UiPath, Inc.: Form 10-Q for the period ended Apr 30, 2023

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the fiscal year ended January 31, 2023 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 24, 2023 (the "2023 Form 10-K"). This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q. You should review the disclosure under under Part I, Item 1A, "Risk Factors," in the 2023 Form 10-K for discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.

Overview

First established in a Bucharest, Romania apartment in 2005, UiPath was incorporated in Delaware in 2015 as a company principally focused on building and managing automations and developing computer vision technology, which remains the foundation of our platform today. Since that time, we have evolved from our beginnings in RPA into an end-to-end AI-powered automation platform through development and acquisitions, launched new products, and expanded our operations across the globe. Our vision is to enable automation across all knowledge work to accelerate human achievement.

The UiPath Business Automation Platform is The Foundation of Innovation™, providing our customers with a robust set of capabilities that allow them to discover opportunities for automation, automate using a digital workforce that seamlessly collaborates with humans, and operate a mission critical automation program at scale. Our platform enables employees to quickly build automations for both existing and new processes and to utilize software robots to perform a vast array of actions including, but not limited to, logging into applications, extracting information from documents, moving folders, filling in forms, and updating information fields and databases. The ability of our software robots to replicate steps performed by humans in executing business processes drives operational efficiencies and enables companies to deliver on key digital initiatives with greater speed, agility, and accuracy.

Enterprise automation is here, and its momentum is growing as organizations around the world begin to understand the power of automation to drive efficiency and business outcomes. We aspire to be the defining company, advancing the evolution of automation as not just a tool, but as a way of operating and innovating.

Business Highlights for the Three Months Ended April 30, 2023:

• Revenue of $289.6 million increased 18% year-over-year.
• ARR of $1,248.9 million increased 28% year-over-year.
• Gross margin was 85% for the three months ended April 30, 2023, compared to 82% for the three months ended April 30, 2022.
• Cash flow from operations was $67.3 million for the three months ended April 30, 2023, compared to $(52.9) million for the three months ended April 30, 2022.
• Cash, cash equivalents, and marketable securities were $1,786.4 million as of April 30, 2023, compared to $1,759.8 million as of January 31, 2023.

The Macroeconomic Environment and Foreign Currency Fluctuations

Macroeconomic factors have affected our business and our customers’ businesses. Globally, we price our platform in local currency. Accordingly, the heightened volatility of global markets has exposed us and will continue to expose us to foreign currency fluctuations, which may impact demand for our platform, our near-term results, and our ability to predict future results. Further, cash, cash equivalents, and marketable securities represent a significant portion of our total assets; as such, liquidity concerns in the financial services industry may have an effect on our business, financial conditions, and results of operations.

Fiscal Year 2023 Restructuring Actions

On June 24, 2022, our board of directors approved restructuring actions to manage our operating expenses. These actions included an overall reduction of approximately 5% of our global workforce, aimed at simplifying our go-to-market approach to improve market segmentation, increase sales productivity, and provide best-in-class customer experience and outcomes. On November 10, 2022, our board of directors approved further restructuring actions, including an additional 6% workforce reduction to further support our strategic positioning to drive increased execution velocity, operational efficiency, and customer centricity. Refer to Note 11, Commitments and Contingencies—Restructuring included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.

Key Performance Metric

We monitor annualized renewal run rate ("ARR") to help us measure and evaluate the effectiveness of our operations.

ARR is the key performance metric we use in managing our business because it illustrates our ability to acquire new subscription customers and to maintain and expand our relationships with existing subscription customers. We define ARR as annualized invoiced amounts per solution SKU from subscription licenses and maintenance and support obligations assuming no increases or reductions in customers' subscriptions. ARR does not include the costs we may incur to obtain such subscription licenses or provide such maintenance and support, and does not reflect any actual or anticipated reductions in invoiced value due to contract non-renewals or service cancellations other than for specific reserves, for example those for credit losses or disputed amounts. At April 30, 2023 and 2022, our ARR was $1,248.9 million and $977.1 million, respectively, representing a growth rate of 28%. Approximately 20% of this growth rate was due to new customers and 80% of this growth rate was due to existing customers. Our dollar-based net retention rate, which represents the net expansion of ARR from existing customers over the preceding 12 months, was 122% and 138% as of April 30, 2023 and 2022, respectively. We calculate dollar-based net retention rate as of a period end by starting with the ARR from the cohort of all customers as of 12 months prior to such period end ("Prior Period ARR"). We then calculate the ARR from these same customers as of the current period end ("Current Period ARR"). Current Period ARR includes any expansion and is net of contraction or attrition over the last 12 months, but does not include ARR from new customers in the current period. We then divide the total Current Period ARR by the total Prior Period ARR to arrive at the point-in-time dollar-based net retention rate.

