UiPath, Inc. (PATH) Q1 2024 Earnings Call Transcript

Good afternoon, and welcome to the UiPath First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note that this conference is being recorded. I will now turn the conference over to our host Kelsey Turcotte, Senior Vice President, Investor Relations. Thank you. You may begin.

Good afternoon, and thank you for joining us today to review UiPath's first quarter fiscal 2024 financial results which we announced in our earnings press release issued after the close of the market today. On the call with me are Daniel Dines, UiPath's Co-Founder and Co-Chief Executive Officer; Rob Enslin, Co-Chief Executive Officer; and Ashim Gupta, Chief Financial Officer. Rob will start the discussion and then turn the call over to Daniel. After that Ashim will review our results and provide guidance. Then we'll open the call for questions. Our earnings press release and financial supplemental materials are posted on the UiPath Investor Relations website: ir.uipath.com. These materials include GAAP to non-GAAP reconciliations. We will be discussing non-GAAP metrics on today's call. This afternoon's call includes forward-looking statements about our ability to drive growth and operational efficiency, and our financial guidance for the fiscal second quarter and full year 2024. Actual results may differ materially from those expressed in the forward-looking statements due to many factors, and therefore, investors should not place undue reliance on these statements. For a discussion of the material risks and uncertainties that could affect our actual results, please refer to our Annual Report on Form 10-K, for the year ended January 31, 2023, and our other reports filed with the SEC, including our quarterly report on Form 10-Q for the period ended April 30, 2023, to be filed with the SEC. Forward-looking statements made on this call reflect our views as of today. We undertake no obligation to update them. I would like to highlight that this webcast is being accompanied by slides, which this quarter includes an embedded AI demonstration video. We will post the slides and a copy of our prepared comments to our Investor Relations website, immediately following the conclusion of this call. Now I'd like to hand the call over to Rob.

