Earnings Call Transcript - PATH Q3 2024

Operator, Operator

Greetings, and welcome to the UiPath Third Quarter Fiscal 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Kelsey Turcotte, Senior Vice President of Investor Relations for UiPath. Thank you. You may begin.

Kelsey Turcotte, Senior Vice President of Investor Relations

Good afternoon and thank you for joining us today to review UiPath’s third 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. And then we will open the call for questions. Our earnings press release and financial supplemental materials are posted on the UiPath Investor Relations website: ir.uipath.com. These materials include GAAP to non-GAAP reconciliations. We will be discussing non-GAAP metrics on today’s call. This afternoon's call includes forward-looking statements about our ability to drive growth and operational efficiency and grow our platform, as well as our financial guidance for the fourth quarter fiscal 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 subsequent reports filed with the SEC, including our Quarterly Report on Form 10-Q for the period ended October 31, 2023 to be filed with the SEC. Forward-looking statements made on this call reflect our views as of today; we undertake no obligation to update them. I would also 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 Rob.

Rob Enslin, Co-Chief Executive Officer

Thank you, Kelsey. Good afternoon, everyone. Thanks for joining us. Our third quarter results underscore the compelling value our end-to-end automation platform delivers for our customers and the strength of our business model. For the quarter, ARR grew 24% to $1.378 billion, driven by a third quarter net new ARR of $70 million, while revenue was $326 million, up 24%. We continue to deliver growth while driving operational efficiencies across the organization. Non-GAAP operating margin increased more than 600 basis points year-over-year to 13%. We also delivered non-GAAP adjusted free cash flow of $44 million. As many of you know, at the beginning of this fiscal year, we pivoted our go-to-market resources towards organizations that have a meaningful runway to invest in enterprise automation over the long-term. This investment has significantly increased our presence in the C-suite and helped raise our profile with partners of all sizes. You could feel our momentum at Forward VI, our annual user conference, where we hosted more than 3,000 guests, including automation practitioners, industry visionaries, and key customer decision makers. We also launched our inaugural UiPath AI10 Awards program, recognizing UiPath customers who embody what it means to be a leader in AI at Work. I left the event super energized about the tangible value our platform is delivering for customers and our leadership position in the market. FX-adjusted dollar-based net retention for the quarter was 123% and we closed a record number of third quarter deals over $1 million in ARR. Customers with $1 million or more in ARR grew 31% to 264, while customers with $100,000 or more in ARR increased to 1,974. Industry verticalization continues to be a strategic priority for the company with playbooks, marketing events and enablement to support our teams. We now have 70 solution accelerators available in our marketplace, with IT Service Management Software user provisioning and two-way match invoice processing for Coupa and SAP among some of the most popular downloads. While we saw broad-based strength in net new ARR across industries this quarter, there were a couple of standouts. The Federal team delivered a record quarter as agencies are increasingly standardizing on our AI-powered Business Automation Platform with a robust set of end-to-end capabilities to enrich employee experience, create mission readiness, and achieve breakthrough outcomes. Customer highlights included Veterans Affairs, Coast Guard, the IRS, and the Department of Homeland Security. We are also working with the United States Department of Agriculture to support their Future of Work initiative, delivering a new era of citizen and employee experiences. Using our full platform, USDA is driving mission-impactful enterprise automations across their HR, Finance, and IT departments. The program also features a digital assistant on every USDA employee desktop, driving personal productivity for approximately 100,000 employees. Momentum continues in financial services and health care where automation delivers considerable value. This includes one of our top 25 customers, a large non-profit health system in the United States. Taking a deeper look at their automation journey, they are a great example of how customers expand with us over time. Working closely with our account executives and global systems integrators, their journey started in 2018 with core RPA and, over the last several years, they have expanded to attended automation, Document Understanding, Test Suite, and Process Mining. To date, they have achieved a return on investment of over $250 million and this quarter, in one of our largest deals in company history, they expanded to the full platform as they work to create a centralized Enterprise Automation Service department with a mandate from their EVP