Our ARR may fluctuate as a result of a number of factors, including customers’ satisfaction or dissatisfaction with our platform, pricing, competitive offerings, economic conditions, overall changes in our customers’ spending levels, and our ability to successfully execute on our strategic goals. ARR should be viewed independently of revenue and deferred revenue as ARR is an operating metric and is not intended to be combined with or to replace these items. For clarity, we use annualized invoiced amounts per solution SKU rather than revenue calculated in accordance with U.S. GAAP to calculate our ARR. Our invoiced amounts are not matched to transfer of control of the performance obligations associated with the underlying subscription licenses and maintenance and support obligations. This can result in timing differences between our GAAP revenue and ARR calculations. Our ARR calculation simply takes our invoiced amounts per solution SKU under a subscription license or maintenance agreement and divides that amount by the invoice term and multiplies by 365 days to derive the annualized value. In contrast, for our revenue calculated in accordance with GAAP, subscription licenses revenue derived from the sale of term-based licenses hosted on-premises is recognized at the point in time when the customer is able to use and benefit from our software, which is generally upon delivery to the customer or upon the commencement of the renewal term, and maintenance, support, and SaaS revenue is recognized ratably over the term of the arrangement. ARR is not a forecast of future revenue. Unlike ARR, future revenue can be impacted by contract start and end dates and duration. The timing of recognition of ARR is determined by contract billing structure, whereas billing structure will neither accelerate nor delay recognition of future revenue. For example, in a multi-year contract invoiced upfront, ARR is the annualized invoiced amount per solution SKU related to the final year of the contract, whereas revenue is determined by total contract value and timing of transfer of the underlying performance obligations. ARR does not include invoiced amounts associated with perpetual licenses or professional services. Investors should not place undue reliance on ARR as an indicator of our future or expected results. Moreover, our presentation of ARR may differ from similarly titled metrics presented by other companies and may not be comparable to such other metrics.

A summary of ARR-related data at April 30, 2023 and 2022 is as follows:

(dollars in thousands)

Components of Results of Operations

Revenue

We derive revenue from the sale of: (1) software licenses for use of our proprietary software and related maintenance and support; (2) the right to access certain software products we host (i.e., SaaS); and (3) professional services.

In fiscal year 2023, we moved toward unifying our commercial offerings for products with both on-premise and cloud deployment options into a single offering that allows customers the choice of either deployment option throughout the term of the contract. These Flex Offerings replaced the hybrid offerings launched in fiscal year 2021. Flex Offerings are comprised of three types of performance obligations: term license, maintenance and support, and SaaS.

Most recently, we have seen an increase in sales of our Flex Offerings compared to sales of our legacy offerings (primarily on-premise solutions sold as term-based licenses bundled with maintenance and support). We expect this trend to continue and, as a result, a greater portion of our revenue will be recognized over time as subscription services revenue rather than as license revenue, which is typically recognized at a point in time.

Licenses

We primarily sell term licenses (including the term license portion of Flex Offerings), which provide customers the right to use software for a specified period of time. Revenue for licenses is recognized at the point in time at which the customer is able to use and benefit from the software, which is generally upon delivery to the customer or upon commencement of the renewal term.

Subscription Services

We generate subscription services revenue through the provision of: (1) maintenance and support services, which include technical support and unspecified updates and upgrades on a when-and-if-available basis for our licenses, and (2) SaaS products, including those sold as part of our Flex Offerings. Maintenance and support and SaaS products represent stand-ready obligations for which revenue is recognized ratably over the term of the arrangements.

Professional Services and Other

Professional services and other revenue consists of fees associated with professional services for process automation, customer education, and training services. Our professional services contracts are structured on a time and materials or fixed price basis, and the related revenue is recognized as the services are rendered.

Cost of Revenue

Licenses

Cost of licenses revenue consists of all direct costs to deliver our licenses to customers, amortization of software development costs related to our licenses, and amortization of acquired developed technology.

