Q1 2024 Gitlab Inc Earnings Call
Speaker 1: This quarter we generated revenue of $126.9 million. This represents growth of 45% year over year. Our dollar based net retention rate was 120%.
Our first quarter results continue to demonstrate improving operating leverage in our business. Our non-GAAP operating margin improved by almost 1,700 basis points year over year, and we remain committed to growing in a responsible manner. I want to start this call with one of the most exciting technology developments of our time.
AI represents a major shift for our industry. It fundamentally changes the way that software is developed. And we believe it will accelerate our ability to help organizations make software faster.
I'm excited about this new wave of technology innovation.
We continue to focus on incorporating AI throughout our DevSecOps platform.
We're innovating at a fast pace.
In one cue, we delivered five new AI features.
and in the first half of May alone, we delivered five additional features. All of these are available to customers now. We continue to iterate on code suggestions. This feature allows developers to write code more efficiently by receiving code suggestions as they type.
Code Suggestions is available on GitLab.com for all users while in beta. We expect Code Suggestions will be generally available later this year. One of the guiding principles with Code Suggestions is to make it available and accessible to all developers everywhere.
We also extended language support so that more developers can realize the benefits of AI on our platform. In OneCube, we increased language support from the initial 6 languages to now 13 languages.
Code Suggestions is uniquely built with privacy first as a critical foundation.
Our customers' proprietary source code never leaves GitLab's cloud infrastructure.
This means that their source code stays secure. In addition, model output is not stored and not used as training data. AI is not only changing how software is developed, it's also amplifying the value of having a DevSecOps platform. DevSecOps is a category that we created and we're seeing it enter a mainstream adoption phase.
and recognize the value of an integrated software delivery platform, a strategy that GitLab has followed from the start. This quarter we had many conversations with CDL-level customers, but one where the CTO from a top-five European bank really stands out.
At first, we focused on many of our differentiated features that only a DevSecOps platform can provide. For example, we talked about the benefits of value stream dashboards, DORA metrics, and compliance on a single platform.
When the conversation moved into AI, the CTO said something, which the CTO said, full generation is only one aspect of the development cycle.
If we only optimize code generation, everything else downstream from the development team, including QAs, security and operations breaks.
breaks because these other teams involved in software development can't keep up.
At this point, incorporating AI throughout the software development life cycle is at the core of our AI strategy.
Today, our customers have the ability to use code suggestions for co-creation, suggested reviewers for code review, explain this vulnerability for vulnerability remediation, value stream forecasting for predicting future team efficiency and much more. We're proud to have 10 AI features available to customers today, almost 10 years ago.
three times more than the competition.
Applying AI to a single data store for a full software development life cycle also creates compelling business outcomes. We believe that this is something that can only be done with GitLab. We see a lot of excitement surrounding AI at the executive level. We are hearing from customers that AI is motivating them to assess how they develop, secure and operate software.
through a new lens. Enterprise level companies who may not have been in the market until 2024, 2025, 2026 are re-evaluating their strategies. On top of that, there's new personas entering the mix.
As Chief Information Security Officers navigate this new AI-powered world, they are working to empower their teams to benefit from AI and apply appropriate governance, security compliance and auditability.
In all, we believe that AI will increase the total addressable market for several reasons.
First, AI will make writing code easier, which we believe will expand the audience of people, such as junior and citizen developers who build software. Second, as these developers become more productive, we see software becoming less expensive to create. We believe this will fuel demand for even more software.
more developers will be needed to meet this additional demand. Third, we expect customers will increasingly turn to GitLab as they build machine learning models and AI into their applications.
As we add ModelOps capabilities to our DevSecOps platform, this will invite data science teams as new personas. And will allow these teams to work alongside their DevSecOps counterparts.
We see Model Ops as a big opportunity for GitLab.
Expanding the addressable market will also create an opportunity to capture greater value. Later this year, we plan to introduce an AI add-on focused on supporting development teams.
This new add-on will include code suggestions functionality. We anticipate this will be priced at $9 per user per month billed annually. This add-on will be available later this year across all our tiers.
All of this innovation accentuates a broader theme for our business.
the differentiation between a dev and a dev-sec-ops platform.
We believe that an AI power platform focused solely on the developer persona is incomplete. It is missing essential security operations and enterprise functionality. Remember, developers spend only a small fraction of their time developing code.
The real promise of AI extends far beyond code creation.
And this is where GitLab has a structural advantage. We are the most comprehensive DevSecOps platform in the market. Features like code suggestions and remote development are important accelerants for developer efficiency. And today, GitLab has more AI features geared towards developers than our competitors. However, that isn't enough.
In order to achieve a 10 times faster cycle time on projects, enterprises need an end-to-end platform that works across the entire software development life cycle.