sponsor to deliver automation across their entire enterprise. They are also in the process of developing use cases for Communications Mining and UiPath Apps. Customers standardize on our AI-powered Automation Platform to deliver transformational outcomes that streamline processes, eliminate errors, and operate with the enterprise-quality execution needed to succeed in today's environment. A great example is Johnson Controls. After starting their automation journey in 2021 with core RPA, they adopted the full UiPath platform as they work to consolidate the automation program to one end-to-end solution. They also plan to leverage our AI capabilities like Document Understanding, Test Suite, and Task Mining to drive automation across their entire business. Another example is The Department for Work and Pensions, the United Kingdom's largest public service department. They have been using core RPA since 2018 to help their most vulnerable citizens improve their quality of life by automating millions of service and support claims each year. Since their first deployment, they have scaled to over 1,000 robots in production and saved 3.1 million hours to date. During the quarter they expanded to the full platform as they look to harness AI and integrate Document Understanding, Process Mining, and Communications Mining into their automation program to improve citizen services, drive operational efficiency, and increase cost saving and capacity creation. We are also landing new logos which are adopting multiple platform products in their first purchase like Tenable and KIK Consumer Products. In their first phase of deployment KIK intends to leverage unattended robots and Document Understanding to drive efficiency across their finance department, with the long-term goal of scaling automation across the entire enterprise. Our value-based go-to-market tool, NorthStar, also continues to drive deeper customer conversations as we strategically position the differentiated and actionable benefits of AI-powered automation. A great example is Sobeys, a customer since 2020, where we created a NorthStar roadmap to help them maximize the return on investment of their automation program. And as a result, Sobeys expanded the automation footprint in the quarter to streamline processes in finance, merchandising, and supply chain and to improve their hiring process in stores. They are also investigating how they may be able to use our platform in their SAP transformation journey. Turning to our SAP partnership, while in the early stages, we are excited about the collaboration between our teams. I recently joined Scott Russell, SAP Executive Board Member, Customer Success, to co-host their sales leadership meeting and we continue to see success in signing new logos from this partnership. Key one for me The Arnott’s Group, a well-known Australian producer of biscuits and snack food, selected the UiPath Platform to optimize business processes and reduce operating costs. Their initial focus will be on automating end-to-end sales order and invoice processing. We also announced an expanded partnership with Deloitte, one of SAP's largest and most strategic partners. Deloitte will embed the UiPath AI-powered Business Automation Platform into their Ascend service delivery platform, powering the next generation of SAP transformations. These strategic relationships are powerful for our customers, but they also drive increased engagement with GSIs, and our partner ecosystem that has never been more invested in than they are right now. At Forward VI, we hosted an impactful session for more than 750 partners outlining our streamlined strategy that is designed to accelerate growth and revenue for our partners, while creating solutions that deliver exceptional value to our customers. Our partners and GSIs are an important element of our go-to-market motion that help us expand our reach to customers in a scalable, efficient, and cost-effective way. For example, working with Deloitte, an Australian Government agency has built a robust automation program across their finance and HR business lines where they utilize Document Understanding to streamline invoice processing, reduce errors, and enhance data accuracy. To further accelerate their automation program, they adopted Task Mining in the quarter to analyze processes and accelerate scoping activities. Broadening our technology ecosystem also makes it easier for customers to deploy automations. We recently announced several new strategic partnerships. These include Amazon Bedrock, which enables automation developers and citizen developers to seamlessly integrate Generative AI directly into their UiPath Studio and Studio Web automations, and the availability of the AI-Powered Business Automation Platform on the Google Cloud Marketplace in early 2024. In summary, third quarter results are another proof point of our commitment to delivering strong top line growth with expanding profitability and non-GAAP adjusted free cash flow. I want to thank our employees and partners for their support. None of this would be possible without your relentless focus on unlocking value for our customers day in and day out. And with that, I'll turn the call over to Daniel.

