UiPath, Inc.

Greetings and welcome to the UiPath second quarter fiscal year 2024 earnings conference call. At this time all participants are in a listen only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to turn it over to our host, Kelsey Turcotte, Senior Vice President, Investor Relations. Thank you. You may begin.

Great. Good afternoon, and thank you for joining us today to review UiPath's second quarter fiscal 2024 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 co-chief executive officer, Rob Enslin, co-chief executive officer, and Ashim Gupta, chief financial officer. Rob will start the discussion and then turn the call over to Daniel. After that, Ashim will review our results and provide guidance. Then we'll open the call for questions.

Earnings press releases 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 our ability to track growth in operational efficiency and our financial situation in the full year fiscal 2024.

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,

for the year ended January 31st, 2023, and our other reports... July 31st, 2023, 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. Finally, we invite you to join our user conference, Forward Six, next month in Las Vegas from the evening of Monday, October 9th through Wednesday, the 11th. Please reach out to the investor relations team for details. I would like to highlight that this webcast is being accompanied by slides, which includes an embedded AI demonstration video. We will post the slides and a copy of our prepared comments to our investor relations website immediately following the conclusion of this call. And with that, I'll hand the call over to Rob.

Thank you, Kelsey, and good afternoon, everyone. Thank you for joining us. Second quarter was incredibly busy. Highlights include the delivery of exciting new AI platform capabilities and several high-energy in-person customer events around the world. All of them standing room only. Not surprisingly, AI is at the top of everyone's agenda. Digital transformation, the automation plays a strategic role, has never been more important or with the latest evolutions in AI more powerful. Customers are excited about the value we deliver and recognize that our platform, which has been infused with AI since inception, provides an integrated set of capabilities that combines the best of our specialized AI and governance with the creative power of Gen AI, making the potential of automation almost limitless. And we aren't just talking about AI. We deliver on the promise of AI and automation today across our platform. In particular, communications mining and document understanding are generating a lot of excitement with Graham Sheldon, our Chief Product Officer, will demo in a few minutes. Turning to the numbers, we ended the quarter with ARR of $1,308,000 and an increase of 25% year over year. driven by second quarter net new ARR of $59 million. We have approximately 10,890 customers, including new logos like Australian Postal Corporation, Leroy Seafood, Holmes Murphy & Associates, Dayong Pharmaceutical, and Arrow Foods Distribution. Customers with $1 million or more in ARR increased more than 30% year-over-year to $254, while customers with $100,000 or more in ARR increased to $1,930. Second quarter revenue was $287 million, an increase of 19% year-over-year. Non-GAAP operating margin increased from negative 5% in the second quarter of last year to positive 10% in the second quarter of this year. As we progress towards our 20% plus long-term operating margin target and we delivered $47 million in non-GAAP adjusted free cash flow, a continuing reflection of our growing scale and focus on efficiency. Given that the macro environment continues to be variable, I am pleased with our execution and results. The cohort of customers of $100,000 or more in net new AR is performing well. Value selling is driving platform adoption, and these deals are typically expansions where we have a good line of sight into deal progression. The low end of the market has been harder to call, particularly in new customer acquisition. I want to be clear, we feel good about the business and the role automation plays in digital transformation. We continue to execute against our strategic initiatives and there's a nice pipeline building as we move into the second half of the year. Two quarters ago, we formally launched our new go-to-market strategy to improve productivity, sell the platform, and intensify focus on customers that represent the longest and largest long-term opportunities for us. The team transitioned well to our new segmentation model and is embracing the broader platform opportunity. In go-to-market, we continue to invest in industry verticalization, both in people and enablement tools, which is yielding nice results. We saw particular strength in banking and financial services, manufacturing, and technology in the second quarter, including great new logos like Performant Healthcare Solutions, First City, Monument Bank, and St. Peter's Healthcare System. Expansion deals in the quarter included Mitsubishi Materials Corporation, a customer since 2017. They expanded to the full platform as they look to grow the automation program across the company. In addition, our industry expertise gives us unique insights that we can leverage across our customer base, including tools like our solution accelerators. We now have more than 60 available to customers. A Texas-based digital health system recently automated their claims form intake process. Using our accelerators, they expedited their design to deploy time from more than eight weeks down to just two. The foundation of every sales engagement is defining the value of our end-to-end platform, which helps customers accelerate their automation programs, drive operational efficiencies, and consolidate spend. During the quarter, Saudi National Bank expanded to the full platform as they plan to take their already mature automation program to the next level. Driving rapid digital transformation and using the full range of our capabilities in our platform, is a board-level priority that is actively sponsored by the chief technology officer and the chief operating officer. Platform adoption is also driving competitive displacements. A great example is a Fortune 500 oil producer and a UiPath customer since 2018, with over $10 million in cost savings to date. In a competitive takeout that expanded to incorporate document understanding, and process mining into the automation program as they look to consolidate one AI-enabled platform. Looking forward, they plan to leverage our Northstar value model to identify expansion opportunities across additional lines of business. Not only is Northstar helping to build pipeline, it also draws several strategic deals in the quarter. Using Northstar, the team delivered a comprehensive view of operational excellence and tangible value automation could deliver to a financial services company. And as a result, the customer expanded to the full platform, including process mining, document understanding, communications mining, and test suite. As part of our new segmentation, we have tasked our emerging enterprise team with driving both customer acquisition and early stage expansion. And as an example, Aprio, a provider of specialized IT solutions, started their automation journey several years ago and recently engaged with UiPath to clearly define how automation can accelerate their growth trajectory. This resulted in a multi-year, seven-figure full platform deal to help them achieve rapid market expansion in healthcare operations. Industry analysts are also recognizing our platform capabilities. UiPath was recently designated as a leader in the Everest Group Intelligent Document Processing Products Peak Matrix Assessment 2023. This is the first time UiPath has been named as a leader in intelligent document processing and the only leader recognized as a star performer for the biggest year-over-year advances. We also named the leader in the Everest Group Process Mining Products Peak Matrix Assessment 2023 and the Everest Group Task Mining Products Peak Matrix Assessment 2023. Our partner ecosystem is key to evaluating our market leadership position, growing our share of wallet across key accounts and delivering best outcomes for our customers. One of many partner-led customer success stories is with Ashling Partners. was help ADT build a transformational automation program across its operations and customer service. This quarter, that program expanded to ADT's call center to provide customer service agents with a single plane of glass to reduce data entry, troubleshooting, and other time-intensive tasks. We're also making great progress with SAP, engaging with customers and building a joint pipeline. During the quarter, a German agricultural company challenged by the S4 migration selected UiPath in a competitive win based on our holistic integrated platform. They are in the process of implementing test suite for regression testing on the S4 migration and testing of all SAP modules. They also plan to automate processes in their finance department and incorporate process mining and AI into the automation program. Before I move on, I want to highlight that our board of directors has authorized a $500 million stock repurchase program, which underscores the confidence we have in our business, our ongoing cash flow generation, and the strength of our balance sheet. In summary, we delivered another solid quarter of execution against a variable economic backdrop. We started to see the benefits from the go-to-market changes we implemented two quarters ago, And we'll continue to exercise expense discipline while investing to extend our market leadership. And with that, I'll turn the call over to Daniel.