Subscription Services

Cost of subscription services revenue primarily consists of personnel-related expenses of our customer support and technical support teams, including salaries and bonuses, stock-based compensation expense, and employee benefit costs. Cost of subscription services revenue also includes third-party consulting services, hosting costs related to our SaaS products, amortization of acquired developed technology and capitalized software development costs related to SaaS products, and allocated overhead. Overhead is allocated to cost of subscription services revenue based on applicable headcount. We recognize these expenses as they are incurred. We expect cost of subscription services revenue to continue to increase in absolute dollars for the foreseeable future as our customer base grows. In the future, we expect further expansion of our cloud-based deployments. As sales of SaaS products become a larger percentage of our total revenue, we expect our gross margin to be impacted by increased hosting fees and cloud infrastructure costs.

Professional Services and Other

Cost of professional services and other revenue primarily consists of personnel-related expenses of our professional services team, including salaries and bonuses, stock-based compensation expense, and employee benefit costs. Cost of professional services and other revenue also includes expenses related to third-party consulting services and allocated overhead. We recognize these expenses as they are incurred. We expect cost of professional services and other revenue to increase in absolute dollars for the foreseeable future as our customer base grows.

Operating Expenses

Our operating expenses consist of sales and marketing, research and development, and general and administrative expenses. Personnel-related expenses are the most significant component of operating expenses and consist of salaries and bonuses, stock-based compensation expense, and employee benefit costs. Operating expenses also include allocated overhead.

Sales and Marketing

Sales and marketing expenses consist primarily of personnel-related expenses associated with our sales and marketing teams and related sales support teams, including salaries and bonuses, stock-based compensation expense, and employee benefit costs. Sales and marketing expenses also include sales and partner commissions, marketing event costs, advertising costs, travel, trade shows, other marketing materials, and allocated overhead. We expect that over the longer term our sales and marketing expenses will decrease as a percentage of revenue, although this percentage may fluctuate from period to period due to timing and extent of expenses.

Research and Development

Research and development expenses consist primarily of personnel-related expenses, including salaries and bonuses, stock-based compensation expense, and employee benefits costs for our research and development employees, and allocated overhead. Research and development costs are expensed as incurred, with the exception of certain software development costs which are eligible for capitalization. We expect that our research and development expenses will increase in absolute dollars for the foreseeable future as we continue to invest in efforts to develop new technology and enhance the functionality and capabilities of our existing products and platform infrastructure. Our research and development expenses may fluctuate as a percentage of revenue from period to period due to the timing and extent of expenses.

General and Administrative

General and administrative expenses consist primarily of personnel-related expenses, including salaries and bonuses, stock-based compensation expense, and employee benefits costs associated with our finance, legal, human resources, compliance, and other administrative teams, as well as accounting and legal professional services fees, other corporate-related expenses, and allocated overhead. We expect that over the longer term our general and administrative expenses will decrease as a percentage of revenue, although this percentage may fluctuate from period to period due to timing and extent of expenses.

Interest Income

Interest income consists of interest income earned on our cash deposits, cash and cash equivalents balances, and marketable securities.

Other Income (Expense), Net

Other income (expense), net primarily consists of foreign exchange gains and losses. Other income (expense), net also includes gains and losses associated with foreign currency forward contracts for those periods in which such contracts were outstanding.

Provision For Income Taxes

Provision for income taxes consists of U.S. federal and state income taxes and income taxes in foreign jurisdictions in which we conduct business. We maintain a full valuation allowance on our U.S. federal and state, Romanian, and U.K. DTAs, as we have concluded that it is more likely than not that these DTAs will not be realized. Our effective tax rate is affected by tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions, as well as by non-deductible expenses as permanent differences and by changes in our valuation allowances.

Results of Operations

The following tables set forth selected condensed consolidated statement of operations data and such data as a percentage of total revenue for each of the periods indicated:

(in thousands)

26

27

Comparison of the Three Months Ended April 30, 2023 and 2022

Revenue

(dollars in thousands)

Total revenue increased by $44.5 million, or 18%, for the three months ended April 30, 2023 compared to the three months ended April 30, 2022, primarily due to a $30.9 million increase in subscription services revenue, related in part to the transition to our Flex Offerings, and a $17.0 million increase in licenses revenue. As we continued to expand our sales efforts in the United States and internationally, total revenue grew across all regions. Of the increase in total revenue, approximately 25% was attributable to new customers and approximately 75% was attributable to existing customers.

