Q1 2025 GitLab Inc Earnings Call
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Greetings and welcome to get Labs first quarter fiscal year 2025 earnings conference call. At this time, all participants are in a listen only mode a.
A brief question and answer session will follow the formal presentation, you'll be registered to ask a question at any time by pressing the star and one on your telephone keypad you may withdraw yourself from the queue at any time by pressing star to.
As a reminder, this conference is being recorded it is now my pleasure to introduce your host Kelsey Turcotte Vice President of Investor Relations. Thank you Kelsey you may begin.
Okay.
Thank you for joining us today forget labs first quarter fiscal year 2025 financial results Conference call.
<unk> co founder and CEO since two brandy and get Labs, Chief Financial Officer, Brian Robbins will provide commentary on the quarter and guidance for the fiscal year.
Before we begin I will cover the safe Harbor statement.
Like to direct you to the cautionary statement regarding forward looking statements on page two of our presentation and in our earnings release issued earlier today, which are both available under the Investor Relations section of our website.
Brian Robbins: The presentation and earnings release include a discussion of certain risks uncertainties assumptions and other factors that could cause our results to differ from those expressed in any forward looking statements within the meaning of the private Securities Litigation Reform Act.
As is customary the content of today's call and presentation will be governed by this language. In addition during today's call we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures exclude certain unusual or nonrecurring items management believes impact comparability of the periods referenced.
Please refer to our earnings release and presentation materials for additional information regarding these non-GAAP financial measures and their reconciliation to the most directly comparable GAAP measure.
Now I'll turn the call over to get Labs, co founder and Chief Executive Officer since you Brandy said.
Thank you for joining US today, we had a strong first quarter with 33% revenue growth and significant year over year margin expansion.
Well your customers derived from get lap comes through not only in our topline growth, but also in our best in class dollar based net retention rate of 129%.
We continue to differentiate our platform with security compliance any I threw out the software development lifecycle and we also continue expanding our total addressable market for new use cases and personas.
Yeah. He is quickly transforming the way software is delivered with get lap our AI extends well beyond coding in development because we have the broadest platform will uniquely enable our customers to also leverage AI for planning security and operations.
Both new customers like financial services company, a and b and existing customers like NASA Artemis Carrefour, Indeed N D F. B I understand the value of our platform that enables software development across the end to end lifecycle.
It improves productivity and security without sacrificing speed.
Brian Robbins: We believe the benefits and improved quality delivered by our end to end approach are unmatched in the market.
Great example of this is a leading financial services company that decreased pipeline outages by 90% since deploying get lap.
And that has translated in hundreds of thousands of dollars in savings every year.
They are also leveraging our AI offerings get love duo Pro and get a lot of people probably has already delivered increases in productivity for this customer.
We're seeing get love duo adoption by customers, who are excited about the benefits of being to their teams for example, a leading provider for the global communications industry purchase get lap due in Q1 to help engineering teams code faster and more securely.
We continue to add new capabilities to get love duo in Q1, we released get love duo chat into general availability chat is a conversational AI interface would get love duo helps customers quickly understand project status get help with planning and configuration receive explanations I've suggested code in general.
<unk> tests.
Oh without context switching I'm excited about chat because it transforms software development by seamlessly integrating a guy to a single easy to use natural language chat interface.
This optimizes desk checkups workflows and boosts productivity. We also introduced new privacy controls that enable organizations to manage sensitive data at the project group and subgroup levels. This helps reduce the security and compliance risks of AI adoption.
Our next to add on this get lab to our enterprise.
Do you have enterprise combined should develop a focused AI features of get love duo Pro with enterprise focused features to help teams collaborate faster together.
Our customers are particularly excited about the security tools coming as part of get lap duo enterprise such as root cause analysis, along with vulnerability explanation and resolution.
In the future get loved to enterprise.
Lot of customers to deploy AI models and air Gapped environments. This feature will further differentiate get love duo in the market.
Now I'd like to turn to security and compliance. These capabilities are core to our platform and continue to be big business drivers as far as customers turn to get right because they need to integrate security earlier in the development process. For example, a major U S technology company and government contractor removed seven.
Different point solutions when they consolidated on to get that platform now Theyre doing security scans Sera 10 times faster and are seeing 90% savings in tool chain administration.
In Q1, we closed a six figure deal with a global financial services company and new logo forget what they were looking to improve security in the desk Jackups lifecycle and give us the only option that would let them bring software composition analysis sauce and das into a single platform.
