UiPath Inc

NYSE:PATH

Earnings Call Analysis

CEO Changes and Strategic Focus Amid Revenue Growth

UiPath experienced a 16% year-over-year revenue growth to $335 million, normalized to 18% excluding FX impacts. ARR rose 21% to $1.508 billion. Despite a solid start, macroeconomic conditions led to slower large multiyear deal closures. The company posted a non-GAAP operating margin of 15%, with free cash flow projected at $300 million for FY 2025. CEO Daniel Dines reassumed leadership, focusing on customer-centric strategies and investing in AI innovations. The company anticipates Q2 revenue between $300-$305 million and ARR of $1.543-$1.548 billion. Full year revenue is expected to reach $1.405-$1.410 billion, with ARR estimated at $1.660-$1.665 billion.

Strong Revenue Growth Amid Challenges

In the first quarter, the company reported a revenue increase of 16% year-over-year, reaching $335 million. When adjusted for foreign exchange headwinds, the revenue growth was 18%. Despite these gains, several challenges emerged, including macroeconomic headwinds and inconsistent sales execution which led to slower deal closures, particularly large multiyear deals.

Macro Environment and Customer Behavior

The challenging macroeconomic environment has impacted mid-market customers and led to changes in customer behavior. For instance, large expansion deals were either downsized or postponed. The company also faced issues with contract execution and changes in sales compensation, leading to further unpredictability in closing significant deals.

Growth Products and Investments

While growth products such as IDP and test automation showed positive outcomes, deeper execution strategies are needed to scale these products fully. Additionally, recent investments to accelerate growth fell short of expectations and affected short-term operating margins. The company is focused on rectifying these issues by improving sales execution and driving efficiency.

Outlook for FY 2025

Given the challenging environment and the leadership transition, the company revised its revenue guidance for the full fiscal year 2025 to be in the range of $1.405 billion to $1.410 billion. ARR guidance is set between $1.660 billion and $1.665 billion. Despite the challenges, the company expects to generate non-GAAP adjusted free cash flow of around $300 million for the fiscal year.

Leadership Changes

CEO Rob Enslin's departure and Daniel Dines's return as CEO marked a significant leadership change. Dines highlighted his commitment to leading the company through its next phase of growth and innovation, emphasizing a strategy focused on customer engagement, product innovation, and operational efficiency.

Maintaining Financial Health

The company continues to maintain a strong financial position with $1.9 billion in cash, cash equivalents, and marketable securities, and no debt. They also repurchased approximately 938,000 shares of their Class A common stock. Emphasis remains on generating non-GAAP free cash flow while driving cost discipline to support both growth and profitability.

Exciting Developments and Innovations

Innovations in AI and the introduction of new features such as Autopilot signal ongoing progress. The company continues to deepen relationships with key partners like SAP and Microsoft, and is optimistic about the growth potential of their business automation platform. Engagements at events like the AI Summit further bolster the platform's adoption and market presence.

Earnings Call Transcript 2025-Q1

[Operator]

Greetings, and welcome to the UiPath First Quarter 2025 Earnings Conference Call.

[Operator Instructions]

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ali Fani, Senior Director of Investor Relations. Thank you, Elias. You may begin.

[Unknown Executive]

Good afternoon, and thank you for joining us today to review UiPath's First quarter fiscal 2025 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 Founder and Chief Innovation Officer; and Ashim Gupta, Chief Financial Officer, to deliver our prepared comments and answer 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 second quarter and full fiscal year 2025. 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, 2024, and our subsequent reports filed with the SEC including our quarterly report on Form 10-Q for the period ended April 30, 2024, 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. We will post the slides and a copy of our prepared remarks 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 Daniel.

[Daniel Dines, executive]

Thank you, Elyse. Good afternoon, everyone. Thanks for joining us. I'd like to start today by addressing the announcement we made this afternoon and then I'll give a quick summary of our first quarter results and revised outlook including an update on our path forward. I will then walk through a few highlights from the quarter before I hand it over to Ashim to go through our financials and guidance in more detail.

As you may have seen in our press release this afternoon, Rob Enslin is leaving the company and has also resigned as a member of the Board. Rob played a significant role over the last 2 years, and I know I'm speaking for the entire company when I say that we are very grateful for his -- for his contribution to UiPath. With Rob leaving the company, I'm excited to step back into the CEO role and look forward to leading us through our next phase of profitable growth and innovation.

