UiPath, Inc. (PATH) Q1 2025 Earnings Call Transcript

Greetings and welcome to the UiPath First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Allise Furlani, Senior Director of Investor Relations. Thank you, Allise. You may begin.

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 comments to our investor relations website immediately following the conclusion of this call. In addition, please note that all comparisons are year-over-year unless otherwise indicated. Now, I would like to hand the call over to Daniel.

Thank you, Allise. Good afternoon everyone, thanks for joining us. I’d like to start today by addressing the announcements 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 two years and I know I'm speaking for the entire company when I say that we're very grateful for his contributions 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 gave me invaluable clarity on our path forward. At a time when companies are looking to optimize costs and drive efficiencies without sacrificing innovation, especially around generative AI, our platform enables them to harness the power of 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 of capabilities. The impact that the combination of generative AI and automation provides our customers is 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 HCA, they continue to emphasize how the combination of automation and AI, delivered 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 a catalyst for 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 topline results were generally in line with our guidance range, we are not satisfied with our performance, and I would 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 multi-year deals. As a result, several large expansion opportunities closed with a reduced size or 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 multi-year 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 expected 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 the 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 oriented 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 where 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 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 topline 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 programs: business context, AI model flexibility, actionability, and trust. These innovations included our family of Large Language Models or LLMs: DocPATH and CommPATH, which combine the best of generative AI and specialized AI to empower our customers to understand and process any document and a huge variety of message types. By narrowing the focus, but retaining the vast power of GenAI, our specialized LLMs significantly outperform the output accuracy of currently available out of the box LLMs.

We also introduced Context Grounding, a new feature within the UiPath AI Trust Layer that helps businesses improve the accuracy of GenAI models by extracting information from company-specific datasets. And lastly, we announced exciting new updates for Autopilot, including the release of Autopilot 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 Dentsu, Wesco, and Cigniti. 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 navigate the cloud with confidence. We also had the opportunity to highlight our recently achieved FedRAMP 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, who expanded as they plan to leverage FedRAMP 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 a great partner-supported expansion with WEC Energy Group, who is consolidating their automation efforts onto our end-to-end platform.

With Accenture’s continued strategic support, they're 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 developed 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 digitalization across their 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 with an Italian eyewear conglomerate, who will be leveraging our platform capabilities to support their migration to SAP S/4 HANA.

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 IDP is driving demand across our customer base.

For example, Schaeffler Technologies, a customer since 2018, expanded to Communications Mining and Document Understanding in the quarter as they look to automate invoice processing, quality control documents, shipping documents, and maintenance records. Our continuous discovery capabilities are also fueling our momentum and we were recently recognized as a Leader in the 2024 Gartner Magic Quadrant for Process Mining Platforms research report. Customers recognize the 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 Celonis, but realized they needed a tool that not only identifies bottlenecks but also gives them the ability to take action. Our outcome-focused messaging and full platform of capabilities resonated with the customer, resulting in a 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 H Company. Founded by leading AI scientists and researchers, their vision is to reach full 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 the H 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 Raghu Malpani, our newly 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're incredibly excited to have him on board, and we're 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’m 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.

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 customer attrition continues to be in smaller customers which, in aggregate, represent 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/4 HANA 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%. Excluding 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 30th we had $1.9 billion in cash, cash equivalents, and marketable securities and no debt. We remain committed to our $500 million buy-back program, as we repurchased 938 thousand 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 cycles with our large multi-year 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 multi-year 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 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. We will now be conducting a question-and-answer session. Our first question comes from the line of Jake Roberge with William Blair. Please proceed with your question.

Hi. Thanks for taking the questions. 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 multi-year 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?

Hi, Jake, thank you for the question. Yes, I think that around six or seven weeks ago, we started noticing some challenges, particularly with the large multi-year deals. Some of these deals were reduced in size or postponed. We don’t believe this is due to increased competition. Instead, it seems to stem from a combination of factors: the macroeconomic environment is unstable, customers are being more cautious, and they are scrutinizing deals more closely. Additionally, we made a change to our sales compensation at the start of this fiscal year, which resulted in less incentive for multi-year deals—a decision we now recognize as an execution issue. Additionally, there were some late-stage execution challenges with certain deals. For example, in one case, a procurement error occurred late in the quarter, and in another instance, a budget reprioritization came in a little too late in the quarter.

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?

I would like to point out that when we examine our churn rates, particularly as a percentage of our renewable base, they have historically remained quite stable. Therefore, I do not consider churn to have a significant impact when compared to our expectations. Of course, we always aim to improve these figures for better productivity and benefits year-over-year in relation to down-sells, but it is not a primary driver for us. We have not observed customers discontinuing use cases significantly.

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

Hi. Thanks for taking the question. 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. Thank you.