Daniel Dines, Co-Chief Executive Officer

Thanks, Rob. Good afternoon everyone, thanks for joining us. The automation market is at an inflection point, and as the market leading tool that enables organizations to derive actionable value from AI, we believe this is a huge opportunity for UiPath. At Forward VI, we introduced our latest platform release, 2023.10, and delivered scores of new capabilities that seamlessly translate the potential of AI into tangible action to drive business outcomes for our customers. From my perspective, one of the most exciting announcements at Forward was UiPath Autopilot, a new set of AI-powered capabilities for developers, testers, analysts, and knowledge workers, designed to enhance the user experience across the UiPath platform. We expect Autopilot, which is based on Generative AI, to bring our unique capabilities in RPA, API automation, Document Understanding, and Specialized AI to the full spectrum of enterprise-grade end-to-end processes automation. Autopilot for Studio is intended to help developers across skill levels build automations faster by leveraging natural language descriptions to generate automation workflows. For less technical developers, this is a great starter tool, while an advanced developer will benefit from increased productivity. Autopilot for Test will accelerate every phase of the testing lifecycle from generation of tests to surfacing insights from test results. And, finally, as the AI companion for business users, we anticipate that Autopilot for Everyone will help users create and use personalized and intelligent micro-automations on the fly. We also shared exciting announcements around Intelligent Document Processing at Forward, introducing our next-generation experience powered by active learning and Generative AI. Our next-gen IDP permits almost anyone to train Specialized AI models for specific domains and document types, and our internal benchmarking shows that our next-gen IDP experience accelerates model training time by up to 80% from a week to a day for complex scenarios, or down to minutes for simpler forms. Document Understanding is driving significant value for customers including a Chicago based public utility. Working with Deloitte, they have created a robust automation program across their organization leveraging our AI products like Document Understanding to automate their meter inspection process where they have achieved over $12 million and 163,000 hours in savings to date. With c-level sponsorship, during the quarter they expanded their UiPath deployment to incorporate Test Suite into their automation journey with a goal of saving over $70 million a year. And, we are humbled by third-party recognition of our achievements, including IDC MarketScape: Worldwide Intelligent Document Processing or IDP, 2023-2024 Vendor Assessment where UiPath was named a leader in IDP for our broad market leadership and robust IDP capabilities in UiPath Document Understanding and Communications Mining integrated into our broader enterprise automation platform. Innovation is a cornerstone of our strategy and we challenge ourselves every day to deliver market-leading capabilities with a customer first mindset. I spent a lot of time with our teams in both Bellevue and Romania this quarter and am energized by our cutting-edge product roadmap focused on transforming enterprise automation by harnessing the next-generation of AI technologies. Together with our world-class team of engineers, I am excited to dedicate more time driving UiPath's innovation agenda as I transition into my new Chief Innovation Officer role this winter. With that, I will turn it over to Ashim.

Ashim Gupta, Chief Financial Officer

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. Turning to the third quarter, ARR totaled $1.378 billion, an increase of 24%, driven by net new ARR of $70 million. Excluding the FX tailwind, net new ARR totaled $69 million. We ended the quarter with 10,865 customers, including new logos like New Relic, Smile Doctors, Beacon Health System, and MidWestOne Financial Group. As we said last quarter, we continue to see macro headwinds at the lower end of our market and remain focused on acquiring customers with a higher propensity to grow. Our dollar-based net retention rate for the third quarter was 121%. Normalizing for FX, dollar-based net retention rate was 123%. Dollar-based gross retention of 97% continues to be best-in-class. Revenue grew to $326 million, an increase of 24% year-over-year. Normalizing for FX, which was an approximately $3 million tailwind, revenue grew 23%. Remaining performance obligations increased to $995 million, up 31% year-over-year. Normalizing for FX, which was an approximately $16 million tailwind, RPO grew 29%. Current RPO increased to $599 million. Turning to expenses. We delivered a third quarter overall gross margin of 87%, and software gross margin was 92%. As the team continues to drive cost discipline, we now expect fiscal year 2024 gross margins to be approximately 86%. Third quarter operating expenses were $240 million, highlighting the leverage in our business and our commitment to expense management and operating discipline. GAAP operating loss of $56 million included $96 million of stock-based compensation. Non-GAAP operating income was $44 million, resulting in a third quarter non-GAAP operating margin of 13%. Third quarter non-GAAP adjusted free cash flow was $44 million. As of October 31, we had $1.8 billion in cash, cash equivalents, and marketable securities and no debt. Under our $500 million buyback program, which we announced on September 6th, we repurchased 3.2 million shares of our Class A common stock at an average price of $16.26 through October 31. Since November 1, under a 10b5-1 plan, we repurchased an additional 1.7 million shares at an average price of $17.38 through November 28, 2023. Now, let me turn to guidance, which assumes the global macroeconomic environment continues to be variable. For the fiscal fourth quarter 2024, we expect revenue in the range of $381 million to $386 million. ARR in the range of $1.450 billion to $1.455 billion. Non-GAAP operating income to be approximately $78 million. And, we expect fourth quarter basic share count to be approximately 567 million shares. And, finally, we expect fiscal year 2024 non-GAAP adjusted free cash flow of more than $250 million. 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.

