UiPath (NYSE:PATH) reported second-quarter financial results on Thursday. The transcript from the company's second-quarter earnings call has been provided below.
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View the webcast at https://uipath-q2-2027-earnings-call.open-exchange.net/registration
Summary
UiPath Inc reported a strong second quarter with ARR growing 12% to $1.938 billion and revenue increasing 13% to $410 million, driven by a net new ARR of $37 million.
The company achieved a fourth consecutive quarter of GAAP profitability and expanded its non-GAAP operating margin to 22%, reflecting improved operational efficiency.
Strategic initiatives include a focus on AI integration, with 18 of the top 20 deals involving AI, and a shift towards use case-based selling and vertical solutions.
Leadership changes were announced, with Ashim Gupta focusing on his role as COO and Hitesh Ramani succeeding him as CFO, ensuring operational and financial continuity.
Future guidance includes third-quarter revenue expectations between $440 million and $445 million, and ARR between $1.992 billion and $1.997 billion, despite FX headwinds.
Full Transcript
Megan, Conference Operator
Good day, everyone. My name is Megan, and I will be your conference operator today. At this time I would like to welcome you to the UiPath Inc second quarter 2027 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time and if you have joined via the webinar, please use the raised hand icon which can be found at the bottom of your webinar application.
If you have joined via the phone line, please dial star 5 to raise your hand. In the interest of time, please limit yourself to one question and one follow-up today. Please note that participants will be limited to that at this time. I would like to turn the call over to Elise Ferlani, Vice President of Investor Relations.
Elise Ferlani, Vice President of Investor Relations
Good afternoon and thank you for joining us today to review UiPath Inc's second quarter fiscal 2027 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, Founder and Chief Executive Officer, Ashim Gupta, Chief Operating Officer, and Hitesh Ramani, Chief Financial Officer, to deliver our prepared comments and answer questions. Our earnings press release and financial supplemental materials are posted on the UiPath Inc investor relations website.
These materials include GAAP to non-GAAP reconciliations. We will be discussing non-GAAP measures on today's call. This afternoon's call includes forward-looking statements regarding our financial guidance for the third quarter and full fiscal year 2027 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 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, 2026, and our subsequent reports 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 remarks to our investor relations website immediately following the conclusion of this call.
In addition, please note all comparisons are year over year unless otherwise indicated. Now I'd like to turn the call over to Daniel.
Daniel Dines, CEO & Founder
Thank you, Elise, and thank you for joining us. We delivered another strong quarter with continued execution. ARR grew 12%, non-GAAP operating margin expanded to 22%, and we delivered our fourth consecutive quarter of GAAP profitability. Over the past two years we've been transforming UiPath Inc for the next phase of our growth. We evolved our platform around business orchestration, agentic, and software testing, significantly improved our go-to-market execution and operating discipline, and re-accelerated the pace of innovation within the company.
We're a stronger company today, and increasingly customers are looking to UiPath Inc not just to automate individual tasks, but to orchestrate complex, long-running, and exception-heavy business processes and be a critical partner in their AI transformation. We've talked a lot about how AI is changing software. The bigger question now is how enterprises turn AI into real business value. Customers aren't choosing between AI and deterministic automation.
They're choosing the best way to achieve an outcome. AI is exceptional at reasoning, but it's probabilistic and can be expensive at scale. Many enterprise processes don't need reasoning at every step. They need exactness — the same result every time — securely, reliably, and at the lowest possible cost. That's why we give customers the choice of deterministic or tokenless automation alongside AI. Our approach is simple: use AI where intelligence creates value, and deterministic automation where exactness matters.
That gives customers the benefits of AI without paying for AI reasoning at every step, and ultimately better economics and better ROI at scale. And that's where UiPath Inc is differentiated. We deliver business outcomes by orchestrating end-to-end processes across agents, robots, APIs, systems, and people, using the right technology for each step to deliver the best combination of intelligence, reliability, and cost. We are also model-agnostic, giving customers the freedom to use the AI models and technologies that are best for the world rather than locking them into a single ecosystem.
As AI expands what enterprises can automate, we believe that combination of choice, orchestration, and governance becomes even more valuable. So the opportunity now is to scale what we've built, expanding adoption across our customer base, extending our reach into the business, and continuing to translate our innovation into durable growth. And as we scale, strong execution and connectivity across the company become even more important. That's why Ashim will now focus exclusively on his role as Chief Operating Officer.
Ashim has been one of my closest partners and one of the leaders most responsible for the financial and operational discipline we've built over the past several years. As COO, he will focus exclusively on the day-to-day operations of the company, driving greater discipline and consistency across our go-to-market organization, strengthening execution across functions, and leading key strategic priorities across the business. With Ashim focusing fully on the operations of the company, we are making a planned leadership transition in finance with Hitesh Ramani succeeding him as Chief Financial Officer.
