Q4 2021 UiPath Inc Earnings Call
Greetings and welcome to the you Ipass fourth quarter 2022 earnings Conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note that this conference is being recorded.
I will now turn the conference over to our host Kelsey Turcotte of Investor Relations. Thank you you may begin.
Good afternoon, and thank you for joining us to review you Ipass fourth quarter and full year 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 DNS, you Ipass co founder and Chief Executive Officer, and ashamed Gupta, Chief Financial Officer, We 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 Ipass Dot com. These materials include reconciliations of non-GAAP financial 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.
The 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.
This afternoon's call includes forward looking statements about future events, including statements regarding our financial guidance for the first fiscal quarter of 2023 in fiscal year 'twenty 'twenty three our expectations regarding the acceleration of digital transformation, the impact and duration of headwinds and expectations regarding our dollar based net retention rate.
In fiscal year 2023, I are our 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 rich.
<unk> 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 a copy of our prepared comments to our Investor Relations website immediately following the conclusion of this call now.
Now I'd like to hand, the call over to Daniel.
Thank you Candice and good afternoon, everyone.
Have a lot to discuss so I'm going to break my comments Boeing intersections.
We could have a view of our business followed by some highlights from the fourth quarter, including new products and partnerships.
I'll finish with guidance and give you some details about what our new Chief business Officer.
Before any of that I want to acknowledge the events unfolding in Ukraine, our sports Empress.
Entire country and we are deeply saddened by the crisis that has been created for me. This is very personal I grew up in Romania. When it was still under Communist control. So I understand the fragrance the Ukrainians are fighting to protect.
Amidst all of this I'm extremely proud of the U I pass to you.
Among the many things we are doing we have donated more than 1.5, maybe on doors and supports the malware and colleagues across the region have opened their homes to refugees.
We have also made our automation platform available to organizations like International Red Cross, which is using automation to manage millions of dollars of donations.
We will continue to look for ways to help.
Turning to the business, we believe were very strong fiscal year 2022 .
Marked by important milestones like Oh, we're IPO market, leading product introductions industry analyst acknowledgment of our leadership position and meaningful growth, we have executed well laying the foundation.
That leaves us who have experience will help us scale.
We expect that by the end of fiscal 'twenty to 'twenty three we will have exceeded the $1 billion, marking now and revenue.
Fourth quarter net new E. R. R.
72% year over year, reaching a record $107 million.
This drove total error to $925 million, an increase of 15, 9% year over year.
Our continued growth with scale reflects broad based adoption of our end to end automation plus four and our focused execution automation is critical to digital transformation and to unlock new levels of innovation agility unproductive.
With you.
Our land and expand model continues to drive best in class dollar based net retention of 145%.
As of the end of the fourth quarter, we had approximately 10100 customers, including new logos de lever All board University, a b M industry and back though a G.
We now have 1493 customers that accounted for at least.
100000 boards in error on the annual basis up 49% from the prior year.
This includes 158 customers over one leasing on doors, and you want a or an up.
Up 78%.
From a product perspective.
These results are driven both by customers deploying more software robots.
By accelerating adoption of our broad suite of capabilities.
Our end to end automation block four is a key differentiator for us as we help customers accelerate their automation of lifecycle.
This includes paychex paychex has saved more than 425000 manual hours with more than 35 million bought transactions.
They now have over 40 workflows in production, but not expanding adoption operationalized intelligent automation capabilities for test mining and process mining, which help them identify opportunities to save another 40000 hours annually.
We continue to expand platform deployment options.
Automation cloud robots, which allows our customers to deploy unattended robots instantly, we thought what I'd do resources where infrastructure.
We already offer a source option for almost every you wipe off product.
Automation cloud robots brings us even closer to fully source platform hosted an hours clause.
As of the end of the fourth quarter close which includes both hybrid and SaaS deployments has grown to more than $140 million in there are in just over two years, we ended the quarter with more than 3000.
800 cloud customers with approximately 55% of our new logos selecting cloud in the quarter.
This includes companies like Snowflake.
Our recipe unlimited.
Our focus on innovation continues to strengthen our leadership in the automation market.
We are excited about with our upcoming platform released you can make.
You Ipass 2022 adult for the leavers, the Nextgen automation cloud, which continues our progress towards frictionless development and faster time to value expense automation access for all raises the bar on security and compliance.
We also continued to expand our go to market ecosystem.
We ended the quarter with approximately 5100 partners.
Building a best in breed go to market ecosystem requires us to sell with global GSI, some automation experts as well as enable a broad range of organizations with distribution capabilities like Ingram micro.
These collaborations include sell through like we've deployed which has decided to expand their UA Buffy was each for their indoor automation journey sell with and sell through during the quarter.
We closed several new and expanded partnerships, including for NASA and I S. I D.
But that's not a U K based global financial software company.
To bring the power of UA, Pos automation to financial institutions worldwide.
The first phase of this partnership we leverage for Nash cirrhosis secure closed plus one to allow partners and automation creators build and sell offerings to the financial market. Additionally, so nice expects to include U S. Pos capabilities in their own.
All four rings, which they will monetize directly with their customers.