Cost of Revenue and Gross Margin

(dollars in thousands)

Total cost of revenue decreased by $1.3 million, or 3%, for the three months ended April 30, 2023 compared to the three months ended April 30, 2022, due to a decrease in cost of professional services and other revenue, partially offset by an increase in cost of subscription services revenue. The decrease in cost of professional services and other revenue was primarily driven by a $1.6 million decrease in personnel-related expenses, largely resulting from a $1.2 million decrease in stock-based compensation, and a $2.0 million decrease in costs associated with the use of third-party vendors to deliver professional services to our customers. The increase in cost of subscription services revenue was primarily driven by a $1.3 million increase in personnel-related expenses, related to increased headcount, and an aggregate $0.7 million increase in software services costs, depreciation and amortization, and travel-related expenses.

Our gross margin increased to 85% for the three months ended April 30, 2023 compared to 82% for the three months ended April 30, 2022 as a result of strong year-over-year revenue growth, as well as a net reduction in personnel-related expenses and lower costs associated with the use of third-party vendors to deliver professional services to our customers.

Operating Expenses

Sales and Marketing

(dollars in thousands)

28

Sales and marketing expense decreased by $29.4 million, or 15%, for the three months ended April 30, 2023 compared to the three months ended April 30, 2022. This decrease was primarily attributable to a $31.7 million decrease in personnel-related expenses, inclusive of a $17.6 million decrease in stock-based compensation, with the remainder of the decrease due to reduced headcount, primarily resulting from our restructuring actions of which a significant portion occurred during fiscal year 2023. Sales and marketing expense was also impacted by a $3.2 million decrease in third-party consulting fees, a $1.5 million decrease related to a non-recurring abandonment and impairment charge associated with the early termination of a leased office space incurred during the first quarter of fiscal year 2023, and a $1.2 million decrease in marketing expense. These decreases were partially offset by a $2.7 million increase in hosting and software services costs, a $2.2 million increase in travel-related expenses as a result of planned marketing events, a $1.9 million increase in the amortization of capitalized contract acquisition costs as a result of higher commissions earned, and a $0.6 million increase in depreciation and amortization driven by Re:Infer intangibles acquired during the second quarter of fiscal year 2023.

Research and Development

(dollars in thousands)

Research and development expense increased by $6.7 million, or 10%, for the three months ended April 30, 2023 compared to the three months ended April 30, 2022. The increase was primarily attributable to a $3.6 million increase in personnel-related expenses, which included a $5.2 million increase in gross salaries and other payroll related expenses, largely due to an increase in headcount, partially offset by a $1.9 million decrease in stock-based compensation. Research and development expense was also impacted by a $2.0 million increase in third-party software service and hosting costs, and an aggregate $1.1 million increase in travel costs and depreciation and amortization.

General and Administrative

(dollars in thousands)

General and administrative expense decreased by $0.9 million for the three months ended April 30, 2023 compared to the three months ended April 30, 2022. This decrease was primarily attributable to a $2.7 million decrease in third-party consulting fees, a $2.5 million decrease in software service expense, and a $2.5 million decrease in credit loss expense primarily associated with customers in Russia impacting collections during the first quarter of fiscal year 2023. These decreases were partially offset by a $3.7 million increase in charitable donations, mainly driven by our contribution of Class A common shares to a donor-advised fund during the first quarter of fiscal year 2024 in connection with our Pledge 1% commitment. Additionally, general and administrative expense was impacted by a $2.1 million increase in personnel-related expenses, which included a $4.3 million increase in stock-based compensation and a $0.4 million increase in employee termination benefits related to our restructuring actions of which a significant portion occurred during fiscal year 2023, partially offset by a $2.7 million decrease in other employee benefits.

Interest Income

(dollars in thousands)

29

Interest income increased by $12.9 million, or 1,297%, for the three months ended April 30, 2023 compared to the three months ended April 30, 2022 as a result of a period-over-period increase in interest rates on marketable securities, money market accounts, and cash deposits.

Other Income (Expense), Net

(dollars in thousands)

Other income (expense), net increased by $7.1 million, or 253%, for the three months ended April 30, 2023 compared to the three months ended April 30, 2022. The increase was primarily attributable to gains from amortized discounts on marketable securities and greater foreign currency transaction losses incurred in the prior period.

Provision For Income Taxes

(dollars in thousands)

Provision for income taxes decreased by $1.2 million, or 24%, for the three months ended April 30, 2023 compared to the three months ended April 30, 2022. The decrease in provision for income taxes was primarily driven by lower foreign tax expenses resulting from lower year-over-year earnings of our cost-plus entities in certain foreign jurisdictions as we continue to cut costs internationally.