This is a logical next step and reflects the strength and depth of the leadership team we've built. Hitesh joined us in 2021 as Chief Accounting Officer and has served as Deputy CFO for the past two years, working closely alongside Ashim across the finance organization. He has been a critical partner through every major milestone, including our IPO, and has helped build the financial rigor and discipline we have today. Given Hitesh's existing responsibilities and deep knowledge of the business, we expect a very smooth transition and significant continuity across the finance organization.
And with Ashim remaining as COO, he and Hitesh will continue to work closely together in their respective roles. Together, these changes give us greater focus across operations and finance, with two proven leaders in critical roles as we scale. I'm excited to continue working closely with Ashim and Hitesh. I am confident in the leadership team we have in place and our ability to execute against the opportunity ahead. Now turning to our quarterly results, we delivered a strong second quarter, once again beating guidance across the top and bottom line.
ARR reached 1.938 billion, up 12% year over year, driven by 37 million of net new ARR, and revenue of 410 million, up 13% year over year. We grew second quarter non-GAAP operating income to 89 million at 22% margin and up over 400 basis points year over year, driven by improved operational efficiency and disciplined execution across the business. Behind these results, we're seeing the strategy I just described play out with customers. Eighteen of our top 20 deals this quarter included AI, demonstrating how increasingly central AI has become to our largest customer engagements.
Customers are expanding from individual automation use cases into broader end-to-end processes, adopting more of the UiPath Inc platform and, in a number of cases, consolidating automation and AI workloads onto UiPath Inc. And we are seeing this result in larger expansions where AI is attached to the deal. A global insurance provider is a strong example. In a seven-figure expansion, they are modernizing beneficiary claims, expanding their use of Maestro agents and robots, with UiPath Inc forward-deployed engineers supporting implementation.
Maestro connects document intake, beneficiary analysis, orchestration, exceptions, and human-in-the-loop work into one governed end-to-end process, and because UiPath Inc was already embedded in their ecosystem, they could move quickly on this use case and build on the same foundation as they modernize additional processes across the organization. In the public sector, the Department of War expanded its partnership with UiPath Inc to support its Clean Audit initiative across the military services.
Building on its deterministic foundation, the Department is adding Autopilot, our IDP solutions and test automation to automate critical audit and reconciliation work. We're also seeing governance and reliability become real competitive differentiators. A leading financial institution chose UiPath Inc over other orchestration providers as its single platform for end-to-end processes. Maestro was the only solution able to orchestrate across the homegrown applications while meeting the governance and compliance requirements at scale.
It's already in production on a critical revenue channel process combining deterministic automation with human-in-the-loop safeguards and these aren't isolated examples. Across both new logos and expansions, we're seeing customers standardize on UiPath Inc and consolidate point solutions onto our platform. A leading US regional bank is consolidating its entire automation program onto UiPath Inc, using Test Cloud for conversion testing and agentic processes across compliance to help manage risk through a significant merger, and one of Canada's largest financial services companies working with Aisling partners to migrate its entire automation footprint to UiPath Inc and plans to use coding agents to power that migration with the goal of lowering maintenance costs and accelerating time to value. And on the expansion side, a Fortune 200 financial services firm is moving all their automation needs onto UiPath Inc in a multimillion-dollar CIO-driven initiative while expanding their use of Test Cloud to test the investment management software they deploy to customers. The common thread across these wins is consolidation.
As customers think about automation and AI together, we're increasingly seeing them look for one platform that can build, orchestrate, test and govern the entire process. I am excited about the results we are seeing from coding agents, pylons and implementation. Our initial results from our forward-deployed engineers are that coding agents reduce effort by nearly 60%. As we build on this, it has transformational impacts on our customers' time to value and overall TCO.
We are seeing the same potential with customers like a leading US energy company; they are using Cursor with UiPath Inc across the entire automation lifecycle from architecture and development, from testing, code review and production deployment. The coding agent directly creates UiPath Inc workflows while our platform keeps the development process governed and standardized. So this isn't just about AI writing code faster, it's about making the entire automation lifecycle fast.
And that's an important part of why we believe AI expands the automation market. It doesn't just create new use cases, it lowers the cost and effort required to build them. Moreover, to speed up the implementation even further, we announced a new developer-friendly workflow automation tool in public preview. It lets developers use the coding agents they already work with like Cloud Code, Codex, Cursor, and GitHub Copilot to both orchestrate business processes and automate manual tasks via API and agents.
Combining the speed of AI-native development with the governance enterprises need, our horizontal platform remains a core strength, giving customers one platform to automate and orchestrate processes across functions, systems and technologies. And increasingly we are pairing that horizontal strength with vertical and outcome-oriented solutions that bring us directly to line-of-business buyers around specific business outcomes while creating a natural entry point for broader platform adoption.