Why I say the group a leading jump on the system integrator is using automation to respond to Japan's tightening employment environment.
Many of the leading Japanese companies are responding to this issue through digital technologies and I cite these developing a unique digital human resources development service based on the UEFA platform to offer to the wider market.
As we continue to scale. We are building a go to market team that is driving long term durable girl and I want to welcome Chris Weber.
He's joining us to leave that offer as chief business Officer responsible for our global go to market strategy and execution.
Chris brings over 25 years of experience to this role having most recently helped transform sales and marketing across Microsoft as corporate Vice President of corporate and SMB commercial team.
He also led nokia's reentry into the North American market.
He has created multiple of businesses to billions of dollars and brings an entrepreneurial approach a genuine customer first orientation and the passion for dual role that automation in place in digital transformation.
I would also like to thank Thomas Hansen for his partnership and contributions to you a path over the last two years and for the assistance during this transition.
Now I want to give you my thoughts on the guidance we provided this afternoon.
I just returned from two weeks in Europe , where I spent time with all of our employees in Romania and customers across the region.
We have a meaningful business in Europe that has been growing well over the last several years. This includes both employees and customers in Ukraine and in Russia, where do we have paused business.
I can tell you firsthand. This war is having a profound impact on the sense of physical and economic security across the continent and in the U K.
We are also starting to hear customers in the U S Express reservations about both political uncertainty and rising interest rates.
As we started the fiscal year, we believe it is prudent to guide assuming the uncertainty we are seeing in the first quarter will continue. It also takes into account our decision to transition our go to market leader, which can create short term disruption.
Our financial model is powerful and we believe there is considerable opportunity to continue to drive durable growth and improved profitability as we scale the business.
In summary, we are.
The strong close to our first year as a public company.
I've said it before and I truly believe we are building a multi generational company that will change how employees experienced work and unlock human potential.
Looking ahead fiscal 'twenty 'twenty three digital transformation is accelerating and you wipe off is at the forefront of that evolution.
With that.
Jim will take over to talk in more detail about our fourth quarter results and our fiscal 'twenty 'twenty three guidance. Thank.
Thank you Daniel I want to Echo your thanks to Thomas and welcome Chris to the team.
Before I get started please note that unless otherwise indicated I will be discussing results on a non-GAAP basis, and all growth rates are year over year.
We are very pleased with our fourth quarter results, which capped off a milestone year and continues to demonstrate our strong execution and market leadership.
We ended the fourth quarter with total air are $925 $3 million up 59% driven by record net new <unk> of $106 $9 million, which grew 72% and exceeded the $100 million Mark for the first time.
Full year, net new air or a total of $344 $8 million an increase of 51%.
Our results were driven by broad based demand across our platform and strong performance across geographies.
Our dollar based net retention rate of 145% for the quarter and the gross retention rate of 98% continue to underscore the stickiness of our platform.
Two great examples of expansion business closed during the quarter.
Wireless provider T mobile U S. A leader in five G, which began their automation journey with you I pass a couple of years ago. Initially T. Mobile was focused on process automation and supply chain and finance. They have recently expanded their use of the entire U ipass platform by adopting processing task mining document understanding.
[noise] in automation cloud going forward T mobile intends to leverage processing task mining to aggressively expand their automation portfolio freeing up team members to further focus on enhancing the customer experience increasing process velocity and delivering more synergy savings post merger.
And Vodacom one of the Africa's largest telecom companies by revenue and market cap to.
To achieve their objectives, which are also tightly linked to the customer experience Vodacom has deployed 135 unintended software robots, which have delivered to date over 1.2 million hours saved $1 3 million in Opex savings of $19 5 million in revenue enablement.
Their next step is to launch an organization wide citizen development program for their more than 6000 employees to drive discovery scale unleashed frontline innovation.
Turning back to the numbers fiscal fourth quarter revenue grew 39% to $289 $7 million on a year over year basis, FX created an approximately 600 basis point headwind to revenue growth for.
For the full fiscal year, we reported revenue of $892 $3 million, an increase of 47% year over year.
Fourth quarter remaining performance obligations increased 65% to $682.8 million. This includes an approximately 800 basis point FX headwind to <unk> growth.
<unk> increased 57% to $422 $2 million.
Total gross margin was 88% and software gross margin was 93%, reflecting revenue seasonality offset by ongoing investments in services and cloud hosting.
Fourth quarter, non-GAAP operating expenses of $213 $7 million increased 39%.
The increase in expenses was primarily driven by head count additions and we ended the year with 4013 employees. As we look ahead to fiscal year 2023, we expect hiring to be measured given our investments in fiscal year 2022.
Fourth quarter GAAP operating loss of $59 million included $77 million of stock based compensation expense full year GAAP operating loss was $509 million.
Fourth quarter non-GAAP operating income was $41 $9 million full year non-GAAP operating income was $73 $8 million.
Fourth quarter non-GAAP adjusted free cash flow was $9 $8 million for the full fiscal year, we delivered non-GAAP adjusted free cash flow of negative $21 $5 million. This is in line with our stated objective of being roughly cash flow neutral for the fiscal year.