We have been discussing our strategy to focus our go-to-market efforts in a more verticalized manner for some time now. Given the recent developments in the AI sector, we believe this is an opportune moment. For example, we are experiencing significant returns on our go-to-market investments in healthcare, financial services, and the public sector, largely due to our AI investments, especially in Intelligent Document Processing. We have developed over 70 dedicated industry models that are significantly enhancing our sales initiatives.

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.

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.

Thank you. Our next question comes from the line of Raimo Lenschow with Barclays. Please proceed with your question.

Hi, this is Shel McMeans on for Raimo. Thanks for taking our question. So it seems like part of the issue is around lengthening sales cycles from large multi-year 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? Thanks.

I believe there is a need to adjust our sales compensation, but we are not returning to the previous year's level. I think we are currently fine-tuning our sales compensation. We may have gone too far in the opposite direction when it comes to incentivizing multi-year deals. However, I am optimistic that we can find a middle ground that will significantly benefit our growth rates this year and into the next.

Understood. I'd like to ask a follow-up question. Can you elaborate on the investment in HAI and how it fits into your overall AI strategy? Additionally, could you provide some insights on the commercial relationship and any expectations there? How do you view the potential success in developing models that can reason and perform more complex tasks? Do you anticipate this will change the automation market? Thank you.

I'm very excited about our investment in HAI Company. I have been directly involved in this initiative and have gotten to know the team well. They are a talented group of researchers with relevant experience in AI, and we share a common goal of advancing what we call genetic process automation. This concept refers to a model’s ability to acquire knowledge of a specific task and combine that with the capability to execute the task on our platform. By leveraging our assets and understanding of processes alongside their research expertise, we are well-positioned to develop one of the most advanced agentic models available today. I believe this model will be most applicable in the personal productivity space, where individuals manage a variety of complex and diverse tasks. It is often not economically feasible to hire developers to automate these tasks, especially since many involve unstructured data and diverse steps. In my view, this is where agent process automation will find its sweet spot, particularly in its initial phase. I would compare it to self-driving cars, which currently operate more as assisted technology and require significant advancements to achieve fully autonomous capabilities. I believe the development of genetic models will follow a similar trajectory.

Thank you. Our next question comes from the line of Kirk Materne with Evercore ISI. Please proceed with your question.

Hi, this is Chirag Ved on for Kirk. Thanks for taking the question. 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?

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

Thank you. Our next question comes from the line of Bryan Bergin with TD Cowen. Please proceed with your question.

Hi, thank you. 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?

It's broad-based. We're not focused on one specific area. From a multi-year deal perspective, it's wide-ranging. When discussing the macroeconomic environment and variability, we do notice a more significant effect on smaller mid-market customers, consistent with what we have observed historically.

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

Well, I think the sales compensation, it's fixable pretty quickly. And we see it as having an impact in the second part of the year. There are other initiatives that we are focusing on. For instance, one of the big changes that I want to bring to UiPath right now is to come back and become a fanatical customer-centric company. I think we went 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 will benefit a lot more for a new invigorated customer-centric approach. Other things that work I think is 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 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 in subsequent years.

Thank you. Our next question comes from the line of Matthew Hedberg with RBC Capital Markets. Please proceed with your question.

Hi, it’s Mike Richards on for Matt. Thanks for taking the question. 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. Thanks.

Thank you, Mike. I'm pleased to return to the CEO role. During my time in product and engineering over the past year, I've been reflecting on my strengths and how I can make a significant impact. Currently, my focus is on uniting the major functional teams at UiPath. When I talk about customer centricity, I envision it extending beyond just go-to-market strategies to include product development, marketing, HR, and finance. For example, I believe we haven't effectively communicated to our customers the success of our internal automation program, which encompasses various divisions within the company. Additionally, I want to rekindle the intangible aspects of our culture, specifically the joy of collaboration. I sense that as we've grown, we might have become somewhat siloed. It’s essential to restore the spirit that drove our business growth, which was founded on collaboration and open communication across all functions. I want to foster an environment where fluidity is prioritized, and this is a key change I aim to implement.

Thank you. Our next question comes from the line of Terry Tillman with Truist Securities. Please proceed with your question.

Great. How's it going, guys? This is Conor Castro for Terry. I appreciate you taking the questions. 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 you're 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 driving the partnership ecosystem.

Yes. We have previously emphasized our focus on collaborating with large global system integrators. Accenture, as mentioned, is one of our major partners, and we're actively pursuing deals with them. Our earnings transcripts have highlighted their role in helping us secure significant contracts. I'm particularly optimistic about our partnership with SAP. We are beginning to observe signs of an improved opportunity pipeline, and there is a strong relationship between our leadership teams. I anticipate a positive impact from our SAP relationship, especially in the coming year. Additionally, I want to mention our partnership with Microsoft and the newly announced collaboration with Microsoft CoPilot, which is noteworthy. This illustrates how AI and automation can work together to deliver value to customers. The CoPilot offers essential context for the automation processes in action. During the recent Microsoft Build conference, both Satya Nadella and Scott Gaffrey highlighted our partnership in their keynote, demonstrating the significance of our relationship with Microsoft and its importance to us.