This quarter we saw strong traction with customers including a Fortune Global 500 manufacturer, where we are modernizing their accounts payable operations with our Office of the CFO invoice solution, automating roughly 700,000 invoices annually. What won them over is exactly what our approach is built to deliver: 96% document processing accuracy in the proof of concept, automated supplier communications, rich operational dashboards, an unexpected 50% reduction in both invoice handling time and support, and in healthcare, a leading US health system chose our denials resolution solution to automate medical claim denials with their revenue cycle management process. The solution will help automate appeal creation and submission across inpatient and outpatient operations, allowing them to pursue millions of dollars in claims that previously fell below the threshold for manual review and potentially recover meaningful additional revenue work. Fusion extends that approach further into financial services. The integration is progressing in line with plan and we are encouraged by the customer response and the pipeline that is building.
Its purpose-built AI agents for financial crimes and compliance give customers a more complete outcome-oriented offering. Out-of-the-box testing is another area where we continue to expand our reach, particularly through our partner ecosystem. We recently expanded our partnership with Cognizant, which will embed UiPath Inc Test Cloud into its testing-as-a-service and managed services offerings, helping customers move from manual script-based testing towards agentic testing.
Cognizant will also help scale Test Cloud onboarding and adoption through its global delivery model. Before I close, I'm also pleased to welcome Yazdi Bodli to our Board of Directors. Yazdi brings deep technology operations and enterprise transformation experience from Kaiser Permanente, Walmart and Procter & Gamble, and I'm excited for the perspective he'll bring with UiPath Inc. And finally, we are looking forward to seeing many of you in Las Vegas next month.
We'll kick off with our Investor Day on September 22nd where we'll share more on our long-term strategy and product roadmap, followed by Fusion, our annual user conference from September 23 through 25. We have a lot to share and I hope to see many of you there. Please reach out to our investor relations team for more information on our Investor Day. With that, I'll turn the call over to Ashim.
Ashim Gupta, Chief Operating Officer
Thank you, Daniel, and good afternoon everyone. I'm incredibly proud of what our finance team has accomplished, and I also want to congratulate Hitesh, who has been an incredible partner and leader in our organization. I have worked side by side for many years and there is no one better prepared to lead our finance organization. As I fully focus on my role as Chief Operating Officer, I'm excited to work closely across the company to drive consistent execution and help scale the business.
A big part of that is continuing to strengthen our go-to-market execution. We're spending a lot of time with our sales leaders on account segmentation, making sure we have the right resources and strategy against the right opportunities while working across the leadership team to bring greater connectivity to how we take the breadth of our platform to market. The same focus extends to how we drive adoption and utilization across our customer base and how we work with our partners.
These have been important priorities for us, and we're continuing to strengthen the connection across our field, partners and customers to drive expansion and make it easier for customers to adopt more of the platform. We have a strong leadership team, tremendous innovation across the platform and a significant market opportunity ahead of us. I'm excited about what we can accomplish together. In a few minutes, Hitesh will take you through our guidance for the third quarter and the remainder of the year.
But first I'll walk through our results for the second quarter. Turning to the quarter, unless otherwise indicated, I will be discussing results on a non-GAAP basis and all growth rates are year over year. I also want to note that since we price and sell in local currency, fluctuations in FX rates impact results. As we go forward, we will provide the impact of FX for both the incremental impact since our prior guidance and the year-over-year impact.
Second quarter revenue grew to $410 million, an increase of 13%. Normalizing for the year-over-year FX headwind of approximately $8 million, revenue grew 16%. This included an incremental $1 million FX headwind since the time of guidance and our first quarter earnings call. The year-over-year FX headwind was driven by the Japanese yen, the Romanian leu and the Indian rupee. ARR totaled $1.93 billion, an increase of 12%. This included a $1 million year-over-year FX tailwind and no incremental impact since we guided our first quarter earnings call.
Net new ARR was $37 million, up from $31 million in the prior-year quarter. The year-over-year FX tailwind was driven by the euro. We ended the quarter with approximately $1.3 billion in Cloud ARR, which includes both hybrid and SaaS, an increase of more than 19%. We ended the quarter with approximately 10,350 customers, with attrition continuing to be concentrated among our smallest customers, while customers with more than $30,000 in ARR increased 6% year over year.
This quarter we signed one of our largest new logos in company history, a top Canadian bank looking for a platform that could support their evolution to agentic workflows. We demonstrated that with an agentic proof of concept for their third-party demands process, bringing together agents, robots, people and systems all orchestrated by Maestro with the governance and compliance required at scale. This win reflects our customer strategy of adding new enterprise customers with significant expansion potential, and this quarter we also added logos including Flexsteel, Azul and Purdue Federal Credit Union.
Our strategy is increasingly focused on winning and expanding within the world's largest enterprises and we're seeing that strategy work. Customers with $100,000 or more in ARR increased 10% to 2,660, while customers with $1 million or more in ARR increased 21% to 387. Our retention metrics also remain strong. Our dollar-based gross retention remained best in class at 97% and our dollar-based net retention rate was 109%, a 2-point increase year to date, demonstrating stabilization across the business.
