Earnings Call Transcript - PATH Q2 2023

Operator, Operator

Greetings. Welcome to the UiPath Second Quarter 2023 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 your host, Kelsey Turcotte, Senior Vice President of Investor Relations. You may begin.

Kelsey Turcotte, Senior Vice President of Investor Relations

Good afternoon, and thank you for joining us today to review UiPath's second quarter fiscal 2023 financial results, which we announced in our earnings press release issued after the close of the market today. On the call with me are Daniel Dines, UiPath Co-Founder and Co-Chief Executive Officer; Rob Enslin, Co-Chief Executive Officer; and Ashim Gupta, Chief Financial Officer. Rob will start the discussion and then turn the call over to Daniel. After that, Ashim will review our results and provide guidance. Then we will open the call for questions. Our earnings press release and financial supplemental materials are posted on the UiPath Investor Relations website. These materials include GAAP to non-GAAP reconciliations. We plan to discuss 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 third fiscal quarter and fiscal year-end 2023. Actual results may differ materially from those expressed in the forward-looking statements due to many factors, and therefore, investors should not place undue reliance on these statements. For a discussion of the material risks and uncertainties that could affect our actual results, please refer to our annual report on Form 10-K for the year ended January 31, 2022, and our other reports filed with the SEC, including our quarterly report on Form 10-Q for the quarterly period ended July 31, 2022, to be filed with the SEC. Forward-looking statements made on this call reflect our views as of today. We undertake no obligation to update them. I would like to highlight that this webcast is being accompanied by slides. We will post the slides and a copy of our prepared comments to our Investor Relations website immediately following the conclusion of this call. Before I turn the call over to Rob, I'd like to inform you, we plan to hold an Investor Day during our FORWARD 5 user conference on Tuesday, September 27, at the Venetian Hotel in Las Vegas, starting at 11:45 a.m. Pacific Time with lunch that will feature round tables hosted by our executive team. Please reach out to ir@uipath.com for registration details. Now I'd like to hand the call over to Rob.

