UiPath, Inc. Q1 FY2022 Earnings Call

Good afternoon. And thank you for joining us today to review UiPath's first quarter fiscal 2022 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 Chief Executive Officer, and Ashim Gupta, Chief Financial Officer. We will open with prepared remarks followed by a Q&A session. Our earnings press release and financial supplemental are posted on the UiPath Investor Relations website at ir.uipath.com. These materials include reconciliations of differences of non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with U.S. GAAP, unless otherwise specified, we will refer to non-GAAP metrics on today's call. The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with U.S. GAAP. They are included as additional clarifying items to aid investors in further understanding the company's first quarter of fiscal year 2022 performance in addition to the impact these items and events have on the financial results. In addition, please note that we define ARR as annualized renewal run rate. This afternoon's call includes forward-looking statements about future events, including statements related to our market and future growth opportunities, our vision and the benefits of our product platform, customer behaviors, the competitive landscape, our financial guidance, and our business results in the macroeconomic environment. 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 earnings release and other reports filed with the SEC. Forward-looking statements made on this call reflect our views as of today. We undertake no obligation to update them. Now I'd like to turn the call over to Daniel.

Thank you, Kelsey and thank you to everyone for joining us on our first earnings call as a public company. We had a very strong start to the year. Before I begin, I'd like to acknowledge the impact COVID-19 continues to have around the world, and especially in India. We are actively supporting our colleagues and their families in the region and have recently contributed over a million in corporate and employee donations to send and distribute oxygen supplies in the region. Our thoughts are with everyone impacted by this ongoing pandemic. Turning to the business. Our leadership position in the RPA market is again demonstrated by our ARR growth, which increased 64% year-over-year to $653 million, while net new ARR recorded $72 million. We continue to grow multiples of the market and take market share. In fact, for 2020 IBC announced that UiPath ranked number one in RPA, capturing 8 points of share versus 2019. In Gartner's latest market share research, UiPath added more revenue in 2020 than our top nine competitors combined. We believe that automation will be the next layer in the software stack. It brings together IT and knowledge workers to deliver the agility necessary to quickly adapt and respond to constantly changing business conditions. It simplifies the sprawl of applications and databases. Our vision is to enable the fully automated enterprise through our unique combination of UI automation, API management, and AI-based computer vision to emulate human workers and assign automatable work to robots. This is an incredible market opportunity. Automation is in our DNA. We have more than 15 years of market experience, including insights from our over 8,500 customers, which we believe gives us a significant advantage in the market. The result is a unique combination of, first, our end-to-end automation platform that addresses the broadest number of use cases. Second, flexible deployment models, including on-prem, hybrid, multi-cloud, and SaaS. And third, a large and growing ecosystem of go-to-market and technology partners, as well as the vast community of trained automation professionals. All of this results in first time to value for our customers and tremendous return on investment that drives our automation-first mindset. We are not standing still, as we continue to expand our competitive moat. Our ultimate product vision is for our user, not only to automate existing processes but to design processes on our platform. This is the board's objective, and one we think is possible to achieve in the coming years as we push the boundaries of innovation. To that end, in May, we announced important new platform capabilities with the introduction of UiPath 21.4. These include three new products, cloud insights, automation cloud robot, and test mining, as well as over 100 major new features and deeper integrations across every pillar of our end-to-end platform. New enterprise scale management and governance control and AI-powered discovery, privatization, and integrated development of the most impactful automation, including general availability of test mining. We also significantly expanded our automation cloud capabilities to migrate, build, manage, and measure enterprise scale automation in the cloud. The automation cloud software robots deliver unattended robot capacity as needed, with no infrastructure management required by customers. As of the end of the first quarter, more than 2,200 customers have adopted automation cloud. Feedback during the beta process for 21.4 has been extremely positive, and I'm incredibly proud of what the team has accomplished. 21.4 truly reflects the cutting-edge capabilities our customers need to accelerate their automation programs. It is the combination of user interface and API automation along with AI computer vision that differentiates us and enables human emulation in a resilient manner. In March, we expanded our API capabilities with the acquisition of Cloud Elements. This is a great example of how strategic tuck-in acquisitions accelerate our product roadmap and bring talent to the team. To further accelerate customer success, we have built an ecosystem of go-to-market and technical partners, as well as a thriving UiPath community. For example, we are very pleased to have recently launched a tableau activity with the world's leader in visual analytics. Users can now easily utilize data fully automated to produce or retrieve by robotic automations in their tableau reports. In addition, the UiPath extension for tableau enables users to trigger a robot directly from a tableau report or dashboard. On the go-to-market side, we grew our worldwide partner base by more than 35% year-over-year to more than 4,000. We also expanded several partnerships, including Deloitte, which is now the first GSI to become a certified UiPath service network partner. They now have the most advanced training and resources to deliver UiPath implementations with a certified level of quality and rigor. In addition, we announced a global agreement with Ingram Micro, introducing a dedicated Ingram Micro team of UiPath experts to raise brand awareness and help channel partners sell solutions and provide RPA to their business clients. Ingram Micro is also a UiPath customer, using our end-to-end platform to bring more efficiency and automation for thousands of its internal citizen developers worldwide. Today, their team has automated over 100 processes and has plans in place to do even more. Finally, we continue to expand our UiPath community with the addition of seven historically black colleges and universities to our academic alliance. Robotic engineering is one of the fastest emerging jobs globally, and we are committed to democratizing RPA technology and skills through our academic alliances, so that more people can be successful in the future of work. We will continue to push the boundaries of the fully automated enterprise and have recently been very gratified by important industry recognition. For example, in March, we were named a leader in the Forrester Wave, Robotic Process Automation among the 14 vendors evaluated, with UiPath achieving the highest ranking in each of the three categories: current offering, strategy, and market presence. We are humbled by this acknowledgment, and we will strive to maintain our leadership position. Before I turn the call over to Ashim and we take questions, I would like to thank our employees, partners, and shareholders for their confidence in UiPath as we take this next step in our journey. We firmly believe that we are at the beginning of a unique market opportunity that will truly change how people experience work. With that, I'll turn the call over to Ashim to discuss our Q1 performance and guidance in more detail.