Thanks, Rob. Good afternoon, everyone. Before I begin, I want to thank our team members for their relentless commitment to building UiPath, serving our customers, and delivering our market-leading AI-powered automation platform. I believe we are now at an inflection point with AI and I am excited to have more time to focus on this next important evolution for the company. This is a time of unprecedented technology advances. Having said that, AI has been an integral part of our platform since inception, starting with our original core capability, computer vision. which allows software robots to see and understand screens. Today, our entire platform is infused with AI, and we are at the cutting edge of the quickly evolving intersection of AI and automation. To be effective, generative AI needs context, which our software robots can deliver by gathering information from across the enterprise in data, documents, CRM, ERP, and beyond. It also needs our platform to take action and operationalize the promise of AI today with an integrated set of capabilities that combines our specialized AI with generative AI. And finally, it needs the governance our platform provides to help customers overcome a significant barrier to adoption. Looking ahead, we expect this next evolution of GenAI to be a tailwind to the business, helping customers create better, more resilient automations more quickly and opening up novel use cases that facilitate the automation of even more processes. First, we are enhancing developer productivity by reducing barriers to development with copilot-like experiences, and project Wingman, which we showed you during last quarter's earnings call. At the AI4 conference in mid-August, we officially launched Wingman into private preview, and we are already seeing strong demand from customers. Wingman brings together our AI computer vision's deep understanding of computer screens with GenAI, and is designed to enhance automation creation for both business users and developers through a user-friendly experience. Second, we are leveraging GenAI to make our products better. For example, in document understanding and communications mining, we leverage specialized UI path models to classify and extract information augmented by generative models to achieve faster time to value and higher accuracy for unstructured data processing. And third, the next wave of innovation will allow our customers to identify and enable more advanced automations capable of handling even the most complex processes. To give you a better sense of how this all comes together, I'm going to share a demo narrated by Graham. While this scenario has been simplified for earnings format, this is a use case that should resonate with many of you. If you are not on the webcast, please go to our investor relations website homepage for the demo link.

