. So as we continue to bring up.
Our our sales team and ramp up additional reps, which we've been doing.
Feel very good about the overall trajectory to fulfill.
The pipeline that we have in front of us, which is growing and is very strong.
In terms of automation cloud.
Look at cloud overall and.
And I think I think.
Remember that the majority of what we do is in hybrid meaning there Ryan so from a from a revenue standpoint from a demand standpoint, while it's a differentiator to win the deal it doesn't really impact the difference in IRR right. It's more of an impact on revenue and then when you think about just the cloud metrics automation cloud has grown to approximately 2800.
50 customers since its launching in December 2019.
Overall, the feedback from our customers is great. They love the investment in our Roadmaps. So they have choice.
They have different deployment options, which is a real strength and competitive differentiator for for us as a company and it's instrumental as we continue to win deals and we continue to gain traction in the market.
Okay.
Thank you. Your next question today is coming from city product Rajeev from Mizuho. Your line is that right.
Thanks for taking my question I just wanted to ask about the adoption of this attended versus Unentered tendered Budd.
What sort of trends are you seeing and is there the mix vary between new deals versus extend some deals.
Okay.
We didn't see any major change in the adoption of attendees versus Unoffending. This quarter, we're roughly seeing the businesses adopting both issues.
The strength of our platform. We are the only platform that can provide best in class.
And they've done attended robots and we have continued to invest in this room for instance, I am very proud in this fall we are gone.
Is.
Attended robots for mix.
Fort Mac users. So we are effectively expanding our total addressable market to from the people that are using windows machines in the office to basically people that are using mix and in the future. We will go to all sorts of devices. So we continue to really look to women.
External where lithium via attended space well.
Clear for everyone here in the other than this space, we've been the clear leader for a long time.
And the city just one thing.
I think it is important to emphasize when you look at the use cases as you think about driving durable growth.
Use cases like the contact center.
That sometimes we put attended with simplicity.
Really you need a robust attended offering to solve the complexities and drive meaningful rois for our customers that is there and that's important not just for the land, but also for the extend as people go and take advantage of more use cases, the need for both technologies working in concert is more important than ever for our customers.
Thank you next question today is coming from Scott Berg from Needham. Your line is now live.
Hi, everyone. Congrats on a good quarter and thanks for taking my questions I guess I have one because it's come up I think in every investor conversation I've had on you guys. This quarter.
How should we think about the progression of the deployment model moving from Europe.
Term model to a cloud model over time, you guys. Obviously highlighted some recent successes there, but its probably the number one question I guess considering most of the companies. We all cover here do you have a predominantly SaaS based distribution. Thank you.
So when you when you think about it.
We've always talked about.
Shifting which we've factored into a lot of the discussions we've had at the IPO time of around 20% moving into the cloud. So a lot of that is already baked into how we think about the future.
On that trajectory I think what we see is the demand for different cloud components is there. So when I think 2850 customers are using automation cloud that doesn't necessarily mean that doesn't mean, there on a full SaaS offering that means theyre on a hybrid deployment offering which uses some components that are in the cloud and some that has some that.
As on Prem and that is not forced that is not forced by you Ipass, we actually respect our customers' choices because they have certain infrastructure requirements certain security requirements their own journey to the cloud that we want to be able to support rather than forcing them into our mechanism.
Feedback and the other point on the cloud is our execution has been really world class. When you look at what our product and engineering team has done.
Ted congratulate our shed the feedback from the customers has been extraordinary customers like Chipotle acuity, which is Lexisnexis service company, they're starting their journey with the cloud right and so we like the mix that we're seeing is in line with what we've talked about historically and so far I'd say, we're going to continue to execute.
That trend there is no major deviations that are worth highlighting.
Yes.
Thank you. Our next question is coming from Matt Hedberg from RBC capital markets. Your line is now live.
Great. Thanks for taking my question guys.
I wanted to ask about studio X I know its still little early.
