Q2 2022 GitLab Inc Earnings Call
Forward looking statements and our business, we encourage you to refer to our earnings release distributed today, and our SEC filings, including our most recent quarterly report on Form 10-Q.
All forward looking statements are based upon information currently available to US we caution you to not place undue reliance on forward looking statements and we do not undertake any duty or obligation to update or release any revisions to any forward looking statement or to report any future events or.
And scientists or to reflect the occurrence of unanticipated events.
In addition, during this call certain financial performance measures may be discussed that differ from comparable measures contained in our financial statements prepared in accordance with U S. Generally accepted accounting principles referred to as non-GAAP financial measures.
These non-GAAP measures are not intended to be a substitute for our GAAP results.
We believe that these non-GAAP financial measures assist management and investors in evaluating our performance on comparing period to period results of operations as discussed in greater detail in the supplemental schedules to our earnings release.
A reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is included in our earnings press release submitted to the SEC.
These reconciliations together with additional supplemental information are available at the Investor Relations section of our website.
A replay of today's call will also be posted on the website I will now turn the call over to get that <unk> co founder and Chief Executive Officer, Jim <unk>.
For joining us for our fiscal year 2023 second quarter earnings presentation. We continued to see strong momentum in our business and we believe that our second quarter results indicate that the market is embracing our Dev ops platform leadership position.
We also executed well in the quarter, demonstrating our ability to achieve higher growth with increasing operating leverage.
In the second quarter of fiscal 2023.
Seeded our guidance with revenue of $101 million.
This represents revenue growth of 74% year over year.
Our dollar based net retention rate exceeded our own reporting threshold of 130%.
This remains best in class and consistent with our track record as a public company.
Our second quarter results also continued to demonstrate the attractive unit economics underlying our business.
Our non-GAAP operating margin improved by 500 basis points year over year, and we remain committed to growing in a responsible manner.
Every company needs to be great at developing securing and operating software or they will be disrupted.
This core capability, what's called Dev ops is a must have.
Any macroeconomic environment.
Enterprises are navigating economic uncertainty, while still needing to embrace the imperatives of digital transformation cloud migration.
And App modernization.
Our customers choose to get that to accomplish more with the people that they already have.
Delivering software fast and efficiently in a secure way is essential for success.
<unk>, one Dev ops platform empowers them to do exactly that.
With one data model and a single interface, we create a more efficient and captivating user experience.
With get lab everything from planning building, securing deploying and monitoring software all resides in a single application.
This mission critical software helps companies eliminate the costly integration work you have when using point solutions and.
And it also allows us to create and released software faster.
While strengthening software security and compliance.
This combination drives business and technology transformation. There are three main topics that I will cover today first I will explain how we enable all types of customers to realize the promise of Dev ops by moving to a platform approach.
Second I will discuss how we are leading the industry and product innovation and highlight the recent enhancements from our major get last 15 launch.
I will share our view of <unk> value proposition and how we are well positioned to succeed.
Our differentiation starts with our core value of iteration, which in turn drives our rapid pace of innovation.
Levis far ahead.
In the comprehensiveness of its Dev ops platform every month on the 20 <unk>, we shipped a new version of get lab with many new features and improvements.
We've done this for 130 months in a row.
Our innovation is also driven by open core nature of get lap.
Which means that our customers and users contribute to the capabilities of the platform, enabling us to drive even more differentiation and value for all of our customers.
Every quarter hundreds of improvements are contributed by our customers. Our differentiation also extends to security and compliance in today's environment security is a business imperative.
We believe we have the most comprehensive security offering in the market, enabling companies to truly adopt depth SEC ops practices.
With get lap security is integrated throughout the software development and deployment process. Our capabilities include dynamic and static testing.
Vulnerability management dependency and container scanning and coverage guided first testing, which enables customers to find vulnerabilities that at our QA processes cannot find organizations shouldn't have to trade off compliance requirements with their speed of innovation.
Developers should be able to easily fair if I the compliance of their code without having to leave their workflow.
You can get lab visibility to perform compliance is automated and resides within the platform.
This removes the need for compliance managers to require developers to context switch among different point solutions loosing productivity and efficiency in the process.
We believe the future of compliance or Chris automation.
When you create software today, you don't write all of the code yourself. Instead, you have a supply chain of external dependencies like open source libraries that are bundled into a modern software development.
However, a problem arises with so many dependencies, there is no way to accurately and efficiently check all of it manually for security vulnerabilities.
This can have devastating effects when failing to identify security threats rollback vulnerable coat and fixed and redeployed a code.
This manual process content slate into significant financial and brand damages given the existing debt landscape.
The only effective pathway forward is to automate that process, making the cycle time from identifying a vulnerability rolling back to coat and redeploying it shorter and shorter.
Get lap makes that level of automation seamless for our customers. We have the most advanced offering in the market as validated by customers like hacker, one and Deutsche Telekom.
They use our comprehensive capabilities to secure their software supply chain and make their security and compliance checks more efficient.
Our differentiated value to customers is that the securities integrated into our product, it's not bolted on as an afterthought.
Get labs comprehensive security offering with so many features allows customers to consolidate their spend.
