Operator
Greetings. Welcome to the UiPath first quarter 2023 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, this conference is being recorded. I would now like to turn the conference over to your host, Kelsey Turcotte, Senior Vice President of Investor Relations for UiPath. Kelsey, you may begin.
Kelsey Turcotte
Good afternoon, and thank you for joining us today to review UiPath's first quarter fiscal 2023 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 co-founder and co-chief executive officer, Rob Enslin, co-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 materials are posted on the UiPath Investor Relations website, ir.uipath.com. These materials include gap to non-gap reconciliations. We will be discussing non-gap metrics on today's call. This afternoon's call includes forward-looking statements about the impact of FedRAMP authorization, our ability to drive growth and operational efficiency, and our financial guidance for the second fiscal quarter and fiscal year-end 2023. 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 annual report on Form 10-K for the fiscal year ended January 31, 2022, and our other reports filed with the SEC, including our quarterly report on Form 10-Q and for the quarterly period ended April 30th, 2022, to be filed with the SEC. Forward-looking statements made on this call reflect our views as of today. We undertake no obligation to update them. 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. Before I turn the call over to Daniel, I'd like to inform you we will be holding our 2022 Investor Day during our Forward5 user conference on Tuesday, September 27th at the Venetian Hotel in Las Vegas, starting at noon Pacific time. Please save the date. Invitations with registration information will be forthcoming. Now I'd like to hand the call over to Daniel.
Daniel Dines
Thank you, Kelsey, and good afternoon, everyone. Thank you for joining us. I'd like to start by thanking the UiPath team for their hard work and their dedication to our customers during this turbulent time. I am pleased that first quarter results exceeded expectations. We reported ARR of $977 million, which grew 50% year over year. Net new ARR was $52 million, net of $5.5 million due to Russian sanctions. When we provided guidance in late March, we knew it would be a choppy quarter, particularly in Europe, given the ongoing geopolitical situation and macroeconomic environment. At the same time, both prospects and existing accounts tell us that automation is a long-term solution to this kind of volatility, which leaves us very optimistic about the business long-term. This year, We expect to cross the $1 billion mark in both ARR and revenue. And as we look ahead, we have aspirations to be multiples of the size we are today, which is why we have brought together a global team that has scale technology businesses of size, their leadership and experience built upon our current foundation. and will help drive the next chapter of sustained profitable growth at UiPath. Choppy macro environments typically reveal areas that can be improved. To that end, the team is focused on simplifying our go-to-market approach, starting with an alignment that will result in better market segmentation, higher sales productivity, and best-in-class customer experience and outcomes. We will be scaling through our emerging enterprise teams, which are more cost-effective, while at the same time increasing our presence with key accounts, where the expansion opportunities are significant, where we haven't had enough dedicated attention. Chris Weber, our new Chief Business Officer, is already driving teams to reach higher to C-level executives and instilling even better operational rigor on deal execution while reducing bureaucracy and organizational complexity. Our market opportunity continues to be significant as the amount of manual work in organizations and need for agility is only increasing. We continue to win in the market given the measurable return on investment we create for our customers and the breadth and depth of our platform. I have never felt more confident in the leadership team, the direction of the company, and our ability to build operating leverage while continuing to win this large market. Turning back to the quarter, We continue to see broad adoption across industries, ending April with more than 10,330 customers, including New Logos, Bridgestone Americas, Korea Investment Savings Bank, Dato, Udemy, and Virtua. We also had great competitive wins in this quarter with new logos like Zelis and DocuSign, which selected the UiPath platform, including the UiPath test suite to accelerate the time-to-value for new automations and UiPath integration service to combine the power of both UI automation and API integrations in a single workflow. We now have 1,574 customers that accounted for at least $100 in ARR on an annual basis. This includes 168 customers over $1 million in annual ARR. During the quarter, a global financial services and insurance company chose to standardize on our entire platform while phasing out a competitor. They are implementing automation across lines of business and plan to use document understanding, AIML, and test suite, as well as scale up citizen development. They have a corporate initiative to remove $100 million in cost by 2025 and see automation as instrumental in achieving their goals. We consistently hear from customers that our end-to-end platform focused on innovation and vision for the future of automation are important differentiators