Operator
Greetings and welcome to the UiPath third quarter fiscal 2024 financial results 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce Kelsey Turcotte, Senior Vice President of Investor Relations for UiPath. Thank you. You may begin.
Kelsey Turcotte
Good afternoon, and thank you for joining us today to review UiPath's third 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, Hashim will review our results and provide guidance, and then we'll open the call for questions. Our earnings press release and financial supplemental materials are posted on the UiPath Investor Relations website, ir.uipath.com. These materials include GAAP to non-GAAP reconciliations. We will be discussing non-GAAP metrics on today's call. This afternoon's call includes forward-looking statements about our ability to drive growth and operational efficiency and grow our platform, as well as our financial guidance for the fourth quarter 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 that could affect our actual results, please refer to our annual report on Form 10-K for the year ended January 31st, 2023, and our subsequent reports filed with the SEC including our quarterly report on Form 10-Q for the period ended October 31, 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. I would also 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. In addition, please note that all comparisons are year-over-year and less otherwise indicated. Now I'd like to hand the call over to Rob.
Daniel Dines
Thank you, Kelsey. Good afternoon, everyone. Thanks for joining us. Our third quarter results underscore the compelling value our intent automation platform delivers for our customers and the strength of our business model. For the quarter, ARR grew 24% to $1.378 billion. Driven by a third quarter net new ARR of $70 million, our revenue was $326 million, up 24%. We continue to deliver growth while driving operational efficiencies across the organization. Non-GAAP operating margin increased more than 600 basis points year over year to 13%. We also delivered non-GAAP adjusted free cash flow of $44 million. As many of you know, At the beginning of this fiscal year, we pivoted our go-to-market resources towards organizations that have a meaningful runway to invest in enterprise automation over the long term. This investment has significantly increased our presence in the C-suite and helped raise our profile with partners of all sizes. You could feel our momentum at Ford 6, our annual user conference, where we hosted more than 3,000 guests, including automation practitioners, industry visionaries, key custom decision makers. We also launched our inaugural UiPath A10 AI Awards program, recognizing UiPath customers who embody what it means to be a leader in AI at work. I left the event super energized about the tangible value our platform is delivering for our customers and our leadership position in the market. FX adjusted dollar-based net retention for the quarter was 123%, and we closed a record number of third quarter deals over $1 million in ARR. Customers with $1 million or more in ARR grew 31% to 264, while customers with $100,000 or more in ARR increased to 1,974. Industry verticalization continues to be a strategic priority for the company with playbooks, marketing events, and enablement to support our teams. We now have 70 solution accelerators available in our marketplace with IT service management software, user provisioning, and two-way match invoice processing for Coupa and SAP among some of the most popular downloads. While we saw broad-based trends in Next New ARR across industries this quarter, there were a couple of standouts. The federal team delivered a record quarter as agencies are increasingly standardizing on our AI-powered business automation platform with a robust set of end-to-end capabilities to enrich employee experience, create mission readiness, and achieve breakthrough outcomes. Customer highlights included Veteran Affairs, Coast Guard, the IRS, the Department of Homeland Security. We're also working with the United States Department of Agriculture to support their Future of Work initiative, delivering a new era of citizen and employee experiences. Using our full platform, USDA is driving mission-impactful enterprise automations across the HR, finance, and IT departments. The program also features a digital assistant on every USDA employee desktop. driving personal productivity for approximately 100,000 employees. Momentum continues in financial services and healthcare, where automation delivers considerable value. This includes one of our top 25 customers, a large nonprofit health system in the United States. Taking a deeper look at their automation journey, they are a great example of how customers expand with us over time. Working closely with our account executives and global systems integrators, their journey started in 2018 with Core RPA, and over the last several years they've expanded to attended automation, document understanding, test suite, and process mining. To date, they have achieved a return on investment of over $250 million, and this quarter, In one of our largest deals in company history, they expanded to the full platform as they worked to create a centralized enterprise automation service department