Rob Enslin, Co-Chief Executive Officer

Thank you, Kelsey, and good afternoon, everyone. Thank you for joining us. Our second quarter results exceeded the high end of our guidance despite an increasing FX headwind and a choppy macro environment. ARR crossed the $1 billion mark, totaling $1.043 billion, an increase of 44% year-over-year driven by net new ARR of $66 million. We now serve more than 10,500 customers. Automation continues to be a central part of digital transformation for companies of all sizes and across all industries. We see this in the breadth of companies that continue to invest in UiPath, like ADT, Icertis, Mayo Clinic, Smartsheet, and Take-Two Interactive, which are just a few organizations that invested in the UiPath platform in the second quarter. Our relationship with iCIMS, a leading global provider of talent acquisition software, is a good example of the power of automation. During the quarter, they expanded the UiPath deployment, and looking to the future, they plan to embed UiPath Automation Cloud robots and integration service into the iCIMS Talent Cloud to enable their customers to automate routine tasks and business processes. Success stories like these and dozens of customers and partners I have met since I joined UiPath leave no doubt in my mind that we will be the enterprise automation provider that all organizations will embrace over time. That's because we moved automation beyond RPA to a full suite of end-to-end platform capabilities. Our PostFinance AG win says it better than we do. PostFinance, a retail financial institution in Switzerland, has been on its automation journey for three years with a competitor in RPA and another in Process Mining. Driven by a search for a more efficient automation platform with a wider scope, they determined that the UiPath platform is the one in the market that can fulfill all their current and future needs while significantly reducing the total cost of ownership for their automation program and helping them to achieve their strategic goal to become more efficient. Our platform not only allows customers to discover automation opportunities but also redesign and improve previously disjointed processes, bringing them from the endless cycle of outdated approaches and unlocking true digital transformation. Digital transformation is one of the most important secular trends, and the UiPath platform is central for companies to reach their goal. Over and over, executives tell me that automation has accelerated their business, improved their customer and employee experience, increased speed to value, and allowed them to redeploy capital. These kinds of outcomes, our customer discussion from the RPA center of excellence to the C-suite executives, give us a holistic view of enterprise requirements. A great example of this evolution is a U.S.-based global power technology leader, a customer since 2018. They've automated over 160 processes across finance, supply chain, HR, IT, and shared services, saving over $4 million. Now, with the C-suite sponsorship, they have expanded their programs to the full UiPath platform, both on-premise and in the cloud and are launching a citizen development and a tendered automation program. My takeaway from the last few months is that the market is clearly evolving, and UiPath is driving that evolution. We have a first-mover and technological advantage. As an automation leader, we continue to expand the value we can deliver for our customers. That being said, while we believe our business has considerable room to grow, our top-line metrics have slowed, and we need to evolve how we manage our business. Our go-forward priority will be to balance investing for long-term growth while managing the business to consistently expand non-GAAP operating margin and deliver sustainable positive adjusted free cash flow in fiscal year 2024 and beyond. As we said during our IPO, we expect to achieve a non-GAAP operating margin of greater than 20%, and our commitment to that objective has not changed. Let me be clear. I don't believe we need to sacrifice growth to achieve our profitability targets. This market is large and in the early stage. Our customers are committed to UiPath, and they love the outcomes we deliver. In the short term, we are strategically repositioning the company to increase velocity, efficiency, and customer centricity. This includes elevating customer conversations, selling business outcomes, and helping organizations realize the transformational benefits of automation. We have the opportunity to be the essential automation gold standard for customers, delivering technology that is integral to their business strategy. To get there, we are aligning around four strategic objectives. First, investing in our platform to increase our competitive moat and delight our customers with disruptive and innovative capabilities that improve outcomes, accelerate return on investment, and leverage the cloud. Second, increasing velocity and productivity. This is where we are spending the most energy and where we also expect the greatest return. We need to set ourselves up to take advantage of our incredible new platform releases like 2022.10, which we plan to unveil at FORWARD 5 in a few weeks. This includes branding and marketing around business outcomes that resonate with the C-suite, simplifying our sales motion to lower costs, building strategic partnerships that elevate our brand and service distribution channels and coalescing around partners that can really move the needle. Third, we are bringing together a diverse team aligned around driving UiPath to the next level. Every business that grows at our rate requires experienced leadership. We have great bench strength, having already elevated internal leaders to new roles and a strong brand that is attracting a great pool of new talent. Finally, and equally critical, we are committed to sustainable profitable growth by leveraging our scale and exercising disciplined resource allocation. Profitability is a core pillar of our go-forward strategy. While we are reducing our near-term forecast to account for a significant FX headwind, the macro environment, and our internal repositioning, I am confident in our strategy, and I firmly believe, from my experience, that we are on the right track to achieve our growth and profitability objectives. Now, I will turn the call over to Daniel.

Daniel Dines, Co-Chief Executive Officer

Thanks, Rob. We frequently talk about our market leadership. In July, we were positioned by Gartner as the leader in the 2022 Gartner Magic Quadrant for robotic process automation research report for the fourth year in a row, positioning UiPath highest for ability to execute and further for completeness of vision. We are gratified to have received this recognition. We continue to hear from our customers that the breadth of capabilities in UiPath's automation platform is why we win. UiPath is the only company that offers a complete solution, including Task and Process Mining, document understanding, Test Suite, RPA, and low code deployed on-premise or in the cloud. Task and Process Mining are key to helping customers discover new opportunities for automation. In June, we were named a Process Mining leader in the technology vendor landscape, according to the Everest Group PEAK Matrix for Process Mining Technology Vendors 2022 for the third consecutive year. In our upcoming 2022.10 platform release, we will introduce new process mining capabilities. At the other end of the automation life cycle, Test Suite is emerging as a meaningful growth opportunity for UiPath and an important tool for customers to scale their programs resiliently. The value of Test Suite expands when customers use UiPath's test capabilities for both RPA and application testing, driving our platform adoption in a new market. Finally, we have long believed that the combination of UI plus API plus AI automation is the key to customer success and are really excited about the acquisition of Re:infer. By adding Re:infer to our platform, we can now leverage natural language processing and machine learning technology to do what we call communications mining, transforming massive amounts of unstructured data into actionable information with speed and accuracy, which customers like UBS, Paychex, and Farfetch are already doing. Combining Re:infer with the breadth of our AI-powered capabilities unlocks new opportunities for our customers. We are very excited to unveil our newest innovations at FORWARD 5 where we will announce exciting functionality in our 2022.10 platform release across all elements of our platform. We hope to see many of you there. With that, I'll turn the call over to Ashim to talk in more detail about our second quarter results and provide guidance.

