UiPath Inc

NYSE:PATH

Earnings Call Transcript 2024-Q1

[Operator]

Good afternoon, and welcome to the UiPath First Quarter 2024 Earnings 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] Please note that this conference is being recorded.

I will now turn the conference over to our host Kelsey Turcotte, Senior Vice President, Investor Relations. Thank you. You may begin.

[Kelsey Turcotte, SVP, IR]

Good afternoon, and thank you for joining us today to review UiPath's first quarter fiscal 2024 financial results which we announced in our earnings press release issued after the close of the market today.

On the call with me are Daniel Dines, UiPath's Co-Founder and Co-Chief Executive Officer; Rob Enslin, Co-Chief Executive Officer; and Ashim Gupta, Chief Financial Officer. Rob will start the discussion and then turn the call over to Daniel. After that Ashim will review our results and provide guidance. Then we'll open the call for questions.

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 our financial guidance for the fiscal second quarter and full year 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 other reports filed with the SEC, including our quarterly report on Form 10-Q for the period ended April 30, 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 like to highlight that this webcast is being accompanied by slides, which this quarter includes an embedded AI demonstration video. We will post the slides and a copy of our prepared comments to our Investor Relations website, immediately following the conclusion of this call.

Now I'd like to hand the call over to Rob.

[Rob Enslin, Co-CEO]

Thank you, Kelsey, and good afternoon everyone. Thank you for joining us as always.

I want to take a moment to thank our team and partners for everything you do, to make UiPath successful, and our customers for placing their trust in us. It was a good start to the fiscal year with first quarter results reflecting our commitment to driving growth at scale, coupled with increasing profitability and cash flow.

While the broader environment continues to be variable, the level of engagement with prospects and momentum in our large customers gives us confidence, in the strategic role automation will continue to play in digital transformation. Turning to the numbers. We ended the quarter with ARR of $1.249 billion, an increase of 28%, driven by a net-new ARR of $45 million. Excluding FX headwind of $6 million, net-new ARR totaled $51 million.

First quarter revenue was $290 million. Excluding the impact of foreign exchange, revenue was $297 million and grew 21% year-over-year. Non-GAAP operating margin increased from negative 4% in the first quarter of last year, to positive 17% in the first quarter of this year. A significant acceleration of our path to the 20% plus long-term operating target, we laid out at Investor Day.

I am very pleased, with the progress we are making to better align the team to customer requirements and the resulting efficiency improvements. Non-GAAP adjusted free cash flow, was a first quarter record of $73 million.

The first time we delivered positive non-GAAP adjusted free cash flow, at the outset of the year. We ended the quarter with approximately 10,850 customers, reflecting our focus on acquiring customers with the highest propensity to invest in automation.

New customers included Liberty Bank, New York City Health and Hospitals, Vermont Federal Credit Union and Navia Benefit Solutions. And we are seeing good momentum in our large customers, customers with $1 million or more in ARR increased 43% year-over-year, to 240. While customers with $100,000 or more in ARR, increased to approximately 1,860.

Customers choose UiPath, because of our market-leading technology and breadth of platform capabilities, which allows to stock consolidation, vendor rationalization and accelerate ROI. Helping them achieve speed and agility, while driving efficiency and improving employee and customer experiences.

For example, Colgate Palmolive, with more than 70 automation across various departments, they expanded to broader platform capabilities in the first quarter, as they migrate to an integrated platform. Consolidate vendor spend and utilize our governance capabilities.

And with Silica, which started the UiPath journey with Test Suite, expanded to additional platform capabilities, as they look to improve cost saving, productivity and employee and customer experiences.

It has been a busy start to this fiscal year, we launched a new segmentation model, nearly doubled the number of solution accelerators, added SAP solution accelerators to complement our partnership, hosted our annual AI Summit for a record number of participants, introduced our next platform release 2023.4. And announced several strategic partnerships and strengthened our Board and management team.

We also recently hosted two incredible events, our first-ever UiPath Summit an exclusive event for our digital C-Suite and most forward-thinking customers and our UiPath Together public sector event in Washington. There were two clear takeaways. Our platform is driving meaningful ROI for our customers and they want to understand how they can leverage the UiPath's Platform, to deliver the power of generative AI, responsibly and at scale.

Since inception, our platform has been infused with AI. We offer our customers best-in-class models, re-communications, understand documents and see screens and interfaces. Coupled with this next wave of generative AI, we can help customers make automation even more accessible, across their employees and significantly expand use cases. Equally as important, our automation platform provides the guarantees, guardrails and governance our customers require to deliver generative AI safely.

