Breaking News
Get 40% Off 0
👀 Reveal Warren Buffett's stock picks that are beating the S&P 500 by +174.3% Get 40% Off

Earnings call: UiPath reports strong Q3 fiscal 2024 results, unveils new AI-powered capabilities

Published Dec 01, 2023 22:22
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters.
 
PATH
-1.35%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

UiPath (NYSE:PATH) has reported a robust third-quarter fiscal 2024, with a 24% year-over-year increase in both Annual Recurring Revenue (ARR) and revenue, reaching $1.378 billion and $326 million respectively. The company also revealed its focus on industry verticalization and strategic partnerships with SAP and Deloitte in its earnings call. In addition, UiPath introduced new capabilities, including UiPath Autopilot and Intelligent Document Processing, to boost its automation platform.

Key takeaways from the call include:

  • UiPath's ARR and revenue both grew by 24% year-over-year.
  • The company highlighted its focus on industry verticalization and partnerships with SAP and Deloitte.
  • New capabilities, including UiPath Autopilot and Intelligent Document Processing, were introduced.
  • UiPath aims to capitalize on the growing automation market and drive innovation as it transitions its CEO to the role of Chief Innovation Officer.
  • The company reported a non-GAAP operating margin of 13% and generated non-GAAP adjusted free cash flow of $44 million.

During the Forward VI event, UiPath announced its latest platform release, 2023.10, which includes new AI-powered capabilities to enhance user experience across the platform. Among these is UiPath Autopilot, which uses generative AI to bring automation to enterprise-grade processes, and improvements in Intelligent Document Processing (IDP) using active learning and generative AI.

In terms of financials, UiPath expects fourth-quarter revenue to be in the range of $381 million to $386 million, and ARR to be between $1.450 billion and $1.455 billion. The company's dollar-based net retention rate was 121%, and its dollar-based gross retention rate was 97%.

Rob Enslin, a representative from UiPath, discussed the company's strong quarter and highlighted the success of large deals. He emphasized the positive relationships with customers and the adoption of AI-powered automation in driving digital transformation. UiPath CEO Daniel Dines discussed the importance of powerful automation platforms in harnessing the power of AI and highlighted UiPath's position in building foundational models for automation.

According to CFO Ashim Gupta, macroeconomic variability had a greater impact on smaller businesses, while enterprise segment performance remained strong. The company also discussed the adoption of autopilot features and the acceleration of deployment through specialized models.

The executives expressed positive demand and customer conversations at the C-suite level, emphasizing UiPath's relevance in IT budget growth for automation. They also mentioned partnerships with ServiceNow (NYSE:NOW) and Microsoft (NASDAQ:MSFT) and the reduction of SKUs in sales refresh.

In terms of verticals, the public sector, particularly the federal business in the UK and US, had a strong quarter due to the unique capabilities UiPath offers in document understanding and attended automation. Other industries such as telcos, CPG companies, manufacturing, and retail are also looking for automation to drive efficiencies.

The company reported good deal quality and execution, resulting in a record number of deals above $1 million and strong performance in the enterprise segment, particularly in North America. Enslin mentioned that they have broadened their offerings and don't see traditional RPA vendors as often.

When asked about the impact of the new bundled pricing packages on revenue, Enslin stated it was too early to provide specific data but customers like the simplicity and flexibility it offers. The call concluded with thanks and well wishes for the holidays.

InvestingPro Insights

UiPath's recent earnings report has highlighted its significant growth and strategic initiatives, but what do the numbers and expert analysis from InvestingPro tell us? One critical piece of information is that UiPath holds more cash than debt on its balance sheet, an InvestingPro Tip that suggests a strong financial position to weather economic uncertainties and invest in further growth.

Moreover, UiPath has been demonstrating an impressive gross profit margin, with the last twelve months as of Q2 2024 showing a margin of 84.15%, according to InvestingPro Data. This metric is crucial as it indicates the company's efficiency in controlling the costs associated with its revenue.

Another InvestingPro Tip that stands out is the significant return over the last week, with UiPath's price total return reaching 7.68%. This performance could reflect investor confidence following the earnings report and the announced innovations.

For readers looking to dive deeper, InvestingPro offers additional insights and metrics that could be vital in making informed investment decisions. Currently, there are several more InvestingPro Tips available for UiPath, which can be accessed by subscribing to InvestingPro. With the special Cyber Monday sale, subscriptions are now up to 60% off, and using the coupon code sfy23 will grant an additional 10% off a 2-year InvestingPro+ subscription.