Liquidity and Capital Resources

We have financed operations since our inception primarily through customer payments and net proceeds from sales of equity securities. Our principal uses of cash in recent periods have been to fund our operations, invest in capital expenditures, and engage in various business acquisitions. As of April 30, 2023, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $1,786.4 million, and we had an accumulated deficit of $1,856.2 million. During the three months ended April 30, 2023, we reported a net loss of $31.9 million, and net cash provided by operations of $67.3 million.

Our future capital requirements will depend on many factors, including our revenue growth rate, sales of our products and services, license renewal activity, the timing and the amount of cash received from customers, the expansion of sales and marketing activities, the timing and extent of spending to support development efforts, the introduction of new and enhanced products, the continuing market adoption of our products, expenses associated with our international expansion, and the timing and extent of capital expenditures to invest in existing and new office spaces. We may in the future enter into arrangements to acquire or invest in complementary businesses, products, and technologies. We may be required to seek additional equity or debt financing. In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business, operations and financial condition.

We believe that our existing cash, cash equivalents, marketable securities, payments from customers, and borrowing capacity will be sufficient to fund our anticipated cash requirements for the next twelve months and the long term.

Credit Facility

In October 2020, we entered into the Credit Facility with HSBC Ventures USA Inc., Silicon Valley Bridge Bank, N.A. (as successor to Silicon Valley Bank), Sumitomo Mitsui Banking Corporation, and Mizuho Bank, LTD. Our obligations under the Credit Facility are secured by substantially all of our assets, except for our intellectual property. The Credit Facility contains certain customary covenants, including, but not limited to, those relating to additional indebtedness, liens, asset divestitures, and affiliate transactions. We may use the proceeds of future borrowings under the Credit Facility for refinancing other indebtedness, working capital, capital expenditures and other general corporate purposes, including permitted business acquisitions.

Borrowings under the Credit Facility bear interest at a base rate, as defined in the Credit Facility, plus a margin of 2.0% or 3.0% depending on the base rate. The Credit Facility is subject to customary fees for loan facilities of this type, including ongoing commitment fees at a rate of 0.25% per annum on the daily amount available to be drawn. As of April 30, 2023, we had no outstanding debt under the Credit Facility.

Cash Flows

The following table summarizes our cash flows for the periods presented:

(in thousands)

Operating Activities

Our largest source of operating cash is cash generation from sales to our customers. Our primary uses of cash from operating activities are for personnel-related expenses, direct costs to deliver licenses and provide subscription and professional services, and marketing expenses. To date, our operating cash flows have generally been negative and we have supplemented working capital requirements primarily through net proceeds from the sale of equity securities.

Net cash provided by operating activities for the three months ended April 30, 2023 of $67.3 million was driven by cash collections from our customers, which were approximately 39% higher than during the three months ended April 30, 2022. These cash inflows were partially offset by cash payments for operating expenditures, primarily associated with the compensation of our teams, including annual bonuses paid in the first quarter of fiscal year 2024. Other cash operating expenditures included payments related to our workforce restructuring, costs for professional services, software, and office rent.

Net cash used in operating activities for the three months ended April 30, 2022 of $52.9 million was driven by cash payments for operating expenditures, primarily associated with the compensation of our teams, including annual bonuses paid in the first quarter of fiscal year 2023. Other cash operating expenditures included payments for professional services, software, and office rent. These outflows were partially offset by cash collections from our customers.

Investing Activities

Net cash used in investing activities for the three months ended April 30, 2023 of $135.6 million was primarily driven by $215.4 million in purchases of marketable securities and $1.9 million in capital expenditures, partially offset by $79.0 million in maturities of marketable securities.

Net cash used in investing activities for the three months ended April 30, 2022 of $15.7 million was primarily driven by $21.9 million in purchases of marketable securities and $9.7 million in capital expenditures, partially offset by $14.8 million in maturities of marketable securities.

Financing Activities

Net cash used in financing activities for the three months ended April 30, 2023 of $20.6 million was driven by payments of tax withholdings on the net settlement of equity awards of $25.9 million and net payments of tax withholdings on sell-to-cover equity award transactions of $0.6 million, partially offset by proceeds from employee stock purchase plan contributions of $4.7 million and proceeds from the exercise of stock options of $1.2 million.