for UiPath and key to winning in the market. In the recent Forrester RPA Inquiry Spotlight 2022 between February 2020 and December 2021, Forrester analysts received the most inquiries about UiPath, 2.7 times the next vendor, while 72% of total conversations were focused on automation platforms. We continue to deliver on our promise to make platform deployment easier, faster, and simpler with the introduction of 22.4 our most recent platform release. A few highlights include general availability of automation cloud robots with two SaaS offerings. A VM automation cloud robot created on demand in automation cloud providing unattended robots and serverless automation cloud robots a pool of robots that we run selected automation jobs on demand, expanded integration options in our integration service, controls and templates to streamline app development, and new citizen developer access to AI-powered tools like Forms AI, document understanding, and test capture, security and compliance upgrades, that include every UiPath service now in scope for SOC 2 on automation cloud HIPAA attestation and support for MAX expansion in ready-to-go attended automations and support for long-running workflows in Linux. During the quarter, we also announced automation cloud public sector achieved FedRAMP in process status. FedRAMP authorization will increase our addressable market in the federal space where we already have a meaningful presence. All of these points to the considerable momentum that continues to build in our cloud business, which continues to be in hyper growth with cloud ARR more than doubling year over year. And to provide customers even more flexibility We recently introduced a new pricing model that allows for worldwide migration between on-prem and cloud. A great cloud customer case study is Global Healthcare Exchange, which started its automation journey with Automation Cloud. During this past quarter, they expanded with multi-year roadmap to apply automation to address more complex business problems leveraging document understanding for large-scale document conversion, AI computer vision to source images reliably from vendor websites, while rolling out a new citizen development program to accelerate internal adoption. We also continue to expand our partner ecosystem, making automation easier as both go-to-market and technical partners help customers deploy automations quickly and realize fast time to value. On the go-to-market side, partners like NCS are both deploying our platform internally as well as leveraging it to generate revenue and better serve their customers. A leading technology services firm in Asia-Pacific. NCS expects to deploy hundreds of automations within their organization and to create a UiPath automation practice focused on the delivery of the fully automated enterprise to their customers. From a technical perspective, we announced integrations with Adobe's Document Services and Adobe Acrobat Science. to help customers automate end-to-end document processes to drive productivity and scale in a secure manner. MindShift, a leading provider of automated prior authorization and real-time medical benefits check technology to enable better patient care faster by reducing manual operational tasks and introducing significant operational efficiencies. And Airslate, a fast-growing workflow automation company to empower individuals and small businesses to create, innovate, and automate to digitally transform their organizations to run faster, easier, and more efficiently. Before I turn the call over to Ashim, I'd like to welcome our new co-CEO, Rob Enslin. When I met Rob, I knew that he would be the right partner to help me lead UiPath. His roots were in development at SAP, where he went on to a series of increasingly senior executive roles. Based on his ability to build and lead organizations, his operational skills, and commitment to customers, Most recently, as president of Google Cloud, he led a team of several thousand employees that drove considerable growth at scale. While his experience and skills are important, it's Rob's personality and his passion for the power of automation which are a great fit for UiPath. I'll turn the call over to Rob for a few minutes to share his perspective.
Kelsey
Thanks, Daniel. It's exciting to be on the first of many earnings calls at UiPath. It's been just over two weeks since I formally joined, but I've been watching the company for some time. I've studied UiPath's platform, market opportunity, and competitive moat, and I'm convinced that in the automation, AI, and ML space, UiPath will be a leader that all companies will embrace over time. I've also been impressed by Daniel's focus on culture, which is the intangible that can create success or undermine potential. We have the opportunity to build a company that not only delivers disruptive technology to our customers, but is also defined by how we develop and empower our employees, care for our communities, and give back to our society. I've spent my early days doing what you would expect, meeting the team and some of our customers, and starting to form my view on where I can have the most impact. We have a powerful financial model, and at this scale, we can drive both growth and operational efficiency. I look forward to digging deeper into the business and meeting many of you over the coming months. I will turn it back to Daniel.
Daniel Dines
Thanks, Rob. I'll turn the call over to Ashim to talk in more detail about our first quarter results and provide guidance.