Thank you, Daniel. And thank you, everyone, for joining us today. We are very excited to be embarking on this next phase as a public company. I’m very pleased with our first-quarter results, which yet again delivered meaningful growth at scale. Given our total addressable market of over $60 billion, the continued expansion of our automation platform, and our validated leader in the market, we believe there remains ample room for us to continue to drive durable long-term growth. As the market leader, we know the inflection point in the adoption of automation is now, as customers are choosing their long-term strategic partner. And as our results underscore, we are consistently winning these competitive evaluations and plan to continue to innovate, invest and execute to widen our competitive moat, with a focus on first extending our technology leadership; second, expanding our ecosystem of go-to-market and technical partners, as well as our community; and finally, attracting and retaining world-class talent. Before discussing the details of the quarter, I would like to emphasize the financial strengths of our business model. We have a highly recurring subscription-based business primarily contracted annually and billed in advance. Our technology is incredibly sticky, resulting in best-in-class dollar base gross retention and net retention rates. We offer our customers flexible deployment models on-prem, hybrid cloud, and SaaS, the mix of which can create lumpy revenue recognition, particularly from licensed revenue under ASC 606. As a result, we remind you that we run and manage our business on ARR, which is most representative of the underlying performance of our business. Moving on to first-quarter results, please note that all growth rates are year-over-year unless otherwise indicated. First-quarter ARR was $652.6 million, up 64%. We delivered record incremental ARR, which grew 55% to $72.1 million. We ended the quarter with more than 8,500 customers with great new logos including a flyboard, Global Healthcare Exchange, Overstock, Ralph Lauren, Siemens Mobility, and the State of North Carolina. Expansion metrics remain best in class as existing customers accelerated their adoption of our platform and deployment of our software robots. We now have 1,105 customers that account for at least $100,000 in ARR, up sequentially from 1,002 including 104 customers at over a million dollars, up sequentially from 89. Notable new logos and customer expansions during the quarter included; first, Verizon Communications, which became a customer in July 2019 to support their attended automation needs. After their successful initial deployment, Verizon shifted their focus to how they could use our full platform to achieve automation at scale. While continuing to expand their attended automation footprint, they are now also focusing on finding transformational business insights using process mining to enable a workforce of unattended robots. Verizon now benefits from the value of our end-to-end and interconnected automation platform. Second, Fifth Third Bancorp started their automation journey with UiPath in April 2020 as part of broader digital transformation efforts. To move to our platform using document understanding and process mining, they accelerated their automation program, a common thread we often see, helping the bank tackle some of the highest impact processes faster. In the past quarter, we entered into a long-term partnership to not only increase efficiency across their employee base but also improve customer satisfaction. Finally, Hackensack Meridian Health, the largest hospital system in New Jersey, became a customer in late 2019. They started their program in the finance department. Beginning in 2020, they set up a full automation program and delivered 70 automations in seven months across finance and accounting, revenue cycle management, accounts payable, and IT, saving approximately $1.2 million. Given the success of the program in its initial phase, in April 2021, HMH expanded their program to multiple departments, including IT, purchasing, and HR. To accelerate automations, HMH enabled a new class of citizen developers, added a test suite for faster implementations, and introduced action center, which led to tighter human and robot collaboration. HMH is poised to realize approximately $10 million in annualized benefit by the end of March 2022. These are just a few examples of customers expanding automation across multiple departments and increasingly buying multiple parts of our automation platform leveraging our expanded cloud deployment offering and adding test automation and process discovery capabilities. This is what a world-class land and expand model looks like