UiPath, Inc. Q3 FY2025 Earnings Call

Greetings, and welcome to the UiPath Third Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. We ask that you please ask one question and one follow-up then return to the queue. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Monica Gould, Investor Relations for UiPath. Please go ahead, Monica.

Thank you. Good afternoon, and thank you for joining us today to review UiPath's Third Quarter Fiscal 2025 Financial Results, which we announced in our earnings press release issued after the close of the market today. On the call with me are Daniel Dines, UiPath's Founder and Chief Executive Officer; and Ashim Gupta, Chief Financial Officer and Chief Operating Officer, to deliver our prepared comments and answer questions. Our earnings press release and financial supplemental materials are posted on the UiPath Investor Relations website at 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, including regarding our financial guidance for the fourth quarter fiscal 2025 and our ability to drive and accelerate future growth and operational efficiency and grow our platform, product offerings, and market opportunity. Actual results may differ materially from those expressed in the forward-looking statements due to many factors and therefore, investors should not place undue reliance on these statements. For a discussion of the material risks and uncertainties that could affect our actual results, please refer to our annual report on Form 10-K for the year ended January 31, 2024, and our subsequent reports filed with the SEC, including our quarterly report on Form 10-Q for the period ended October 31, 2024, to be filed with the SEC. Forward-looking statements made on this call reflect our views as of today, and we undertake no obligation to update them. I would like to highlight that this webcast is being accompanied by slides. We will post the slides and a copy of our prepared comments to our Investor Relations website immediately following the conclusion of this call. In addition, please note that all comparisons are year-over-year unless otherwise indicated. Now I would like to hand the call over to Daniel.