Rob
Thank you, Daniel. I also want to welcome Rob 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 ended the first quarter with total ARR of $977.1 million, up 50%, driven by net new ARR of $51.8 million. On a year-over-year basis, FX created an approximately $5 million headwind in the quarter, And we wrote down $5.5 million in ARR as a result of Russian sanctions. Our dollar-based net retention rate of 138% for the quarter reflects the write-down of Russia ARR. Net of the Russia impact, dollar-based net retention rate was 139%. Dollar-based gross retention rate was 98%. First quarter revenue grew 32% to $245.1 million. Normalizing for the year over year FX impact, which was an approximately $14 million headwind, revenue grew 39% year over year. We are seeing the large deals that have been in our pipeline starting to take shape, including one that we closed with a customer in the healthcare vertical in the first quarter, which helped to drive some of our first quarter revenue upside. First quarter remaining performance obligations increased 46% to $675.6 million. Normalizing for the year-over-year FX impact, which is an approximately $47 million headwind, RPO grew 56% year-over-year. Current RPO increased 45% to $424 million. Total gross margin was 85%, reflecting first quarter revenue seasonality and investment in cloud infrastructure. Software gross margin was 92%. We continue to invest in services and cloud hosting as we scale our cloud business. First quarter operating expenses of $219.1 million increased 49% driven in part by headcount additions and our annual employee merit cycle as we reward our top talent and focus on long-term employee retention. First quarter gap operating loss of $116 million included $101.5 million of stock-based compensation expense. Non-GAAP operating loss was $10.9 million. First quarter non-GAAP adjusted free cash flow was negative $53.8 million. As we mentioned on our last earnings call, we pay our annual corporate bonus and our fourth quarter sales commission in the first quarter. We continue to 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. And we have $1.8 billion in cash, cash equivalents, and marketable securities, and no debt. Let me now turn to guidance. One of UiPath's strengths is our global presence, which gives us diverse perspectives and access to talent. We price in local currency, and with more than 50% of our business conducted outside North America, our results are subject to foreign exchange volatility. We recognize that macroeconomic and geopolitical issues are impacting global markets, and the strengthening of the US dollar continues to create a currency headwind for our business. As we did in March, the guidance we are providing this afternoon contemplates the current operating environment and includes an FX headwind offset by growing momentum in the business. Please note, FX commentary is the incremental headwind to the numbers we discussed at the end of March. First, for fiscal second quarter 2023, we expect ARR in the range of $1.04 billion to $1.042 billion. This includes absorbing an approximately $3 million FX headwind. We expect revenue in the range of $229 to $231 million. This includes absorbing an approximately $5 million FX headwind. We expect non-GAAP operating loss to be in the range of negative 60 to negative $55 million. This includes absorbing an approximately $2 million incremental FX headwind. And we expect second quarter basic share count to be approximately 546 million shares outstanding. As a result of our strong first quarter, we are absorbing incremental FX headwinds and raising our full year guide for ARR revenue and non-GAAP operating margins. For ARR, we now expect ARR in the range of $1.22 billion to $1.225 billion. This includes absorbing an FX headwind of approximately $10 million. For revenue, we now expect revenue to be in the range of $1.085 billion to $1.090 billion. This includes absorbing an FX headwind of approximately $20 million. For non-GAAP operating income, we now expect non-GAAP operating income to be in the range of $10 million to $15 million. This includes absorbing an FX headwind of approximately $10 million. In summary, our pipeline continues to strengthen as some of our large deals take shape and progress through the sales process. Crossing the $1 billion mark, we remain laser-focused on realizing the efficiency that comes with scale to drive both short- and long-term operating leverage. and further increase our speed, agility, and customer centricity. Looking forward, we expect this combination of top line growth and bottom line efficiency to drive positive cash flow in the second half of the year. As Kelsey mentioned, please note that we will be hosting Investor Day on September 27th in Las Vegas, followed by our Forward Five user conference. 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 pull for questions.
Operator
At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. We ask that you limit your questions to one so that others may have an opportunity to ask questions. 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. Our first question is from Ramo Lenschal with Barclays. Please proceed with your question.