With our advanced security capabilities.
Company can shift security left and address vulnerability sooner.
At the same time, they are consolidating their tool chain, reducing their total cost of ownership and increasing visibility across the software supply chain.
Get lots integrated security is driving upgrades to our ultimate here in Q1, we continued to build on our security capabilities with our acquisition of oxide.
We acquired oxide for the robust SaaS technology.
This will help streamline vulnerability management and remediation forget lab customers.
We also acquired the intellectual property of Brazilian <unk>.
Which will enrich our vulnerability risk data and auto remediation capabilities as well as run time vulnerability, which ability.
Together. These acquisitions are intended to extend get labs detection and remediation capabilities from coat through run time, and this will help organization's resolve for mobility more efficiently and quickly we will be integrating oxide and Brazilians technologies into get lab over the next several quarters.
Turning to complaints one of our big differentiator series get lot dedicated or single tenant SaaS solution, which provides customers with data isolation and residency.
One of the largest public service departments in Europe adopted get lot dedicated in Q1 to help them break down silos and build a culture of collaboration across the organization hybrid landscape, while maintaining strict compliance requirements.
Now I'd like to discuss our go to market strategy as we scale passed $500 million and moved to $1 billion in revenue our customer profile is evolving and so are we.
Customers recognize us as more than just a vendor. We're partner. We recently won ally Financial's technology operational Excellence award for driving simplified and resilient solutions for ally and its customers. This follows from last year. When we won allies philosophy with quality award for helping ally financial deliver value to customers quickly.
In addition, our partnerships with Google cloud and AWS accelerate cloud migration for them and we benefit from wider distribution.
In April <unk> received a 2020 for Google Cloud technology partner of the year Award any application development category for the fourth consecutive year at Google Cloud next we announced a Google console integration. This helps our customers improve the developer experience and decreased context switching across get lap and Google cloud.
We're also excited about our integration with Amazon Q. The integration gifts are joined AWS and get lab customers a unified interface, whether they are working in AWS or you can get lap.
We ask customers using get lab can opt you have get love duo right past acute and vice versa.
To help us penetrate the estimated 40 billion dollar market opportunity ahead of US we are investing in a number of initiatives first we are adding more global field cto's to help amplify our message and articulate our value to the executive suite.
Second we are bringing in more solution architects and also expanding our services offering to ensure post sales success.
Third we are increasing our global theater presence to more closely meet the needs of specific regions and markets.
And of course, we are sharpening our focus on industries with complex security and compliance requirements such as financial services.
During the quarter, we closed the second largest deal and get lot of history.
With a U S based global investment banking firm.
Given their success with our core capabilities, they upgraded to get lots of ultimate for security and compliance capabilities and significantly expanded seats.
Finally, we're looking forward to next months anticipated get lapsed 17 product launch event. We invite you to join US on June 27th registration information can be found on to get live website.
Many innovations are playing forget like 17, including enhancing curative scanning and governance controls and the general availability of our C. ICD catalog.
Then we'll be taking get lost 17 on the road as part of our depth SEC Ops World Tour event focused on business leaders and practitioners.
On a personal note during a recent routine scan and learned that I need to again undergo treatment for osteosarcoma. The same form of cancer I was treated for it in 2020 fleet.
My Doctor believes that this finding is part of the original lesion and that as such the disease is not metastasized.
I'm working on making a full recovery as the last time my scope of responsibilities just get lab C. O N share remained unchanged.
Thank our executive team and the board of directors for their support.
In closing I'm confident we will continue to win the large market opportunity in front of us I want to thank our team members and partners for their focus on customer success and our customers for trusting us.
I, thank our shareholders for your support and I look forward with speaking with many of you this quarter with that I'll turn it over to Brian.
Thank you said and thank you again for everyone. Joining us today I am pleased with our start to FY 2025, as the team delivered strong top line growth. We also achieved a significant year over year increase in operating margin and for the first time, Jeremy positive Q1, operating and adjusted free cash flow our number one objective.
<unk> is to grow while we continue to do that responsibly.
Speaker Change: It is clear from our results that our customers see the value of our end to end <unk> platform that allows them to consolidate spend avoids vendor lock in and deliver outcomes business more quickly customers report to us that they were able to consolidate their told Jane anywhere from three to 20 solutions into our platform accelerate release cycle is about seven.