Let me describe some of GitLab's key security operations and enterprise differentiators.
For security, only GitLab has dynamic application security testing, container scanning, API security, compliance management, and security policy management.
In operations, only GitLab has feature flags, infrastructure as code, error tracking, service desk, and incident management. For enterprises, only GitLab has portfolio management, OKR management, value stream management, DORA metrics, and design management.
Let me illustrate the value of a Dash StackOps platform with one of our customers, Lockheed Martin. Lockheed Martin's customers depend on them to help them overcome their most complex challenges and to stay ahead of emerging threats. Their customers need the most technologically advanced solutions.
Volkite Martin's engineering teams require speed and flexibility to meet the specific mission needs of each customer.
They also require shared expertise and infrastructure to ensure affordability. Lockheed Martin has a history of using a wide variety of DevOps tools and needed to improve automation, standardize security practices and collaboration. They choose to go big with GitLab, greatly reducing their tool chain and cutting complexity while reducing costs and workloads.
Lockheed Martin team has reported 80 times faster CI pipeline builds, 90% less time spent on system maintenance. They've retired thousands of Jenkins servers.
Lockheed Martin continues to go with GitLab and is looking to migrate even more projects to their DevSecOps platform. One of their software strategy executives said, by switching to GitLab and automating deployment, teams have moved from monthly or weekly deliveries to daily or multiple daily deliveries.
Lockheed is a great example of the power of a DevSecOps platform. We see this in other use cases as well, such as compliance. In the quarter, a large healthcare provider purchased GitLab Ultimate for platform features. They needed to meet specific compliance requirements from their auditors.
they determined that GitLab was the best way to achieve their objectives. Another customer we expanded business with into one is NetWest Group, a relationship bank for the digital world. NetWest Group is focused on delivering sustainable growth and results while fostering a better, simpler banking experience. Last year, NetWest Group...
chose GitLab Dedicated. He wanted to enable their engineers to use a common cloud engineering platform to deliver a better experience for customers and colleagues. Five months into the program, we are pleased that NetWest has reported shorter onboarding times and productivity gains. This led to NetWest
choosing GitLab professional services to accelerate their transformation by supporting training, certifications, and developer days. In summary, we're confident in the strong value proposition that GitLab provides to customers. GitLab is the most comprehensive AI-powered DevSecOps enterprise platform.
The significant return on investment, quick payback period, and well-documented positive business outcomes are resonating globally. We're trusted by more than 50% of the Fortune 100 to secure and protect their most valuable assets.
We also believe we're in the early stages of capturing an estimated 40 billion dollar addressable market. A market that we've seen evolve from point solutions to a platform, from DIY DevOps to a DevSecOps platform.
and AI will speed up different aspects of software creation and development.
This in turn creates the need for more robust security compliance and planning capabilities.
In today's era of rapid innovation, the power of a platform like GitLab to enable faster cycle times truly shines.
I'll now turn it over to Brian Robbins, GitLab's Chief Financial Officer.
Thank you, Sid, and thank you again for everyone joining us today. I'd like to spend a moment discussing the macro environment, the financial impact of our recently implemented premium pricing change, and provide some insights into the financial impact of our AI products.
Then I will quickly recap our first quarter financial results and key operating metrics and conclude with our guidance.
Let me first touch on some of the watch points I discussed on prior calls. We continue to see sales cycles remaining at 4Q levels due to more people involved in deal approvals. Contraction improved over 4Q but is higher than prior quarters. Like 4Q, contraction is driven almost entirely by lower seat counts with minimal down tiering.
I was pleased with the bookings predictability in 1Q. It was much better than 4Q.
As we mentioned on the prior call, we raised the price of our Premium SKU for the first time in five years. Over that time frame, we added over 400 new features, transitioned from a dev platform to a DevSecOps platform. We shared that we expected a premium price increase of minimum impact in FY24 with greater impact in FY25 and beyond.
The price increase which took effect on April 3rd is going as planned. We only had one month of renewals impacted by the price increase in the quarter. To date, customer turn is unchanged for the premium customers who renewed in April , and our average ARR per customer increase in line with our expectations.
Now onto the way we are thinking about the financials and the impact of our AI products. We continue to invest in people and infrastructure to support AI. While we have had some teams working on AI features, we recently shifted additional engineers from other teams to support the work on AI.
As a result, this has not led to significant incremental expenses on engineering talent. Additionally, we have made investments in our cloud provider span to support our AI and R&D efforts.
In addition, we also continue to leverage partners to help drive our AI vision. This has included partnership announcements with Google Cloud and Oracle.
The Google partnership allows us to use Google Cloud AI functionality to make our own AI offerings better by leveraging their toolset. The partnership with Oracle makes it easier for our customers to deploy their own AI and machine learning workloads using Oracle's Cloud Infrastructure.