Thank you, Monica. Good afternoon, everyone. Thanks for joining us. I want to take a moment to thank our team for their improved execution and our customers and partners for everything they do to make UiPath successful. Our third-quarter results exceeded the high end of our guidance across all key financial metrics, a testament to our improving execution and the compelling value that our AI-powered automation platform delivers to our customers. We ended the quarter with ARR of $1.607 billion, an increase of 17%, driven by net new ARR of $56 million. Third-quarter revenue was $355 million, and we delivered non-GAAP operating income of $50 million. As many of you have seen, we unveiled our vision and roadmap for agentic automation at our FORWARD user conference in October. In the coming months, the entire UiPath community will be able to build, maintain, and deploy agents, significantly expanding the surface area of automation within their companies. This will mark our most consequential product launch in years. AI agents will be first-class citizens on our platform. They will use UiPath robots to securely access corporate systems and databases to harvest information for agents to act on. Our customers are already embracing the revolutionary potential of UiPath agents with enthusiasm. I'll quote a large global airline customer who recently told us that this shift towards agentic automation is not just an upgrade; it's a paradigm shift in how we perceive the potential of our operations. Customers are excited about the agility and creativity that our agents bring and are comforted by the security, governance, compliance, and accuracy afforded by our robots and our overall platform. We are excited that Agent Builder has begun accepting registrations for our private preview, which will begin later this month. We've had the fastest pace and the largest number of registrations in our company history with over 1,000 organizations signed up so far. As an example, two weeks ago, one of the customers we hosted at our headquarters in New York City is the Head of AI of a Fortune 50 healthcare and insurance company. Following demos of our new agentic automation capabilities, including Agent Builder and agentic orchestration, the healthcare company is moving quickly to put our new agentic capabilities to work. I believe that with agentic automation, the long tail of complex unstructured tasks to automate and enhance is now in play. I'm sure you have heard announcements from software companies announcing single agents that will help search data across CRM or submit an expense report. What differentiates UiPath are three things: First, our agents and robots work across all applications, both new and legacy, eliminating vendor lock-in for our customers. Business processes today don't run on a single system. We will continue to be the Switzerland of business applications and agents, providing equal access to third-party systems. Second is governance. Agentic orchestration will be the conductor or the governor across agents, robots, people, and models. Third, we will democratize access to agents by leveraging our low-code platform that is already known to automation developers. The feedback from industry analysts has also been encouraging. IDC is already forecasting that the market for agentic labor automation will grow to $4.1 billion by 2028 from zero last year. This is on the top of an RPA market inclusive of IDP and test automation that is growing at a double-digit rate, thanks to the tailwinds and disruption of GenAI. The direction of the market can be seen in our current customer conversations and deals. I'm really excited that our largest deal in the quarter was for building an agentic use case delivered via our Autopilot for Everyone for a healthcare customer who has been with us since 2018. Our solution will enable such use cases to be built easier and faster as we deliver on our product roadmap. AI has always been at the center of our platform. Over the last few years, we have integrated GenAI throughout our platform, including IDP, and we are now seeing the fruits of those efforts. With the support of their CIO, Volkswagen Financial Services will now standardize on the UiPath platform across the company. They will implement our IDP products in the cloud to automate customer communications and complaint management. Autopilot also offers the potential for over 5,000 employees to increase productivity. So far, the company has realized cost savings of well over EUR10 million per year and increased customer satisfaction for its online portal and financial services business. At FORWARD, we also announced the general availability of Autopilot for Everyone, our agent with a conversational experience that enables any employee, regardless of technical ability, to complete complex tasks ranging from getting answers grounded with their own organization's data, analyzing and extracting information from documents, automating copy-paste into apps, and running automations to improve productivity. Protiviti, a long-time customer and platinum partner, recently expanded its usage of and capabilities in our technology, including Autopilot with the expressed purpose of enabling their consultants to better use automation to deliver value to their customers, including numerous as-a-service models and putting leading-edge automation technology into the hands of their operations teams. Our agentic capabilities will permeate across our platform and continue to differentiate us. A great example of this is our test automation capabilities. In fact, our agentic testing offering is positioning us as the thought leader in the test automation industry. With the addition of Autopilot for testing earlier this year, we greatly enhanced the AI power capabilities of our test suite with the ability to automatically generate test cases. Our offering will unlock a key market for us as we look to build upon our momentum in the agentic automation era. Hebron, one of the world's leading medical technology companies and a customer since 2019, selected Test Suite for test case creation to aid in testing for their SAP S/4HANA migration. They expect to see significant cost savings from eliminating manual testing with additional improvements in employee engagement and experience. Our platform's ability to integrate automation and testing was the key differentiating factor over other competitive vendors. I have become increasingly convinced that manual testing remains a real and sizable roadblock for business agility. I'd like to focus the remainder of my comments again on the launch of agentic automation over the next few months, our partnership with SAP, and our overall partner ecosystem. In February, we plan to unveil Agent Builder in public preview. It will be launched as a core part of UiPath Studio, offering our customers a seamless experience for both robotic and agentic automation. Agent Builder allows users to build agents either from scratch in our local development environment or from a pre-built template in the UiPath agent catalog that works in tandem with our robots. Customers will also be able to include third-party agents in their agentic workflows if they choose. To maximize the value of the agentic workforce, we'll also launch agentic orchestration, which empowers organizations to orchestrate their long-running complex enterprise processes across humans, robots, and AI agents and operate them with governance and at scale across systems of engagement and systems of record. Customers can orchestrate agents built either using the UiPath agent builder platform as well as agents built using other platforms. Using our new agentic orchestration capabilities, customers can design, implement, monitor, operate, and optimize complex business processes throughout the entire process lifecycle. We are planning a public preview of agentic orchestration in the first quarter of fiscal 2026. As you can see, our focus is on enterprise-grade agentic automation where security, governance, control, and compliance run throughout everything we do. For our existing community of 3 million users, jumping in and getting started building, managing, and deploying agents will be straightforward. I expect we will quickly have a large pool of developers building a true agentic workforce across business-critical processes. We are also committed to reaching customers that are less aware of our platform, particularly in today's sea of agentic AI marketing. To this end, we are investing in driving awareness of our capabilities, and we will have a growing stream of use cases that will quickly underscore our capabilities and differentiation. Partners remain a cornerstone of our go-to-market strategy, enabling us to scale our market reach and elevating our customer success initiatives. I am excited about our continued progress with SAP. In October, our platform was integrated into the SAP Build Process Automation solution and is now being sold as one of the SAP Solution extensions, delivering a seamless experience for SAP users to create, execute, and monitor automations from a single platform. This integrated solution enables true end-to-end automation across diverse IT landscapes, improved efficiency and productivity across SAP and non-SAP workloads. It also reduces long-term total cost of ownership with a supportable governance approach that moves custom code to the automation layer and faster implementation by leveraging pre-built solution accelerators. While partnerships take time to build pipeline together, our SAP partnership has already helped us to win new logos such as a leading data storage company based in the US, which needed support following the S/4HANA transformation. They will now be implementing UiPath to automate processes within SAP such as their finance and supply chain functions. In addition to helping secure new logos, our partners also support expansions. One that I would like to highlight is the deal facilitated by SAP with one of the largest US oil and gas companies. The company currently has over 1,000 automations in place with their finance and downstream operations and has now chosen to expand further with UiPath to automate within the S/4HANA environment. Our GSI partners also continue to drive our growth in the market with the support of EY. Sonic Automotive, one of the largest car dealership groups in the US, expanded their automation program to additional departments such as customer service, shared services, and human resources. They will also be expanding their usage of document understanding for warranty cancellation and factory invoice processes while adopting new products such as process mining, communication mining, and test suite for automation testing. They have seen an impressive ROI of over $10 million in cost savings per year with expectations for further improvement. Finally, our success is deeply rooted in our ability to serve our customers, making the customer-centric mindset more crucial than ever. While customer-centricity and co-innovation remain a core pillar for us today, we are working diligently to infuse it deeper into our culture. To us, being customer-centric means listening, rapidly applying feedback, co-innovating our roadmap, and building a trusted partnership. All of this in the spirit of maximizing the value our customers realize from our offerings, which we believe will translate to growth for UiPath. To summarize, I'm really excited about the enthusiasm from our customers in support of our vision and the products we have on deck to deliver on the vision. We believe that agentic automation will have a major impact on the workplace, and it is clear that it's only going to rapidly become more powerful and sophisticated. We are confident that UiPath is well-positioned to bring the transformative force of AI to life in the enterprise throughout automation. With that, I'll turn the call over to Ashim, who will dive more into our operational priorities and financials.