Times, and even realize 70% improvements in annual savings.
These outcomes moved the needle for our customers and the software development lifecycle, maximizing budgets and increasing their competitiveness.
Turning to the numbers first quarter revenue of $169 million represents an increase of 33% from Q1 of the prior year. Please note that our acquisition oxide did not contribute to Q1 revenue.
As a reminder, when we guided for Q1 and FY 2025, we've not completed our annual standalone selling price analysis, or SSP, which determines our revenue recognition rate for upfront license revenue as a result, we use our FY 'twenty 'twenty four rates for FY 2025 guidance.
That evaluation is now complete and had the effect of decreasing Q1 revenue approximately $1 million and decrease our expected FY 2025 revenue by approximately $4 million relative to guidance exclude the impact of the new S. S. P allocation Q1 revenue was $170 million, an increase of 34% year over year.
Going forward guidance for FY 2025 includes our updated SSD allocation.
We ended our first quarter with a dollar based net retention rate or DB and our or of 129%.
Q1, <unk> was driven by a combination of seat expansion at approximately 55% priced at approximately 35% and tier at approximately 10%.
Over the last four quarter seat expansion has been greater than 50% of the growth and DB and are are and we are very pleased to see customers commitment to our platform reflected in this expanding adoption.
We now have 8976 customers with <unk> of at least $5000, an increase of approximately 21% consistent with previous quarters, our customers with greater than $5000 in IRR contributed over 95% of our total <unk> in Q1 <unk>.
In particular, we monitor performance of our larger customer cohort of $100000, plus an era, where average <unk> per customer and continues to increase and unit economics continue to improve.
This is a testament to the importance of security and compliance for these large customers at the end of the first quarter of FY 2025, we had 1025 customers with <unk> of more than $100000, an increase of over 35% year over year.
Expanding this cohort both in absolute number in total <unk> as a focus of our go to market team and as Ed mentioned, we will continue to invest additional resources to drive mentum across these customers.
This quarter total RPM grew 48% year over year to $681 million, while CRP O grew 34% to $436 million.
non-GAAP gross margins were 91% for the quarter size now represents over 28% of total revenue and grew 50% year over year. The team continues to identify efficiencies that allows us to maintain best in class non-GAAP gross margins.
Once again, we saw year over year improvement in operating leverage Q1, non-GAAP operating loss was $3 8 million compared to a loss of $15 million in the first quarter of last year. As a reminder, in this Q1, our non-GAAP operating loss included a $15 million investment in summit, our global team member gathering I'm really pleased.
With the team's continued focus on execution, which resulted in a non-GAAP margin expansion of more than 900 basis points year over year.
Cash from operating activities was $38 1 million in the first quarter of FY 2025, compared to an $11 million use of cash in operating activities in the same quarter of last year adjusted free cash flow was $37 4 million in the first quarter of FY 2025, compared to an $11 2 million use of cash in the same quarter of last year.
Turning to guidance I'd like to start with a few comments on guidance first as I mentioned already guidance includes our updated SSP revenue analysis.
By 2025 revenue guidance includes the approximately $4 million SSP net headwind for FY 2025, and raises in line with our first quarter top line outperformance.
For the second quarter of FY 2025, we expect total revenue of $176 million to $177 million.
Representing a growth rate of 26%, 27% year over year, we expect a non-GAAP operating income of 10 million to $11 million and we expect a non-GAAP net income per share of <unk> <unk>, assuming 167 million weighted average diluted shares outstanding.
For the full year FY 2025, we expect total revenue of $733 million to $737 million representing growth rate of approximately 26%, 27% year over year.
We expect a non-GAAP operating income of 34 million to $38 million and we expect a non-GAAP net income per share of <unk> 34 to 37, assuming a 106 8 million weighted average diluted shares outstanding.
Separately I'd like to provide an update on G. Hu, our China joint venture in Q1, FY 2025, non-GAAP expenses really G, who were $3 million compared to $5 6 billion in Q1 of last year.
Our goal remains the deconsolidation of <unk>. However, we cannot predict the likelihood or timing of when that may potentially occur. Thus for FY 2025 modeling purposes, we forecast approximately $14 million of expenses related to <unk> compared with $18 million in FY 2024.
In closing Q1 was a strong start to the year highlighting the differentiation of our desktop platform and the power of our financial model. We're excited about the introduction of AI across the entire software development lifecycle, the significant value, we deliver for our customers and the large market opportunity in front of us.