And we have $1 $9 billion in cash cash equivalents and marketable securities and no debt.
Let me now turn to first quarter and full year of fiscal 2023 guidance, which we believe encapsulates a realistic view of what we are seeing in our business today.
Our roots are in Romania, and the European market, which was a major focus from the beginning and it's an important part of our growth profile.
Proximately, 30% of our businesses in Europe , and we serve customers across the eastern part of the region and in Russia.
We also price in local currency, which has created FX headwinds given the recent strengthening of the U S dollar.
Both have a direct impact on our growth profile and guidance for fiscal year 2023. We have included the impact of pausing business in Russia, which is approximately a $15 million reduction in error of which $5 $5 million will be in the first quarter.
In addition at current FX rates, we estimated an error or headwind of approximately $5 million to $10 million for the first quarter and approximately $20 million to $25 million for the full year fiscal 2023.
For revenue, we expect an FX headwind of approximately $10 million to $15 million for the first quarter and $25 million to $30 million for the full year fiscal 2023.
We have also made prudent assumptions around the profile of large deals in our pipeline given the current environment and factored in the risks that exist with any sales leadership transition.
Our 2023 pipeline is strong and growing broadly we hear from customers their continued desire to expand their automation programs and the strategic importance of the U ipass platform to their digital transformation efforts and our differentiation from our competitors.
Also wanted to give you insight into our operating framework, we are committed to investing in this large and growing market, while balancing growth and profitability, which we have been consistently demonstrating over the last two years.
Our financial model has healthy unit cost economics, and strong cash flow and we expect non-GAAP adjusted free cash flow to be neutral to slightly positive this year.
Moving to the specifics of guidance I want to reinforce that we run and manage the business to <unk>, which is where we believe investors should be focused for modeling we are adding both full year revenue and full year non-GAAP operating income guidance to our quarterly cadence.
For the first quarter of fiscal 2023, we expect <unk> to be in the range of $960 million to $965 million, we expect revenue to be in the range of $223 million to $225 million, we expect non-GAAP operating loss to be in the range of negative 30 to negative $25 million.
And we expect first quarter basic share count to be approximately 542 million shares outstanding.
For the full year fiscal 2023, we expect <unk> to be in the range of 1.2 to $1 billion to $1 billion. We expect revenue to be in the range of one point O $75 billion to $1.085 billion.
And we expect non-GAAP operating income to be in the range of zero to $10 million.
Before I close I want to leave you with a few guidance assumptions and modeling points.
First for the fiscal year, we expect first half net new AOR to comprise approximately 35% of full year net new era and to grow sequentially each quarter for revenue. We expect first half revenue to be equally split between the first and second quarter and to grow sequentially each quarter thereafter.
Second we are extremely pleased with the growth of our cloud business. While this is a net positive we expect growth in our SaaS offerings to be an estimated 4% headwind to full year revenue growth this year.
Third we started amortizing sales compensation expenses at the beginning of fiscal year 2022, given last fiscal year was the first full year. We amortize. These expenses, we are facing a 300 basis point headwind to non-GAAP operating margins in fiscal year 2023 relative to 2022.
Finally, please note that we pay our annual corporate bonus and our fourth quarter sales commissions in the first quarter, which will result in a substantial cash outflow in the first quarter, we expect non-GAAP adjusted free cash flow to be driven by normal seasonal patterns and to be neutral to slightly positive for the fiscal year.
In summary, we are pleased with our fourth quarter results and we are confident in the opportunity ahead of us and the transformational potential of automation. We look forward to speaking with many of you in the coming weeks, we will now take questions and I will turn the call over to the operator operator, please poll for questions.
Thank you.
And at this time, we'll be conducting a question and answer session.
We will allow for one question and one follow up question from each analyst.
I would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue you.
You May press the Star key followed by the number two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Yeah.
And our first question comes from Raimo <unk> with Barclays. Please state your question.
Thank you two quick questions from me and congrats on a strong end of the year the first Christmas.
I I appreciate its tough to come up with guidance with all the uncertainties out there can you talk a little bit about how you did it was it just a did you kind of assume lower closure rates because you know your pipeline. So I would assume it's the closure of a thing that drove the guidance and then the second point is on the changes to the.
Our go to market model.
I know, we have a new leader and it's kind of a maybe a little bit too early to talk about it but what do we expect like significant changes Karen. Thank you.
Hey, Raimo nice to hear from you so on the guidance.
You guys know that we always guide.
You know looking at what is in front of us.
And and.
Well right, even though we are the we are seeing the impact of the war in Ukraine.
And as you know we have a sizable business in Europe and more than 30% of all business and we are seeing uncertainty in Europe .
In the last months, we have all experienced some of that their duration on the on.
On the global.
Macro economical climb up and we have accounted for kind of normal distractions caused by the leadership transition on.
On the leadership transition.
First of all I can oh, thank once again to almost for his contribution as a great leader and help us in the last two years scary from a.
Less than half a billion two you'll know what the guy today more than 1 billion in ore and the revenue.
And as you know for the folks that know US we always are proactively trying to bring the best talent in the company. The talent that is capable of taking us to the next stage of growth and this is exactly the stage, where we are today.