Thank you, Daniel, and good afternoon, everyone. Unless otherwise indicated, I'll be discussing results on a non-GAAP basis, and all growth rates are year-over-year. I also want to note that since we price and sell in local currency, fluctuations in FX rates impact results. Turning to the third quarter, ARR totaled $1.607 billion, an increase of 17%, driven by net new ARR of $56 million. We ended the quarter with approximately 10,790 customers and are pleased with our focus on the quality of new logos we are acquiring, such as Amplitude, Aqua Dermatology, the Hospital for Special Surgery, and Ventura Foods. Moving to customer metrics, customers with $100,000 or more in ARR increased to 2,235, while customers with $1 million or more in ARR totaled 302. Dollar-based gross retention of 97% continues to be best-in-class, and our dollar-based net retention rate for the third quarter was 113%. Our platform's ability to help customers obtain meaningful value with AI-powered automation continues to drive expansion opportunities. A great example is Allianz Technology, a customer since 2017. They recently implemented communications mining and document understanding to automate their policy renewal and new business request processes. After a successful implementation, they will now move to the cloud to expand their usage and automate these processes enterprise-wide. Additionally, the UiPath platform will now be standardized across all Allianz business units as their strategic AI and automation vendor, with expected productivity gains of 50% and cost reductions of 40% where AI-powered automation is implemented. Another example of customers expanding to our end-to-end platform capabilities is a national fund for health insurance in Europe. They started working with us in 2022 to automate health insurance control processes and now, with the support from their CIO, we will be expanding to the full platform. They will first begin by implementing process mining to uncover further automations and support their automation backlog of over 300 processes. Following this, they will be deploying autopilot for testers to support their IT developers and IDP for health insurance claims. They highlighted our orchestration capabilities being a key factor in providing them the ability to scale their automation program in a secure and governed environment. Turning back to our results, revenue grew to $355 million, an increase of 9% year-over-year. Remaining performance obligations increased to $1.128 billion, up 13% year-over-year. Current RPO increased to $718 million, up 20% year-over-year. Turning to expenses, we delivered third-quarter overall gross margin of 85%, and software gross margin was 89%. For the full fiscal year 2025, we continue to expect gross margin to be approximately 85%. Third-quarter operating expenses were $251 million. GAAP operating loss of $43 million included $87 million of stock-based compensation expense. Non-GAAP operating income was $50 million, resulting in a third-quarter non-GAAP operating margin of 14%, which benefited from our previously-announced restructuring combined with our continued efforts to drive further operational efficiencies and streamline the business. Non-GAAP net income was $60 million, which excludes a non-recurring non-cash tax benefit of $25 million from the release of valuation allowance on certain deferred tax assets. Third-quarter non-GAAP adjusted free cash flow was $33 million. We continue to expect fiscal year 2025 non-GAAP adjusted free cash flow to be approximately $325 million. As of October 31st, we had $1.6 billion in cash, cash equivalents and marketable securities and no debt. During the quarter, we repurchased 13.8 million shares of our Class-A common stock at an average price of $11.81 from August 1st, 2024, through October 31st, 2024. Since October 31st, under a 10b5-1 plan, we repurchased an additional 0.7 million shares at an average price of $12.57 through December 4th, 2024. Before moving to guidance, I would like to share an update on a few of my priorities since taking on the additional role of COO. First, we have deepened our relationship with our partner ecosystem to help drive further alignment with our customers, while also focusing on enhancing our professional services strategy to better support customer engagement and adoption. We are working to better connect and streamline the organization to improve operational discipline and efficiency while retooling certain go-to-market functions to focus on areas with the strongest return on investment. For the fourth-quarter fiscal 2025, we expect revenue in the range of $422 million to $427 million, ARR in the range of $1.669 billion to $1.674 billion, and non-GAAP operating income of approximately $100 million. We expect the fourth quarter basic share count to be approximately 551 million shares. Finally, we will provide guidance for the first quarter and full-year fiscal 2026 when we report our fourth-quarter results. However, I would like to highlight that we expect typical enterprise seasonality from the fourth quarter to the first quarter in net-new ARR. Lastly, with our focus on efficiency, customer-centricity, and product innovation, for fiscal 2026, we believe that net-new ARR dollars will stabilize and our adjusted free cash flow growth rate will accelerate. Thank you for joining us today, and we look forward to speaking with many of you during the quarter. With that, I will now turn the call over to the operator. Operator, please poll for questions.