Operator, Operator

Thank you. Our first question comes from the line of Keith Weiss with Morgan Stanley. Please proceed with your question.

Unidentified Analyst, Analyst

Great. Thank you. I have a quick question on sort of AI and how you see it fit into the current budget environment. Clearly, budget growth is still somewhat suppressed. And you're one of the few companies that’s sort of uniquely positioned between traditional automation and generative AI technologies. Where do you see customers reallocating their spending on these AI technologies, whether that's within the product areas that you offer? Or more broadly, anything that's coming out of your customer conversations in terms of how spend is getting reallocated in AI?

Rob Enslin, Co-Chief Executive Officer

Yes, good question. When customers are looking at spending with us and the AI, the AI story and AI connection really fits well to where customers want to invest. In many cases, the investments are coming out of the business case and business value that we produced in NorthStar and are able to show the efficiencies in how to gain so they can invest in innovation. They see us as an innovation leader today with AI and innovation, combined with our AI-powered platform. So I don't feel like it's been taken away for one group to another, I feel it's really driven by the business case we are able to drive with C-level suite and now we focus on industry solutions. And now we've connected those to the buying cycle with customers.

Unidentified Analyst, Analyst

Great. That's helpful. And then a quick question on the margin side. It looks like sales and marketing expenses stepped up pretty markedly on a sequential basis. Obviously, you also do forward contracts in the quarter, but anything that you can highlight in terms of where you're investing? Are you back to growing your sales force more markedly and the second will continue into next year? Anything that you can share there would be great.

Rob Enslin, Co-Chief Executive Officer

I would just highlight two points. First is, we are going to continue to invest in our sales team, especially in our sales capacity, especially as we head into next year. The second is, I would like to recall that we also have the reallocation of our software expenses. So first through third quarter, you'll see sales and marketing versus G&A a little bit lopsided, and which will be caught up in fourth quarter.

Operator, Operator

Our next question comes from the line of Mark Murphy with JPMorgan. Please proceed with your question.

Mark Murphy, Analyst

Thank you so much, and I will add my congrats. So Rob, thinking back to the Analyst Day just over a year ago, you had mentioned there that every tech company, of course, has shelfware and that UiPath does as well. If you think about it about a year later, do you sense that customers have worked down any excess inventory they might have had in terms of bots, maybe hitting a level where they might need to replenish and just start moving forward a bit faster as we get into next year? And then, I have a quick follow-up.

Rob Enslin, Co-Chief Executive Officer

Yes, Mark. Companies deal with shelfware, and we feel good that our platform actually helps us move customers from not only bots into the broader platform as a focus on efficiencies in this marketplace. It certainly benefits efficiencies in the new business model, so we feel really good that we are able to take customers to the next level with our platform and our C-level activity.

Mark Murphy, Analyst

Okay. And Ashim, when we look at it arithmetically, the deceleration in ARR has been moderating, which, of course, is great to see. It looks like it could step down a bit, a bit closer to 20% next quarter. But is it possible to entertain the thought of holding a level around 20% for a period of time? Or do you think we should keep that trending down into the teens, as we've had it? Just try to be mindful of the law of large numbers and some of the macro unknowns that are out there.

Ashim Gupta, Chief Financial Officer

Yes, I would just say, Mark, we're really pleased with our performance and the team's execution. We are focused on closing out a good year-end here. The teams are really focused on that. We look at our fourth quarter guidance just putting the right prudence and the right macroeconomic variability included in our guidance, and we'll update as we get closer to next year.

Operator, Operator

Our next question comes from the line of Kirk Materne with Evercore. Please proceed with your question.

