Q2 2025 GitLab Inc Earnings Call

September 3, 2024

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If you're joining via the phone, you may press star 9 to ask a question.

Please note today's call is being recorded. I will be standing by, should you need assistance? And now it is my pleasure to turn the conference over to Kelsey. Turn on. I'll see. Over to you.

Speaker Change: Good afternoon, we appreciate you joining us for GetLab 2nd Quarter fiscal year 2025 Financial Results Conference Call.

Speaker Change: It loves co-founder and CEO, Sidse Brandy, and GetLabs Chief Financial Officer, Brian Robbins, will provide commentary on the quarter and guidance for the fiscal year.

Speaker Change: Before we begin, I'll cover the safe harbor statement. I would like to direct you to the cautionary statement regarding forward-looking statements on page 2 of our presentation and in our earnings release issued earlier today, which are both available under the Investor Relations section of our website.

Speaker Change: The presentation and earnings release included 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.

Speaker Change: 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-dact financial measures.

Speaker Change: These non-gap financial measures exclude certain unusual or non-recurring items that management believes impact the comparability of the period's reference.

Speaker Change: Please refer to our earnings release and presentation materials for additional information regarding these non-gap financial measures and the reconciliation to the most directly comparable gap measure. I will now turn the call over to get labs co-founder and chief executive officer, Sid Zbrandij.

Sid Zbrandij: Thank you for joining us today. I'm excited to share our second quarter results with you and talk about our market leading desk set of Splatform and its AICP abilities.

Sid Zbrandij: We continue to deliver strong results that reflect our teams' focus on customers, helping them realize faster time to value and customer-specific business outcomes.

Sid Zbrandij: Second Quarter revenue increased 31% year over year to 180 feet million driven by new logos like Delaware North and Guild Mortgage, as well as expansion by existing customers.

Sid Zbrandij: are non-gap operating margin, also meaningfully exceeded our expectations in the quarter, increasing over 1,300 basis points year over year to 10%.

Sid Zbrandij: This underscores our continued commitment to responsible growth.

Sid Zbrandij: Now, more than ever, organizations need to deliver software faster to respond to intense competition and accelerate performance.

Speaker Change: This is what our deaf-sac-alps platform is purpose-built to do. We bring together developers, security experts and operations teams to better collaborate improve quality and prioritize security.

Speaker Change: All while decreasing software delivery cycle times.

Speaker Change: and with AI integrated throughout the software development lifecycle, get lab customers can take those games even further.

Speaker Change: Enterprises are focusing on real results and real use cases for AI.

Speaker Change: You're looking beyond just co-generation. They are looking to integrate AI into all aspects of software development to deliver tangible results. This requires a strategic approach that aligns AI solutions with business goals.

Speaker Change: Provides measurable benefits and improves security, and this is where it gives life excels.

Speaker Change: Our customers are excited about the meaningful productivity and security benefits of GitLab Duo, which is demonstrated up to 90% reduction in time spent on tool chain operations, 50% faster return and 50% faster vulnerability detects.

Speaker Change: They are also excited about our ability to help them drive real business outcomes. For example, we've recently heard from the State of Washington Public Disclosure Commission about GitLab Duo. They mentioned that GitLab Duo is improving their developer productivity and effectiveness.

Speaker Change: We're just helping their teams focus more on the substance of their work.

Speaker Change: AI is also resulting in larger deal sizes.

Speaker Change: Barclays, purchase GitLab DOC's discord or couple with additional alternate licenses.

Speaker Change: They are rolling out GitLab Duo to thousands of developers so they can take advantage of AI powered capabilities in the same platform where they're building and deploying their code. Exciting to see large enterprises like Barclays, the Docte AI is a natural step for simple fine tool chains in improving their developer experience.

Speaker Change: F5, a multi-cloud application security and delivery company is yet another customer who's adopting GitLab Duo to seeing value from ultimate in driving improved developer experience and productivity.

Speaker Change: Developers who participated in FI's Pymet of GitLab Duo shared that RAA capabilities are easy to use and help them to be more productive in their work.

Speaker Change: Now, a five is rolling out GidLab Duo to all of the companies 2000 developers.

Speaker Change: The Keybank team also wanted to improve developer productivity, so they adopted GitLab Duo.

Speaker Change: Combined with our DeathSecOps platform, GitLab Duo is helping key bank developers resolve pipeline issues six times faster. GitLab Duo is key banks' first-approved AI technology due to our focus on transparency and privacy first.

Speaker Change: It's the combination of both our N2N platform and AI that's driving results for our customers. According to Gardner, by 2027, the number of platform engineering teams using AI to augment every phase of the SDLC will have increased from 5% to 40%.

Speaker Change: This is why we're very pleased with the outcomes of two of Gartner's recent magic quadrants.

Speaker Change: First, get up as recently recognized as a leader in the first ever 2024 Gardening Magic Quadrant for AI Code Assistant.

Speaker Change: We believe this recognition highlights our commitment to the living AI-powered capabilities that accelerate self-relivery and insecurity and drive innovation for our customers.

Speaker Change: and for the second year in a row, get-lifers recognized as a leader in Gartner's 2024 Magic Quadrant for the DevOps platforms.

Speaker Change: We were positioned highest in both our ability to execute and our completeness of vision.

Speaker Change: Our market leadership comes from integrated security and compliance capabilities, deployment flexibility and our unified data store. This provides end-to-end contacts across an organization's inspired software development and deployment workflow.

Speaker Change: Customers realized significant return on investment.

Speaker Change: From Adoption of our Deathsackup Spot from our new Forcer Study on the Total Economic Impact of the Guild level ultimate found that organizations can achieve it.

Speaker Change: or 182% return on investment over three years. That's a nearly 60% point increase. Over the last time, we conducted this study two years ago.

Speaker Change: These results are based on our continued focus on increasing developer productivity, improving developer experience and accelerating feature delivery, improving security and tool chain consolidation.

Speaker Change: Tools and Consolidation and Related Benefits are mentioned frequently by our customers. In fact, in our annual survey, more than 5,000 deathsack-up professionals.

Speaker Change: 62% reported that their teams use more than 5 tools and 64% wanted to consolidate their tools to drive efficiencies.

Speaker Change: This presents a tremendous opportunity for us as a platform to allow customers to consolidate vendors and reduce total cost of ownership.

Speaker Change: One of GitLab's strengths.

Speaker Change: R-Ability to help customers replace legacy-point solutions.

Speaker Change: For example, by consolidating on Github, Lockheed Martin, Managed to Run, CI-Py-Brun Bills.

Speaker Change: 80 times faster.

Speaker Change: Retired thousands of Legacy CI service and reduced the time spent on system maintenance by 90%. That shift resulted in a significant increase in efficiency and productivity for Lockheed Martin. Another example is one of the world's leading innovators in material science.

Speaker Change: They are using our enterprise agile planning add-on, in combination with GitLab ultimate, to centralize planning tools into a single platform and improve visibility across the business.

Speaker Change: Our customers also see security as a mission-critical need. Recent new cycles continue to increase awareness and urgency in the executive suite about the need to embed security at the earliest stages of software development. Get love ultimate, help solve this by shifting security left in the process.

Speaker Change: Seemlessly instrumenting security tax and guardrails into the software development pipeline.

Speaker Change: This comprehensive approach, not only earns the confidence of security leaders, but also dramatically enhances the developer experience, a eliminating context switching and post-deployment firefighting, developers maintained a crucial state of flow. This results in faster, more secure code delivery.

Speaker Change: Gidlap Transform Security from a bottleneck into a strategic advantage in innovation and reliability.

Speaker Change: Security and compliance capabilities are at the heart of ultimate. And set as a part from the competition. Ultimate is a particularly good fit for customers who require the enterprise grade capabilities of our platform to meet constant demands to move faster and produce more software.

Speaker Change: In the second quarter, seven of our 10-large-disdeals were ultimate purchases in seven of our top 10 first order customers landed with ultimate.

Speaker Change: The end of T2 ultimate is now 47% of total ARR. For example, the National Oceanic and atmospheric administration upgraded from premium to ultimate this quarter for its enhanced security and compliance. They also purchase GitLab Duo to improve their developer productivity.

Speaker Change: Security is an important factor when customers adopt GitLab dedicated, are single-ten and size offering that is completely managed by GitLab.

Speaker Change: This offering is unique in the market and is especially valuable to companies with highly complex security and compliance requirements and in regulated industries such as the public sector and financial services.

Speaker Change: Snowflake recently migrated to get-led dedicated for source code management, CI and security for their corporate environment. With get-led dedicated.

Speaker Change: <unk> dedicated for government helps public sector agencies and customers in highly regulated industries meet stringent security and compliance requirements from the U S. Government, we expect designation to build upon the significant momentum we already have in the public sector. In summary, Q2 was a good quarter and I'm proud of what.

Operator: If you're joining via the phone, you may press star 9 to ask a question. Please note today's call is being recorded. I will be standing by should you need assistance, and now it is my pleasure to turn the conference over to Kelsey. Over to you.

Kelsey Turcotte: Good afternoon. We appreciate you joining us for GitLab's second quarter fiscal year 2025 financial results conference call. GitLab's co-founder and CEO, Sid Sijbrandij, and GitLab's Chief Financial Officer, Brian Robins, will provide commentary on the quarter and guidance for the fiscal year. Before we begin, I'll cover the Safe Harbor Statement. I would like to direct you to the cautionary statement regarding forward-looking statements on page 2 of our presentation and in our earnings release issued earlier today, which are both available under the Investor Relations section of our website. The presentation and earnings release included 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.

Speaker Change: We accomplished I also want to think that good luck team for everything you contributed to our ongoing success looking at the second half of fiscal 'twenty five I'm really energized by our ability to continue to drive customer success and the opportunity we have with AI to accelerate business outcomes with that I'll turn it over to Brian. Thank you.

Brian Robbins: And thank you again for everyone joining us today this quarter's results validates the value that our customers get from our integrated platform and todays cautious macroeconomic environment technology needs to deliver quick time to value while solving complex impactful problems that is what our AI powered <unk> platform to us great.

Speaker Change: Example, is intuitive machines, which became the first U S venture in 50 years to land space craft on the Moon integral to the success of the project was get lab. Our end to end platform enabled dozens of developers write code gain visibility and collaborate on share projects. The result was a <unk> increase and release cadence.