InvestingPro Data also reveals that UiPath's market capitalization stands at $11.2 billion, and while the company has a negative P/E ratio of -72.74, analysts predict the company will be profitable this year, which could indicate a potential upside for investors.

The insights provided by InvestingPro, coupled with the latest earnings report, paint a picture of a company that is not just growing but also managing its finances prudently and investing in innovation that could drive future success.

Full transcript - Uipath (PATH) Q3 2024:

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. [Operator Instructions] 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 Ashim will review our results and provide guidance. And then we will 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 31, 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 unless otherwise indicated. Now, I would like to hand the call over to Rob.

Rob Enslin: Thank you, Kelsey. Good afternoon, everyone. Thanks for joining us. Our third quarter results underscore the compelling value our end-to-end 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, while 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 Forward VI, our annual user conference, where we hosted more than 3,000 guests, including automation practitioners, industry visionaries, and key customer decision makers. We also launched our inaugural UiPath AI10 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 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 strength in net 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 Veterans Affairs, Coast Guard, the IRS, and the Department of Homeland Security. We are 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 their 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 health care where automation delivers considerable value. This includes one of our top 25 customers, a large non-profit 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 have 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 work to create a centralized Enterprise Automation Service department with a mandate from their EVP sponsor to deliver automation across their entire enterprise. They are also in the process of developing use cases for Communications Mining and UiPath Apps. Customers standardize on our AI-powered Automation Platform to deliver transformational outcomes that streamline processes, eliminate errors, and operate with the enterprise-quality execution needed to succeed in today's environment. A great example is Johnson Controls (NYSE:JCI). After starting their automation journey in 2021 with core RPA, they adopted the full UiPath platform as they work to consolidate the automation program to one end-to-end solution. They also plan to leverage our AI capabilities like Document Understanding, Test Suite, and Task Mining to drive automation across their entire business. Another example is The Department for 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 efficiency, and increase cost saving and capacity creation. We are also landing new logos which are adopting multiple platform products in their first purchase like Tenable and KIK Consumer 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 their hiring process in stores. They are 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 their sales leadership meeting and we continue to see success in signing new logos from this partnership. Key one for me The Arnott’s Group, [indiscernible] in Australia, an Australian legend, the Australian producer of biscuits and snack food, The Arnott’s 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 UiPath AI-powered Business Automation Platform into their 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 Forward VI, we hosted an impactful session for more than 750 partners outlining our 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 quarter to analyze processes and accelerate scoping activities. Broadening our technology ecosystem also makes it easier for customers to deploy automations. We recently announced several new strategic partnerships. These include Amazon (NASDAQ:AMZN) 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 (NASDAQ:GOOGL) Cloud Marketplace in early 2024. In summary, third quarter results are another proof point of our commitment to delivering strong top line growth with expanding profitability and non-GAAP 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.

Daniel Dines: Thanks, Rob. Good afternoon everyone, thanks for joining us. The automation market is at an inflection point, and as the market leading tool that enables organizations to derive actionable value from AI, we believe this is a huge opportunity for UiPath. At Forward VI we introduced our latest platform release, 2023.10, and delivered 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 processes automation. Autopilot for Studio is intended to help developers across skill levels build automations 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 shared 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. With c-level sponsorship, during the quarter they expanded their UiPath deployment to incorporate Test Suite into their automation journey with a 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 where 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 a customer first mindset. I spent a lot of time with our teams in both Bellevue and Romania this quarter and 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.

Ashim Gupta: 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 (NYSE:NEWR), Smile Doctors, Beacon Health System, and MidWestOne 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. GAAP operating loss of $56 million included $96 million of stock-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 31, 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 31. Since November 1, under a 10b5-1 plan, we repurchased an additional 1.7 million shares at an average price of $17.38 through November 28, 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. [Operator Instructions] Our first question comes from the line of Keith Weiss with Morgan Stanley. Please proceed with your question.

Unidentified Analyst: Great. Thank you. [Indiscernible] 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 that of AI?

Rob Enslin: Yes, good question. What I would say is that when customers are looking at spending with us and the AI, the AI story and AI, connection, AI to automation connection really fits well to where customers want to invest. And in many cases, the investments are coming out of the business case and business value that we produced in NorthStar and are able to show the efficiencies in how to gain so they can invest in innovation. And they see us as an innovation leader today with AI and innovation, combined with our AI powered platform. So I don't feel like it's been taken away for one group to another, I feel it's really driven by the business case, we are able to drive with C-level suite and now we focus on industry solutions. And now we've connected those to the buying cycle with customers.