Chirag Ved, Analyst

Hi, thanks for taking the question and congratulations on a very strong quarter. This is Chirag on for Kirk. In your prepared remarks, you mentioned that large deals landed extremely strong. Do you have any additional commentary around what you're seeing with these large deals in terms of both new logos and renewals? And how you expect this trend to continue looking ahead to next quarter and next year? Essentially, all in all, do you believe that we're close to a more stabilized macro and spending environment? Or are you still seeing some broader choppiness out there? Thank you.

Rob Enslin, Co-Chief Executive Officer

Yes, we feel really good about how our teams are adopting all the changes that we've made and how they're connecting with customers and the relationships we're having with them. The expansion has really been driven through our growth products with all the AI communication happening in the market; it allows us to have meaningful conversations with customers. They see why the platform is relevant. We've been driving NorthStar quite a bit and showing where customers can really look at processes and tasks to understand how to drive value with the automation platform. Folks talk about digital transformation, and we believe that AI powered automation is really helping digital transformation with our customer base and our larger customers. We're pretty happy with some of the net new companies that we've acquired over the last period. The quality of them, these are good companies that will expand with us over time if we do the right stuff. So we feel good about that, and we feel good about how our industry focus is helping us change the game in this environment.

Chirag Ved, Analyst

All right, thank you.

Operator, Operator

Our next question comes from the line of Brad Sills with Bank of America. Please proceed with your question.

Brad Sills, Analyst

Oh, great. Thank you so much. I wanted to ask a question around some of the departmental expansions you've seen. You talked about industries here. I think banking and public sector sounded good. But are you finding that you're seeing now with the uplift in expansion activity here with NRR, that you're getting outside of finance and accounting into IT, HR, some of these other use cases in the departments?

Rob Enslin, Co-Chief Executive Officer

Yes, we have broad machine broad industry activity, with manufacturing, with retail, with fashion retail, with grocery hard goods retail. As we said, we feel really positive about public sector, and public sector globally. We also see a significant amount of activity outside of finance offers in procurement and in IT organization. So it's much more broad-based. We feel really good about where we are focused on that.

Brad Sills, Analyst

Great. And then one of the Forward Conference, if I could please. If you could just remind us how important that event is for lead management and moving deals through the pipeline. And how do you feel coming out of the conference this year versus years past in terms of momentum? Thank you.

Rob Enslin, Co-Chief Executive Officer

Brad, I’ve only got 2 years of experience. What I would tell you is I was super excited to see the quality of customers, the event quality, and the quality of the discussions that we had. If you look at the companies we had on stage with us and what they were doing with us, these are really transformational. If you look at the partners, partnerships with SAP and Deloitte, this was transformational. We spoke about 750 partners that were aligning around the channel strategy. We feel good that Forward is a catalyst event for UiPath, helping our branding and positioning us in the C-suite, making a difference, and it certainly does help our pipeline as well.

Operator, Operator

Our next question comes from the line of Raimo Lenschow with Barclays. Please proceed with your question.

Raimo Lenschow, Analyst

Thank you. Congrats from me as well. Firstly, a more bigger picture question: if you think about the different areas of strengths that you saw this quarter, can you specifically speak a little about what you saw on test, Rob? Because that's what we hear from our analysts as one of the areas where especially in the SAP ecosystem, there seems to be a lot going on there. I'm not quite sure you're getting enough credit. And then I had a follow-up for Ashim, please.

Rob Enslin, Co-Chief Executive Officer

Yes, the broader picture shows that customers are looking for ways to drive efficiencies to fund other activities. There is not a significant amount of new business models driving growth. This focus assists us greatly, particularly with SAP. The ongoing program has made a significant impact through SAP activities among various sales organizations, and we are engaged in numerous transformation discussions with SAP and our GSI partners. We expect to see more of that. Testing is crucial because it offers an incredible value proposition that helps customers mitigate the risks associated with going live.

Raimo Lenschow, Analyst

Yes, okay, perfect. Then, one for Ashim. As you think about like it does look like the demand trends are stable, we could potentially look for better times ahead. You guys have been very disciplined around cost and margins, but at some point, you need to think about lead times for salespeople, etc. How do you think about that balance of preparing for eventually better times versus where you are at the moment? What are you seeing in terms of productivity gains, proceeds, etc., to drive this going forward? Thank you.