Ashim Gupta, Chief Financial Officer

Thank you, Daniel. Before I get started, please note that unless otherwise indicated, I will be discussing results on a non-GAAP basis, and all growth rates are year-over-year. We delivered a solid second quarter in the face of increasing FX headwinds in a more measured buying environment. Customers understand the meaningful business outcomes that automation delivers and the competitive differentiation of UiPath's automation platform. In fact, two of our largest deals in the quarter were new customers making multiyear commitments to our platform, which is really nice to see. Turning to our numbers. Second quarter ARR totaled $1.043 billion, up 44%, driven by net new ARR of $66 million. On a year-over-year basis, FX created an approximately $8 million headwind to net new ARR in the quarter and a $12 million headwind to the total ARR balance. Dollar-based net retention was 132%. Normalizing for FX and excluding the impact of Russian sanctions, dollar-based net retention was 135%. Consistent with the broader macroeconomic environment, dollar-based net retention rate was meaningfully stronger in the Americas. Dollar-based gross retention was 98%. This best-in-class metric is consistent with previous quarters as customers are committed to our platform, which is driving quantifiable ROI. As of the end of the second quarter, customers accounting for at least $100,000 in ARR grew more than 30% year-over-year to 1,660, while customers contributing over $1 million in ARR grew over 60% year-over-year to 190. Revenue grew 24% to $242.2 million. Normalizing for the year-over-year FX impact, which was an approximately $20 million headwind, revenue grew 35% year-over-year. Remaining performance obligations increased 36% to $709 million. Normalizing for the year-over-year FX impact, which was an approximately $51 million headwind, RPO grew 46% year-over-year. Current RPO increased 37% to $442.6 million. Total gross margin was 84%, reflecting ongoing investments in support and cloud infrastructure as we scale that business. Software gross margin was 91%. Looking ahead, we continue to expect gross margin to be greater than 80%. Second quarter operating expenses of $215.7 million increased 34%, reflecting only one month of benefit from the steps we took in the second quarter. GAAP operating loss of $120.2 million included $88.3 million of stock-based compensation expense. Non-GAAP operating loss was $11.2 million. Second quarter non-GAAP adjusted free cash flow was negative $23.3 million. We have $1.7 billion in cash, cash equivalents, and marketable securities, with no debt. Let me now turn to guidance. First, we guide to what we see in the pipeline, which continues to fluctuate given the choppy macroeconomic environment, which we anticipate will continue. Second, more than half of our business is outside the U.S., and we price in local currency, including the euro and yen, resulting in a material FX headwind for both ARR and revenue that has significantly increased as we move through the year. Lastly, going forward, as Rob said, profitability is a core pillar of our go-forward strategy. While the reduction in our top-line near-term forecast reflects the FX headwind of the macroeconomic environment and our internal repositioning, we are committed to our goal of achieving non-GAAP profitability and positive adjusted free cash flow in fiscal year 2024. Turning to the numbers, for fiscal third quarter 2023, we expect ARR in the range of $1.091 billion to $1.093 billion, including an incremental FX headwind of approximately $5 million. Excluding the foreign exchange impact, ARR is expected to grow 36% year-over-year at the midpoint of guidance. We expect revenue in the range of $243 million to $245 million, including an incremental FX headwind of approximately $10 million. Excluding the foreign exchange impact, revenue is expected to grow 22% year-over-year at the midpoint of guidance. We expect non-GAAP operating loss to be in the range of negative $30 million to negative $25 million, reflecting the timing of investments that shifted from the second quarter to the third quarter and an incremental FX headwind of approximately $5 million. We expect a third-quarter basic share count to be approximately 550 million shares outstanding. For the full year, we expect ARR in the range of $1.153 billion to $1.158 billion, including an incremental FX headwind of approximately $15 million. Excluding the foreign exchange impact, ARR is expected to grow 30% year-over-year at the midpoint of guidance. Revenue in the range of $1.002 billion to $1.007 billion, including an incremental FX headwind of approximately $25 million. Excluding the foreign exchange impact, revenue is expected to grow 22% year-over-year at the midpoint of guidance. Non-GAAP operating loss of approximately negative $15 million, including an incremental FX headwind of approximately $15 million. Excluding the foreign exchange impact, non-GAAP operating income is expected to be $25 million for the full fiscal year. Now, I'll turn the call back to Rob.