We are investing like the market, we are moving fast. Which, Daniel will talk about in a few minutes. AI is not new to UiPath. We are delivering real value to our customers today. During the quarter, [indiscernible] a UiPath customers since 2022, decided to replace a competitor and migrate the entire automation program to us, with a strategic focus on AI, as they work to accelerate development and deliver better governance. We also purchased Document Understanding for process invoices and plan to roll it out across other use cases.

Another great example is Hyundai Capital, which is innovating the car buying experience for Genesis, Hyundai and Kia dealerships. And the customers by leveraging Document Understanding to streamline the loan and lease process. Reducing the time it takes to fund a loan, translates into a better experience for both the dealership and the customer. And we see level sponsorship.

They are exploring additional opportunities to further streamline their organization and drive efficiencies to the bottom line, using AI and UiPath automation. Our partner ecosystem also continues to play a critical role in our success. During the quarter, we expanded our partnership with Snowflake, launching a pre-built solution for the Manufacturing Data Cloud to instantly connect data to business processes without using complex code. These technical integrations enhance our customers' ability to seamlessly integrate across applications.

In addition, go to market partners expand our reach to customers, in a scalable and cost-effective manner. A great example is KION, the German multinational and UiPath customer since 2019, working with PwC, KION continues to scale across the organization as they look to incorporate AI and Test Suite into the automation program.

We also recently announced a partnership with T-Systems, a Trusted Cloud Provider as classified by the German Federal Ministry for Economic Affairs and Energy to deliver our end-to-end platform at scale to public sector organizations and large enterprises across Germany, Austria and Switzerland. As part of this partnership, we plan to work with T-Systems to develop industry-specific offerings to joint customers.

One of the first of this Deutschlandticket, with T-Systems and UiPath anticipate helping them manage demand for the new flat rate transport ticket in Germany. And finally, we announced an expansion of our partnership with SAP, to jointly offer automation capabilities to customers. This partnership will help enterprises build a clean core, on S/4HANA Cloud, which complements SAP fold process automation, enabling organizations to improve efficiency and productivity across SAP and non-SAP workloads.

We are pleased to be the premium sponsor for all three of SAP SAPPHIRE events, in Orlando. Barcelona and Sao Paulo. And tomorrow, I will join the ASAP team on stage at Sapphire, Barcelona to underscore the partnership, we now have in-place. Our partner is also very excited about the announcements. [indiscernible] E&Y's Americas Vice-Chair has told us that having two alliances within the EY ecosystem that leverage the strength of the UiPath automation platform to help clients drive even more value from the SAP investment, makes a lot of strategic sense.

There is a significant amount of inbound interest and I'm convinced that together we can help customers achieve game-changing results. In summary, I am pleased with the progress we have made on our strategic initiatives, which are raising our profile and relevancy not only with our customers but also with go-to-market and technical partners.

That being said, we are mindful of ongoing macroeconomic variability and we have more work to do, extending our market leadership, helping customers get the most out of automation, and continuing to improve our execution.

And with that, I'll turn the call over to Daniel.

[Daniel Dines, Co-Founder and Co-CEO]

Thanks, Rob. Good afternoon everyone.

We are very excited to have introduced our newest platform release 2023.4, earlier this month. This release further accelerates our customers' ability to discover, automate and operate at scale, and continues to expand our leadership position in UI, AI and API automation. Our customers are very excited about this new release and our plans to use generative AI to further increase adoption of our platform.

We believe that generative AI will be a very important part of our enterprise AI foundation, along with domain specific AI and automation. And it is our platform that will allow us to deliver in a secure and governed manner, that Enterprise customers require. Generative AI, it's very powerful, but by itself has a limited scope of capabilities in the enterprise, it can read and generate tax, but not take action.

AI without automation, is like a brain without a body. However, when AI is combined with an enterprise automation platform, it opens a whole new set of use cases and opportunities for customers. Our software robots can already read screens and documents and now with generative AI, they can answer customer emails, create summaries of complex documents and respond to support questions.

Customers can use these new generative skills to extend existing automation, in areas such as customer service and imagine entirely new ones. We also believe that generative AI will democratize access to our platform, making it easier for both knowledge workers and developers, to create automation using just natural language descriptions. Generative AI will upskill every employee.

One of our biggest competitive advantages in leveraging the power of generative AI, is our long-term investment in AI computer vision. With computer vision we understand screens, from legacy to modular and applications and our knowledge of screens continues to grow exponentially with more than 2 million calls every day to our AI computer vision service in the UiPath automation cloud.

We are uniquely able to combine this understanding of screens, with the cognitive intelligence of generative AI, to watch what happens, understand what's being done, and automated it in our enterprise-ready platform. Let me show you a quick video of a research project, codenamed Wingman, that we are currently working on, which illustrates this. If you are not on the webcast. Please go to our Investor Relations website for the link.