Thank you, Kelsey, and good afternoon everyone. Thank you for joining us as always. I want to take a moment to thank our team and partners for everything you do to make UiPath successful, and our customers for placing their trust in us. It was a good start to the fiscal year, with first quarter results reflecting our commitment to driving growth at scale, coupled with increasing profitability and cash flow. While the broader environment continues to be variable, the level of engagement with prospects and momentum in our large customers gives us confidence in the strategic role automation will continue to play in digital transformation. Turning to the numbers. We ended the quarter with ARR of $1.249 billion, an increase of 28%, driven by a net-new ARR of $45 million. Excluding foreign exchange headwind of $6 million, net-new ARR totaled $51 million. First quarter revenue was $290 million. Excluding the impact of foreign exchange, revenue was $297 million and grew 21% year-over-year. Non-GAAP operating margin increased from negative 4% in the first quarter of last year to positive 17% in the first quarter of this year. This indicates a significant acceleration of our path to the 20% plus long-term operating target we laid out at Investor Day. I am very pleased with the progress we are making to better align the team to customer requirements and the resulting efficiency improvements. Non-GAAP adjusted free cash flow was a first quarter record of $73 million, marking the first time we delivered positive non-GAAP adjusted free cash flow at the outset of the year. We ended the quarter with approximately 10,850 customers, reflecting our focus on acquiring customers with the highest propensity to invest in automation. New customers included Liberty Bank, New York City Health and Hospitals, Vermont Federal Credit Union, and Navia Benefit Solutions. We are seeing good momentum with our large customers, customers with $1 million or more in ARR increased 43% year-over-year, to 240. Customers with $100,000 or more in ARR increased to approximately 1,860. Customers choose UiPath because of our market-leading technology and breadth of platform capabilities, which allows for vendor consolidation, vendor rationalization, and accelerated ROI, helping them achieve speed and agility while driving efficiency and improving both employee and customer experiences. For example, Colgate Palmolive, with more than 70 automations across various departments, expanded its broader platform capabilities in the first quarter, as they migrate to an integrated platform. This allows for vendor spend consolidation and the utilization of our governance capabilities. Another example is Silica, which started its UiPath journey with Test Suite but has now expanded to additional platform capabilities in an effort to improve cost savings, productivity, and both employee and customer experiences. It has been a busy start to this fiscal year; we launched a new segmentation model, nearly doubled the number of solution accelerators, and added SAP solution accelerators to complement our partnership. We hosted our annual AI Summit for a record number of participants, introduced our next platform release 2023.4, and announced several strategic partnerships while strengthening our Board and management team. We recently hosted two incredible events; our first-ever UiPath Summit, an exclusive event for our digital C-Suite and most forward-thinking customers, and our UiPath Together public sector event in Washington. There were two clear takeaways: our platform is driving meaningful ROI for our customers, and they are eager to understand how they can leverage the UiPath platform to responsibly and at scale deliver the power of generative AI. Since inception, our platform has been infused with AI. We offer our customers best-in-class models for communication, document understanding, and interface recognition. Coupled with this next wave of generative AI, we can help customers make automation even more accessible across their employees and significantly expand use cases. Equally important, our automation platform provides the guarantees, guardrails, and governance our customers require to deliver generative AI safely. We are investing like the market; we are moving fast, which Daniel will talk about in a few minutes. AI is not new to UiPath; we are delivering real value to our customers today. During the quarter, several UiPath customers who have been with us since 2022 chose to replace a competitor and migrate their entire automation program to us with a strategic focus on AI, accelerating development and delivering better governance. We also purchased Document Understanding for processing invoices and plan to roll it out across other use cases. Another great example is Hyundai Capital, which is innovating the car buying experience for Genesis, Hyundai, and Kia dealerships. They are leveraging Document Understanding to streamline the loan and lease process, reducing the time it takes to fund a loan and translating into a better experience for both the dealership and the customer. We also see senior sponsorship as they explore additional opportunities to further streamline their organization and drive efficiencies to the bottom line, using AI and UiPath automation. Our partner ecosystem is also critical to our success. During the quarter, we expanded our partnership with Snowflake, launching a pre-built solution for the Manufacturing Data Cloud to instantly connect data to business processes without using complex code. These technical integrations enhance our customers' ability to seamlessly integrate across applications. In addition, our go-to-market partners expand our reach to customers in a scalable and cost-effective manner. A great example is KION, a German multinational and UiPath customer since 2019, working with PwC. KION continues to scale across the organization as they look to incorporate AI and Test Suite into their automation program. We also recently announced a partnership with T-Systems, a trusted cloud provider classified by the German Federal Ministry for Economic Affairs and Energy, to deliver our end-to-end platform at scale to public sector organizations and large enterprises across Germany, Austria, and Switzerland. As part of this partnership, we plan to work with T-Systems to develop industry-specific offerings for our joint customers. One of the first projects is the Deutschlandticket with T-Systems and UiPath, which anticipates helping them manage demand for the new flat-rate transport ticket in Germany. Finally, we announced an expansion of our partnership with SAP to jointly offer automation capabilities to customers. This partnership will help enterprises build a clean core on S/4HANA Cloud, which complements SAP's process automation capabilities, enabling organizations to improve efficiency and productivity across both SAP and non-SAP workloads. We are pleased to be the premium sponsor for all three of SAP's SAPPHIRE events, in Orlando, Barcelona, and Sao Paulo. Tomorrow, I will join the SAP team on stage at Sapphire Barcelona to underscore the partnership we have in place. Our partners are also very excited about the announcements. E&Y's Americas Vice-Chair has told us that having two alliances within the EY ecosystem that leverage the strength of the UiPath automation platform to help clients drive even more value from their SAP investments makes strategic sense. There is significant inbound interest, and I am convinced that together we can help customers achieve game-changing results. In summary, I am pleased with the progress we have made on our strategic initiatives, which are raising our profile and relevance not only with our customers but also with go-to-market and technical partners. That being said, we are mindful of ongoing macroeconomic variability, and we have more work to do in extending our market leadership, helping customers get the most out of automation, and continuing to improve our execution. With that, I'll turn the call over to Daniel.