Rob Enslin, Co-Chief Executive Officer

Thanks, Ashim. Crossing $1 billion in ARR this year is a big achievement, but it is just the first milestone for us. I am confident that this is a multibillion dollar company that customers see as integral to how they run their business. We have a strong foundation to scale, and we are making decisions that put us on track to achieve growth and profitability. Our potential is enormous, and we believe in the long-term vision of the company now more than ever. I look forward to meeting many of you over the coming weeks and to laying out our strategy in more detail during our Investor Day on September 27. We'll now take questions, and I'll turn the call over to the operator. Operator, please poll for questions.

Operator, Operator

Our first question is from Raimo Lenschow with Barclays. Please proceed with your question.

Raimo Lenschow, Analyst

Thanks for the extra clarity, Rob. Can you elaborate on the strategic changes you mentioned, specifically regarding the initiatives you're undertaking? Typically, such changes result in a temporary negative impact before improvement, which is the reason behind them. Could you discuss how you see that developing right now? Additionally, for Ashim, at the beginning of the year, you were among the first to highlight some macro uncertainties. In March, you mentioned a renewal pool and expressed uncertainty about customer behavior. Considering your additional comments today, is that situation still the same, or is there something different occurring? Could you provide more details on that?

Rob Enslin, Co-Chief Executive Officer

Sure. Let me go first, Raimo. Thanks for the question. Yes. As we evolve and reposition the company, we spoke early on about how we're driving digital sales, which is basically a combination of inside sales in our emerging segment, and we're very happy with the progress that we continue to make in that space. We need to position the company to drive business outcomes into the C-level suite and position the enterprise automation platform to be the winner. We actually believe that the product is absolutely incredible. In order to do that, we are aligning the sales organization around that, bringing in new experienced talent. We promoted some talent internally as well. We've just announced the European leader. We've seen some promising signs in North America as we move the automation platform. So we are pretty confident that over time, this is the right strategy. As we said, we had laid out at Investor Day in very, very clear terms.

Ashim Gupta, Chief Financial Officer

And then, Raimo, when you consider our guidance and reflect on the beginning of the year, I want to remind everyone that we have a solid global foundation. This gives us a clear understanding of our overall exposure. However, there's a significant change. The foreign exchange situation is worsening, as we've reached parity with the euro and the yen has also declined further throughout the quarter. We've identified weaknesses particularly in Europe and Japan, which are evident in our dollar-based net retention rate. Nevertheless, we still regard this metric as a strength when excluding the effect of foreign exchange. Delving deeper, the dollar-based net retention rate in the Americas shows considerable robustness, as we are less impacted by the macroeconomic climate. We continue to see strength there, along with high gross net retention rates at 98%. We maintain confidence in the value of our renewable base, as our software is performing well. We analyze our pipeline, assess activity levels, and take customer feedback into account. Given the current environment, we believe it is fitting to provide the guidance we have.

Operator, Operator

Our next question is from Phil Winslow with Credit Suisse. Please proceed with your question.

Phil Winslow, Analyst

Just wanted to focus on the guidance in terms of what you're hearing from customers. Maybe, Rob, you can start with this. In terms of just the lower sort of net new ARR expectations, obviously, excluding FX, are you seeing any sort of changes from customers? Are they simply shrinking maybe some of the scope of the deployments or just deployments as a whole getting pushed out? Any sort of more color there would be helpful. And also maybe compare that to what you have done in the first half. And I just had one follow-up for Daniel.