Kelsey Turcotte: In addition, during today's call, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures exclude certain unusual or non-recurring items that management believes impact the comparability of the periods referenced. Please refer to our earnings release and presentation materials for additional information regarding these non-GAAP financial measures and the reconciliations to the most directly comparable GAAP measure. I will now turn the call over to GitLab's co-founder and Chief Executive Officer, Sid Sijbrandij.

Speaker Change: 99% reduction downtime and 20 ex decrease and pipeline execution time quoting one of the software leads on the project, we absolutely could not have built a spacecraft in five years without get lab. It helped us make history turned into Q2 FY 'twenty five results exceeded our expectations as we delivered another quarter of greater than <unk>.

Speaker Change: 30% topline growth and significant year over year operating margin expansion second quarter revenue reached $182 6 million an increase of 31% from Q2 of the prior year. We ended the quarter with dollar based net retention rate or <unk> of 126% Q2, <unk> was driven.

Sid Sijbrandij: Thank you for joining us today. I'm excited to share our second quarter results with you and talk about our market-leading DevSecOps platform and its AI capabilities. We continue to deliver strong results that reflect our team's focus on customers, helping them realize faster time-to-value and customer-specific business outcomes. Second quarter revenue increased 31% year-over-year to $183 million, driven by new logos like Delaware North and Guild Mortgage, as well as expansion by existing customers. Our non-GAAP operating margin also meaningfully exceeded our expectations in the quarter, increasing over 1,300 basis points year-over-year to 10%. This underscores our continued commitment to responsible growth. Now, more than ever, organizations need to deliver software faster to respond to intense competition and accelerate performance. This is what our DevSecOps platform is purpose-built to do.

Speaker Change: By a combination of seed expansion at approximately 40% increased customer yield at approximately 50% and tier upgrades at approximately 10%. In addition, all of our historical cohorts continue to steadily expand.

Speaker Change: We now have 9314 customers with <unk> of at least $5000 an increase of approximately 19% year over year and contributed over 95% of total they are in Q2 and.

Speaker Change: In particular, we monitor the performance of our larger customer cohort of $100000, plus an IRR, which reached $1 76. This quarter, an increase of 33% year over year in fact more than 65% of new dollars invested by this cohort was an ultimate this quarter.

Sid Sijbrandij: We bring together developers, security experts, and operations teams to better collaborate, improve quality, and prioritize security, all while decreasing software delivery cycle times. With AI integrated throughout the software development lifecycle, GitLab customers can take those gains even further. Enterprises are focusing on real results and real use cases for AI. They're looking beyond just code generation. They are looking to integrate AI into all aspects of software development to deliver tangible results. This requires a strategic approach that aligns AI solutions with business goals, provides measurable benefits, and improves security. And this is where GitLab excels. Our customers are excited about the meaningful productivity and security benefits of GitLab Duo, which has demonstrated up to 90% reduction in time spent on toolchain operations, 50% faster lead time, and 50% faster vulnerability detection. They are also excited about our ability to help them drive real business outcomes.

Speaker Change: A great example of customer success with these large customers as bowl one of the biggest online retailers in the Netherlands is bolus revenues grew they needed to keep up with a strict and constantly changing compliance regulations with get lab bulk and set policies that automate compliance configurations and checks saving thousands of <unk>.

Speaker Change: All of our hours per month, this quarter total RP over 51% year over year to $747 9 million.

Speaker Change: While CRP over 42% year over year to $475 million.

Speaker Change: non-GAAP gross margins were 91% for the quarter SaaS now represents 28% total revenue in part a reflection of considerable traction were getting with get lab dedicated year over year SaaS revenue grew 46% given the continued high growth in SaaS I am very happy with the team's attention to operating efficiencies.

Speaker Change: Which continues to result in best in class non-GAAP gross margins. Once again, we saw significant year over year improvement in operating leverage Q2, non-GAAP operating income was <unk> two.

Sid Sijbrandij: For example, we recently heard from the State of Washington Public Disclosure Commission about GitLab Duo. They mentioned that GitLab Duo is improving their developer productivity and effectiveness, which is helping their teams focus more on the substance of their work. AI is also resulting in larger deal sizes. Barclays purchased GitLab Duo seats this quarter coupled with additional Ultimate licenses. They are rolling out GitLab Duo to thousands of developers so they can take advantage of AI-powered capabilities in the same platform where they're building and deploying their code. It's exciting to see large enterprises like Barclays adopt AI as a natural step for simplifying toolchains and improving their developer experience. F5, a multi-cloud application security and delivery company, is yet another customer who's adopting GitLab Duo after seeing value from all drive improvement in productivity.

Speaker Change: Paul.

Speaker Change: Okay awesome.

Paul: Second quarter last year this quarter, we dropped all of our revenue outperformance. So the bottom line, which in combination with a continued focus on resource allocation translated to non-GAAP operating margin of 10% compared to negative three 1% in Q2 of last year. This once again demonstrates our commitment to responsible growth.

Speaker Change: Cash from operating activities was $11 $7 million in the second quarter compared to $27 1 million in the prior year period, adjusted free cash flow was $10 $8 million in the second quarter of FY 'twenty five compared to $26 8 million in the prior year period, Q2, FY 'twenty five cash flow from operations and adjusted free cash.

Speaker Change: Cash flow reflect the timing of payments for our Q1 global employee gathering made in Q2 now turning to guidance for the third quarter of FY 'twenty five we expect total revenue of $187 million to $188 million.

Sid Sijbrandij: Participated in F5's pilot of GitLab Duo [and] shared that our AI capabilities are easy to use and help them to be more productive in their work. Now, F5 is rolling out GitLab Duo to all of the company's 2,000 developers. The KeyBank team also wanted to improve developer productivity, so they adopted GitLab Duo. Combined with our DevSecOps platform, GitLab Duo is helping KeyBank developers resolve pipeline issues six times faster. GitLab Duo is KeyBank's first-approved AI technology due to our focus on transparency and privacy first. It's the combination of both our end-to-end platform and AI that's driving results for our customers. According to Gartner, by 2027, the number of platform engineering teams using AI to augment every phase of the SDLC will have increased from 5% to 40%. This is why we're very pleased with the outcomes of two of Gartner's recent Magic Quadrants.

Speaker Change: Representing a growth rate of 25% to 26% year over year, we expect a non-GAAP operating income of 19 million to $20 million and we expect the non-GAAP net income per share of <unk> 15 to 16, assuming 168 million weighted average diluted shares outstanding for the full year FY 'twenty five we expect total revenue of 740.

Speaker Change: $2 million to $744 million, representing a growth rate of approximately 28% year over year, we expect the non-GAAP operating income of 55 million to $58 million and we expect the non-GAAP net income per share of <unk> 45 to <unk> 47, assuming a 168 million weighted average diluted shares outstanding.

Speaker Change: Separately I'd like to provide an update on <unk>, our China joint venture in Q2, FY 'twenty five non-GAAP expenses related to <unk> were $3 3 million compared to $4 8 million in Q2 of last year. Our goal remains to the consolidated <unk>. However, we cannot predict the likelihood or timing of when this may potentially occur thus for FY <unk>.

Sid Sijbrandij: First, GitLab was recently recognized as a leader in the first-ever 2024 Gartner Magic Quadrant for AI Code Assistants. We believe this recognition highlights our commitment to delivering AI-powered capabilities that accelerate software delivery, enhance security, and drive innovation for our customers. For the second year in a row, GitLab was recognized as a leader in Gartner's 2024 Magic Quadrant for DevOps platforms. We were positioned highest in both our ability to execute and our completeness of vision. Our market leadership comes from our integrated security and compliance capabilities, deployment flexibility, and our unified data store. This provides end-to-end context across an organization's entire software development and deployment workflow. Customers realize significant return on investment from adoption of our DevSecOps platform. Our new Forrester study on the total economic impact of GitLab Ultimate found that organizations can achieve a 482% return on investment over three years.

Speaker Change: 25 modeling purposes, we forecast approximately $14 million of expenses related to <unk> compared with $18 million of last year.

Speaker Change: You all for joining this afternoon, we delivered a strong Q2 and I'm really pleased with how we're positioned as we head into the back half of FY 'twenty five we appreciate your support and look forward to speaking with many of you during the quarter with that I will turn it over to Kelsey who will moderate the Q&A.

Kelsey: Great. Thank you very much I appreciate everyone. Joining we're going to start by taking one question and one follow up question on our first participant is still this firm will still go ahead.

Speaker Change: Thanks, Kelsey <unk> heard the question and congrats on a strong quarter.

Speaker Change: Love to get an update from you on how you are thinking about that.

Brian Robbins: The go to market going forward, obviously, you had a changeover in leadership there and despite that you had a very solid quarter, just curious what youre looking for in a new leader and just a quick question for you Brian on the follow up.

Sid Sijbrandij: That's a nearly 60 percentage point increase over the last time we conducted this study two years ago. These results are based on our continued focus on increasing developer productivity, improving developer experience, and accelerating feature delivery, improving security, and toolchain consolidation. Toolchain consolidation and related benefits are mentioned frequently by our customers. In fact, in our annual survey of more than 5,000 DevSecOps professionals, 62% reported that their teams use more than five tools, and 64% wanted to consolidate their toolchain to drive efficiencies. This presents a tremendous opportunity for us as a platform to allow customers to consolidate vendors and reduce total costs of ownership. One of GitLab's strengths is our ability to help customers replace legacy point solutions.

Brian Robbins: Thanks for that Joe Yeah, Chris was doing a great job and would love to continue to have them here, but he found another opportunity.

Brian Robbins: We've launched a search.

Speaker Change: And we've been really impressed with the quality and quantity of candidates and in the interim we're really pleased with how smoothly. The team has transitioned to ashley's leadership.

Speaker Change: In her role as chief marketing and strategy Officer. She was already very in touch with both our customers and the sales leadership that enabled a smooth transition, which supported our raising guidance this quarter.

Speaker Change: Great and Brian just a quick one for you I mean, you outperformed very significantly and the operating margin line I believe you're still going to prioritize growth over margins, but any color you could give us there would be really helpful. Thank you.

