UiPath Inc. (NYSE:PATH) Q4 2023 Earnings Call Transcript March 15, 2023
Operator: Greetings. And welcome to the UiPath Fourth Quarter and Full Year Fiscal 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I would now like to turn the conference over to your host, Kelsey Turcotte, Senior Vice President of Investor Relations for UiPath. Kelsey, you may begin.
Kelsey Turcotte: Good afternoon. And thank you for joining us today to review UiPath's fourth quarter and full year fiscal 2023 financial results, which we announced in our earnings press release issued after the close of the market today. On the call with me are Daniel Dines, UiPath's Co-Founder and Co-Chief Executive Officer; Rob Enslin, Co-Chief Executive Officer; and Ashim Gupta, Chief Financial Officer. Rob will start the discussion and then turn the call over to Daniel. After that, Ashim will review our results and provide guidance. Then we will open the call for questions. Our earnings press release and financial supplemental materials are posted on the UiPath Investor Relations website, ir.uipath.com. These materials include GAAP to non-GAAP reconciliations.
We will be discussing non-GAAP metrics on today's call. This afternoon's call includes forward-looking statements about our ability to drive growth and operational efficiency and our financial guidance for the fiscal first quarter and full year 2024. Actual results may differ materially from those expressed in the forward-looking statements due to many factors, and therefore, investors should not place undue reliance on these statements. For a discussion of the material risks and uncertainties that could affect our actual results, please refer to our annual report on Form 10-K for the year ended January 31, 2022, and other reports filed with the SEC, including our annual report on Form 10-K for the period ended January 31, 2023, to be filed with the SEC.
Forward-looking statements made on this call reflect our views as of today. We undertake no obligation to update them. I would 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. Now I'd like to hand the call over to Rob.
Rob Enslin: Thank you, Kelsey, and good afternoon, everyone. Thank you for joining us. We ended the year with a very strong fourth quarter, reflecting the progress we have made on our strategic initiatives and the strength of our AI-powered Business Automation Platform. I'd like to thank the UiPath team and our partners for their hard work and focus throughout the year, as well as our customers for placing their trust in us. Ensuring customer success every day is the foundation of our future. ARR ended the year at $1.2 billion, driven by net new ARR of $94 million. Excluding the FX headwind of $38 million, total ARR grew 34% year-over-year. Fourth quarter revenue was $309 million. Total revenue for the fiscal year was $1.1 billion.
Excluding the full-year FX headwind of $71 million, fiscal year revenue grew 27% year-over-year. On the bottomline, a record fourth quarter non-GAAP operating margin of 22% drove full-year 2023 non-GAAP operating margin to 6%. We believe this strong finish to the year accelerates our path to profitability and serves as the baseline for our fiscal year 2024 non-GAAP operating margin outlook of 9.5%, an approximately 350-basis-point expansion year-over-year. Executing a restructuring, driving efficiencies and streamlining our organization has increased our focus, enhanced business agility and leaves us well positioned to continue to expand our market share and leadership in automation. Driving growth at scale while increasing non-GAAP operating margin and non-GAAP adjusted free cash flow is central to how we manage the business.
Our Automation Platform changes how organizations operate, innovate and grow, enabling our customers to quickly see a meaningful return on investment. For example, in the fourth quarter, a North American warehouse retail chain expanded their UiPath deployment adding Task Mining and software robots to scale their automation program across more than 330 outlets. Wins like this are a great example of how value-selling with the right sales motion expands our footprint in existing customers. This is where our new go-to-market structure that creates coverage density and our new sales tools like the Northstar model come into play. Northstar is designed to help the team better articulate the tangible results our Automation Platform delivers, particularly to the C-suite, driving organizational focus around automation and firmly establishing UiPath as a strategic part of a customer's digital transformation journey.
Northstar also helps the team expand deals. During the fourth quarter we closed a record number of deals over $1 million, increasing our cohort of customers with $1 million or more in ARR to 229. Customers with $100,000 or more in ARR, increased to 1,785. The fourth quarter was a good backdrop for our February sales kick-off where we trained the team on the full platform and a variety of new tools to build intimacy with customers, sell outcomes, drive new logos, increase expansion and build scale through partners. Looking ahead to 2024, the team is ready to go, our enterprise and corporate segmentation models have been rolled out and accounts are assigned throughout the organization. We also continue to leverage insights gleaned from our customers with a vertical sales motion.
For example, in financial services, following a successful deployment at TD Securities, TD is now expanding automation across several lines of business at the bank to help deliver improved client experiences, productivity, and efficiencies. And, in healthcare, Quest Diagnostics selected Document Understanding over other document processing competitors because of our high level of data accuracy with both structured and unstructured data, to help them analyze and process millions of documents. To support our vertical strategy we have introduced Solution Accelerators which serve as templates to guide customers through deployments for common use cases. We have 10 Solution Accelerators available in our marketplace, with initial offerings focused on finance, healthcare, and IT and we plan to add additional verticals.