Thanks, Rob. Good afternoon everyone. We are very excited to have introduced our newest platform release 2023.4, earlier this month. This release further accelerates our customers' ability to discover, automate, and operate at scale and continues to expand our leadership position in UI, AI, and API automation. Our customers are thrilled about this new release and our plans to use generative AI to further increase adoption of our platform. We believe that generative AI will be a very important part of our enterprise AI foundation, along with domain-specific AI and automation. It is our platform that will allow us to deliver in a secure and governed manner, the requirements of enterprise customers. Generative AI is very powerful, but by itself has a limited scope of capabilities in the enterprise; it can read and generate text but cannot take action. AI without automation is like a brain without a body. However, when AI is combined with an enterprise automation platform, it opens a whole new set of use cases and opportunities for customers. Our software robots can already read screens and documents, and now with generative AI, they can answer customer emails, create summaries of complex documents, and respond to support questions. Customers can use these new generative skills to extend existing automation in areas such as customer service or imagine entirely new ones. We also believe that generative AI will democratize access to our platform, making it easier for both knowledge workers and developers to create automation using just natural language descriptions. Generative AI will upskill every employee. One of our biggest competitive advantages in leveraging the power of generative AI is our long-term investment in AI computer vision. With computer vision, we understand screens from legacy to modular applications, and our knowledge of screens continues to grow exponentially, with more than 2 million calls every day to our AI computer vision service in the UiPath automation cloud. We are uniquely able to combine this understanding of screens with the cognitive intelligence of generative AI to observe actions, understand what's being done, and automate it in our enterprise-ready platform. Let me show you a quick video of a research project, codenamed Wingman, that we are currently working on, which illustrates this. If you are not on the webcast, please go to our Investor Relations website for the link. This shows how generative AI and computer vision can create robust workflows without writing any code. As this technology matures from research into products, we expect to extend capabilities beyond developers to knowledge workers, who will simply describe tasks in natural language and have them executed directly by our platform. At our FORWARD IV User Conference in the fall of 2021, I described the potential of generative AI using the phrase 'semantic automation.' I am very pleased to report that our first offering in this space, Clipboard AI, is now in preview. Clipboard AI intelligently transfers data between documents, spreadsheets, and apps, understanding the content and automatically inserting the data into the right places. This use case has the power to transform how people work, and this is made possible by the depth of our expertise in combining AI, computer vision, our own domain-specific models, and generative AI. Generative AI also creates a compelling opportunity in automating manual tests. Today, application testing often still requires manual intervention, making it slow, unresponsive, and highly repetitive. The opportunity for a combination of generative AI and computer vision, prompted through natural language descriptions and delivered through our platform, has the potential to meaningfully transform the testing market, and we are well-positioned to execute here. Generative AI represents a massive opportunity for UiPath, and I am working closely with the team and our customers as we infuse it across our platform to realize its potential. This is why I'm so excited to welcome Karenann Terrell to our Board of Directors. As a former practitioner with C-Level technology roles at GSK, Walmart, Baxter International, and Daimler Chrysler, Karenann brings a wealth of experience and customer perspective, which I believe will benefit the entire company. Before I close and hand the call over to Ashim, I would like to thank everyone who has contributed to UiPath's success. We remain focused on building an enduring Rule of 40 company and are pleased that our first quarter represents another step on that journey. With that, I will turn it over to Ashim.