Ramo Lenschal
Thank you and congrats from me for the quarter and Rob, all the best in the new role. The question I had is, well, for all of you, probably more Ashim, is around the deals taking shape. So do you remember last quarter, you know, you were one of the first to talk about it because you kind of reported later. And that created a lot of questions amongst investors in terms of how how this will play out for you, if this was like macro as kind of people not signing deals or people kind of need to think how they shape the deals. You kind of made a couple of comments, Hashim, about that. Now, can you speak a little bit more to that one? You mentioned the one healthcare deal, but is there a little bit more color that you can give us there? Thank you very much, and congrats again.
Daniel Dines
Hey, Remo. Thank you for the question. And let me start first, and then I'll let Hashim give you more color. Look, I've been in a long trip before this earnings call, Europe and Asia, and I'm talking with a lot of customers. We are seeing a renewed interest for automation, and we are seeing also kind of a positive maturity on the big deal evolution through our pipe. But overall, in... This macro economical hand which put a lot of pressure on our customers to become more efficient. And they are turning to automation as one of the easiest way to navigate through these murky waters. Ashim, over to you.
Rob
I think, Raimo, thanks for the question. What we talked about last quarter was there was no denying the macro volatility. And we reiterated the fact that we weren't losing deals. Automation was important. These deals existed in our pipeline. It was just a question of uncertainty as our customers were gripping with the new realities that were hitting, a new war, inflation, et cetera. We're 30, 60 days later, and what we see is we see deals progressing through the stages of our pipeline, and as Daniel said, positive maturation in terms of the way they take shape. So as we look and we track deals through our pipeline and we see that movement, You know, we really feel we have more confidence or we've had moderated confidence on the conversion of those deals, and we reflected it appropriately in our guidance.
Ramo Lenschal
Okay, very clear. Thank you.
Operator
Our next question is from Brian Bergen with Cowan. Please proceed with your question.
Brian Bergen
Hi, good afternoon. Thank you. I've got a question here for Rob. So, Rob, as you step back and look at the business, Can you just talk about maybe your top one or two priorities as you think about the go-to-market function?
Kelsey
Sure, so three weeks in, so observations, talking to customers. I reiterate what Daniel and Ashim said. UiPath can play a meaningful role in these economies, and I see that happening. Now, we're gonna focus on digital sales. We're gonna drive digital sales. We're gonna get up into the key customer accounts, drive further adoption, higher customer satisfaction, to ensure that we actually get better returns for those customers, and we're going to expand the ecosystem and channel business.
Kelsey Turcotte
Next question, please.
Operator
Thank you. Our next question is from Kirk Materni with Evercore ISI. Please proceed with your question.
Kirk Materni
Yeah, thanks very much for taking the question, and Rob, congrats on the new post. Daniel, I was wondering if you'd just go a little bit deeper on some of the sales changes you guys are making under Chris, and I'm sure Rob's going to play a big role there, just in terms of how you're also leveraging partners to try to drive the sale higher in the C-suite. And I was wondering how those two things are interplaying with each other and what you're seeing with partners that gives you confidence that that sort of upsell or higher-level sale in the C-suites something you guys can do a lot more of going forward. Thanks.
Daniel Dines
Sure. We are looking to drive some incremental changes in our go-to-market that will focus us to be more customer-centric. And we'll also put more emphasis on the emerging enterprise sector that we believe is will help us you know get more new logos in a more efficient way i think the new partner strategy is to is to focus the top gsis more on the key accounts while we will have the long tail of partners focusing more on the emerging enterprise sector we believe that uh The strategy, this new strategy will allow us to focus more and provide faster adoption to our key accounts. Maybe, Rob, you also have something to add.
Kelsey
I'll just say, Tom, I think we can be very relevant in the office of the CFO, the heads of supply chain, sales leadership, marketing, and HR departments. I think we, together with the big GSIs, that's where we'll actually have some focus because that's where they actually have their expertise Their strength is in those departments, and our solutions really add value to that. So that's where we're going to focus with the big GSIs and the systems integrators.
Operator
Thank you. Our next question is from Keith Weiss with Morgan Stanley. Please proceed with your question.
spk09
Excellent. Thank you guys for taking the question. It's nice to see that pipeline developing better than expected. I guess it Carrying on sort of that last question, it sounds like there's some sense of a sales reorg going. Am I reading that correctly? Is this a larger than typical sales reorganization, and is there kind of execution risk that we should be aware of with Rob coming on board and sort of the changes that you're trying to put into place? I'm just trying to make sure that we ascertain sort of the level of change and the potential risk of disruption with what you guys are doing on the sales side of the equation.