Rob Enslin, Co-Chief Executive Officer

We have a very powerful business model with strong gross margins that allows us to invest while still generating cash and margins. We have been investing in our product team as well as our sales team. I mentioned earlier that we're investing in our frontline sales team and our sales capacity. We'll continue to invest in areas where we see the right returns and the right investments. Our leadership team is focused on investment mode while looking for efficiencies. We feel positive about our value offering and believe we can drive that investment while still generating cash and margins.

Operator, Operator

Our next question comes from the line of Terry Tillman with Truist. Please proceed with your question.

Terry Tillman, Analyst

Yes, congrats from me on the quarterly results, first of all. I guess my first question is about how much of your customer base have you actually unleashed the NorthStar roadmaps on? The second part of my first question is, I'm hearing a lot from you about full platform adoption. Have you done anything with product or packaging to create less inertia to move all-in with the platform?

Rob Enslin, Co-Chief Executive Officer

Sure. We are doing a lot around pricing and packaging; obviously, pricing, packaging, and solutions are constantly being upgraded. You have to be very careful about how you bring that into the market. We're focused on simplifying SKUs and making it very simple for customers to purchase. We're also making it easy for customers to mix and match solution sets with AI units or bots in a way that's very simple, so they can expand with less friction. NorthStar is a value-based tool that has to be connected to the C-suite by enabling sellers to communicate effectively and allowing for more references to help scale and continue working on the organization.

Terry Tillman, Analyst

That's great. Thank you for that, Rob. And I guess, Ashim, in terms of all the work on the go-to-market side this year, is there a potential for a further drift in NRR? Could it actually improve from here? I mean, it's already best-in-class. I'm just kind of curious how you could see NRR trends potentially with more of the harvesting of all this work on the go-to-market side. Thank you.

Ashim Gupta, Chief Financial Officer

I would just say we continue to be pleased with where we are and how we're executing, and we're going to look forward to closing out the fourth quarter and will provide more updates next year.

Operator, Operator

Our next question comes from the line of Fred Havemeyer with Macquarie. Please proceed with your question.

Fred Havemeyer, Analyst

Hey, thank you very much. And I'd also like to congratulate you on a very strong quarter. I wanted to focus once again on generative AI. Firstly, looking at your product to see it integrated throughout your portfolio and your suite, I'm looking forward to what you can do there. But I wanted to take a bigger picture look at the longer-term outlook of the market considering some impressive results. I'm curious, considering that UiPath has recently been one of the original autonomous agent companies with your attended and unattended RPA, how do you think about the market evolution over time with agent functionality being built using generative AI.

Daniel Dines, Co-Chief Executive Officer

Well, I think that direction in the market that we are seeing right now around autonomous agents proves our approach that always said that AI plus automation is the thing that drives the biggest outcomes for our customers. After the initial pause about how AI will help with automation, they realize they need a powerful automation platform to harvest the power of AI. Going forward, we are in one of the best positions to build the next generation foundational models that understand processes, tasks, screens, and documents, the type of multimodal built-in to drive automation. To me, it’s clear that the world is going in that direction, and we are really in a very good position to take advantage of it.

Rob Enslin, Co-Chief Executive Officer

Thank you for that. I'm looking forward to having an intern as a service to help out autonomously. Additionally, I've consistently heard feedback about the difficulty of organizing one's own data within an enterprise in a useful manner. I'm curious about how your customers are beginning to approach their generative AI strategies and whether UiPath's automation platform is enabling customers more holistically with generative AI.

Daniel Dines, Co-Chief Executive Officer

Yes, this is a significant use case where automation is used right now to fine-tune specialized AI. It has become a hot discussion point with our partners around the world. We've had interesting discussions in Japan and the U.S. with companies like Accenture and Deloitte that are very interested in leveraging automation to cleanse the data and accelerate custom training.

Operator, Operator

Our next question comes from the line of Siti Panigrahi with Mizuho. Please proceed with your question.

Siti Panigrahi, Analyst

Thank you. It's good to see this net new ARR bounce back. Speaking with your customer, what do you think the enterprise spending trend would be next year in terms of priority for automation spending?

