Q3 2021 UiPath Inc Earnings Call
Greetings.
Go to the UI Paas third quarter 2022 earnings conference call.
At this time all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
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Please note this conference is being recorded.
I will now turn the conference over to your host Kelsey Turcotte S V. P of Investor Relations. Thank you you may begin.
Good afternoon, and thank you for joining us today to review U Ipass third quarter fiscal 2022 financial results, which we announced in our earnings press release issued after the close of the market today.
With me are Daniel D. That's you Ipass co founder and Chief Executive Officer, and ashamed gripped, our Chief Financial Officer. They will open with prepared remarks, followed by a Q&A session. Our earnings press release and financial supplement all are posted on the new Ipass Investor Relations website, IR got you I Paas Dot com. These materials include reconciliations of non-GAAP.
Measures to the most directly comparable financial measures calculated in accordance with U S. GAAP, we will be discussing 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 investor.
And further understanding the company's third quarter fiscal year 2022 performance. In addition to the impact these items and events had on the financial results.
Afternoon's call includes forward looking statements about future events, including statements regarding our financial guidance for the fourth fiscal quarter and fiscal year end 2022, our expectations regarding seasonality, our strategic plans or objectives. The estimated addressable market opportunity, if our platform and our position in the market future growth opportunities for success.
Form a new platform releases the success of our investments in partnerships. The success of our collaborations with third parties the ability of our platform to deliver our customers a return on investment and our customers behaviors and potential automation spend actual results may differ materially from those expressed in the forward looking statements due to many factors and therefore investors.
You 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 the 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 Danielle I would like to highlight that this webcast is being accompanied.
My slides, we will post the slides and a copy of our prepared remarks to our Investor Relations website immediately following the conclusion of this call.
Now I would like to hand, the call over to Daniel.
Thank you Kelsey and good afternoon, everyone.
We continue to have very good momentum in our third quarter.
It's a R R increased 58% year over year to <unk>.
818 million driven by net new Oh 92 million.
Our continued growth is fueled by our market leading end to end automation platform.
<unk> fundamentally changes how employees expedience ward and businesses interact with customers and partners.
I continue to hear from customers that you wipe off automation pillar four is one of the most important technologies in their digital transformation Road map.
Operational efficiency is generating revenue.
Creating significant competitive advantages as far as the puts it in their predictions.
2022 automation of report automation is emerging always loved the buckle system become a potent T neighborhood of new business and operating models.
He is well advanced automation programs will obliterate not nearly beat the competition.
Autonation also presents a truly strategic solution for the kind of challenges presented by secular trends like the global labor shortage and supply chain constraints.
For example.
Hi, No bank one of the top three banks in South Korea.
Had the twingo of reducing meals tasks done by employees and preparing for future labor shortages.
They started by automating task, which yielded not only cost reduction, but more efficient HR management, then move to cross Bang Mega processes.
So recently.
The fourth phase of deployment.
Liam how not burn as the play doh, so many shouldn't 80 processes and estimate saving of around one 1.5 million hours per year.
No.
Turning to the quarter I am pleased with our results, which reflect our constant focus on customer success.
At the end of the third quarter.
It had more than 9630 customers, including new logos like checking.
Doctor at car Colgate University Loblaw companies I spun medical.
On the expansion side, we now have.
<unk> thousand 363 customers that accounted for the police.
100000 them in a our oh, 52% from 899 in the prior year.
This includes 135 customers.
$1 million plus in Oh, 82% from 74 in the prior year.
The so the Ministry of Tourism is a great expansion story, which highlights how relevant automation is a cross worthy cause.
They begin their smart automation in 2022 expedite integration and reporting on their enterprise systems platforms.
In less than one year using both the thing.
Other than the robot.
They reduce the time needed to collect process and analyze data by 95% from 30 minutes, but record 240 seconds Y and R. G and energy provider in the U S and Canada drives home.
Our competitive positioning.
And not a G has deployed over 100 automation and achieved millions in annual savings, having expanded across finance HR I deep customer operations and their contact center.
So you recently acquired direct energy and not in the process of migrating director and as juice automation program from a competitor to you ipass, increasing their automation collyn by 50% in a matter of months.
The more stories like these are inspiring and it was great to guard the approximately 2000 automation practitioners, that's four wall for our forest imports the user conference in two years.
For what strengthened relationships resulted in new business as well as pipeline expansion. It was clear from the introduction on our show floor and attendance in breakout sessions led by practitioners, including Amazon Chevron's Spotify.
Palo Alto networks that custom was and foods, yes.
The power of automation and our newest platform release.
2021, those thin again expands our U y API and AI capabilities and extend our competitive mode. With the addition of more than 100 features and enhancements across every stage of the automation of lifecycle.