Meet Connor. He's got his heart set on the house of his dreams, and he needs a mortgage fast. Fortunately for Connor, he applies for a loan with Goldner Bank, a fictional corporation which uses UiPath AI-powered automation to streamline the loan application process. It's fast, accurate, and incredibly efficient. Next, let's meet Linda. She's a lending specialist that uses UiPath AI-powered automation to approve his mortgage. We'll start with taking a quick look at how things were done in the past. Before UiPath automation technology, specialists like Linda had to manually process each application from a centralized mailbox, review the documents, validate them for accuracy and completeness, and tailor a response to each applicant. It was time-consuming and tedious. But now, using AI-powered automation from UiPath, Goldner Bank now automates the entire end-to-end process, and Linda is pretty happy about that. First, using UiPath communications mining, AI classifies the incoming email as a loan application and marks it as urgent. Next, we can see the email contains three attachments, the loan application, a photo of Connor's ID card, and a proof of employment letter. With UiPath Document Understanding, the bank uses a combination of generative AI and specialized AI to quickly extract information from each of these attachments. Connor's ID is a photo, and we use a built-in specialized model from UiPath to extract key information. Connor's loan application is a structured document, and we extract information using a specialized model that was trained specifically with Goldner Bank's data. It used to take months to label this data, but now it only takes a moment by using generative AI to predict the labels. Finally, Connor's employment letter is an unstructured document, so we use the UiPath generative extractor to find the key information. UiPath brings together the broad capabilities of generative models with the accuracy of our specialized models. UiPath starts processing the application by submitting all of this information into the loan processing system using our software robots. The system quickly identifies missing information then uses generative AI to draft an email back to the applicant requesting the missing information. In this case, Connor forgot to attach his pay stubs. At this point, UiPath sends all the application details and a draft of an email back to Linda for her review. Having the capability of involving humans in the loop is critical for organizations. So ensure that the use of AI is well governed and follows their policies. With our AI-powered automation platform, Goldner Bank can easily automate complex end-to-end processes just like this. And best of all, thanks to our fast mortgage approval, Connor gets the home of his dreams.

What you saw in the demo is our ability to, first, provide context. Second, leverage both specialized AI and gen AI with an open, flexible, and responsible platform. And third, allow customers to drive action through our built-in models, their own custom models, and deployment of best-in-class external models. The result? is a speedy resolution and smoother experience for Connor, efficiently and savings for Gallner Bank and more time for Lisa to spend with customers. Our constant innovation drives our growth and is essential to providing our customers with market-leading capabilities. Looking across the platform, we have established a competitive mode which is bolstered by our more than 850 patents globally, either granted or in the application process. Inside that number, there are more than 300 specific to AI, which we expect will grow as we continue to invest. Finally, we invite you to join our user conference, 4 or 6, next month, in Las Vegas, where you are invited to kick off Cocktails on Monday, the 9th, followed by our main event on the 10th and 11th. We will be showcasing our latest platform release, 23.10, which introduces new generative AI developer and end user experiences across our platform to help customers build real-world automations faster than ever before. Please reach out to the investor relations team for details. With that, I will turn it over to Ashim.