in practice and how it has contributed to our strong year-over-year growth. Turning to revenue, profitability, and cash, I will be discussing the results on a non-GAAP basis unless otherwise noted. First-quarter GAAP revenue increased 65% to $186.2 million and was balanced across regions. We successfully closed several large multi-year deals during the quarter, including a handful totaling $4 million in the first-quarter revenue that were originally in the pipeline for the second quarter. GAAP remaining performance obligations or RPO were $463.9 million, an increase of 96% year-over-year. While growth at scale is our priority, we continue to drive operational rigor which has resulted in strong unit cost economics, positive operating income, and improved free cash flow. Of course, software robots are key to UiPath growing profitably, and our own automation Center of Excellence has created 300,000 hours of incremental capacity since 2019 with automations deployed enterprise wide. Gross profit margin in the quarter was 87.6% compared to 88.8% in the prior year period. Operating expenses for the first quarter totaled $147 million. Investments included headcount additions across our sales force and customer success teams to meet the growing demand and engineering teams to drive future growth. GAAP operating loss of $236 million included $250.8 million of stock compensation expenses, mainly related to our recent IPO. We delivered our second quarter of positive non-GAAP operating income of $16.1 million compared to a loss of $36 million in the prior year period. Free cash flow in the quarter was negative $20.1 million, compared to negative $24.6 million in the prior year period. First quarter free cash flow reflects seasonality, including our annual bonus payout and sales commissions related to fourth quarter performance. Turning to our balance sheet, we ended the quarter with $1.9 billion in cash, cash equivalents, restricted cash, and marketable securities, and no debt. This includes the $692.4 million in net proceeds from our April IPO. As this is our first quarter providing guidance, let me begin by emphasizing the core principles by which we plan to run and assess the company. We are building a generational company. The secular trends in our market are only strengthening as our prospects and customers adopt an automation-first mindset, driving more use cases and deployment of more software robots. In addition, we believe that our relative competitive positioning is only strengthening, and we are only in the early stages of what is to come. From a financial perspective, this means running the business with metrics that drive the right behavior and most beneficial outcomes for our customers, partners, and shareholders over the long-term. Turning to the numbers, this afternoon's guidance reflects confidence in our market, product portfolio, and competitive position. For the second quarter fiscal 2022, we expect ARR to be in the range of $702 million to $704 million. As I emphasized repeatedly, ARR is the key metric for measuring UiPath, and it lays a strong foundation for the company as we scale. We expect revenue to be in the range of $180 million to $185 million. Given the variability introduced by ASC 606, we do not focus the business on short-term revenue growth, which can be lumpy quarter-to-quarter and dislocated from ARR and the long-term growth in the health of the business. This is evidenced by the fact that second quarter revenue is expected to grow 31% at the midpoint of guidance, while ARR is expected to grow 55%. Last year, we closed several large multi-year deals in the second quarter, which drove significant revenue contributions under 606. We expect our non-GAAP operating loss to be in the range of $35 million to $25 million as we continue to invest in the business while still driving efficient operations. For fiscal 2022, we expect ARR to be in the range of $850 million to $855 million. Our robust pipeline of both new and expansion deals is reflected in our ARR guidance for the second quarter and full year, underscoring the continued momentum in our business. Finally, we expect the basic share count for the second quarter to be approximately 515 million shares outstanding. In summary, the opportunity in front of us is enormous and growing. Our strong first quarter results and guidance reflect the growing momentum in our business and the power of our automation flywheel. We are building an innovative and enduring company and remain focused on helping our customers and partners transform how people work by unlocking human creativity through automation. This is an exciting time for UiPath, and we look forward to speaking with many of you throughout the quarter.