with a mandate from their EVP sponsor to deliver automation across the entire enterprise. They're also in the process of developing use cases for communications mining and UiPath apps. Customers standardized on our AI-powered automation platform to deliver transformational outcomes that streamline processes, eliminate errors, and operate with enterprise quality execution needed to succeed in today's environment. A great example is Johnson Controls. After starting the automation journey in 2021 with Core RPA, they adopted the full UiPath platform as they worked to consolidate the automation program to one end-to-end solution. They also plan to leverage our AI capabilities like document understanding, test read, and task mining to drive automation across their entire business. And another example is the Department of Work and Pensions, the United Kingdom's largest public service department. They have been using core RPA since 2018 to help their most vulnerable citizens improve their quality of life. by automating millions of service and support claims each year. Since their first deployment, they have scaled to over 1,000 robots in production and saved 3.1 million hours to date. During the quarter, they expanded to the full platform as they look to harness AI and integrate document understanding, process mining, and communications mining into their automation program to improve citizen services, drive operational efficiencies, and increased cost saving and capacity creation. We're also landing new logos, which are adopting multiple platform products in their first purchase, like Tenable and Kik customer products. In their first phase of deployment, Kik intends to leverage unattended robots and document understanding to drive efficiency across their finance department, with the long-term goal of scaling automation across the entire enterprise. Our value-based go-to-market tool, Northstar, also continues to drive deeper customer conversations as we strategically position the differentiated and actionable benefits of AI-powered automation. A great example is Sobeys, a customer since 2020, where we created a Northstar roadmap to help them maximize the return on investment of their automation program. And as a result, Sobeys expanded the automation footprint in the quarter to streamline processes in finance, merchandising, and supply chain, and to improve the hiring process in stores. They're also investigating how they may be able to use our platform in their SAP transformation journey. Turning to our SAP partnership, while in the early stages, we are excited about the collaboration between our teams. I recently joined Scott Russell, SAP Executive Board Member, Customer Success, to co-host SAP's their sales leadership meeting, and continue to see success in signing new logos from this partnership. Key one for me, the Honest Group, Tim Tam in Australia, an Australian legend, the Australian producer of biscuits and snack food. The Honest Group selected the UiPath platform to optimize business processes and reduce operating costs. Their initial focus will be on automating end-to-end sales order and invoice processing. We also announced an expanded partnership with Deloitte, one of SAP's largest and most strategic partners. Deloitte will embed the AI-powered business automation platform into the Ascend service delivery platform, powering the next generation of SAP transformations. These strategic relationships are powerful for our customers, but they also drive increased engagement with GSIs and our partner ecosystem that has never been more invested in than they are right now. At Forward6, we hosted an impactful session for more than 750 partners outlining a streamlined strategy that is designed to accelerate growth and revenue for our partners while creating solutions that deliver exceptional value to our customers. Our partners and GSIs are an important element of our go-to-market motion that help us expand our reach to customers in a scalable, efficient, and cost-effective way. For example, Working with Deloitte, an Australian government agency has built a robust automation program across their finance and HR business lines, where they utilize document understanding to streamline invoice processing, reduce errors, and enhance data accuracy. To further accelerate their automation program, they adopted task mining in the core to analyze processes and accelerate scoping activities. Broadening our technology ecosystem also makes it easier for customers to deploy automation. We recently announced several new strategic partnerships. These include Amazon Bedrock, which enables automation developers and citizen developers to seamlessly integrate generative AI directly into their UiPath Studio and Studio Web automations. and the availability of the AI-powered business automation platform on the Google Cloud Marketplace early 2024. In summary, third quarter results are another proof point of our commitment to delivering strong top-line growth and expanding profitability and non-gap adjusted free cash flow. I want to thank our employees and partners for their support. None of this would be possible without your relentless focus on unlocking value for our customers day in and day out. And with that, I'll turn the call over to Daniel.