Adjusting for FX, dollar-based net retention rate was 108%. Turning back to the quarter, remaining performance obligations increased to $1.378 billion, up 14%. Normalizing for the FX headwind, which was approximately $19 million, RPO grew 16%. Current RPO increased to $901 million, up 14%. Turning to expenses, we delivered second quarter overall gross margin of 82% and software gross margin was 90%. Second quarter operating expenses were $247 million.
GAAP operating income was $32 million, our fourth consecutive quarter of GAAP profitability, up from the prior-year GAAP operating loss of $20 million. GAAP operating income included $45 million of stock-based compensation expense compared to $78 million in the prior year, a decrease of 42%. As a percentage of revenues, stock-based compensation was 11%, down over a thousand basis points from the prior year. Second quarter non-GAAP operating income was $89 million, representing a 22% margin, up over 400 basis points year over year and driven by our continued focus on operational efficiency.
Second quarter non-GAAP adjusted free cash flow was $31 million compared to $45 million in the prior-year quarter, driven primarily by the timing of tax-related payments. We ended the quarter with a healthy balance sheet of $1.4 billion in cash, cash equivalents and marketable securities and no debt. During the second quarter we repurchased 2.4 million shares at an average price of $9.63, and now I would like to hand it over to Hitesh to go through guidance.
Hitesh Ramani, Chief Accounting Officer
Thank you, Ashim, for your partnership and mentorship over the years. I'm excited to step into this role and to build on the strong foundation you have put in place. Turning to guidance, our philosophy is unchanged. We guide to what we see in front of us, we maintain a prudent outlook, and we are pleased with the team's execution in what continues to be a variable macroeconomic environment. Before I walk through the specifics of guidance, beginning this quarter we will provide the impact of FX for both the incremental impact since our prior guidance and the year-over-year impact.
As Ashim mentioned earlier, our results reflect movements across several currencies including the euro, yen, Indian rupee, and Romanian leu. Turning to guidance for the third fiscal quarter 2027, we expect revenue in the range of $440 million to $445 million. This includes no incremental FX impact since the time of our last guide and a $10 million year-over-year FX headwind. ARR in the range of $1.992 billion to $1.997 billion. This includes a $1 million incremental FX headwind since the time of our last guide and a $4 million year-over-year FX headwind.
Non-GAAP operating income of approximately $100 million, and we expect third quarter basic share count to be approximately 523 million shares. For the fiscal full year 2027, we expect revenue in the range of $1.789 billion to $1.794 billion. This includes a $1 million incremental FX headwind since the time of our last guide and a $20 million year-over-year FX headwind inclusive of a $2 million headwind that was realized in the first half of the year and an expected headwind of $18 million in the second half of the year.
ARR in the range of $2.065 billion to $2.07 billion. This includes a $1 million incremental FX headwind since the time of our last guide and a $5 million year-over-year FX tailwind inclusive of a $10 million tailwind realized in the first half, partially offset by expected headwinds in the second half of the year. Non-GAAP operating income of approximately $445 million, and finally, we continue to expect fiscal full year 2027 non-GAAP adjusted free cash flow of approximately $425 million and a non-GAAP gross margin of approximately 84%.
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.
Megan, Conference Operator
We will now move to our question-and-answer session. If you've joined via the webinar, please use the raised hand icon which can be found on the bottom of your webinar application. When you are called upon, please unmute your line and ask your question. If you have joined via the phone line, please dial star-5 to raise your hand. Please note that participants will be limited to one question and one follow-up. We'll now pause briefly to assemble the queue.
Our first question will come from Sanjeet Singh with Morgan Stanley. Your line is open. Please go ahead.
Sanjeet Singh, Analyst at Morgan Stanley
Hi, can you hear me loud and clear? Now? No.
Megan, Conference Operator
Sanjeet, we can't hear you. Sanjeet, are you there for your question? Sanjeet seems to be having some technical difficulties. We will come back to him and go to our next question. Our next question is going to come from Michael Turin with Wells Fargo. Your line is open, please ask your question.
Phil, Analyst at Wells Fargo
Hi, this is Phil on for Michael. I have a quick question on the FTEs. It sounds like with coding agents reducing the FTE implementations quite significantly, how much more deployment capacity are you guys getting per FTE and does that change any of your hiring plans as customer demand scales?
Daniel Dines, CEO & Founder
Yeah, hi Phil, we are in kind of proving stage at this point to understand how much incremental value we get from coding agents in conjunction with FTEs. Our initial results are very encouraging and I believe that we are seeing a positive trajectory, and I think this is not so much about how many FTEs we plan to hire, but it's about how much our customers can accelerate their time to value. This is an equally important technology for our partners, as well as many of our customers who use the implementation services provided by our partners.