They no longer have to integrate with so many other security vendors more importantly, they can create more secure software by shifting security practices earlier in the development process.
Performing threat and vulnerability analysis as developers create the code not after they deployed it.
Earlier, you integrate security the easier it is to address potential concerns.
Have you become more productive.
And you can afford it.
Every project and every change.
Furthermore, because all of the security checks are happening on the same platform customers can prove that they performed all of the security tax for that code.
With the do it yourself or DIY Dev ops approach that requires stringing together disparate point solutions are similar endeavor will require much more personnel and resources.
Next I would like to discuss the new advancements in Gilad <unk>, our latest major release.
We focused on three main areas of innovation across the Dev ops lifecycle.
The first area of innovation is enterprise agile planning when we talk to customers are primary pinpoint we hear is that existing point solutions lead to a poor user experience while they may meet the needs of the individual the full short of addressing the needs of the broader organization.
As an end to end platform <unk> is uniquely positioned to integrate planning with execution and a seamless matter, we enable business leaders to drive their vision, while empowering Dev ops teams to deliver value more effectively and efficiently by improving how they collaborate.
The second area of innovation is continuous security and compliance are customers are looking to solve the pain point of a fragmented security experience, which slows down development cycle time and creates more risk you don't want to make a false trade off between speed and security they want security and compliance to be embedded end to end.
Across the software development lifecycle without sacrificing speed.
You can get lot 15, we've introduced new capabilities around software supply chain security advanced security scanning streamed audit events and more comprehensive governance.
The third area of innovation and our use of artificial intelligence and machine learning.
This area is particularly exciting because it makes our product better and it enables us to broaden the appeal of our platform, even more use cases and personas.
To illustrate how we are leveraging AI to improve the product.
We now have a feature where get lab will suggest to developers who should review their code.
Can find an expert who can provide better feedback.
Which creates more efficiency swell as higher quality more secure.
Invite more persona studio platform like data scientists. We are also integrating the Dev ops process with the <unk> process.
We see this as the next big step in consolidating historically separate development workflows today machine learning is an essential part of modern application development every significant application is going to have both code and models. Those models go through a lifecycle themselves.
Which includes training testing and deploying.
Data scientists and engineers are critical stakeholders in this process get traditionally they have been excluded from the collaboration and efficiency benefits of Dev ops and automation.
Relying on either manual processes or bespoke tool chain that they need to maintain.
The benefits of our platform will help data scientists and engineers in a number of ways from collaboration with other teams.
Planning and managing project strengths version control for automated workflows streamline testing and validation.
And simplified infrastructure management across multiple cloud providers.
We are excited about the significant amount of innovation on our platform from enterprise agile planning to security to compliance to AI and machine learning.
Finally, I would like to address why are one <unk> platform value proposition is mission critical and resonating with customers in the market.
From speaking with customers and prospects. We've assessed that companies are looking to achieve five main outcomes from their Dev ops budget.
They wanted to consolidate their software spend.
Don't want to spend money in engineering time integrating tools.
They would like to get more productivity from the current people they already hired.
It would like the Devil's process to better enable their entire organization to deliver value to their customers faster.
And they would like to generate more revenue by releasing customer facing applications faster.
Get lab provides a solution to achieve all of these outcomes are one <unk> platform helps companies reduce costs by consolidating from many vendors down to one it frees up people from integration work and in addition, moving to a platform allows for closer collaboration between development security and operations teams.
With fewer context switches, which increases productivity and user satisfaction.
<unk> delivers is a faster cycle time faster execution on cost saving initiatives.
Opportunity for revenue acceleration to quantify these benefits based on a study conducted by Forrester consulting and commission by get lap our customers saw a 407% return on investment within three years of deployment of our <unk> platform.
Having a comprehensive platform. That's also many problems while at the same time saving money just superpower in economically challenging times.
This value proposition translate it into a number of strong business highlights in the second quarter.
I am proud to share that we added 696 net new based customers.
Now let me give you an example of a new logo win and up tier and our customer expansion first.
Our North American based global leader in cross border peer to peer payments needed the Devil's platform that streamline and automated processes reduce cycle time and provided the ability to set in our force organizational policy across every stage of their development process.
From a <unk> proof of value engagement, they realized 30% efficiency improvement and building securing and deploying versus their previous tool chain implementation for both new and changing applications.
As a result, they became it get lab SaaS ultimate customer, replacing a previous vendors implementation.
Our North American consumer research data and analytics firm, who has been a get left startup customers. Since 2015 merged multiple business units, which had completely siloed Dev ops tools and.
New corporate initiative to move to the cloud catalyze the need to quickly consolidate onto a single platform to standardize their entire Dev lifecycle to increase operational efficiencies.
Decrease cycle time and increase developer productivity.
By migrating to get lab. They immediately saw a three X increase in productivity due to less maintenance time and fewer costs with a fully integrated get lap SCE MSCI subsequently upgraded to premium.
And finally, the North American based motor vehicle manufacturing company was looking for an alternative to their existing Dev ops products, because their workloads far exceeded the scaling capabilities of those tools.
After working closely with get lab, we demonstrated our unique ability to scale to meet their volume needs. We're also enabling them to consolidate their tools as a result of customer expanded in the second quarter, increasing their number of premium licenses by 40%.