Kelsey
Thanks, Rob. Good afternoon, everyone. Thanks for joining us. The automation market is at an inflection point as the market-leading tool that enables organizations to derive value actionable value from AI, we believe this is a huge opportunity for UiPath. At Forward6, we introduce our latest platform release, 2023.10, and deliver scores of new capabilities that seamlessly translate the potential of AI into tangible action to drive business outcomes for our customers. From my perspective, One of the most exciting announcements at Forward was UiPath Autopilot, a new set of AI-powered capabilities for developers, testers, analysts, and knowledge workers designed to enhance the user experience across the UiPath platform. We expect Autopilot, which is based on generative AI, to bring our unique capabilities in RPA API automation, document understanding, and specialized AI to the full spectrum of enterprise-grade end-to-end process automation. Autopilot for Studio is intended to help developers across skill levels build automation faster by leveraging natural language descriptions to generate automation workflows. For less technical developers, this is a great starter tool, while an advanced developer will benefit from increased productivity. Autopilot for Test will accelerate every phase of the testing lifecycle from generation of tests to surfacing insights from test results. And finally, as the AI companion for business users, we anticipate that Autopilot for Everyone will help users create and use personalized and intelligent micro-automations on the fly. We also share exciting announcements around intelligent document processing at Forward, introducing our next-generation experience powered by active learning and generative AI. Our next-gen IDP permits almost anyone to train specialized AI models for specific domains and document types. And our internal benchmarking shows that our next-gen IDP experience accelerates model training time by up to 80%, from a week to a day for complex scenarios, or down to minutes for simpler forms. Document understanding is driving significant value for customers, including a Chicago-based public utility. Working with Deloitte, they have created a robust automation program across their organization, leveraging our AI products like document understanding to automate their meter inspection process. where they have achieved over $12 million and 163,000 hours in savings to date. We still have our sponsorship during the quarter. They expanded their UiPath deployment to incorporate test suite into their automation journey with the goal of saving over $70 million a year. And we are humbled by third-party recognition of our achievements. including IDC MarketScape, Worldwide Intelligent Document Processing, or IDP, 2023-2024, Vendor Assessment, or UiPath, was named a leader in IDP for our broad market leadership and robust IDP capabilities in UiPath document understanding and communications mining, integrated into our broader enterprise automation platform. Innovation is a cornerstone of our strategy, and we challenge ourselves every day to deliver market-leading capabilities with the customer-first mindset. I spent a lot of time with our teams in both Belgium and Romania this quarter, and I am energized by our cutting-edge product roadmap focused on transforming enterprise automation by harnessing the next generation of AI technologies. Together with our world-class team of engineers, I am excited to dedicate more time driving UiPath's innovation agenda as I transition into my new Chief Innovation Officer role this winter. With that, I will turn it over to Ashim.