And.
I know, Chris photo wife, Who's been in my network for one is an amazing business leader that has experience of scaling our business is.
You know at this stage and beyond is an inspirational leader he is really well connected to.
Our customers.
And I.
Believe that she and the rest of the executive team will continue to drive this business too.
Really solid growth the business opportunity is here demand is here, we are bullish for the business.
Rest of the years, we've been capable of distancing ourselves from the pack we are the undisputed leader in the automation.
And.
Overall, we are all seeing really good great business prospects.
Especially if you can add to this yeah I think Ryan I would just think guidance in terms of the assumptions that we had.
Half of our guidance is very quantifiable directly.
I just wanted to make sure we walk down the impacts so with Russia.
It is quantifiable that we have a $15 million impact of on Russia. We mentioned in the script that five 5 million of that 15 is literally just from the from the from the appropriate accounting of the you know of the businesses that are there and then the balance is just from the fact that Daniel has made the decision to.
For now to take a pause with our Russia business. The second piece of it is FX, so FX hasnt between 20 and $25 million impact for us.
We we roll forward at our Guy we roll forward, our guidance to current FX rates and that both both includes our sizeable business in in Europe with the Euro.
Weakening, but also with Japan, where just even in the last 30 days, you've seen a significant movement with the yen the remaining balance that we see there as we look at our pipeline and we have a very strong pipeline as Daniel mentioned, there is theres a number of large deals, which we're excited about we've won those deals in the sun.
So theyre not being baked off by competition, but given the macro climate, there's just uncertainty around that and we've quantified that and incorporated that into our guidance today, which is the balance after you subtract out the 15 for Russia, and the 'twenty to 'twenty five for FX.
Okay makes sense. Thank you.
Yeah.
Next question comes from Keith Weiss with.
Morgan Stanley . Please state your question.
Got it. Thank you guys for taking the question and a very nice quarter.
In Q4, it maybe sort of it tailing on on <unk> question. So.
Obviously, we're trying to wrap our heads around sort of the chest to position us well it wasn't really shrunk Q4, and see even on an adjusted basis, 60% growth in net new where are and if I'm doing my math right. The forward guide assumes about a $18 million.
Oh sort of 18% decline in any way or for the full fiscal year FY 'twenty three.
Think about sort of the operating margin side of the equation and the Opex side of the equation can you walk us through kind of the the response on that side, you mentioned kind of slowing down hiring, but if you're expecting to sell 20% months basically in any way or is there more that you should be doing on that side of the equation to sort of soak up some of the slack.
In terms of the sales force and how are you thinking about kind of preserving that that bottom line. If we are going through this period.
Look weaker demand.
Thank you.
First of all I would like to thank you for your nice sorts of all with the quarter. We believed that we had the solely the yeah. We are we're really pleased with the results.
Going on to the guide.
Again, I will reiterate that we are.
We are guiding for what is in front of US we assume that the headwinds will continue for the rest of the year. We are we are looking always to balance the growth and the productivity for the company all water.
Basically as we grow we look we're looking to drive our business grew in excess of the rule of 40.
They can get a free cash flow into a column for you know for the longer term prospects of the business nothing has changed in the fundamentals of the business.
And I wouldn't let us assume to comment more on the on the margins I mean, Keith Let me I also just want to start with the the point on the 18% decline in net new layer are when you actually factor in the impact of Russia and FX. When you normalize for that that really is.
Talking about an 8% decline, which in the current which in the current environment that we talked about we believe just kind of stays in line with our which the guidance philosophy that we are prudent guiding philosophy that we have had from the very beginning of our journey here in terms of operating margin.
You know I don't characterize the hiring as the slowing down I characterize it as just measured given the investment that we put into the company in 2022, and we are very pleased right now with the performance of our investment we feel confident about the size of our field force and the sales capacity to be able to to really take advantage of the market.
Just for 'twenty three but also for 24 in the sense that we will continue to invest for the long term at the same time at our scale. We're crossing $1 billion. We believe that it is important to demonstrate and show that we can both grow as well as grow profitably and the balance of leverage is something that is important to us and our leadership team.
Got it that's super helpful. Thank you guys.
Our next question comes from Phil Winslow with Credit Suisse. Please state your question.
Hey, guys. Thanks for taking my question and congrats on a strong close to the year just actually my question sort of in the context of a strong close because as you pointed out the net new air are actually accelerated strongest quarter of the year, but if I kind of break it down into dollar based net retention as well as this new customer growth seemed like new customer growth was particularly strong and deviantart is high so.
Going to the guidance if you can maybe.
Sort of unpack it another way how are you thinking about the guidance in the context of sort of new customer acquisition and that DB and are or are you hearing from existing customers that theyre going to be.
Pausing here for.
Forward plans or is this more of just new customers do you think it would be hard to acquire maybe just break it down that way then just one follow up.
Yeah.
When you look back historically at US. So we're 70, you know we've historically been between 70, and 80% expansion and 20% to 30% new logos right. So that is I put that in context of you know the impacts that are beyond our control, which is Russia and foreign exchange I kind of put you I would I would continue to split within those two realm.