Another key strength of our go to market value proposition is our relationship with cloud Hyperscale.
They view get lab is an accelerant for customers to move to the cloud faster.
Also pleased with the number of higher level strategic conversations that are happening at the C level addressing how get lab can help them solve their business problems.
In fact in Q2, we were named as Google Cloud partner of the year for application development.
Following up from last year and get that was awarded Google cloud partner of the year for Dev ops.
A powerful example of the results from these alliances as Keybank one of North America's largest financial services companies Keybanc recently formed a partnership with Google Cloud platform, our TCP to move workloads from data centers to Google cloud in.
In addition to their cloud migration effort App development and modernization are key parts of their digital transformation goals.
Their employees embrace a continuous integration and continuous deployment software development model, which the industry calls CIC.
They choose get lab to bring together their Dev ops process, making an initial purchase of several hundred ultimate licensees.
We see this type of close alignment with other cloud providers, including AWS in the second quarter get lap and AWS work together to help a major airline manufacturing significantly reduced their risk of loss in downtime that was required for their business critical development needs.
<unk> is now critical to this customer's developer team success. They have now standardized across thousands of users and cross the $1 billion threshold as a customer these customer success stories in combination with the growth of our alliances and partnerships clearly showed that the market is moving towards.
Our platform approach to Dev ops.
We recently published our sixth annual state of desk <unk> report.
<unk> research study of over 5000 Dev ops professionals from around the world. Among the many findings we see a continued need for tool consolidation, 85% of Dev ops teams use between two intense holes and with 69% of survey participants same date likely consolidate their tool chains.
The need for a desk checkups platform is cleared.
In summary, I'm very pleased with the quarter, we continued to innovate and create new capabilities for an expanded set of customers. We continue to demonstrate the promise of our plants from over point solution approach and we continue to show that <unk> is mission critical and.
And we continue to believe that we are early in our large and growing market.
Our Q2 results demonstrate that we are well positioned to drive durable growth with improving unit economics.
I'm grateful to all our team members partners.
Way to get life community and customers, who contributed to our results.
I want to thank Eric Johnson, our CTO he.
He has resigned effective October one and we will stay on as an advisor for six months.
Eric has been with get labs, since 2017, and I want to thank Erik for our partnership over the last five years and wish him. The best of luck and I will now turn the call over to Brian Robbins get Labs, Chief Financial Officer. Thank you, Sir and thank you again to everyone. Joining us today I'd like to spend a moment reviewing the key characteristics of our business model and.
What we're seeing in the macro environment, then I will quickly recap, our second quarter financial results and key operating metrics and conclude with our guidance our platform delivers a strong ROI and positive business outcomes customers continually tell us that they strongly support our pricing model. Our platform is offered with a free version and two.
Paid subscription tiers, which we call premium and ultimate are paid tiers of price per user with different features per tier every user within an organization is on the same plan, which helps to keep our business small transparent and easy to understand our second.
Quarter results continue to demonstrate our ability to drive high growth with improving incremental margins fueling. These results are a number of key aspects of our business model that I would like to discuss briefly. These include the predictability of a subscription model that provides high visibility.
Our platform sale, rather than a point solution sale with.
The diversified customer base across industry verticals customer sizes and geographic regions.
A short implementation cycle.
And in established and well documented ROI.
In addition, we practice our platform in U S dollars. So we have no currency impact.
These attributes contribute to the results we are seeing to illustrate this customer cohorts from seven years ago are still expanding today.
Despite the volatility in the macroeconomic environment in the second quarter, we have not seen any impact to our business customers increasingly recognize the need to address multi year digital transformation challenges.
The current environment is not slowing down customer decisions, nor elongate our sales sites buying cycles have actually sped up across the business and we continue to see strong win rates.
We're also happy with how we executed on hiring.
Added a similarly strong number of new team members as we did in <unk> and we experienced lower attrition.
We view the uncertainty in the macro economy is a benefit for hiring new team members and we currently have over 225 open positions that we're actively looking to fill.
Next turning to the numbers.
Revenue of $101 million this quarter represents an increase of 74% organically from the prior year.
We added the largest number of base customers ever in a single quarter. We ended <unk> with over 50 years, and our customers, where they are or at least 5000 ounce compared to over 5100 customers in the prior quarter and over 3600 customers in the prior year. This represents a year over year growth rate of approximately 61%.
Currently customers with greater than $5000 in IRR represent approximately 95% of our total <unk>.
We also measure the performance and growth of our larger customers, who we define as those spending more than $100000 in <unk> with us at the end of the second quarter of FY 2023, we had 593 customers with <unk> of at least $100000 compared to 545 customers in the prior quarter.
And 383 customers in the second quarter of FY 2022.
This represents a year over year growth rate of approximately 55%.
As many of you know, we do not believe calculated billings to be a good indicator of our business.
Given that prior period comparisons can be impacted by a number of factors most notably our history of large prepaid multi year deals this quarter total RP over 76% year over year to $362 million.
We ended the second quarter was one dollar based net retention rate consistent with the previous quarter.
This exceeded our reporting threshold of 130%, which remains best in class and consistent with our track record as a public company.