Updates to our new platform capabilities like 'twenty. One those that are first released in the cloud that gives our cloud customers the benefits of our continuous dual week release cadence and us a continuous feedback.
Hi, good which results in high quality semi annual releases to our entire customer base.
We have great excitement around our cloud offerings, particularly with the release of 'twenty, one, but then over half of our new customers chose club as part of their first sports just in the third quarter and we now have more than three five.
250 cloud customers.
The old group well leave the room.
Logistics transport and supply chain in Australia is a great customer success story.
We are leveraging our automation cloud for both attended and unattended robots as well as document understanding a center and that suite.
To date.
The rapidly growing automation program has freed up 170000 hours and they are on track for savings of 1.6.
Really endorse annually.
Who continue to offer our customers adoption Optionality, we launch automation suite with 21 Doctor.
Automation suite enables our customers to leverage the power of the <unk>.
We'll do a paas platform with the benefit of our cloud native architecture. However, they choose.
Graham public cloud or a third party hosted with the single installed on Linux.
21 thought then also included the introduction of Linux base.
Software robots, a capability that is required to be a truly cloud native company. These.
Allows our customers to achieve scalability and auto scalability in a cost effective manner.
Our focus on innovation continues to strengthen our lead in the automation market and has.
Also won us recognition.
Some of the foremost industry analyst in our space first.
We are very pleased to have been named.
As a leader in the inaugural I D C markets scape worldwide robotic process automation software.
2021 2022 vendor assessment.
But decisions you a paas as.
As the leader for overall technical capabilities and the strong capitalization structure for extending our end to end automation platform.
And we were named.
Robotic process automation leader and star performer in the technology vendor landscape for the fifth consecutive year. According to Everest group's robotic process automation product.
Matrix assessment 2021.
We emerged as.
The only star performer, we use also the leader in this year's assessment, which analyzes the changing dynamics.
B R. P. A landscape and assesses twentyish three service providers across several key dimensions acknowledgements like these are important for our customers and our U a buff equal system, which continues to grow meaningfully.
In fact last month, we announced an offloading that the neighbors, our partners community contributors and independent automation vendors, who distribute and monetize their content to our more than 100000 existing <unk>.
Marketplace users.
We are also making meaningful strategic investments in go to market partnerships.
Where do we work together to drive customer success, the number of our partners is increasing.
Now I have more of that.
The Nighthawk and old relationships are deepening. This increased focus is driving rules, particularly with global systems integrators, where we are working to become one of the top practices in these influential and global organizations.
We recently expanded our strategic collaboration with Accenture to help drive the adoption of enterprise wide automation among clients accelerate their technology transformation airports and creating new growth opportunities.
As the executive said recently that school board. It is a ball with how we can apply technology and <unk>.
Innovation to serve our customers.
Partnering with you wipe off exchange or enable us to tap into the power of both U I puffs intelligent automation platform and excel.
Accenture business and digital transformation expertise.
This borrower Fu combination has help onboard the ship unparalleled results in its digital transformation journey.
We enhanced internal operations productivity quality performance and user experience.
In addition, we announced that our end to end automation plus four is being incorporated into pwc poor for there.
Proprietary operational improvement methodology and management system.
By embedding our platform Pwc can harness the power and scope of UA buff automation product to expedite time to value for customers engage in a rapidly advancing digital transformation initiatives.
Customers like Mercy assemblies based health care system also benefit from the expertise of our vertical partner specialists like I'm a tech.
I'm scared data analytics, some automation consulting for and you wipe off diamond partner.
More she started the automation journey in finance and continues to scale on our platform, adding test mining and that suite this quarter.
Right steadily deploy more automation.
To date, they have hundreds of automation is deployed across 84 use cases with an estimated total benefit of tens of millions of dollars and additional time for nurses and doctors to provide better outcomes for their patients.
This is our vision to automate mundane task to allow employees to make a meaningful difference.
All of this is about driving customer success, which includes technical integrations that make it easier to deploy automation and.
This quarter, we made several strategic announcements with major technology providers.
We partner with.
With crowd strike.
To provide customers, a new level of security and visibility by extending endpoint security it wont be a slip there could always strike Falcon platform.
This is a first of its kind in the industry.
We integrated you wipe off insights, we've snowflake to provide customers with faster data processing.
And analytic capabilities to scale their automation programs.
We expanded our strategic relationship with Alta recast to include new integrations, making it easier to invoke UA basketball in the Alta X workflow.
Finally, we partner with click to enable click cloud analytics users to leverage UA, Pos automation to drive action and prioritize tasks in downstream applications.
Connectors like this make automation that combine a P. I integrations for high volume transactions with our comprehensive UI computer vision easy to build they'll leave work Gulf War and manage.
<unk>.
Comprehensive automation program.
Why it was a.
The combination of emulation, particularly for the long tail of manual processes and AEP I integration for high volume transactions, both of which are.