But can you talk about how perhaps thats influencing expansion.
And what it really means for from a seat count perspective to be able to expand the opportunity with that with that offering.
It was for us.
Perhaps the most successful product launch after our core ERP technology.
Effectively allowed us to.
Hello into the citizen developer month Mark.
Extend quite a bit.
People able to deliver or to.
To deliver automation among the top of our platform.
No we continue to invest in <unk> as a major tool to foster.
Our community of citizen developers.
The gun.
Extended also to be available.
Multiple of four so you will expect quite a bit of investment from us.
In the coming few quarters.
Right now we are doing.
A major advance into multi cloud multi plus four and we are launching removes based on robust we just announced yesterday. The public review available. We are launching mix support we have done the launch early next year with base to do it.
That will make it.
These year to adopt but overall, we really believe that it's important to have a suite of tools.
<unk>.
Chapter two.
A large portfolio of options from professional developers to citizen developers to all business users.
Okay.
Thank you. Our next question is coming from Bryan Bergin from Cowen. Your line is now live.
Hey, good afternoon. Thank you I had a follow up question on incremental layer off from new logos can you just comment on the drivers there and how we should be thinking about incremental IRR from new logos within that 2022 outlook. Perhaps can you comment on average deal size might be seen in the pipeline as well.
Yeah. Thanks for the question Brian.
Average deal size to us has been relatively constant.
As customers tend to land in similar ways.
As we speak even though they may land at different portions of our platform. So we've always talked about that average land size somewhere between $25015 somewhere in there.
In terms of the factors that are driving new logos. One is the macro factors, we see more and more awareness that is there and at the same time customers who are not familiar with automation still are looking for education.
Do think that where we are continuing to be in the early stages of this market. So the long term trend and pipeline, we feel really bullish about.
In terms of just execution internally our team has done a great job with it with the investment that we've made in an inside sales team.
In the Americas as well as in Europe that is driving really good execution and really great unit cost economics in terms of the customer acquisition cost and that for US is that's for US is something that is very positive that we're going to continue to invest in those areas as they are generating the return that we expected and continuing to drive the momentum there.
Thank you. Our next question today is coming from Michael <unk> from Keybanc. Your line is now live.
Hey, Gary This is Steve Enders on for Michael I, just wanted to ask a little bit around the competitive environment there.
Being out there seems like there's been a lot of.
A lot of M&A in the space and people moving into adjacent to it.
Recent areas of the automation software market.
Have you seen any kind of change in the landscape.
In the past quarter in the past year or so.
Hello. This is a big mark good drilling we believe.
Automation is a central piece of the digital transformation. So obviously all major players in the cloud and the.
Business application.
Our space.
The I think the most important movement in this market was.
Done by Salesforce that's required.
The small German company and it plays out we kind of expected this and I think.
It made sense for Salesforce and what is quite limited.
This small LP income too.
Due to the mill so suite of products. So salesforce is seeing a consolidation between.
Low code no code integration and automation and this is exactly what we.
I have told the market for a long time, when we have expanded into these areas for a long time.
Yes.
David It is in the fall you should expect really a smooth integration of our global development organization. This was done in the beginning of this year. So we will make.
A very well oiled machine or own automation with local multiple that we have introduced or Europe.
Something Gogo now, where we're really combining UA automation of EMEA AP automation.
Very good integrated package.
I'll leave that our angle towards this consolidated.
Platform.
Is.
Our Angola comes from emulating people.
Is really the one that is the winning angle.
All of this more <unk> made me think that's still the big software players.
Understand how difficult is to build emulation software.
This is our bread and butter, we have build it for a long time and starting from this angle.
It gives us tremendous opportunity.
Our lift to the entire consolidated.
<unk> automation space.
Okay.
Thank you. Your next question is coming from Fred <unk> from Macquarie. Your line is now live.
Okay. Thank you and a question for Ashish.
No.
<unk> is clearly your metrics of momentum here and I wanted to ask also about the mapping duration.