Thank you, Daniel, and good afternoon, everyone. Unless otherwise indicated, I will be discussing results on a non-GAAP basis, and all growth rates are year-over-year. Turning to the second quarter, ARR totaled $1.308 billion, an increase of 25%, driven by net new ARR of $59 million. Excluding the FX headwind, net new ARR totaled $61 million. Included in this total is more than $500 million in cloud ARR, both hybrid and SaaS, an increase of more than 125%, as customers continue to adopt our cloud offerings. For example, Scotiabank, who chose UiPath to further scale their global automation program as they move to the cloud and plan to utilize our AI capabilities, document understanding, and unattended automation. Our dollar-based net retention rate for the quarter was 121%. Normalizing for FX, our dollar-based net retention rate was 125%. Dollar-based gross retention of 97% continues to be best in class. Revenue grew to $287 million, an increase of 19% year-over-year. Normalizing for FX impact, which was an approximately $3 million tailwind, revenue grew 17%. Remaining performance obligations increased to $905 million, up 28% year-over-year. Normalizing for FX impact, which was an approximately $4 million tailwind, RPO grew 27%. Current RPO increased to $560 million. Turning to expenses, we delivered a second quarter total gross margin of 86%. Software gross margin was 91%. Second quarter operating expenses were $217 million. The restructurings we announced in fiscal 2023, combined with our go-to market segmentation, have created an organization that's increasingly efficient and scalable. and one which gives us ample room to continue to expand margins without sacrificing investments to grow the business. GAAP operating loss of $78 million included $102 million of stock-based compensation expense. Non-GAAP operating income was $30 million, resulting in a second quarter operating margin of 10%. Second quarter non-GAAP adjusted free cash flow was $47 million. We ended the quarter with $1.8 billion in cash, cash equivalents, and marketable securities, and no debt. And, as Rob mentioned, we are pleased to announce a $500 million stock repurchase program this afternoon. Now, let me turn to guidance, which assumes the overall macroeconomic environment continues to be globally variable. For the fiscal third quarter 2024, we expect ARR in the range of $1.359 billion to $1.364 billion. Revenue in the range of $313 million to $318 million. Non-GAAP operating income to be approximately $32 million. And we expect third quarter basic share count to be approximately 567 million shares. For the fiscal full year 2024, we expect ARR in the range of $1.432 billion to $1.437 billion. Revenue in the range of $1.273 billion to $1.278 billion. Non-GAAP operating income to be approximately $188 million. This translates to a non-GAAP operating margin of approximately 14.7%. an 850 basis point increase year over year. And finally, we expect fiscal year 2024 non-GAAP adjusted free cash flow of more than $250 million, or 20% adjusted free cash flow margin. As we head into the second half of the fiscal year, the team remains focused on innovation and driving the best possible outcomes for our customers and partners. Customer success is at the core of everything we do, and also the foundation for profitable growth and long-term shareholder value. Thank you for joining us today, and we look forward to speaking with many of you during the quarter. With that, I will now turn the call over to the operator. Operator, please poll for questions.

Thank you. And ladies and gentlemen, we'll now conduct our question and answer session. Please limit yourselves to one question and one follow-up question per each time that you queue. 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 star followed by the number 2 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. Our first question comes from Remo Lenschel with Barclays. Please state your question.

Perfect. Thank you. Congrats from me. One question on the, in this new world where AI is getting more and more important, what do you see in terms of your customer conversations with budgets still kind of limited from the budgeting cycle last year? Like how does it play out for you and how are you competing for budget dollars in this sort of environment where you know you need to spend more on AI, but you know the money needs to come from somewhere else? And how does it fit to overall spending? Thank you.

Yeah, Remo, I would say it's positive for us, the discussion around AI. I think it helps infuse the platform. Our message around specialized AI and generative AI together has really come through. Customers are generally confused by all the announcements that happen in the market, and they like our approach of AI. showcasing how we've actually bolted into the product with Wingman and Jarvis and other solutions, and document understanding, which we actually showed, which actually helps the platform be more valuable to them and helps us drive the platform to more important consequences.

Yeah, I'd like to add that more customers are realizing that automation is a great means to get more value from generative AI. Actually, even today, I was talking to one of the largest airlines in the world, one of our biggest customers, and they highlight how they plan to combine Gen AI with automation in their customer service. So I would say that it's a great tailwind for automation adoption across most of our customers.

Yeah, okay, perfect. Thank you. And a quick follow-up for Hashim, like a great increase on the free cash flow outlook. Were there any special factors in there that we should be aware of, or just the better profitability is starting to play through? Thank you, and congrats again.

Thanks, Raimo. No, just, you know, we feel really good about the changes that we made last year. We're continuing to see benefits of that come through. So that's organic. There's no special items to mention, and we feel like that is a sustainable path forward. Thank you.

Thank you. And our next question comes from Mark Murphy with J.P. Morgan. Please go ahead with your question.

Thank you so much, and I'll add my congrats on top of Ramos. Hashim, are you able to provide the Q3 ARR growth guidance if we converted it into constant currency terms and or what is implied for the fiscal year now in constant currency terms? I'm not sure if any of that has moved around.

Yeah, nothing's really moved around. You know, we talked about it in the script of the headwinds, Raimo. Sorry, Mark. And so, like, I think that what we provided is there. You know, normalized for foreign exchange, it's 26% growth in terms of the year-over-year comparison. And I'd say very, you know, similar outlook here for third and fourth quarter in terms of FX. It's not much of an impact as we go forward.

Okay, got it. And then, Rob, I'm curious just how commonly you see UiPath being pulled into some of the boardroom discussions out there that are maybe being led by the Accentures and Deloittes and Capgeminis of the world. When they're sitting down with a large company and trying to formulate a generative AI roadmap for a customer and they may sense that some RPA would be involved as part of that tapestry, Do you see much volume along those lines popping up into the deal pipeline? Because I think you had some pretty upbeat commentary on how that pipeline is developing.