During the past year, I had the privilege of immersing myself in our product and engineering efforts. This experience gives me invaluable clarity on our path forward. At the time, when companies are looking to optimize costs and drive efficiencies without sacrificing innovation, especially around generative our platform enables them to harness the power of the AI to achieve actionable outcomes. As we look to the future of automation, our focus isn't just on boosting productivity and efficiency, it's also about redefining what's possible with the breadth of our AI-powered platform and capability. The impact that the combination of generative AI and automation provides our customers a significant and it's expanding from our early customers like SMBC and Orange to customers that have grown and expanded significantly over the last year, like USDA and ACA, they continue to emphasize how the combination of automation and AI deliver through our platform is transforming their business and enabling them to thrive in today's environment.

We view generative AI as a secular tailwind that will continue to benefit our business and the catalysts were continuing to innovate across our platform to expand our competitive moat. Turning to our first quarter results. ARR grew 21% year-over-year to $1.508 billion, driven by first quarter net new ARR of $44 million excluding the FX headwind of $3 million net new ARR totaled $47 million. Revenue grew to $335 million, an increase of 16% year-over-year, normalizing for the FX headwind of approximately $8 million, revenue grew 18% year-over-year. While our top line results were generally in line with our guidance range, we are not satisfied with our performance and I'd like to give you more color on a few key factors that impacted first quarter results.

First, while we had a healthy start to the quarter, we saw the pace slow as we progressed through the second half of March and into April. This was primarily due to the impact of a challenging macroeconomic environment that we see persisting with mid-market customers as well as a change in customer behavior, particularly with large multiyear deals.

As a result, several large expansion opportunities closed with the reduced size were pushed out of the quarter. Second, we saw inconsistent execution, which included contract execution challenges on large deals and certain sales compensation changes, which we are working to rectify. While customer behavior is often a function of the broader macroeconomic environment, execution is something we can control. And we recognize that we need to improve predictability on large multiyear deals.

Third, our growth products such as IDP and test automation are producing positive results. However, there is a need to have a deeper execution strategy to scale these products to reach their full potential. And lastly, the investments we have made to reaccelerate growth have fallen short of our expectations, made us less agile in responding to customer needs and created short-term pressure on operating margins, all of which we are committed to rectifying.

Now let me address our outlook going forward. Our revised second quarter and fiscal 2025 guidance are not where we expect them to be. That being said, we don't expect the macro environment to improve materially in the near term. And we believe it is prudent to guide assuming variability we saw at the end of the first quarter will continue. It also takes into account the leadership transition, which can create some short-term disruption. As we look to the future, we are laser focused on enhancing our execution including improved sales linearity and deal scrutiny, driving higher efficiency across sales and the broader organization and driving a deeper and more execution orienting strategy for our growth products. We are also shifting the way we engage with customers to reinvigorate our line of business engagement with an industry tailored approach.

Lastly, we plan to go back to our roots, building a truly customer-centric organization, we are co-innovating with our customers and partners is at the heart of everything we do. We believe that this foundational work will help us better address customer needs, accelerate adoption of our platform and position us to drive market share gains over the medium and long term.

I want to be clear, we are optimistic about the role of our business automation platform plays in digital transformation. The core foundation of our business remains strong, and we are making progress on our long-term strategic plan, which includes releasing innovative new features and products like Autopilot continuing to deepen our relationships with meaningful partners like SAP and building a strong community of developers.

Lastly, despite some of the top line challenges, we are still expecting to generate $300 million of non-GAAP adjusted free cash flow for the full fiscal year 2025. Turning to a few highlights from the quarter. I am energized by the incredible events we hosted, including our annual AI Summit, which once again proved to be a great success with over 5,000 registered attendees. We introduced new innovations focused around the key factors that business leaders are looking for when they embed AI in their automation program, business context, AI model flexibility, actionability and trust. These innovations included our family of large language models, or LLMs, [indiscernible], which combine the best of generative AI and specialized AI to empower our customers to understand the process any document and a huge variety of message types by narrowing the focus, but retaining the vast power of Gen AI, our specialized LLM significantly outperformed the output accuracy of currently available out of the box at the land. We also introduced context grounding a new feature within the UiPath AI trust layer that helps businesses improve the accuracy of Gen AI models by extracting information from company-specific data sets.

And lastly, we announced exciting new updates for Autopilot, including the release of Autopilots for developers and testers into general availability in June. We have seen tremendous interest from our customers across diverse industries ranging from technology and automotive to pharmaceuticals and advertising and including some of the largest companies in the world, such as [indiscernible] and [indiscernible]. While still in its early days, Autopilot has already garnered positive feedback and excitement among customers for its innovative use of generative AI to take action across application stacks lowering barriers to entry and accelerating time to value. On the go-to-market front, momentum continued with our first UiPath on tour event, AI at work public sector in Washington, D.C. The energy and engagement in the room were palpable with over 1,000 public sector leaders and implementation partners in attendance. It was truly inspiring to witness firsthand how our platform is empowering public sector agencies to modernize their IT infrastructure and nothing gave the cloud with confidence.