Both of these partnerships help create strategic differentiation for our customers in a financially responsible manner. You can use direct payment to make yourTom laugh on camera.
Now, turning to the quarter. Revenue of $126.9 million this quarter represents an increase of 45% organically from the prior year. We ended one queue with over 7,400 customers with ARR of at least $5,000.
compared to over 7,000 customers in the fourth quarter of FY23 and over 5,100 customers in the prior year. This represents a year-over-year growth rate of approximately 43%. Currently, customers with greater than 5,000 ARR represent approximately 95% of our total ARR. We also measure the performance and growth of our larger customers.
who we define as those spending more than $100,000 in ARR with us.
At the end of the first quarter of FY24, we had 760 customers with ARR of at least $100,000, compared to 697 customers in 4Q of FY23 and 545 customers in the first quarter of FY23.
This represents a year-over-year growth rate of approximately 39%. As many of you know, we do not believe calculated billing is 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 RPO grew 37% year-over-year to $460 million.
and CRPO grew 44% to $324 million for the same timeframe.
We ended our first quarter with a dollar-based net retention rate of 128%. As a reminder, this is a trailing 12-month metric that compares the expansion activity of customers over the last 12 months with the same cohort of customers during the prior 12-month period. The dollar-based net retention of 128% was driven by lower seed expansion while high seed sister tongue growth and improvementbenwaye
and contraction due to seats. The ultimate tier continues to be our fastest growing tier, representing 42% of ARR for the first quarter of FY24, compared with 39% of ARR in the first quarter of FY23. Non-gap gross margins were 91% for the quarter, which is slightly improved from both the immediate preceding quarter for the first quarter of FY24, and the second quarter of FY23,
driven by realizing greater efficiencies as we continue to scale the business.
non-GAAP operating loss of $15 million or negative 12% of revenue compared to a loss of $24.8 million or negative 28% of revenue in 1Q of last year. 1Q FY24 includes $5.6 million of expenses related to our JV and majority owned subsidiary.
compared to $3.7 million in 1Q FY23. Operating cash use was $11 million in the first quarter of FY24 compared to $28.2 million use in the same quarter of last year.
Now, let's turn to guidance. We're assuming the macroeconomic headwinds and trends in the business we have seen over the last few quarters continue. There has been no change to our overall guidance philosophy. For the second quarter of FY24, we expect total revenue of $129 million to $130 million.
representing a growth rate of 28 to 29% year over year. We expect a non-GAAP operating loss of $11 million to $10 million, and we expect a non-GAAP net loss per share of negative 3 cents to negative 2 cents, assuming 153 million weighted average shares outstanding. For the full year FY24, we now expect total revenue of $541 million to $543 million.
FY24 guidance implies a non-GAAP operating improvement of approximately 1200 basis points year over year at the midpoint of our guidance. Over a longer term, we believe that a continued targeted focus on growth initiatives and scaling the business will yield further improvements in unit economics.
The guidance has us on track to achieve cash flow breakeven for FY 25.
For modeling purposes, we estimate that our fully diluted share count is 173 million.
Separately, I would like to provide an update on Jihoo, our China joint venture. Our goal remains to deconsolidate Jihoo. However, we cannot predict the likelihood or timing of when this may potentially occur. Thus, for modeling purposes for FY24, we now forecast approximately $29 million of expenses related to Jihoo compared with $19 million in FY23.
These Jihoo expenses represent approximately negative 5% of our total implied negative 8% non-GAAP operating loss for FY24. Our number one priority as a management team is drive revenue growth, but we'll do that responsibly. There has been no philosophical change in how we run the business to maximize share order value over the long term.
Before we take questions, I'd like to thank our customers for trusting GitLab to help them achieve their business objectives. I also want to thank our team members, partners, and the wider GitLab community for their contributions this quarter. With that, we'll now move to Q&A. To ask a question, please use the chat feature and pose your question directly to IR Questions.
We're ready for the first question. Our first question comes from Rob with Piper Sandler.
All right. I think I did that correctly after three years using Zoom. Good afternoon, guys. I'm miss expire referenced.
Hey, Rob. Okay.
I'm curious to hear an update on customer conversations. Obviously, a stronger than expected quarter, but we are seeing this deceleration, I think, across all high-growth tech companies. So, with the old Gen AI and the macro, how should we think about pressure on net retention rates, customer acquisition that's...
coming from customers taking a more prudent approach in the current budgetary environment versus, I guess, rethinking needs for dev headcounts and reevaluating which dev tools to purchase, just given all the Gen AI innovations lately.