[Video Presentation]

This shows how generative AI and computer vision can create robust workflows without writing any code. As this technology matures from research into products, we expect to extend the capabilities beyond developers to knowledge workers, who will be able to simply describe tasks in natural language and have them execute it directly by our platform.

At our FORWARD IV User Conference in the fall of 2021, I described the potential of generative AI, using the phrase, semantic automation. I am very pleased to report that our first offering in this space, Clipboard AI, is now in preview. Clipboard AI intelligently transfers data between documents, spreadsheets and apps, understanding the content and automatically inserting the data into the right places.

This use case has the power to transform how people work, and this is made possible by the depth of our expertise in combining AI computer vision, our own domain-specific models, and generative AI. Generative AI, also creates a compelling opportunity in automating manual tests. Today application testing often still requires manual intervention, which makes it slow, unresponsive and highly repetitive.

The opportunity for a combination of generative AI and computer vision, prompted through natural language descriptions and delivered through our platform, has the potential to meaningfully transform the testing market and we are well-positioned to execute here. Generative AI, represents a massive opportunity for UiPath and I am working closely with the team and our customers, as we infuse it across our platform to realize its potential.

This is why I'm so excited to welcome Karenann Terrell, to our Board of Directors, as a former practitioner with C-Level technology roles at GSK, Walmart, Baxter International and Daimler Chrysler, Karenann brings a wealth of experience and customer perspective. Which I believe will benefit the entire company.

Before I close and hand the call over to Ashim, I would like to thank everyone who has contributed to your UiPath's success. We remain focused on building an enduring Rule of 40 company and are pleased that our first quarter represents another step on that journey.

With that, I will turn it over to Ashim.

[Ashim Gupta, CFO]

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. I also want to note that since we price and sell in local currency, fluctuations in FX rates impact results.

We continued to execute against our strategic imperatives of balanced growth and profitability, which resulted in first quarter revenue -- first quarter revenue outperformance, as well as record non-GAAP operating margin and non-GAAP adjusted free cash flow.

As a result, we are meaningfully increasing both our full year non-GAAP operating income and non-GAAP adjusted free cash flow outlook, this afternoon. Turning to the first quarter, ARR totaled $1.249 billion, an increase of 28%. Driven by a net-new ARR of $45 million, excluding the FX headwind of $6 million, net-new ARR totaled $51 million.

We ended the quarter with approximately 10,850 customers, including great new logos like Asda, Jubilant Life Sciences, Robert Weed Corporation, TaskRabbit and TNL. As Rob mentioned, we saw strength in large customers as they continued to increase their UiPath footprint, with broader platform adoption and increased consumption. A great example is TetraPack, a customer since 2018, who continues to expand on our platform adding additional products this quarter like, Document Understanding, Action Center and Automation Hub as they migrate to the cloud.

Our strategy is to focus on customers with a higher propensity to invest in automation, as we transition our smaller accounts to a distribution channel. AI is also a central part of our strategy and is infused across our platform. A great example is Canon USA working with Green -- is Canon, USA, working with GreenLake Consulting Canon has built an automation program that leverages Document Understanding and customized machine-learning models to process over 5,000 invoices each month. Automation, gives them greater accuracy and efficiency, and requires far less need for human interaction, saving their employees over 6,000 hours of manual work annually.

Our dollar-based net retention rate for the quarter was 122%. Normalizing for FX, our dollar-based net retention rate was 127%. Dollar-based gross retention of 97% continues to be best-in-class. Revenue grew to $290 million. Normalizing for the FX headwind of approximately $7 million, revenue grew 21%. Remaining performance obligations increased to $904 million, up 34% percent year-over-year. FX-adjusted, RPO was $891 million. Current RPO increased to $559 million.

Turning to expenses, we delivered a strong first quarter total gross margin of 87%. The software gross margin was 93%. First quarter operating expenses were $205 million, reflecting disciplined cost control. We continue to find opportunities to optimize the business, which allows us to both reinvest in growth, and increase profitability.

We have built a strong foundation to scale the company, and we'll continue to leverage automation and improve operational excellence, to grow the business efficiently. Before I move on, please note the year-over-year decrease in G&A reflects both cost efficiencies, as well as the reallocation of software expenses to other line items. GAAP operating loss of $46 million included $85 million of stock-based compensation expense.

Non-GAAP operating income was $48 million, resulting in a record first quarter operating margin of 17%. The combination of revenue outperformance and disciplined expense management, resulted in record first quarter non-GAAP adjusted free cash flow at $73 million. I am very pleased with this achievement, and we expect to be non-GAAP adjusted free cash flow positive, every quarter for the remainder of the year. We also have a strong balance sheet, which is an important asset in the current operating environment, with $1.8 billion in cash, cash equivalents and marketable securities and no debt.