BilledRight, a medical billing and operations company, is implementing two Solution Accelerators to automate the processing of healthcare related data into administrative systems, expecting to save over 40,000 hours annually. Partners also benefit from the changes and investments we are making in our go-to-market resources. This includes global systems integrators, as well as more regionalized partners which not only expand our reach and scale, but are instrumental in helping customers build and execute a robust automation program. For example, EY is helping the State of North Carolina incorporate Document Understanding and expand their automation program from COVID driven use cases to back office automations across their enterprise. And, as we previewed at Investor Day, we are in the process of transitioning our smaller customers to our ecosystem of distribution partners, providing new sources of revenue for our partners and deeper enablement for these customers, while allowing our sales teams to focus on higher value opportunities.
Many of our partners also have very successful automation programs of their own, such as Capgemini and Ingram Micro, which expanded in the quarter as they continue to grow their internal automation programs and deliver our market leading capabilities to their client base. And finally, you will notice we rolled out a new positioning for our brand earlier this week, which included the introduction of our new brand tagline, The Foundation of Innovation. This communicates not only the power of automation to transform businesses today, but also the potential to fundamentally change how quickly customers can move from idea to execution. I am inspired by how much we have accomplished in our fiscal year 2023, launching our largest platform release to-date, completing the groundwork for our next phase of growth and delivering exceptional outcomes for our customers and partners.
While there is always more work to do, I believe we are well positioned to drive UiPath to the next level as we enter fiscal year 2024. With that, I will turn the call over to Daniel. Daniel?
Daniel Dines: Good afternoon, everyone. I would like to echo Rob's thanks to our team, customers and partners. You are all critical to our ongoing success. Before we move on, I'd like to add some color around this afternoon's 8-K announcing that Chris Weber, our Chief Business Officer, is leaving UiPath. Chris will remain with us through a transition period that ends on April 30th, the last day of our first quarter. We wish him the best and thank him for everything he has done for UiPath. Moving forward, Rob will assume leadership of our go-to-market function as part of his day-to-day Co-CEO responsibilities. As many of you know, Rob has over 30 years of sales experience at both Google Cloud and SAP where he built a strong track record of growing sales organizations at scale.
At the same time, our Co-CEO structure has freed me up to spend much more time with our research and development team, which is where my passion lies. We have a market leading platform and our talent is a major competitive differentiator for us that will continue to strengthen our position in the market. I am really excited to once again assume day-to-day leadership of the R&D team. This streamlined organizational structure will allow us to move with even more agility and efficiency which is good for UiPath and for our customer's growth. As we enter fiscal year 2024 I am pleased with how the teams are positioned and look forward to a strong year. Turning to the business highlights, I am gratified by our recent placement as a leader in The Forrester Wave: Robotic Process Automation report that was published in February.
Among other things, the report states that we have evolved from an RPA pure play into what we refer to as a business Automation Platform. It also notes that we have added capabilities such as process mining, intelligent document processing, API integration and low-code app development to our product, thereby turning it into an Automation Platform. The Forrester report also acknowledges that our investments in software-as-a-service deployments and re-architecting the product to turn it cloud-native are paying off. We ended the fiscal year with over $350 million in cloud ARR, including both hybrid and SaaS offerings. A great example of a cloud deployed customer is Fiserv, who continues to grow and expand their automation deployment by incorporating Test Suite, Automation Hub and Process Mining to accelerate their delivery of operational excellence.
We recently released new functionality in Test Suite to make it easier to migrate assets from legacy solutions to UiPath to provide tighter collaboration for application lifecycle management and testing tools. Not only does Test Suite open a new market in application testing for us, but it helps ensure quality and resiliency which allows customers to automate faster. A great example is Swisscom, which, after successfully implementing RPA and Test Suite in their finance, IT, HR and Customer Service departments, is rolling out automation across their entire organization to improve customer service, attract and retain talent, enhance operational efficiency and launch new growth engines in B2B with automation-as-a-service. Our customers also benefit from real-time advances in AI.
The role of AI in automation is not new for us. We have made significant investment in AI for years and from inception it has been infused into every part of our platform. For example, we use AI to build large language models for capabilities like Document Understanding and Communications Mining, which we acquired with Re:infer. During the quarter we closed the largest Re:infer deal ever with a customer who plans to use it to interpret customer sentiment across millions of emails per year to reduce manual processing, client churn and enhance customer experience. Coming later this year, Clipboard AI shows what AI can do for knowledge workers in their day-to-day roles. By leveraging large language models and understanding the structures of content, Clipboard AI intelligently transfers data between documents, spreadsheets and apps, eliminating the need for repetitive copy and paste.
We plan to share more on this and other AI innovations at our AI summit later this month. We have always had an open platform and believe that the power of automation is best unlocked when you can work with every application and business system including our ongoing relationship with Open AI. Later this quarter we plan to release a preview of our GPT connector that will allow users of our low code development tools to easily utilize GPT to generate content in automations. There are countless use cases where customers can benefit from software robots that are able to write content and generate responses. Our vision is to arrive at a place where anyone can train and use AI to make their work easier and more productive. Looking ahead, the automation market presents a massive opportunity and we remain focused on building a generational business that drives shareholder value through growth at scale, margin expansion and meaningful positive non-GAAP adjusted free cash flow.
