Operator
Greetings and welcome to the UiPath 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.
Kelsey Turcotte
Good afternoon, and thank you for joining us to review UiPath's 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 Dines, UiPath's co-founder and chief executive officer, and Ashim 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 UiPath investor relations website, ir.uipath.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 and fiscal year 2023, our expectations regarding the acceleration of digital transformation, the impact and duration of headwinds, and expectations regarding our dollar-based net retention rate and fiscal year 2023 ARR. Actual results may differ materially from those expressed in the forward-looking statements due to many factors, and therefore, investors should not place undue reliance on these statements. For a discussion of the material risks and uncertainties that could affect our actual results, please refer to our earnings release and other reports filed with the SEC. Forward-looking statements made on this call reflect our views as of today. We undertake no obligation to update them. Before I turn the call over to Daniel, I would like to highlight that this webcast is being accompanied by slides. We will post the slides and a copy of our prepared comments to our investor relations website immediately following the conclusion of this call. Now I'd like to hand the call over to Daniel.
Daniel Dines
Thank you, Kelsey, and good afternoon, everyone. We have a lot to discuss, so I'm going to break my comments down into sections. I'll start with a quick review 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 our new chief business officer. Before any of that, I want to acknowledge the events unfolding in Ukraine. Our thoughts and prayers are with the 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 freedoms the Ukrainians are fighting to protect. Amidst all of this, I'm extremely proud of the UiPath team. Among the many things we are doing, we have donated more than $1.5 million in support, and our 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, and we will continue to look for ways to help. Turning to the business, we deliver a very strong fiscal year 2022, marked by important milestones like our IPO, market-leading product introductions, industry analyst acknowledgement of our leadership position, and meaningful growth We have executed well, laying the foundation and attracted leaders who have experience to help us scale. We expect that by the end of fiscal 2023, we will have exceeded the $1 billion mark in ARR and revenue. Fourth quarter net new ARR grew 72% year over year, reaching a record $107 million. This drove total ARR to $925 million, an increase of 59% year-over-year. Our continued growth at scale reflects broad-based adoption of our end-to-end automation platform and our focused execution. Automation is critical to digital transformation and to unlock new levels of innovation, agility, and productivity. Our Lend 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 10,100 customers, including New Logos, Deliveroo, Auburn University, ABM Industry, and Bechtel AG. We now have 1,493 customers that accounted for at least $100,000 in ARR on an annual basis, up 49% from the prior year. This includes 158 customers over $1 million in annual ARR, up 78%. From a product perspective, these results are driven both by customers deploying more software robots and by accelerating adoption of our broad suite of capabilities. Our end-to-end automation platform is the key differentiator for us as we help customers accelerate their automation lifecycle. This includes paychecks. Paychecks has saved more than 425,000 manual hours with more than 35 million bought transactions. They now have over 40 workflows in production. and are expanding adoption and operationalizing intelligent automation capabilities for test mining and process mining, which help them identify opportunities to save another 40,000 hours annually. We continue to expand platform deployment options with automation cloud robots, which allows our customers to deploy unattended robots instantly without IT resources or infrastructure. We already offer a SaaS option for almost every UiPath product, and Automation Cloud Robots brings us even closer to a fully SaaS platform hosted in our cloud. As of the end of the fourth quarter, cloud, which includes both hybrid and SaaS deployments, has grown to more than $140 million in ARR in just over two years. We ended the quarter with more than 3,800 cloud customers with approximately 55% of our new logos selecting cloud in the quarter. This includes companies like Snowflake and Recipe Unlimited. Our focus on innovation continues to strengthen our leadership in the automation market, and we are excited about our upcoming platform release in May. UiPath 2022.4 delivers the next-gen automation cloud, which continues our progress towards frictionless development and faster time to value, expands automation access for all, and raises the bar on security and compliance. We also continue to expand our go-to-market ecosystem. We ended the quarter with approximately 5,100 partners, building a best-in-breed go-to-market ecosystem requires us to sell with global GSIs and automation experts, as well as enable a broad range of organizations with distribution capabilities like Ingram Micro. These collaborations include CELTO, like with Deloitte, which has decided to expand their UI path usage for their internal automation journey. Sell with and sell through during the quarter we closed several new and expanded partnerships, including Finestra and ISID. Finestra, a UK-based global financial software company, plans to bring the power of UiPath automation to financial institutions worldwide. The first phase of this partnership will leverage Finestra's secure cloud platform to allow partners and automation creators to build and sell offerings to the financial market. Additionally, Finestra expects to include UiPath capabilities in their own offerings, which they will monetize directly with their customers. While ISID Group, a leading Japanese system integrator, is using automation to respond to Japan's tightening employment environment. Many leading Japanese companies are responding to this issue through digital technologies, and ISID is developing a unique digital human resources development service based on the UiPath 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 growth, And I want to welcome Chris Weber, who is joining us to lead 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 their corporate and SMB commercial teams. He also led Nokia's reentry into the North American market. He has scaled multiple businesses to billions of dollars and brings an entrepreneurial approach, a genuine customer-first orientation, and the passion for the role that automation plays in digital transformation. I would also like to thank Thomas Hansen for his partnership and contributions to UiPath over the last two years and for his 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 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 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 UK. We are also starting to hear customers in the US express reservations about both political uncertainty and rising interest rates. As we start 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 improve profitability as we scale the business. In summary, we had a strong close to our first year as a public company. I've said it before, and I truly believe it. We are building a multi-generational company, that will change how employees experience work and unlock human potential. Looking ahead to fiscal 2023, digital transformation is accelerating and UiPath is at the forefront of that evolution. With that, Ashim will take over to talk in more detail about our fourth quarter results and our fiscal 2023 guidance.