Now let me turn to guidance, which assumes the overall macroeconomic environment continues to be variable including in North America and that we are in the midst of executing our new go-to-market strategy, which includes account segmentation and the transition of smaller customers to distribution partners.

For the fiscal second quarter 2024, we expect ARR in the range of $1.301 billion dollars to $1.306 billion. Revenue in the range of $279 million to $284 million. Non-GAAP operating income to be approximately $10 million. And we expect the second quarter basic share count to be approximately 563 million shares.

For the fiscal full year 2024, we expect ARR in the range of $1.4271 billion to $1.432 billion. Revenue in the range of $1.267 billion to $1.272 billion. Non-GAAP operating income, to be approximately $168 million. This translates to a non-GAAP operating margin of 13%, a 700 basis-point increase year-over-year. Before I close, I want -- I want to leave you a few final details. First, given our first quarter gross margin outperformance, we now expect gross margin for fiscal year 2024 to be 85%.

And finally, we expect fiscal year 2024, non-GAAP adjusted free cash flow, of more than a $160 million or 13% adjusted free cash flow margin. Looking forward, the team remains focused on delivering growth at scale in a disciplined manner, which allows us to both invest in extending our market leadership while expanding operating margin and increasing adjusted free cash flow.

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]

[Operator Instructions] Our first question comes from Terry Tillman with Truist Securities. Please state your question.

[Joe Meares, Truist Securities]

Hi, this is Joe Meares on for Terry. Thanks for taking the questions I appreciate it. So, you recently announced your new business automation platform with SAP. It sounds like a big deal to us. Can you just explain what drove the decision to make this integration and what you think the opportunity is here?

[Rob Enslin, Co-CEO]

Hi Terry, this is Robert here. Thank you for the question. Look, with I'm here in Barcelona with many of SAP's customers and it's a truly exciting event for us. We are the key sponsors in both Orlando, Barcelona and Sao Paulo. Well, I think basically in terms of the customer, a large global apparel, footwear company this morning in Barcelona mentioned why the partnership for them is important.

And it's basically around the ability to migrate to S/4HANA, drive a clean core, accelerate their digital transformation, combining some of SAP's technologies around Signavio, which is process modelling, connected with our UiPath task mining, and driving of the UiPath platform together that global footwear, apparel company is working with robots over a couple of 1,000 hours, where a SAP system seeing a significant benefit, together with customers wanting to move faster, customers want to actually see how automation on top of their existing environment, whether they're actually going to go through digital transformation or not and we believe that.

Our go-to-market organizations on both sides will be able to deliver the value to these customers, much, much faster. So it's a significant partnership. The feedback we got from global systems integrators has been exceptionally positive, we've mentioned a couple of them. And we've had a lot of positive inbound interest in this partnership with SAP. To get it, today we also have customers that already utilize us in the Test Suite capabilities we have, you can see as we've mentioned previously, with Orica and the benefit they've got out of it.

So, we think at the end of the day, customers are going to see the significant benefits acquired by connecting ERP systems, world-class mission-critical ERP systems, together with world-class automation systems.

[Joe Meares, Truist Securities]

Super helpful. And then just as a follow-up. We recently saw UiPath product demonstration that used ChatGPT to come up with test scenarios for the Test Suite, it seems very additive to the platform. Can you just explain, at a high-level how ChatGPT augments the product and then what your product does that ChatGPT cannot do? Thanks so much.

[Daniel Dines, Co-Founder and Co-CEO]

We're very excited about the opportunities that generative AI is going to bring to our platform. We are seeing good opportunity to increase the adoption of our platform by making the existing use cases easier to implement and democratizing access to the platform. In the sense that even more-and-more less technical users can use it.

We are building as part of this project, codename Wingman. We are building a co-pilot like technology, where users can specify in natural language -- the task they want to automate and we use our computer vision to read the application screens, and by combining our own technology with the cognitive power of ChatGPT, we can actually create very easy-to-use workflows that can be deployed on run by our platform.

Moreover, we feel that in our Document Understanding business, we can accelerate the creation of domain-specific models, by training them, using generative AI. But then deploy them in a secure and governed manner. So this domain-specific model has the advantage that they are very precise and they don't they don't pause business risks. And you mentioned testing.

Explorative testing was very difficult traditionally to automate, because people if very fast through building an application and user interface, usually changed quite a lot, but now we see the opportunity to have a description of the tests in pure English, like you would do for a manual test and then by our automation platform that employs, computer vision and generated a will simply explore the user interface and will be capable of Understanding and application testing for more like a human user.

That will result in an acceleration of actually implementing a large application, because people will test, much more often. So development cycles, will shorten. So only once we believe this is an amazing opportunity for our platform and I want to stress again, that the power of it really puts into highlights the power of our computerization that reads screens, the power of our execution platform that can execute screens through applications and the power of our end-to-end platforms that can orchestrate and deliver automation in the enterprise great manner.