Rob Enslin, Co-Chief Executive Officer

Yes. Thanks, Phil. I would say to add on to Ashim's comments, we're definitely seeing budget discussions taking longer, C-level executives getting engaged in as we view automation, obviously, as a key growth lever for companies, but we've definitely seen those outcomes. As I said earlier on, we do see the benefit, though, of that discussion in North America, where we are starting to see really positive signs in the operating segment as well.

Daniel Dines, Co-Chief Executive Officer

Yes, hi, Phil. I would say that our entire platform resonates well with our customers. They recognize the value of process discovery, which is crucial for identifying automation opportunities, and in implementing personal and enterprise automation to deliver significant and measurable outcomes. We are experiencing substantial traction with our Test Suite, which is designed not only for testing RPA but also for testing application implementation. This is becoming a clear pathway in digital transformation as organizations adopt new systems, which often require a lot of manual effort for testing. Automating this manual testing and reusing building blocks for end-to-end automation makes a lot of sense.

Operator, Operator

Our next question is from Keith Weiss with Morgan Stanley. Please proceed with your question.

Sanjit Singh, Analyst

This is Sanjit Singh for Keith. Rob, wanted to get a sense of some of the spending hesitancy so outside of the FX impact. But in terms of customers trying to expand their business with you or attracting new customers, at a high level, you would think that automation would be a super high priority given the inflationary environment, given the need to get more efficient. And so in terms of the sources of that spending hesitancy, is it about the implementation cycles? Is it about the payback period? I assume this extremely sells itself on an ROI basis. But if customers are prioritizing projects with 12 months or less payback, does this sort of automation fit that bill? Or alternatively, are there potentially competitive issues that are sort of lengthening the sales cycles or lengthening the eval process? Any sort of color on the nature of the hesitancy to get deals done? Really appreciate.

Rob Enslin, Co-Chief Executive Officer

Customers clearly recognize the advantages of automation, and the automation market is evolving and still developing. In assessing the broader platform, which emphasizes speed to value, I've had discussions with senior executives in New York City at a bank who are interested in utilizing UiPath's platform to facilitate financial transformation within their organization. This is evident in many of our discussions. However, these decisions are taking a bit longer and require more foresight, with customers taking additional time to make these changes. As we develop ROI calculators and demonstrate business outcomes, I am confident that automation will significantly aid companies in achieving not just digital transformation but also speed to value. In the lower enterprise segment, we remain highly relevant, and our product is performing well, allowing us to continue gaining customers. I am optimistic about our ability to deliver over time. At the upper end of the market, we must focus on engagement to enhance consumption with our largest clients, an area we are concentrating on.

Ashim Gupta, Chief Financial Officer

No, I mean, like we always say, we're very consistent with the way we guide. We guide to what we see in front of us today. We see Americas strength. We have a lot of confidence in that business as we look at our pipeline and as we look at our execution there. I think Europe and Asia continue to be outsized impacted in terms of from a macro and a foreign exchange standpoint, both of those that we have guided in. The other piece is, as Rob said, we're repositioning the company. We're really excited about the leadership announcements that are out there. We're also just accounting for any transition that's natural as any company repositions itself in certain areas. Those are the two factors that really give context around our guidance.

Operator, Operator

Our next question is from Mark Murphy with JPMorgan. Please proceed with your question.

Mark Murphy, Analyst

Ashim, is it possible to disaggregate the reduction in ARR? I think it's about 6% for the year. Into those three factors, I think you had mentioned FX, macro, and your own internal repositioning. In other words, are those equivalent, or are there varying magnitudes across those three?

Ashim Gupta, Chief Financial Officer

Yes. When considering the impact of foreign exchange, it’s the most measurable factor. Compared to previous projections, we estimate the effect of foreign exchange to be around $15 million to $20 million. The macro environment and the internal changes we are implementing are more difficult to separate and quantify. We take both factors into account when providing our guidance. The impact of foreign exchange is clear, and I have shared that information. The other factors are more based on our outlook regarding our current pipeline.