Sid Sijbrandij: For example, by consolidating on GitLab, Lockheed Martin managed to run CI pipeline builds 80 times faster, retired thousands of legacy CI servers, and reduced the time spent on system maintenance by 90%. That shift resulted in a significant increase in efficiency and productivity for Lockheed Martin. Another example is one of the world's leading innovators in materials science. They are using our Enterprise Agile Planning add-on in combination with GitLab Ultimate to centralize planning tools into a single platform and improve visibility across the business. Our customers also see security as a mission-critical need. Recent news cycles continue to increase awareness and urgency in the executive suites about the need to embed security at the earliest stages of software development. GitLab Ultimate helps solve this by shifting security left in the process, seamlessly instrumenting security checks and guardrails into the software development pipeline.

Speaker Change: Okay.

Brian Robbins: Thanks, Joe I appreciate that yes.

Speaker Change: Nothing's changed on that pre IPO every quarter said and I've said growth is the number one thing, but we'll do that responsibly and we continue to get increased operating leverage in the model with even growing greater than 30% year over year. So happy with the performance this quarter and happy with the.

Speaker Change: Beaten raise for the year.

Speaker Change: Great. Thank you.

Ron Brandes: Great. Thanks, Phil next question goes to run brands.

Ron Brandes: At Berkeley, Ryan go ahead.

Ron Brandes: Yes.

Speaker Change: Hey, Thanks for the question.

Ryan: Just in terms of what Youre seeing in the macro right now do you notice any differences between the second quarter and the first quarter and how are you seeing developer hiring at this point. Thanks.

Speaker Change: Yes, thanks for the question.

Speaker Change: Really been no difference between the two quarters. It still remains a cautious spending environment out there and so you arent able we're enabling our teams to go out there and the pitches are more financially related and we haven't seen really any changes in trends on development develop our hiring either and so first.

Sid Sijbrandij: This comprehensive approach not only earns the confidence of security leaders but also dramatically enhances the developer experience. By eliminating context switching and post-deployment firefighting, developers maintain their crucial state of flow. This results in faster, more secure code delivery. GitLab transforms security from a bottleneck into a strategic advantage in innovation and reliability. Security and compliance capabilities are at the heart of Ultimate and set us apart from the competition. Ultimate is a particularly good fit for customers who require the enterprise-grade capabilities of our platform to meet constant demands to move faster and produce more software. In the second quarter, seven of our 10 largest deals were Ultimate purchases, and seven of our top 10 first-order customers landed with Ultimate. At the end of Q2, Ultimate is now 47% of total ARR.

Speaker Change: Order continues to remain really strong and thats really the power of the platform.

Speaker Change: And the payback period that said talked about with the Forester report and the ROI that our customers are receiving.

Speaker Change: Second question was around developer hiring.

Speaker Change: Yeah developer hiring has been been developer and hiring has been the same.

Speaker Change: Thanks.

Speaker Change: Excellent and then for <unk>, there's been a lot of focus on the coding assistance around generative AI, but as youre seeing the velocity of software development pick up are you seeing more interest from customers around non coding tools, but as they utilized AI within their coding process, such as securing binaries or more.

Sid Sijbrandij: For example, the National Oceanic and Atmospheric Administration upgraded from Premium to Ultimate this quarter for its enhanced security and compliance. They also purchased GitLab Duo to improve their developer productivity. Security is an important factor when customers adopt GitLab Dedicated. This offering is unique in the market and is especially valuable to companies with highly complex security and compliance requirements and in regulated industries such as the public sector and financial services. Snowflake recently migrated to GitLab Dedicated for source code management, CI, and security for their corporate environment. With GitLab Dedicated, Snowflake has the security of a single-tenant environment plus all the benefits of an end-to-end DevSecOps platform. We're also excited to share that we have achieved the in-process designation for FedRAMP moderate. GitLab Dedicated for government helps public sector agencies and customers in highly regulated industries meet stringent security and compliance requirements from the US government.

Speaker Change: Security around their sofa, but Melissa we appreciate it.

Speaker Change: More color here thanks, Ed.

Melissa: Yeah, Thanks, and that's certainly how we see the market. The first market was AI code creation.

Speaker Change: We're really glad that the last Gartner.

Our assistant Magic quadrant races, as the only non hyper cloud that's a leader in this space.

Speaker Change: The second phase is AI throughout the whole software lifecycle and I think for that we're in a great spot.

Speaker Change: With duo enterprise.

Speaker Change: And in the Gartner Magic quadrant for Dev Ops that was released this morning, we're a leader with and we have the highest score for both execution and for vision and I think that having the best and broadest platform enables us to win in this category and beyond that you'll have more autonomous AI AI.

Speaker Change: Going from reactive to proactive and I'm really excited about what we're doing here. If you attended or get lost 17 event, we showed get lot dual workflow.

Sid Sijbrandij: We expect this designation to build upon the significant momentum we already have in the public sector. In summary, Q2 was a good quarter, and I'm proud of what we accomplished. I also want to thank the GitLab team for everything you contributed to our ongoing success. Looking at the second half of fiscal 2025, I'm really energized by our ability to continue to drive customer success and the opportunity we have with AI to accelerate business outcomes. With that, I'll turn it over to Brian.

Speaker Change: A ton of us agent that.

Speaker Change: Can take more initiative of its own that's where the puck is going and we're skating towards it.

Speaker Change: These color thanks, guys.

Speaker Change: Thanks, guys, Jason Adler next summer.

Jason Adler: Greenbrier Jason go ahead.

Jason Adler: Okay. Thank you hear me okay.

Jason Adler: Okay got you all right.

Speaker Change: I guess theres a sense out there said that because of good harvest faster growth rate recently that they are growing faster than you.

Brian Robins: Thank you, Sid, and thank you again for everyone joining us today. This quarter's results validate the value that our customers get from our integrated platform. In today's cautious macroeconomic environment, technology needs to deliver quick time-to-value while solving complex, impactful problems. That is what our AI-powered DevSecOps platform does. A great example is Intuitive Machines, which became the first US venture in 50 years to land spacecraft on the Moon. Integral to the success of the project was GitLab. Our end-to-end platform enabled dozens of developers to write code, gain visibility, and collaborate on shared projects. The result was a 10x increase in release cadence, 99% reduction in downtime, and a 20x decrease in pipeline execution time. Quoting one of the software leads on the project, "We absolutely could not have built a spacecraft in five years without GitLab.

Speaker Change: And taking share I mean, I guess, they are growing faster than you but.

Speaker Change: How do you think about the kind of share shift if at all in the market.

Speaker Change: Our uses both doing better than everybody else and that's his explanation or do you think you'd have to get out.

Speaker Change: It could be taking some market share.

Speaker Change: I think that customers are migrating to platforms and that's benefiting both of us and I think we're early look at our revenue together, it's a small part of the $40 billion market.

Speaker Change: The same time there is the other thing is that they had a head start.

Speaker Change: AI co creation.

They purchased open AI.

Speaker Change: And they had a head start today, we're the only non hyper cloud that's a leader according to Gartner and Thats because of two things because you need a great model and you need a great context, where vendor agnostic today, we use the best Malone the market for cogeneration and Tropic $3 five and context.

Brian Robins: It helped us make history." Turning to Q2 FY 2025, results exceeded our expectations as we delivered another quarter of greater than 30% top-line growth and significant year-over-year operating margin expansion. Second quarter revenue reached $182.6 million, an increase of 31% from Q2 of the prior year. We ended the quarter with dollar-based net retention rate, or DBNRR, of 126%. Q2 DBNRR was driven by a combination of seed expansion at approximately 40%, increased customer yield at approximately 50%, and tier upgrades at approximately 10%. In addition, all of our historical cohorts continue to steadily expand. We now have 9,314 customers with ARR of at least $5,000, an increase of approximately 19% year-over-year, and contributed over 95% of total ARR in Q2. In particular, we monitored performance of our larger customer cohort of $100,000+ in ARR, which reached 1,076 this quarter, an increase of 33% year-over-year.

Speaker Change: <unk>.

Speaker Change: No more of what a user is working on and at what has worked on what they've worked on in the past because we got the broadest platform. We have the most more context in better context leads to better AI answers.

Speaker Change: Together with that we feel comfortable in competing.

Speaker Change: Okay, Great and then Brian just a follow up for you on net retention rate and Dr.

Brian Robbins: It was 126 is continuing to come down do you think we bottomed where do you see other or maybe exiting the year.

Thanks for the question you were happy with where we landed in the quarter.

Speaker Change: I don't see anything with the dollar based net retention rate that's a concern for me.

Speaker Change: Although our historical cohorts continue to steadily expand.

Speaker Change: The composition of our net dollar retention rate includes seats, which is an output for us.

Speaker Change: Just as a quick reminder, last year, we signed the largest deal in company history, which has been a tailwind for us for seats over the year.

Brian Robins: In fact, more than 65% of new dollars invested by this cohort was in Ultimate this quarter. A great example of customer success with these large customers is bol, one of the biggest online retailers in the Netherlands. As bol's revenues grew, they needed to keep up with the strict and constantly changing compliance regulations. With GitLab, bol can set up policies that automate compliance configurations and checks, saving thousands of developer hours per month. This quarter total RPO grew 51% year-over-year to $747.9 million, while CRPO grew 42% year-over-year to $475 million. Non-GAAP gross margins were 91% for the quarter. SaaS now represents 28% of total revenue, in part a reflection of considerable traction we were getting with GitLab Dedicated. Year-over-year, SaaS revenue grew 46%.

Speaker Change: And we don't view a change in the ratio as a reflection of any recent developer hiring trends.

Speaker Change: <unk> said this is a big market very low penetration and we have lots of room in front of us for growth.

Speaker Change: Great.

Goldman Sachs: Question that question does the class <unk> from Goldman Sachs. Please go ahead.

Speaker Change: Great. Thank you so much congrats on the.

Grace: Thank you Grace.

Speaker Change: Quarter Hope you enjoyed your summer one for <unk> one for Brian.

Grace: Talked about gift lavish thing.

Speaker Change: Unique company that it's not a hyperscale or have these AI capabilities.

Speaker Change: That is that strength.

Speaker Change: Key selling point in your end markets I think we can always safely agree that.

Speaker Change: Just Scott going seven seven to eight months ago, and it's still too early in the AI based so how do you think that given that we're early and you are off to a good start.