We also had the opportunity to highlight our recently achieved Fabron authorization. This milestone creates opportunities for public sector organizations to elevate their operations through the transformative power of automation, and we are already seeing customer interest closing several deals in the first quarter, including an existing customer, we expanded as they plan to leverage fed ramp to move to the cloud while purchasing document understanding to drive efficiencies throughout their organization.

Moving on to our partner ecosystem. Partners continue to be a core pillar of our go-to-market strategy and GSIs are building long-term differentiated businesses with us. During the quarter, we had the great partner supported expansion with WEC Energy Group, with consolidating their automation efforts onto our end-to-end platform with Accenture's continued strategic support, they are now planning to leverage our AI-enabled capabilities, including document understanding, aimed at enhancing customer care and agent productivity and driving additional operational efficiencies and insights. Partners are also driving new logo wins, including VHI Group, the largest private health insurer in Ireland.

With the help of EY, we develop a plan to drive long-term digital transformation across their organization. They are in the process of leveraging document understanding to automate elements of their claims journey and core automation to drive the digitalization across the organization, strategic partnerships are an important element of our strategy, and we continue to strengthen our relationship with SAP, which provides us with access to large transformation budgets, new buying centers and the SAP enterprise sales machine.

During the quarter, we saw continued success, including an expansion within Italian eyewear conglomerate, who will be leveraging our platform capabilities to support their migration to SAP S/4HANA. They are also in the process of expanding their usage of Document Understanding to optimize invoice and payments processing.

From a technical partnership perspective, just last week, we announced our expanded partnership with Microsoft, launching a powerful integration with Copilot for Microsoft 365. This integration enables joint customers to automate end-to-end business processes and enhance the end user experience with UiPath. Our focus on innovation is consistently recognized by third-party research analysts. And over the last several months, we received multiple industry awards.

This has included a recognition in Everest Group's intelligent Document Processing products, Peak Matrix assessment 2024 where we were named a leader for the second year in a row being recognized for our vision capabilities and market impact. Our leadership position in is driving demand across our customer base.

For example, [indiscernible] Technologies, customers since 2018 expanded to Communications Mining and Document Understanding in the quarter as they look to automate invoice processing, quality control document, shipping document maintenance records. Our continuous discovery capabilities are also fueling our momentum, and we were recently recognized as a leader in the Gartner Magic Quadrant for process mining platform research report. Customers recognize that transformational outcomes they can achieve when they combine our discovery capabilities with our automation products, including a new logo this quarter with one of the largest pharmaceutical companies in North America. The customer had been using [indiscernible], but realized they needed a tool that not only identifies bottlenecks, but also give them the ability to take action. Our outcome-focused messaging and full platform of capabilities resonated with the customer, resulting in competitive displacement. We see an opportunity to share our experience and passion for fostering the next generation of innovative technology solutions, and this includes our recent investment in the company owned by leading AI scientists and researchers, their vision is to reach 4 artificial general intelligence, as they commercially deploy foundational action models.

In addition to our investment, we are collaborating with them on a commercial partnership. We believe what each company is building goes beyond the capabilities of LLMs and will be helpful as we drive a new era of agentic process automation where AI agents collaborate with workers dynamically to reinvent business processes. Personally, I am thrilled to be working with such an exceptional founding team on their journey.

Before I turn it over to Ashim, I'd like to extend a warm welcome to Ragu Malani, our new appointed Chief Technology Officer. Raghu comes to us with a wealth of experience in fostering and guiding forward thinking, collaborative and customer-focused engineering teams. We are incredibly excited to have him on board and we are confident that his expertise will further elevate our team while delivering best-in-class innovative solutions to our customers.

I am proud of the advancements we have made over the last year including the great talent we've added to our P&E team, and it gives me great confidence in their ability to drive our long-term product strategy while I am transitioning back to the CEO role. As I said several times, we are not satisfied with our results and outlook. As the founder of UiPath, I am energized to step back into the CEO role improve execution and refocus the company on our customers and partners. We remain committed to driving durable growth while maintaining strong profitability. With that, I'll turn the call over to Ashim.

[Ashim Gupta, executive]

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.

Turning to the first quarter. ARR totaled $1.508 billion, an increase of 21% driven by net new ARR of $44 million. Excluding the FX headwind of $3 million, net new ARR totaled $47 million. We ended the quarter with approximately 10,800 customers, including new logos like Boomi, Flexjet, Zen business, True Consulting and Calix. As we mentioned over the last several quarters, the vast majority of our customer attrition continues to be in smaller customers, which in aggregate represents an immaterial portion of our overall business.