Unidentified Analyst: 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 do forward contracts 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 markedly and the second will continue into next year. Anything that you can share, there will be great.

Rob Enslin: I would just highlight two points. First is, we are going to continue to invest in our sales team, especially in our sales capacity, especially as we head into next year. And then the second is if you recall, we also are dealing with -- we also have the reallocation of our software expenses. So first through third quarter, you'll see sales and marketing versus G&A, a little bit lopsided, and which will be caught up in fourth quarter.

Operator: Our next question comes from the line of Mark Murphy with JPMorgan. Please proceed with your question.

Mark Murphy: Thank you so much, and I will add my congrats. So Rob, thinking back to the Analyst Day just over a year ago, 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.

Rob Enslin: Yes, Mark, look as I said earlier on, companies deal with shelfware, we feel good that our platform actually helps us move customers from not only bots into the broader platform as a focus on efficiencies, this marketplace that we're dealing with today. Certainly benefits efficiencies in new business model, 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, a bit closer to 20% next quarter. But is it possible to entertain the thought of holding -- 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 -- try to be mindful of the law of large numbers and some of the some of the macro unknowns that are out there.

Ashim Gupta: Yes, I would just say, Mark, we're really pleased with our performance and the team's execution. We are focused on closing out a good year-end here. And the teams are really focused on that. And 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 Materne with Evercore. Please proceed with your question.

Chirag Ved: 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 macro and spending environment? Or are you still seeing some broader choppiness out there? Thank you.

Rob Enslin: Yes, I mean, we -- 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 has really, in many ways driven through our growth products with all the AI communication that's happening in the market, it allows us to have meaningful conversations with customers, they see why the platform is relevant. And then we as I said, early on, we've been driving NorthStar quite a bit and 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 -- the quality of them, you really 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.

Chirag Ved: All right, thank you.

Operator: Our next question comes from the line of Brad Sills with Bank of America. Please proceed with your question.

Brad Sills: 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, some of these other use cases in the departments?

Rob Enslin: Yes, so I would say we have broad machine 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 offers in procurement and in IT organization. So it's much more broad based. And we feel really good about where we are focused on that.

Brad Sills: Great. And then one of 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.

Rob Enslin: Brad, I’ve only got 2 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 have on stage with us and what they were doing with us, these are really transformational. If you look at the partners, partnerships with SAP and Deloitte [indiscernible] this was transformation. We spoke about 750 partners that were aligning around the channel strategy. So we feel good that we actually -- forward is actually a catalyst event to move UiPath, helped 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 Raimo Lenschow with Barclays. Please proceed with your question.

Raimo Lenschow: Thank you. Congrats from me as well. Firstly, a more bigger picture question, like if you think about the different areas of strengths that you saw this quarter, like can you specifically speak a little bit about what you saw on test, Rob? Because that's what we hear from our [indiscernible] as one of the areas where especially in the SAP ecosystem, there seems to be a lot going on there and not quite sure you're getting enough credit. And then I had a follow-up for Ashim, please.

Rob Enslin: Yes, it's -- so if I look at the broader picture, you look at -- 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 their [indiscernible] where SAP of focus where their transformation objectives, the [indiscernible] program, which is an ongoing program. And it's -- 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 GSA partners -- GSI partners, and we will see more that test is a key part of that, because it has an incredible value proposition which allows customers to drive not only -- 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.

Raimo Lenschow: Yes, okay, perfect. Then, one for Ashim. 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 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 sales people, et cetera. How do you think about that balance of like getting ready for eventually better times versus where you are at the moment? What are you seeing in terms of productivity gains, proceeds, et cetera, for example, to kind of drive this going forward? Thank you.

Rob Enslin: 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 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: Yes, congrats from me on the quarterly results, first of all. I guess, Rob, maybe the first question is, maybe I'm pretty simple here. But NorthStar roadmaps seem like a no brainer, like how much of your customer base [indiscernible] your larger enterprises. Have you actually unleashed the NorthStar 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 add a follow-up for Ashim.

Rob Enslin: Sure. Great questions. So I would say, 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 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 make it simple for customers to mix and match 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 are 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 are able to scale more and continue to scale the organization, so there's still plenty opportunity for us to continue driving that and continue to work on NorthStar with organizations.

Terry Tillman: That's great. Thank you for that, Rob. And I guess, Ashim, 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. 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.