Brian Robins: Given the continued high growth in SaaS, I am very happy with the team's attention to operating efficiencies, which continues to result in best-in-class non-GAAP gross margins. Once again, we saw significant year-over-year improvement in operating leverage. Q2 non-GAAP operating income was $18 million, up $20 million from the second quarter of last year. This quarter, we dropped all of our revenue outperformance to the bottom line, which, in combination with the team's continued focus on smart resource allocation, translated to a non-GAAP operating margin of 10% compared to -3.1% in the Q2 of last year. This, once again, demonstrates our commitment to responsible growth. Cash from operating activities was $11.7 million in the second quarter compared to $27.1 million in the prior year period. Adjusted free cash flow was $10.8 million in the second quarter of FY 2025 compared to $26.8 million in the prior year period.

Speaker Change: This hyperscale or neutral positioning actually it does give you an advantage in the long run and then one for you Brian.

Brian Robbins: You talked about a smaller percentage of the.

Brian Robbins: The growth rate.

Brian Robbins: Coming from price increases can you help us understand what is ahead for the company, especially as you go through the motions of renewals.

Brian Robbins: From the other pricing tiers.

Brian Robbins: Okay.

Brian Robbins: Sure.

Brian Robbins: Okay.

Brian Robbins: Okay. Thank you.

Yes. Thank you for the question being hyper scaler Internet vendor agnostic.

Speaker Change: It's good but it's not enough the key reasons, we win against Microsoft get hub.

Speaker Change: That we have first of all the most comprehensive platform when the platform can do more our customers can get a 10 times faster cycle time.

Brian Robins: Q2 FY '25 cash flow from operations and adjusted free cash flow reflect the timing and payments for our Q1 global employee gathering made in Q2. Now turning to guidance. For the third quarter of FY '25, we expect total revenue of $187 million to $188 million, representing a growth rate of 25% to 26% year-over-year. We expect a non-GAAP operating income of $19 million to $20 million, and we expect a non-GAAP net income per share of $0.15 to $0.16, assuming a 168 million weighted average diluted shares outstanding. For the full year FY '25, we expect total revenue of $742 million to $744 million, representing a growth rate of approximately 28% year-over-year. We expect a non-GAAP operating income of $55 million to $58 million, and we expect a non-GAAP net income per share of $0.45 to $0.47, assuming a 168 million weighted average diluted shares outstanding.

Speaker Change: The second reason is with the best Securities, we allow our customers who ship security lapses.

Speaker Change: Always do security improve studies on it.

Speaker Change: And the third reason is that we really listen to our consumers. We're the only vendor with a single tenant solution get lump dedicated that's gone really really fast.

Speaker Change: And we're getting the acknowledgment that we're executing well.

Speaker Change: Today, we'll be there in Q forever.

Speaker Change: We're all the way through to top all the way to the right.

Speaker Change: And that's enabling our customers to get biggest return.

Speaker Change: 482% ROI according to Forrester.

Speaker Change: Interesting thing is <unk>.

Speaker Change: 60% more than the previous study so the benefits of being on the broadest platform.

Speaker Change: All right.

Brian Robins: Separately, I'd like to provide an update on JiHu, our China joint venture. In Q2 FY 2025, non-GAAP expenses related to JiHu were $3.3 million compared to $4.8 million in Q2 of last year. Our goal remains to deconsolidate JiHu. However, we cannot predict the likelihood or timing when this may potentially occur. Thus, for FY 2025 modeling purposes, we forecast approximately $14 million of expenses related to JiHu compared with $18 million of last year. Thank you all for joining this afternoon. We delivered a strong Q2 and I'm really pleased with how we are positioned as we head into the back half of FY 2025. We appreciate your support and look forward to speaking with many of you during the quarter. With that, I will turn it over to Kelsey, who will moderate the Q&A.

Speaker Change: Hum.

Speaker Change: Thanks, Ed I will touch on the price increase relative to the cash and so yes. There is a couple just to touch on there. One is we do break out quarterly and in a dollar based net retention.

Speaker Change: What impact is related to price, which is also increasing customer yield peer.

Speaker Change: Tier upgrades.

Speaker Change: What I really care about when I look at that is.

Speaker Change: Positive unit economics are growing really nicely.

Speaker Change: I talked about this in the Q1 call and I'm happy with how we're doing there.

Speaker Change: Yeah.

Speaker Change: Great.

As we cycle through the renewal portfolio and so youll were partially there, but we'll see impact throughout this year and next year blades that and so our overall I'm really pleased with the returns <unk> seen from price increases and the consistently improving unit economics, which are the value that the customers are getting from them.

[Company Representative] (GitLab Inc.): Great. Thank you very much. I appreciate everyone joining. We're going to start by taking one question and one follow-up question. And our first participant is Joel Fishbein at Truist. Joel, go ahead.

Kelsey Turcotte: Great. Thank you very much. I appreciate everyone joining. We're going to start by taking one question and one follow-up question. And our first participant is Joel Fishbein at Truist. Joel, go ahead.

Speaker Change: And as part of that is real economic study increasing as well.

Joel Fishbein: Thanks, Kelsey, for the question, and congrats on a strong quarter. I'd love to get an update from you on how you're thinking about the go-to-market going forward. Obviously, you had a changeover in leadership there, and despite that, you had a very solid quarter. Just curious what you're looking for in a new leader. Just a quick question for you, Brian, on a follow-up.

Speaker Change: Great. Thank you.

Speaker Change: It comes from Karl Keirstead.

Speaker Change: Okay, great. So maybe on the AI side said those anecdotes about Barclays up five and Keybank are are pretty powerful maybe a two parter for you or any of those customers or maybe some of your other early duo wins customers that were using Github co pilot and now.

Sid Sijbrandij: Thanks for that, Joel. Yeah, Chris was doing a great job. I would love to continue to have him here, but he found another opportunity. We've launched Search, and we've been really impressed with the quality and the quantity of candidates. In the interim, we're really pleased with how smoothly the team has transitioned to Ashley's leadership. In her role as Chief Marketing and Strategy Officer, she was already very in touch with both our customers and the sales leadership, but that enabled a smooth transition, which supported our raising guidance this quarter.

Speaker Change: Duo has closed a lot of those functionality gaps are moving off of Microsoft and then I guess the second question said I could be wrong on this but my understanding was that duo at least initially was quite dilutive in google's LMS and I'm wondering if this change assuming it is.

Speaker Change: Two anthropic Claude model had a market improvement in the functionality of that co. Gen tool. Thank you.

Speaker Change: Yes, thanks for that call yet if you look at the customers evaluating duo pro and do our enterprise I think there is nearly zero customers that don't know that copilot exist.

Joel Fishbein: Great. And Brian, just a quick one for you. I mean, you outperformed very significantly on the operating margin line. I believe you're still going to prioritize growth over margins, but any color you could give us there would be really helpful. Thank you.

Speaker Change: And for most of these customers they've had pockets of use and they do commonly a head to head comparison, so we're winning against co pilot.

Brian Robins: Thanks, Joel. I appreciate that. Yeah, nothing's changed on that. Pre-IPO, every quarter, Sid and I have said growth is the number one thing, but we'll do that responsibly, and we continue to get increased operating leverage in the model with even growing greater than 30% year-over-year. So, happy with the performance this quarter, and happy with the beat and raise for the year.

Speaker Change: Regarding the best model for the task, we're still using some of Google's models, but for cogeneration, the most kind of visit application.

Speaker Change: Right now the best model on the planet is Entropic Claude three five you look on the Internet.

Joel Fishbein: Great. Thank you.

Speaker Change: That's consensus we found the same in our testing and we can switch to that we're not beholden to using any hyper clouds product. We havent bought an AI company or an AI foundational modeling company and being able to use the latest and greatest is a great advantage because it gives our customers better.

[Company Representative] (GitLab Inc.): Great. Thanks, Joel. Next question goes to Ryan McWilliams at Barclays. Ryan, go ahead.

Kelsey Turcotte: Great. Thanks, Joel. Next question goes to Ryan McWilliams at Barclays. Ryan, go ahead.

Ryan MacWilliams: Hey, thanks for the question. Just in terms of what you're seeing in the macro right now, do you know if there are any differences between the second quarter and the first quarter, and how are you seeing developer hiring at this point? Thanks.

Speaker Change: Okay terrific, thanks and congrats.

Brian Robins: Yeah, thanks for the question. There's really been no difference between the two quarters. It still remains a cautious spending environment out there. So we're enabling our teams to go out there, and the pitches are more financially related. We haven't seen really any changes in trends on developer hiring either. First order continues to remain really strong, and that's really the power of the platform and the payback period that Sid talked about with the Forrester report and the ROI that our customers are receiving.

Speaker Change: Thanks.

Speaker Change: Great next question goes to <unk>.

Rob: Credit performance Rob go ahead.

Speaker Change #100: Great. Thanks for taking my question.

Brian Robbins: Brian Realizing there is a lot of puts and takes around the revenue growth number just with changes to your SSP I guess I'll have two questions kind of massed in one number one did that come in relative to your expectations and is there no change to the year. If we think about the headwind that you called out on last quarter.

Speaker Change #101: And I guess secondarily looking at a lot of the leading indicators <unk> up quarter over quarter CRP are up quarter over quarter I think one of the best growth results you've seen in the last year can you speak to large deal activity right now upsell versus new customer commitments and just what you guys are seeing on that front. Thanks.

[Company Representative] (GitLab Inc.): Second question was around developer hiring.

Kelsey Turcotte: Second question was around developer hiring.

Brian Robins: Yeah, developer hiring has been the same. No changes.

Ryan MacWilliams: Excellent. And then for Sid, there's been a lot of focus on coding assistance around generative AI. But as you're seeing the velocity of software development pick up, are you seeing more interest from customers around non-coding tools, but as they utilize AI within their coding process, such as securing binaries or more security around their software development lifecycle? Would appreciate more color here. Thanks, Sid.

Speaker Change #101: Yeah, absolutely. Thanks for the question Rob.

Speaker Change #101: When you look at sort of the SSP and for everybody. That's just counting on how it gets allocated it.

Speaker Change #102: It doesn't impact the overall deal itself.

Speaker Change #103: We actually took a little bit of a hit this quarter related to SSP that we talked about on the last call and so that was assumed in the numbers.