Moving on to customer metrics. Customers with $100,000 or more in ARR increased to 2,092, while customers with $1 million or more in ARR totaled 288. Our largest customers are also continuing to expand on our platform, and we added a record number of customers with $5 million or more in ARR. Dollar-based gross retention of 98% continues to be best-in-class and our dollar-based net retention rate for the quarter was 118%. The breadth of our platform capabilities continues to drive expansion across our customer base, including Red Bull, who began with core automation and expanded in the quarter, purchasing Test Suite and Document Understanding. They plan to leverage Test Suite to accelerate their S/4HANA migration while utilizing document understanding to automate various use cases across their finance operations and HR departments and Etihad Airways, who expanded to the full platform this quarter as they plan to leverage our platform to support and build more AI automations across commercial and operational functions.

Revenue grew to $335 million, an increase of 16% year-over-year. Normalizing for the FX headwind of approximately $8 million, revenue grew 18%. Remaining performance obligations increased to $1.101 billion, up 22% year-over-year. Current RPO increased to $683 million.

Turning to expenses. We delivered a first quarter overall gross margin of 86%, and software gross margin was 90%. First quarter operating expenses were $238 million. GAAP operating loss of $49 million included $89 million of stock-based compensation expense. Non-GAAP operating income was $50 million, resulting in a first quarter non-GAAP operating margin of 15%. Including the FX headwind of $6 million, non-GAAP operating income was $57 million or a non-GAAP operating margin of 17%. We are pleased with the progress we are making with our AI products such as Autopilot and our new LLMs and we plan to continue to invest in the necessary hosting costs to drive product development and adoption.

The market is evolving rapidly, and we view these investments as key to unlocking growth opportunities in the future. That said, our first half spend is timing related as we feel appropriately budgeted for the overall year. We expect to continue to drive strong cost discipline across the organization. First quarter non-GAAP adjusted free cash flow was $101 million. As of April 30, we had $1.9 billion in cash, cash equivalents and marketable securities and no debt. We remain committed to our $500 million buyback program as we repurchased 938,000 shares of our Class A common stock at an average price of $23.46 from February 1, 2024, through April 30, 2024.

Turning to guidance. I'd like to provide context around our updated outlook for the second quarter and remainder of the fiscal year. As Daniel mentioned, in mid-March, we began seeing increased deal scrutiny and longer sales cycle with our large multiyear deals. Our updated guidance takes into consideration both the macroeconomic environment, our leadership transition and improved operating discipline, which will take time to implement. Because of the complexities of ASC 606, we run and manage our business on ARR, which is most representative of the underlying performance of our business. We are taking a prudent view on the contribution of large multiyear deals.

And as a result, there is an outsized impact to our revenue guidance due to ASC 606 revenue recognition. This outsized revenue impact is the main driver of our reduction in non-GAAP operating income and non-GAAP adjusted free cash flow for the remainder of the year. Profitability remains a core pillar of our go-forward strategy, and we will continue to drive efficiencies across our business to generate strong operating margins and meaningful non-GAAP adjusted free cash flow.

For the second quarter of fiscal 2025, we expect revenue in the range of $300 million to $305 million, ARR in the range of $1.543 billion to $1.548 billion. Non-GAAP operating income of approximately breakeven. And we expect second quarter basic share count to be approximately 574 million shares. For the fiscal full year 2025, we now expect revenue in the range of $1.405 billion to $1.410 billion, ARR in the range of $1.660 billion to $1.665 billion, non-GAAP operating income of approximately $145 million. And finally, we now expect fiscal year 2025 non-GAAP adjusted free cash flow of approximately $300 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]

[Operator Instructions]

Our first question comes from the line of Jake Roberge with William Blair.

[Jacob Roberge, analyst]

Just if we could just start off, could you help us better understand kind of what's changed over the last few months? I understand the environment has gotten worse. But when you referenced the issues for those large multiyear deals, is that just scrutiny on deals? Are you seeing more competitive pressures that are causing customers to churn off of certain deployments or completely drop out of the pipeline. Just curious if you could flesh out some of those issues that you're seeing with the large deals.

[Daniel Dines, executive]

Jake, thank you for the question. Yes. I think that around 6, 7 weeks ago, we were starting to see some pressure, especially on the large multiyear deals. Some of them got shrank. Some of them got postponed. We are not seeing the cause as being from a competitive standpoint. But it's -- I think it's a combination of factors. Macroeconomical environment is variable and customers have a bit more cautious, and they do more scrutiny into the deals.