[Joe Meares, Truist Securities]

Thanks so much.

[Operator]

Our next question comes from Raymond Lenschow with Barclays. Please state your question.

[Raymond Lenschow, Barclays]

Thank you and congrats for the numbers on the quarter guys. I wanted to stay on that testing theme and actually the SAP theme from the first question. And I'm thinking about testing in a SAP migration environment because as a lot of customers have to go to S/4HANA lot of customers need to be done and we think that customizations, et cetera, should be like a significant opportunity for you guys around testing there and work there and. Am I dreaming or do you see that and what's the opportunity there? And I have one follow up, question for Ashim.

[Rob Enslin, Co-CEO]

Yes, Robert here. When you when we mentioned the [Arcata suite] announcement earlier, that is in combination with S/4HANA migration, that they are doing so an integral part of that migration, and it was also automation on top of -- On top of S/4HANA migration. So we actually have customers today that actually utilizing significant parts of both platforms. And the opportunity is significant because it also ties in the SAP's BTP platform together with a slow migration.

So that's why we feel really confident about it. We also feel like it changes the discussion in front of customers and it drives a significant amount of efficiency in the migration process as well. We've also deliver heat maps and ICT solution accelerators to help move that motion even fact. So we do see that as a significant opportunity with our partner SAP.

[Raymond Lenschow, Barclays]

Yes, okay, perfect, makes sense. And then Ashim great results on cost control and what you're doing there. How do we how do you think about your cadence investment cadence here for the remainder of the year in terms of kind of controlling costs, but also kind of getting ready for in case things are kind of looking better in the second half of the year with a view on 2024, like how do you kind of run the business at the moment. Many thanks.

[Ashim Gupta, CFO]

Yes. I think first is, we are world consistently invest in areas that we see opportunity, Raimo, that is both in the go-to-market side as well as in-product and you can see that in the results of the roadmap, you know that Daniel talked about in the product and the excitement that we have there. And things like that and. Deals like the SAP partnership that happens through the investment of time of our resources. So we focused people in the right places with the highest return. We've talked about it, I think we have enough scale now. We're a big chunk of our base is really scalable globally. You look at our G&A structure.

I think we've built the foundation to scale across every single country and support the customers and the strategy that's in place today. And on the go to-market side. Rob brings a ton of expertise and the leadership of the go-to-market teams really are constantly looking for the best opportunity and focusing on customers with the highest propensity to invest, automatically leads to better ROI's in terms of the investments, we put it so well. I think that we will continue to operate the company efficiently, that efficiently for us means investing in great opportunities and de-emphasizing areas where we don't and that formula.

I think has shown positive results. But you could buy, you can see, not just the generation of free-cash-flow, but also us raising our overall operating margin guidance here to 13% for the remainder of the year.

[Raymond Lenschow, Barclays]

Yes, okay, makes sense. Well done. Thank you.

[Operator]

Our next question comes from Matthew Hedberg with RBC. Please state your question.

[Matthew Hedberg, RBC]

Great guys, thanks for taking my questions. Rob, maybe I'll start with you. Upselling the platform beyond RPA is clearly a big opportunity for you guys. And when we look at your growth in large customers, it seems like it's showing up there. Can you talk a little bit more about the success you're seeing there moving customers beyond RPA to the broader platform. And what does that do to air ARR per customer?

[Rob Enslin, Co-CEO]

Yes, and maybe Ashim can comment on the ARR per customer, but certainly when you look at our customers above one million, that's improving all the time. I would say, Matt, the discussions we're having with customers today using our Northstar model. It's significant, it's really around how we can help businesses, how can help drive efficiency and how we can help them deal with this environment that we're working in today.

So we see we see lots of opportunity that. I think Daniel mentioned Document Understanding, the return on Document Understanding, the results we have with customers today in healthcare, healthcare providers and financial institutions, is absolutely significant and we see more-and-more customers expand.

And then as customers' started to see areas if they. I would say, when we engaged in a sales cycle and it's and we with Test Suite and I looked at the full platform. We're seeing more-and-more customers select us because of the platform, the opportunity that it provides so. I would say, RPA in automation. Today the enterprise version of the way the companies look at enterprise automation UiPath is clearly the leader in that space. The partnerships that we've now going place with big GSIs and big technical part is making a big difference. And I'm very confident of where we're headed with our focus on industries and these partnerships.

[Matthew Hedberg, RBC]

Great, thanks. Maybe just Ashim following-on Raimo's question on margins, obviously, super impressive from 9.5% to now 13% for the year you just sort of curious when we think about that longer-term margin progression. How should we think about the cadence? Beyond this year, which is obviously been pretty dramatic this year so-far.