Yes. Mark, what I say, we're having much more significant conversations with the systems integrators and with customers together with the systems integrators where we actually are working on joint opportunities with them. I would not classify it only as RPA. It is about the platform. It's about document understanding, communication, mining tasks, mining the moat that makes a difference, and infusing our Gen AI capabilities, which are actually visual for customers to see and how that benefits them. So that's happening much more. I mean, I spoke a lot about our North Star in the script, and our North Star is having – It's placing us in the boardroom. I mean the value Propositions that we are able to showcase with our customers even at a conservative level is very very strong And you know I mentioned a very large Insurance company we went out to pretty pretty Detailed process level on explaining how automation and the full platform can benefit them that customer is He's going to replace the existing document understanding with the communication and task mining and process mining and go all in on the platform. So we're very positive about our approach to the SIs and being in the boardroom with customers, and we feel like it's fulfilling what we said two quarters ago, that that's what we needed to do.

Excellent. Thank you so much, Rob.

Thank you, Michael. Our next question comes from Brian Bergen with Callen. Please state your question.

Hey, guys. Good afternoon. First one on just the go-to-market progress. So any additional metrics you can share that would really demonstrate that the change in the go-to-market and really selling down through the C-suite is gaining that traction? I think I heard 30% growth in that 1 million cohort year-over-year, which is certainly encouraging. But just anything else there you can give KPI-wise, sales, productivity, anything you like?

I think when you look at it, that is the primary metric that we look at, Brian, because the million-dollar-plus customers really shows the value of the platform in terms of what's moving. And that is up 34% that we feel customers greater than a million dollars that we feel really content with. The intangible piece that you also can look at is just overall, like our RPO balance is growing very well, which shows continued commitment on deals. you know, from our top customers. And then, you know, Rob has commented, but we really like the activity and the way that the sales force and the intimacy of customer relationships is happening. You know, we talked about it in first quarter among some of the changes, and we feel like those discussions and those deal discussions are progressing very well. And, you know, that's the intangible factor that we really monitor.

And I would just add, we feel, Brian, that we're also benefiting globally now in Asia Pacific and in Europe. form the activity we implemented as well. We can see it coming through. And then one last item on that is, you know, more and more differential partners are actually speaking to us, partners that typically would not in the SI space, not in the existing space, that are trying to understand how they can utilize the UiPath platform in their business. So we feel really strong about all the activity.

Okay. I appreciate that. And then just as it relates to pricing dynamics, can you just talk about what you're seeing in market pricing over the last several quarters really as it relates to competitive deals as well as what you're seeing on average across renewals?

Yeah, we see it relatively stable. You know, there's nothing – people see the value and the ROIs that we provide. You can see that in many of the case studies and the stories and even in some of the demos, Brian, and I think that ROI has given us a good moat around pricing. And so really price is not as much of a factor in deals for us, especially with competition. People will try to undercut it, but they can't deliver the ROI that our platform delivers. And that's really why we've been able to maintain a pretty steady pricing and discounting set of metrics here, regardless of the economic conditions and competitive environment.

Very good. Thank you.

Thank you. And our next question comes from Keith Weiss with Morgan Stanley. Please see your question.

Thank you guys for taking the question. A little bit on sort of the competitive environment around generative AI. All of us are going around and listening to a lot of companies talk to us about trying to infuse generative AI into their portfolios. And It seems like a big benefit they expect to accrue is automation and a lot more automation within their solutions. Does that muddy the waters for you guys at all? And is there anything you have to do in your messaging to sort of help customers understand what they're going to get from a UI path versus an application vendor saying, hey, generative AI is going to help take care of all these road tasks and do all these automations for you? How do you make sure that you ensure that clarity in the marketplace?

Well, first of all, I would like to make clear that we believe generative AI doesn't change the competitive dynamic when it comes to automation platforms. In the end, most of the use cases for generative AI are in the creator space. So you use generative AI to create artifacts that are deployed on the platform. I think that plays into our advantage. I think there is no secret for everyone that we have the best automation platform, most complete, you know, the enterprise-grade platform that offers governance and security to our customers. Generative AI helps us to even increase the adoption because it can appeal to a broader audience. Less technical people can create better automation. Our platform runs... those automation much more reliable, much more secure than any other platform. So clearly to me, that's an advantage. And I want to also point out that there is no company that has an exclusivity to a particular Gen-AI technology. We are using, for instance, OpenAI, Google Vertex, Amazon, Lambda, everything that is in the market. So I think that Long term, mid to long term, the creator, Gen AI, will be basically commoditized. And the essence would be that the best platform is going to win even with better chances in the market because the adoption will be also democratized.