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 foreign exchange rates impact results. We continued to execute against our strategic imperatives of balanced growth and profitability, which resulted in first quarter revenue outperformance, as well as record non-GAAP operating margin and non-GAAP adjusted free cash flow. As a result, we are meaningfully increasing both our full year non-GAAP operating income and non-GAAP adjusted free cash flow outlook this afternoon. Turning to the first quarter, ARR totaled $1.249 billion, an increase of 28%, driven by a net-new ARR of $45 million. Excluding the foreign exchange headwind of $6 million, net-new ARR totaled $51 million. We ended the quarter with approximately 10,850 customers, including great new logos like Asda, Jubilant Life Sciences, Robert Weed Corporation, TaskRabbit, and TNL. As Rob mentioned, we saw strength in large customers as they continued to increase their UiPath footprint with broader platform adoption and increased consumption. A great example is TetraPack, a customer since 2018, who continues to expand on our platform adding additional products this quarter, like Document Understanding, Action Center, and Automation Hub as they migrate to the cloud. Our strategy is to focus on customers with a higher propensity to invest in automation as we transition our smaller accounts to a distribution channel. AI is also a central part of our strategy and is infused across our platform. A great example is Canon USA, working with GreenLake Consulting. Canon has built an automation program that leverages Document Understanding and customized machine-learning models to process over 5,000 invoices each month. Automation gives them greater accuracy and efficiency and requires far less human interaction, saving their employees over 6,000 hours of manual work annually. Our dollar-based net retention rate for the quarter was 122%. Normalizing for foreign exchange, our dollar-based net retention rate was 127%. Dollar-based gross retention of 97% continues to be best-in-class. Revenue grew to $290 million, and normalizing for the foreign exchange headwind of approximately $7 million, revenue grew 21%. Remaining performance obligations increased to $904 million, up 34% year-over-year. Foreign exchange-adjusted RPO was $891 million, and current RPO increased to $559 million. Turning to expenses, we delivered a strong first quarter total gross margin of 87%. The software gross margin was 93%. First quarter operating expenses were $205 million, reflecting disciplined cost control. We continue to find opportunities to optimize the business, which allows us to both reinvest in growth and increase profitability. We have built a strong foundation to scale the company, and we'll continue to leverage automation and improve operational excellence to grow the business efficiently. Before I move on, please note that the year-over-year decrease in G&A reflects both cost efficiencies as well as the reallocation of software expenses to other line items. GAAP operating loss of $46 million included $85 million of stock-based compensation expense. Non-GAAP operating income was $48 million, resulting in a record first quarter operating margin of 17%. The combination of revenue outperformance and disciplined expense management resulted in record first quarter non-GAAP adjusted free cash flow at $73 million. I am very pleased with this achievement, and we expect to be non-GAAP adjusted free cash flow positive every quarter for the remainder of the year. We also have a strong balance sheet, which is an important asset in the current operating environment, with $1.8 billion in cash, cash equivalents, and marketable securities and no debt. Now let me turn to guidance, which assumes the overall macroeconomic environment continues to be variable, including in North America, and that we are in the midst of executing our new go-to-market strategy, which includes account segmentation and the transition of smaller customers to distribution partners. For the fiscal second quarter 2024, we expect ARR in the range of $1.301 billion to $1.306 billion. Revenue in the range of $279 million to $284 million. Non-GAAP operating income to be approximately $10 million. And we expect the second quarter basic share count to be approximately 563 million shares. For the fiscal full year 2024, we expect ARR in the range of $1.4271 billion to $1.432 billion. Revenue in the range of $1.267 billion to $1.272 billion. Non-GAAP operating income to be approximately $168 million. This translates to a non-GAAP operating margin of 13%, a 700 basis-point increase year-over-year. Before I close, I want to leave you with a few final details. First, given our first quarter gross margin outperformance, we now expect gross margin for fiscal year 2024 to be 85%. And finally, we expect fiscal year 2024 non-GAAP adjusted free cash flow of more than $160 million or 13% adjusted free cash flow margin. Looking forward, the team remains focused on delivering growth at scale in a disciplined manner, which allows us to both invest in extending our market leadership while expanding operating margin and increasing adjusted free cash flow. Thank you for joining us today, and we look forward to speaking with many of you during the quarter. With that, I will now turn the call over to the operator.

Our first question comes from Terry Tillman with Truist Securities. Please state your question.

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

Hi Terry, this is Rob here. Thank you for the question. Look, I'm here in Barcelona with many of SAP's customers, and it's a truly exciting event for us. We are the key sponsors in both Orlando, Barcelona, and Sao Paulo. In terms of the customer, a large global apparel and footwear company this morning in Barcelona mentioned why the partnership is important for them. It's primarily around the ability to migrate to S/4HANA, drive a clean core, and accelerate their digital transformation, combining some of SAP's technologies like Signavio for process modeling with our UiPath task mining, and driving the UiPath platform together. This global footwear and apparel company is working with robots on several thousand hours where the SAP system is seeing a significant benefit, along with customers looking to move faster. Our go-to-market organizations on both sides will be able to deliver value to these customers much faster. So it's a significant partnership. The feedback we've received from global systems integrators has been exceptionally positive, and we've had a lot of inbound interest regarding this partnership with SAP. Today, we also have customers that are already utilizing us in the Test Suite capabilities, as we've mentioned previously with Orica and the benefits they've derived from it. So, we believe that in the end, customers will see significant benefits from connecting ERP systems and world-class mission-critical ERP systems together with world-class automation systems.