Sid Sijbrandij: Yeah, thanks. And that's certainly how we see the market. The first market was AI code creation. We're really glad that the last Gartner AI Assistant Magic Quadrant rates us as the only non-hypercloud that's a leader in this space. The second phase is AI throughout the whole software lifecycle. And I think for that, we're in a great spot with Duo Enterprise. And in the Gartner Magic Quadrant for DevOps that was released this morning, we're a leader, and we have the highest score for both execution and for vision. And I think that having the best and broadest platform enables us to win in this category. And beyond that, you'll have more autonomous AI, AI going from reactive to proactive. And I'm really excited about what we're doing here.

Speaker Change #103: We're doing well.

Speaker Change #103: Across the business first order is doing well.

Speaker Change #103: Youll expansion similar we had the best quarter in churning contraction in the last eight quarters and so on prior calls I said that I thought that second quarter, we would have run through most of the contracts and churning contraction was better than an eight quarters. The other thing that we saw as we actually saw a real strength.

Speaker Change #103: In the enterprise.

Speaker Change #103: Greater than 100, K customers growing over 30% year over year, and we saw a lot of expansions and lands in that area as well.

Speaker Change #104: It just goes to some of the things that said said previous previously around time to value positive business outcomes ROI, you're consolidating atul Jain onto a single platform has just created a lot of benefit and we're seeing the positives of that.

Sid Sijbrandij: If you attended our GitLab 17 event, we showed GitLab Duo Workflow, an autonomous agent that can take more initiative of its own. That's where the puck is going, and we're skating towards it.

Speaker Change #104: Sort of show up in the model.

Speaker Change #105: Thank you.

Speaker Change #105: Great next question comes from Michael Turner Wells Fargo, Michael Go ahead.

Ryan MacWilliams: Here's your color. Thanks, guys.

[Company Representative] (GitLab Inc.): Thanks, guys. Jason Ader next from William Blair. Jason, go ahead.

Kelsey Turcotte: Thanks, guys. Jason Ader next from William Blair. Jason, go ahead.

Michael Turner: Hey, great. Thanks, Kelsey I appreciate you taking the questions here team.

Joel Fishbein: Yeah, thank you. Can you hear me okay?

Jason Ader: Yeah, thank you. Can you hear me okay?

Michael Turner: I guess, just I'll ask both parts upfront, but to some of the prior question that the leading indicators here all look pretty good and it's not something we're seeing a lot of across software <unk> billings bookings up more than 40%.

[Company Representative] (GitLab Inc.): Yeah.

[Company Representative] (GitLab Inc.): We can.

Joel Fishbein: Gotcha. All right. I guess there's a sense out there, Sid, that because of GitHub's faster growth rate recently, that they're growing faster than you and taking share. I mean, I guess they are growing faster than you, but how do you think about the kind of share shift, if at all, in the market? Are you just both doing better than everybody else? And that's the explanation, or do you think GitHub could be taking some market share?

Jason Ader: Gotcha. All right. I guess there's a sense out there, Sid, that because of GitHub's faster growth rate recently, that they're growing faster than you and taking share. I mean, I guess they are growing faster than you, but how do you think about the kind of share shift, if at all, in the market? Are you just both doing better than everybody else? And that's the explanation, or do you think GitHub could be taking some market share?

Brian Robbins: Just hoping you can unpack that strength a bit more if theres anything more onetime in nature for us to be mindful of in those metrics and then Brian.

Brian Robbins: Maybe walk us through the assumptions you are embedding and forecast for the rest of the year on the back of that Q2 strength across macro seats sales execution or anything else worth mentioning for us. Thank you.

Sid Sijbrandij: I think that customers are migrating to platforms, and that's benefiting both of us. I think we're early. You look at our revenue together; it's a small part of the $40 billion market. At the same time, there's the other thing is that they had a head start in AI co-creation. They purchased OpenAI, and they had a head start. Today, we're the only non-hyperscaler that's a leader, according to Gartner. And that's because of two things: because you need a great model, and you need a great context. We're vendor agnostic. Today, we use the best model on the market for code generation, Anthropic Claude 3.5. And context-wise, we know more of what a user is working on and what has worked on what they've worked on in the past.

Brian Robbins: I appreciate the the two questions here on the on the forecast and how were running the business and the transition of actually taking over the interim CRO role Theres really been no changes whatsoever.

Brian Robbins: Actually it's been really plugged into the entire sales force and visiting customers and and worked really closely with Chris. So we're happy about the minimal disruption there with Chris's departure.

Brian Robbins: All the metrics that you talked about.

Brian Robbins: <unk> grown 42% year over year short term calculated billings grew 40% year over year.

Brian Robbins: Ultimate <unk>.

Speaker Change #107: Now, 47% of total <unk> and was greater than 50% of bookings within the quarter and that really coming from the enterprise base that we have and so our deals are getting larger ultimate adoptions, increasing ultimate is good for us and our customers and I think you'll see that you know in the metrics itself.

Sid Sijbrandij: Because we got the broadest platform, we have the most context, and better context leads to better AI answers. So together with that, we feel comfortable in competing.

Joel Fishbein: Okay, great. And then, Brian, just a follow-up for you on net retention rate and NDRR. It is 126. It's continuing to come down. Do you think we've bottomed? Where do you see NRR maybe exiting the year?

Jason Ader: Okay, great. And then, Brian, just a follow-up for you on net retention rate and NDRR. It is 126. It's continuing to come down. Do you think we've bottomed? Where do you see NRR maybe exiting the year?

Speaker Change #107: And then we also saw dedicated dedicated grew roughly 150% year over year.

Speaker Change #107: Size is great and so we're just seeing strength sort of across the board from our customers who are adopting the platform.

Brian Robins: Thanks for the question. We're happy with where we landed in the quarter. I don't see anything with the dollar-based net retention rate that's a concern for me. All our historical cohorts continue to steadily expand. The composition of our net dollar retention rate includes seats, which is an output for us. Just as a quick reminder, last year we signed the largest deal in company history, which has been a tailwind for us for seats over the year. And we don't view a change in the ratio as a reflection of any recent developer hiring trends. As Sid said, this is a big market, very low penetration, and we have lots of room in front of us for growth.

Speaker Change #108: Great. Thank you I appreciate it.

Speaker Change #108: <unk> over to Andrew <unk> Jpmorgan.

Andrew: Oh, great Hey, congrats on the quarter, thanks for taking the questions.

Andrew: I wanted to ask you.

Andrew: Said, obviously it seems like we are seeing solid adoption.

Speaker Change #110: Option, but.

Speaker Change #111: The way to further quantify it in terms of maybe a good portion of the customer base of our users.

Speaker Change #112: That are touching the product today and what portion of the codes that is being written by the AI is being committed any further kind of quantitative metrics.

[Company Representative] (GitLab Inc.): Great. Thanks for the question. Next question goes to Kash Rangan from Goldman Sachs. Kash, go ahead.

Kelsey Turcotte: Great. Thanks for the question. Next question goes to Kash Rangan from Goldman Sachs. Kash, go ahead.

Speaker Change #113: Yes, thanks for that.

Speaker Change #114: It's still early for us you've heard from Barclays a five Noah.

Speaker Change #115: But if you look at the quotes going on not all of them have AI in it and if they have AI deep typically don't have AI for all the users of our customer yet.

Kash Rangan: Great. Thank you so much. Congrats on the beat and raise quarter. I hope you enjoyed your summer. One for Sid, one for Brian. Sid, you talked about GitLab as being the unique company, that it's not a hyperscaler. You have these AI capabilities. Is that strength a key selling point in your end markets? I think we can all safely agree that Duo just got going 7 to 8 months ago. It's still too early in the AI race. So how do you think that given that we're early, and you're off to a good start, that this hyperscaler neutral positioning actually does give you an advantage in the long run? And then one for you, Brian. I think you talked about a smaller percentage of the growth rate, NER, coming from price increases.

Speaker Change #115: So customers are early in this adoption cycle, we cater to the enterprise they are relatively.

Speaker Change #115: Slower to adopt this and more considerate, it's really important that we listened well to these customers. For example, we are accelerating our work on offline models because our customers are.

Questing that we see a giant opportunity for AI throughout the lifecycle. So our get lap ultimate customers for them. We think that enterprise is a really really good value proposition and that's a big focus of ours.

Speaker Change #116: Yeah understood one follow up for Brian.

Speaker Change #117: What portion of the contracts from existing customers at this point are completely true kind of the first phase of your pricing change.

Kash Rangan: Can you help us understand what is ahead for the company, especially as you go through the motions of renewals from the other pricing tiers and the increased NER? Thank you.

Speaker Change #118: Of existing customers the 19% to 24 is it fair to assume that it's largely complete by this point and the second phase of the rollout, which I believe starting.

Sid Sijbrandij: Yeah, thank you for that question. Being hyperscaler and then being vendor agnostic, it's good, but it's not enough. The key reasons we win against Microsoft GitHub are that we have, first of all, the most comprehensive platform. When the platform can do more, our customers can get a 10 times faster cycle time. The second reason is we have the best security. We allow our customers to shift security left, always do security, and prove that they've done it. And the third reason is that we really listen to our customers. We're the only vendor with a single-tenant SaaS solution, GitLab Dedicated, that's going really, really fast. And we're getting the acknowledgment that we're executing well. Today, leader in the MQ for DevOps. We're all the way to the top, all the way to the right.

Speaker Change #119: End of April if I'm not wrong.

Speaker Change #120: Did it have any impact in billings RVO pathologist for.

Speaker Change #121: Yeah, so on the price increase impact overall.

Speaker Change #122: Remember, we werent in allowing people to early renew and so it really comes up when their renewal comes up and they would go to 19% to 24, then 24 to 29, and then new customers would go straight to <unk> 29, and so I think it's really important that the price increase will continue to layer in over time as.

Speaker Change #122: As we cycle through the renewal portfolio and so I expect next year to continue to see the benefit of that and it really points to the unit economics, improving based on what we're delivering to our customers.

Sid Sijbrandij: That's enabling our customers to get the biggest return, 482% ROI according to Forrester. The interesting thing is that's 60% more than the previous study. The benefits of being on the broadest platform are better over time.

Speaker Change #123: Got it thank you.

Speaker Change #124: Great so far.

Speaker Change #124: And we're going to go to just one question.

Speaker Change #124: As many people possible and with that I'll turn it over to Gregg Moskowitz.