And then that math in that modeling, obviously that you can do in terms of what that equates to.
In terms of the other pieces of the guidance like we talked about we're going through a leadership transition as well as kind of what the macro environment. We were really just looking at the D. B.
The prudent assumption around large deals, which again I think I would just assume the same the same split as kind of the historical expansion versus new logos would I do want to reiterate and Daniel cannot obviously comment on this further is.
Customers aren't talking about a pause in their automation program as much as what we hear is really just you know there there are kind of working through the environment themselves and that just creates the uncertainty of the profile and the timing of the deals at this moment.
Our customers are very excited about it I can say personally like we talked about in the script around some of the customers and Daniel can comment on T mobile and other areas.
We still feel enthusiasm from our customer base and we're investing like Oh, I'll turn it over to Daniel to give more color on that.
Yeah, it's what we are seeing really good momentum across our customers partners.
I spend a lot of time waiver on the fields, we bought with people demands.
Is there.
We are I want to remind you that we are operating in a very big time, it's in the early innings of this.
In the street.
And we remain very bullish on our prospects.
Got it and then just in terms of Ah.
<unk> productivity I mean, it seems like we've seen a slight.
So I turned up in that over the course of the year. What do you think of as sort of a first I'm wondering if you could just comment on what that is or what what has been driving some of that uptick I mean, excluding obviously you know the impact from the amortization, you're talking about but I wonder if you'd talk about just sort of sales productivity and the trend over the course of this year.
Well since productivity has been increased constantly over the past three years and it's really one of the main driver of.
No nothing new at all that we wanted to bring in the company. We are we really put a lot of focus on driving sales productivity measures across the fields velocity we made.
Great investment in our velocity team is performing extremely well so it's a it's certainly one of the lever that we pull hard on driving our business.
Great. Thanks, guys.
Okay.
Thank you. Our next question comes from Brad Sills with Bank of America. Please state your question.
Oh, great. Thanks, guys for taking my question I wanted to ask about some of the comments you made around U S.
North America, I think you were saying.
You're being prudent on your kind of forecast.
Back in your guidance.
In the region, just based on potential uncertainty or was that more just a pause that you're already seeing from from customers.
In the region.
Fred like we cut one is I think the macro environment is just overall on large deals I wouldn't pin it to any specific geography of course Europe is the one which is you know everything is onshore too, but you know we've also accounted for and we've said the leadership transition which is out there again. It is nothing that we're seeing anywhere I E. I want it would like to emphasize that.
What we see in front of US is a healthy pipeline.
We do not see pauses, we just see uncertainty given the environment and so we with our guidance philosophy that we've had from the beginning we do feel like being prudent is the right way to think about it.
The second piece of it is the profile of the large deals. So like you know in terms of just whether that'd be duration of size those are things that with the environment. We see we see customers kind of reworking their own internal budgets just across the board automation is still well funded the question is just kind of what are the commitments that we have an eye.
We're going to get more clarity of that through the year and so starting the year. This we feel like this is the right way to to inform them inform our investors.
Understood. Thanks, Thanks, Ashish and then one more if I may please just on.
Your comments around the SaaS business, providing a 4% headwind.
Any color you can provide on just interest in the cloud are you seeing acceleration in moving our P. A to the cloud what are you hearing from customers there and anything any of them any more color you cannot you can help with the understanding that impact. Thank you so much.
Cloud is our first growing business at this moment, we are investing heavily into the cloud we are really happy with the release of our robots that are hosted into the cloud that will further accelerate.
The cloud business.
And.
For our entire product strategy is around cloud, but I want to remind you that we have a cloud first company, we deliver everything in the cloud plus and then we would go to what your priority on the.
On Prem and hybrid deployment I'll, let ashish to comment more on the revenue headwinds because of the cloud transition. So you know we mentioned in the script, where we've crossed the $140 million and change so to speak on our cloud business. So we're really we're very pleased with that progress and like we talked about in.
Terms of return on investment we are we're happy and I would actually say, we're even ahead and we're trending ahead in terms of cloud adoption with our customers given the strength of the offering and the flexibility that we provide our customers. The second piece of that is just in terms of modeling.
We've assumed in it right now that where we're.
Moving a little bit ahead of where we have historically thought in terms of where we are and we feel very good about the quantification of that headwind that cloud gives to revenue I do want to again emphasize as you know we we do run the business to <unk> and so the cloud is Eric you know the AOR normalizes for that and this is one of the reasons why we.
We started disclosing in guiding from the very beginning.
In terms of how that looks at and it has an impact on that metric. So we're actually very happy with the numbers and the overall progress and lastly, the margin rates have really been paint so.
We said that we've guided that cloud, we would be a greater than 80% gross margin business within our results and our guidance you can see that continue and we're happy with the execution by our product teams into it and maintaining our margin basis, even with the cloud adoption.
Thanks ashamed of Daniel.
Thanks, Brett.
Yeah.
Next question comes from Fred have a myer with Macquarie. Please state your question.