Phone dacian onto our platform.
In summary.
We had a strong Q3, and we continue to drive growth with scale.
The market is very healthy and we see considerable demand for our automation platform I feel very good about what we have been able to accomplish across the business since our IPO and we remain focused on innovation and our customers, which we believe is.
Key to our ongoing success.
With that she will take over to talk in more detail about our third quarter results and our fourth quarter guidance.
Thank you Daniel and thank you everyone for joining us today as Daniel said, we are very pleased with our third quarter as we again delivered meaningful growth at scale, we had strong adoption across our platform, including our core product portfolio in automation cloud as well as new product offerings and added great new customers like Prudential or Mezz break.
Beverage group and Moshe what dads and sprout mortgage we also help the E. P. A start there are P. A journey in their office or their technology solutions.
At the same time, we continue to drive market, leading expansion rates across our customer base. For example is bank the largest private bank in Turkey has successfully automated nearly 400 processes across 42 departments. In two years. This has translated to 15 million transactions handled with savings of 600000 at work.
Hours annually.
They are also deploying your lightpath process mining and AI technologies with chat bots.
We are also working with companies like Shaker holdings, and canon, which have successfully implemented our P E and our expanding use cases to enable greater automation across their organizations.
Rather than guiding into the P&L I'm going to change things up a little bit first I'm going to focus on the relationship between <unk> and revenue.
Then I'll give you some color around Q3 and provide guidance then we will take questions.
Fiscal third quarter revenue grew 50% to $228 million.
Selecting the strength in the business, we closed the third quarter with air are on $818 $4 million up 58% year over year.
Not new AOR was $91 $9 million up 42%.
We had a highly recurring subscription business driven by a true land and expand model with customers deploying more robots adopting more platform products and expanding use cases as they realize the considerable value of automation.
We run the business and evaluate our performance based on air or in our case are ours defined as annualized renewal run rate, which is annualized invoice amounts per solution SKU from subscription license and maintenance obligations, assuming no increases or reductions in their subscriptions.
In other words are our invoice based and we calculated by taking the invoiced amount divided by the subscription term multiplied by 365.
We have a structured process in place to calculate and report are are because it is invoice base. We believe that it is the most accurate and reliable measure of our true business activity.
It most closely aligns to long term cash flow and that's the lines to renewals.
And given our strong dollar based gross retention rate, which was 98% in the third quarter air or is most reflective of customer commitment regardless of deployment model.
Revenue recognition on the other hand is based on total contract value or T. C. D. Under ASC 606, accounting and unlike a R. R is impacted by contract duration deployment model and license delivery, which makes revenue highly variable quarter to quarter.
Before I move on a quick reminder, under ASC 606 license revenue was recognized at the point in time when the customer has access to the license key which while generally occurs in the first quarter of the contract can vary.
Subscription services revenue is recognized ratably over the duration of the contract upon license deliberate.
These next slides do a good job showing the impact of the ASC 606 has on revenue. The reasons why we believe <unk> is the best way to drive and measure the business and how both these metrics ultimately are connected.
First example is a one year on Prem deal. It takes the impact of duration out of the revenue equation and reinforces that trailing 12 month revenue equals era, which is also what we invoiced in that period.
The next example shows the impact of multiyear contracts and revenue in this three year on Prem deal with a $6 million T. C. D license revenue recognition is frontloaded in the first year, which sets up a decline in revenue between year, one and year, two and no growth between year, two and year three in <unk>.
Contrast, air or is constant for the duration of the contract.
While we arent going to focus on trailing 12 month revenue as a metric going forward. This slide does reinforce my point remember annualized renewal run rate is a cumulative metric compared to revenue, which is a point in time, while there is no perfect way to bridge. The two looking at trailing 12 month revenue over a multi year.
Period does help normalize some of the difference.
In fact over the last eight quarters, the CAGR of 62% for <unk> and 65% for trailing 12 month revenue underscores this correlation over time.
To quickly summarize before I move on we don't manage the business to quarterly revenue growth because of the mechanics of ASC 606, we manage the business on air or is it more accurately reflects customer commitment period over period, which lays the right Foundation for the company.
Before I close I want to make a few comments on third quarter results and provide fourth quarter guidance I will be discussing results on a non-GAAP basis, unless otherwise noted.
Remaining performance obligations increased 80% to $579 $5 million total gross margin of 85% and software gross margin of 93% reflect investments in our services and product support teams as well as increased cloud hosting costs.
Third quarter operating expenses of $179 million increased 24%, including ongoing investment across the business and expenses related to our user conference held in October.
Heading into the fourth quarter guidance assume there will be some back to the office as we continue to monitor the impact of Covid.
GAAP operating loss of $116 million, including $95 million of stock based compensation expense related to our equity program non-GAAP operating income was $9 $1 million.