As that flows through the rest of your model because it is I'm looking at this.
It really it looks like we're seeing less multi year upfront deals certainly to your point that you are shifting more towards annual deals across the board.
And between that and potentially fewer multi year annual deals based on what I'm looking at here it looks like Thats, having a number of impacts across your model and revenue as well as potentially in deferred revenue that you have on your balance sheet. So.
Jim If you could could you essentially walk us through some of those impacts and then to the extent that you can provide a bit of color on some of the duration mix shifts that we're seeing here in this model. Thank you.
Sure. So first thing to note is remember you can look at duration in two ways, there's billing duration and there is contract duration billing duration means typically prepaid deals that we have there and contract duration just means the duration of the contract regardless of payments. The majority of our deals are one year and we are.
We continue to emphasize that.
As you said with the emphasis on IRR that being said our contract duration is steady.
When you adjust for some of the large.
Some unusuals that are there year over year contract duration, you do see towards a trend for us that is that is that as shorter as we put more emphasis on IRR versus history billings duration is down and that is because we've deemphasize prepay deals given our cash position and our gross retention rate. So when you.
<unk> retention rate is 98%.
We don't feel kind of compelled to trade any type of discount for long for getting the cash in the door right today, we're able to make.
Better and better economic decisions from the position of strength.
<unk> said this is all going to fluctuate based on the mix of deals and I talked about it earlier, there is an opportunity to move customers to deal structures with annual ramping which does provide lower overall discount levels, it's better ROI for our customers as well as they can really lock in to their automation needs that they have today.
And provides more predictability for themselves as well as their engagement opportunities for for our partners.
That shift is positive for AOR growth, but like I had mentioned earlier to an earlier question.
It can create short term variability and if theres any confusion on ramp remember what I mean is.
You can buy robot as 100 per year for a three year deal or you can buy robust with 100.200 300 in a deal and then the licenses for that additional 100 per year get gets delivered in subsequent years.
Is why there is why why that creates variability in terms of revenue recognition. So I know that it's not that simple suggests but happy to address that further in five months.
Thank you. The next question today is coming from DJ Hynes from Canaccord. Your line is now live.
Hey, Thanks, guys and I'll add Mike.
Congrats on the quarter.
So you guys have talked a lot with us about the synergies between RTA and AI and ml I'm just curious like how do you explain this to prospective customers and how influential would you say it is in deal cycles today on I'm trying to get a sense for where we are in terms of packet tactical deployments versus maybe more strategic adoption if that makes sense.
Having introduced recently an overarching goal.
Paul Cementing automation and this is.
An umbrella.
The flying.
We are gone.
<unk> the next phase of automation that is becoming low.
All.
Human workforce.
Joe.
In the early.
<unk> of RPT.
We were after more.
Betsy to completely rule based staff and our robust never really understood.
Sure.
They were doing there.
Next please.
To bring a lot more knowledge about them.
<unk>.
But with the data that these processes are moving from one application.
The other.
So this is.
Our net euro.
We will show that.
Matt is the world.
Automation with the world.
Hey, Keith essential into.
Reducing the gap between how robots operate and how people operate and we are making huge investments. We are making each you should expect from us each quarter from loan incremental progress toward with overarching lesions for instance, this.
Relief with major news.
In October.
We'll see the introduction of technology called for AI.
It is capable of creating nice user interface for basically all the data so it's making creating for our customers easier, it's creating beautiful four of the wells interaction between humans and robots and we will.
Incrementally more and more of this feature.
Really commend a lot of events.
Weeks.
Thank you. Your next question today is coming from Brad Sills from Bank of America Securities. Your line is now lives.
Oh, Great Hey, guys. Thanks for taking my question.
Just one on the expansion activity real healthy here holding in at that 144 net retention level.
Wondering what is what does it take for a customer to kind of maybe crossed that threshold is there a tipping point, where you see.