Kelsey
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 ARR of $925.3 million, up 59%. driven by record net new ARR of $106.9 million, which grew 72%, and exceeded the $100 million mark for the first time. Full-year net new ARR totaled $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 a 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 US, a leader in 5G, which began their automation journey with UiPath a couple years ago. Initially, T-Mobile was focused on process automation and supply chain and finance. They have recently expanded their use of the entire UiPath platform by adopting process and task mining, document understanding, and automation cloud. Going forward, T-Mobile intends to leverage process and 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 Africa's largest telecom companies by revenue and market cap. To achieve their objectives, which are also tightly linked to the customer experience, Vodacom has deployed 135 unattended software robots, which have delivered today over 1.2 million hours saved, 1.3 million in OpEx savings, and 19.5 million in revenue enablement. Their next step is to launch an organization-wide citizen development program for their more than 6,000 employees to drive discovery, scale, and unleash 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 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 points FX headwind to RPO growth. CRPO 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-gap operating expenses of $213.7 million increased 39%. The increase in expenses was primarily driven by headcount additions, and we ended the year with 4,013 employees. As we look ahead to fiscal year 2023, we expect hiring to be measured given our investments in fiscal year 2022. Fourth quarter gap operating loss of $50.9 million included $77 million of stock-based compensation expense. Full year gap operating loss was $500.9 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 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 is an important part of our growth profiles. Approximately 30% of our business is 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 US 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 ARR. of which $5.5 million will be in the first quarter. In addition, at current FX rates, we estimated an ARR headwind of approximately $5 to $10 million for the first quarter and approximately $20 to $25 million for the full year fiscal 2023. For revenue, we expected FX headwind of approximately $10 to $15 million for the first quarter and $25 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 UiPath platform to their digital transformation efforts and our differentiation from our competitors. I also want 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 ARR, 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 ARR to be in the range of $960 to $965 million. We expect revenue to be in the range of $223 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 ARR to be in the range of $1.2 to $1.21 billion. We expect revenue to be in the range of $1.075 to $1.085 billion. And we expect non-GAAP operating income to be in the range of $0 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 ARR to comprise approximately 35% of full year net new ARR 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. 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 amortized 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 in 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'll now take questions, and I will turn the call over to the operator. Operator, please poll for questions.
Operator
Thank you. And at this time, we'll be conducting our question and answer session. We will allow for one question and one follow-up question from each analyst. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. 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. And our first question comes from Raimo Lenshaw with Barclays. Please state your question.
Raimo Lenshaw
Thank you. Two quick questions from me, and congrats on a strong end of the year. First question is, you know, I appreciate it's 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, did you kind of assume lower closure rates? Because you know your pipeline, so I would assume it's the closure rate thing that drove the guidance. And then the second point is on the changes to the go-to-market model. I know we have a new leader, and it's kind of maybe a little bit too early to talk about it, but would we expect, like, significant changes there? Thank you.