Daniel Dines
Well, we are at the scale right now where we have to prepare this company to grow, you know, consistently and efficiently into the next stage. This is why largely we brought Rob and Chris to help us, you know, execute really well on this stage. So at this point, we are looking, as I said in my previous answer, to be more customer-centric, scale our emerging enterprise teams. We are looking also to globalize some function to be capable to be more consistent across the regions. So it's a balancing act between efficiency, consistency, and agility that we are trying to bring into our go-to-market.
Kelsey
But again, Rob, if you want to comment more. I think that, Keith, I think, as Daniel said, that's exactly where our focus is.
Operator
Our next question is from Michael Turin with Wells Fargo Securities. Please proceed with your question.
Michael Turin
Hey there. Good afternoon. Thanks for taking the question. Ashim, in terms of the outlook and just following up on the first question around large deals, I wanted to just focus in on what else changed versus last time. You've referenced guiding for what you're seeing most recently. So maybe if you can just expand upon any increased visibility you have now versus when you were guiding initially in March. And then the impacts of things like cloud, large deal assumptions. And just want to be clear, the FX headwinds that you referenced were those incremental versus what you had called attention to in 4Q, which I think was the 20 to 25 million in ARR. Just want to be crisp and clear, given the moving pieces here, as best we can. Thank you.
Rob
Yeah. No, that's great. Great question. When we sit back and we look at our guidance, we continue our guidance philosophy. We guide with what's in front of us. I think you stated that correctly. So let me start with FX, as that was a theme. The FX is a fact that's out there. as the Euro and the Yen continue to depreciate, and we factor that into our guidance as we've provided guidance in our current guidance that we've provided. We talked about the large deals. We monitor our pipeline very closely, and of course the top deals that are there, and we're pleased with the momentum and the movement. And I think that relates to the fact that our customers themselves are starting to get a handle in terms of navigating the environment. which takes them time to digest in terms of what else has changed. I would say everything else strategically with the businesses remains on course. So our cloud business remains strong. We were very, we're very optimistic about the customer response and the metrics around our cloud business. And we, one of the other areas is I think we see, we continue to see opportunities for efficiencies in our company. And that's why we've also increased our operating margin targets for the year. as we see opportunities both in emerging enterprises, as we talked about some of the sales realignment that Daniel referenced in the earlier comments.
Kelsey Turcotte
Yeah, and I just want to be clear. This is Kelsey. When you asked about FX, it is an incremental headwind to when we gave guidance at the fourth quarter call. And we also had some commentary on cloud that we expected it to be about, I think it was a 4% headwind. as we went through the full year.
Rob
And that 4% is not incremental. That's consistent with what we discussed 30 days ago. Exactly.
Operator
Our next question is from Mark Murphy with J.P. Morgan. Please proceed with your question.
Mark Murphy
Yes, thank you, and I'll add my congrats. So, Daniel, we've had a few software companies indicating that the month of April was softer, while the month of May... showed some signs of maybe getting back to normal. I'm curious if that aligns at all with what UiPath has experienced, and are you optimistic that Q1 could have been perhaps the trough for how we would think about the net new ARR growth year over year?
Daniel Dines
Well, We knew that Q1 is going to be a choppy quarter, and we have guided accordingly. We were seeing throughout the quarter, you know, a positive momentum, especially on the big deals, like that deal with the healthcare insurance company we closed in April, for instance, just really a positive momentum. positive news for us that gave us some tailwinds for the entire quarter. And as we are progressing into May, we are seeing a healthy pipeline creation. So we are cautiously you know, optimistic about how the business is shaping right now.
Rob
And, Mark, I would just point to our guidance. I think, you know, when you look at it, we guided between 63 and 65 million for IAR. So I think that kind of speaks to what we see the trajectory at this moment. In terms of are we at a trough in this, we'll continue to monitor and make sure that we're executing at a high pace to be able to execute in any environment. But I think our guidance speaks to kind of like where we see the trajectory right now.
Operator
Our next question is from Michael Turretts with KeyBank. Please proceed with your question. Hey, guys.