We will keep you up to date. This is a very important focus for us going forward, and a big focus of the entire P&E organization is to keep improving the performance of coding agents on our platform.
Phil, Analyst at Wells Fargo
Thank you.
Megan, Conference Operator
Your next question will come from Brian Bergen with TD Cowen. Your line is open. Please go ahead.
Brian Bergen, Analyst at TD Cowen
Hi guys, good afternoon. Thanks for the question, and Hitesh, congrats to you on the CFO role.
Hitesh Ramani, Chief Accounting Officer
Thank you.
Brian Bergen, Analyst at TD Cowen
Wanted to just get a sense if you can give us an update on your approach and monetization here on agentic and AI solutions. How is that conversation evolving with clients? And can you also comment on how model costs and tokenomics are influencing the contracting appetite for the broader deals with agentic and deterministic?
Daniel Dines, CEO & Founder
Yeah, we continue to see an increased appetite from our customers to get a platform that combines, I would say, intelligence with exactness, and our platform is best in the world in process orchestration, in task automation, in document processing. And we are quite agnostic in supporting the best agentic frameworks in the world like LangChain and Claude Agents SDK and others. And we are model-agnostic, and I think this combination is extremely appealing to our customers.
We provide basically the rails for running the business while they can choose the flavor of intelligence that they have to deliver.
Brian Bergen, Analyst at TD Cowen
Okay, thank you. And my follow-up, just maybe you speak to the improvement of net new ARR in 2Q. Obviously trying to just distill how much is coming from AI-related products. Any way you can help break that down between contribution from penetration of new agentic AI offering deployments into your existing clients versus perhaps landing newer clients with the full suite here? You know, certainly encouraging to hear the stat on that top 20 largest deals you gave us.
But then sticking with net new ARR, just any caveats as we look to the implied second half that you've guided to?
Ashim Gupta, Chief Operating Officer
Yeah, I'll turn it over to Hitesh to answer on guidance. Look, we're right now reporting AI product periodically, as we talk about, Brian, but the stats that you talk about, they're encouraging. And I think there is more encouragement when we listen to our customer calls and our sales team, you know, the executive touch points that we're having. The reality is the deals have higher ROI, which leads to larger deal values. And what is also encouraging is we're really attacking larger, more complex problems, and I think as the world kind of continues to change, that increases our stickiness.
And so it really has a twofold area, giving us more upfront, but making us more strategic within the customer. And we're really pleased with the progress just across the platform and our ability to deliver that. Hitesh, if you want to talk about guidance.
Hitesh Ramani, Chief Accounting Officer
Yeah, sure, Ashim. I mean, as I mentioned, our philosophy as it relates to guidance has remained unchanged. We guide to what we see in front of us. Also, we take a prudent approach. As Ashim mentioned, the platform positioning is resonating extremely well with our customers. I myself met with three of our customers this past week and every single conversation is resonating very well. As we also mentioned, 18 of our top 20 deals included AI this past quarter.
We are taking this information into account as we think about our guidance for not only Q3, but also for Q4.
Brian Bergen, Analyst at TD Cowen
Thank you.
Megan, Conference Operator
Your next question will come from Scott Berg with Needham & Company. Your line is open. Please go ahead.
Scott Berg, Analyst at Needham & Company
Hi everyone. Nice quarter. Thanks for taking my questions. Daniel, I wanted to start on go-to-market and some of the sales successes you seem to be having. You've talked a lot the last couple quarters about improved execution there, but it seems to be meeting an end market that's also seeing some improved demand. Where do you think you are in that cycle? Are you back now on sales execution level that you want to be, kind of 100%, or do you still feel like you have a little ways to go to hit your stride properly?
Daniel Dines, CEO & Founder
I think we are working right now on both ends of the spectrum. I think on the product side we are making the most innovative steps that I think we ever made in our product, and we are ready to announce at our big Fusion event basically our new doctrine about how we are seeing the adoption of AI and orchestration and automation across an enterprise. And on the sales side, I think, given the market dynamic, we have started to understand a bit more how our customers think about the adoption.
I think among our existing customers we are seeing reduced confusion, if I can say, about AI, and there is a better understanding on when it's best to use AI, when it's best to use automation, and how they coexist with each other, which I cannot say so much about customers at large. You know, when we go after new logos, it might be a bit of a different conversation. Overall, we are also seeing an increased appetite in the market for outcome-based deals, which is an interesting area for us.
At this point they are just scattered, you know, really across the globe, but it might become a much bigger trend. We are watching closely to understand how we play on both ends.