Gregg Moskowitz: Okay, great. Thank you Chelsey and congrats on a very good performance I wanted to follow up on ultimate because the percentage of <unk> continues to expand nicely said you called out some very good success among your largest customers. Despite the much higher price point that exist for ultimate as compared with premium.

Brian Robins: Thanks, Sid. I'll touch on the price increase real quickly, Kash. So there's a couple of things to touch on there. One is we do break out quarterly in the dollar-based net retention, what impact is related to seats, price, which has also increased customer yield, as well as tier upgrades. And what I really care about when I look at that is the positive unit economics are growing really nicely in the business. I talked about this in the Q1 call, and I'm happy with how we're doing there. We're creating less over time as we cycle through the renewal portfolio. So we're partially there, but we'll see impacts throughout this year and next year related to that.

Speaker Change #127: But I'm curious about is if you're finding that you're landing more frequently with ultimate versus where you were seeing six to 12 months ago.

Speaker Change #128: Thanks for that.

Speaker Change #129: We're certainly changing our approach to leading with ultimate when we approach a new customer.

Speaker Change #130: Cause the more comprehensiveness is driving so much value because this integrated security is driving so much value.

Speaker Change #131: We started to lead with ultimate.

Brian Robins: Overall, I'm really pleased with the returns that we're seeing from the price increase and the consistently improving unit economics, which shows the value that the customers are getting from the platform, and is part of the total economic study increasing as well.

Speaker Change #132: <unk> talked about the the returns like the 482% return that is forget ultimate so maybe counterintuitively. Our most extensive product is the one you get the biggest return on because the return is not coming so much from paying us less but it's about deprecate.

[Company Representative] (GitLab Inc.): Great. Thank you. Next question comes from Karl Keirstead at UBS.

Kelsey Turcotte: Great. Thank you. Next question comes from Karl Keirstead at UBS.

Joel Fishbein: Okay, great. Maybe on the AI side, Sid, those anecdotes about Barclays, F5, and KeyBank are pretty powerful. Maybe a two-parter for you. Are any of those customers or maybe some of your other early Duo wins customers that were using GitHub Copilot, and now that Duo has closed a lot of those functionality gaps, are moving off of Microsoft? And then I guess the second question, Sid. I could be wrong on this, but my understanding was that Duo, at least initially, was quite rooted in Google's LLMs. And I'm wondering if this change, assuming it is, to Anthropic's Claude model had a marked improvement in the functionality of that code generative tool. Thank you.

Karl Keirstead: Okay, great. Maybe on the AI side, Sid, those anecdotes about Barclays, F5, and KeyBank are pretty powerful. Maybe a two-parter for you. Are any of those customers or maybe some of your other early Duo wins customers that were using GitHub Copilot, and now that Duo has closed a lot of those functionality gaps, are moving off of Microsoft? And then I guess the second question, Sid. I could be wrong on this, but my understanding was that Duo, at least initially, was quite rooted in Google's LLMs. And I'm wondering if this change, assuming it is, to Anthropic's Claude model had a marked improvement in the functionality of that code generative tool. Thank you.

Speaker Change #133: <unk> all those existing point solutions.

Speaker Change #133: We talked about Lockheed Martin being able to deprecate, our legacy Sci vendor it saved them not just on software not just since cycle time or just some efficiency even on hardware costs, so being able to consolidate is the big winner in ultimate is can.

Speaker Change #133: Based on most point solutions and that's why we're leading with it.

Speaker Change #133: Great. Thank you.

Speaker Change #133: Our next question comes from Matt Hedberg of RBC not go ahead.

Matt Hedberg: Great. Thanks, Kelsey I'll offer my congrats as well.

Speaker Change #135: I guess for either view regarding Gen. Gen. AI, it's too and you guys are increasingly fitting into that work stream for a customer when they're thinking through there.

Sid Sijbrandij: Yeah, thanks for that, Karl. Yeah, if you look at the customers evaluating Duo Pro and Duo Enterprise, I think there's nearly zero customers that don't know that Copilot exists. And for most of these customers, they've had pockets of use, and they do commonly a head-to-head comparison. So we're winning against Copilot. Regarding the best model for the task, we're still using some of Google's models. But for code generation, the most kind of vivid application, right now, the best model on the planet is Anthropic Claude 3.5. You look on the internet, that's consensus. We found the same in our testing. And we can switch to that. We're not beholden to using any hyperscaler's product. We haven't bought an AI company or an AI foundational modeling company. And being able to use the latest and greatest is a great advantage because it gives our customers better code.

Speaker Change #135: Their own journey II adoption.

Speaker Change #136: Sort of curious like.

Speaker Change #138: When youre, having conversations with customers how important is <unk> I think we've all been through to Blake.

Speaker Change #139: The first and last question I think everybody else, but when.

When youre talking to the customers how important is that in their software development lifecycle right now and I guess is there how do they see get lab fitting into that kind of that ecosystem.

They are all developing.

Speaker Change #140: Yes, it's really important to our customers, we had a bunch of caveats, but why they're not all of them are rushing to implemented two 100% of their users first of all they want they wanted to secure.

Speaker Change #140: Second of all they wanted to work for the people who are working on existing applications.

Speaker Change #140: Lot of the demos you see out there different new applications. Most developers in enterprises are working on Gi and existing applications. So making that work well is really important we got to protect internally called the vinci to make AI, even work even better for those existing app.

Joel Fishbein: Okay, terrific. Thanks and congrats.

Karl Keirstead: Okay, terrific. Thanks and congrats.

Sid Sijbrandij: Thanks.

[Company Representative] (GitLab Inc.): Great. Next question goes to Rob Owens at Piper Sandler. Rob, go ahead.

Kelsey Turcotte: Great. Next question goes to Rob Owens at Piper Sandler. Rob, go ahead.

Speaker Change #140: Implications steps Super Super important.

Speaker Change #140: It has to meet all.

Speaker Change #140: All the security requirements that the customer has and they want to see an actual return and most of the time that return comes not when it just further coding but when it's throughout so those are the considerations we run into they want vendors, who can deliver on that and have a great vision going forward.

Rob Owens: Great. Thanks for taking my question. Brian, realizing there's a lot of puts and takes around the revenue growth number, just with changes to your SSP, I guess I'll have two questions kind of masked in one. Number one, did that come in relative to your expectations? And is there no change to the year if we think about the headwind that you called out on last quarter? And I guess secondarily, looking at a lot of the leading indicators, RPO up quarter over quarter, CRPO up quarter over quarter, I think one of the best growth results you've seen in the last year. Can you speak to large deal activity right now, upsell versus new customer commitments, and just what you guys are seeing on that front? Thanks.

But theyre not jumping in to.

Speaker Change #140: 100% of the people for just a coding solution today.

Ed: Got it thanks Ed.

Speaker Change #142: Great next question.

Speaker Change #143: That's neither.

Speaker Change #143: Any of that.

Speaker Change #145: You know that.

Speaker Change #145: Jack you can now on your filing if you'd go ahead and on mute for US you have that capability.

Brian Robins: Yeah, absolutely. Thanks for the question, Rob. When you look at sort of the SSP for everybody, that's just accounting on how it gets allocated. It doesn't impact the overall deal itself. We actually took a little bit of a hit this quarter related to SSP that we talked about on the last call. And so that was assumed in the numbers. We're doing well across the business. First order was doing well. Expansion was doing well. We had the best quarter in churning contraction in the last 8 quarters. And so on prior calls, I said that I thought that second quarter we would have run through most of the contracts. And churning contraction was better than in 8 quarters. The other thing that we saw is we actually saw real strength in the enterprise, greater than 100,000 customers growing over 30% year-over-year.

Speaker Change #145: Yeah.

Speaker Change #145: Okay.

Speaker Change #145: Well go on to Mike <unk>, Mike go ahead.

And thank you for forgetting Neon can you hear me all right.

Speaker Change #145: Terrific.

Speaker Change #146: Just wanted to circle up and I appreciate you guys continuing to.

Speaker Change #146: Give us a composition of the <unk>, if I could just focus on the seats contributing about 40% this quarter.

Speaker Change #147: Wanted to get a sense first how that compared versus your internal expectations and then secondly.

Speaker Change #148: Can you help us think about like is the is the salesforce indexing more potentially toward pricing given the changes too.

Speaker Change #149: The different packages you have out there in the market or any other color there as well to help us get a better sense of how the TBA at our flows from one quarter to the next thank you.

Brian Robins: We saw a lot of expansions and lands in that area as well. I think it just goes to some of the things that Sid said previously around time to value, positive business outcomes, ROI, consolidating a toolchain onto a single platform has just created a lot of benefit. We're seeing the positives of that sort of show up in the model.

Speaker Change #150: Yeah, absolutely thanks for the question.

Speaker Change #151: He is a dollar based net retention with the seat fluctuation based on the largest deal that we had last year, we knew that was going to be different this quarter than previous quarters.

Speaker Change #152: It's also an output and so as we go in and solutions. So we're trying to figure out what the best solution is for the customer and then Youll will land there. The fact that we're landing larger and landing more on ultimate that's going on that's good news and will have an impact on dollar based net retention rate, but there is nothing that's all within the core.

Rob Owens: Thank you.

[Company Representative] (GitLab Inc.): Great. Next question comes from Michael Turrin at Wells Fargo. Michael, go ahead.

Kelsey Turcotte: Great. Next question comes from Michael Turrin at Wells Fargo. Michael, go ahead.

Michael Turrin: Hey, great. Thanks, Kelsey. Appreciate you taking the questions here, team. I guess just that I'll ask both parts up front. But to some of the prior question, the leading indicators here all look pretty good, and it's not something we're seeing a lot of across software. CRPO billings, bookings up more than 40%. So just hoping you can unpack that strength a bit more, if there's anything more one-time in nature for us to be mindful of in those metrics. And then, Brian, maybe walk us through the assumptions you're embedding in forecasts for the rest of the year on the back of that Q2 strength across macro, seats, sales execution, or anything else worth mentioning for us. Thank you.

Speaker Change #153: <unk> that caused any concerns as it relates specifically to seats as that component of the dollar based net retention rate.

Speaker Change #154: Thank you very much.

Speaker Change #154: Great next question, Peter we eat at Bernstein, Peter go ahead.

Peter: Thank you very much and congrats on the continued momentum.

Peter: I think if I am doing my back of the envelope properly. It looks like you are anticipating a nice acceleration in quarter four implied in the numbers.