Thank you all for joining us this afternoon with that I'll turn it over to Kelsey, who will moderate the Q&A.
Hello, everyone. Thank you very much for joining us this afternoon.
Kelsey Turcotte: It's time for questions at this time, if you would like to ask a question. Please press the star and then one on your telephone keypad.
You may withdraw your question at any time by pressing star and chip once again to ask a question. Please press star and one on your telephone keypad.
We'll take our first question from Matt at RBC, Matt. Please go ahead.
Speaker Change: We're requesting one question and one follow up please.
Great. Thanks, Kelsey first of all she had.
Thoughts and prayers out to you.
As you continue this journey here certainly youre in are in our thoughts and prayers.
Maybe just to start with you sit on the demand environment, There's obviously been a lot of volatility.
Play off quarter software earnings over the past couple of weeks can you just maybe just pull pull the lens back a little bit and kind of just talk about what youre seeing primitive antibiotics. It looked like you had good results this quarter, but just a little bit more perspective there.
Hey, Matt Thanks for the question this is Brian.
Yeah I'll start in there werent any major macro changes from Q4 to Q1.
<unk> sales cycles, and discounting were consistent you know the macro contingent continues to be cautious I would say from the procurement departments on how they are being thoughtful in what they commit to if you get specific to get lab, though first if I look at new business. Our first order of business continues to be strong.
And so that's a great indicator and then second I look at existing customers and.
And we reported the dollar based net retention rate of 129%. This is led by seat expansion followed by the price increase slash increased customer yield and then upped herein.
So that was better than what we modeled.
The cohort of 100000, K, which we view as a proxy for our enterprise customers grew more than 35% year over year and so hopefully it gives you some context on the macro and then also what we look at from get last specific within the quarter.
Okay, that's great Brian and then maybe just a follow up for you.
On the $4 billion SSP headwind you talked about I, just want to be clear it feels like that's.
Full year headwind, not just Q1, which I think you alluded to on the call but.
I just want to make sure that my math is right because it feels like you beat.
I think $3 million and you're raising by I think seven but you talked about this $4 million SSP headwind I just want to make sure I understand kind of the puts and takes to the full year. It sounded like you said, you're basically just pushing the Q1 beat through but maybe if you can just provide a bit more color around that.
Yeah, absolutely thanks for the question.
When we reported the guidance for last quarter. It was based on the 2024 SSP allocation.
We completed that analysis, and there was $1 million impact in Q1, and so the $3 $7 million beat includes the million dollar impact the guidance. We gave for the full year of $7 33 to 737 includes the $4 million headwind.
And so that would be additive to those numbers. So we've absorbed those and the numbers that we provided.
Great got it. Thank you. Thank you for that question.
Thanks, Matt next question is coming from Ryan at Barclays. Ryan Your line is open.
Next thing the question.
Just on your incremental pricing garage, you offered last quarter.
Got the $10 million to $20 million in benefit for this fiscal year any update to that guide and are you seeing any differences at renewal for the additional price increase this year in this macro effects.
Yeah. Thanks, Ryan this is Brian.
Dave that range out a couple of quarters ago to help with calibrating. The models is there such a wide range on this year's revenue you are assumptions that we gave out included in our guidance on a go forward basis includes that and so.
I'm happier port that you were doing better than what we internally model.
Yeah, and so what we internally model.
Perfect appreciate that color and just one housekeeping item.
Maybe I missed it on the prepared remarks, but did you provide ultimate.
As a percentage of <unk> and then maybe one for Cid.
You hear about how youre thinking about the initial uptake in terms of demand for duo pro and maybe any early signs of demand for dual enterprise.
I'll I'll do ultimate real quickly that's 46% of total they are up from 44% from last quarter.
Yeah.
Thanks for that Brian.
Thanks for the question about duo Pro and do our enterprise, So where we're seeing the momentum there for the for duo pro.
Got some great initial results in major American financial services company reported 35% to 40% developer productivity as a result of using it.
We had a great deal with a major APAC telecom Wuxi Telecommunications company that wanted to have AI powered capabilities, not just coding, but in all stages and.
And we made a sale to a major security infrastructure company.
As for duo Enterprise. The features they really like I don't want is around security and root cause analysis and the security features they like its vulnerability explanation and resolution so yes.
I'm looking forward to that and in the future do enterprise. So also allow customers to deploy AI models and air Gapped impairments and lot of our customers and I'm looking forward to that.