[Ashim Gupta, CFO]

Yes. I think we're really pleased with the progress and the pace of execution by every single employee of UiPath, frankly. Working to both serve our customers and find efficiencies together. We've talked about 20% margin, in terms of a long-term operating margin goal, we will update that at the appropriate time as we see the need to, but we're more than halfway there. We feel really good about that progress. We're committed to being a Rule of 40 company, and I think just continuing and continuing that progress is what we're focused on.

[Matthew Hedberg, RBC]

Thank you very much.

[Operator]

Thank you. And our next question comes from Mark Murphy with JPMorgan. Please state your question.

[Arti Vula, JPMorgan]

Hi, this is Arti on for Mark Murphy. Thanks for taking the question. I wanted to ask, is there any material portion of your pipeline where you look at it, you feel like you're being involved in generative AI and LLM with external products? To be clear, I understand you guys have your own AI and LLM products. But specifically if kind of thing. Any incremental pipeline with adoption of these kind of emerging LLM. Thanks.

[Kelsey Turcotte, SVP, IR]

So I don't think we look at our pipeline in that vein. When we go-around and we Rob can talk through the customer portion and the customer stories -- every customer's and our pipeline reflects the continued interest in understanding their automation and AI go hand-in-hand and the power of generative AI really makes us the right long-term fit for their platform.

So we see that in the pipeline in terms of just the continued throughput of the deals and the deals with our largest customers reflecting our strategy. So that's the way we see it, do we have a specific set of pipeline or deals just around AI, we don't look at it that way and. I don't believe our customers do either.

[Rob Enslin, Co-CEO]

Yes. Let me just add to that, because. I think it's really important and. I think Daniel - in Daniel's prepared remarks, I thought it came across really well. When you look at the way we look at enterprise, AI, and we are getting a significant amount of discussions with our customers. You have to go back to domain-specific AI and domain-specific AI we've had. years, years of work-in this space that our customers, whether it be task mining Document understanding our computer vision technology. And don't forget Communications Mining as well.

So we've got years of understanding in that we spoke about clipboard AI previously on generative AI customers really want to understand how we can benefit them in the future with automation and how these two go hand-in-hand. And I think that's going to be something that UiPath will continue to evolve really-really fast in the next month. I would believe that we are seen as a leader in a thought leader in this space as well. I mean, Daniel, do you want to make some comments on that?

[Daniel Dines, Co-Founder and Co-CEO]

Yes, as I said, it's. I really believe that from a strategic standpoint, AI development will follow a bit like our human brain development. We have so very powerful cognitive engine. But we have a lot of specialized. those, if I can say so help us to do many task on autopilot. For instance, if I try to look at Deniz initially. I am training using my cognitive understanding of the game, but then I will play on autopilot because it's much more effective, it's more precise, it's actually much less intensive in terms of resources that it requires.

So obviously, this is going to be the module that will prevail in the enterprise world and a. This is why I believe we have an extensive mode here with based on our computer vision technology and actually our ability to execute actions on screens, which is a very hard thing to do, reliably. So it's part of our IP for the last 15 years in a way I. I really believe that generative way it's exactly the missing piece, RPA to really go to the next level of adoption.

[Arti Vula, JPMorgan]

Got it. That was a very insightful thoughtful answer from all of you. So I'll just leave with that. Thank you.

[Operator]

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

[Sanjit Singh, Morgan Stanley]

Yes, this is Sanjit Singh for Keith Weiss. I wanted to start first with. Ashim in terms of the demand environment, you guys talked about sustained deal scrutiny, similar to last quarter. As you look into the trends in May and look into the pipeline for the rest of the year. How are like, what is sort of the customer buying behavior, how is that shaping up. Any sort of changes you see in May versus what you've seen in Q1 and what you saw in Q4?

[Rob Enslin, Co-CEO]

No. I think it reflects just the way that we've described it, which is, it's it reflects the variability of the macroeconomic environment. That. I think it goes changes every single day and we're attuned to that with our customers, but there is no consistent change that we see a major difference in from that perspective.

[Sanjit Singh, Morgan Stanley]

Is there any sort of regional variation? This there. Some inkling that Europe might be doing better than the U.S. and Asia, or is it still pretty volatile across the various geographies.

[Daniel Dines, Co-Founder and Co-CEO]

So just in terms of what I see and I'll let Rob comment on. He has then with the customers, but from a pipeline perspective, we're really pleased with and the execution within across our teams. I think the word variable really is a global phenomenon. In terms of the overall environment. I think well. You know for a longer period of time. Just since last year and. I think North America is something we commented on. In in the last earnings call.

So from that, those are just the dynamics and I'd say that's pretty consistent, nothing else that. I would highlight, Rob. I don't know if you want to add on.