Peter: How should we think about that acceleration relative to what appears to be a little bit of a deceleration in your guidance FERC.

Brian Robins: appreciate the 2 questions. On the forecast and how we're running the business and the transition of Ashley taking over the interim CRO role, there's really been no changes whatsoever. Ashley's been really plugged into the entire Salesforce and visiting customers and worked really closely with Chris. We're happy about the minimal disruption there with Chris's departure. All the metrics that you talked about, CRPO growing 42% year-over-year, short-term calculated billings growing 40% year-over-year, Ultimate ARR now 47% of total ARR and was greater than 50% of bookings within the quarter. That really coming from the enterprise base that we have. Our deals are getting larger, Ultimate adoptions increasing, Ultimate is good for us and our customers. I think you see that in the metrics itself. We also saw Dedicated grew roughly 150% year-over-year.

Speaker Change #156: For quarter three.

Speaker Change #157: Thanks, Peter as always appreciate the question when I look back at sort of last year and looked at when we reported Q2 and what we guide for Q3 and Q4, there are somewhat similar and so.

Speaker Change #157: Didn't see any sort of sequential or year over year changes that jumped out to me to be surprising.

Speaker Change #157: Fourth quarter, historically has always been the strongest quarter in the company.

Q2, and Q3 have relatively been the same in Q1 seasonally has been a little weak.

Speaker Change #157: We continue to guide to strong top line growth rates and improving non-GAAP operating margins. The thing I'd personally like about the business model is we have a lot of visibility heading in any given quarter given the ratable nature of the business.

Speaker Change #157: And as we continue to scale, we're seeing efficiencies at scale in the business, which is great as well and so yeah I'm pleased with the guidance we provided this afternoon.

Brian Robins: SaaS was great. And so we're just seeing strength sort of across the board from our customers who are adopting the platform.

For the third quarter and for the full year.

[Company Representative] (GitLab Inc.): Great.

Kelsey Turcotte: Great.

Rob Owens: Thanks, Rob. Thank you.

Brian Robins: Thanks, Rob. Thank you.

Speaker Change #158: Thank you.

[Company Representative] (GitLab Inc.): Yeah, we'll.

Kelsey Turcotte: Yeah, we'll.

Rob Owens: Appreciate it.

Speaker Change #158: Great next question goes here, George and the Grand Bank of America go ahead.

[Company Representative] (GitLab Inc.): Turn the questions over to Pinjalim Bora at J.P. Morgan.

Kelsey Turcotte: Turn the questions over to Pinjalim Bora at J.P. Morgan.

Joel Fishbein: Oh, great. Hey, congrats on the quarter. Thanks for taking the questions. I want to ask you, Sid, obviously, it seems like we are seeing some of the AI adoption. But any way to further quantify it in terms of maybe the portion of the customer base or users that are touching the product today and what portion of the codes that is being written by the AI is being committed, any further kind of quantitative metrics?

Pinjalim Bora: Oh, great. Hey, congrats on the quarter. Thanks for taking the questions. I want to ask you, Sid, obviously, it seems like we are seeing some of the AI adoption. But any way to further quantify it in terms of maybe the portion of the customer base or users that are touching the product today and what portion of the codes that is being written by the AI is being committed, any further kind of quantitative metrics?

Speaker Change #158: Okay.

George: Can you guys hear me all right.

Speaker Change #160: We can.

Alright, Hey, Brian I. Appreciate you guys, taking my question George <unk> Akita.

Speaker Change #161: I wanted to say congrats on Joe Enterprise going GAA.

Speaker Change #162: The list of features highlighted on the press release.

Speaker Change #163: We are very impressive and I kind of wanted to dig in more specifically about how you are selling the product to the installed base.

Sid Sijbrandij: Yeah, thanks for that. It's still early for us. You heard from Barclays, F5, NOAA. But if you look at the quotes going on, not all of them have AI in it. And if they have AI, they typically don't have AI for all the users of a customer yet. So customers are early in this adoption cycle. We cater to the enterprise. They are relatively slower to adopt this and more considerate. It's really important that we listen well to these customers. For example, we are accelerating our work on offline models because our customers are requesting that. We see a giant opportunity for AI throughout the lifecycle. So our GitLab Ultimate customers, for them, we think that GitLab Duo Enterprise is a really, really good value proposition. And that's a big focus of ours.

Speaker Change #164: Can you talk a bit about the strategy there and in terms of any changes to sales incentives.

If you could kind of get a sense of.

Speaker Change #165: That's how to think about potential adoption rates over the next several quarters.

Speaker Change #166: Yes, thanks for that.

Speaker Change #167: The main audience for duo enterprise is existing get lap ultimate customers.

And.

Speaker Change #168: It's and ultimate.

Speaker Change #169: <unk> typically are larger companies and they are served by our sales force. So it's a direct motion.

Speaker Change #169: And ultimately Theres also our fastest growing SKU.

Speaker Change #169: Think about it if you look at the cohort of $100000 plus two for each of the net new <unk>.

Speaker Change #169: Went into ultimate.

Speaker Change #169: So that's that's growing and we want to build this duo enterprise growth on top of that.

Joel Fishbein: Yeah, understood. One follow-up for Brian. Brian, what portion of the contracts from existing customers at this point are completely through kind of the first phase of your pricing change of existing customers, the 2019 to 2024? Is it fair to assume that it's largely complete by this point? And the second phase of the rollout, which I believe started in end of April, if I'm not wrong, did it have any impact in billings, RPO performance this quarter?

Pinjalim Bora: Yeah, understood. One follow-up for Brian. Brian, what portion of the contracts from existing customers at this point are completely through kind of the first phase of your pricing change of existing customers, the 2019 to 2024? Is it fair to assume that it's largely complete by this point? And the second phase of the rollout, which I believe started in end of April, if I'm not wrong, did it have any impact in billings, RPO performance this quarter?

Speaker Change #170: And we're talking to the customer because there's lots of considerations implementing it has for example, why we are working on and offline version, that's why we have tons of.

Speaker Change #170: Features to control who is using it when they are using it.

Speaker Change #170: And we're selling it because of the improvement in productivity not just for coding not just for deaths, but also for their security people in their operations people.

Speaker Change #171: Great. Thanks.

Brian Robins: Yeah, so on the price increase impact overall, remember, we weren't allowing people to early renew. And so it really comes up when their renewal comes up, and they would go 2019 to 2024, then 2024 to 2029. And then new customers would go straight to 2029. And so I think it's really important that the price increase will continue to layer in over time as we cycle through the renewal portfolio. And so I expect next year to continue to see the benefit of that. And it really points to the unit economics improving based on what we're delivering to our customers.

Speaker Change #172: For two more questions.

Speaker Change #172: The.

Speaker Change #172: Our next President Nick go ahead.

Speaker Change #172: Okay.

Scott: Thanks Scott.

Speaker Change #173: Just a quick one for me.

Speaker Change #175: Last quarter, you guys talked about zero going to be sort of a bigger needle mover next year.

Speaker Change #176: The roll off of Encore marquee wins, and so I guess when.

Speaker Change #177: When you think about the second half pipeline as you sort of get more customers on duo part more reference able logos.

Speaker Change #178: Are you sort of anticipating in the second half of the year in terms of your contribution versus.

Joel Fishbein: Got it. Thank you.

Pinjalim Bora: Got it. Thank you.

[Company Representative] (GitLab Inc.): Great. So from now until the end, we're going to go to just one question so we can get as many people on the phone as possible. With that, I'll turn it over to Gregg Moskowitz at Mizuho.

Kelsey Turcotte: Great. So from now until the end, we're going to go to just one question so we can get as many people on the phone as possible. With that, I'll turn it over to Gregg Moskowitz at Mizuho.

Speaker Change #178: Thanks.

Speaker Change #179: Yeah. Thanks for the question.

Speaker Change #180: I'll answer directly then I'll give some more context on sort of how I think about it. So we really expect AI to start contributing to the Moslem FY 2026 and beyond.

Gregg Moskowitz: Okay, great. Thank you, Kelsey. And congrats on a very good performance. I wanted to follow up on Ultimate because the percentage of ARR continues to expand nicely. And Sid, you called out some very good success among your largest customers. Despite the much higher price point that exists for Ultimate as compared with Premium, what I'm curious about is if you're finding that you're landing more frequently with Ultimate versus what you were seeing 6 to 12 months ago. Thanks.

Speaker Change #181: First from a practical perspective.

Speaker Change #181: Was sort of a big media hype cycle and people are just partially adopt it now so I think right now we're starting to see customers trying to figure out how to implement AI safely and compliant Lee within their organizations.

Speaker Change #182: And we're starting to see that with what we gave you from a reference perspective and also just from a mechanics perspective, and I know you know this but.

Sid Sijbrandij: Thanks for that. We're certainly changing our approach to leading with Ultimate when we approach a new customer because the more comprehensiveness is driving so much value, because this integrated security is driving so much value. We've started to lead with Ultimate. Just talked about the return, like the 482% return that is for GitLab Ultimate. So maybe counterintuitively, our most expensive product is the one you get the biggest return on because the return is not coming so much from paying us less, but it's about deprecating all those existing point solutions. We talked about Lockheed Martin. Being able to deprecate our legacy CI vendor, it saves them not just on software, not just on cycle time, not just on efficiency, even on hardware costs. So being able to consolidate is the big winner. Ultimate can replace the most point solutions. And that's why we're leading with it.

Speaker Change #183: It makes sense to say is from a new product perspective for to have an impact at a company that 700 million plus in run rate revenue of around 30%, It's just going to take a little while to sort of build that.

Speaker Change #184: From the AI contribution in <unk>.

Speaker Change #185: I will say that were three times our planned number so we did a lot better than what we expected internally.

And so from a model perspective long term I just view this as good news because this is going to be a long term growth driver for the business.

Brian Robbins: Thanks, Brian.

Brian Robbins: Great last call.

Kimberly Craquelure: Our question is coming from Kimberly Craquelure Macquarie.

Speaker Change #186: People go home.

Speaker Change #186: Great.

Speaker Change #186: Hello.

Speaker Change #188: Great. It sounds like you've had some nice longwall do deployment with a couple of banks in that five should we continue to think about our user penetration, but a smaller total number of customers or you're seeing some green shoots in terms of some volumes of adoption with duo thanks.