Ashim Gupta: I 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.

Operator: Our next question comes from the line of Fred Havemeyer. Please proceed -- with Macquarie. Please proceed with your question.

Fred Havemeyer: 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 product to see it being integrated throughout your portfolio and your suite, I'm looking forward to [indiscernible] what you can do there. But I wanted to take a, I guess a bigger picture, look at the longer term outlook of the market considering some of the impressive results [indiscernible] autonomous agents using for example, like GPT, for blending vision texts, et cetera. I'm curious, considering that UiPath has recently 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 [indiscernible] or agents like functionality being built using generative AI now?

Daniel Dines: Well, I think that direction in the market that we are seeing right now, around autonomous agents prove a bit -- 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 a lot of our customers after the initial, a little bit of a pause around how AI is going to help me with my automation, they realize that they need powerful automation platform in order to harvest the power of AI. And going forward on a longer term basis with UiPath are in one of the best positions to build the next generation foundational models that understand processes, tasks, screens and documents, the type of multimodal that is built in, in order to drive automation. So it's -- 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.

Rob Enslin: 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's automation platform is really able to help customers more holistically across the board with generative AI.

Daniel Dines: Yes, actually, this is one of the major use cases where automation is used right now in order to fine train customer [indiscernible] 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 U.S with companies like Accenture (NYSE:ACN), were Deloitte that are very interested in to how they can leverage automation to cleanse the data and to accelerate custom training of [indiscernible] and specialized AI.

Operator: Our next question comes from the line of Siti Panigrahi with Mizuho. Please proceed with your question.

Siti Panigrahi: Thank you. So it's good to see this net new ARR bounce back. So are you speak with your customer? What do you think the enterprise spending train would be next year in terms of priority for automation spending?

Rob Enslin: Yes, I mean, we've done -- we've looked at different analysts, different markets and many analysts will tell you that they see cloud or [indiscernible] data and cyber and automation is the key trends in terms of spending next year. But I would caution and say, customers are, as I said early on are very thoughtful in how they want to spend, where they want to spend and where -- 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.

Siti Panigrahi: Thank you. And, Ashim, a follow-up. If I capture your total customer count, it seems like it does come down this quarter. But you guys also had a pretty good -- on your enterprise segment spending. So wondering like, was there anything different you saw in different segments, like small versus mid to large segment?

Ashim Gupta: Yes, look, we're very pleased with how our enterprise segment is performing. The macroeconomic variability that we've talked about has had 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 liked the way the teams are executing against that strategy.

Siti Panigrahi: Great. Thanks for the color.

Operator: Our next question comes from the line of Michael Turits with KeyBanc. Please proceed with your question.

Michael Turits: 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 has already improved and does the rollout of autopilot help shorten that time even further? And then have a follow-up for Ashim on [indiscernible]. Thanks.

Daniel Dines: 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, yes, I would say that this is going to be a significant driver for adoption. And both for advanced developers, where they will get to really increase the 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 Gen AI, it has already proven this is actually in production already. And it's been proven to accelerate the deployment quite a bit.

Michael Turits: Thanks, Daniel. And then, Ashim, on the NRR, it's great to see it having stabilized on an as reported basis. But could you 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 -- what's pulling that down at this point? And what are the things that are working in trying to actually increase in NRR?

Rob Enslin: Yes, I mean, I look at our dollar base net retention adjusted for FX, it's 123%, which in our scale we're very pleased with and continues to be in the best-in-class territory. There always be a little bit 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're making -- 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 -- whatever headwinds we do see, we see really pronounced in the more pronounced in the lower end of the market. But overall our strategy is on customers with a higher propensity to buy. We feel like we are executing against that strategy and we're seeing that results in the deal quality and the customer quality though -- the end -- the customer quality in the quarter.

Operator: Our next question comes from the line of Scott Berg with Needham & Company. Please proceed with your question.

Scott Berg: Hi, everyone. Nice quarter here. Thanks for taking my questions. Your net new ARR was up year-over-year for the first time, I believe since fourth quarter fiscal '22. So nice change there on the positive side. I think most of the questions have been on your execution within the quarter and have a commentary from the demand end of the market. Are you seeing any changes around your customers or the environment more mid market enterprise? Because you mentioned the down market a couple 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 [indiscernible]?