Great, thanks everyone for joining us. Our first question is from Keith Bachman at BMO. For Ashim, could you provide color on the impact to growth in the quarter of existing customers, those driven by net retention rate and new logos? And what you anticipate the impact of those two will be over the course of the year?

Thank you. I just want to start by emphasizing the strength of our quarter, $653 million of ARR and a record quarter of incremental ARR breaking $70 million and $72 million total incremental ARR. When you look at that growth, it was really founded on the fact that we're continuing to add customers at a really fast pace. So our customer count is now greater than 8,500 customers, that's up more than 600 sequentially, and 2,400 year-over-year. Quite frankly, this has exceeded our expectations. And we're looking forward as our pipeline continues to be strong. When you look at our net dollar retention rate, it continues to be very strong and best-in-class, and expansion is greater than 80% of our ARR comes from expansion versus new logos, which shows you the strength of our land and expand model and the demand for automation in this massive market. We have expanded the platform with every release that you've seen, task mining, automation cloud; we look at these items in our product roadmap to continue to fuel, really both the acquisition of new logos as well as the expansion opportunity that's in front of us. And as the base gets bigger, the ratio will shift towards expansion, that’s just now. We feel really good about where ARR growth is and our guide of 47% year-over-year at the midpoint shows you that confidence as we're growing at significant scale.

Great. So the next question comes from Macquarie, Fred Havemeyer. There appears to be a shift in your model towards shorter inversing durations, with some multi contracts mixed in. Could you describe how this duration shift impacts both your revenue and ARR? And also why you believe ARR is a more accurate measure of your company's momentum? Ashim, could you give us a couple thoughts?

Yes, absolutely. Fred, that’s a great question. I always emphasize that ARR is the cornerstone of our model. Our approach to calculating ARR, which we have shared, is not significantly influenced by duration. We see duration as a factor that benefits customer adoption, rather than a means to manipulate financial metrics. Thus, we manage our sales efforts with a focus on ARR. Regarding GAAP revenue, as I have mentioned, we believe it does not accurately reflect our business model because it is affected by deployment models and total contract value, which should be driven by customer preferences. As customer preferences lead to varying durations, GAAP revenue can increase due to multi-year commitments. All these factors contribute to variability and can create confusion, particularly in year-over-year comparisons. For us, ARR eliminates that confusion, providing a clearer picture of our company's genuine growth and the actual demand from our customers. Our consistent messaging emphasizes ARR for both internal and external audiences. We have demonstrated the reliability and strength of our product as well as our financial stability. We regard ARR as the primary focus for all our sales contracts. While our go-to-market model has been in place for the last five years, we have truly reached scale in the last two to three years. We see significant opportunities ahead and will keep driving our teams to prioritize ARR, with GAAP revenue being something we won't overemphasize.