Rob Enslin, Co-Chief Executive Officer

We've looked at different analysts and many will tell you that they see cloud, data, cyber, and automation as key spending trends next year. But I would caution that customers are very thoughtful in how they want to spend, where to spend, and how they will fund it, which benefits us. I don't see a significant change in that spending. Customers will look to see how AI and AI automation can help drive deeper efficiencies in the organization and look at different models in communicating with customers and driving customer journeys. We are focused on helping them with that approach deeply, connecting meaningful inputs and outputs around documents and communication to drive real orchestration.

Siti Panigrahi, Analyst

Thank you. And, Ashim, a follow-up. If I capture your total customer count, it seems like it does come down this quarter. But you guys also had pretty good results on your enterprise segment spending. So wondering, was there anything different you saw in different segments, like small versus mid to large segment?

Ashim Gupta, Chief Financial Officer

Yes, we're very pleased with how our enterprise segment is performing. The macroeconomic variability we've talked about has had a more pronounced impact on the lower end of our market with smaller businesses. That's where we see the majority of our churned customers, which Rob mentioned earlier. Overall, we are focused on quality customers, defined as customers with a high propensity to buy, and we're pleased with the execution against that strategy.

Operator, Operator

Our next question comes from the line of Michael Turits with KeyBanc. Please proceed with your question.

Michael Turits, Analyst

Hey, congrats on solid execution. I have two questions. First, what is the current status of the deployment time for the average bot? It seems to have improved already, and does the rollout of Autopilot further reduce that time? Also, I have a follow-up question for Ashim. Thanks.

Daniel Dines, Co-Chief Executive Officer

This is always one of our major product focuses: how can we shorten the adoption curve for our customers? We're already seeing with our Autopilot family in private preview that some really good results with an initial set of customers testing the product. Yes, I would say that this is going to be a significant driver for adoption for both advanced developers and less experienced ones. Training our specialized Document Understanding and Communication Mining models using Generative AI has already proven effective in accelerating deployment.

Michael Turits, Analyst

Thanks, Daniel. And then, Ashim, on the NRR, it's great to see it stabilizing on an as-reported basis. But could you go down another two points as it did last quarter on an FX-adjusted basis? What are the puts and takes there? You're also getting slightly easier comps. So what’s pulling that down at this point, and what are the things that are working in trying to actually increase NRR?

Rob Enslin, Co-Chief Executive Officer

Yes, I look at our dollar-based net retention adjusted for FX, it's 123%, which in our scale we're very pleased with and continues to be in best-in-class territory. There will always be a little bit of large numbers. Each quarter's deal mix will change. But overall, we're pleased with the strategy. We've had several marquee deals this quarter, with strong enterprise performance in North America and some headwinds pronounced in the lower end of the market. Overall, our strategy is focused on high propensity buying customers, and we feel we are executing against that strategy.

Operator, Operator

Our next question comes from the line of Scott Berg with Needham & Company. Please proceed with your question.

Scott Berg, Analyst

Hi, everyone. Nice quarter here. Thanks for taking my questions. Your net new ARR was up year-over-year for the first time, I believe since fourth quarter fiscal '22, so nice change there on the positive side. I think most of the questions have been on your execution within the quarter and have a commentary on the demand end of the market. Are you seeing any changes around your customers or the environment more mid-market enterprise? You mentioned the down market a couple of different times in the macro impact there. But are you seeing any sort of positive change upward in demand from whether it's existing customers or new ones?

Rob Enslin, Co-Chief Executive Officer

Yes, I see positive demand in the market. We feel like we have a significant seat at the table with the AI, open AI, chat GBT conversations. Having the platform is allowing us to have C-level discussions with customers. We've had customers who have used Core RPA since 2018, who feel there's an opportunity to expand it. They don't feel they're obtaining all the value they could, and those conversations are happening. We can showcase proof points on how to handle this, leading to a positive outlook.

Scott Berg, Analyst

Got it. Helpful. And then, Ashim, your current RPO metrics growth rate accelerated pretty meaningfully quarter-over-quarter. Was there any one-time anomalies? I don't know, early renewals or something that impacted that abnormally in the quarter? Was that a clean calculation metric? Thank you.

Ashim Gupta, Chief Financial Officer

No, there weren't any major abnormalities like early renewals. We had several marquee deals this quarter and a record number of deals above $1 million for the third quarter. So it's just execution and good deal quality that's driving that metric.