Another factor for us was a change in the sales comp that happened at the beginning of this fiscal year. And we incentivized a little bit less the multiyear deals, which in retrospect, it was an execution issue. And also, I would say, for us, some late-stage deal execution challenges were identified. We had some -- to give you some examples, some kind of, in one deal, it was procurement error that happened late into the quarter. Another deal, it was a budget reprioritization that we got, were a little bit too late in the quarter.

[Jacob Roberge, analyst]

Okay. Helpful. And then for the customers that are renewing at lower rates, how pronounced has that partial churn been in those contracts? And to the extent that you have visibility into it, why are customers turning off those use cases? Is it just digesting what they overbought in prior contracts? Or are there any other issues that play there?

[Ashim Gupta, executive]

I would -- this is Ashim. When you look at our churn rates, actually, when you look at it as a percentage of our renewable base, we've said this historically, they're relatively constant, right? So I don't look at churn as something that is having an outsized impact versus our expectations. Of course, we always want to work harder to drive those numbers to be -- to have better benefits, so to speak, or have more productivity year-over-year with respect to those down-sells, but it is not actually a driver. So we don't see customers turning off use cases, so to speak, to be [indiscernible].

[Operator]

Our next question comes from the line of Mark Murphy with JPMorgan.

[Arti Vula, analyst]

This is Arti Vula for Mark Murphy. First question is, I think you mentioned during the prepared remarks, if I understood correctly, a shift towards sales motion that's more verticalized. I'd love to hear why you think that's like the right approach and why now and what the timeline is towards kind of making that happen.

[Daniel Dines, executive]

Yes. So we announced our strategy to verticalize our approach in go-to-market for quite some time, Mark. And I think with all the -- that happened in the AI world, it's even a better time today. For instance, we are seeing some of our best return on our investments in go-to-market in health care, in financial services, in public sector. And they were driven largely by our investments in AI, particularly in IDP. And it was -- we built more than like 70 dedicated models, industry models that are really helping with our sales effort.

[Arti Vula, analyst]

Great. And then just some of the headwinds that you described, I know you called out macro versus kind of some internal things together trying to improve on. Is there any way you can help us kind of understand, is it more macro, more than internal challenge to kind of get a qualitative sense of what the proportion is.

[Ashim Gupta, executive]

Yes. It really is a combination of both. It's very hard to quantify and give you an accurate distinction between the two. That said, I think we understand the macroeconomic environment is going to be variable. So we're focused on what we can control. And as Daniel talked about, improving deal execution, driving increased alignment in terms of just across our overall teams and being closer to the customer. We're confident both in our market leadership and our strategy. And if we nail those execution things. Those are the items that are in our control and positions us well for the long term.

[Operator]

Our next question comes from the line of Raimo Lenschow with Barclays.

[Unknown Analyst]

This is Shell McNee on for Raimo. So it seems like part of the issue is around lengthening sales cycles from large multiyear deals, and you discussed the change in sales comp incentivized these large deals less given the current macro, is the solution to break these deals down and land smaller? Or is it to incentivize larger deals more? And do you see a need to change the messaging there?

[Daniel Dines, executive]

Well, I think that there is a need to rectify some of our -- the sales comp, but we are not going back to the same level as last year. So Shell, I would say that I think we kind of -- we are tuning right now our sales comp. We went a little bit too much in the opposite direction and in regard to incentivizing multiyear deals. So I think I am positive that we can land in a middle ground that will really help us in our growth rates for this year and into next year.

[Unknown Analyst]

Understood. And a quick follow-up. Can you speak to the investment in HAI and how does that play into your overall AI strategy? And any color on the commercial relationship and maybe what's expected there? And then how do you see potential success around developing these models that are capable of reasoning and performing more complex tasks. Is that -- do you expect that to change the automation market?

[Daniel Dines, executive]

I'm very excited about our investment into HAI company. Actually, I was driving it directly from our side. And I got to know them pretty well. It's a great team of researchers. They have previous experience into relevant build in AI and we have kind of a common goal to advance our agenda of what we call right now, genetic process automation. And to me, it's the ability of a model to get the knowledge of a particular task and combine this knowledge with the ability to execute the task on the top of our platform. I think if we combine our -- the assets that we have, our understanding of processes with their prowess in this dedicated research, we are in a very good position to build one of the most advanced agentic model today. To be clear, what I feel that this model has the most applicability is still in the personal productivity space where people are facing a lot of tasks with varied types of complexity, but the tougher [indiscernible] in itself very diverse. And it's not economically feasible to go to have pay developers to go and automate these tasks. A lot of times, they have a lot of unstructured data, the steps in the tasks are extremely diverse. So this is where, in my opinion, is going to be the sweet spot of this agent process automation, especially in the first phase. If I can say I would think it more like self-driving cars that today, it's more of an assisted technology. And it requires really significantly into getting into autonomous cell driving. It's going to be, in my opinion, the same trajectory for a genetic model.