Daniel Dines, Co-Chief Executive Officer

Well, traditionally, and it continues today, our technology was mostly used for complex processes that usually span multiple systems. This is actually the strength of our technology. Most of our customers have multiple enterprise systems. This is a big difference between an enterprise automation platform that works well across multiple systems and an application automation, that's Microsoft and similar system application providers, who have basically entered the market recently. I'm very confident that we have the only complete platform offering end-to-end process automation that is differentiated for our customers.

Operator, Operator

Our next question is from Kirk Materne with Evercore ISI. Please proceed with your question.

Kirk Materne, Analyst

Rob, I was wondering, can you just talk about the environment maybe from a vertical or an industry perspective? Are you seeing any difference in the discussions you're having in certain industries rather than others at this point in time? I guess just some of the earlier questions on the sales organization; anything you all are thinking about doing sort of towards the end of this year? Or will any sort of changes with some of the new folks coming in be more positioned at the beginning of fiscal '24?

Rob Enslin, Co-Chief Executive Officer

Yes. Thanks, Kirk. Good question. We continue to see significant demand for financial services, health care, and manufacturing. I wouldn't say the environment is impacting any of them more than others, for sure. I would say, it's much more geographical. Some things that we're doing in terms of driving significant uptick with partners, for sure. We're looking at distribution models. We're looking at emerging to graduate accounts into the enterprise segment. The majority of those changes will take place in the beginning of the year as we have brought in new talent and we align our outcome to that. We feel good about what we're seeing in the market already regarding business outcomes and how enterprise automation drives speed to value for companies.

Operator, Operator

Our next question is from Bryan Bergin with Cowen. Please proceed with your question.

Bryan Bergin, Analyst

I wanted to ask about the revenue headwind associated with just the cloud transition. I think it was four points previously. So first, any change to that assumption? And then just thinking out further, should we expect a more deliberate push on cloud deployment by clients that caused that headwind to potentially get worse as we go forward beyond this fiscal year? Can you give us any sense of deployment mix in the revenue base now and how you're thinking about the puts and takes of that progressing?

Ashim Gupta, Chief Financial Officer

Yes. So the four points stay relatively consistent for the second half. We don't see any change in our assumption there. The launch of our Automation Cloud robots was very successful, but it's on track with the way we have discussed it and modeled it post our launch of 22.4. When we think about going forward, Bryan, like longer-term assumptions, those are things we'll discuss at Investor Day, but we don't see anything significant at this moment versus the previous assumptions that we've given. In terms of Automation Cloud robots, which is the biggest impact from a revenue standpoint, we've already gotten a dozen customers there. It's been great feedback. We're seeing other companies very interested in those Automation Cloud robot capabilities. To sum it up, no change in the assumption, and we'll talk more about that at Investor Day, but there's no significant difference at this moment in terms of that as a headwind. Yes, I mean net dollar-based retention, we had a 300 basis point FX headwind that is there. When you disaggregate, really, Europe and Japan have the largest impact on the deceleration of the net dollar-based retention rate. We do have confidence in re-accelerating that, and as FX and macro stabilizes. Right now, those are the two largest pressures that we feel are just from those two geographies.

Operator, Operator

Our next question is from Brad Sills with BofA Securities. Please proceed with your question.

Brad Sills, Analyst

Wanted to ask about land versus expand. I think a couple of years ago, the company pivoted more towards expansion deals, understanding that the installed base was such that there was that opportunity. You can see dollar-based net retention has been holding nicely in the 130-plus range here. Are there any plans to go back towards land potentially here? Or do you still see that opportunity within the installed base to continue driving this kind of growth with more focus on expansion deals?

Rob Enslin, Co-Chief Executive Officer

Yes, Bryan, great question. So we definitely see the opportunity to drive expansion deals. As the enterprise automation platform becomes relevant for companies, that is how we would want to do it. We also want to see how we can drive it in a top segment in key accounts and provide a density model there. We're also looking at customers in terms of their propensity to expand. We are looking at the full segmentation and how to drive an efficiency model in terms of acquiring and promoting a company to ensure that they have density with consumption. It’s a multi-faceted approach. I will tell you that we have a unique platform that nobody else has in the market in an end-to-end way, from discovery to process understanding, the ability to fulfill it through RPA and AI with insights into operations. That message when we connect to the C-suite is going to be incredible.