Alright, Thank you very much and congratulations on the strong numbers coming out of Q4, and certainly appreciate where you're describing a shame and Daniel in terms of guidance.
Wanted to ask are you seeing any significant changes in the competition disappearing in your deals or who your customer who sorry, who your customers are considering now that surface now and others are more aggressively positioning themselves in the RP, a and more broadly automation.
We are not seeing really any increase in the competitions on the on the contrary. We are we are seeing less competitive pressure in the deals.
We.
So we we can comment if you are interested on the you know videos major players that we are seeing in the business and the importance of the our traditional.
You know specialized competitors, we are really seeing less and less of them we are replacing.
Blue Prism automation anywhere and and many customers and speaking about the new entrants like Microsoft in service now we are we really we are not seeing them that much I can comment on both specific and if you are interested.
And then just on the numbers basis I think it's really important we see when you look at our win rates, we continue to look and analyze win rates between where Microsoft and where some of these large players are playing and where they're not we don't see them a lot, but even when we do our win rate has no difference compared to where they are not playing so we really you know the.
A trend of continuing to feel losses, the dominant player in the industry right now that that is continuing from the data that I see and that we see as a team.
Thank you for that context, and then I'll sneak another one in here your ability to scale to 1 billion plus in air ours already a significant success, but often scaling above 1 billion and air art and Durably scaling above that and present new challenges. So let's ask did you see anything in your go to market organization in the mid U.
Question your ability to Durably drive that growth above that $1 billion in are our scale that catalyze your sales leadership change or is this something a little more tactical perhaps.
No. We believe that the leadership change is are is the one that will catalyze our business there.
<unk> of this scale.
We are we a have a business of land and expand and I wanted to give you. Some data points that convinces me that our growth profile is going to stay.
Oh in the high numbers for many years to come if we look at.
Custom was over one museum, we have improved this number by 78% this year.
<unk> 250, eight's customers, if we look at customers over 100000, we have increased that number by 50% to almost 1500.
Customers they represent a great pipeline for us to grow the business for many years to come.
We see that we own we added 2000, new customers through our total base of customers, so, giving our lend and expand profile. Our net retention rate that is one of the best in business. We are very bullish on the all word growth profile.
Great. Thank you.
Our next question comes from Scott Berg with Needham. Please state your question.
Okay.
Hi, Daniel and team congrats on the strong sales in the fourth quarter and thanks for taking my questions I guess I wanted to start off with the following up on the C. R. O addition here is.
Daniel I know you talked about some potential sales disruptions, which makes it sounds like maybe Mr. Weber will do something different in the organization, but I guess what I.
I guess, what are you expecting them to come in and do that might be different than what you've done before is there anything you know from his background and experiences that we should particularly look for as you make this transition.
Well I think that you know every time, we bring a new leader in the company.
The.
They believe that it has the potential to reignite the passion to improve the desire of people to bring new talent in the company to bring a partner in recognition that help us improve our business I believe I end.
Assume will be great partners to Chris I wanted to tell you that I personally led.
The go to market before 12 months for a few quarters. So we're really passionate about go to market. We are always looking at ways to improve like we talked about sales productivity and I believe that we will make great partners with Chris and we will continue to.
Prove you know talent acquisition and the overall performance.
Got it helpful and then on the SaaS transition for this year assume you are talking about 4% headwind. It's I actually think it's great to see that you're seeing some acceleration in that opportunity.
Since that's where most of the space likely goes over time, but how should we think about pricing of the SaaS product for what you're seeing early relative to the kind of standard term license that you sell is pricing I guess two parts here. One is pricing consistent are the same or is it different and then two how are you seeing customers buy in that model are they buying or.
We're consuming the software any differently that we should think about in terms of maybe contract structure size. Thank you.
In terms of pricing the list pricing is very similar.
It's the same we actually have what we call universal pricing.
To ensure that we stay by our values.
Making this a customer choice versus our choice.
And I think that's a that is a big differentiation for us in the market in.
In terms of discount discipline, given that there is a cost of goods a higher cost of goods sold component. We obviously are putting the right the appropriate controls and from a discounting basis to ensure that we meet the gross margin standards that we've set for ourselves.
And right now we do not see pressure to that at all we feel very confident about where we are relative to it in terms of buying patterns.
Is it still early right. We are we are very happy with the cloud acceleration and initial signs you know show on all of the benefits of other cloud platform.
Upgrades are upgrades are obviously just are flowing features are flowing which are which is good. It continues to have our customers in on the front end and having been a customer not weighing down the Coa is with that.
How's them to focus on building pipeline and driving automation and we expect this to be you know a good supportive metric of the great and healthy expansion as we go forward and then a faster ramp time in terms of customers coming on board like I said, it's early we're excited about what we see and we will continue to report out the progress throughout this year and beyond.
Great. Thanks for taking my questions.
Thank you.
The next question comes from David Hynes with Canaccord. Please go ahead.
Hey, this is Luke on for D. J. Thanks for taking the question. So you gave good detail around the revenue impact of the geopolitical uncertainty in Russia, and Ukraine, but maybe you can share or expand on the impact youre seeing with your employees.