Thanks for the color thanks, guys great.
Thanks, Brian next question goes to Jason at William Blair.
Yes. Thank you.
Guys. I was just wondering have you explored recently any changes to the pricing model I know.
You can proceed pricing for both the self managed and SaaS.
And especially for the SaaS business, where most of your peers are using some form of youth usage based pricing.
It would seem like that could be in the cards for you guys. Just any any comments on how you're thinking about pricing going forward would be great.
Yeah.
For the most important part our pricing is the same issue said, it's based on users.
The value we add as we make people more productive 10 times faster cycle time getting more work done.
On SaaS, we also charge for for example storage.
But the big benefiting gift lab is in how we make people more productive. The for example, the storage costs in a very high another indicator of that as our gross margins like 91%.
It kind of indicates that there's not a ton of compute cost that we drive down it's making people more efficient with things like replacing point solutions with the platform and the AI and Thats, what we charge for.
Speaker Change: Okay, Great and then one quick follow up just on.
On the product roadmap.
Maybe this is for you said, but as we think about this this fiscal year. What would you say is your kind of top priority.
In terms of the kind of all the products capabilities to get labs.
Speaker Change: Applications capabilities.
Yeah.
Top focus of course is AI duo pro to enterprise, but we also continue to invest in our <unk>.
The ability of our customers to replace point solutions really excited about the acquisition of the two security companies, that's going to make our security offering better also investing our compliance our planning capabilities and just making it easier to replace all the other point solutions that our customers have.
Currently we had get lap our customers can replace more point solutions than any other way, but we wanted to make sure. They can replace older point solutions and I think in that security we're getting.
To close and we will keep driving for all the other sectors, including planning and binary storage and everything else.
Thank you best of luck with your treatment.
Thanks.
Next question goes to net from Scotiabank. Please your line is open.
Awesome, Thanks, guys and said best of luck.
I wanted to ask a question Bryan on the RP O. The sequential change from <unk> to <unk> was a little bit smaller than we've historically seen and just is there is there anything to call out mechanically.
As to why that changes a little bit smaller or was there a pull into Q4, our customers signing shorter duration deals is there more sort of renewal activity and the renewals go from three years to one year, just anything else to call out on that RP outnumbered why that sequential changes a little bit smaller.
Yeah, Thanks, Nick Yeah.
<unk> talked about with billings in RPE owe them being somewhat a little bit noisy within a quarter.
I was happy with the <unk> at 34% year over year that was in line with revenue growth of 33%.
Q4 to Q1, there is some seasonality Q4 is our strongest quarter and Q1 is seasonally our lowest quarter and so we had a real strong finish to the year, so that impacts it a little as well, but I'm pleased where we're at and the visibility that we have in the model.
Awesome. Thanks, and then just a quick follow up on the $4 million headwind.
Is that all related to license revenues and if so just any goalposts as to how we should be thinking about license of our self managed contra.
Contract support for for this year. Thanks.
Yes. Thanks, Thanks for that we don't breakdown, because we don't forecast that level, we don't set sales compensation targets between.
Self managed or ones that we're going to host and so when we go through the SSP allocation. It's based on what we deem to deliver value when it's received versus value over the timing of license and that's what causes the switch and so yeah. The headwind we eventually get because we don't recognize upfront we recognize.
Speaker Change: Over the period of the contract and so the $4 million that we called out is lower than what our recognition would've been last year, but we've included that in our guidance and absorb that.
Great. Thank you great.
Thanks, Nick next question is from Karl at UBS. Your line is open.
Okay, Great Hey, Brian you talked a little bit about the macro being reasonably stable relative to <unk> could we talk specifically about seat growth. Your disclosures of the seat contribution to NR are both in Q1 in <unk> with <unk>.
Lead one to believe that seat growth is either stable or even slightly improved.
That the correct assumption.
Yes.
Yeah, you know when I look back at <unk>.
Seats from a contribution to the net dollar retention rate over the last four quarters, it's averaged over 50% and so that's been the number one contributor.
It's both and obviously ultimate and premium.
Okay. So it sounds more stable, but not okay and then on the contribution the assumed contribution of duo.
Pro and enterprise to the fiscal 'twenty five guidance, Brian are you, including anything in there maybe a minimal amount maybe just to.
Add some color there. Thank you.