Operator, Operator

Our next question comes from the line of Michael Turrin with Wells Fargo. Please proceed with your question.

Michael Turrin, Analyst

Great, thanks for taking the question. Two parts, I'll ask up front. Rob, given the investments you mentioned in reaching the C-suite, can you provide us with your perspective around how enterprise customers are approaching IT budget growth into next year and automation as a part of that? And then as a second part for Ashim, can you comment on the visibility you have into the 4Q forecast currently and any swing factors for us to consider in terms of potential upside there? Thank you.

Rob Enslin, Co-Chief Executive Officer

Yes, Michael, we are having discussions in the boardroom with customers that are much wider to C-level suite, much earlier in budget cycles than we have previously been. We are more important in the budget cycle as well. A couple of key points stand out about our industry, how we've driven industry focus, and the value proposition. The global system integrators have supported us, as well as the messaging around SAP, has driven us well. This makes us a meaningful part of customer budgets next year, focusing on innovation and funding as customers look tight on their budgets.

Ashim Gupta, Chief Financial Officer

Yes, our guidance includes macroeconomic variability we've discussed. It reflects our current view of the deal mix. Our teams are focused on executing well to close out the year, which is our focus now.

Operator, Operator

Our next question comes from the line of Bryan Bergin with Cowen. Please proceed with your question.

Jared Levine, Analyst

Thanks. It's actually Jared on for Bryan today. In terms of the competitive environment, any changes from what you're seeing from Microsoft, ServiceNow, or Automation Anywhere?

Rob Enslin, Co-Chief Executive Officer

If I look at ServiceNow, we don't see them in many opportunities. Our service connectors are the most popular downloaded connected to UiPath, and we continue to partner with them. Our partnership with Microsoft around co-pilot continues to be robust, and we are happy with where that's going. As for traditional RPA vendors, we've broadened our skill sets and what we offer; we don't see them as often anymore.

Jared Levine, Analyst

Do you have any data points on how the new bundled pricing packages are increasing revenue uplift per client or anything around revenue uplift from the reduction of SKUs as part of the sales refresh?

Rob Enslin, Co-Chief Executive Officer

I don’t have specific data points for that yet. It’s early for us to determine where we are on that. Early signs suggest it's easier for customers to understand and move. They like how they can use AI units across multiple products and interchange them for new use cases.

Operator, Operator

Our next question comes from the line of Alex Zukin with Wolfe Research. Please proceed with your question.

Ethan Bruck, Analyst

Hey, guys, this is Ethan Bruck on for Alex Zukin. Thanks for taking the question and congrats on the nice results. Rob, if we were to unpack a little bit and add more color, are there any verticals where we saw improvement or more stability versus the last few quarters? Then just a bit on renewal behavior in terms of buying more licenses, and how the renewal conversation was in 3Q compared to what you saw at the beginning of the year.

Rob Enslin, Co-Chief Executive Officer

The last quarter was a very strong one for public sector, especially in our federal business in the U.K. and the United States. The Federal businesses are looking at the platform uniquely. We offer incredible capabilities around Document Understanding, which connect to attended automation. The public sector is benefiting from having the right talent, and it has driven our activity globally. Looking at more traditional markets like telcos, CPG, manufacturing, and retail, they are all aiming for efficiencies to drive growth. Automation plays a key role in that. Thus, it is variable based on industry focus and investment dynamics. Each of these industries is seeking to drive efficiencies, with renewals allowing us to drive the platform and early discussions about future business value.

Ethan Bruck, Analyst

That's super clear. And then, Ashim, as a quick one for you, the incremental margins in the quarter have been really good. If you could remind us of the puts and takes around how to think about the margin profile in the out years? Thanks again.

Ashim Gupta, Chief Financial Officer

We refer you back to our Investor Day pitch where we discussed our long-term operating model. We're pleased with margin execution, ahead of that curve. We feel good about operating with discipline while investing in growth.

Operator, Operator

That is all the time we have for questions. I'd like to turn the call back to management for closing remarks.

Rob Enslin, Co-Chief Executive Officer

Yes, I just wanted to say thank you. Thank you to all of you for your support. It's great to have you all on the call today. Happy holidays to you and your family. May you enjoy a great time.

Operator, Operator

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.