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

We're very excited about the opportunities that generative AI is going to bring to our platform. We are seeing a good opportunity to increase adoption of our platform by making the existing use cases easier to implement and democratizing access to the platform. We are building, as part of this project, codename Wingman, a co-pilot technology where users can specify in natural language the task they want to automate. We use our computer vision to read application screens, and by combining our own technology with the cognitive power of ChatGPT, we can create very easy-to-use workflows that can be deployed and run on our platform. Moreover, we feel that in our Document Understanding business, we can accelerate the creation of domain-specific models by training them using generative AI, but then deploy them in a secure and governed manner. These domain-specific models have the advantage of being precise and not posing business risks. You mentioned testing; explorative testing was traditionally very difficult to automate because applications and user interfaces change quite frequently. Now we see the opportunity to have a description of tests in pure English as you would do for a manual test. Our automation platform employs computer vision to explore the user interface and can understand application testing much like a human user. This will accelerate the large application implementation process as people are able to test much more frequently. We believe this represents an amazing opportunity for our platform. I want to stress again the power of our computer vision, the power of our execution platform that can automate actions on screens, and the power of our end-to-end platforms that can orchestrate and deliver enterprise-wide automation in an impressive manner.

Thanks so much.

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

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

Yes, Robert here. When we mentioned the Arcata suite announcement earlier, that is in conjunction with S/4HANA migration, and it serves as an integral part of that migration. We already have customers utilizing significant parts of both platforms. The opportunity is substantial because it also ties in SAP's BTP platform with a smooth migration. That's why we feel really confident about it. We also feel like it changes the discussions we have in front of customers, driving a significant amount of efficiency in the migration process as well. We've also delivered heat maps and ICT solution accelerators to help move that motion even faster. So, we do see that as a significant opportunity with SAP.

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

Yes. First, we consistently invest in areas where we see opportunity, Raimo. This is true both in the go-to-market side and in product development, as you can see in the results of the roadmap that Daniel talked about. Deals like the SAP partnership are achieved through our investments and resources. We focus our people in the right places with the highest returns. Our scale now allows us to maintain a significant portion of our base worldwide. If you look at our G&A structure, we have built a foundation to scale across every single country and support our customers and strategy in place today. On the go-to-market side, Rob brings immense expertise, and the leadership of our go-to-market teams is focused on finding the best opportunities and targeting customers with the highest propensity to invest. This naturally leads to better ROI for our investments. We will continue operating efficiently; for us, efficiently means investing in great opportunities and de-emphasizing less promising areas, and that formula has shown positive results. You can see not just the generation of free cash flow but also raising our overall operating margin guidance to 13% for the remainder of the year.

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

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

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

Yes, and maybe Ashim can comment on ARR per customer. Certainly, when you look at our customers above one million, that's been improving. I would say, Matt, the discussions we're having with customers today using our Northstar model are significant. It's really about how we can help businesses drive efficiency and navigate this environment. We see lots of opportunity there. I think Daniel mentioned Document Understanding; the return on Document Understanding for healthcare providers and financial institutions is substantial, and we're seeing more customers expand services. As customers begin to see areas of value through RPA, we engage in sales cycles, leverage Test Suite, and demonstrate the full platform. We're witnessing more customers select us for the breadth of services and capabilities we can deliver. In enterprise automation, UiPath is clearly the leader, and our partnerships with large GSIs and technical partners make a big difference. I'm very confident in our approach focusing on industries and partnerships.

Great, thanks. Ashim, following on Raimo's question on margins, obviously super impressive from 9.5% to 13% this year. I'm curious how we should think about the longer-term margin progression beyond this year, which has shown dramatic improvement so far.

Yes, we are pleased with the progress and the pace of execution by every employee at UiPath. We've talked about 20% margins as a long-term operating goal, and we will update that at the appropriate time. However, we are more than halfway there and feel good about our progress. We're committed to being a Rule of 40 company, and we are focused on continuing in that direction.

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

Hi, this is Arti on for Mark Murphy. Thanks for taking the question. I wanted to ask, is there any material portion of your pipeline where you feel you're being affected by generative AI and large language models with external products? To be clear, I understand you have your own AI and LLM products, but specifically, do you have any incremental pipeline with the adoption of these emerging LLMs? Thanks.

I don't think we look at our pipeline in that way. When we go around and Rob can talk through the customer portion and the customer stories, every customer in our pipeline reflects their continued interest in understanding how automation and AI can go hand-in-hand. The power of generative AI positions us as a long-term fit for their platform. We see this in the pipeline as a continued throughput of deals, and our largest customers reflect our strategy. So that's how we see it; we don’t have a specific set of pipeline or deals just around AI.