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. Thanks, guys.

We are very pleased with the free cash flow generation we are achieving. We are focused on improving efficiency within the company. As you noted, we have a strong balance sheet that provides us with numerous options. Therefore, we plan to be opportunistic and act in the best interest of the company. This is something we discuss daily and weekly, and we will keep having those discussions to make decisions as opportunities arise.

Thank you. Our next question comes from the line of Michael Turrin with Wells Fargo Securities. Please proceed with your question.

Hey, great. Thanks. Appreciate you taking the question. Maybe just a two-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.

Thank you for your great questions. I'll start with the first one. I want to remind everyone that we adhere to ASC 606 accounting. This means that multi-year deals have a significant impact on revenue, which you can see in the difference between our revenue growth rate and our ARR growth rate. Our guidance indicates a 14% ARR growth rate, which is much better than our revenue growth rate due to the complexities of 606, including both deployment and duration affecting our accounting. Changes in revenue directly influence our operating margins, but revenue does not affect our free cash flow. While we have seen some pressure on our billings and collections due to macroeconomic factors and execution challenges mentioned by Daniel, this has a less significant impact on the overall volume equation. We continue to operate with discipline, ensuring that free cash flow remains a priority. Regarding your second question, I would say that we don’t see a fundamental conflict between investing in the company and generating free cash flow.

We remain committed to our long-term margin goals while also investing in our AI strategy and opportunities like the H Company that Daniel outlined. We are dedicated to enhancing our platform, which has received positive feedback from our customers regarding the wide range of capabilities we continue to introduce. We believe we can achieve both objectives while driving efficiencies throughout the company, particularly in general and administrative and sales and marketing areas, which is an ongoing focus for us.

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

Hey guys, this is Ryan Krieger on for Alex. Thanks for taking the question. 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.

I would say it's a mixed situation. We aren't experiencing losses. Our win rate remains strong and consistent with historical performance when we analyze the decisions customers are making. Regarding closures in the second quarter, while some deals are closing, there are others still in progress that we continue to pursue, and we've factored all of this into our guidance. However, we have adopted a more cautious outlook due to macroeconomic fluctuations and the time needed to address execution tasks related to our overall guidance for the year.

Great. Thank you very much.

Thank you. Our next question comes from the line of Scott Berg with Needham and Company. Please proceed with your question.

Hi everyone, thanks for taking my questions. Starting and take the slightly insensitive question because I know everyone is going to ask it, kind of a two-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 a 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.

Well, they are really good questions, Scott. No offense taken really. Look, Rob is leaving for personal reasons. Rob and I are on good terms, and he will continue to be an 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 roles. And again, I had time to reflect on who I am and what I want from life, and UiPath is such an important part of me that I cannot see myself separated from the company in all fairness. So my intention is to take CEO 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 zero to over a billion dollars through a successful IPO. I'm happy to be fully back in.

I look forward to continuing those discussions with Daniel. Ashim, I appreciate your insights on the 606 commentary and acknowledge the short-term impact on the model, as it is certainly different from what most of our software companies experience. How should we think about margin leverage moving forward? Is it primarily about getting sales back on track in the next few quarters and into early next year, hopefully when the environment stabilizes and improves for you? Or are there opportunities to adjust your cost structure as we look towards the end of this year or next year?

Yes. Thank you for the question. First, I want to highlight that due to the accounting standards we adhere to, free cash flow is a more relevant indicator of our overall company margin, which remains strong at $300 million. This reflects a very high free cash flow margin rate. That said, we remain enthusiastic about the market potential, the alignment with our customers, and the positive feedback we receive. This is why we are investing in AI and enhancing our platform. We've seen substantial engagement from customers like USDA and HCA, along with new clients who are beginning their journeys with us. We believe growth is something we will continue to pursue moving forward. Nonetheless, as we discussed earlier, there are significant opportunities in general and administrative expenses as well as sales and marketing for enhancing efficiencies, and we approach this in a strategic manner. We don’t feel the need for drastic decisions and are careful about where we invest strategically. Therefore, we can invest in the company while maintaining margins, even as the environment continues to stabilize, as you noted.

Thank you. Our next question comes from the line of Jason Celino with KeyBanc Capital Markets. Please proceed with your question.

Great. Thanks for fitting me in. 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?

I think unpacking quantitatively when it's very hard to model distinctly. There are 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 multi-year deals. I think there's an 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 good opportunity where execution can continue to help moderate the impact of the macroeconomic environment, which is what we've assumed in our guidance.

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

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.

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