Which is to say you know how much of your employee base is in Ukraine, and Russia are they working and what's your strategy for back filling their responsibilities.
Yeah, we don't have a significant presence in Ukraine, and Russia, and Ukraine, we have our own third party developers.
And we already have contingency plans and the product are all wouldn't be areas that they worked on.
In Russia, we have a small sales team I think it's less than 15 people, we don't have any development capabilities in Russia.
Well since the beginning of the <unk>.
These crises, we we we really help our people in Ukraine, we have raised more than one 5 million on the company was matching ones. One all the donations we are providing homes for the Ukrainians.
And we are in a good position tool.
Tool to help in that regard because we have a big base in Romania, we have almost 1000 people.
In Romania, which is the border with Ukraine.
I have to admit the everybody's feeling the tension, but Romania. It's a it's a common it's a country that is part of NATO. So we don't see any potential conflicts that can affect can disrupt us.
Okay.
Excellent. Thank you.
Thank you next question comes from stuck a backup with Wolfe Research. Please state your question.
Hi, Thank you for taking my question.
Actually you might want to go back to Keith's question, but just in a slightly different way.
You said hiring will be measured this year, but based on your guidance, you're still stepping up your investments back into the business. So can you help us reconcile this and dig into it if not in hiring warehouse are these investments going to be going and then just from a high level. How should we think about the margin trajectory over the next two to three years.
And thanks for the question I E. One is when you are looking at our expense load of this year and kind of the increase that is incorporated into the guidance. Some of that is the carryover from last year I remember, we're going to get a full annualized expense of the employees that we've hired in the second half which is not incorporated into that the second is there's a three.
There's a three point impact or 300 basis point impact of our sales Commission accounting change as a headwind that you'd have to normalize out of that number and then the other piece as you know, we're thankfully going into a post COVID-19 world. So the other expenses that we have increased.
Is getting teams back to the office and getting our office is functioning, which we're excited about and we feel like that's going to be a real boost to our productivity levels and two are and to the morale of the team as it is just on a global basis for the World and then we have marketing events, you know getting back out and engaging customers as it has always been.
A great part of our culture, and we've incorporated the necessary investments to be able to do that when.
When you look at all of the post Covid expenses, that's around a 400 basis around.
On 400 basis points worth of expense that we've added and as a headwind and then lastly, you know like I said, we're going to continue to invest just in a more measured way. So we are still hiring you look at our R&D and our P. Any we have a we have a great and growing platform. We're excited about our release you know them.
I'm sure Daniel will talk about it further but you know our test automation has come out to be in a leading category, we're going to continue to invest in our platform and grow in those areas.
And we are committed to expanding like this is for the long term. So when you think about our margin rates long term I would say we've already been expanding if you look back on a trajectory of the last three to five years, we look at that trajectory to continue and frankly as we accelerate scale that being said we are constantly.
To evaluate the balance of profitability and growth. We've reiterated we feel like we're in a large and early growing market, we're going to make.
Investments, we're not going to be shy about it and we're gonna be good stewards of that capital and measure the right returns and have the right hurdle rates internally for it.
Thank you.
Our next question comes from Mark Murphy with Jpmorgan. Please go ahead.
Yeah. Thank you very much I'm wondering if you could just clarify whether you have in fact already seen pipe any pipeline softness or any bookings slipping specifically in Europe or.
Perhaps perhaps February and March actually performed well and you know this is kind of just an extra dose of conservatism.
Really just in case, there are spillover effects outside of Ukraine.
You know which might spread across Europe . Later this year, just wondering if you've if you've actually really seen anything tangible yet or not.
Yes, we've seen instances.
Anecdotally I can tell you that in the in Europe . There are companies that I'm looking at the business continuity right now because they stopped their operations in Russia, many governments annual rope.
I've read erecting the funds to who you know to help refugees and we have what it would be quite for material public business. So there are tactical.
No no instances with customers on.
Delaying some deals and not looking too and I was looking to face the realities of door.
And then just in terms of like overall guidance.
I wouldn't say any extra conservatism. We we continue to feel like were consistent we are consistent with our historical guidance philosophy.
And you know when we look at the big deals that are in the pipeline, we feel very strong about them and we've appropriately.
Reflected that impact both for first quarter and total year.
In NSE them when and thank you for clarifying that.
Are you are you sensing from customers when would you speaking with them do you feel like there sort of indiscriminately kind of pulling back on all of it. He categories. I mean are these sort of at that point as well.
Or do you think within your guidance I mean are they reflecting to you that our P. A is a category.
That's that's going to be prioritized and you know, it's kind of fairly resilient through some geopolitical gyrations.
Because you know I think our view is that they're trying to overcome wage inflation and labor shortages and you've got this unbelievable value prop.
But just kind of kind of wondering if you have a feel whether it's kind of a broad based a pull back spend.
Yeah, I I I would actually just answered more than the affirmative in the sense of we've got an affirmation that automation continues to be an important part of our cornerstone of digital transformation. That's why we see these these deals remain in our pipeline.
I I met just actually with eight of our customers and one of our advisory boards.
Within the financial it within the financial industries, we spend an entire day today together use cases are expanding they're innovating.