Thanks, Rob. And before I answer that question, maybe an update on my health. I just completed my last round of systemic chemotherapy. So happy about that. Congratulations. Thanks. And also no sign of detectable disease and I'm excited about GitLab's future and taking my role as CEO and chair.
Yeah, lots of things to unpack in your question.
We see the macro trends continuing and that's putting pressure on seed count. That was the same last quarter and we anticipate that trend to continue. At the same time, we're super excited of what the macro is doing to the mindset of customers because they say, hey now it's time to consolidate.
And at the same time we see that the analysts are seeing that hey, this is consolidating as a market. So we believe that DevOps platform is going to be the way that people will consolidate. We have the most comprehensive DevSecOps platform.
Which is also great if you look at the application of AI. We're able to apply AI not just for code suggestions, but apply it across the entire spectrum. We have more than 10 features that we were able to ship and those 10 features they drive value at every part along the stage.
And as for how that influences the TAM which you alluded to, we think AI is gonna make it easier for more people to enter the fray. So we think it was a supply of more people using the product. The same time, when you see that software development becomes easier.
We believe there's going to be more demand for it. Software development used to be very expensive, AI makes it more affordable There's going to be more demand and more demand again means more people entering the fray And last but certainly not least it's an opportunity for us to manage not just the code that companies have but also their models And that's what we do with our MLOps Functionality we already allow you to run experiments with GitLab
Was it very back and weighted? And if I look at that receivable base and assume collections on it, it looks like you could turn the corner from a cashflow perspective relatively soon. So any commentary on turning free cashflow positive. Thanks.
I'll touch on DSOs and I'll touch on free cash flow breakeven. From a DSO perspective, we were more weighted towards the end of the quarter. But the good news is that our amount of bad debt over the last three years has not exceeded 1 percent and our age receivables has been
very, very consistent. And so some of our European customers have requested net 45, net 60. And so we've accommodated that just because of the macro and the bad debt expense being so low. From a free cash flow break even perspective, you'll be committed to be free cash flow break even in FY 2020.
Darcy, you're muted.
Up next, we have Joel with Truist. Thank you. And Sid, I'm sending prayers to you and congrats on making it through the treatment. Thank you.
Brian , just a quick follow up for you on Rob's question. Congrats on the margin improvement. I think that you've done a really good job. Can you give us a little bit more color on some of the things that you're doing to continue to drive towards cash flow break, even while still investing in some of these new initiatives that you're doing, which, you know, obviously, you've spent a lot of time talking about some of these AI.
programs that are coming out. And then just as a follow up to that is, have you tested this $9 increased, license increase to your customer base and whether or not that they'll, there's not gonna be any pushback there. Thank you.
Yeah Joel absolutely thanks for the question. You know as Sid and I have always stated since we went public is the number one objective at GitLab is to grow but we'll do that responsibly and we've tried to demonstrate that every quarter and so nothing's changed in that front. You know non-gap gross margin percent went up to 90%
objective at the company. I think we demonstrated that across all cost categories and we'll continue to look at that quarter over quarter. On the $9 increase, we haven't tested that yet. From a guidance perspective, most of the costs for that is in headcount and cloud costs, and that's included in the guidance that we gave.
Brian , just another follow-up question on the pricing. You touched upon it, but I want to make sure that I put a fine point here. Did it have any impact on win rates or length of deals where maybe customers were asking and negotiating a little bit harder because of the price increase?
or anything in terms of size of initial lands that may have been impacted because of the price increase. If not, does that actually change when you think some of the benefits of the pricing increase will actually flow through the revenue line?
Yeah, thanks for that Sterling. I guess for everyone to call, let me just briefly touch on the price increase. We haven't raised prices in five years and over that time period we added 400 new features to the platform. And so that was the genesis of the price increase.
The guidance we gave last quarter and today include the price increase. As you know, the price was effective in early April . And so we really only had a short period of less than a month for that. But I am happy to say that the renewal rates and the churn in the land of new customers
have been better than expected. And so we're happy with the results that we've seen in just that one month time period. Great, thank you.
Our next question comes from Matt with RBC.
Oh, hey guys. Great. Thanks for taking my questions and I'll offer my congrats. Sid, that's the best news of the call. Really good to hear you're doing well. I noticed Ultimate ticked up. I believe, Brian , you said it was 42 percent, which last year was flattish really the whole year. I was curious, what was driving that? Is that AI showing up some of those migrations? Is it more of the not security or perhaps is it
for the consumer as well. We do the same on SaaS and self-managed as well. And so, you know, ultimate, the strength and ultimate is really based on the underlying value that we're driving to our customers. The ROI on ultimate, Forrester did a study was 427% over three years and payback was around six months. And so when I looked at the quarter and looked at sort of premium ultimate and sort of the breakout.
between contraction, churn, first order and expansion. Ultimate had, churn was consistent with a bunch of prior quarters, contraction was very consistent, our growth was just as good as prior quarters and we had a really strong first order quarter as well and so Ultimate continues to do well. It's our fastest growing tier.
and we're happy with the results.
