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spk03: 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.
spk00: 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.
spk10: 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.
spk09: 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.
spk01: 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.
spk03: 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?
spk10: 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.
spk01: 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.
spk03: Our next question comes from the line of Mark Murphy with J.P. Morgan. Please proceed with your question.
spk14: 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.
spk10: 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.
spk14: 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?
spk01: 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.
spk03: Our next question comes from the line of Kirk Metron with Evercore. Please proceed with your question.
spk12: 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.
spk10: 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.
spk12: All right. Thank you.
spk03: Our next question comes from the line of Brad Filz with Bank of America. Please proceed with your question.
spk07: 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?
spk10: 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.
spk07: 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.
spk10: 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.
spk03: Our next question comes from the line of Ramon Lenshow with Barclays. Please proceed with your question.
spk16: 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.
spk10: 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.
spk16: 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.
spk01: 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.
spk03: Our next question comes from the line of Terry Tillman with Truist. Please proceed with your question.
spk04: 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.
spk10: 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.
spk04: That's great. Thank you for that, Rob. And I guess, Hashim, in terms of all the work on the go-to-market side this year, is there potentially a further drift in NRR? Could it actually improve from here? I mean, it's already best in class, but I'm just kind of curious how you could see NRR trends potentially with more of the harvesting of all this work on the go-to-market side. Thank you.
spk01: I'd just say we continue to be pleased with where we are and how we're executing, and we're going to look forward to closing out fourth quarter, and we'll provide more updates next year.
spk03: Our next question comes from the line of Fred Havemeyer with Macquarie. Please proceed with your question.
spk08: Hey, thank you very much, and I'd also like to congratulate you on a very strong quarter. I wanted to focus once again on generative AI, but firstly, looking at your products to see it being integrated throughout your portfolio and your suite. I'm looking forward to really seeing what you can do there. But I wanted to take, I guess, a bigger picture look at the longer-term outlook of the market, considering some of the impressive results we've seen with autonomous agents using, for example, like GPT-4 blending, vision, text, et cetera. I'm curious. Considering that UiPath has really been one of the original autonomous agent companies with your attended and unattended RPA, how do you think about the market evolution over time with agent-based or agent-like functionality being built using generative AI now?
spk09: Well, I think that direction in the market that we are seeing right now around autonomous agents proves a bit you know our approach that always said that ai plus automation is the thing that drives the biggest outcomes for our customers actually this is what we are seeing i a lot of our customers after the initial uh a little bit of a pause around how ai is gonna help me with my automation they realize that they need a powerful automation platform in order to harvest the power of AI. And going forward on a longer-term basis, we at UiPath are in one of the best positions to build the next generation foundational model that understands processes, tasks, screens, and documents, a type of multi-model that is built in in order to drive automation. So to me it's clear that the world is going into that direction, and again, we are really in a very good position to take advantage of it.
spk08: Thank you for that. I'm looking forward to having an intern as a service to be able to help out autonomously and everything. I hope also just related to the topic here of generative AI, I've consistently heard feedback about the difficulty of organizing one's own data within an enterprise in a way that's useful. And so I'm curious what you're hearing from your customers about how they're beginning to and attempting to approach their own generative AI strategies and whether UiPath automation platform is really able to help customers more holistically across the board with generative AI.
spk09: Yeah, actually, this is one of the major use cases where automation is used right now in order to fine train custom LLMs were even specialized AI. And it's frankly one of the hot discussion points with our partners around the world. We had interesting discussions in Japan and in the US with companies like Accenture or Deloitte that are very interested in how they can leverage automation to cleanse the data and to accelerate custom training of LLMs and specialized AI.
spk03: Our next question comes from the line of Siti Panigrahi with Mizuho. Please proceed with your question.
spk11: Thank you. So it's good to see this net new ARR bounce back. So as you speak with your customer, what do you think the enterprise spending trend would be next year in terms of even priority for automation spending?
spk10: Yeah, I mean, we've looked at different analysts in different markets, and many analysts would tell you that they see cloud and data and cyber and automation as the key trends in terms of spending next year. But I would caution and say customers, as I said earlier on, are very thoughtful in how they want to spend, where they want to spend, and how they're going to fund it, which benefits us and benefits us in the way that we actually approach customers. I don't see a significant change in that spending. I do think that customers are going to look to see how AI and AI automation and Gen AI can help them drive more efficiency and deeper levels of efficiency in the organization and look at different models when it comes to customers and our customers, how they communicate with customers, how they drive customer journeys as well. And we are focused on helping our customers with that approach in a deep way. Also connecting meaningful inputs and outputs in companies around documents and social communication, emails into this process in order to drive real process orchestration at a different level.
spk11: Thank you. And, Asim, a follow-up. If I capture your total customer count, it seems like it has come down this quarter, but you guys also had a pretty good, you know, on your enterprise segment spending. So, wondering, like, was there anything different you saw in different segments, like small versus mid to large segment?