Our first question is from Mark Murphy at J.P. Morgan. Your line is now live.

Good, thank you very much. And congratulations on a successful quarter. Daniel, I wanted to ask you about the agentic models being introduced by Salesforce, Microsoft, HubSpot, and other companies. Can you share your thoughts on whether this might influence UiPath usage? I'm curious if, as these third-party agents begin to take actions and potentially control other applications, you think this will be API-based or if there might be UI-based processes that could call on UiPath. I also have a quick follow-up.

Hi, Mark. This is a great question. It highlights our strength as we aim to be a central hub for agents. This means we want to orchestrate not only our own agents but also those created by other companies. The effectiveness of these agents will depend on the tools available to them. We want to partner with other companies developing agents to provide our tools, enhancing the quality of the actions these agents can perform. In summary, we aim to develop an orchestration layer that can connect our agents with those from other companies and include human oversight to ensure better security and governance.

Okay. I think I understand that. It sounds like a very broad vision. I wanted to ask you, Ashim, I'm looking at the growth rate of your largest revenue stream, which is the maintenance and support revenue. I noticed it accelerated both sequentially and year-over-year, and it seems to be holding on to a mid-20s type of trajectory. So I wonder if I could just ask you mechanically what is it that's enabling that. That line item is really showing a lot of resiliency and stronger growth actually than the ARR line. Just in case the answer is a little bit of duration impacting the license line, can you maybe help us separate out any of that? I'm just wondering if you can just help us a little bit with some of the mechanics.

Yes. The 606 line, obviously, 606 revenue recognition impacts the license line, Mark. What you see on the maintenance line is also the benefit of just cumulative net-new ARR building and the recovery of duration from earlier this year that does help. Our largest customers are growing and they're continuing to extend their contracts, which really helps the maintenance and support stream as well.

Can you comment on how the duration might have changed in this most recent quarter and how much it has recovered since earlier in the year?

It's recovered back to somewhat normal from earlier this year, Mark, where we talked about some of the execution misses in the first quarter. We feel really good about the progress as we changed the incentive compensation plans and you refocused the sales team.

Understood. Thank you very much.