Great. Thanks, Ashim and thanks, Fred. Bryan Bergin next from Cowen. Actually, Daniel, this one is for you. What's your response to the competitive threats at Microsoft? When you think about the market opportunity for enterprise process automation? How do you consider the relative mix between simple attended-only automation cases and similar complex attended and unattended cases?

Thank you, Kelsey. I would start by saying that we are very differentiated. First of all, in our philosophy towards automation. We have a unique platform that aims to emulate people in their work. Microsoft has built a platform whose main goal is to provide new applications and analytics to the people. They are like comparing apples to oranges. Our approach is extremely difficult to replicate. It requires a vast experience curve that we have built over the last 15 years. Our platform is a combination of UI, API, and computer vision AI that is again extremely difficult to replicate, and it is our secret sauce. Moreover, I would say that our differentiation comes from three major directions. First of all, we have this unique end-to-end horizontal platform that is necessary to win in this space. This is a space that offers the highest return on investment and the fastest time to value seen almost ever in the world of enterprise software. We are in a business where we can prove the return on investment. That has been very beneficial throughout our history. We consistently have proven and we have beaten our competitors with our technology. If you go there and if you can show that you can implement in half the time, imagine the exponential return on investment that happens when you deploy at scale. By the way, we are a technology that is proven to deploy at scale while I would say that Microsoft's approach has not tested large scale deployments. A second important differentiator for us is our ability to accommodate our customers' infrastructure and our flexibility of deployments. We're able to deploy in a multi-cloud, multi-platform approach, and we respect our customers' choices, not locking them into a particular cloud or infrastructure. Third, it's our ecosystem, which is really important in delivering automation at scale. But I would like to conclude talking about our thought leadership. We are here to address our semantic automation platform, which emulates people. There is an extraordinary amount of semantic information that you can find in documents, user interfaces, and conversations, which has been largely untapped by now. With our advancements in computer vision and machine learning, we are the first company able to tap into this trove of information. Our newly released task mining is one of the first to go deeper into this direction.

Great, thank you, Daniel. We're going to open the call up to questions now. We're asking that each of you ask just one question and one follow-up, so we have others to get back into the queue. Operator, I'm going to turn it over to you right now.

Thank you. Our first question today is from Keith Weiss at Morgan Stanley.

Thank you for taking the questions, this is Sanjit Singh in for Keith Weiss. Congrats on a really strong set of results to start off the fiscal year. I wanted to talk about the platform, Daniel you were mentioning some of the highlights, including task mining, cloud, and automation robots. As we think about where the automation platform is heading, where does sort of low code as a piece of the puzzle stand from your perspective, in terms of building that and building out that sort of end-to-end automation play? Is that something that you think of as a partnership opportunity? Or is that something that's a capability that you sort of bring into the platform over time?

I would like to start by saying, we have been a low code, no code, automation platform since the beginning of our existence. Democratization of automation was always a pillar of our success. Indeed, we're a platform dedicated to automation. We are considered by independent reviews and by our revenue, one of the largest, if not the largest, low code, no code platform that exists today in the business. If you look at platforms like Gentoo, it's overwhelming the amount of positive reviews there. That was completed by our recently introduced no code application platform. I want to remind you that we believe that automation is the new layer that will sit on top of applications. This new layer will be the only layer that will connect end-users with the automation. We believe in our approach. Honestly, if you're looking at a lot of low code, no code platforms, you will see that the end result in many cases is actually an automation. I feel that we have a very strong angle to enter this market, and we are always going after respecting our customers' choice. A very encouraging fact is that we have seen a tremendous adoption of our no code, low code application development having, for instance, in the first month, over 2,000 applications created on our platform. I truly believe that low code, no code was the quintessential aspect of our success, and we are continuing to invest here.

I understand and it makes a lot of sense. My follow-up question is directed towards Ashim. The first quarter ARR results were quite strong overall, as well as on an incremental basis. You mentioned some expansion opportunities along with the pipeline for the remainder of the year. When I look at the Q2 ARR forecast, it suggests that the incremental ARR will decrease year-over-year. I would like to gain a better understanding of the factors contributing to this cautious approach in your forecast, particularly regarding customer expansions or new ARR coming in.