spk01: Yeah. Look, we're very pleased with how our enterprise segment is performing. The macroeconomic variability that we've talked about has had a more pronounced impact on the lower end of the market with smaller businesses, and that's where we see the majority of our churned customers, which Rob mentioned also earlier. Overall, I think our strategy remains consistent. We're focused on the quality of customers, and we define quality as customers with a high propensity to buy, and we like the way the teams are executing against that strategy.
spk11: Great. Thanks for the color.
spk03: Our next question comes from the line of Michael Turretts with KeyBank. Please proceed with your question.
spk13: Hey, guys. Congrats on solid execution. So two questions. One, where are we in terms of the shortening of the deployment time for the average bot? It seems like it had already improved, and does the rollout of Autopilot help shorten that time even further? And then I have a follow-up for Ashim. I'm a problem for Ashim. Thanks.
spk09: This is always one of our major product focus on how can we shorten the adoption curve for our customers. And we are already seeing with our autopilot family that is in private preview some really good results with the initial set of few hundreds of customers that are testing the product. So yeah, I would say that this is going to be a significant driver for adoption and both for advanced developers for that they will get really increase of productivity to also citizen developers that will get started faster. And also I would like to mention that training our specialized document understanding and communication mining models using GenAI It has already proven, this is actually in production already, and it has been proven to accelerate the deployment quite a bit.
spk13: Thanks, Daniel. And then Hashim, on the NRR, it's great to see it having stabilized on an as-reported basis, but it did go down another two points, as it did last quarter, on an FX-adjusted basis. So what are the puts and takes there? you're actually getting slightly easier comps. So what's pulling that down at this point, and what are the things that are working and trying to actually increase in NRR?
spk01: Yeah, I mean, I look at our dollar-based net retention. Adjusted for FX, it's 123%, which in our scale we're very pleased with and continues to be in a best-in-class territory. There will always be a little bit of a law of large numbers, and of course every quarter's deal mix will change. But overall, we're really pleased with the strategy. I think we've had several marquee deals in the quarter. The penetration and the sale of the platform, as Rob mentioned, we continue to make really good progress on. And we see very good, strong performance in the enterprise segment, particularly in North America. A lot of the, you know, whatever headwinds we do see, we see really more pronounced in the lower end of the market. But overall, our strategy is on customers with a higher propensity to buy and we feel like we're executing against that strategy and we're seeing that results in the deal quality and the customer quality in the quarter.
spk03: Our next question comes from the line of Scott Berg with Needham & Company. Please proceed with your question.
spk05: Hi, everyone. Nice quarter here. Thanks for taking my questions. Your net new AR is up year over year for the first time, I believe, since, fourth quarter fiscal 22. So it's a nice, nice change there on the positive side. I think most of the questions have been on your execution within the quarter, but how about commentary from the demand end of the market? Are you seeing any changes around your customers or the environment more mid-market and enterprise? Cause you mentioned the down market a couple of different times in the macro impact there, but are you seeing any sort of positive change upward in demand from whether it's existing customers or net new?
spk10: I mean, I do definitely see positive demand, positive conversations in the market. We feel like we have a significant seat at the table with the AI, open AI, chat GPT kind of discussion that's been taking place, and plus having the platform has allowed us to have C-level conversations. We have customers now. that are really calling us to actually have discussions where they've been using core RPA since 2018, 2019, and they feel like there's an opportunity to expand it. They're not getting as much value as they believe they could get out of it, and those conversations are taking place, and we're able to actually showcase proof points on how to do this. So, yeah, definitely more positive and definitely feel good about the discussion and how we can help customers and how we are more relevant to the business discussions.
spk05: Got it, helpful. And then, Ashim, your current RPO metrics, growth rate accelerated pretty meaningfully quarter over quarter. Was there any one-time anomalies, I don't know, early renewals or something that impacted that abnormally in the quarter, or was that a pretty clean calculation metric?
spk01: Thank you. No major abnormalities like early renewals, et cetera. I think I've mentioned we had several marquee deals in the quarter and record number of deals above a million dollars. for a third quarter. So it's execution and really good deal quality that's driving that metric.
spk03: Our next question comes from the line of Michael Turin with Wells Fargo. Please proceed with your question.
spk06: Hey, great. Thanks for taking the question. The two-part, I'll just ask up front. Rob, given investments you mentioned into reaching the C-suite, wondering if you can provide us with your perspective around how enterprise customers are approaching IT budget growth into next year and automation as a part of that. And then as a second part for Ashim, can you comment on the visibility you have into 4Q forecast currently and any swing factors for us to consider in terms of potential upside there? Thank you.
spk10: Yeah, Michael. I'll take it now that Ashim got later. Because we're having... These conversations in the boardroom, customer conversations much more at a C-level. We're much earlier in the budget cycles than we've previously been, and we're actually much more important in the budget cycles than I believe we've been previously. I think there's a couple of really key points that stand out. Our industry, how we've driven industry and how we made ourselves relevant in particular industries and the value proposition there. I do believe that the global systems integrators and how they've come along in support of us, the messaging around SAP has driven well, and the platform proof points around DU. I announced the customer that had $250 million savings in my earnings group. This is what's really allowing us to participate. We feel like we are a meaningful part of where the budgets are going next year. I think everybody is looking at how tight their budgets are and trying to find out how to move from one pocket to another pocket on the innovation side, and we are definitely on the innovation side of customers' thinking. And then I'll hand it over to Ashim.