Net cash used in financing activities for the three months ended April 30, 2022 of $18.2 million was driven by payments of tax withholdings on the net settlement of equity awards of $17.3 million and net payments of tax withholdings on sell-to-cover equity award transactions of $10.0 million, partially offset by proceeds from employee stock purchase plan contributions of $6.4 million and proceeds from the exercise of stock options of $2.8 million.

Material Cash Requirements

See Note 11, Commitments and Contingencies—Non-Cancelable Purchase Obligations, for further details on the timing of our purchase commitments. There were no other significant changes to our material cash requirements during the three months ended April 30, 2023 from the contractual obligations disclosed in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” set forth in the 2023 Form 10-K.

Critical Accounting Estimates

There have been no material changes to our critical accounting estimates as compared to those disclosed in the 2023 Form 10-K.

Recent Accounting Pronouncements

None.

We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is principally the result of fluctuations in interest rates and foreign currency exchange rates.

Interest Rate Risk

As of April 30, 2023, we had $1,311.6 million of cash and cash equivalents. Cash and cash equivalents consist of cash in banks, bank deposits and money market accounts. In addition, we had $474.8 million of marketable securities, consisting of corporate bonds, commercial paper, municipal bonds, agency bonds, and treasury bills and U.S. government securities. Such interest-earning instruments carry a degree of interest rate risk. The primary objectives of our investment activities are the preservation of capital, the fulfillment of liquidity needs, and the fiduciary control of cash. We do not enter into investments for trading or speculative purposes. The Credit Facility allowed us to borrow up to $200.0 million as of April 30, 2023, but there were no amounts outstanding thereunder. The effect of a hypothetical 10% change in interest rates would not have had a material impact on our condensed consolidated financial statements for the three months ended April 30, 2023.

Foreign Currency Exchange Risk

The functional currency of our non-U.S. subsidiaries is the local currency. Asset and liability balances denominated in non-U.S. dollar currencies are translated into U.S. dollars using period-end exchange rates, while translation of revenue and expenses is based upon average monthly rates. Translation adjustments are recorded as a component of accumulated other comprehensive income, and transaction gains and losses are recorded in other income (expense), net on our condensed consolidated financial statements. The estimated translation impact to our condensed consolidated financial statements of a hypothetical 10% change in foreign currency exchange rates would amount to $14.8 million for the three months ended April 30, 2023. During the three months ended April 30, 2023, approximately 58% of our revenues and approximately 35% of our expenses were denominated in non-U.S. dollar currencies. For the three months ended April 30, 2023 we recognized net foreign currency transaction losses of $0.8 million.

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. In addition, they are designed to ensure that such information is accumulated and communicated to our management, including our Co-Chief Executive Officers ("Co-CEOs") and Chief Financial Officer ("CFO") as appropriate to allow timely decisions regarding required disclosure.

Pursuant to in Rules 13(a)-13(e) and 15(d)-15(e) under the Exchange Act, our management, with the participation of our Co-CEOs and CFO, performed an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Co-CEOs and CFO concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of April 30, 2023.

Changes in Internal Control Over Financial Reporting

During the three months ended April 30, 2023, no change in internal control over financial reporting was identified in connection with the evaluation required by Rule 13a-15(d) and Rule 15d-15(d) of the Exchange Act that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

Our management, including our Co-CEOs and CFO, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at a reasonable assurance level. However, any control system, no matter how well designed and operated, can only provide reasonable, not absolute, assurance that its objectives will be met. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures and internal control over financial reporting, including resource constraints, errors in judgment, and the possibility that controls and procedures will be circumvented by collusion, by management override, or by mistake. Additionally, the design of any control system is based in part on management assumptions about the likelihood of future events, and there can be no assurance that the system will succeed in achieving its objectives under all potential future scenarios. As a result of these limitations, our management does not expect that our disclosure controls and procedures and internal control over financial reporting will prevent all potential errors or fraud or detect all potential misstatements due to error or fraud.

Our operations and financial results are subject to various risks and uncertainties, some of which are beyond our control. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risks discussed in the 2023 Form 10-K, including the disclosure under Part I, Item 1A, "Risk Factors,” which are risks we believe could materially affect our business, financial condition and future results. These are not the only risks we face. Other risks and uncertainties we are not currently aware of or that we currently consider immaterial also may materially adversely affect our business, financial condition and future results. Risks we have identified but currently consider immaterial could still materially adversely affect our business, financial condition and future results if our assumptions about those risks are incorrect or if circumstances change.

There have been no material changes to the risk factors previously disclosed in Part I, Item 1A of the 2023 Form 10-K.