Rob Enslin: Yes, 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 GBT kind of discussion that's been taking place. And plus, having the platform has allowed us to have C level, sea level conversations. We have customers now that are really calling us to actually have discussions with. They've been using Core RPA since 2018, 2019 and they feel like there's an opportunity to expand it. They're not getting hold of that. 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 that -- yes, definitely more positive and definitely feel good about the discussion of how we can help customers and how we are more relevant to the business discussion.

Scott Berg: 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? Was that a pretty clean calculation metric? Thank you.

Ashim Gupta: 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 $1 million for the third quarter. So it's just its execution and really good deal quality that's driving that metric.

Operator: Our next question comes from the line of Michael Turrin with Wells Fargo. Please proceed with your question.

Michael Turrin: Great. Thanks for taking the question. Two part, I'll just ask up front. Rob, given investments you mentioned in 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.

Rob Enslin: Yes, Michael, I'll take it now, let Ashim go later. Because we are having these conversations in the boardroom, customer -- customer conversations much wide to C level suite. We are much earlier in the budget cycles than we previously been. And we are actually much more important in the budget cycle than I believe we've been previously. I think there's a couple of really key points that stand out right 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 and support of us, the messaging around SAP has driven while and the platform proof points around, DEU and announced the customer that are $250 million savings in my earning script. This is what's really allowing us to participate. And so we feel like we are 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.

Ashim Gupta: Yes, so just in terms of our guidance, 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've [indiscernible] on that.

Operator: Our next question comes from the line of Bryan Bergin with Cowen. Please proceed with your question.

Jared Levine: Thanks. It's actually Jared on for Bryan today. In terms of the competitive environment any changes from what you're seeing from Microsoft ServiceNow or Automation Anywhere?

Rob Enslin: Yes. I have a look at -- if I look at ServiceNow, we don't see them in many opportunities. What I will tell you, our service, our connectors, the one of the most, it is the most popular downloaded connected to UiPath and we continue to partner with them. And our partnership with Microsoft around co-pilot and [indiscernible] pilot, the discussions we're having with them continues to be robust. And we are very happy with where we 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 are offering we don't see them that often anymore.

Jared Levine: 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?

Rob Enslin: I don’t have specific that we can point to now. I mean, we are looking at the results is 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 early signs of, I would just simply say, easier for customers to understand, easier for them to move. Definitely -- they definitely like how they're able to use AI units across multiple products and interchange them as they think of new use cases to advance their business as well.

Operator: Our next question comes from the line of Alex Zukin with Wolfe Research. Please proceed with your question.

Ethan Bruck: Hey, guys, this is Ethan Bruck on for Alex Zukin and thanks for taking question and congrats on the nice results. I guess, Rob, this one might be for you. If we were to like unpack a little bit and like more color, there's some stuff you saw in the quarter in terms of just either like certain verticals where we saw -- I know you mentioned on like the variable demand, but just kind of comparing from the macro, maybe by vertical basis, if something's got improved, or were 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 more -- buying more licenses, more [indiscernible] just kind of how was the kind of renewal conversation in 3Q compared to what you saw at the beginning of the year?

Rob Enslin: Yes. Look, the last quarter was a very strong quarter for public sector for our federal business actually in the U.K., and in the United States. And that was really because 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 attended automation, focusing on how citizens can improve their [indiscernible]. So we've seen us our -- our market move in public sector, that also is based on talent, the talent we bought 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. When you look at traditional markets, like when you look at traditional -- more traditional markets, telcos, CPG companies, manufacturing, retail companies, they're all driving efficiencies and driving efficiencies in retail, it's how fast can open up stores? How fast can I get employees on? How do I make [indiscernible] 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 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 are investing. But there's one common theme across the board and that's efficiencies. With renewals, it gives us an opportunity to drive a platform, to drive the platform earlier, to actually start having the discussions with customers most -- many months or many quarters earlier in terms of why move to the platform. Here's the value. Let's work on NorthStar with you. Let's get in the office. We've got an SAP transformation. We can help you with that as well. Let us bring one of our big global [indiscernible] 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.

Ethan Bruck: That's super clear. And then just, Ashim, as a quick one for you, 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 kind of the in the out years? Thanks again.

Ashim Gupta: Look, we -- I would refer you back to our Investor Day pitch [ph] last year, where we talked about long-term operating -- 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.

Operator: That is all the time we have for questions. I'd like to turn the call back to management for closing remarks.

Rob Enslin: Yes, I just wanted to say thank you. Thank you to all of you for all the 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. [Indiscernible].

Operator: 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.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Earnings call: UiPath reports strong Q3 fiscal 2024 results, unveils new AI-powered capabilities
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email