I tell you, Keith, this is from my side. I think it's given us an incredible amount of tailwind to articulate first our AI story at UiPath and give us a platform to showcase where we are with AI and how far we've come. And I think that's really surprised a lot of customers in space. Since we announced the summit year, I think it was March, we announced the Summit AI year in New York City. We had 16 events in Asia Pacific, and they were standing room only. And I can tell you from those discussions, and I've spoken to a number of C-level executives that actually attended in person, and the comment back was, we are so surprised at how far you were. We're super excited about the opportunity that automation can bring and how far you can take it. So from a go-to-market perspective, from our team's perspective, I think it's been an incredible opportunity to showcase UiPath, the platform, and the decisions we made in September of last year to bring it out. And I think people will be very excited at Ford 6 to see how far we've come as well.

Excellent. Thank you, guys.

Our next question comes from Matt Hedberg with RBC Capital Markets. Please state your question.

Great. Thanks for taking my questions, guys. Congrats as well. Maybe just continuing the Gen AI kind of questionings. Yeah, a lot of good content today. And I'm curious, Rob, how do you expect to articulate success monetarily? Do you think in a couple quarters or a year you're going to be able to specifically call out the actual tailwind or benefit to growth from Gen AI?

I think we will be able to say – Look, I think our strategy that we've continued to execute again, we'll continue to drive that. We'll continue to look at how we benefit from Gen AI. And I believe we are already showcasing how it's impacting our results as part of our strategy. And I think that will continue as we continue to drive North Star and the value creation that customers are perceiving as we get more and more reference customers. You think we'll scale as we speak more in the boardroom and we bring the SIs to the fore? All of those will be in our favor. And honestly, when you look at communication mining, document understanding, and what we're doing in that space, these are game-changers for customers and the value they receive. And that's what's going to showcase, and that's what we'll showcase in terms of the return that we'll get in the next quarters and the next years.

Got it. Thank you. Just a quick one for Ashim. Realizing that NRR is more of a trailing metric, it did tick down a little bit here sequentially. Do you think we're closer to a bottom in that number as we sort of think towards the second half of this year?

I mean, the way that I look at this is I feel really good about the progress that we've made on the go-to-market changes that we've articulated earlier this year and last year. And I think as those continue to pay dividends, you know, our expansion rate is the area that you're going to see, you know, benefit. You'll see benefit come through in that area. So we still are navigating a variable environment, but the changes that we've made, you know, we just were two quarters from having done it, one quarter from stabilization. So I really look forward to, you know, seeing the benefits of that come through our metrics here as we continue to execute.

Got it.

Appreciate the callers. Thanks, guys.

Our next question comes from Brad Sills with Bank of America. Please state your question.

Oh, great. Thank you so much. I wanted to ask about the verticals. It sounds like you're seeing some strength here in banking, manufacturing, tech. Any color as to where you're seeing that strength? Are there certain solutions that customers are expanding with more use cases? Is it new business that you're seeing strong in those verticals? And then any commentary on perhaps a vertical with this new pivot towards solution selling that we might start to see on that list, you know, in the coming quarters?

Yeah, Brad, great question. We definitely see the full platform around process mining and Document understanding and communication, driving a lot of that as an integrated platform as customers want to expand automation from pure RPA into broader categories, where we're able to use Northstar. You see that in financial services, banking in particular, both in Europe and in North America, insurance for sure, across payers and providers in that space. Remember, we've also implemented go-to-market, which has got industry... skills part of it, and our industry solutions team is pretty strong. So we're seeing it in those industries. I would also, and we forgot to mention public sector, some really strength in public sector that's driving that as well in the federal government. So we're seeing it in multiple areas, and I mentioned oil and gas as well, including other areas of energy opportunities as well.

Wonderful. Thanks. And one more, if I may, just on land versus expand, I guess, where are you in that balance? Could we start to see, you know, more land? You mentioned some top of funnel softness here, but just maybe in the big enterprise or even medium enterprise, could we see some progress with more land accounts going forward?

Yeah, we're working. I mean, we see, obviously, we see, we like we are on the million ARR and above in the $100,000s. ARR and above, and we continue to work on the distribution model in this space, and we'll continue to tweak some of those models that we've had previously in that space. Ishii?

Yeah, I feel like the quality of what we have is much better when we're looking at the customers and the logos that we're acquiring. So our enterprise presence, our enterprise connections, I think we've seen meaningful progress there. You know, we talk about kind of smaller mid-market emerging enterprise. We say that in various epithets. I think that, you know, that particular segment is going to be more impacted by the variability of, you know, the macroeconomic conditions. So I think, Brad, the area for us is not a quantity play necessarily that's going to churn up and down. It's quality. And then, you know, where we want to get even better and better is then advancing those quality customers up through better and better sales specialists to increase our expansion. That's kind of how we were measuring it and how we looked to it.