With that, I will turn it over to Ashim.
Ashim Gupta: Thank you, Daniel, and good afternoon, everyone. Unless otherwise indicated I will be discussing results on a non-GAAP basis and all growth rates are year over year. I also want to note that since we price and sell in local currency, FX continues to be a headwind to our results. The tangible value automation creates is resonating with customers, particularly in a constrained environment, and while we expect ongoing macroeconomic variability and FX headwinds, we enter fiscal year 2024 positioned to execute. Turning to the fourth quarter, ARR totaled $1.2 billion, an increase of 30%, driven by fourth quarter net new ARR of $94 million. Full year net new ARR totaled $279 million. Excluding the FX headwind of $15 million, fourth quarter net new ARR totaled $109 million.
For total ARR, excluding the FX headwind of approximately $38 million, total ARR grew 34%. We ended the fourth quarter with approximately 10,800 total customers, including new logos like The Dana Farber Cancer Institute, Zoetis, Daimler and Bank of Maharashtra. Moving on, our dollar based net retention rate for the quarter was 123%. Normalizing for FX and excluding the impact of Russian sanctions, our dollar based net retention rate was 129%. Dollar based gross retention of 97% continues to be best-in-class. Revenue grew to $309 million. Normalizing for the FX headwind of approximately $14 million, revenue grew 12%. For the full fiscal year, we reported revenue of $1.1 billion, an increase of 19% year-over-year. Normalizing for the year-over-year FX headwind of approximately $71 million, full fiscal year revenue grew 27%.
Remaining performance obligations increased to $894 million. Normalizing for the FX headwind of approximately $18 million, RPO grew 34%. Current RPO increased to $562.5 million. Fourth quarter total gross margin was 87% reflecting ongoing investments in support and cloud infrastructure as we scale the business. Software gross margin was 93%. Fourth quarter operating expenses were $199.5 million. We ended the year with 3,833 total employees. GAAP operating loss of $45 million included $99 million of stock-based compensation expense. Full year GAAP operating loss was $348 million, including $370 million of stock-based compensation. Non-GAAP operating income was $69 million, resulting in a record fourth quarter operating margin of 22%. Full year non-GAAP operating income was $65 million or a 6% operating margin.
As Rob said, our results reflect the positive impact of our restructuring efforts combined with a continued focus on discretionary cost management and resource allocation that prioritizes higher return initiatives. Fourth quarter non-GAAP adjusted free cash flow was $101 million and for the full fiscal year, non-GAAP adjusted free cash flow was neutral, in line with our stated objective. We have a very strong balance sheet which is an important asset in the current operating environment, with $1.8 billion in cash, cash equivalents and marketable securities and no debt. Now, let me turn to guidance. For fiscal year 2024 we have maintained the topline growth rates we committed to at Investor Day and included a nominal increase as the dollar has weakened since late September.
We are also assuming the macroeconomic environment does not improve, including weakness in North America and that the sales force repositioning builds momentum as we move throughout the year. And, finally, we have meaningfully accelerated our path to 20% plus long-term non-GAAP operating margin, as we now expect fiscal year 2024 non-GAAP operating margin of 9.5% and non-GAAP adjusted free cash flow margin of 8%. For the fiscal first quarter 2024, we expect ARR in the range of $1.245 billion to $1.250 billion; revenue in the range of $270 million to $272 million; non-GAAP operating income to be approximately $5 million; and we expect first quarter basic share count to be approximately 558 million shares. For the fiscal full year 2024, we expect ARR in the range of $1.425 billion to $1.430 billion; revenue in the range of $1.253 billion to $1.258 billion; non-GAAP operating income to be approximately $120 million.
Before I close, I want to leave you with modeling points and our management philosophy. Starting with fiscal 2024 modeling points. We expect the year-over-year foreign exchange headwind to continue in the first quarter. First half net new ARR to be approximately $100 million. First half revenue to be approximately $555 million. Second half net new ARR and revenue to reflect similar seasonality as fiscal year 2023. Full year non-GAAP gross margin to be approximately 84%. Non-GAAP operating income to reflect similar seasonality as fiscal year 2023. And fiscal year 2024 non-GAAP adjusted free cash flow of approximately $100 million. Please note, we expect non-GAAP adjusted free cash flow to be positive for all quarters in fiscal 2024 and to follow normal seasonal patterns which ramp into the fourth quarter.
As a reminder, we started amortizing sales compensation expenses at the beginning of fiscal year 2022 which creates a 200-basis-point headwind to non-GAAP operating margin in fiscal year 2024 relative to 2023. Finally, we are actively managing stock-based compensation to lower dilution, which we expect to be in the range of 3% to 4% year-over-year for fiscal year 2024. Looking ahead, we anticipate to continue to calibrate the need for competitive compensation packages while reducing overall dilution. In closing, we are committed to managing the business to the Rule of 40 plus, which we believe we can achieve given the strength of our global team, our market-leading Automation Platform, the power of our financial model and the size of our market opportunity.
With that, I will now turn the call over to the Operator. Operator, please poll for questions.