This is something that continues to be in the sea level. One metric we didn't talk about them, but you know our million dollar plus customers continued to expand.
As does our $100000 plus customers. So we crossed 1493 customers greater than $100000, that's up 49% last year.
That customer base is broad.
And our minds automation continues to be a really strong.
Really strong part of our program our guidance really reflects just the prudence that we feel on the large deals specifically given the macro environment Theres nothing theres nothing beyond that in our minds.
Yeah, Okay, probably a very probably a wise thing to be doing that and I do want to echo what others have said.
It was actually a pretty spectacular finish to the year with.
That are net new a our number so congrats on that.
Okay.
Thank you.
Our next question comes from Steve Koenig with F. N B C. Please state your question.
Hi, Daniel and thanks for fitting me in here.
I have two questions I'll ask them both at once so one is kind of an opportunity a month, maybe a little more of a challenge.
So I'm I'm seeing firsthand expansions at your largest customers in Q4, and when you look at what's driving your largest expansions.
How do you think about the broader opportunity in the Fortune 500 type base. You know there are millions of dollars about $10 million and then I'll just toss out the second question.
Maybe a little more of a challenge here so.
Stock based comp is obviously, an important part of motivating employees your stock prices are way down.
And how does that affect your your ability to attract and retain talent and also related to that how do you think about stock based comp going forward.
Very much and congrats on the great Q4.
Yeah. Thank you Steve.
Yes, indeed, the SNB sees.
Our largest customers we learn a lot by deploying this M B C and we've seen it.
It's like the North Star for US when you think in terms of adoption.
Well.
I think that the value prop stays the same in the in this.
That we described with the IPO that is that is a huge.
Number of meal repetitive stuff all wood there they are not automated yet and.
Our technology is the only one that can really address the long tail.
These.
<unk>.
And.
Adoption is production is solid.
Our cloud expansion groups, you'll know this this is a secular trend.
And Oh.
What we're really bullish on Oh.
Well not all prospects, we are not seeing softness in customer demand on the contrary this is from.
From all my meetings with the field I got another choice people people are seeing it's it's the pools the police that either.
And then on stock based charges.
We have a we continue to be in and Daniel really drives us.
A progressive strategy around our compensation I think the hiring numbers from last year.
Our continued to show the strength and belief in the excitement in our platform and the relevancy to so many people's lives and we look at our employee base and they're excited about the prospects in front of us.
The durability of our growth in the market is not something that is widely believed Arden cross our entire employee base in terms of stock based compensation, we look at that as a percentage of sales you know to be able to get you know do you.
Productivity as we go forward, we do not provide a forecast on this and again we're in the early stages of where we are the normal dilution that you would see in ever in any company, we look to stay within that range, 3% to 5% at maturity that is an area that where we feel very comfortable lesson, we don't see that as a.
Sacrifice in terms of attracting the talent and building the team required to deliver the numbers that we all you know that we're all committed to do.
I would like to with that over the years we've been.
I'd say very good in managing the dilution in the stock based.
Based on our own maintenance, we have one we have one of the best company I wasn't there so definitely we have.
Room for continued to incentivize our people if this is required.
Great well, thanks, guys I appreciate the color.
Thank you.
Next question comes from Terry Tillman with two of Securities. Please go ahead.
Well thanks for fitting me in a most all my questions have been answered, but I actually still do have some slots two really quick ones. The partner activity is impressive I mean, you're adding thousands of partners. It seems like but what I'm curious about is if you get share where you're seeing maybe more incremental traction or momentum, whether it's Isps I think paychecks might be one of those or size or vars.
Are any of those seemingly a lot further along and really kind of lifting the E. R. R. One thing and then my second question I'll just throw it out there now Daniel I think you talked about the uniqueness of having Linux based automation, but what are you seeing in the market with your your Linux offerings. Thank you.
In terms of those of partners. We are seeing good solid growth across all the segments, but obviously the ones that bring US you know the most significant business love the Gsi's.
We are we have.
Accenture for instance, it's a it's becoming one of all would love just partner the investment that we made maybe in the relationship is paying off.
Pwc for instance, it's one of our largest customers and partners, we are driving a lot of business with them and as they.
The recently announced that they are definitely 19.
Our relationship with Blue Prism, so they they basically are.
Focusing on us as their automation partner.
And.
Look in terms of the remarks based offering what do we have in the Cogs is but we are building what we call. Our survivalists offering that is the core component that will drive the adoption of robots hosting and our own cloud.
And on a long term basis.
Links robots and the container based robots will provide us with the economy of scale that is required to.
Do I have a lunch.
Lately sauce sklar with the base business.
Okay.
Thank you.
And ladies and gentlemen that ends our Q&A session for today.
I'll now turn the floor back to management for closing remarks.
I want to thank you all very much for participating in this afternoons call I also want to thank the you wipe off team for their hard work all of our partners for their dedication to our customers.
And our shareholders for your ongoing support and I want to reiterate our support for the people of Ukraine.
We look forward to speaking with many of you throughout the quarter. Thank you.
Thank you. This concludes today's conference all parties may disconnect have a great evening.