Daniel Dines, Co-Chief Executive Officer

Yes. We are the only platform that succeeded in combining API-based automation with UI-based automation. We deliver it in a single low-code, no-code platform that is easy to learn. This is tremendously important to automate a vast array of existing processes and new processes. We are making steady progress on smoothly integrating all components of the platform, delivering a single unified experience for the end user.

Operator, Operator

Our next question is from Terry Tillman with Truist Securities. Please proceed with your question.

Terry Tillman, Analyst

I guess, Rob, first question for you. There's been a number of questions about the strategic repositioning of the company; go-to-market kind of excellence that you're focused on. If you had to look, just given your time so far at the company and just thinking ahead over the next 12 to 24 months, where do you see the biggest impact, though, to this key metric ARR? Is it new customers on the enterprise side coming into the fold? Can digital sales actually add up to a lot more for the expansion with your existing enterprise customers? Can you kind of pick apart those three areas? Or maybe I'm missing something. I'm just trying to understand what you have the biggest needle mover. And then I had a question for Ashim.

Rob Enslin, Co-Chief Executive Officer

Yes. We need to do both on that. In other words, selling products into the emerging enterprise segment is a great way to acquire new customers. We need to determine how to reposition these companies to drive enterprise-level scale activity. When we look at enterprise-level scale activity, that means driving enterprise automation through companies. So, we must continue to acquire companies. We need to understand the propensity of each company to expand, and we need to ensure that we provide dense coverage to accelerate the expansion as well. We're also leaning on our partners to help us in this regard. It’s a multi-pronged approach. I think we've done well in acquiring customers, and our digital sales organization is very scaled and effective.

Ashim Gupta, Chief Financial Officer

Yes. Look, we're committed to profitability. I just want to emphasize that to begin with. We're going to talk more about this at Investor Day. What we said in the script is pretty clear in terms of we want to achieve sustainable profitability in the short term; fiscal 2024 is definitely in sight for us, but we're going to talk more and provide more specific information at Investor Day.

Operator, Operator

Our next question is from Michael Turits with KeyBanc. Please proceed with your question.

Michael Turits, Analyst

A couple of questions. Kind of coming back, Ashim, I think, maybe best to Raimo's question about going back to Q4 when you had seen some negativity. So just walk us through this trajectory, if you would, where in Q4 you said you were seeing macro pretty much across the board impacting the pipeline, not just in Europe. And then last quarter, I think you said that customers were starting to get a handle on things. Now things seem worse again from a sales cycle perspective, particularly in macro. So if you could just walk us through why bad, been better and bad again, that would be helpful.

Ashim Gupta, Chief Financial Officer

Yes. I just want to ensure we guide to what's in front of us, and the environment is very dynamic. Coming out of the last quarter, we felt more optimism in EMEA, especially when we were guiding. Right now, we see that it is much more challenging than expected on the ground there. Rob can also give more color on that as he has discussions with customers. Japan, EMEA, Europe, and some parts of Asia are all feeling more challenged, hence our caution in guidance. However, we see the opportunity for automation is big, and our dollar-based net retention rate shows the durability of our model and value proposition. We want to provide guidance that is responsible and prudent, to derisk the second half of the year.

Rob Enslin, Co-Chief Executive Officer

I think it's consistent. Having spent time in Europe these last couple of months, there was a slight optimism from companies getting used to what is happening with the war. But the levels of inflation and energy concerns are having an impact, and companies are thinking about what to invest and where to invest, taking longer with their decisions. The more we focus on automation and delivering that message, I'm convinced that we will see better success in Europe.

Michael Turits, Analyst

My follow-up, I think someone else asked about competition, but not sure if you answered it or maybe I missed it. Is there any change in the competitive environment, whether it's typical people we would think of like Microsoft or not just other companies doing RPA, but think of it as maybe potential competition with substitute products, whether something like low code where you do have some offerings also? So are you seeing more competition strictly in RPA and then maybe with alternative ways of solving the problem?