[Rob Enslin, Co-CEO]

I pause on that one. I don't think there's much to highlight. I would say that it's consistently variable. I would say the same discussions taking place with customers when you talk about our Northstar model into them where we speak to customers about the broader automation platform per he is progressing very nicely in both the U.S. and the Americas and in EMEA. We are pretty pleased with the progress there and we will continue to work on the progress. In APJ, but. Market conditions. I would say all variable consistently.

[Sanjit Singh, Morgan Stanley]

Understood. And then maybe just sneak one last one if I may, for Daniel, you've been pretty clear about on this call about the potential for generative AI to help making RPA more useful testing, seems like a very interesting use-case, as well as customer service. What does that mean from a pricing perspective? So as you guys incorporate this technology, do you feel like you'd be able to press on the pricing lever, given the potential productivity on the hands of debt you may extract deliver to customers.

[Daniel Dines, Co-Founder and Co-CEO]

Yes, this is a big tailwind for us. And it's going to positively impacts all areas of our platform, because ultimately we will infuse generative AI across our platform. And. This basically will - with the increased adoption of our technology. I think the generative AI will pave the way for itself. And we will sell more robots, we will sell more documents processing. We will sell more AI units, so. I think. I think it's going reflect pretty nicely into our existing price model.

[Sanjit Singh, Morgan Stanley]

I appreciate the thought Daniel. Thank you so much.

[Operator]

Our next question comes from Bryan Bergin with TD Cowen. Please state your question

[Bryan Bergin, TD Cowen]

Hi guys, good afternoon. Thanks. I wanted to follow-up on-the-go to-market refresh. Rob, you touched on it briefly, but can you take it a little bit more on the sales and go-to-market reorg across the three operating regions. Really just compare and contrast where you stand in North America versus EMEA versus APAC.

[Rob Enslin, Co-CEO]

Yes, look I mean. I think we've executed the go-to-market changes. As we said we would consistently. Those changes. So would say settled. Really well, mostly. In some of the segments. It's taken a little longer than then we would have hoped, but right now, I feel really good about where we all and the rhythm.

We have in the second-quarter and now the teams are focused. So, absolutely the right decision. Absolutely the right execution. And as you said a couple of times, Bryan. I think Neil, see the acceleration in the second half of the year due to the changes we've implemented.

[Bryan Bergin, TD Cowen]

Okay, all right. And then just on the partnership ecosystem, kind of same question here, just any feedback from the service channel partners. As you are shifting some of the long-tail over to them and any learnings thus far on this plan.

[Rob Enslin, Co-CEO]

Yes. I would say the partners across the board. You got to look at the partners. If you look at the big GSI's. I think we are having way more discussions with them, paid very much involved in many of our NorthStar discussions around digital transformation, and big projects. So then that model fits really well.

Our existing partners, the local channel partners are seeing bigger opportunities as we continue to showcase the platform they get fundamentally understand how to position the platform and actually even in some of those partners see areas like Document Understanding where they actually really driving it. And then the distribution is where we still got some, I wouldn't say work to do, but we still got it. To see it come through.

[Rob Enslin, Co-CEO]

And look. The reaction. I mean that's the one probably that we don't mentioned because maybe. As far as global, but the partnership with T-System's with large companies in Germany, Switzerland, and Austria, and the public sector in Germany, is significant, right? We already working with Deutschlandticket, which is Deutsche Bahn, on the flat rate ticket system for the whole of Germany. So that's the big significant opportunity for UiPath as well. And then the SAP partnership. Coming out of Sapphire will be in-full execution mode and we really confident that. The senior leadership of SAP being here in Barcelona being on stage, tomorrow with their team and the customers, we'll showcase the fundamental difference of that partnership as well.

[Bryan Bergin, TD Cowen]

Okay, good to hear. Thank you.

[Operator]

Our next question comes from Michael Turrin with Wells Fargo. Please state your question.

[Unidentified Analyst]

This is [Austin Williams] on for Michael Turrin. Thanks for taking my question. It looks like net-new ARR was down versus last year in the quarter. Is there any additional color you can add on whether it's new logos or expansions that are impacting that? And as a follow-up, are you seeing any change in the average deal sizes for new lands?

[Rob Enslin, Co-CEO]

Yes, so just when you look at it. I wouldn't say there's a driver between new logos and expansion. Really first thing is normalizing for FX, FX had a $5 million to $6 million impact in the quarter. So, I think that's the first piece. And the second is, it's more of a just a general the broader macroeconomic variability that we see and the transition that we have in terms of the go-to-market changes that we've made and that's appropriate, we commented on that at the start of the quarter.

So those are really the drivers versus pointing out a specific motion in terms of where it is. In terms of land sizes, we're really pleased with what segmentation has done in terms of focusing on the higher propensity customers we see. We're pleased with our large deal execution. Rob mentioned this our $1 million plus customers continue to grow. And from that standpoint. I think that's a good feeling from us in terms of both positioning the platform as well as larger deal execution, which of course involves average selling price being higher.