Rob
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 third quarter, ARR totaled $1.378 billion, an increase of 24%, driven by net new ARR of $70 million. Excluding the FX tailwind, net new ARR totaled $69 million. We ended the quarter with 10,865 customers, including new logos like New Relic, Smile Doctors, Beacon Health System, and Midwest One Financial Group. As we said last quarter, we continue to see macro headwinds at the lower end of our market and remain focused on acquiring customers with a higher propensity to grow. Our dollar-based net retention rate for the third quarter was 121%. Normalizing for FX, dollar-based net retention rate was 123%. Dollar-based gross retention of 97% continues to be best in class. Revenue grew to $326 million, an increase of 24% year over year. Normalizing for FX, which was an approximately $3 million tailwind, revenue grew 23%. Remaining performance obligations increased to $995 million, up 31% year over year. Normalizing for FX, which was an approximately $16 million tailwind, RPO grew 29%. Current RPO increased to $599 million. Turning to expenses, we delivered a third quarter overall gross margin of 87%, and software gross margin was 92%. As the team continues to drive cost discipline, We now expect fiscal year 2024 gross margins to be approximately 86%. Third quarter operating expenses were $240 million, highlighting the leverage in our business and our commitment to expense management and operating discipline. Gap operating loss of $56 million included $96 million of stocks-based compensation. Non-GAAP operating income was $44 million, resulting in a third quarter non-GAAP operating margin of 13%. Third quarter non-GAAP adjusted free cash flow was $44 million. As of October 31st, we had $1.8 billion in cash, cash equivalents, and marketable securities and no debt. Under our $500 million buyback program, which we announced on September 6th, we repurchased 3.2 million shares of our Class A common stock at an average price of $16.26 through October 31st. Since November 1st, under a 10b-5-1 plan, we repurchased an additional 1.7 million shares at an average price of $17.38 through November 28th, 2023. Now, let me turn to guidance, which assumes the global macroeconomic environment continues to be variable. For the fiscal fourth quarter 2024, we expect revenue in the range of $381 million to $386 million. ARR in the range of $1.450 billion to $1.455 billion. Non-GAAP operating income to be approximately $78 million. And we expect fourth quarter basic share count to be approximately 567 million shares. And finally, we expect fiscal year 2024 non-GAAP adjusted free cash flow of more than $250 million. 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.
Operator
Thank you. Ladies and gentlemen, at this time we will be conducting a question and answer session. If you'd like to ask your question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 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 key. Please limit yourself to one question and one follow-up so we may get to everyone's questions. Our first question comes from the line of Keith Weiss with Morgan Stanley. Please proceed with your question.
spk17
Great, thank you. You got the tune on for Keith Weiss. Maybe to start off, quick question on sort of AI and how you see it fit into the current budget environment. Clearly, budget growth is still somewhat suppressed, and you're one of the few companies that's sort of uniquely positioned between traditional automation and generative AI technologies. where do you see customers kind of take the dollars from when they're spending on these AI technologies, whether that's within the product areas that you offer or more broadly, anything that's kind of coming out of your customer conversations in terms of how spend is getting reallocated in light of AI?
Daniel Dines
Yeah, good question. You know, what I would say is that when customers are looking at spending with us and the AI technology The AI story and AI to automation connection really fits well to where customers want to invest. In many cases, the investments are coming out of the business case and business value that we produce in Allstar and are able to show the efficiencies in how to gain so they can invest in innovation. They see us as an innovation leader today with AI and innovation combined with our AI-powered platform. I don't feel like it's been taken away from one group to another. I feel it's really driven by the business case. We were able to drive with C-level suites, and now we focus on industry solutions, and now we've connected those to the buying cycle with customers.
spk17
Great. That's helpful. And then a quick question on the margin side. It looks like sales and marketing expenses stepped up pretty markedly on a sequential basis. Obviously, you also had your forward conference in the quarter. But anything that you can highlight in terms of where you're investing, are you back to kind of growing your sales force more marketly, and does that kind of continue into next year? Anything that you can share there would be great.
Rob
I would just highlight two points. First is we are going to continue to invest in our sales team and our sales capacity, especially as we head into next year. And then the second is, if you recall, we also have the reallocation of our software expenses. So first through third quarter, you'll see sales and marketing versus GNA a little bit lopsided, which will be caught up in fourth quarter.
Operator
Our next question comes from the line of Mark Murphy with J.P. Morgan. Please proceed with your question.
Mark Murphy
Thank you so much, and I'll add my congrats. So, Rob, I'm thinking back to the analyst day just over a year ago, and you had mentioned there that every tech company, of course, has shelfware and that UiPath does as well. If you think about it about a year later, do you sense that customers have worked down any excess inventory they might have had in terms of bots, maybe hitting a level where they might need to replenish and just start moving forward a bit faster as we get into next year and then have a quick follow-up.