Adjusted free cash flow was negative $7 $7 million.
Our subscription model drives considerable cash flow, while we expect to run the business to roughly cash flow neutral. This year, we will continue to invest across the business, including R&D talent sales and customer related activities.
We also plan to make strategic investments with partners to drive further customer acceleration and success.
This market is big and early stage and given the opportunity in front of US we plan to continue to lean in to drive growth.
We ended the third quarter with $1.9 billion in cash cash equivalents and marketable securities and no debt.
Turning to guidance for the fourth quarter of fiscal 2022, we expect <unk> to be in the range of $901 million to $903 million, an increase from prior guidance of $876 million to $881 million, we expect revenue to be in the range of $281 million to $283 million.
And we expect non-GAAP operating income to be in the range of $10 million to $20 million.
We expect to be profitable in the largest revenue quarter of the year, while continuing to invest meaningfully in the business.
We expect basic share count for the fourth quarter to be approximately 537 million shares outstanding.
Finally, we will guide to fiscal year 2023, when we announce our fourth quarter results, but I want to highlight that we expect fourth quarter to first quarter seasonality to emerge in the business in both net new air R and revenue results.
In summary, we are pleased with our third quarter results as the team's ongoing execution continues to drive meaningful growth at scale.
The opportunity in front of US is enormous we have a strong pipeline and we feel very good heading into the end of our first fiscal year as a public company.
We are building a truly multi generational company that will change how people experience work. This is what excites us and motivates the team every day.
It also keeps our focus on the long term value creation for our employees customers partners and stockholders.
We hope you your family and friends had a healthy and happy holiday season, we will now take questions and I will turn the call over to the operator operator, please poll for questions.
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Our first question comes from the line of Keith Weiss with Morgan Stanley. Please proceed with your question.
Excellent. Thank you guys for taking the question and very nice quarter.
One question for Ashish and maybe I get clarification question and one broader picture question for Daniel.
Thank you so much for taking us through that a rationalization I thought that slide was a really great. It really eliminates kind of it's on sort of why a ars the right metric to look at when we're thinking about net new Air addition, this quarter a year ago. I believe you had some pull forward. So you had some really strong growth against a tough comp because.
He had pull forward from Q4 into Q3 was there any one time items or any pull forwards of arrow into this quarter that we should be aware of or is this quarter pretty clean and then on the revenue side of the equation a good explanation of how sort of contract durations and the like and the types of contracts impact revenues any particular impacts in terms of changing.
Contract durations are billing durations that occurred this quarter that night of change like in on the revenue or the billings that we should be aware of yeah, Hey, Keith great great to hear from you and I Hope all is well and just in terms of the first question. No. There was no significant item you know that that was a pull forward in any which way or.
That.
It can be considered from other quarters. So it's a very clean quarter on the ear are front and in particular and then in terms of the question around duration of billings duration will continue to contract for us and we've talked about this multiple times in terms of just our focus now with the cash in the bank that we are going to prioritize more one year.
Deals and reduce our dependency on multiyear prepaid deals from a cash flow standpoint that trend continued in the quarter and it's just gradual every single quarter and were happy actually and very deliberate in that and any intention on it with regard to contract duration. There was nothing significant that I would say is to be called out for this.
Quarter I'm in particular duration as a whole is going to be volatile because the way that we drive the business to air our allows for customer choice to drive end customer economics to drive the decision on contract duration versus our internal teams pushing it so duration moves with every single quarter and there was no one or two.
Two deals in particular, you see just kind of a relatively normal quarter on with the mix of deals falling the way customers have driven it.
Thank you.
Our next question comes from the line of Phil Winslow with Credit Suisse. Please proceed with your question.
Yeah. Thanks for taking my question and congrats on a strong quarter and the outlook.
Question for you Daniel that quick question follow up Erechim, Daniel I mean, obviously, we've tried to your company for almost four years now and one of the things that really jumped out at US is have you expanded your platform you know what you call the tapestry.
Obviously, we've seen a lot of consolidation partnerships announced across you know the RPI industry process process mining in the past you know call. It three to six months here I'm wondering if you could help us understand your competitive landscape. How this tapestry difference differentiate differentiates you and how are you know this expanded platform is helping you out with customers.
Thank you for the question.
In the last quarter, we have not seen any material moves in terms of the competitive landscape and I would start by.
By pointing to the first I B C. Mark escape report.
That put us in a very clear leadership position and our I would call them, saying that when it comes to real enterprise automation real scaled enterprise automation.
The most of choosing you wipe out and this is a of course, because we offer an end to end platform that is a suitable from small use cases to the most complex use cases and indeed, we have this stop is three that we believe it's worth.
What helps our customers drive adoption from the process of discovery, which is becoming really a driver of growth and helping the adoption to building automation for both professional developers and cities.