Daniel Dines
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 in... Right now, we are... we are seeing the impact of the war in Ukraine. And as you know, we have a sizable business in Europe. It's more than 30% of our business. And we are seeing uncertainty in Europe. In the last month, we have all experienced some deterioration on the global macroeconomical climate. And we have... accounted for kind of normal distractions caused by the leadership transition. On the leadership transition, first of all, I can thank once again to Thomas for his contribution. He's a great leader, and he helped us in the last two years scale from less than half a billion to, you know, what we got today, more than 1 billion in error and, uh, revenue. And as a, you know, for the folks that know us, we always are proactively trying to bring 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, uh, I know Chris for a while. He's been in my network for a while. He's an amazing business leader that has experience of scaling businesses at this stage and beyond. He's an inspirational leader. He's really well connected to our customers. I believe that he and the rest of executive team will continue to drive this business to really solid growth. The business opportunity is here. Demand is here. We are bullish for the business was the, for the rest of the years, we've been capable of distancing ourselves from the pack. We are the undisputed leaders in the automation and, um, Overall, we are all seeing really good, great business prospects. Hashim, you can add to this.
Kelsey
Yeah, I think, Raimo, just on guidance in terms of the assumptions that we had, half of our guidance is very quantifiable directly. So I just want to make sure we walk down the impacts. So with Russia, it is quantifiable that we have a $15 million impact on Russia. We mentioned in the script that $5.5 million of that $15 million is literally just from the from the appropriate accounting of the businesses that are there. And then the balance is just from the fact that Daniel has made the decision for now to take a pause with our Russia business. The second piece of it is FX. So FX has between a $20 and $25 million impact for us. We roll forward our guidance to current FX rates. And that both includes our sizable business in Russia. 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 is we look at our pipeline, and we have a very strong pipeline, as Daniel mentioned. There's a number of large deals, which we're excited about. We've won those deals in the sense of they're 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 to date, which is the balance after you subtract out the 15 for Russia and the 20 to 25 for FX.
Raimo Lenshaw
Okay, makes sense. Thank you.
Operator
Next question comes from Keith Weiss with Morgan Stanley. Please state your question.
Keith
Got it. Thank you, guys, for taking the question. And a very nice quarter in Q4. It may be sort of tailing on Raimo's question. So, obviously, we're trying to wrap our heads around sort of the juxtaposition of what was a really strong Q4 and seeing, even on an adjusted basis, 60% growth in net new ARR. And if I'm doing my math right, the forward guide assumes about 18 million or sort of 18% decline in net new ARR for the full fiscal year FY23. If we think about sort of the operating margin side of the equation and the optics side of the equation, Can you walk us through kind of the response on that side? You mentioned kind of slowing down hiring. But if you're expecting to sell 20% less, basically, net new ARR, is there more that you should be doing on that 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 bottom line if we are going through this period of weaker demand?
Daniel Dines
Thank you. You know, first of all, I would like to – Thank you for your nice words about the quarter. We believe that we had a solid year. We are really pleased with the results. Going on to the guide. Again, I will reiterate that we are guiding from what is in front of us. We assume that the headwinds will continue to for the rest of the year. We are looking always to balance the growth and the productivity for the company. Our business, we are looking to drive our business to an excessive rule of 40, taking ARR and free cash flow into account for a longer term prospect of the business. Nothing has changed in the fundamentals of the business. And I will let Ashim to comment more on the margins.
Kelsey
Yeah, I mean, Keith, I also just want to start with the point on the 18% decline in net new ARR. 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 environment that we talked about, we believe just kind of stays in line with the prudent guidance philosophy that we have had from the very beginning of our journey here. In terms of operating margin, I don't characterize the hiring as 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 really take advantage of the market, not just for 23, but also for 24 in the sense of we'll continue to invest for the long term. At the same time, at our scale, we're crossing a billion dollars. We believe that it is important to demonstrate and show that we can both grow as well as grow profitably and And the balance of leverage is something that is important to us and our leadership team.
Keith
Got it. That's super helpful. Thank you, guys.
Operator
Our next question comes from Phil Winslow with Credit Suisse. Please state your question.
Phil Winslow
Hey, guys. Thanks for taking my question. Congrats on a strong close of the year. Just actually, my question is sort of in that context of a strong close because, as you pointed out, the net new ARR actually accelerated its strongest quarter of the year. But if I kind of break it down into dollar-based net retention as well as just new customer growth, it seemed like new customer growth was particularly strong and DBNRR was high. So I guess 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 DBNRR Are you hearing from existing customers that they're going to be pausing forward plans? Or is this more of just new customers you think are going to be hard to acquire? Maybe just kind of break it down that way and then just one follow-up.