Daniel Dines
Yeah, Mark, look, as I said earlier, companies deal with shelfware. We feel good that our platform actually helps us move customers from not only bots into the broader platform as they focus on efficiencies. This marketplace that we're dealing with today certainly benefits efficiencies in new business models, so we feel really good that we are able to take customers to the next level with our platform and our C-level activity.
Mark Murphy
Okay. And, Ashim, when we look at it arithmetically, the deceleration in ARR has been moderating, which, of course, is great to see. It looks like it could step down a bit closer to 20% next quarter, but is it possible to entertain the thought of holding – you know, kind of holding a level around 20% for a period of time? Or do you think we should kind of keep that trending down into the teens as we've had it just, you know, try to be mindful of the law of large numbers and some of the macro unknowns that are out there?
Rob
Yeah, I would just say, Mark, we're really pleased with our performance and the team's execution. We're focused on closing out a good year end here. And the teams are really focused on that. And, you know, we look at our fourth quarter guidance, just putting the right prudence and the right macroeconomic variability included in our guidance. And we'll update as we get closer to next year.
Operator
Our next question comes from the line of Kirk Metron with Evercore. Please proceed with your question.
Kirk Metron
Hi, thanks for taking the question and congratulations on a very strong quarter. This is Chirag on for Kirk. In your prepared remarks, you mentioned that large deals landed extremely strong. Do you have any additional commentary around what you're seeing with these large deals in terms of both new logos and renewals and how you expect this trend to continue looking ahead to next quarter and next year? Essentially, all in all, do you believe that we're close to a more stabilized trend macro and spending environment, or are you still seeing some broader choppiness out there? Thank you.
Daniel Dines
Yeah, I mean, look, we feel really good about how our teams are adopting all the changes that we've made and how they're connecting with customers and the relationships we're having with customers. The expansion is really, in many ways, driven through our growth products with all the IT communication that's happening in the market. It allows us to have meaningful conversations with customers. They see why the platform's relevant. And then we, as I said earlier on, we've been driving Northstar quite a bit in showing where customers can really look at processes and tasks and understand how to drive value with the automation platform. So folks talk about digital transformation and connect. We believe that AI-powered automation is really helping digital transformation with our customer base and our larger customers. And we're pretty happy with... Some of the net new companies that we've acquired over the last, you know, the quality of them, Eurelique, you look at these kind of, these are good companies that will expand with us over time if we do the right stuff. And so we feel good about that. We feel good about how our industry focuses is helping us change the game in this environment.
Kirk Metron
All right. Thank you.
Operator
Our next question comes from the line of Brad Filz with Bank of America. Please proceed with your question.
Brad Filz
Oh, great. Thank you so much. I wanted to ask a question around some of the departmental expansions you've seen. You talked about industries here. I think banking and public sector sounded good. But are you finding that you're seeing now with the uplift in expansion activity here with NRR, that you're getting outside of finance and accounting into IT, HR, you know, some of these other use cases in the departments?
Daniel Dines
Yeah, so I would say we have broad, we have broad, we've seen broad industry activity with manufacturing, with retail, with fashion retail, with grocery, hard goods retail. As we said, we feel really positive about public sector and public sector globally. And we also see a significant amount of activity outside of the finance office in procurement and in IT organizations. So it's much more broad-based, and we feel really good about where we focused on that.
Brad Filz
Great. And then one on the Forward Conference, if I could, please, if you could just remind us how important that event is for lead management and moving deals through the pipeline and How do you feel coming out of the conference this year versus years past in terms of momentum? Thank you.
Daniel Dines
Brad, I've only got two years' experience. And what I would tell you, I was super excited to see the quality of customers and the quality of the event and the quality of the discussions that we had. If you look at the companies we had on stage with us and what they were doing with us, these were really transformational companies. If you look at the partnerships with SAP and Deloitte on stage with us, this was transformation. We spoke about 750 partners that were aligning around the channel strategy. So we feel good that we actually forward as actually a catalyst event to move UiPath, help our branding, position us in the C-suite, and make a difference. And it certainly does help our pipeline as well.