Yes, thanks for that like we said on previous calls it's early it takes some time happy with the sales processes, it's going but it is included in our guidance that we provided.
Speaker Change: Okay got it congrats on the nice numbers. Thank you.
Thanks Carl.
Great. Our next question comes from Joel Fishbein of Duress, Joe Your line is open.
Thank you.
Dr <unk>.
Brian for you and Joe Congrats on them.
Youre breaking up alone are enough, there's a way to fix that.
Can you hear me better now.
Yeah.
So <unk> plus impairs with you.
Ryan.
Congrats on the margin performance.
So you've talked a lot about.
Scaling the business.
Here and I would.
I loved it.
How you are thinking about growth versus margin.
<unk>.
Speaker Change: Okay.
Yes, Thanks, Joe.
We've been very consistent in our messaging that the number one goal of the company's growth, but we'll do that responsibly.
If you look at sort of what we added this quarter.
Added $42 million of incremental revenue and that was done with an increase of $31 million of incremental expense, but in that incremental expense was the one time cost of summit, which was roughly about $15 million and so we grew 33% quarter over quarter and we did that with good incrementals.
Speaker Change: Rental profit.
Yeah.
Great. Thanks.
Mitchell.
Great. Thanks, Joe Our next question from from cash from Goldman Sachs.
Thank you very much.
How would you describe get labs.
Product competitiveness versus your leading competitor term how is.
Is that gap today versus say six months ago, or so, especially in light of the generative AI features that you've introduced with duo duo chat and also other things like agile and dedicated.
Quantitative thing, but I just wanted to to get get.
That perspective, and one for you Brian.
When the effect of duo agile dedicated price increases to kicking into full gear. What is the rough contribution that these vectors have to your reported growth.
This quarter so.
In other words, how much additive will be the effect of those vectors to your current reported growth. Thank you so much.
Yeah. Thanks for that question.
And if you look at the AI features would do a pro where we were at later than our main competitor.
But I think we have a competitive offering now if you look at.
Duo enterprise, we can use but we really strong that namely integrating security and deaths and Dev and ops and that leads to a very strong offering on their reports. It is the most AI features available that concept because we have the promised platform. We can replace more point solutions for our.
<unk>.
And that's really important because then they can have a faster cycle time deprecate, all those old tools, not only not have to pay for them, but the save on the integration costs as well.
And.
Because we have more in the platform and customers use more scale and we also have more contacts to Merck more relevant AI features. So I think that's really exciting and I'm looking forward to.
All the security help we can offer our customers too.
Speaker Change: And I think we are leading there so.
That makes me really excited.
Thank you.
And cash on your question around duo and and all the number of things that you mentioned, what's the rough contribution on the new products that we've launched its price times quantity is the Rev. Rec on that and so based on the number of seats sold and what the prices that we saw that for any given month or.
Quarter would be the revenue that we would recognize that would be additive to what we currently sell today on the base business.
And I was just looking to quantify that I appreciate the math Bryan but.
The process, but the math behind it how much roughly would contribute when it all hits.
The P&L.
Speaker Change: Incremental to the reported Klitschkos today's growth is not benefiting from those vectors right which is.
At the heart of my question.
Yes, that's correct.
Included in our guidance and we haven't broken that out separately.
Okay.
Great. Thank you very much.
Our next question comes from Rob at Piper.
Rob go ahead.
Great. Thanks for taking my question. This is Ethan on for Rob.
Just one for me I wanted to ask around how customer conversations on hiring intentions of trends specifically for developers.
Speaker Change: Are you seeing any sort of customers look to step up hiring in the second half as they invest behind kind of the <unk>.
Ocean of cloud migrations or any journey initiatives at this point.
Yes.
Speaker Change: Yes, Thanks, Keith and as you can there is nothing to report that we can run per se and actually see what the hiring intentions are of the customer base I would say just more broadly that there werent major macro changes from Q4 to Q1.
And it was fairly consistent and then I spoke earlier, a little bit about first order and the net dollar retention rate and I think thats reflected.
Within the net dollar retention rate that seat expansion is approximately 55%.
Great. Thanks for the color.
Great. Thank you very much next question comes from Koji at Bank of America.
Yeah, Hey, guys. Thanks for taking the questions said, we're all rooting for you here.
Couple of a couple of questions from US first one big picture question, maybe for said so so the Dev SEC ops World is evolving very very quickly and there is a lot of focus on generative AI code.