Let me add to that because it's important. When you look at enterprise AI, we are having significant discussions with our customers. You have to remember that domain-specific AI is something we've invested years into. Our customers, whether it be task mining, document understanding, or our computer vision technology, have benefited from this. Don't forget communications mining as well. We've built years of understanding in this area, and customers want to know how we can help them benefit in the future with automation while maintaining the power of generative AI. I believe UiPath will continue to evolve quickly in the coming months and that we are positioned as a leader in this space.

I really believe that AI development, from a strategic standpoint, will follow a model similar to human brain development. We have this powerful cognitive engine, but we have a lot of specialized tools that help us perform tasks efficiently. Generative AI is essentially the missing piece of RPA that enables us to enhance adoption in a meaningful way.

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

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

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

No, I think it reflects what we've described. It reflects the variability of the macroeconomic environment and changes daily, and we're attuned to that with our customers. However, there is no consistent change that shows a major difference from that perspective.

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

From a pipeline perspective, we're pleased with execution across our teams. The word variable really is a global phenomenon. We’ve seen this dynamic for a long period of time. North America is something we've commented on in previous earnings calls, so those dynamics are consistent. Rob, any additional comments?

I don't think there's much to highlight. I would say the same discussions are taking place with customers regarding our Northstar model. Discussions about the broader automation platform are progressing nicely in both the U.S. and EMEA. We are pleased with the progress there and will continue to work on APJ, although market conditions remain variable.

Understood. And then maybe just sneak one last one for Daniel. You've been clear on this call about the potential for generative AI to enhance RPA. Testing seems like a very interesting use case, as does customer service. From a pricing perspective, as you incorporate this technology, do you feel like you'd be able to exercise more pricing leverage due to the productivity enhancements that it may offer to customers?

Yes, this represents a significant tailwind for us, positively impacting all areas of our platform since we will infuse generative AI across it. The increased adoption of our technology reflects positively on our pricing model. I believe generative AI will pave the way for future successes, leading us to sell more robots, document processing capabilities, and AI units.

I appreciate the thought, Daniel. Thank you so much.

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

Hi guys, good afternoon. Thanks. I wanted to follow up on the go-to-market refresh. Rob, you touched on it briefly, but can you elaborate on the sales and go-to-market reorganization across the three operating regions? Specifically, how do things compare in North America versus EMEA versus APAC?

Yes. I think we've executed the go-to-market changes consistently, as we said we would. Those changes have mostly settled quite well. In some segments, it's taken longer than we would have hoped, but I feel good about where we are and the rhythm we have in the second quarter. The teams are focused, and I believe it was the right decision with the right execution. I expect to see acceleration in the second half of the year due to the changes we've implemented.

Okay, good to hear. Thank you.

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

This is Austin Williams on for Michael Turrin. Thanks for taking my question. It looks like net-new ARR was down versus last year in the quarter. Can you provide additional insight on whether it's new logos or expansions impacting that? Are you seeing any change in average deal sizes for new land?

Yes, so just when you look at it, I wouldn't point to a driver between new logos and expansion. First, you have to normalize for foreign exchange, which had a $5 million to $6 million impact this quarter. Secondly, there is broader macroeconomic variability we see, and the transition related to our go-to-market changes are appropriate. We've commented on that at the start of the quarter. In terms of land sizes, we're pleased with segmentation, which has focused on higher propensity customers. Our large deal execution is strong, and our $1 million plus customers continue to grow, leading to better positioning for our platform and larger deal execution, increasing our average selling price.

Got it, thank you.

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

Great, thank you. I wanted to ask a question around the transition to solution-selling and the vertical approach here. Last quarter, you highlighted some relative strength in the financials vertical. Just curious if you have updates on where you might be seeing traction across verticals with that approach. Thank you.

Yes, Brad. We still see the benefits with the financial sector and healthcare providers. We're continuing to see positive results, as evidenced by the few names we've announced. However, it remains variable across other industries. In generic manufacturing, we’re seeing Test Suite being driven. Over time as we produce more solution accelerators and gain more industry-focused insights, you will see further industry expansion. While no particular industry had significant uptake in the first quarter, financial services and healthcare are still sources of strength.

Wonderful. Thank you so much.

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

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

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