Great to hear. Thank you so much.

Our next question comes from Terry Tillman with Truist Securities. Please state your question.

Hi, everyone. This is Joe Mirzon for Terry. Thanks for taking the questions. You mentioned the SAP relationship briefly in your prepared remarks. I'm just curious how they're helping you on the go-to-market side, and is there any way that you can quantify early benefits from the partnerships?

Yeah, multiple aspects. One is working with ASIs. We also have joint teams working on joint accounts. We've created a common architecture to present to our customers. We're busy going through the enablement of both organizations, and that will continue to expand through the years. So we've had multiple significant discussions between both companies, and we feel really positive around the enablement. And right now it's all about enablement and positioning with customers and working with the SIs to incorporate the automation in how they go to market as well. And we will see the benefits of that SAP partnership in 25 for sure, in FY25.

That's great. And then just as a follow-up, Is there any way that you can quantify the impact of the 10 solution accelerators you have out there that they're having on the implementation cycles or ROI for customers?

Thanks again. We don't disclose metrics around individual solutions or product lines at this time. What I can tell you is we continue to monitor their applicability in the sales cycle and customer uptake, and we're really pleased with the feedback, but we don't provide quantitative metrics or disclose them.

Thank you. Our next question comes from Fred Havemeyer with Macquarie. Please, your question.

Hey, thank you. I have a single set of questions, but two parts here, one for Ashim, one for Daniel. I'm thinking, you know, Dan, since we last spoke, I've had a lot of fun working with and training up various different AI models of a convolutional one working on a workstation right now. And I think what struck me through some of this experience is how many of these models are getting more and more efficient, especially being deployed in the generative AI space, efficient at being deployed on smaller and smaller sets of hardware. So I'm curious, kind of two parts here. Firstly, perhaps for Daniel, is there an opportunity in the future perhaps for more of the generative AI workloads to be shifted towards the edge rather than using, say, like centralized APIs from some of the hyperscalers out there? And then secondly, for Ashim, while we're in this phase right now of having generative AI primarily hosted and available through hyperscalers. Is there any impact on the gross margin line at all to some of the products that are being offered as they're run through these APIs? Thank you.

I think that's a very interesting question and perspective about the future of gen AI. We are experiencing quite a bit with LAMA2 at this point. And eventually, I think for some of the use cases, like the one in Wigman, we'd love to be capable of deploying this on the edge, because we'll significantly reduce the cost, the bandwidth required, time to value. And it's kind of premature at this point to really understand if... we can run a significantly large model, like, I don't know, 13 billion parameters on the edge. But certainly it's an interesting way to look forward.

Yeah, and then, you know, Fred, like, when I look at it, our gross margin is 88%. You know, we talked about 85% and long-term model of greater than 80%. These are numbers that we've done there. I think right now with what we see in front of us, we've – We factored the uptick of both the cloud and AI capabilities in there, and we're in the early days of pricing on these areas, and those are going to be factors for us to consider in terms of workloads and where they are. So we look at this as developing tremendous value, and so it's not really a threat to our margins from that perspective right now, and we feel very good about the way we've modeled that going forward.

Thank you. And then if I could ask, One more, I guess, a third question here because, Rob, I don't want to forget about you at all. I don't want to leave you unquestioned. I'd love to ask, you know, as you're having conversations with executives that are considering adoption of broader suites of AI solutions, just how are you at UiPath considering and addressing privacy concerns, data governance concerns and the like, especially with respect to generative AI?

Probably a question for Daniel, but I would tell you You know, generally our security folks will take – our CISO will take – and our CISO security team will take them through how we deal with data security, data privacy, how it lands in multi-tenants, where the testing takes place, and explain to them how we go through it in a way that we would normally go through any kind of sales process. So far, we're handling it – I would say not with ease, but in very detailed discussions, and we have detailed roadmaps around that as well.

And actually, automation offers a very good way to anonymize requests to even a public GNI service. For instance, if you want to understand better a document, we can use our on-prem services to OCR to digitize the document. and then apply PII algorithm, and then send an anonymized document to Gen AI and answer questions about it, and then translate it back to the user. I think there are different approaches to privacy and security, and we are really well positioned to leverage our platform to offer this enterprise-grade use of Gen AI.

Thank you all very much.

Thank you.

Thank you. And ladies and gentlemen, in order to get through all the questions in the time remaining, please limit yourself to one question per each time you queue up. Our next question comes from Kirk Matern with Evercore ISI. Please say your question.