Multiple departments certain number of robots when you start to really see that acceleration of expansion into some of those metrics you provided for top 25 top 50 top 100.
And then how could the task minor help.
Potentially accelerate that trend. Thank you so much.
Well our strategy was always to have customers accelerating their automation, we've the full platform.
This is really the best way to weekly achieved meaningful return on investment our customers typically start with a handful of used cases for approval with the returns and expand when they realize the potential.
Accelerating automation and ensuring customer success is truly a combination of technology and partners.
Our technology provides a full fledged automation plug for that as really instrumental into the large scale adoptions and clearly increasing the net retention rate while our partners are instrumental in too.
Making this adoption happening at speed and I'm sure issue has more to add in those of practical numbers. So when you look at our dollar based net retention or Youre right, Brad who were very pleased with 144% and we're very pleased with the with the percentages of customers greater than 100000, which is in <unk>.
<unk> <unk> 1247, which is up 50% in million dollar plus customers growing 100% plus about 118 right now.
When you ask about what's the tipping point I would say Theres a couple of things one is definitely inter departmental.
Buying that's a huge opportunity for us that we continue to see.
Customers take advantage of in terms of the dollar based the reason why we really track that $100000 Mark that really is what we start thinking about his escape velocity, where it shows that automation is a hugely strategic part of our customers' digital transformation journey, it has meaningful presence and invest.
And then in by our customers and we are very happy to see it which drives the LTV that I talked about earlier, that's really that escaped velocity that gets you to that 62 X for the top 100 in terms of expansion versus its original El <unk> 90 times for our top 280 <unk>.
Three times for our top 25, so that's how I think about the tipping point, primarily use case expansion and department expansion.
Thank you our final question today is coming from Steve Kenny.
SMB CLEC Nicole your line is now live.
Hi, gentlemen, hey, thanks for squeezing me in I'll, just ask a two parter here.
First one just to put a little bit of a finer point on an earlier question.
From new logos and I was wondering maybe just some color on.
On the increment from new logos versus net retention and are you seeing that new logo contribution turnaround from last year I think it was down a little bit in the pandemic and then just secondly on the product roadmap.
Trusted Daniel any color from you as we're seeing voice UI and chatbot proliferate kind of what are the.
Opportunities for RPI here and the integration possibilities building on what you have today, thanks very much.
So I'll start with the first part so in terms of new logos.
We see roughly.
A greater than 500, new logos that they get added every quarter, we've been seeing that trend.
And we feel very good about it for some of the questions discussed earlier, roughly I would say $17 million of our incremental IRR comes from that new logo.
New logo.
The new logo.
Acquisition and then one thing that's important is our gross retention rate is 98%, so having a robust new logo.
Without so to speak a leaky leaky part is really supports why you see such robust growth numbers and that speaks to the strength of our.
Our position in the importance of automation in the market and why we feel so strongly about durable growth I'll pass it over to Daniel for the second part of the question.
I would like to make a case here, but with this.
We released this fall we are.
Clear.
<unk>, our market, leading Wilkes robots will deliver.
Faster more flexible more efficient backend automation, while extending on the.
Meg computers will allow us to.
We present, our offering to large number of make users but are among our customers that was one of the most requested feature for us.
I'm, saying this to us is.
It's very important to public technology in the hands of <unk>.
Many customers as possible.
And you mentioned, if I heard correctly of all with voice AI.
Conversational AI is going to be a clear path.
Amy.
Big.
Automation platform to us we regard it as the subspecies of low code more obligations enrollment and we.
It's good it's something that we are relying on our roadmap.
Thank you we've reached end of our question and answer session I'd like to turn the floor back over to Daniel for any further or closing comments.
I want to thank you all very much for participating in this afternoons call I also want to thank the UA pumps team for their hard work our partners for their dedication to our customers and our shareholders for your ongoing support.
We look forward to speaking with many of you for all of the quarter. Thank you.
Yeah.
Thank you that does conclude today's teleconference. Webinar you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.