[Operator]

Our next question comes from the line of Kirk Materne with Evercore ISI.

[Chirag Ved, analyst]

This is Chirag Ved on for Kirk. Following up on the first question that was asked, when you're thinking about large customers extending their cycles, are you seeing them stay on the sidelines as they're reevaluating their Gen AI strategies? And how do you see UiPath's positioning within these companies evolve as their AI strategies mature over time?

[Daniel Dines, executive]

I want to start by saying that the AI and Gen AI is a tailwind for us. And we have invested significantly over the years and in particular, over last year in Gen AI. In June, we are going to launch our first cities of autopilots in GA. And there is a lot of excitement around our customers about using our Autopilot to drive more adoption to reduce the time to value and overall reduce the total cost of ownership. This being said, I think that AI is creating a little bit of confusion with our customers. And they are evaluating what kind of tasks are better suitable to automate the AI, whichs task are better with using our platform. But what I hear from many of our customers. It's actually the combination between Gen AI and automation, it's something that makes a lot of sense to them. We said it before, but it's like the human body, and it's -- AI is the brain and our platform is the arms and the legs. And the combination makes a lot of sense for most of our customers.

[Operator]

Our next question comes from the line of Bryan Bergin with TD Cowen.

[Bryan Bergin, analyst]

Wanted to ask, as far as the deal scrutiny goes, the smaller deal sizes, the postponements, is that broad-based across the business? Or has it been more so in particular industries or regions?

[Ashim Gupta, executive]

Brian, it's broad-based. I don't think -- it's not that we're zoned in on one particular area. So from a multiyear deal perspective, that's broad. When we talk about the macroeconomic environment and the variability, we definitely see a more pronounced impact on the smaller mid-market customers as we've seen and been talking about historically.

[Bryan Bergin, analyst]

Okay. And then on the execution issues or the strategic initiatives that were not working as intended here, you mentioned the sales comp dynamic. Are there other notable examples that you've identified you could talk about? And how are you thinking about the time frame over which some of the intended changes may take?

[Daniel Dines, executive]

Well, I think the sales comp, it's fixable pretty quickly. And we see as having an impact into the second part of the year. There are other initiatives that we are focusing on. For instance, one of the big change that I want to bring to UiPath right now is to come back and become a fanatical customer-centric company.

I think we went to a distance to go and pitch our business to C-level, which is actually great. But the reality is that we have to increase our adoption by taking care of our traditional line of business customers within the CIO suite, which I think, will benefit a lot more for a new reverted customer-centric approach. Other things that work I think where segmentation was really working, and we feel positive about it.

We have a lot to do in the partnership side of the business. We have also created some of our global structures that, in some ways, I think, are slowing down our decision-making process. So I'm considering changes into and to bring some of our global teams into the regions. But overall, we have a strong foundation, both in product and go-to-market. And I am pretty bullish on what we can execute into this year and into subsequent years.

[Operator]

Our next question comes from the line of Matthew Hedberg with RBC Capital Markets.

[Unknown Analyst]

It's Mike Richards on for Matt. Maybe Daniel, going off your last answer there, maybe you could talk more to kind of what broader strategy changes you're going to make coming back into your role as CEO? And are you going to be stepping more away from the product side, especially with bringing in Raghu, would just love some more color on that.

[Daniel Dines, executive]

Yes. Thank you, Mike I'm actually quite happy to be back in the CEO role. I had time in doing the product and engineering for the past year or so to reflect on what I am doing best, how can I have the biggest impact? And I think that right now, I would like to bring more together the big functional teams in UiPath. I think when I say customer centricity, I don't mean only go to market. I mean, product go-to-market marketing and even HR and finance because we -- for instance, I don't think we pitch enough to our customers how well our internal automation program is, and it spends multiple divisions in UiPath. And also, I have -- there is something that is more maybe on the intangible side that I want to bring back in this company. And it's more on the joy of working together.

I have a feeling that we've become maybe a little bit having the mentality of too big of a company, and we've become a bit [indiscernible]. So I want to bring back the ethos forward of how we won in the business, how we grew our business. And it was when all our functions collaborated really well. Everyone in this company was willing to help, we communicate to each other. It was more -- I see more fluidity. So this is another important change that I want to drive.

[Operator]

Our next question comes from the line of Terry Tillman with Truist Securities.