The ultimate tier continues to be our fastest growing tier representing 39% of IRR for the second quarter of FY 2023, compared with 29% of IRR in the second quarter of FY 'twenty, two and continue to grow in excess of 100%.
non-GAAP gross margins were 89% for the quarter, which compares to 90% in the immediate preceding quarter and 88% for the second quarter of FY 2022.
As we move forward, we are estimating a moderate reduction in this metric due to the rapid year over year growth rate of our SaaS offering.
We saw improve operating leverage across the business this quarter, largely driven by revenue outperformance non-GAAP operating loss was $27 million or 27% of revenue.
Compared to a loss of $24 8 million or 42% of revenue in Q2 of FY 2022.
Q2, FY 2023 includes $5 million of expenses related to our JV and majority on subsidiary, we incurred a $2 $3 million cancellation fee in Q2 as a result of our decision to postpone contribute.
Our annual get lab team event.
Operating cash used was $36 $3 million in the second quarter of FY 2023, compared to $17 $1 million used in the same quarter last year.
In summary, we're pleased with our operating performance during the second quarter of FY 2023 on both the top and bottom line and believe our business is set up for continued strength, we continue to see rapid growth, while improving the underlying unit economics in the business, we monitor the key leading indicator metrics of our business and we are not.
See any softening in these indicators.
Now, let's turn to guidance for the third quarter of FY 2023, we expect total revenue of $105 million to $106 million representing.
Representing a growth rate of 57% to 59% year over year.
We expect a non-GAAP operating loss of $27 5 million to $26 $5 million and we expect a non-GAAP net loss per share of <unk> 16 to.
<unk> to <unk> 15, assuming 149 million weighted average shares outstanding.
For the full year FY 2023, we now expect total revenue of $411 million to $414 million, representing a growth rate of 63% to 64% year over year, we expect a non-GAAP operating loss of $111 5 million to $108 $5 million.
And we expect a non-GAAP net loss per share of <unk> 67 to.
64 <unk>.
Assuming a 148 million weighted average shares outstanding.
On a percentage basis, our new annual FY 2023 guidance implies non-GAAP operating margin improvement of approximately.
250 basis points year over year was the midpoint of our guidance ranges a few more details on guidance in our model. We now estimate that we will incur approximately $17 million of incremental expenses related to the resumption of travel and in person customer and marketing events as well as new public company costs that were not incurred in the first.
Three quarters of FY 2022 in.
In addition, we forecast approximately $20 million of expenses related to our China joint venture. This compares with $12 million of demand <unk> cost in FY 2022.
To note, we a deconsolidation of <unk>, our majority owned subsidiary.
On the finance team front Dale Brown, our principal accounting officer. He shared his intentions of retiring next year I want to thank Dale for all his contributions over the last three years and allowing for a smooth transition.
As Sid mentioned earlier, we believe we are addressing a very substantial market opportunity that is currently underpenetrated and that we're well positioned to capture our outsized portion of it.
There has been no philosophical change in how we run the business to maximize shareholder value over the long term, we continue to be focus on growth, while driving improvements in the unit economics of our business.
With that we will now move to Q&A SaaS question. Please use the chat feature and pose your question directly to IR questions.
We're ready for the first question.
Thank you Sid and Brian we will begin by going to cash at Goldman Sachs casually. Please verbalize your question.
Sure happy to thank you so much congrats on the quarter and a great operating margin improvement when you look at the.
The landscape competition and we've Microsoft has been talking about how it's not just about collaboration with developers the collaboration among office workers. There is a big thrust behind teams Youll see Appalachian going through a cloud transition the collaboration amongst developers and non developers execute priority at <unk>.
<unk> choices developer persona. So everybody is trying to make inroads into a demand that you have natural focus and concentration.
How does this change the competitive landscape is there an accelerant because there's more awareness of what you can do for developer productivity of the software development lifecycle.
And.
And how does your competitive position changed or not changed and one for you Brian as you go through the puts and takes.
Income statement cash flow et cetera, with the onetime joint venture expenses, how should we be thinking about the trajectory of mixed.
Mixture calendar 'twenty three with respect to some of the underlying improvements in operating efficiencies that may not be otherwise a fair. Thank you. So let me so much cash for those questions.
So if you look at it is not just for developers is for developers security people and operations team and getting them to collaborate well that's the essential part because then you can get from Hey, we plan to do this to getting it out there getting it in the hands of your customers getting feedback. So closing that loop is the most important thing and we.
The leading sic platform.
In our opinion.
And Thats.
Really spectacular because think about security, it's a really big market, we are replacing vendors like check marks.
Synopsys because we have the whole thing we have static and dynamic analysis, we have container independency scanning we have the best assessing tools in our opinion in the market and.
Not only do we have the most comprehensive security offering we're able to link it really compelling desk solution. We are expanding into operations. So people can do the entire cycle. That's the power of one platform and we believe that is really attractive in the in the market and so we're not in the chat tool business or something.
Like that but we do have the most comprehensive <unk> solution.
Got it.
And Kash I'll answer the question just around cash flow and so forth.
Im really happy with the business and the fact that we have a ratable business. So it's got a lot of visibility, we're really pleased with the trends that we're seeing.