That's fantastic. And then maybe just if I could follow up with one with Sid, you know, one of the questions that we get from from developer from from investors the most is, is, you know, does Gen I put pressure on developers see kind of you talked about a little bit your credit marks that maybe could you put a finer point on in a sort of the question of P times P times Q.
You know, and does the number of seats go down in the future? Or do you think it stays consistent or maybe even goes up? Yeah, the. We believe that.
And does the number of seats go down in the future, or do you think it stays consistent or maybe even goes up? Yeah, we believe that Generative AI will expand the market.
So, first of all, you make the product easier. Like coding today is hard and AI makes it easier. So we expect these citizen developers, these junior developers to start coding. That code needs to be managed somewhere. And that is in GitLab.
The second thing is,
When a developer can do more, you bring down the price. That should increase demand for development and software development activities.
Third, what you have today is a DevSecOps platform, but we've already articulated that we want to be a place where you manage not just code, but also MLOps. MLOps is the management of data and the management of models. Models are harder to manage than code. They change over time.
link it to the experiment in GitLab and in the future we'll plan to come out with a model registry in GitLab.
So those are all reasons why we think the market will expand. One other way to look at it is you have generative AI. It produces more code. All that code also needs to be secured, also needs to be put in operations. So if you don't have a good DevStackOps platform, you create a bottleneck at the beginning.
That bottleneck is solved with the DevSecOps platform.
Thank you. We will now hear from Koji with Bank of America. Hey guys, thanks for taking the questions. This is going to be a question for Sid or Brian here.
I wanted to ask you a question about how you plan on attacking the other 50% of the Fortune 500, or I'm sorry, the Fortune 100 that you don't have. Is it still a primary land and expand strategy or is it going to be more of a higher level sale for these customers? I was just kind of hoping you could dig into that a little bit more, please. Yeah, I think it's certainly that.
It is both the bottoms up sales but also the top down sales. So we have a direct sales motion, but also a channel sales motion that's getting more important. Channel sales, think of our partners, AWS and GCP, where we work with them to go to customers. We're talking to CTOs.
CISOs, CIOs and we help them see the picture. What we commonly do is a value stream analysis. We point out all the different tools they use throughout the cycle and how that adds up in cycle time. And with GitLab they can save on tooling costs.
They can see on the cost of integrating that tooling, they can make their people more productive and they can go faster through that cycle and get initiatives out. So it's certainly something we're going to market with and as you said, our goal is 100% of the Fortune 100. That's going to heal their vision. That's going to help their skills.
Got it. And maybe a follow up here for Brian on kind of going back to free cashflow. This quarter, free cashflow is higher than non-GAAP operating income. And I recall there's some cashflow mechanics around contract duration that should be mostly out of the model by this point. So is that right with the cashflow mechanics and
does free cashflow trend higher than non-GAAP operating income from here on an annual basis? Could you just dig into that just a little bit more for me, please? Yeah, absolutely. When I first joined the company, we were not incentivizing the sales force to do multi-year deals because we had such a high gross retention rate. And so we really pushed for one-year deals. And that's why we saw billings and RPO.
is go down and wouldn't grow at the same rate as CRPO or short-term calculated billings. But we still continue to have prepaid multi-year deals within our existing book of business. And so as those contracts renew, you'll see some lumpiness in our billings and collections. And Q1 was one of those quarters.
down and wouldn't grow at the same rate as CRPO or short term calculated billings, but we still continue to have prepaid multi-year deals within our existing book of business. And so as those contracts are new, you'll see some lumpiness in our billings and collections and Q1 was one of those quarters. Got it. Thank you.
Thank you.
Next we have Michael with KeyBank.
Thank you. Okay.
Thank you. Hey, Michael.
I can hear you. Sorry about that. We can. Go ahead. So can you talk about getting your clients to assume that our competition has gone? Microsoft obviously they have been very visible around co-pilot.
You announce a lot of issues. How has the day in and day out competition gone?
It's not the same private. The sales cycle is not extended. People are people shiving you up.
against each other in different ways, how are they entering this discussion is not good enough.
Yeah, I think I got most of it, Michael. I think I'll repeat the question was, how has the sales cycle changed between us and Microsoft and if you had noticed any noticeable things within the quarter?