And developers who are strong analytic platforms into our engagement, which is basically a low code no code Apple plus.
Plus one which is really dedicated to automation and integration.
Use cases.
So I would do I would.
You know finish my answer I'm, saying that the automation is becoming a critical piece of our accelerating digital transformation. We are the clear leader and we continue to win the deals and the very last June scores because of what we're thinking.
A G on our platform.
Thank you.
Our next question comes from the line of Raimo <unk> with Barclays. Please proceed with your question.
Thank you and congrats from me as well.
Daniel can you talk a little bit about what you see in your customer conversations around the increased need for automation just coming from the tight labor market. So so what we are hearing in our calls is that you just cant hire a lot of people just to do with it.
Pat a bowl of repeatable kind of job so you're kind of forced to automate is that coming through already in your customer conversations that would be interesting and then ashish just quickly on the dollar net retention is there any commentary I, maybe I missed it in the call I only heard the gross retention, but any comment around how that was tracking.
Thank you.
This is a great point.
Even yesterday I had a face to face discussion with a lot of investment banking company.
And one of the highlights was really that they are facing almost like 40% attrition in our in the bank, which is really huge. So we we basically talked about was how can we partner in order to for the new guys out.
College, you know the best working environments, how can we offer to them.
<unk> technologies, all with the people who want to join compound is the dog model that put them in the driving seat that gives them the technology too.
To help them avoid you know these repetitive menial tasks that makes a lot of people to really with in the lunch masses. So I I believe this is a really great opportunity for us in the coming quarters.
And one of the customers that are I mentioned in the during the script is hung up and.
And really they are they've done already you know a lot of our investments in automation because they anticipated despite falling market and this is a better approach and just in terms of dollar based net retention rate right now.
We see that there's really no material change from our last quarter as we've talked about in the past we'll release the actual number of periodically we continue to feel very strong and confident that our execution and our customers execution and that continued expansion rate is something we feel very very confident and strong about as a company.
Thank you. Our next question comes from the line of Brad Sills with Bank of America. Please proceed with your question.
Oh, great. Thanks, guys for taking my question and I'll Echo the congratulations on a nice quarter one of the things that struck me in the press release that you just put out today on the partnership with Accenture and also your comments with Pwc partnership.
Company wide deployment.
Have you I personally think of that kind of rinse and repeat departmental expansion that you guys have been executing so well on are you seeing more company wide deals come into the pipeline how does that global aside channel helped with that type of activity. Thank you.
Well I can say that.
Among.
Our customers that are over a million b mab for us all of them. We've always exceptions are using the hour plus we're all using various product as part of our platform.
So this is not the only.
It's not something marginal this is really something that we are seeing more and more our growth products.
Basically part of our tapestry is one of the highest growth is not if not the highest growth.
Technology within our platform. So that's that's definitely as well.
A growth driver for us it's it's the usage of the entire flow.
And then just just Brad you know the other thing we see is we do see continued momentum I talked about our dollar based net retention rate being very strong one of the drivers of that is cross company deals where multiple functions are finding automation and I think that's a really important thing is a former customer to just emphasize as people continue to learn about you iPad is our platform is.
Horizontal so we are talking to CH errors.
Customer customer call Center leaders.
Ceos across the board, even see our Roes in terms of how they want to use automation and our best our best customers are using are able to replicate what they do on one function and replicate those wins across functions and that is really a core part of our dollar based net retention rate and why we have conviction about the size of our Tam.
Thank you. Our next question comes from the line of Michael <unk> with Keybanc. Please proceed with your question.
Hey, guys. Thanks, with perhaps another take on Keith's question, you commented that you'd see seasonality in net new E. R. R.
Part of it is really bookings I guess in.
In Q1, so I mean does it does it does it stand to reason that it's pretty clear since you didn't see it last year because of that pull forward. The more typically you would see stronger bookings in the fourth quarter from an IRR perspective.
Yeah, you know generally what we see right now is definitely momentum between second half and first half when I look at the pipeline today, you know I'm encourage between fourth quarter and you know in terms of the emergence of the fourth quarter seasonality that we talked about so yes, I see that seasonality is a potential here you know one thing I'll just address because you know just anticipate.
The question behind the question is related to our guidance.
Guidance philosophy continues to be the guide what I see in front of US today and will continue to execute and drive the company. We feel very bullish we feel very confident about not just our execution, but the dynamics of our pipeline and the response of our customers and Daniel I don't know if you want to talk further just in terms of what you're seeing in the market around that.
Yeah. It's a we are very pleased with what we're seeing in front of US we are seeing a strong Q4. It's a the demand is there we are seeing really very engaged partners. So overall, we are very pleased with the direction, where our business is going.
Thank you.
Our next question comes from the line of Alex Zukin with Wolfe Research. Please proceed with your question.