spk01: Yeah, so just in terms of our guidance, you know, we've factored in the macroeconomic variability that we've talked about, and it includes the current view of our deal mix. And we look at just executing. The teams are focused on executing a good end-to-year end. close to the year. And that's what we're focused on. That's what I would comment on that.
spk03: Our next question comes from the line of Brian Bergen with TD Cowen. Please proceed with your question.
spk15: That's actually Jared on for Brian tonight. In terms of the competitive environment, any changes from what you're seeing from Microsoft ServiceNow or Automation Anywhere?
spk10: Yeah. If I look at ServiceNow, we don't see them in many opportunities. What I will tell you are Our service now, Connect, is the one of the most – it is the most popular downloaded connector to UiPath, and we continue to partner with them. And our partnership with Microsoft around Copilot and our autopilot, the discussions we're having with them continues to be robust, and we're very happy with where we're going with Microsoft and that partnership. And as for a lot of the traditional RPA vendors, I feel that we are now We've broadened our skill sets and what we're offering. We don't see them that often anymore.
spk15: And then do you have any data points on how the new bundled pricing packages is increasing revenue uplift per client or anything around revenue uplift from the reduction of SKUs as part of the sales refresh?
spk10: I don't know if it's specific that we can point to now. I mean, we're looking at, you know, the results. It's probably a little bit too early for us to kind of come out with where we are on that. But we do feel good that the early signs of, you know, I would just simply say easier for customers to understand, easier for them to move. They definitely like how they're able to use our AI units across multiple products and interchange them. as they think of new use cases to advance their business as well.
spk03: Our next question comes from the line of Alex Zukin with Wolf Research. Please proceed with your question.
spk02: Hey, guys. This is Ethan from Alex Zukin, and thanks for taking the question, and congrats on the nice results. I guess, Rob, this one might be for you. If we were to unpack a little bit in more color some stuff you saw in the quarter in terms of uh, just either like certain verticals where you saw, I know you mentioned around like the variable demand, but just kind of comparing from the macro, maybe by a vertical basis, uh, if something's got improved or a little more, more steady versus the last few quarters you've seen. And then just a bit on renewal behavior in terms of what it's like buying more licenses, uh, more products, or just kind of how is the kind of renewal conversation in 3Q compared to what you saw at the beginning of the year?
spk10: Yeah. Uh, Look, you know, the last quarter was a very strong quarter for public sector, for our federal business, actually in the UK and in the United States. And that was really because, you know, the federal businesses are looking at the platform in a unique way, and we offer some really incredible capabilities around document understanding, connecting that to intended automation, focusing on how citizens can improve. So we've seen... We've seen us make a remarkable move in public sector. That also is based on talent and the talent we brought into that environment and how we've driven that talent. And now we actually have some really good industry-based activity in public sector, in revenue services, in DOD, in customs, in USDA that actually can really help all of our public sector activity globally. You know, when you look at traditional markets like... When you look at more traditional markets, you know, telcos, CPG companies, manufacturing, retail companies, they're all driving efficiencies and driving efficiencies. In retail, it's, you know, how fast can I open up stores? How fast can I get employees on? How do I make sure my price points are valid and my price points are real and I don't have any price point issues between stores and so on? And actually, automation really drives some significantly capabilities in that where we play a... significant role. If you look at capital intensive telcos, it's all about efficiencies and how can I get competitive advantage efficiencies because my markets are mature and the only way I actually get growth is by competing my competition and moving subscribers from one provider to another provider. And in that space, we're playing pretty well. So it's variable in which industries you're in. It's variable in terms of how they see growth and where they're investing and but there's one common theme across the board, and that's efficiencies. With renewals, it gives us an opportunity to drive the platform, to drive the platform earlier, to actually start having the discussions with customers many months or many quarters earlier in terms of why move to the platform, here's the value, let's work on North Star with you, let's get into office, we've got an SAP transformation, we can help you with that as well. Let us bring one of our big global SIs to showcase the transformation. And that really helps drive a different cadence with renewals. It's not just about renewing what you've already got. It's about renewing what you want to do in the future and how you want to add more business value in the future. And I think we're incredibly good at that right now.
spk02: That's super clear. And then just, Ashim, as a quick one for you, I mean, the incremental margins in the quarter, they're really good. They've been really good all year. I guess just if you remind us just some of the puts and takes we should keep in mind around how to think about the margin profile and kind of the in the out years. Thanks again.
spk01: Look, I would refer you back to our Investor Day pitch last year, where we talked about just our long-term operating model there. We're really pleased with the execution on the margin front. We've been ahead of that curve in terms of just execution, and we feel really good about our ability to operate with discipline and efficiency while still investing in growth for the company.
spk03: That is all the time we have for questions. I'd like to turn the call back to management for closing remarks.
spk10: Yeah, I just want to say thank you. Thank you to all of you for all your support. It's great to have you all on the call today. Happy holidays to you and your family. May you enjoy a great time. Ho, ho, ho, ho.
spk03: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.
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