Daniel Dines, Co-Chief Executive Officer

We are not seeing any material change in the competitive landscape in the past three months. We continue to see Microsoft but limited to personal automation. For enterprise automation, we are competing with our traditional competitors. We are not seeing new entrants like ServiceNow or Salesforce in our opportunities, which are less than 1% of our opportunities. I’m confident we have a very differentiated platform that is a clear leader in automation.

Operator, Operator

Our next question is from Michael Turrin with Wells Fargo Securities. Please proceed with your question.

Michael Turrin, Analyst

I know there have been several on the go-to-market changes, but I do want to go back to that topic. We saw Chris and Rob joined earlier in the year. We have a few new regional announcements on the team this quarter. Commentary in terms of the backdrop still sounds clear that automation is a big opportunity. But given changes in go-to-market changes in macro, how do you make sure you aren't taking your eye off the ball in the core automation space? Are those changes things you're able to shore up ahead of the user conference, the customer conference, and just the upcoming importance of the fiscal Q4 period that you have in front of you?

Rob Enslin, Co-Chief Executive Officer

Yes, we are confident that we have made a strong presence, particularly regarding automation, which is expanding. This is evident in our digital sales segment. As we reposition ourselves, the broader enterprise automation functions as a platform aimed at delivering meaningful business results and quicker returns on investment. Many of the leaders we have recruited are well aware of this, and we plan to bring in more experienced leaders to enhance this environment. Attendance for FORWARD 5 is impressive. We believe in our strategy and are committed to ensuring that we achieve enterprise automation at the appropriate level.

Operator, Operator

Our next question is from Alex Zukin with Wolfe Research. Please proceed with your question.

Alex Zukin, Analyst

A lot of mine have been asked, but just two more clarifying questions on previously discussed topics. The guidance has been derisked for incremental macro deterioration in Europe, but have you reflected anything in the guidance for incremental macro deterioration in the U.S.? Furthermore, do you have a high confidence interval that the execution changes you are putting in place do not have an outsized impact on actually closing the business at the end of this year's Q4?

Ashim Gupta, Chief Financial Officer

As of this point, we don't forecast further deterioration in the Americas. Our sales leader has a strong background and has been with the company. From a macro standpoint, we still feel good about the pipeline relative to Europe and Japan. We have strong dollar-based net retention rates. We're guiding for what we see today, is appropriate. We have accounted for the macro as well as the repositioning impacts. We feel confident in our guidance.

Rob Enslin, Co-Chief Executive Officer

We feel good about the derisking and the opportunity in front of us in North America.

Operator, Operator

Our next question is from Fred Havemeyer with Macquarie. Please proceed with your question.

Fred Havemeyer, Analyst

I think likewise, many of my questions have been asked, but I wanted to check in about just sales across the platform. Clearly, we understand that UiPath is going to market with an end-to-end automation platform, but are you seeing particular segments that are seeing more demand or some areas that might be a little bit softer or receiving additional scrutiny, say, between PA versus Process Mining versus Task Mining, just various aspects of your platform?

Ashim Gupta, Chief Financial Officer

When we look across the platform, we see customers wanting to buy the whole platform. The metric of customers greater than $100,000 and greater than $1 million in ARR continued to show positive momentum. We have ELA offerings for customers that give them the full breadth of capabilities and full automation abilities from discovery to core RPA to additional features. Those metrics really reflect that. We definitely believe there are more opportunities across the platform.

Rob Enslin, Co-Chief Executive Officer

Test Suite is an amazing product in the market. It connects test automation across all platforms and allows you to automate the automation. We have a big opportunity in that space. Our discovery side is also just getting started.

Ashim Gupta, Chief Financial Officer

And any customer that's going through digital transformation or a migration, whether it's SAP or Oracle or Workday or Salesforce, including automation into that transformation is an incredible opportunity.

Rob Enslin, Co-Chief Executive Officer

We're talking to a number of technology providers in this space. We have significant opportunity in embedding automation into technology products. That is a runway we can drive for. Our product is well-suited to be embedded in other solution sets. Thank you very much, everybody, for attending today. We really appreciate it, and we look forward to seeing everyone at Investor Day.

Operator, Operator

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.