The number one thing that said and I have articulated too on the roadshow as well as to the investor base's growth as the number one thing that we want to do but we'll do that responsibly. If you look at the second quarter, we delivered $101 million in revenue with a non-GAAP operating loss of $27 million. If you compare the second quarter of last year.
We added $43 million of incremental revenue at the same operating loss. If you extract G who if you look at our guidance at the midpoint, we're going to we're going to deliver approximately $160 million of additional revenue. This year over last year. It improved absolute operating loss and what we did last year.
Takeaway <unk> and some of the onetime events that we went through so I'm really happy on the incremental improvements that we've been making and the improving unit economics.
Thanks, so much.
Our next question is from call at UBS.
Yeah.
Well, if you're talking you're muted.
Surely we can go to the next one.
Next we have Matt at RBC.
Hey, guys. Thanks for taking my question Congrats on the quarter stood I wanted to start with you.
I'm curious in your prepared remarks, you called out a cloud a cloud or SaaS win and I asked you. This a couple of years ago, but I'm curious for an update here do you is there a network effect that customers see from increased cloud adoption sort of.
Do they all benefit from your learnings of what's happening with your SAP deployment.
I think there is something to that with the SaaS you are able to run experiments on a more granular level and youre able to see more detailed results. So the data we get from our SaaS services on like how new features are performing helps us improve the product for everyone. So increase as users means we know better.
How our customers are using the platform what features they enjoy what we should improve and it improves the product for both SaaS and self managed customers.
Super helpful. Yeah, We love to handle the increased traction there and then Brian one for you I mean, it sounds like youre not seeing any real macro pressure.
It doesn't feel like you're embedding anything into your guide or was it sort of just like the linearity question was it sort of business as usual for you guys was there any more backend loaded nature of the quarter, just maybe a little bit more granularity on that side.
Yeah, absolutely, we're super happy with the quarter to grow 74% year over year, and then also to add the largest number of out of the number of base customers in the company history. When we went back and looked at the sales cycles. The sales cycles are actually compressing this quarter. So we didn't we didn't see any elongation.
One of the things that.
Preparing for this earnings call and listened to a number of other Ceos and Cfos talk you really with the mission critical applications and software people are seeing moving away from the point solutions into our platform and so we saw a lot of that this quarter and really happy with the results that we delivered.
Congrats guys.
Thank you.
Next we'll move on to Michael from Keybanc.
Hey, guys. Thank Oscar both upon spin.
I think there.
Fantastic.
You've done and it's in an environment, where people are cutting back, including some reports of developer hiring cutting back so.
At that high level.
What's making embark that you continue to grow at these rates, even while some development developed price cutting back.
There are some projects that are being cut and then a quick question quick sort of housekeeping question for Brian .
Most of all thank you very much Michael.
Definitely seeing that companies are cutting back on hiring developers they are sometimes instituting a hiring freeze and the situation. They're faced with is that they have to do more with the people they already have and get a lot of enables them to do that.
When they move to get lamp, they save on the integration efforts. So the people who before were doing the integration of Dev ops tools can start doing something that adds value to the business directly.
All their existing people get more efficient we get line because you don't have to go from point solution to a point solution to point solutions to get more work done entity, so beacon without hiring.
Kind of feels like they have more development capacity.
And last but certainly not least by get lab helps them to go faster so they're able to move to the cloud SaaS to close their data centers and free up dose people to directly to their business. So on three levels moving to a platform helps and Thats why in this environment get lab is mission critical.
These are willing to for your budget for it.
It's not an option to not do this they have to undergo to digital transformation they have to move to the cloud.
Great Thanks sentiment than Brian some of them.
Last time.
Strong upside on the license side of the business last quarter, there was something of a boost from the way that you account. It is youre standalone selling accounting tends to push the Rev. Rec program was there any change in what that year over year benefit.
A couple of million dollars.
Yeah before I answer that let me, let me just add on to <unk> comments, just a little.
We are cohorts from seven years ago are still expanding with us today, so you're asking about developer hiring one of the things that we look at internally is landed Tam and so when we land an account.
Cohorts from seven years ago are still expanding with US say every single quarterly cohort has been doing that and so there is a lot of upsell within all of these accounts.
We currently have today and they start with premium they expand division departments eventually they upgrade to ultimate and so forth and so we feel that there is despite some of the hiring things theres a lot of landed Tam for us to address.
On the license side I talked about the record quarter based customer adds.
Just had a great quarter and we do recognize a small portion of the revenue upfront.
And that's what.
Impacted the license revenue with ASC 606, you do an annual assessment and so the percentage that we use this year versus last year slightly higher and we will use every quarter for the remainder of this year and then as we go into first quarter of next year, we'll do another annual assessment and see where that's at.
Thanks, Brian .
Thanks, Michael.
Our next question is from Rob from Piper Sandler.
Great. Thanks for taking my question would love to just drill down a little bit more relative to the the record quarter of base customer ads and so does this maturity of the platform is this economic isn't channel can you kind of stack rank for us why youre seeing such success right now and then.
This environment relative to those new net adds and then I do have a follow up for Brian .