Thank you. Next question today is coming from Raimo Lenschow from Barclays. Your line is now live.

Thank you. I wanted to revisit the agent model. How should we approach that? We have major vendors like Salesforce, Workday, and SAP that possess extensive domain data and offer broad orchestration. Do you envision collaborating with them, or is your primary focus on more specialized domain knowledge, as you currently engage with sectors like insurance and banking? Is that the correct way to understand it? There's quite a bit of confusion, so any clarification would be appreciated. I have a follow-up for Ashim.

Yes. Hi, Raimo. The right way to think about our approach to agentic is that companies like Salesforce will build more in-application agents that will have intimate access to Salesforce and processes within the Salesforce ecosystem. But if you have an agent that has to touch both Salesforce and EPIC, and this is a real discussion that I was having recently with the CIO of one of our top healthcare providers in the US, are you going to take the EPIC data and put it into your Salesforce? They say no way. So, I think our sweet spot is when an agent will have to interact with multiple systems, where our robotic automation shines. We are known to automate moderate to complex processes that span multiple systems, modern and legacy. I think our sweet spot for building agents will be similarly for those agents that require data and interaction with multiple systems, both modern and legacy.

Okay, perfect. Thank you. And Ashim, I get the message on the net new ARR stabilizing next year on the growth rate side. What gives you the confidence for that? Can you help us a little bit with some handholding here? Thank you.

Yes. When we look at the business, we're really pleased with the progress we've made on the execution front. The momentum that we have leaving forward on agentic, as we've commented with some of the Fortune 50 customers, feels very good. We're executing honestly, improving around all aspects from just the rigor with our sales pipeline management and the visibility that we see. So we feel confident making that statement just as the business continues to progress.

Okay, perfect. Thank you.

Welcome.

Thank you. Next question is coming from Jake Roberge from William Blair. Your line is now live.

Hey, thanks for taking the questions. It sounds like execution has been improving recently. Can you just talk about the go-to-market changes that you've been able to make thus far? What do you feel is left within the go-to-market in order to get things back to steady execution that we used to see?

Yes, hi, Jake. We are pleased with how the improvements in our go-to-market strategy are developing. As mentioned in previous calls, we have focused heavily on simplification, refining our go-to-market model, and breaking down silos by bringing more functions closer to the customers in the regions. Recently, we established a customer-centricity office to ensure our top executives are more connected to our customers. While there is still much to be done, I am happy with the current progress.

Okay, very helpful. Can you talk about just the feedback that you've gotten from customers coming out of your FORWARD Conference and maybe the pipeline that you were able to generate there? What you're hearing from customers around the agentic use cases that they might be building on their platform, just given that you had so many customers and partners there at FORWARD recently?

Yes, let me start on the sentiment, and I'll let Ashim comment more on the pipeline generation. It's been a very transformational FORWARD for us. I think it was the most consequential FORWARD since FORWARD 3 when we announced our platform offering. There is extreme interest in our agentic offering from customers across the world. Actually, prior to FORWARD, I was traveling almost six weeks around the world. I basically tested what we are doing when our messaging about agentic with various customers in big banks in Japan and the Middle East, healthcare companies in the US and Europe. They listen and they are very interested. Even a huge healthcare customer of ours started saying, next Monday, we want to start the POC with you guys. This new messaging is reconfiguring our discussions with customers. It's easier to get the attention of the C-level executives with this messaging, and we are seeing a clear way to expand into the use cases that we are capable of automating so far.

In terms of the pipeline, we don't comment in terms of quantification. But qualitatively, the interest from the customers bolsters the pipeline in our minds in terms of just giving us more conviction on a lot of the opportunities ahead of us. The number of registrations or registrations on our private previews and the excitement building on the public preview are all very encouraging for us.

Great. Thanks for taking the questions and congrats on the steady execution.

Thank you. Next question is coming from Bryan Bergin from TD Cowen. Your line is now live.

Hi, guys. Thank you. A follow-up question first on the changes that you do still want to make internally as you're aiming to return to those entrepreneurial routes. It sounds like you're pleased with the execution thus far. But specifically, what else do you have left to do?