[Unknown Analyst]

This is Conor Castro for Terry. I just wanted to start, one, Daniel, you talked about the key pillar of go-to-market strategy being to partners kind of want to dig into how are you working with your partners to, I guess, promote solid execution through a continued shift in the go-to-market strategy, especially some of the bigger ones you mentioned SAP, Microsoft, Deloitte, just kind of curious on what's kind of driving the partnership ecosystem.

[Daniel Dines, executive]

Yes. I think that we have emphasized in the past, our focus on going with large GSIs. Accenture is, as you name it, is one of our biggest partner, and we continue to drive to deal with them. We have also named into into our earnings transcripts and they help us lending sizable deals. Our partnership, I'm particularly bullish on our partnership with SAP. We are starting to see signs of improved pipe. And also, we have quite a good relationship between our leadership teams. And I'm seeing a positive impact especially into next year from our SAP relationship. I would also talk a little bit about the Microsoft partnership and the recently announced cooperation with Microsoft CoPilot, I think it's worth mentioning. It's -- and to my previous point about AI and automation interacting and delivering together value to the customer. This is actually a great example where the copilot can provide the necessary context to the automation that is taking the action. And in the recent build [indiscernible] show of Microsoft, both Sacha and Scott [indiscernible] mentioned us in their keynote just to point out how important our relationship is to Microsoft and of course, to us.

[Unknown Analyst]

Got it. That's helpful. Maybe just as a follow-up, $300 million in free cash flow, guide for the year. Balance sheet remains pretty healthy. Just kind of curious about the continued focus on capital allocation and what the strategy might be there. I know you're still buying back shares. Curious on the appetite to continue doing that and also maybe some M&A? Just kind of curious on how you're thinking about the cash balance, free cash flow for the year.

[Ashim Gupta, executive]

Yes. Look, I think that we're very happy with the free cash flow generation that we're able to provide here. We're committed to driving -- continuing to drive efficiency within the company. Like you mentioned, we have a strong balance sheet, which gives us a lot of optionality. And so I think we're going to be opportunistic and do what's in the best interest of the company. And that's a discussion that we have every day and every week, and we'll just continue to have those discussions and make decisions as they become opportunistic for us.

[Operator]

Our next question comes from the line of Michael Turrin with Wells Fargo Securities.

[Michael Turrin, analyst]

Maybe just a 2-parter for Ashim, if I may. The free cash flow guide is down by less than the operating income guide. First part is just what's driving the difference? Any color there is helpful as we're recasting our models? And then just bigger picture, how you think about the trade-offs between shifting more towards margin if this more challenged environment remains more persistent versus investing into adjacent product opportunities given tangential interest and AI in other areas that you're closely associated with, which could help catalyze growth.

[Ashim Gupta, executive]

Great questions. I'll take the first 1 that you mentioned and address it right off the top. The first is I want to remind everybody that we follow ASC 606 accounting. And so that -- when you have multiyear deals that are impacted, that has a more or an outsized impact to revenue. And you can see that even the differential between our revenue growth rate and our ARR growth rate, right? Within our guidance, we're talking about a 14% ARR growth rate, which is significantly better than the revenue growth rate for the reasons that the complexities of 606, both deployment as well as duration impacts our accounting.

So when you impact revenue, that obviously flows through down through operating margin. And conversely, revenue does not have an impact on free cash flow. So our billings are collections. We do see some level of volume pressure, as we've talked about, between the macroeconomic variability as well as the execution items that Daniel highlighted. So that has just a lesser impact when you look at the pure volume equation. And we obviously run a very -- we continue to run with operating discipline, which means free cash flow stays front and center.

With regard to your second question, I would -- I'd phrase it that we don't believe that there's a fundamental -- there are opposed forces of being able to invest and being able to generate free cash flow. So we stay committed to our long-term margins that we've talked about historically, and yet we're able to invest in the company. We're able to invest within our AI strategy. We're able to invest in great opportunities like [indiscernible] that Daniel talked about. And we're committed to investing in our platform got great response from our customers in terms of the breadth of capabilities that we continue to offer and continue to launch.

So we believe that we can do that while continuing to drive efficiencies across our company. And we believe that there are still efficiencies to be had, particularly in G&A and sales and marketing, and that's a discussion and an operating rhythm that we have with a lot of focus within the company.

[Operator]

Our next question comes from the line of Alex Zukin with Wolfe Research.

[Ryan Krieger, analyst]

This is Ryan Krieger on for Alex. I just want to circle back to something you said in the prepared remarks. You talked about some deals getting pushed out of the quarter, particularly for large contract customers. Have you started to see some of those deals close in 2Q? And are they also closing smaller than maybe originally anticipated like you saw in 1Q? Or have some of them been lost completely? Are they still in the pipeline? Just any more context around that would be super helpful.