Scott Berg, Analyst at Needham & Company
That's so helpful there. And then as I look here, net revenue retention metrics, they've been incredibly stable the last six quarters. How do we think about net revenue retention over the interim period here? You have a lot more to sell, sounds like the demand environment is certainly improving a little bit. My guess is customer expansions start to come back versus maybe what was seen a couple years ago. But can that number be back above 110 for an extended period of time, or is this high 100% range, you know, 108, 109, the right way to think about NRR for the near term?
Ashim Gupta, Chief Operating Officer
No, I mean look, that's what we're playing for, and I think the progress we've made has actually been really phenomenal. We ended last year at 106%, so we are up three points already as we move to that goal. So I would say the trajectory is upward in a stable way, which I think is really good versus kind of up and down, and so we feel very good about it. To your point, we have more products that we are scaling into our customers. As Daniel mentioned, as I mentioned, I think the sales execution continues to improve, and frankly our focus on consumption is also very critical in that discussion.
So we actually feel very good about that trajectory. You know, we'll talk about it more. We obviously don't do long-term forecasting around these key metrics, but the trend is positive and I would also note the movement upwards and the stability is happening at higher and higher scales, which speaks to the expansion on a dollar basis expanding. So that's the color that I would give there.
Scott Berg, Analyst at Needham & Company
Understood, thanks. Take my questions.
Megan, Conference Operator
Your next question will come from Sanjeet Singh with Morgan Stanley. Your line is open. Please go ahead.
Sanjeet Singh, Analyst at Morgan Stanley
Yeah, thank you for taking the question.
UNKNOWN Analyst
Two-parter. Maybe one for Ashim. As we look to the federal business in Q3, just, you know, their fiscal year ends coming up at the end of September. So just thoughts on the federal pipeline opportunity, how that's shaping up. And then a question for Daniel. I think you and I have been talking about what sort of playbooks and use cases are resonating right now. I think you've called out software testing as something that's particularly resonating.
Has there been any other use cases, whether industry-specific or cross-industry use cases, that have started to resonate in Q2?
Ashim Gupta, Chief Operating Officer
Yeah. So look, I think our federal business is doing a really exceptional job. You know, Joe Perino is the leader there. I think he and the team have really impressed us and the entire team with how close they are getting to the customers and the agencies, partnering with incredible partners that are doing transformative work in the Department of Defense and many of the agencies well beyond it, and applying and learning some of the areas that we have in our healthcare business to some of the healthcare processes within the government.
All of those things are shaping up very nicely with the pipeline, and the work that we've done in terms of getting close to understanding and influencing the environment there has been really phenomenal. So we're actually very pleased with the trajectory of the federal business.
Daniel Dines, CEO & Founder
Yeah. And on the use cases, we are very excited here about our use case selling and our vertical solutions approach. So, besides test, we are seeing increased demand around revenue cycle management and, of course, on financial crimes where we see good pipeline creation. But also, Office of the CFO is a place where we are traditionally extremely strong, and also we launched recently our solution in financial services for loan origination. So overall, this is becoming a big area of focus for us, as we believe that vertical selling, solution selling, has the capability of pulling our entire platform.
And traditionally our business model was a lot on land and expand, and this really helps us to continue that motion.
UNKNOWN Analyst
Appreciate the thoughts, Daniel, thank you.
Megan, Conference Operator
Your next question will come from Jacob Serbib with William Blair. Your line is open. Please go ahead.
Jacob Serbib, Analyst at William Blair
Hi, how are you? This is Jacob on for Pat Mc, and thank you for taking my question. You spoke a little bit about less confusion around AI in the market, which is great to see. Can you talk a little bit about how your sales team is adapting to this new environment, and particularly as it relates to large new customer lands?
Daniel Dines, CEO & Founder
I think we are doing a lot of education in the market of what is basically the seam between where AI is best and where exact execution is best. And we, as I said in the previous answer, are changing our sales approach to be much more use case-based selling. We have started this trend in our U.S. business a couple of years ago, we perfected it here, and we plan to roll it more across our entire GTM organization.
Jacob Serbib, Analyst at William Blair
Got it. Thank you.
Megan, Conference Operator
Your next question will come from Raimo Lenschow with Barclays. Your line is open. Please go ahead.
Raimo Lenschow, Analyst at Barclays
Perfect. Thank you. Ashim, all the best, first of all. And then two questions, Daniel. The one thing that is coming up here today—and that's probably why we have the share reaction here after hours—is that it looks like there's a new AI model coming out from one of the big frontier guys that apparently is so much better in doing jobs or doing workflows. I don't want you to specifically answer that, but in your conversations with clients and with customers, how do you think about that?
You know, obviously AI is going to get better, but you guys are more in the deterministic world. How do you think about the workflows you guys are doing versus the workflows you think AI should be doing? I know it's a bit of a fundamental question again, but it's just coming up again and so it would be good to go through that again. And then I had one follow-up for Ashim.