Our approach to guidance is grounded in the clarity of what we can see ahead. We maintain strong confidence in the market we are creating within a $60 billion plus total addressable market. The effectiveness of our land and expand model remains robust, and we are experiencing positive momentum. My guidance is based on current observations, and we have a quarter ahead of us to execute effectively. We benefit from strong tailwinds, particularly with the launch of version 21.4, which enhances functionality and delivers high returns on investment for our customers. I feel very optimistic not only about our second-quarter guidance but also about our expectations for the entire year.

Thank you. Our next question today is coming from Brad Sills from Bank of America.

Hi, this is Sherry, on for Brad. Thanks so much for taking my question and congrats again on a great quarter. I was just wondering on the cloud offering, how the adoption has been tracking and what percentage of revenue it represents. Maybe just some more color on the benefits of running UiPath on the cloud and what barriers may prevent certain organizations from adopting the cloud offering. Thank you so much.

Thank you for the question. I'll begin with the numbers and then hand it over to Daniel to discuss the technological benefits. Currently, cloud adoption within our platform is accelerating. Customers are utilizing cloud components, not exclusively full SaaS, but also our hybrid offerings. While it represents a small portion of our revenue, there's significant interest from our customer base, especially among small to mid-market and commercial clients. Regarding our future revenue approach, we're focused on what benefits our customers rather than any substantial financial impact. From the customer's perspective, this accelerates adoption, particularly for commercial customers who may not have large IT teams. It enhances customer choice based on their preferred investment of time and resources. This approach has contributed to our growth, as we welcomed 8,500 new customers this quarter. Daniel can provide more insights on additional technical features.

Yes. Cloud is an essential part of our strategy to reduce the friction of adoption for our customers. But again, doubling down on what Ashim said, we are here to respect our customers' technology choices. Our cloud strategy is multi-cloud; we build for all major clouds, and our strategy is multiplatform. We plan to introduce additional features later this year, including support for executing automations on Linux and Macs, which will increase our time substantially.

Thank you. Our next question today is coming from Raimo Lenschow from Barclays.

Hey, thank you and congratulations from me as well. I had a bigger-picture question for maybe Daniel here. Task mining, Daniel, like how do I have to view that? To me, it almost suggests that you can, it's almost like a leading driver for future RPA because if you identify the areas, you can automate more in the task mining part, then you can put RPA on the process mining coming in and create a full circle in terms of your client relationship. Is that the right way to think about it? And is it as important as I think? Could you talk to that, please?

Yes, I think this is absolutely correct. Task mining is basically one of the initial propellers of the flywheel of automation. I’m very excited about this release. It has been like two years and more in the making. It's the most complex AI project that we at UiPath have done to date. It is the culmination of computer vision and machine learning investments over the years. It really is going to provide the acceleration of discovery of opportunities for automation, multiply the number of automations on the top of the funnel, and increase the stickiness of our platform. It addresses one of the bottlenecks of large-scale adoption. But I would like to reiterate what I said in the beginning, task mining is one of the core pillars of a semantic automation platform. Consider all this information available on screens, documents, and user interfaces; they are largely untapped by automation and big data today. We are getting to understand this data, which is why we call it a semantic automation platform. We're getting to understand this data like a human user. I think this is extremely powerful.

Okay, it's interesting that you mentioned that, Ashim, because that was my next question. I have one question; looking at your ARR, you're performing significantly better than industry norms. My question is about the sustainability of that figure. Even with a slight drop, you'll still be well ahead of other vendors and competitors, but how do you see that number evolving in the future?

Yes. Right now, what I see in front of us, I actually see tremendous demand for automation and our platform. If you look at two things, we’ve been out there for five years plus with a great go-to-market model. But as I said, we've really been at scale for the last two or three years. Take a company like Hackensack Meridian Health for us, and I mentioned this earlier. This started in the finance department, and they were able to grow across every department. Now you put task mining in there; you put other process discovery in it; you bring human in the loop; all of the features our incredible technology team has been releasing, and releasing at a faster pace. For me, that continues to fuel world-class expansion in every single one of our customers. We’re really confident about our ability to sustain that, not just by the features we’re producing, but the ability for our platform to handle the amount of automation and the diversity of the automation at scale for our customer base. That really creates an exciting future for us.