Hey, guys. Thanks for taking the questions maybe just a.
Question around pipeline.
A clarification on the retention rate you know new business and specifically you know in the.
The return of in person events, you know the conference in Vegas.
All of the things that Youre doing how is that impacted the pipeline any material change to the pipe now versus a year ago heading into <unk> and then maybe just a clarification does the fact that it wasn't a material change in terms of an IRR. Yeah. There was a pretty wide variance between in our or in Q1 of <unk>.
31% in Q2 of 144, so I just want to understand is that you know within that range between those two numbers is it lower is it higher wood would be good to get that.
Well the par should return to normal face to face meetings, it's very welcome.
Novelty for us.
We made the bold decision to.
Have our annual forward meeting in person and I can tell you that besides an acceleration in pipeline, it's been a great acceleration in the energy of the company seeing happy customers Happy partners talking about you know how important this technology is for them.
It's a it's really it's I think it gave us the real energy to push forward. These Q3 and you know we are really into a great start into the Q4 I personally have started traveling wave the beat in the Europe and in the U S and the depth.
That makes a difference in person we are capable of.
Same thing on articulating our vision two largest customers establishing C level connections and this is one of the.
Particularly T of all war.
College, we need an executive sponsor in order to go Big enterprise wide. So the return to normal face to face is only going to help us nobody lets assume come in more of a beat on an IRR, yes. So Alex just one thing I'd like to correct as first quarter it was not 131%.
It was greater than 145% is the way that we talked about it in some of the questions and calls so.
When you look at when you look at where we had then that has been really relatively consistent all year and no material change and I you know I always like to emphasize the operational pieces. We continue to execute very strongly because the demand for automation is high within our customers' high Rois drive you know a lot of interest from them.
Internal executives, we continue to see it and it speaks to our land and expand model. So the first quarter was in line with what we've talked about at 145 plus percent and we've materially not changed since you know our numbers throughout the year here.
Thank you. Our next question comes from the line of Mark Murphy with Jpmorgan. Please proceed with your question.
Thank you I'll add my congrats.
So Daniel at your user conference in Las Vegas, one of your partners.
Ah, we're saying that this market in the past was a three horse race in that two of the horses got a broken legs and you know there were so many stories of blue prism automation anywhere our customers migrating to Ipass I was just wondering if you can shed some light on you know whether you have a little extra tailwind.
From that type of activity and then ashamed just going back to I might go towards his question.
The comment about Q1 seasonality emerging and in that New E. R. R. C. I believe consensus is already modeling that you know we I know, we certainly have you know lower net new a our or in Q1 can you just clarify if if any or are you signaling that some kind of a change is needed or do you think it's kind of reflected already.
Yeah.
But indeed do we we are engaging in a few replacement deals of both with automation anywhere and blue prism.
Especially within the large financial institution.
There are daily Tories.
Particularly I would say like in the Nordics, Canada and U S where the they are withdrawing you'll know their presence significantly in the same time I would not necessarily call it like that.
The tailwind or the untapped opportunity in this market is huge for us where our growth is not coming from replacement of our existing competitors, but really by delighting our customers evolving hour plus we're getting new customer.
Was.
This is really our drivers of growth.
And then Mark just no to be very clear no I am not signaling anything that is different from what I am seeing them out there in terms of the models that I've come across I would say given our discussions on seasonality, especially last fourth quarter between <unk> and <unk>.
Our of our of the past 12 months I, just think it never hurts to repeat things and this is our first cycle as a public company and crossing between years. So I just wanted to make sure that everybody knew where I stood in how the business looks at seasonality now and what we're seeing as our business matures.
Thank you. Our next question comes from the line of Matt Hedberg with RBC capital. Please proceed with your question.
Hi, Yes. This is on a shop on that alright. Thanks for taking my last one congrats on the saltwater well it means that we're taking on the question on demand environment.
Kill earnings call, you know, what I mean by some COVID-19. Thus far is neutral with the Nuomi. Upon variant have you baked in any conservatism in your fiscal 'twenty two guidance.
I think it's a bit too early to tell if the new variant is having an impact we're not on the business.
We continue to say and do see that Covid is net neutral to us it was COVID-19 there's a.
A bit of a hand with two new logos in the it's a it's a tailwind to adoption across a few other industries in existing customers.
When the Covid will and we see real market opportunity for us to drive growth across all industries all sectors and then just in terms of our guidance I hesitate to use the word conservatism as I talk about them as we approach these calls.
I the guidance that we provide is based on what I see in front of us I don't handicap. It I have not handicapped it in any way for omni cancer that question directly.
I, just really looking to evaluate the data that I have in my hands today and that is the basis of our guidance.
Thank you.
Our next question comes from the line of Bryan Bergin with Cowen. Please proceed with your question.