Yeah. Thanks to that we believe that we're very early in a big market opportunity for us and our biggest competitor together, where less than 5% of us $40 billion market.
Gartner said Devils platform adoption is 20% now grown to 60% over a couple of years and if anything the need to consolidate the need to have fewer tools less integration efforts is only accelerating companies can't afford any more to spend and solve everything by hiring more people so that the macroeconomic.
Challenges the company faces only makes it more of an imperative to consolidate to go to the cloud faster and to embrace platforms like Atlanta.
Great and then Brian building, a little bit on <unk> question around linearity.
Did see.
AAR creep up and so if we match that kind of billings.
Billings days outstanding higher than previous quarter. So is this linearity as economic as this big deals are these new levels.
It should be sustained moving forward can you help us out a little bit on that front. Thanks.
Yes, I would just say that the yield on the billing we had two invoices one that's been collected one that we'll get any day now and so that's on the on the billing that you've seen sort of the dsos tick up a little and I and I would just.
Great for the quarter, there wasn't really anything outside in the quarter that happen that hasn't happened in other quarters and so we landed a we had our we had a record quarter as well with AWS in GCB contribution and so once again, another large quarter income the largest.
In company history of what they contributed as well.
And do those tend to lag relative to payments.
They do not they're relatively the same payment terms alright. Thanks.
And Ralph maybe to answer that maybe give you. An example, we had.
Global airline manufacturer signed with us this quarter.
And D are not in the business of spending more money right now or in the business of spending less money.
But it is an imperative to get better and development security and operations and they became a customer this quarter even though.
There is a lot of ways in which every company needs to save money. They meet the budget available to become a customer.
From previously using deadline for free.
Great. Thanks for the color.
Next we'll move on to Joel I truest.
Okay.
Thank you for taking my questions. One for said one for Bryan just to follow up on that said I would love to get your take on.
Some of the partnerships that are really driving value for you right now and how you are positioning with them and Brian just to double down on that.
Operating leverage I know you talked about some of the operating leverage was driven by.
Revenue outperformance, but I'd love to know what the other major drivers of our operating leverage going forward. Thank you.
Thanks, So much I'll go first.
Brian .
The most important partnerships for us are the ones with the hyper clouds.
And the important for us because more and more of the purchasing is happening by these hydrocarbons. They are influential in accounts they have access to.
The important C level people.
We are important to AWS DCP, we mentioned, we wanted to TCP award because Dino if get lenders in the account and move to the cloud faster.
<unk> way to do to cloud migrations to first get on one platform and then move not to try to move 10 different point solutions and different speeds that is way more hassle. So it's a partnership that's very symbiotic and we're super excited about the additional opportunities that are in partnering with hyper cloud like down in big part.
<unk> like IBM that we lost to work with.
And Joel on the operating leverage side I mean, we're seeing operating leverage across the business in all aspects. One. Great example, I'll give is <unk> of this quarter versus <unk> <unk> last year last year was 88%.
non-GAAP gross margin in this quarter was 89%, so even though with SaaS growing as fast as it is in cost us more to deliver.
We're still putting in operational efficiencies to improve our delivery costs.
Within the company, we pretty much have you built out the management layer. Most of the net adds that we're doing is for capacity and in R&D to improve to continue the enhancements in the releases that we've done.
So you know across the entire business.
We're seeing operating leverage.
And the business model.
Thank you very much.
Next we have <unk> from bank of America.
Okay.
Wholesale hey, Brian Thanks for taking the questions just kind of a follow up here on the record net new customer adds.
Really great number there wanted to ask kind of on the <unk>.
Average land asking for those customers are they coming in bigger now or are they coming in about the same from a historical perspective, and how are you thinking about customer land is for the future given all the macro factors that are going on out there.
Yes, I'm happy to happy to take that Koji. Thank you.
The trends that we've seen we've seen increasing asps across all segments in the business and so we haven't seen you would expect on some of the reports that people have talked about in the industry that you may see a decline we haven't seen that and so we've seen an uptick across the board and that's been consistent with all the other quarters.
Got it thanks, Brian just one follow up there for remaining said.
Brian .
Notice in the press release.
You announced a partnership with a bunch of companies like Donald trace and launched darkly to.
To launch this feature open nature, So I guess could you explain.
Maybe from a high level, what is open feature and what sort of opportunity does this unlocked.
Forget lab, thanks, guys yeah.
Thanks for the question. So open feature is a standardized way to make feature flags feature flag. This functionality that allows you to put mostly new functionality to turn it on and off really quickly. It helps the company to release faster and more frequently while being able to quickly remediate if something gets broken.
We already offer feature flag and get them out today, but we want to make them better over time, and we're excited to partner with diner trees, Google launch darkly whole bunch of great companies.
In order to standardize it standardizes and we believe that Ctrip <unk> are much better as part of our platform feature flags, who came to your source code they need to hook into Europe serve ability and we'd get wrong, we can make that work right out of the box.
Got it thanks, guys. Thanks for taking the questions.
Thank you.
Derek at Cowen really please verbalize your question.
Great. Thanks, good to see you guys.