Operator
Our next question comes from the line of Ramon Lenshow with Barclays. Please proceed with your question.
Ramon Lenshow
Thank you. Congrats for me as well. First, like a more bigger picture question, like if you think about the different areas of strength that you saw this quarter, like can you specifically speak a little bit about what you saw on the test drop? Because that's what we hear from our checks. as one of the areas where, especially in the SAP ecosystem, there seems to be a lot going on there, and I'm not quite sure you're getting enough credit. And then I had a follow-up for Ashish, please.
Daniel Dines
Yeah. So if I look at the broader picture, if you look at the market today, as I said early on, customers are looking for ways to drive efficiencies to fund other activity, and there's not a significant amount of new business models that are driving growth. So that really helps us significantly. And obviously that fits well into where SAP are focused with their transformation objectives, their RISE program, which is an ongoing program. And I believe that we've actually moved the needle significantly with SAP, with the SAP activity between the different sales organizations, and we are involved in many transformation discussions with SAP and our GSI partners, and we will see more of that. Test is a key part of that because it has an incredible value proposition, which allows customers to drive not necessarily savings, but time benefits, and really automation of testing is one of the biggest challenges customers have in a big SAP environment. and we feel we do an excellent job helping customers achieve significant test results, which obviously help mitigate any risk associated with a go-live.
Ramon Lenshow
Yeah, okay, perfect. Then one question. As you think about, like, it does look like the demand trends are stable, and we kind of could potentially look for better times ahead. Obviously, you know, you have the best net ARR addition for a few quarters now as well. How do you, and you guys, but also you guys have been very disciplined around cost and margins, but at some point you need to think about lead times for salespeople, et cetera. How do you think about that balance of like getting ready for eventually better times versus where you are at the moment? You know, what are you seeing in terms of productivity gains for sales, et cetera, for example, to kind of drive this going forward? Thank you.
Rob
I mean, I would start with we have a very powerful business model, Raimo, strong gross margins that allows us to invest while still generate cash and margins. And so we have been investing, whether that is within our product team as well as our sales team. I mentioned earlier we're investing in our frontline sales team and our sales capacity, and we'll continue to invest in areas where we see the right returns and the right investments. And Rob and the team looks at that fundamentally. on an ongoing basis, and we do as a leadership team. At the same time, we also are looking for efficiencies. So together with that, I think we're constantly in investment mode. We feel very positive about our value offering, and we feel like we can both drive that investment while still generate cash and margins.
Operator
Our next question comes from the line of Terry Tillman with Truist. Please proceed with your question.
Terry Tillman
Yeah, congrats for me on the quarterly results, first of all. I guess, Rob, maybe the first question is, maybe I'm pretty simple here, but North Star Roadmaps seem like a no-brainer. Like, how much of your customer base, or at least your larger enterprises, have you actually unleashed the North Star Roadmaps on? And the second part of my first question is, I'm hearing a lot from you about full platform adoption. Have you done anything with product or packaging to create less inertia to move all in with the platform? And then I had a follow-up for Ashim.
Daniel Dines
Sure, great questions. So I would say, you know, we are doing a lot around pricing and packaging, and obviously pricing, packaging, and solutions. And it's a constant upgrade, I would say, of that, but you've got to be very careful about how you actually bring that into the market. And we're focused on really simplifying SKUs, and so making it very simple for customers to purchase, and also making it simple for customers to mix and match SKUs solution sets with AI units or bots in a way that's very simple so that they can actually expand with less friction, and we're doing significantly more of that. Northstar is a combination of a great value-based tool that has to be connected to the C-suite. You have to have sellers that are able to communicate, and as we enable our organization more and we get more references, we're able to scale more and continue to scale the organization, so there's still plenty of opportunity. for us to continue driving that and continue to work on North Star with the organization.