Hi, Good afternoon. Thank you I had a question for you on the sales force I'm curious if you've seen any challenges being caused by talent tightness in the market.
Are you on plan as it relates to targeted Salesforce additions as you begin to plan for fiscal 'twenty three.
Yeah.
We haven't embraced the floor with D C. It when our sales force we are seeing good we're not seeing no significant pressure on our ability to attract the talent we have great brands out there we have a fantastic culture inside the company.
Our compensation is top notch. So we are we are really bullish in our capability with capability of attracting talent.
Thank you. Our next question comes from the line of Terry Tillman with Truest. Please proceed with your question.
Hi, Thanks. This is Joe Meares on for Terry.
Taking the question.
There's been a lot of press releases from you and your partners in terms of working together I spoke at length earlier in the call about the Accenture Pwc partnerships I think you're up to 4900 now so it's a two part question are these partnerships more helpful with landing new customers or Oh FERC.
Spansion and then the second part is where where do you think you are in terms of the productivity curve of your relationships with these partners. So far thanks, so much.
Well.
I would like to Oh, and so starting with the second question well.
This is an extremely positive momentum that we are seeing with the major geo size.
We are talking with the.
A few of them are ball with building significant practices.
And when they what they mean by significant practices is like.
Five top then practices for them well this is truly important.
In relation to the first.
Whereas jump, we have seen where they are helping us in booth.
The option with existing customers and getting net new logos.
Of course, we are seeing the the all were topped 20 partners more helpful. In the expansion with the existing customers and the long tail of partners.
Bit more helpful in getting net new logos, but overall they are helpful on both fronts.
Thank you.
Our next question comes from the line of Keith Bachman with Bank of Montreal. Please proceed with your question.
Yes, many thanks, Daniel I wanted to revisit with you on the competitive landscape landscape could you speak specifically to Microsoft and how you see Microsoft as a competitor both now and in over the course of the next year or two.
And the dynamics that I was thinking about is terms of you ipass as a pure play vendor.
With cross functionality in many different application areas versus Microsoft more of a.
Microsoft centric versus Microsoft has a pretty deep reach you mentioned a few times.
That you're trying to get access to senior level management, and so just hoping you could speak broadly about Microsoft and some of the underlying trends as you see them unfolding over the next year or so many thanks.
Speaking about the current situation.
As I said before I D. C has underscore very well, where we are in terms of real enterprise traction you I Puff is really the only tangible.
Choice for enterprises that want to go from small to complex across different divisions that one rig.
The high level of penetration.
Our own data.
If we take into account the deals with Microsoft is.
Participating versus the deals where Microsoft is not participating we are not seeing.
Material changes in our winning rate so right now currently I can say Microsoft.
Has doesn't have a meaningful impact on our ability to win customers.
What is going to happen in the next couple of years first of all I would like to make a case that Microsoft is focused with their RFP.
Mostly when citizen developer and personal productivity. This is a small part of our overall Tam.
So I don't see that in the coming years, Microsoft investment and competing with us.
Will materially do you have a loss from our growth trajectory that we.
We we are seeing and we are building right now.
Thank you.
Our next question comes from the line of Kirk of Attorney with Evercore. Please proceed with your question.
Yeah, Thanks, very much and congrats on the quarter.
David I was wondering if you could talk a little about your thought process on vertical ization, none of the product, but if you go to market efforts, meaning you as you start to talk to companies about going deeper with automation I think having an understanding of those industries that are at a greater level of depth would be helpful.
Or maybe accelerating those conversations I realize that's hopefully what your partners are aiding you asked but I was curious how much of that do you think you Ipass should take on when you think about your next steps in and go to market, maybe not next year, but over the next few years. Thanks.
Well one of the best the business decision that we made a couple of years ago was to create all were industry expertise group. So we hired the across a few verticals.
People that really are capable of speaking custom with language and articulate how this technology is helping them. We have build those so value engineering that is industry specific so that was instrumental for us in landing queued deals across.
Financial services health care and public sector, especially we continue to invest across particularly these three industries and we are also investing in partners specialized in the in these areas.
So it's a it's really a good point, but these are this.
At this time, we don't see a need to vertical wise, our product specific to industries, but for from a go to market perspective, we are looking very closely and two how can we better address.
That was because.
Particularly across these three industries that I mentioned.
Thank you.
Our next question comes from the line of Ari, So Janey <unk> with Cleveland Research Company. Please proceed with your question.
Good afternoon, and thanks for taking the question.
Just had a question about investments.
Into next year.
It seems like Opex decelerated, a little bit more this quarter, how are you thinking about hiring them into next year.
From R&D and sales and marketing.
And any kind of specific areas of prioritizing.
We expect a similar pace of growth or any ramp up as you try to do.
This large market opportunity ahead of you. Thanks.
Yeah.
Oh.