Daniel Dines, CEO & Founder
Look, I, I had many discussions with our customers across the last few months. I think if you look at it, AI is getting more powerful by the day, obviously. But there is an interesting limitation of AI which I want to point to, which is that AI cannot learn on the job. Like when you hire an employee, you expect that—you don't give the manual, "This is how our business runs." No company is able to have this manual, and an employee learns by reading some documentation but learning from other people, being in meetings, talking to customers.
It's a continuous learning, so they get transformed by this experience. That's not true for AI. It's the same model you apply to all enterprises. In every question you ask AI, you basically have to provide the entire modus operandi of your enterprise. So if you think of this, the limitation is becoming clear that enterprises will have to create what I call a map of work, where you will have to describe in a very specific way how the enterprise works.
And you will have to also put as much effort as possible into building the framework that gives you rails in how the business operates. In my opinion, everything that can be done by automation and orchestration should be done by that because it's exact, it's reliable, it's tokenless, it costs less. And then AI is basically surrounding into this enterprise framework. In a way, you can look at our platform like an enterprise harness that can control and give AI all the information required to run an enterprise.
But all the customers I talk to, they want these workflows to sit on their property, not on the model's property. And all this manual that I'm talking about is their property; it's not the model company's property. So to me, that's really the best combination: having the enterprise framework that provides orchestration, automation, and that is the harness around the model that would provide the best optionality for an enterprise.
Raimo Lenschow, Analyst at Barclays
Yep. Okay. Okay, perfect. Yeah, makes sense. And then, Ashim, if I think about ARR and revenue—or the subscription revenue you're reporting—there's obviously a relationship. The last couple of years, revenue growth kind of ran ahead of what we've seen on ARR growth. How do you think about that relationship, and especially going forward as we think about going from here? And all the best. Thank you.
Ashim Gupta, Chief Operating Officer
Thanks, Raimo. And I'm not—I'm still here—but I appreciate everything, and I'm super excited to partner with Daniel. Look, Raimo, remember we have the 606 accounting phenomenon that is there, and so as we sell more of our total platform upfront, it changes the mix of licenses and the cloud-based software, particularly in some of the bundling of our platform. We'll get into more of that at Investor Day, so to speak. There's still a minor SaaS headwind that hits there, but depending on the mix of the deals and where we're selling more platform, that can result in a mix shift between the subscription service revenue and the license revenue.
That's really what it is. And so when you look at overall ARR, as we point to it—net new ARR—we're actually pleased with the acceleration that we're now seeing there. And I just want to emphasize that for everybody: between 606 and beyond, last year we were really going down year over year. First half of this year, we were kind of—like first quarter—we were pretty well stable. And you can see the results there for second quarter in terms of the acceleration. And that really shows you what we feel is the better reflection of the business and its trajectory today.
Megan, Conference Operator
Your next question will come from Terry Tillman with Truist Securities. Your line is open. Please go ahead.
Terry Tillman, Analyst at Truist Securities
Yeah, can you all hear me okay? Congrats to you on this expanded role as CFO. Two questions. The first question is just on the 18 of the top 20 deals including some sort of AI product attached. I am curious though, is it pretty similar in terms of that initial landing or impact? And was outcome-based monetization involved in any of those? And then I had a follow-up for Ashim.
Daniel Dines, CEO & Founder
Yes, Terry. Yeah. Yeah, I mean, again, the 18 of the top 20 deals which included AI is basically how we are seeing an excitement towards the platform from our customers. That's what we are seeing—that whenever AI is part of, or the platform is part of, the deal composition, the deal is naturally much larger than what we would have seen otherwise. And so that trajectory is there. Yeah, perfect.
Terry Tillman, Analyst at Truist Securities
Okay, all right, thanks for that. Yeah, absolutely, absolutely. I did—yeah. I've got the harder one for you, Ashim. I'm kidding. You know, talking about strengthening execution and leading strategic priorities, I assume you've got a whole slew of things that are more kind of low-hanging fruit, near-term things. And then maybe as you all end the year and you continue to evolve products, maybe there are some bigger things into next year. Anything at all you could share early on on some excitement in areas you see where you could have a quick impact?
Thank you.
Ashim Gupta, Chief Operating Officer
Yeah, I think we're already having quick impact. I think especially in terms of getting off to a fast start wholesale, I've seen a really remarkable execution and turnaround from our teams. Those turnaround times are now happening pre-deal closure, where our teams are moving faster on the delivery area. The second piece is just the coordination between our partners, our services team, and our FTE team as we go through complex implementations. I feel like those are areas where, while we can always improve, we're seeing some of the low-hanging fruit getting addressed there.
And I will tell you, I'm just super excited by the delivery and the connectivity that we see with the product team. Robo Melpani, our CTO, is incredibly field-oriented, and so that connection between product and delivery and go-to-market, I think, is something that, as it continues to strengthen, really gives us a right to win as we take on larger, more complex problems for our customer.
Terry Tillman, Analyst at Truist Securities
Got it. Thank you.