But really that's only a sliver of that check off workflows. So the question is on what's really going on out there you know what our developer teams and it ops teams and security ops teams.
Most focused on today that is driving demand forget lab.
Yeah, Thanks for that.
You're totally right, helping people code is only part of the equation, that's helping to developers and even day don't spent most of their time coding you spent a lot of their time for example, interpreting issues and that's regenerative AI can help as well.
And then if you produce coke you still have to secure it and then the bar for securities coming going up like you have to.
Have a tighter security profile you've got to.
Address things quicker. So that's regenerative AI can help a lot super excited about all the features coming out in <unk>.
And do our enterprise that help with that.
And then it's also operations, keeping everything up and having AI respond faster to security incidents most of the time augmenting people, but even with things like planning, where we are the only platform that has enterprise agile planning completely integrated and with AI you can have a better.
Forecast, when you're going to deliver something.
It helps manage their sprit resource allocation. So we're really excited to have AI throughout.
The lifecycle and we think the platforms.
We're in a great position to have more contacts to <unk>.
Better than the broader platform to more point solutions, you would replace the better that AI is going to work in the warrants can do for you.
Got it thank you said.
Speaker Change: Follow up here for Brian.
Speaker Change: Just thinking about the performance in the first quarter and the guidance methodology.
You just beat the first quarter guidance, the revenue guidance midpoint by two 2%.
If the guidance methodology is the same as this the right way to think about upside potential and if not how should we be thinking about upside drivers from that thank you.
Okay.
Yeah. Thanks, Thanks for that.
Koji.
The guidance that we gave out includes the upsides that we talked about in the various products that we have and so we as I spoke earlier, we didn't break that out in our reporting on that separately.
Great. Thanks could you just one thing to note is.
But the 1 million dollar headwind to revenue in the first quarter.
But what you referred to as the beat was would have been actually two 7% up from the $2 two that you mentioned.
Next question will come from Michael at Wells Fargo.
Okay. Thanks I appreciate you taking the question just one for me on free cash flow of 22% margin.
And what's generally a seasonally lighter period. So Brian was just hoping you can speak to the drivers of outperformance there and how should we think about the seasonality of our progression of free cash flow throughout the course of the coming year. Thanks.
Yeah, absolutely Michael we had a very strong fourth quarter and so fourth quarter collections have been in first quarter.
So we did better on the on the top side and then we spent less on the bottom side and so there was some timing.
Much but there was some timing associated with that but it is basically the strong collections based on fourth quarter performance and less spending timing was about a quarter of the total.
And is it I mean as far as on a go forward. If we look at just the change in operating income.
Assumptions between Q4 guidance and where things sit today is it fair for us to assume at least sort of a similar progression of our free cash flow or whats sort of the one time benefits something that we should more carefully contemplate within Q1.
Yeah.
Yeah.
Yes, <unk> was stronger from a cash collection standpoint, because of <unk> and so it really has some dependency on the prior quarter and so I'll leave it at that.
Thank you.
Great. Thank you and the interest of time and see if we can get everyone on.
You could limit yourself to one question. Please that would be great. Next question is coming from pendulum J P. Morgan. Please go ahead.
Speaker Change: Oh, Great Hey, Thanks for taking my question that said wishing you a rapid recovery. One question for you, Brian you said, you're doing better on the pricing assumptions.
That is embedded in the guidance is is there a way to understand the res does that includes included a little bit of uptick on that assumption as well.
Yes, so we broke that out like I said.
Couple of quarters ago to help with calibrating our models.
It is included in our guidance on a go forward basis.
We won't be we don't break that out and so it's better than what we modeled internally and.
Yeah Yeah.
Well, we'll just guide to the full year.
Okay. Thank you.
Next question is from Adam at Raymond James Go ahead. Your line is open.
Okay. Thank you I wanted to just return to the duo conversation see if I can ask it a little bit differently.
Brian you talked about it's early it's going to take time as new comparison, Microsoft developer Copilot. They had 400000 paid subs. It launched two years ago, They just announced $1 $8 million and you can back into it more than $100 million IRR for that platform for them I Wonder if you guys might compare and contrast that versus what you are seeing in the initial launches versus duo realize it's different.
Scale than <unk>, but what's the stopped us from being tens of millions of they are in the next 12 to 18 months.
Okay.
Okay.
Thanks for the question.
Yeah, well, we're not giving out specific numbers on the adoption typically we sell more to enterprises, where it's more of a top down sales versus a bottoms up approach.