[Ashim Gupta, executive]

Yes. We didn't -- I would say the color that I would give is it's a mixed bag. The only thing is we don't really see losses. When we look at the deals that customers are making decisions on, our win rate continues to be very strong and consistent with what we've seen historically. In terms of closure within the second quarter, yes, there are some deals that are closing, and there are some deals that will continue to -- that we have a path that we're continuing to work through all of which we've contemplated in the guidance numbers that we have in front of us. That being said, overall, we've taken a more prudent view just given the macroeconomic variability and the timing to work through the execution items regarding our overall guidance year.

[Operator]

Our next question comes from the line of Scott Berg with Needham and Company.

[Scott Berg, analyst]

Starting and take the slightly in sensitive question because I know everyone is going to ask it, kind of a 2-parter here. I guess first is can you give us any additional clarity in terms of Rob's departure because it is kind of sudden at least relative to, I think, everyone's expectations. And then, Daniel, how do you view your current term as CEO? Is this a longer-term endeavor or something that maybe little more short term because I know you're excited to kind of just go back and focus on product, but obviously, this is a pivot and change.

[Daniel Dines, executive]

Well, they are really good questions, Scott. No offense taken really. Look, Rob was leaving for personal reasons. Rob and I are in good terms, and he will continue to be a adviser to the company. We were partners in many of our strategic decisions and in a way that makes it a bit easier for me to step back into day-to-day operational role. And again, I had time to reflect on who I am, what I am [indiscernible] from life and UiPath is such an important part of me that -- it's -- I cannot see myself separated from the company in all fairness. So I -- my intention is to take CEO for for the foreseeable future. I'm fully committed to the job. And if you look back, I was the CEO of this company since its inception for like 17 years, I drove the company from 0 to $2 billion plus through a successful IPO. I'm happy to be fully back in.

[Scott Berg, analyst]

Excellent. I look forward to those continued conversation with Daniel. And then just from a brief follow-up, Ashim, I appreciate all the 606 commentary and recognize the impact on the model in the short term. because it's certainly unique amongst most of our software companies. But how do we think about margin leverage kind of going forward? Is this really just a function of getting sales back on track maybe over the next couple of quarters and early next year, hopefully, when the environment kind of moderates and improves for you all? Or is this -- I guess there's some opportunities maybe to further adjust your cost structure as you maybe look into late this next year or late this year or next year?

[Ashim Gupta, executive]

Yes. Thanks for the question. The first thing I would say is we have to recognize just given the accounting standard that we follow, I think free cash flow is a great -- is a more appropriate measure of our overall margin for the company, which continues to be very robust at $300 million, right? That continues to be a very high margin rate -- free cash flow margin rate that is there. That being said, I think it comes both ways. We still feel excited about the market opportunity and the customer fit and the customer feedback that we see. It's why we're investing within AI and continuing to invest in our platform. We've had great response from our customers that have expanded like USDA, HCA and we've had great new logos or new customers that we're excited to see start the journey with us. So we feel like growth is something that we -- that will continue to be a leverage lever for us as we go forward.

That being said, like we talked about earlier in the Q&A, I think that there is ample opportunity both within G&A and sales and marketing for us to be able to continue to drive efficiencies and we do that smartly. We don't feel like we have to make abrupt decisions. And we're thoughtful about the strategic -- the overall strategic areas that we're investing in. So I think we can both invest in the company while continuing to drive margins, while the environment continues to moderate, as you mentioned.

[Operator]

Our next question comes from the line of Jason Celino with KeyBanc Capital Markets.

[Jason Celino, analyst]

Great. Maybe just one for Ashim. It looks like the ARR guide for the year is coming down by about 5 points. And it sounds like you're baking in some extra conservatism, but is there any way to unpack the impact from the macro degradation, the execution challenges you've talked about and then the management changes?

[Ashim Gupta, executive]

I think unpacking quantitatively when it's very hard to model distinctly. There's obviously reinforcing factors to all of the items, and it's hard to disaggregate them as I discussed. That being said, I think our commentary earlier really holds. I think that the macroeconomic variability impacts those larger multiyear deals. And I think there's opportunity to offset some of that pressure with the actions that Daniel talked about, which we're committed to correcting on the execution front. So I wouldn't disaggregate it. I think that there is a -- I think that there is a good opportunity where execution can continue to help moderate the impact of the macroeconomic environment, which is what we've assumed in our guidance.

[Operator]

Thank you. There are no further questions at this time. I would like to turn the floor back over to management for closing comments.

[Daniel Dines, executive]

Thank you so much, everyone, for taking the time. And I'm looking forward to meeting many of you over the next few days and going forward.

[Operator]

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.