Megan, Conference Operator
Your next question will come from Veenod with Evercore. Your line is open. Please go ahead.
Veenod, Analyst at Evercore ISI
Hi everyone. Thank you for taking my question. You mentioned improved sales execution. Can you talk about some of the specific factors that are driving the improvement? And then are there any changes to how you're kind of compensating reps to incentivize them to, you know, get customers to try out more of your AI products? Thank you.
Ashim Gupta, Chief Operating Officer
Yeah, I think the first thing is it's really the team on the ground. We have incredible leaders across our, what I would say, our market units like U.S. Financial Services, U.S. Healthcare, Public Sector, our Manufacturing, and what we call Summit — kind of like our industrial and manufacturing enterprises — and really globally. Many of them have been in seat for a good period of time. So I think it really starts up front with their focus. It's less about Daniel, myself, and top-level leadership, but really the expertise that is being deployed in the field and just the message around customer first and trying to continue to cut the bureaucracy that we have over the last two years. And we still can do more, to be super clear on that. So I think that's one. The second piece is the cross-functional connectivity between product, sales, marketing — I think that is continuing to strengthen. It's very fast-paced, so how do we enable our sales teams faster and more thoroughly with better content? Those are areas of focus for us that are being driven by a number of leaders across the company.
And in terms of compensation, we, of course, use sales comp as a tool to drive it. The reality is, in a lot of customers there is a pull toward a broader platform, and frankly combining probabilistic with deterministic automation is a part of what we have. As we launch new products, we, of course, try to do incentives, whether that's SPIFFs or uplifts and quota retirements. We do that selectively, and we're really pleased with the results. But we have to continue to do that as the environment and our product portfolio move.
UNKNOWN Analyst
Thank you.
Megan, Conference Operator
Your next question will come from Samika Merchant with RBC Capital. Your line is open. Please go ahead.
Sanika Merchant, Analyst at RBC Capital Markets
Hey guys, this is Sanika on for Matt Hedberg from RBC. Thanks so much for taking the question and congrats on the quarter. You've talked about the positive traction you're seeing on your agentic offerings. Can you talk through how you're thinking about pricing to the company's agentic offerings over time, especially as customer adoption of these offerings starts to scale? Thanks.
Ashim Gupta, Chief Operating Officer
Yeah, we are still experimenting with different pricing models on our agentic offerings. We introduced recently a transaction-based pricing that is all-inclusive in our process orchestration of all the necessary calls that one has to do to complete a transaction. I would say that we are probably going more toward outcome-based pricing that would be inclusive of the tokens required to complete the transaction.
Sanika Merchant, Analyst at RBC Capital Markets
Got it. Super helpful, thank you. And just as a follow-up, you've talked about ARR acceleration and also talked about reaching the $2 billion ARR milestone. What would you say are the most important factors that could drive you to the higher end of your fiscal year '27 ARR expectations? And are there any puts or takes you would call out that we should keep in mind? Thanks.
Ashim Gupta, Chief Operating Officer
Yeah, as I mentioned earlier, we are seeing significant alignment with our customers, and the platform story is resonating extremely well with our customers, especially the combination of deterministic and agentic, which is helping us expand the deal size. That is one of the key things which we are excited about, and that is baked into our guidance as we think about Q3 and Q4.
Sanika Merchant, Analyst at RBC Capital Markets
Thanks guys. Congrats.
Ashim Gupta, Chief Operating Officer
Thank you.
Megan, Conference Operator
Your next question will come from Keith Bachman with BMO Capital Markets. Your line is open. Please go ahead.
Jonathan, Analyst at BMO Capital Markets
Hi, this is Jonathan on for Keith. Thanks for taking my question. Daniel, I wanted to direct this to you. You've talked a lot about governance and orchestration as customers are moving AI initiatives into production. So I wanted to ask, as you're engaging with customers today, where are you seeing the greatest urgency, and do those discussions tend to start with governance and control requirements or with broader orchestration initiatives? Thanks.
Daniel Dines, CEO & Founder
I would say that there is an increased appetite among our customers to get the breadth of our platform. I think, in a way, our platform aligns very well with the Gartner Magic Quadrant that is called business orchestration and automation technology. So I don't think necessarily that customers are waking up thinking, I want to buy orchestration, but I think definitely our customers are waking up thinking, What is the best platform that can help me get the outcomes, run the processes faster with less human errors, and bring in the AI, but in a way that preserves my intellectual property?
I think this combination of factors is what drives the platform at this point.
Jonathan, Analyst at BMO Capital Markets
Great, thank you.
Megan, Conference Operator
This concludes our Q&A session. I'd now like to turn the call back over to management for closing remarks.
Daniel Dines, CEO & Founder
Thank you so much for all the questions, and we are looking forward to seeing as many of you during the next few months and especially at our Fusion event in Vegas. Thank you.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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