I mean, so we've heard from a lot of CIO is that consolidation and vendor consolidation is certainly a priority obviously that that caters to your strategy very well and it sounds like that's been a driver would you say that the.
The macro environment has actually accelerated the rate of legacy displacement in the last quarter or two and are there certain verticals that.
You would say consolidation is a bigger trend or a bigger tailwind for you.
Yeah, we're certainly seeing that with customers that say look we need to consolidate and we want to move to fewer tools and that's why we're considering getting ourselves <unk> in this macroeconomic environment. It has to be able to save people money do more with fewer people. So that's been a great thing.
We are seeing that across all verticals all verticals are cutting back and once we consolidate we do see that the more projects companies have and the more tools. They have no more compliance they need the more attractive it is to consolidate because kind of der complexity grows almost exponentially.
We believe that's also kind of just the future by companies are going to have more and more future software projects companies aren't going to need more compliance whatever industry, you're in so it's been consistent across verticals.
Great. Thanks, maybe one for you Brian last quarter, you talked about EMEA, having a record pipeline.
Clearly it doesn't sound like you're seeing any macro headwinds, but could you just compare and contrast, what you're seeing out of <unk>.
Europe versus the U S.
Yes, I would just say we have a strong macro tailwind is around digital transformation and the growing security threat landscape.
The paint line.
Across the entire company is the strongest it's ever been.
Win rates have been pretty consistent with last quarter, and we are not seeing deals being pushed.
Great to hear thanks. Thank.
Thank you.
Now we move on to Jason from William Blair.
Okay. Thank you hi, guys.
First one for said on their earnings call last week, mango, even talked about the consumption based model and linkage to application utilization as reflecting almost a real time view of the macro environment, which according to them is getting worse. My question is how would you compare and contrast, where you guys sit relative to mongo.
And your confidence in terms of how close you are feeling about macro impact in real time.
Yes, so there are different different model, we charge per user per year.
And we're seeing that there is a lot of upside for us still so theres a lot of ways to grow within the companies were already act like we're nowhere near kind of having all their users and we have a lot of room to grow in ups hearing from free to paid but also from premium to ultimate.
So.
We're not seeing those consumption.
Headwinds and in fact, as we talked about before.
Companies now need to save money and get them up is a way to save money and make your existing people more.
Our effective to do more despite having a hiring staff, Brian anything you want to add.
I would.
Same thing I mean, we have great visibility one of the great things about being a ratable model is we have great visibility into the revenue and then with having over 200 open reqs and be able to see the pipeline.
We can adjust anything from a macro perspective, but we haven't we haven't seen anything and so we're we're super happy with.
The base customer ads, our net dollar retention rate.
The operating leverage that we're having in the business and so across the board, we're very pleased with the trends.
And then one quick follow up for you Brian .
Can you remind us at a high level expectations for <unk> for next year, both in terms of Opex and revenue contribution.
We havent given out anything for next year, yet on <unk>.
Okay, but at some point youre going to get some revenue contribution correct.
That is correct okay. Thank you.
Thank you.
Next we have call at UBS.
Okay, great. Thanks for taking the question sorry about before Hey, Brian maybe this is for you on the on the three key Rev Guide, 59% pretty phenomenal, but optically it's $15 DSL on an 11 point easier compare so I just wanted to press you is there anything either in the year ago period or.
In the coming October period that might be distorting that comparison in any onetime stuff maybe anything related to the SSP issue you called out last quarter or two to share with all of us. Thank you.
Yes. Thanks for your question, we're Super Super Happy with our performance and guidance.
We beat by $7 million, we raised the full year by $12 5 million at the midpoint.
We're currently guiding to a 63% to 64% year over year revenue growth and then our guidance includes impact of Russia.
True ups.
Where we don't have FX exposure, but we bill and collect in U S dollars and so there's other companies out there who.
Based on the currency devaluations more expensive for them to buy and so all of that we've put into our guidance.
I'm really happy that we've been able to raise the annual guidance and continue to get operating leverage in the business.
If I look at the guidance from the beginning of the year, we've increased guidance by $24 million.
At the midpoint of <unk> and we're doing this for $30 million loss and non-GAAP operating income.
Yes.
Okay, great. Thank you Brian .
Thanks, Rob appreciate it.
Next we have pendulum at J P. Morgan.
Oh, Great Hey, Thank you for taking the question then <unk>.
So for me as well as I said last quarter I wanted to ask you about the reuse elements that your it seems like putting in place that will go into October of this year I believe is it possible to quantify kind of number of users that will be impacted on what should we how should we think about the impact of that change to the business are in Q4 <unk>.
<unk> you say.
It's going to be material.
Yes, thanks for that so we want to make sure that our pre plan is sustainable so we've instituted stores and user limits and thats going to help us become more efficient in some of the users will opt to reduce their usage or lease and some of them will opt to.
To become a paid customer and that is baked into our guidance.
Okay understood and one for Brian .
The net retention rate seems like a 130%.
Pretty good.
Is it possible to directionally understand that number maybe in terms of the gross expansion of the gross churn within that vertical and number directionally.
If it is up or down versus last quarter.
Yeah, Let me just disappointing of clarification. We were we report that is a threshold greater than 130%. So it's not a 130% and in my prepared remarks, I said it was actually consistent with prior quarters.