Thanks. The next question today is coming from Michael Turner from Wells Fargo Securities.

Congratulations on completing your first quarter as a public company. Ashim, you've demonstrated significant margin improvement over the past year. It seems that your sales and marketing expenses are slightly lower in absolute terms compared to Q1 of last year. Can you share your thoughts on the balance between growth and margin? To what extent do you believe your growth could be assisted by partners? Should you consider increasing your spending in this area, especially with the current discussions about a market inflection point?

Yes. The numbers actually are masking the continued investment that we were putting in our go-to-market team. First, let me emphasize that we are primarily focused on investing to capture this large and early market in front of us. When you look at the numbers that we've reported, there are two pieces to count when you're looking at a year-over-year comparison for sales and marketing. The first is that we had a change in our accounting policy relative to sales compensation, which had a $10 million impact year-over-year, deferring some of that compensation expense over the life of the contract versus taking more of that upfront. When you adjust for that and account for the fact that COVID, the COVID adjustments of zero marketing events, travel, etc., was last year, we had half of a quarter in which that was live. This year, we're just beginning to open up. When you account for both of those, you actually see a good dollar investment in our sales and marketing line. We've been hiring at a rapid pace to support the large demand and increase in demand in our pipeline and from our customers to help them on their automation journey and the demand from our partners as well. That increase in demand means we’re going to have an investment-first mindset as we look at this, and our leadership position gives us a lot of confidence to invest.

That's super helpful color. Just a quick follow-up in terms of expansion rates, you've referenced the focus there throughout the call. Any commentary you can share on how that metric came in this quarter relative to historical and if not, maybe you can at least remind investors when expansion is a function of in the model here and the general cadence you see within customers?

Yes. Let me define it for anybody who’s learning about our company. The net dollar retention rate essentially says how much does a customer continue to expand after their initial land or initial purchase of automation. That is fueled by the fact that many of our customers start with single points of automation and then rapidly expand across different processes, departments, and employee bases. That creates more demand for UiPath's platform and robots, which translates to more ARR dollars for us. When you think about our quarter, I would say we continue to be in best-in-class expansion territory. To give you some color, our expansion shows that we now have 1,105 customers greater with ARR values of greater than $100,000. If you look at our customers greater than a million dollars, that is 104 customers who are spending a million dollars more with us. That is a 126% growth for the million-dollar customers and 60% growth for our $100,000-plus customers. All of that contributes to the record incremental ARR of $72 million that we've had. The growth of our customer base translates into this expansion. We have a lot of confidence as many companies are just beginning their automation journey, which translates into sustained growth.

Thank you. Our next question today is coming from Steve Koenig from SMBC.

Hi, thanks, guys. Congratulations on the quarter. One question really about kind of the platform and the product roadmap, and then a quick financial follow-up. So your churn is very low. You have very high dollar base net retention, best-in-class. I'm curious, if we get more granular and talk about retaining and increasing engagement with individual users, kind of churn on a user level. So that automation stay current and they're put to full use. Can you talk a little bit about what elements of your product roadmap play into that and are most important in realizing this goal, and then I've got one financial follow-up if you don't mind?

I would like to say that for our platform, innovation is key. We have a platform that addresses different personas, from professional developer to citizen developer, business users, IT, operations, and process owners. We have the largest group of engineers dedicated to the automation field. Our strategy is always to accelerate adoption for customers and always provide the highest return on investment. Our product strategy focuses on reducing implementation time, maintenance time, because reducing those times exponentially increases the return on investment. With 21.4, we continue to listen to our customers. We have launched task mining, as we've talked about. We also launched our cloud robots offering, which is a continuation of the advancement of our automation cloud. We have launched more governance tools to centralize cloud-based governance. We will continue to push the boundaries of what’s possible. Our ultimate vision is that business users will start designing processes in an automated manner on our platform, not only automating existing manual processes.