Kelsey
Yeah. When you look back historically at us, Phil, 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 the impacts that are beyond our control, which is Russia – and foreign exchange, I would continue to split within those two realms. And then that math and 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 with the macro environment. We're really just looking at the prudent assumption around large deals. which, again, I think I would just assume the same split as kind of the historical expansion versus new logos. What I do want to reiterate, and Daniel can 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 they're 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 About it, I can say personally, like, you know, we talked about in the script around some of the customers, and Daniel can comment on T-Mobile and other areas. Like, we still feel enthusiasm from our customer base, and we're investing like that. I'll turn it over to Daniel to give more color on that.
Daniel Dines
Yeah, we are seeing really good momentum across customers, partners. I spend a lot of time on the field with our people. demand is there. I want to remind you that we are operating in a very big time. It's in the early innings of this industry. And we remain very bullish on our prospects.
Phil Winslow
Got it. And then just in terms of sales productivity, I mean, it seems like we've seen a slight trend up in that over the course of the year. What do you think of sort of, well, first off, I wonder if you could just comment on that, what has been driving some of that uptick? I mean, excluding, obviously, the impact from the amortization you talked about, but I wonder if you could talk about just sort of sales productivity and the trend over the course of this year.
Daniel Dines
Well, sales productivity has been increased constantly over the past three years, and it's really one of the main drivers of you know, net new era that we want to bring in the company. We really put a lot of focus on driving sales productivity, measuring across the field, velocity. We made great investment in our velocity team. It's performing extremely well. So it's really one of the levers that we pull hard on driving our business.
Phil Winslow
Great. Thanks, guys.
Operator
Thank you. Our next question comes from Brad Sills with Bank of America. Please, to your question.
Brad Sills
Oh, great. Thanks, guys, for taking my question. I wanted to ask about some of the comments you made around U.S. in North America. I think you were saying you're being prudent on your kind of forecast backing your guidance in the region just based on potential uncertainty, or was that more just a pause that you're already seeing from customers? in the region?
Kelsey
Yeah, Brad, like we kind of, you know, 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 on shore to. 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 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, we do feel like being prudent is the right way to think about it. Um, the second piece of it is the profile of the large deal. So like, you know, in terms of just whether that be duration or size, those are things that with the environment, you know, we see, we see customers kind of reworking their own internal budgets just across the board. Um, automation is still well-funded and, The question is just kind of what are the commitments that we have, and I think we're going to get more clarity of that through the year. And so starting the year, we feel like this is the right way to inform our investors.
Brad Sills
Understood. Thanks, Ashim. And 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 RPA to the cloud? What are you hearing from customers there? And any more caller you can help with understanding that impact. Thank you so much.
Daniel Dines
Cloud is our first growing business at this moment. We are investing heavily into the cloud. We are very happy with the release of robots that are hosted into the cloud that will further accelerate the cloud business. And for... Our entire product strategy is around cloud. I want to remind you that we are a cloud first company. We deliver everything in the cloud first and then we go to achieve parity on prem and hybrid deployments. I will let Ashim to comment more on the revenue headwinds because of the cloud transition.
Kelsey
You know, we mentioned in the script we've crossed $140 million in change, so to speak, on our cloud business. We're really, you know, we're very pleased with that progress. Like we've talked about in terms of return on investment, 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 modelings. You know, we've assumed right now that we're, you know, moving a little bit ahead of where we've historically thought, you know, in terms of where we are. And we feel very good about the quantification of the headwind that cloud gives to revenue. I do want to, again, emphasize is, you know, we do run the business to ARR. And so the cloud is, you know, the ARR normalizes for that. And this is one of the reasons why we started disclosing and guiding from the very beginning. in terms of how that looks and 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 maintained. So, you know, we said that we've guided the 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 in maintaining our margin basis, even with the cloud adoption.
Brad Sills
Thanks, Ashima, Daniel.
Kelsey
Thanks, Brad.
Operator
Next question comes from Fred Havemeyer with Macquarie. Please say your question.
Fred Havemeyer
Hey, thank you very much. Congratulations on the strong numbers coming out of Q4, and I certainly appreciate what you're describing, Ashim and Daniel, in terms of guidance. I wanted to ask, are you seeing any significant changes in the competition that's appearing in your deals, or who are you – sorry – who your customers are considering now that ServiceNow and others are more aggressively positioning themselves in RPA and more broadly automation?
Daniel Dines
We are not seeing really any increase in the competitions. On the contrary, we are seeing less competitive pressure in the deals. We can comment if you are interested on various major players that we are seeing in the business. In terms of our traditional specialized competitors, we are really seeing less and less of them. We are replacing Blue Prism and Automation Anywhere in many customers. And speaking about the new entrants like Microsoft and ServiceNow, we are... We really, we are not seeing them that much. I can comment on both specifically if you are interested.