Hi, this is Chirag Venn on for Kirk. Congratulations on the strong quarter and thanks for taking the question. Maybe just one for me. As you look into the deal trends, through August and September, are you seeing more of a continuation of the same deal scrutiny that's been prevalent through the year, or are conversations starting to get more constructive, and do customers seem more willing to invest? Are there any changes in general that you'd flag? Thank you.

You know, like, from our standpoint, one, we don't really, I don't want to give in-quarter, you know, updates, Kirk, which I know everybody can respect. I think we've We feel just the environment, I think Rob commented on it. I think we look at the environment relatively stable as variable, and depending on the industry, I think conversations move up or down. That being said, Rob talked about it earlier. I think customer conversations are very constructive. They have been. And just having been a customer, I can tell you where there is an ROI, the conversations are constructive, and I think that's something that we've demonstrated across our customer base for a while now.

Thank you. Our next question comes from Ari Terjanian with Cleveland Research Company. Please state your question.

Hey, Ari. You're on mute. Sir, please unmute yourself. We can't hear you.

Why don't we go to the next one, please?

Our next question comes from Michael Turdis with KeyBank.

Please state your question.

Hi, guys. This is Billy on for Michael. Thanks for taking the question. Can you just talk a bit about the trends you're seeing in selling to IT and IT users versus maybe the line of business and business users, especially within the context of, you know, the opportunity for generative AI to democratize that adoption of automation?

Yeah. What I would tell you is, you know, when we launched the platform, we always said we needed to get into C-level and we needed to be more relevant with IT, the CIO, and that would also bring in And we feel like that we're now able to actually bring the two together, showcase why they need the platform, how the platform helps them consolidate software, allows them to focus on areas in discovery and automation infused with AI, and then be able to take that using Northstar into the boardroom and articulate the value that the CFO or the CEO or the head of HR can actually get from automation. So that's more and more. The conversations we're having, all the North Star discussions we talk about, it's exactly that. I feel like the CIOs are really starting to understand with the platform the benefits they get and the value that they can get from it. And that's why they actually want to use more of the platform. When they understand how you can connect document understanding to communication mining, using test suite to drive that and built into automation, we see that as something that's differentiating us versus the competition. in a significant way, and the value equation is just, you know, that's really driving the issue into the boardroom as well.

Super positive about it.

Thank you. Our next question comes from Scott Berg with Needham & Company. Please see your question.

Hi, everyone. Congrats on the nice quarter. I guess one question I have is one of the items that came up in our work in the quarter was all the kind of explosion and interest in Gen AI was kind of an accelerator. It certainly enhanced customer interest in some of the automation solutions that were out there, specifically RPA. But at the same time, it almost made some deals a little bit maybe more complex and helped shift some deals around. I wanted to see how you thought about the balance of kind of that interest in making deals more complex versus maybe you know, in generating larger deals versus maybe, you know, slowing some deals down in the quarter and thoughts on second half opportunities within that. Thank you.

Yeah. I mean, what I would tell you is that our customers that we've been working with, the deals we spoke about around Northstar, our customers have been focused on value and the value creation that we can create from them. Once you've gone through that and they see what's the opportunity, they want to understand the technical aspects environment, what the product does, how it goes, and that's kind of secondary to many of them. There's a view that we are one of the best engineering organizations in automation, that we actually know where we're going with gen AI, we know AI at an incredibly detailed level, and that's why we feel like the whole movement that's happened has given us an ability and a stage to actually showcase our differentiation in this market. In other words, customers also don't want to see announcements. They want to actually see real benefits that they can showcase and how it can showcase through automation. So we feel really good about that.

Thank you. Our next question comes from Michael Turin with Wells Fargo Securities. Please state your question.

Hey, Michael. Hey, great. Thanks. Hey, I appreciate you taking the question. The net retention rate metric looks to be stabilizing in the 120s. We have a good cadence of AI-related product announcements that we're all digesting. The Q4 guide for ARR looks more muted than what we generally expect from a seasonally stronger period from the business. So maybe, Ashram, you can just help frame how you're incorporating some of the go-to-market changes and just some of the macro commentary and any visibility you have and to just deal progression between now and end of year and how that all stacks up into the rest of your guide. And if that is, there's any way to compare that at all.

I would actually just say, thanks. I would just say the word is consistency. You know, like we've been pretty consistent about guiding what's in front of us, but also thinking about the, you know, factoring in the variable variability of the environment and the go-to-market transition. We're pleased with the progress of it. we feel good about our guidance.

Thank you. And there are no further questions at this time. I'll hand the floor back to management for closing remarks.

Yeah, I'd just like to thank everybody for joining us for the questions, and I would look forward to seeing you all at 4 at 6. Appreciate your time. Thank you. Have a good evening.

Thank you. This concludes today's call. All parties may disconnect. Have a good day.