I will just add from a customer perspective. We see users as having high stickiness; we don’t see licenses being migrated around to different users because it gives – just think about a user for one of our largest financial customers, they want to spend time doing analytics. For example, at Bank of America, where our products are used with analysts to access data, they don’t want to revert to the old way of doing things. Our platform broadens usage, and the breadth of use cases allows for grassroots demand. That is fostering our stickiness at the enterprise level, in turn fueling our expansion metrics.

Terrific. And thanks, and I'll just pivot then to the other part of incremental ARR from new logos. Ashim, you gave us some good color around that. After Q1, anything you're seeing to change your view on incremental ARR for new logos inflecting positively this year? That's all for me. Thanks very much.

Yes. I continue to feel strong. We are optimistic in our discussions. The TAM of $60 million is real. Every industry, every department, every process, every employee, we see growth in our pipeline. You can see also customers migrating away from competitors toward us. That is not just the strength of our individual components but the strength of our entire platform. If you look at Verizon, they’ve expanded with us as a customer, but that is fostering interest across many companies coming to us. We actually feel really strongly about our pipeline and the validation of our market as well as the execution and investments made with our inside sales teams.

Thanks. Your next question today is coming from Matt Hedberg from RBC Capital Markets.

Hey guys, thanks for taking my questions and congrats on the IPO and the quarter obviously. I had a question for Daniel, when you think about that ‘aha’ moment and customers, because one of the things that really stood out was the high ROI and customers went all-in on UiPath. From your perspective, what is that ‘aha’ moment when a customer goes all-in? Are there things that you're specifically doing or lessons learned that can help accelerate that learning?

Well, I've seen, really customers having multiple ‘aha’ moments. The first one is when you see the first robot running. I've seen people in operations over many years say, ‘wow, I don't have to do this again.’ That has helped us lead our initial engagement. In terms of expanding, I think the ‘aha’ moment comes with the realization that this technology is truly horizontal; it doesn’t depend on a particular application. It reuses existing workflows, and this is a key aspect of our technology. It produces a huge return on investment because it reuses manual existing workflows that customers have invested a lot into building. This ‘aha’ moment leads to a strategic sea-level sponsorship of enterprise-wide automation. The first of this magnitude, I saw starting in 2017 with one of our major customers. They achieved a return on investment of half a million dollars, and we are seeing more and more customers thinking about enterprise automation at scale, wanting to automate completely their departments.

That’s super helpful. And just maybe one more on the competitive side. If someone earlier asked about Microsoft, the one that I always get and I'm curious your perspective on is the platform vendors, the ServiceNow and the Salesforces of the world. As they implement additional native RPA or low code, no code capabilities, how does that impact the market versus a player like you that can play across multiple clouds, the hyperscalers or platform vendors?

I think automation is inherently an agnostic horizontal type of technology. A particular application vendor will build automation that addresses the needs they see on their platform. They will naturally be less focused on other platforms. Being independent, we're paying the same level of attention to major business application platforms. This is what our customers are requiring from us, many customers are really afraid of vendor locking, and this is an additional investment that will capture a lot on a business platform. Elevating processes above business applications allows for better flexibility in adopting cloud and migrating. This is what our customers are demanding. Our 8,500 customers validate this, and we have over 65% of Fortune 500 customers. This theme is consistent: Automation is agnostic to the business application platform.

Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to Daniel for any further or closing comments.

Thank you. Before we conclude, I like to highlight a good friend and valuable board member, Tom Mendoza, who has decided to retire from the Board. Tom joined us almost four years ago, and it has been an absolute honor to work with a person of such energy and humble character. I really thank him for his time with us. I also want to thank the UiPath team for their hard work and dedication to our customers and our mission of unlocking human potential through automation. We live our values of being humble, bold, immersed, and fast every day, and I'm very grateful for all that they do. We look forward to speaking with many of you throughout the quarter. Thank you.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.