It takes a little bit longer.
I also think with duo pro with the coding. We were later I think we do enterprise the everything else I think we're more on time. We are we have very high expectations, we do foresee the majority of impact.
Coming fiscal years, not this year, what we have estimated in.
In our guidance, but what we're very excited about is that customers see the effect of duo in productivity.
And they are enterprise customers the the choose get live they choose get lot of ultimate for the security features. They also wanted the AI security features.
I think we got a really compelling offering they're really excited to see.
How that develops in the rest of the year in our fiscal years.
Great. Thanks, Adam next question is coming from Derek TD Cowen.
Thanks said.
Good luck with your next treatment.
And for Brian I, just wanted to go back to the the change in guide just to get more clarification at midpoint. It went up by $7 million. You are also absorbing an incremental $4 million so apples to apples.
It seems like you're raising by $11 million just wanted to confirm that and then it looks like a lot of that raise at least relative to where street was.
<unk> is expected to be seen more in the back half of the year can you just walk us through how you're thinking about seasonal mix over the course of the year and what could drive.
A stronger second half.
Okay.
Yeah, absolutely Derrick.
Mass is almost correct and so we beat by $3 7 million that included $8 million of headwind and so yeah. We raised by $7 million and then if you add the additional $3 million for the remaining three quarters of headwind for SSP, you would get to 10 million total not the $11 million. So.
Close, but its 10 million total and the revenue that we're expecting is ramps consistent with what the quarterly spread has been and so first quarter seasonally is our weakness fourth quarter seasonally is our strongest in second and third quarter is relatively about the same.
Yeah.
Thank you thanks Derek.
Next question coming from Jason <unk> Keybanc.
Hey, great. Thanks for fitting me in.
Maybe just one per said duo pro still pretty new but surprised to see the enterprise announcements in the quarter curious if this was already always planned to come out around this time frame or if you were able to accelerate it and if so why thank you.
Okay.
Yes, thanks for that I think what we're seeing is that AI is not one thing, but it's not we have a few teams that help with AI overall, but the implementation of AI. We can frequently rely on the individual teams. So it is not.
Speaker Change: And we.
Just having a team and I'm just going to change the whole <unk> lifecycle, and we're enabling R. A T.
Team members are people in R&D to apply AI in the individual aspects. So it's really cool to see like the AI is not just going to help you write the lines of code. It's also going to help you describe what your coding. It's also going to help you.
Plan for the next thing and for example, if you have 200 comments from customers on what tissue built helps you kind of.
So give you a summary, and if something goes wrong. It gives you the root cause of what actually went wrong. If there's a security warning it helps you.
And write the code to fix that and in the future. It will start so solving some of these security issues are automatically so I'm super excited about the broadness with which we can apply AI and I think Dora.
Enterprise coming relatively fast after duo pro shows show Stat that we're able to apply AI very broadly asked us.
The Onvia reports show so.
Great opportunity in the future to get a lot of our ultimate customers are using AI throughout the software lifecycle.
Great. Thank you so much.
Right.
Thanks, Jason next call. Our next question is from Mike at Needham.
Your line is open.
Great. Thanks for taking the question guys I just wanted to ask about the profitability and the raise that we have for the full year operating profit here.
I'm just trying to size up the magnitude can you help me think about how much of that is coming from expectation setting or spending initiatives potentially moving out.
I'd also just like to.
Get a sense, if we can marry up the raised profitability outlook with this.
<unk> earlier comments in the prepared remarks regarding investments in field Cto's in solution architects is that.
Fiscal 'twenty five event or is this a little bit longer term and scope.
No. We're certainly going to do we're already hiring these people.
Leave it to Brian to talk about the financial impact or not but this is this.
This is happening this theres changes in go to market are happening this fiscal year Brian.
Yes.
Everything is said and what we included earlier is included in our financial results.
As we mentioned the number one objective is grow but to do that responsibly.
Based on where we're at and looking out the forecast.
The amount of operating income that we're forecasting for the year is what we gave out as guidance.
Okay.
Great Mike.
Thank you for your for your question.
Unfortunately, we have run out of time. So this does conclude this afternoon's call and we appreciate your participation.
Can disconnect at this time and we'll talk to you a little later thank you.
Uh-huh.
Hum.
Hum.
Uh-huh.
Hey, guys.
Okay.
Yeah.
Okay.
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