US November 2018
You know, so one thing to note this quarter is on last earnings, Scott talked about how the first month of the quarter was very different than the second and third month of the quarter. This quarter is really predictable. And so I was happy with the predictability of the quarter, the week three, we call it the quarter and landed really close to that. The sales cycles.
in first quarter remained at fourth quarter levels. And so there wasn't a lot of change there. You know, as I talked about earlier, Ultimate being greater than 50% of the bookings and continue to do well. I think that shows some of the differentiation between us and Microsoft. The hyperscalers as well had a great quarter as well. They grew over 200% year over year from a bookies perspective.
And also this quarter we had lower discounting than the previous quarter. And so the trends with Microsoft remain pretty consistent where we still don't see any competition about 50% of the deals. We see them in very little deals, but there is more discussion around
OpenAI, ChatGPT, and Copilot. All right, Darcy, we'll go into the next one. Derek with Cohen is next.
chat GPT and copilot. Darcy will go into the next one. Eric with Cohen is next. Great thanks and said congrats.
On the news, I wanted to start in the press release, you talked about an expanded partnership with Oracle and a new AIML offering enabling customers to speed up model training and inference. Can you give us a little more detail around?
those new partner initiatives and then just from a broader perspective, how you're thinking about the Gen AI related revenue opportunities and the corners ahead.
Yeah, thanks for the question.
We're really excited about a partnership with Oracle Cloud. They have a great customer base. What it means is that our customers can now run AI and ML workloads on GPU-enabled GitLab runners on the Oracle Cloud infrastructure. That's some great and powerful infrastructure.
Additionally, we're available in Oracle's Marketplace, expanding our distribution. So our strategy with AI in mind is to partner closer with the hyperscalers. The toughest one is Microsoft. We try to partner there too, but with everyone else we see a lot of momentum and that's it.
AWS, GCP and Oracle. We want to get closer, we want to enable our customers to run their normal workloads, their AI workloads there and where you can expect us to have more announcements going forward.
Okay, maybe a quick one for you, Brian . Appreciate getting more exact numbers on net revenue retention rates. Kind of looking forward and with respect to your guidance for the rest of the year, there's any kind of target ranges that you'd guide us towards or how we should be thinking about whether or not we are going to troop for all finding New Zealand relationships and kind
trends around gross retention and expansion factors? We didn't give out the specifics of those metrics. What I will say is this last quarter was more predictable and so it makes it easier from a modeling perspective.
and everything is factored into guidance. And so we didn't give specific metrics for those. Got it. Okay, thank you.
Cash with Goldman Sachs. OK, great. Thanks for taking my question. Said good to see that you're recovering very well and congratulations on the quarter. Looks like business stabilized for you guys. I had a question on the gender of the capabilities.
At what point are we looking to, is there any need for further differentiation of GitLab versus the competition, this auto code generation feature that has been made much of, right? Is that a real sticking point in conversations? Do you think the customer base really values and appreciates the broader set of AI capabilities that GitLab has to offer?
So it looks like there is a bit of a perception issue in the market that you don't have those kinds of features that the competition appears to have. If you can debunk that myth for us, that would be great. And then one for you, Brian . What does the month of May look like from a linearity standpoint? The net expansion rates that you saw as improving in the March quarter, it does hold up in the month of May as well. Thank you so much.
Thanks, guys. In AI, you have the code generation, but if you just produce a whole bunch more code, then it's going to get log jammed later down the pipeline. You also need to do more security fixes. You need to deploy more.
So we're really fortunate that we have a single application, a single data store for the entire DevSecOps cycle and we can apply AI to all of that. And that's led us to having three times as many publicly usable AI features as our competition. That is a big advantage. As long as.
the beginning that of course you also need the code suggestions. But having the whole rest make sure that if you get more effective there...
it works and you get a faster cycle time throughout and that's a really exciting development. And Brian , I had one for you. Yeah, thank you. Just on the second part of the question, as you would expect, we track a number of metrics internally from top of the pipeline to bottom.
conversion rates, pacing, you know, expansion, churn, contraction, and so forth. And, you know, I'm happy quarter to date. Things are as expected. And so, like I mentioned, last quarter was more predictable in fourth quarter and quarter to date, and we'll see how the quarter finishes out, but it's as expected on all those metrics that we track and.
As all of us try to run back to the envelope math about what the $9 per seat monetization plan might mean for fiscal 25, can you offer any guardrails as to things we should keep in mind so maybe we're a little bit tight on what it could mean? And I guess maybe as two quick follow-ups.
Is there any reason to believe that it wouldn't be applicable to all of your paying users or does it feel like it would be relevant only for a subset? And then on top of that, do you think this could actually accelerate the conversion of the free user base to the paid user base such that the opportunity set is beyond our estimate of what your paying user base looks like? Thank you. Thank you.
you know, lots in there to unpack. Yeah, just on FY 2025, we haven't given out guidance for next year yet, and so I really can't comment on that. And the $9 that Sid talked about in the script is baked into our guidance for this year. Okay, but Brian , does it...