I think the majority of the changes on streamlining are complete. Where we're really focused now is prioritizing our dollars where we have the highest return on investment, especially as we're planning for next year. Our view is to invest within the field, invest in the functions that are closest to the customers, and continue to find efficiencies in the functions that are further away from the customer. This combination feels very good. The second piece is on a positive note, enabling the sales team with agentic and the messaging from FORWARD is generating a lot of energy around it, ensuring we have a robust sales enablement function that will drive that messaging for the sales team is also a priority for us.

Okay. I appreciate that. Then US government is a notable customer for you across many agencies. Just given all the talk about improved government efficiency here in the US, how are you thinking about that market opportunity going forward?

Yes, I think, as we said, the opportunity is great in front of us. We are seeing a positive energy internally that we have not seen in a long time in the company. I am seeing in product and engineering the fastest pace of innovation that I think we've seen since the inception of our company.

On federal specifically, I think they respond very well to the innovation. We talked about functions like the IRS, et cetera. We see good momentum there. An uncertainty in the election cycle keeps there, but efficiency is a positive sign for us, making sure there is more automation and higher efficiency. We feel like that is an area where we can continue to partner very well with the government, and that's so far been the response we've gotten from our government customers.

Okay. Thanks.

Thank you. Next question is coming from Matthew Hedberg from RBC Capital Markets. Your line is now live.

Hey guys, this is Mike Richards on for Matt. Thanks for taking the question. It was great to hear about the improved execution, but I was wondering how the demand environment has changed since last quarter. Have you noted any difference in buying patterns post-election? Do you usually see a budget flush year-end? With the new agent vision, could you tap into those GenAI project dollars that you weren't seeing before?

I'd say that the demand environment is stable. There are no signs of degradation or improvement.

In terms of the budget flush, I think we've provided our guidance the way we see it. Our teams are always out executing and working towards that. We don’t look for quick wins; we aim for long-term sustainable growth from our customers. However, our sales team is well-equipped to take advantage of any opportunities that arise.

Thanks, guys.

Thank you. Next question today is coming from Sanjit Singh from Morgan Stanley. Your line is now live.

Thank you for taking the questions. Ashim, thank you so much for providing at least some of that color on fiscal year 2026. I'd love to get a better understanding of what you mean by stabilized. Would you think of stabilizing on sort of a dollars-added basis? I think you guys added around $56 million in net new ARR this year. Are you thinking of that from a year-over-year growth perspective? Just a clarification on that front.

Yes, we were very intentional with our thoughts here. We received a lot of questions on two bases. One, we pointed out the seasonality point as we looked at the modeling, particularly for net new ARR. The second piece is that there have been a lot of questions about the trajectory of the company with the changes we've made. Sanjit, we feel very good that if you look at the trend, the stabilization is a very positive signal reflecting just the improved execution and the changes that Daniel and the team are driving in the business.

Yes. And to that point on that better execution, it’s two quarters in a row now where you've set guidance and exceeded those targets. If the spending environment improves or the commercial market comes back online, how much of that could be a tailwind to your overall ARR growth?

Daniel commented on the macroeconomic environment being stable versus the last couple of quarters, and we guide to what's in front of us. Any positive movements out there may provide tailwinds. What I would say is we are excited about where we're positioned on the agentic wave, as well. Our product innovation and execution also allows us to have confidence in the upcoming years.

Understood. Very clear. Thank you, Ashim.

Thank you. Next question is coming from Terry Tillman from Truist Securities. Your line is now live.

Yes, good afternoon, everyone. Thanks for taking my questions. It's one question, it's three parts. So SolEx is not a common thing for ISV. Capturing it suggests the closeness you have with the company and the opportunity. I'm curious about SolEx. First, in terms of the timing on how this could go through their ecosystem. Earlier I heard, Ashim, you talked about sales enablement. I know you've been working with them. But SolEx in terms of making its way through that vast distribution channel? Second question I wanted to ask is with Test Suite. This is a multiyear kind of S4HANA upgrade cycle. How impactful is that starting to be and predictable each quarter? The third thing, and I can repeat all these if you don't write them down; SolEx deals, I assume, are a little bit different on revenue recognition as opposed to if it was just on your paper. Anything you could share about how those deals would look? Thank you.