So that should give you some indication of where that's at.
Number one thing from a from.
From a net dollar retention rate is additional seats and then number two is appearing to ultimate.
Got it thank you.
Yeah.
Our next question comes from Nick at Scotiabank.
Yes, great.
Guys.
You guys mentioned that sales cycles are shortening land ASP keys are increasing can you just talk about whats driving that because I think that's something you guys have called out several times recently like is it more just you guys have a more mature go to market motion now.
Is it more than the top down sales motion is kind of allowing for quicker budget approvals just any any color you can give around that I think would be helpful.
Yeah happy to thanks for the question when we were getting ready to go public one of the things I talked about was we are adding a whole bunch of new go to market motions.
Up until that time, the company was primarily a direct sales go to market and since then we added alliances hyperscale or Chan.
Channel program, and so forth and so.
We've added a number of new go to market motions.
They're still relatively early but we're very happy with the progress we've seen as I mentioned, the hyperscale or AWS and DCP combined had their largest quarter with us in company history, and we're seeing a lot more deals come through that channel.
And so really happy across the board we wanted to be aware of a lot of other comments that were made and so we went and looked at deal cycles and looked at that we looked at Asp's and I think it just goes as Sid alluded earlier, we're so early in such a big market and U.
People are wanting to get rid of point solutions and move on our platform to develop software better faster more secure and Thats, what our platform does.
So.
As we get greater penetration.
Youll see the results that we're publishing.
Great and then just.
Another quick one.
The federal side of the businesses.
Roughly 10% of revenue can you just give an update there just given that fiscal year's closing how is that pipeline looking was there you know any.
The contribution from that sector that that fell into <unk> any color around that would be it would be helpful.
We're super happy with how we're doing in the public sector and the government market.
And Thats.
What we're doing is baked into our guidance, but we're seeing increased adoption and we're very happy with how that is developing.
Great. Thank you.
Our final question comes from Mike Needham.
Okay, great. Thanks for squeezing me in guys first question I had was with respect to these these sales cycles, we're talking to and.
Wanted to see if we could slice it up just a little bit differently here is there a way to give a sense for the magnitude of what the delta is when thinking through those shortening sales cycles.
Or or better said I.
I guess, how much would you attribute to the elevated conversations or engagement that you guys are having with the C suite.
What is the durability and your view of the shortened sales cycles or is it really just that data point today, not yet calling a trend as far as these the shorter cycles, we're seeing and then I have a follow up as well. Thank you.
Yes, I think you're right on that just a data point that we wanted to point out.
As we prepare prepare for these calls and look at all the data across the board.
This was something that was mentioned or asked about a lot of other calls.
So I think the awareness of just a Dev ops platform and get lab helps and then also the time to value and business outcomes that we're driving.
Number of people wanting to get rid of point solutions get on our platform for the efficiency.
I think all of these are key characteristics that contribute to the shortening of sales cycles.
Thank you for that I appreciate it and if I could just follow up with one other question was more around the gateway of the 15 wells that you guys spoke about you highlighted three things one of them being the AI ml and I think it probably goes back to some of the earlier comments from you guys with respect to how early we are in this $40 billion Tam.
<unk>.
But I just wanted to take broad brush strokes here for a second if I think about Dev ops like we've been talking about this now since I want to say like 2008, 2019 timeframe and Dev ops, maybe 2014 2015 timeframe and both of those are still very very early.
Now, we're talking about Dev ops, plus MLR, which is intuitive makes all the world all.
We'll have a sense of the world to me, but just wanted to get a sense again, how how early stage, we I have to imagine that the decision to combine those two workflows is based on customer feedback, but if you could frame out those parameters anyway.
We appreciate it.
Yes, thanks for that question.
We look at AI ml, there is two things happening, we're using it to make it better and a great example of that is coke reviews will ever know suggests hey, this person might be the best person to read your code. So that's making get lined the Devon second of all that.
For everyone.
The other thing is helping data scientists do their work today, they have a completely different toolset and that tool stack.
Would really benefit from kind of the practices that are already prevalent in devils.
We are starting they're now with features like better Jupiter notebook. This.
And we after launching that we've seen the usage of Jupiter notebooks inkjet line of increase will continue to add to that for.
For example.
Our planning is fluid, we're considering a model registry, adding that to get lump in the future I'm not sure we will do that but that's something we're looking at.
These investments will bear fruit over a very long period of time. So it's not that we're going to be great tomorrow, but we're sowing the seeds and together with the wider community.
<unk>, a great convergence happening, where the AI ml engineers have to collaborate with a desk setup Stifel and vice versa. Because every significant application in the future will need both.
Thank you for that I appreciate the color and I totally appreciate how this is all very early but great to see how you guys are thinking about the prototypes youre looking forward to seeing more with respect to the evolution of the platform. Thank you.
Thanks, so much.
Okay.
With that I'll turn things back over to sit for closing remarks.
Thank you for your time today.
To thank our customers for trusting get lab I'd also like to thank our partners and the way to get lab community and all of our <unk> team members for all of their contributions we will have a big part in our continued success. Thank you very much.
Thanks again, everyone for joining us have a great day.