Could it accelerate a free-to-paid conversion? I'm not asking you for fiscal 25 guidance, just kind of framework as we try to model out what it could mean. Anything you'd offer up as we take our best shot?
Yeah, I think that all that we're doing is to make the developer, the security and the operations personas more efficient and to allow them to make code better, faster, cheaper, more secure. And so I think anything that you do that enables that should help out on all the metrics that you track and model. Yeah, I think that all that we're doing is to make the developer, the security and the
Okay, great. Congrats on the quarter. Appreciate it, Carl. We will now hear from Jason with William Blair.
Great. Congrats on the quarter. Appreciate it, Carl. We will now hear from Jason with William Lehrer. Yeah. Hi, guys. Hear me okay?
We can. All right, great. I wanted to ask about whether you're exploring a consumption element to your pricing model.
and how that might work especially in the cloud side. Thanks for that. We already have consumptive elements in our model. So for example for compute and for storage you pay on a consumption basis. We're adding features to that.
consumption. For example, in GitLab 16, released on June 22nd, we released
Mac OS Runners, we released Linux Runners, we had the Oracle Partnership where we have more AI Runners, GPU Runners. So that is a small part of our revenue today but we're releasing additional features.
I think over time you see that the licensing is going to become more flexible. We have cloud licensing today and that allows us to be more flexible in what you pay for. For example, the add-on we are envisioning for AI.
Right now it's envisioned as something if you use it you pay for it, otherwise not. We'll see what we end up releasing, but that's what we're thinking about. I think you're right that the mindset of customers is to go more consumption and we don't want to be meeting the expectations there. Gotcha. All right, and then one quick follow up just on that AI SKU.
What is going to be included in that SKU beyond code suggestions? Right now we've only talked about code suggestions being part of it. Perfect.
going to be included in that SKU beyond code suggestions? Right now, we've only talked about code suggestions being part of it. Perfect. Thank you.
Good to see you looking good said thanks Jason. Appreciate it right with no do hope
curve for GitLab with respect to MLOps. Is DataOps kind of the gap at this point? I'm trying to understand with the current craze of...
kind of developing Genii application, are you seeing new or existing customers kind of talking about using GitLab as part of their MLOps workflow when they're thinking about building these Genii apps? And then one follow up, the $9 per user per month add-on.
Is that basically an extension into visual code? Is there a difference between a SaaS user or a self-managed user? Yeah, thanks for that. So to answer the last question first, that $9 will be the same $9 whether you're a SaaS user or a self-managed user. You'll be able to use
the code suggestion features in our web IDE as well as in the usual editors like visual studio code.
Regarding model ops, we're really really early so I don't want to oversell this. It's a vision of where we're going to the future of where we see the TAM expanding. Today we have the functionality to link experiments in MLflow to GitLab and the next feature that will come out is a model registry.
And when you have the model registry that's going to form the basis of new functionality we can do is then you have the model kind of controlled in GitLab as well and you can start adding more functionality. We expect the MLOps functionality to come before the DataOps functionality. The model learning looks a lot more like code.
many ways than the data. So it's kind of...
The logical step is first models and then data. With data, we don't have functionality yet and that will come later. I think it's...
the thing to know is that we have the ambition. We have the ambition to go beyond code. We have the ambition to manage your code, your models and your data because we think the application of the future is going to have all three and all three are going to be governed. All three are going to have security and compliance questions that
you want your DevSecOps platform to figure out for you. That's why we're doing this. Not because it's easy, but because it's super useful and because every application is going to have interactions between the three. If you can bring all those constituents together, that's going to be super valuable for our customers.
Very helpful, thank you. Next is Mike with Needham. Hey, guys. You have Mike Sico, someone along the way here, and thanks for taking the question. First one for Sid, and, Sid, great to hear on the help. That's tremendous news, and I appreciate you giving us all an update. Wanted to circle up on the AI add-on that we've been talking about.
add-on and able to reap the benefits of the AI technology investments that you guys are making today. And then I have one follow-up for Brian . Yes, it's a great question. Will every piece of AI functionality be in that add-on? How does it work? Will there be additional add-ons? Will it be part of premium or ultimate? Those are pricing and packaging questions. We're still...
looking into today, so I can't comment on that. It's a valid question though. Okay, okay and to Brian then, if I just look at Q1, obviously the revenue was well ahead of the guidance and your expectations. Can you help us think through what would better than expected during the quarter and similarly
What is management embedding in its guidance if I look at the much more, I guess, modest sequential revenue growth that we're now looking for in 2Q? Yeah, thanks for the question, Mike. I was happy with the predictability in the quarter that I stated earlier. When we talked about guidance on the last call, because we had more variability in fourth quarter,
the range got higher. And so we looked at the bottom of the range and selected that. And so if you compare us 1Q to 4Q, sales cycles remained at 4Q levels. I did discuss how the hyperscalers bookings were over 200% year over year. We also had the lower discounting that touched on the strength of ultimate in the quarter.