Yes. Let me take the first one, then I'll let Ashim comment on revenue recognition. We are excited about the SolEx deal. It's taken a lot of time to put it in place and requires a lot of product effort. We are now really an integral part of the SAP solution, and our reach is much bigger. I think our credibility with enterprise customers is increasing. At any partnership, this is still in the early innings, but we are seeing improvements in pipeline creation. We mentioned some of the deals that influenced this, but it's truly a new partnership, and I am quite bullish about what can happen over the years. Regarding the Test Suite, it's not only for SAP migration, but we are seeing tremendous momentum for other large business application platforms as well. I think we are one of the thought leaders in agentic testing, bringing more Gen AI into testing, automating even exploratory testing, which can be a huge step into automating manual testing. So I’m seeing good momentum overall on the testing side.

One point on the enablement: We’ve been working with SAP for a while because the partnership has started and continues to deepen. We feel good about the sales enablement aspect, as we have experience on it. Regarding revenue recognition, it will follow our normal 606 accounting practices. There’s nothing unique about it. The portion of the software we sell through SolEx will go through our normal ARR accounting and the normal revenue recognition policies under 606.

Thank you.

Thank you. Next question today is coming from Kirk Materne from Evercore ISI. Your line is now live.

Hey, thank you. This is Chirag on for Kirk. When you're thinking through your customer renewals and expansion over the last couple of quarters and looking ahead to next quarter, are there any recurring themes or products that you would highlight that are showing greater traction and contributing to a greater part of your net new ARR recently that might be different from before?

I wouldn't say it's very different before, but I would say what we see is continued adoption of our AI products like IDP and Autopilot. The largest deal in the quarter had agentic flavors to it and included Autopilot for everyone as a piece of it. We continue to see expansions where our overall platform is positioned well, and that continues to be a priority for the company. We also see continued momentum on the attractiveness of our test automation platform, which factors into our expansions.

Got it. And one more on the financial front. You delivered a strong margin beat this past quarter. You mentioned restructuring, but what drove the beat? Do you believe these same factors could help drive upside in Q4, given that Q4 has historically been your strongest margin quarter?

In Q4, like my guidance for Q4 is what we've stated. We factored everything in. We feel very good about the execution and discipline our teams are putting around driving efficiency. The pace at which we're able to streamline the company showed in the third quarter, and we talked about re-accelerating our free cash flow growth rate. Overall, we feel very good about our trajectory of profitability for the company.

All right. Thank you so much.

Thank you. Next question today is coming from Kingsley Crane from Canaccord Genuity. Your line is now live.

Hey, thanks. Within your cloud business, could you provide a directional comment on the mix of hybrid cloud and pure SaaS?

We don't provide that on a routine basis. We will follow our normal cloud disclosures that occur in every other quarter where we discuss that. That said, we have been clear that the majority of our installations are on a hybrid basis, meaning they use some level of on-prem and on-the-cloud. Our cloud is becoming more and more adopted and attractive to our customers as it matures and as capabilities are launched in a cloud-first way.

Great. And as a quick follow-up, how are you thinking about a customer's ability to leverage some of these newer capabilities like agentic AI depending on if they're deployed pure-SaaS, hybrid, or on-premise?

Our hybrid offering will further differentiate us as many customers still have on-prem systems. It will be very helpful to have our robots deployed on the on-prem systems and provide access to those systems for agents. I want to stress here that robots provide a very secure and precise way to access data. You can give access to an agent exactly to the data they need to make informed decisions. This cannot be achieved in any other way.

Thanks. That's really helpful. Appreciate it.

Thank you. Next question is coming from Brian Schwartz from Oppenheimer. Your line is now live.

Yeah, hi. Thanks for taking my question. Daniel, I know it’s really early in terms of the ASPs that you're getting for these agentic automation deals, but is it possible to compare the ASPs on these types of deals versus the other products in the suite? I'm trying to understand if they could end up being larger deals than the core products in the suite.

Yes. I think they can drive much larger deals, like the one that we mentioned in the script. Our largest deal this quarter was an agentic deal delivered via our Autopilot for Everyone, which opened up different pricing models. With agentic, you can even price per use-case, which brings us closer to unlocking the value for customers. I'm very positive that the ASP can be increased by driven by agents.

Thank you. We have reached the end of our question-and-answer session. I'll turn the floor back over for any further or closing comments.

Thank you so much for taking further questions in the coming days and weeks.

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