[Unidentified Analyst]

Got it, thank you.

[Operator]

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

[Brad Sills, Bank of America Securities]

Great, thank you. I wanted to ask a question around the transition to solution-selling and the vertical approach here. I think last quarter you called out some relative strength in the financials vertical. Just curious if you get an update on where you might be seeing some traction across the verticals with that approach. Thank you.

[Daniel Dines, Co-Founder and Co-CEO]

Yes, Brad. I mean, we still continue to see the benefits with the financial sector banking, health-care providers, we still see continue to see that we announced a couple of names. So that continues to be a source of strength, especially with the solution products like communication, mining and Document Understanding. But. I would say it's variable in other industries. In generic manufacturing, you see Test Suite being driven.

So from an industry point of view. I think over time as we produce more-and-more solution accelerators as we get more-and-more focus on which solutions at which industries you're going to see the expansion by industry. The PCA is significant as well as the global system integrators, the big potent actually to work with in specific industry focus areas and you're going to start to see that expand in the coming months as well, so. I wouldn't say specifically, we saw significant uptake in any particular industry. In the first quarter, but still, financial services, healthcare, are still the areas where we see -- that we have seen progress.

[Brad Sills, Bank of America Securities]

Wonderful. Thank you so much. And one more if I may, just on a couple of partnerships here the Amazon SageMaker and Snowflake partnership, how do you envision these partnerships, impacting the business, are we talking about just more relevance by blending data from these datasets and AI, ML libraries. To increase the velocity of deployment of more. The accuracy of box. I mean, how do you see this impacting the business, as you bring in dataset from Snowflake and the AI ML library from AWS SageMaker? Thank you.

[Rob Enslin, Co-CEO]

Daniel, you can take the make a one-off those like. I think it's. But declared Brad that just help customers, automate faster connect. Cricket Snowflake Data in the manufacturing sector and deploy bots, much, much faster. Actually, we see quite a significant amount at the Sapphire event, we see a significant amount of customers in that space. Manufacturing. Wanted to understand more about the Snowflake partnership, and how they can actually deploy Boston manufacturing supply-chain logistics much faster. So we see that as a significant opportunity as well.

[Daniel Dines, Co-Founder and Co-CEO]

Yes, obviously. I think the opportunity in in our analytics platform we use Snowflake has actually foundation there in-process mining and all our analytics, we've kind of standardized on the platform and we use the. The power of it and of course SageMaker is great for hosting models it's to accelerate our AI strategy. So all-in one, it's a really positive event for us.

[Brad Sills, Bank of America Securities]

Thank you so much.

[Operator]

Our next question comes from Kingsley Crane with Canaccord Genuity. Please state your question.

[Unidentified Analyst]

Hi guys, this is [Gabriel Roth] for Kingsley. We can. Congratulations on the quarter. I find it very questioning about the generative AI being a great gateway to leverage the rest of the automation platform. So in that respect. What impact do you guys? Taking into account, put the guidance for this year are for the longer-term of generative AI and the adoption of the platform. The overall increase in thanks to it.

[Daniel Dines, Co-Founder and Co-CEO]

Well. I think generative AI, it's a bit of a longer shot to have impacted the guiding for this year. We my estimation is. The real adoption in the enterprise would probably be. Start more like next year, rather than this current fiscal year.

[Operator]

Thank you. Our next question comes from Scott Berg with Needham. Please state your question.

[Scott Berg]

Hi, everyone, and congrats on a good quarter. Most of my questions have been asked but just wanted to ask for one and I apologize for the background noise on the plane here. But my question is on absent on your native cloud back I think they've been in the market for a little bit more than a year now. I just wanted to see if you had an update maybe on the traction to sell them versus the more traditional term license spot, you have out there. Thank you.

[Rob Enslin, Co-CEO]

We feel really good overall progress in our hybrid offering. I think is really good. I think ACR it's still early, like. There is a lot of our customers will still work and are developing their cloud strategies. Their full cloud strategies across enterprise automation. But the feedback from our customers, the interest continues to be very well and it's positioned well in the market, but our having that on the roadmap, coupled with the capabilities that continue to be released on our cloud platform. We feel very good about that.

[Operator]

Thank you. And we have reached the end-of-the question-and-answer session, I'll now hand the floor back to Robert Enslin for closing remarks.

[Rob Enslin, Co-CEO]

Yes. Thank you everybody for joining us. We look forward to connecting with many of you in the coming weeks and we appreciate you all joining us today. Thank you.

[Operator]

Thank you. This concludes today's conference. All parties may disconnect. Have a great day.