I can tell you our strategy for hiring into R. And D was higher like there's no tomorrow, we were joking internally, saying, we don't have a budget for R&D and I'm really happy to tell you that despite the pressure in the market.
Q3 was one of our best quarter for hiring into R&D.
No on the more general terms.
Right.
Continue to say, we really invest across the company, particularly in go to market, where we invest in field, we invest in velocity and velocity is one of our best performing teams all of them in terms of sales productivity we university.
Customer success to continue.
Oh, great adoption story, and we invest in partners because we have ultimately partner led business. So it's a at this point we have not seen.
Reasons to be very concerned about with our hiring ability.
As I said before we are a great brand that we have a great comp our position we are the leader in the market. The ginger So people live and work people, believing our destiny and ultimately we have also an amazing internal culture.
Is it really expressed by our own employees and then just in terms of the metrics really quick you know when we say that Opex is decelerating and I want to remind everybody that when you look at sales and marketing expense for the quarter. It would seem from a reported basis that were down 13%. Please remember that there was an accounting change related to <unk>.
Emissions and on a pro forma basis, when you adjust for that we are actually up 42% year over year, which speaks to the investments that Daniel was talking about and R&D is up 46%, we continue to build out and support et cetera.
Right now while we're committed to long term operating margins that we've talked about a 20% plus our priority right now is investment and we've talked about being roughly cash flow neutral. We're not afraid to go you know a little plus or minus against that we look at the Tam as early we look at our market position is as leading and so with.
That confidence we will continue to invest in both our go to market and our R&D business to scale. The company. We look at that cycle to continue through next year and you can see that even with the investments that we've talked about it you know within our earlier call within the earnings call around our partner ecosystem partners and our ecosystem.
Thank you. Our next question comes from the line of Michael <unk> with Wells Fargo Securities. Please proceed with your question.
Hey, there are good afternoon. Thanks for taking the question a ship just following on to some of the seasonality questions or comments is there anything else you can add from a large deal perspective, maybe just how you approach getting for larger deals in particular and maybe as part of that you can also just help level set and remind us what the cadence of of use case or broader expansion most.
Often looks like because that typically an annual conversation and that's also what goes into the second half versus first half seasonal shape or expecting or just any additional context and so as he mentioned still relatively early in your public company journey I think it's all useful context. Thank you great Mike I appreciate the question.
You know what I when I think about seasonality in large deals one is.
The definition of large deal in our in in given our accounting is different between revenue and incremental layer or so as I think about large deals for from an incremental layer. Our standpoint I continue to be pleased with the pipeline and demand you know, we havent fully highlighted it but you know our million dollar plus customers continues to grow and you know.
We see continued momentum in large scale customers throughout fourth quarter.
On the second piece of that is from a revenue standpoint.
Fourth quarter, we anticipate to be you know has the most deal activity in terms of their so duration is going to be something we keep an eye on like I said, you know I really we don't drive duration from a business standpoint.
In terms of actively for them from a metric standpoint that really becomes customer and economics driven in this environment. You know I would say our pipeline is dynamic you've been at this stage in the quarter and we will continue to monitor that as we go through there as we close the rest of the quarter and as we really kind of enter into the final stages. There. So you know I.
I see good momentum, but I can't predict that really well in terms of the and when I say I can't predict it may look really well, meaning like in terms of duration and understanding the impact of that.
Last thing is in terms of the cadence you know we talked about this and we can refer back to the second quarter earnings call. We talked about the life you know the contracted day or the lifetime value of our customers many of our customers by quarterly and it's nothing that they wait for their annual cycle to grow them really what defines when a customer is expanse is when they start.
Those burst of ROI that come for many of our customers that actually can come two to three months out and then continue to come as they go across departments and for other of our customers and you know depending on their implementation journey. They may be using some of the some of the early pieces of their purchases and then wait for their renewal so.
You know more often than not we see multiple buying multiple buying patterns, but multiple points in the year of when customers buy and that again speaks to the strength of our land and expand model that's there.
Thank you ladies.
Ladies and gentlemen, we have reached the end of our question and answer session. I will now turn the call over to Ashish Gupta for closing remarks.
One thing I. This is ashish just before I turn it over to Daniel to close we've got a lot of questions coming in around our Po. So just for everyone to hear I wanted to state the numbers clearly and so everybody can can jot them down for those who had questions total rpms.
For the quarter was $579 $5 million and that's up 80% year over year current R. P. O was $359 $3 and that is up 69% year over year. So I just wanted to clarify that with that I'll turn it to Daniel to close.
I want to thank you all very much for participating in this afternoons call I also want to thank the UA paas team for their hard work our partners for their dedication to our customers and our shareholders for your ongoing support we hope you have a happy and healthy holiday season and look.
Forward to speaking with many of you throughout the quarter. Thank you.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.