And so the guidance approach hasn't changed. When we look at the history of what we've done and we look at the assumptions that we have in the model, we have a very detailed bottoms up model to come up with guidance. And we use the same guidance approach given the macro conditions and that's how we plan.
I'll leave it there. Thank you guys. Appreciate it. Let's try Greg with Mizzoujo. He has reconnected.
All right, thank you very much. Glad that the connection is holding. And, Sid, very glad to hear the encouraging news regarding your health. I'd like to follow up on Model Ops. And I know it's really early. I do think the native registry is an interesting enhancement. And just curious to get your expectation with regard to attracting data science teams.
to the platform going forward as that starts to ramp. And then I have a follow up for Brian .
Because it's really early, we want them to work together hand in hand. You see that.
many changes need both the change in the code and a change in the models and it's going to lead to different data being outputted. So these changes that today happen in different platforms, different tool changes and sometimes very manual, we expect that it's going to be more and more important to happen on the same level.
You think about the financial industry, what you execute, what you have to prove to your auditors is going to be based on procedural code plus the model you are running plus that model you are changing based on data that you need to prove like what data did you use to train the model that was then called from your code. That's the questions we need to answer.
that our customers need to answer and we want to help them do that in a way that's friction-free.
it's not up to the developers to document it each and every time but the platform just takes care of it and you only have to point out a transaction and you can immediately see how you did that and that's really hard to achieve today without a platform and that's what we're going for. I said very very early but I hope a compelling ambition.
All right, very helpful. And then for Brian , in the Q4 you mentioned that your NRR decreased almost equally, I think, across SEEDS, tier upgrades and price yields. Any change to that mix in the Q1?
It's been relatively the same and so seats is about 50 percent, price increase is about 25 percent and the last is 25 percent. So there really hasn't been any change whatsoever.
same. Seats is about 50 percent. Price increase is about 25 percent. And the last is 25 percent. So there really hasn't been any change whatsoever. Terrific. Thank you.
Next is Nick with Scotiabank.
Next is Nick with Scotiabank.
Awesome. Thanks guys for taking the questions and great to hear you're doing well. Just to follow on Matt's question on the ultimate mix taking up it sounds like some of the strength there was driven from business that was up for renewal.
the smaller price point, you know, uh, Delta between premium and ultimate. And it also sounds like there was some strength there just on that new customers landing at ultimate, but I'm just curious.
Given there's more renewal business as sort of we progress through 2Q in the second half, should we expect the ultimate mix to continue to outtake here? Thanks.
Yeah, thanks for the question, Nick. As we said before, and I think it's worth saying again, we don't compensate the sales team to sell ultimate versus premium. And so that is an output and not something that we're solving for. We want to deliver the best solution for the customer and get them a quick time to value and a positive business outcome. And so ultimate had strength in the quarter. It's really driven by compliance.
science, as well as the
contraction. Churn was relatively low, but we still saw some contraction as well. And so, like I said, Ultimate had a good quarter. There was some pockets of weakness and premium alcohol and watch points that we continue to watch, but overall happy with what we delivered. Great. Thank you.
Our final question comes from Ryan with Barclays. Thanks for using me in. Sid, how are enterprises evaluating adopting AI for their code development today? So like what are some of the key items that they would grade you on and would this happen via something like an RFD process or would this be something that they handle internally? Thanks. I think so. I believe it's more organic today. They're trying different things.
I think what is really important to a lot of customers is the privacy of their code.
And what they're looking for is a provider who can guarantee that, for example, the output of the models that they ask questions to isn't used for other models.
So that's something that's top of mind for us as we build our features. Other than that, it also has to be accessible to everyone in the company. It has to work on the most popular editors. We have a lot of revenue from self-managed, so we want to make sure that...
over time functionality also is available to self-managed customers where they can connect to the internet to to offer that functionality. So are you seeing a lot of questions from customers around securing the output of code from large language models? I think it's top of mind for customers is that the
with some of the third-party services today, you don't get a guarantee that the output isn't used to train code suggestions for another organization. And that's certainly top of mind for them. Appreciate that. And one for Brian , do you see any pull forward of demand or early contract negotiations from customers looking to take advantage of that $24 transition price in quarter?
I'll answer this, but this is the last one, Ryan. We got to close out and get back on the callbacks. We did not allow early renewals. Your contract had to be up for renewal two weeks prior to expiration, and so there was no pull forward in the quarter related to that. Great. Thanks, guys. That concludes our 1Q FY24 earnings.