Gregg Moskowitz: Great. Thank you.

[Company Representative] (GitLab Inc.): Great. Our next question comes from Matt Hedberg at RBC. Matt, go ahead.

Kelsey Turcotte: Great. Our next question comes from Matt Hedberg at RBC. Matt, go ahead.

Speaker Change #188: We're seeing some.

Speaker Change #188: Bottoms up adoption as well.

Matt Hedberg: Great. Thanks, Kelsey. I'll offer my congrats as well. I guess for either of you, regarding Gen AI, it seems like you guys are increasingly fitting into that workstream for a customer when they're thinking through their own Gen AI adoption. I'm just sort of curious, when you're having conversations with customers, how important is Gen AI to them? I think we've all been sort of like it's the first and last question I think everybody asks. But when you're talking to the customers, how important is that in their software development lifecycle right now? And I guess, how do they see GitLab fitting into kind of that ecosystem that they're all developing?

Speaker Change #189: I think if you look across our entire customer base to more common scenario is that they buy duo for part of their users.

Speaker Change #189: For various reasons, they don't they're not yet ready to put older users in it we think that will come over time. The returns are there that that's a more common scenario of course, we also have these great customers that do it wall to wall immediately and if we if we meet all the requirements. We can do that and that's that has.

Speaker Change #189: Our preference, but the partial scenario is more common.

Speaker Change #190: Great. Thanks for the color.

Sid Sijbrandij: Yeah, it's really important to our customers with a bunch of caveats why they're not all of them are rushing to implement it to 100% of their users. First of all, they want it secure. Second of all, they want it to work for the people who are working on existing applications. A lot of the demos you see out there, they're for new applications. Most developers in enterprises are working on giant existing applications. So making that work well is really important. We got a project internally called DaVinci to make AI work even better for those existing applications. That's super, super important. It has to meet all the security requirements that the customer has. And they want to see an actual return. And most of the time, that return comes not when it's just for the coding, but when it's throughout.

Speaker Change #191: So this concludes our second quarter call. Thank you very much for joining us and we look forward to seeing many of you over the coming quarter have a great evening.

Sid Sijbrandij: So those are the considerations we run into. They want vendors who can deliver on that, who have a great vision going forward. But they're not jumping into 100% of the people for just the coding solution today.

Matt Hedberg: Got it. Thanks, Sid.

[Company Representative] (GitLab Inc.): Great. Next question goes to Zach Schneider at R.W. Baird. You there, Zach?

Kelsey Turcotte: Great. Next question goes to Zach Schneider at R.W. Baird. You there, Zach?

Shrenik Kothari: Zach, you can now unmute on your phone if you'd go ahead and unmute for us. You have that capability.

Kelsey Turcotte: Zach, you can now unmute on your phone if you'd go ahead and unmute for us. You have that capability.

[Company Representative] (GitLab Inc.): Okay. So we'll go on to Mike from Needham. Mike, go ahead.

Kelsey Turcotte: Okay. So we'll go on to Mike from Needham. Mike, go ahead.

Mike Cikos: Hey, team. Thank you for getting me on. Can you hear me all right?

[Company Representative] (GitLab Inc.): We can.

Mike Cikos: Terrific. Just wanted to circle up, and I appreciate you guys continuing to give us the composition of the DBNRR. If I could just focus on the seats contributing about 40% this quarter, wanted to get a sense first how that compared versus your internal expectations. And then secondly, can you help us think about is the Salesforce indexing more potentially toward pricing given the changes to the different packages you have out there in the market, or any other color there as well to help us get a better sense of how the DBNRR flows from one quarter to the next? Thank you.

Brian Robins: Yeah, absolutely. Thanks for the question. The dollar-based net retention with the seat fluctuation based on the largest deal that we had last year, we knew that was going to be different this quarter than previous quarters. It's also an output. And so as we go in and solution sell, we're trying to figure out what the best solution is for the customer, and then we'll land there. The fact that we're landing larger and landing more on Ultimate, that's going to, that's good news. And we'll have an impact on dollar-based net retention rate. But there's nothing that I saw within the quarter that caused any concerns as it relates specifically to seats as that component of the dollar-based net retention rate.

Mike Cikos: Thank you very much.

[Company Representative] (GitLab Inc.): Great. Next question goes to Peter Weed at Bernstein. Peter, go ahead.

Kelsey Turcotte: Great. Next question goes to Peter Weed at Bernstein. Peter, go ahead.

Peter Weed: Thank you very much. Congrats on the continued momentum. I think if I'm doing my back of the envelope properly, it looks like you are anticipating a nice acceleration in Q4 implied in the numbers. How should we think about that acceleration relative to what appears to be a little bit of a deceleration in your guidance for Q3?

Brian Robins: Thanks, Peter. As always, appreciate the question. When I look back at sort of last year and looked at when we reported Q2 and what we got for Q3 and Q4, they're somewhat similar. And so I didn't see any sort of sequential or year-over-year changes that jumped out to me to be surprising. Fourth quarter, historically, has always been the strongest quarter in the company. Q2 and Q3 have relatively been the same. And Q1 seasonally has been a little weak. We continue to guide to strong top-line growth rates and improving non-GAAP operating margins. The thing I personally like about the business model is we have a lot of visibility heading in any given quarter, given the recurring nature of the business. And as we continue to scale, we're seeing efficiencies at scale in the business, which is great as well.

Brian Robins: I'm pleased with the guidance we provided this afternoon for Q3 and for the full year.

Peter Weed: Thank you.

[Company Representative] (GitLab Inc.): Great. Next question goes to George Kurosawa at Bank of America. George, go ahead.

Kelsey Turcotte: Great. Next question goes to George Kurosawa at Bank of America. George, go ahead.

George McGreehan: Hey. Can you guys hear me all right?

Peter Weed: We can.

Brian Robins: We can.

George McGreehan: All right. Hey, Sid, Brian. Appreciate you guys taking the question. It's George Kurosawa on for Koji Ikeda. I wanted to say congrats on GitLab Duo Enterprise going GA. The list of features highlighted on the press release were very impressive. And I kind of wanted to dig in more specifically about how you're selling the product to the install base. Can you talk a bit about the strategy there and in terms of any changes to sales incentives? Just to kind of get a sense of how to think about potential adoption rates over the next several quarters.

Sid Sijbrandij: Yeah, thanks for that. The main audience for Duo Enterprise is existing GitLab Ultimate customers. Ultimate is typically our larger companies, and they are served by our sales force. So it's a direct motion. Ultimate is also our fastest-growing SKU. If you think about it, if you look at the cohort of $100,000-plus, 2/3 of the net new ARR went into Ultimate. So that's growing, and we want to build this Duo Enterprise growth on top of that. We're talking to the customer because there's lots of considerations implementing it. That's, for example, why we're working on an offline version. That's why we have tons of features to control who's using it, when they are using it. We're selling it because of the improvement in productivity, not just for coding, not just for devs, but also for their security people and their operations people.

[Company Representative] (GitLab Inc.): Great. Thanks. We have time for two more questions. I'll go to Nick Altman at Scotiabank. Nick, go ahead.

Kelsey Turcotte: Great. Thanks. We have time for two more questions. I'll go to Nick Altman at Scotiabank. Nick, go ahead.

Matt Hedberg: Thanks, Kash. Just a quick one for me. Last quarter, you guys talked about Duo going to be sort of a bigger needle mover next year. You guys did rattle off a handful of marquee wins. And so I guess when you think about the second-half pipeline, as you sort of get more customers on Duo, have more referenceable logos, what are you sort of anticipating from the second half of the year in terms of Duo contribution versus, say, a quarter ago? Thanks.

Nick Altman: Thanks, Kash. Just a quick one for me. Last quarter, you guys talked about Duo going to be sort of a bigger needle mover next year. You guys did rattle off a handful of marquee wins. And so I guess when you think about the second-half pipeline, as you sort of get more customers on Duo, have more referenceable logos, what are you sort of anticipating from the second half of the year in terms of Duo contribution versus, say, a quarter ago? Thanks.

Brian Robins: Yeah, thanks for the question. I'll answer it directly, and I'll give some more context on sort of how I think about it. So we really expect AI to start contributing to the model in FY 2026 and beyond. First, from just a practical perspective, there was sort of a big media hype cycle, and people are just partially adopting it now. So I think right now, we're starting to see customers trying to figure out how to implement AI safely and compliantly within their organizations. And we're starting to see that with what we gave you from a reference perspective.

Brian Robins: Also just from a mechanics perspective, and I know you know this, but it makes sense to say it, is from a new product perspective, for it to have an impact at a company that's $700 million-plus in run rate revenue growing 30%, it's just going to take a little while to sort of build that. From the AI contribution in Q2, I will say that we're 3x our plan number. So we did a lot better than what we expected internally. And so from a model perspective, long-term, I just view this as good news because this is going to be a long-term growth driver for the business.

Matt Hedberg: Thanks, Brian.

Nick Altman: Thanks, Brian.

[Company Representative] (GitLab Inc.): Great. Last call for our questions coming from Kingsley Crane at Canaccord Genuity. Kingsley, go ahead.

Kelsey Turcotte: Great. Last call for our questions coming from Kingsley Crane at Canaccord Genuity. Kingsley, go ahead.

Kingsley Crane: Great. Hello? Great. It sounds like you've had some nice wall-to-wall Duo deployments with a couple of banks in F5. Should we continue to think about high user penetration, but a smaller total number of customers, or are you seeing some green shoots in terms of some bottoms-up adoption with Duo? Thanks.

Sid Sijbrandij: We're seeing some bottoms-up adoption as well. I think if you look across our entire customer base, the more common scenario is that they buy Duo for part of their users. For various reasons, they're not yet ready to put all the users in it. We think that will come over time. The returns are there, but that's a more common scenario. Of course, we also have these great customers that do it wall-to-wall immediately. And if we meet all the requirements, we can do that, and that has our preference. But the partial scenario is more common.

Kingsley Crane: Great. Thanks for the call.

[Company Representative] (GitLab Inc.): So this concludes our Q2 call. Thank you very much for joining us, and we look forward to seeing many of you over the coming quarter. Have a great evening.

Kelsey Turcotte: So this concludes our Q2 call. Thank you very much for joining us, and we look forward to seeing many of you over the coming quarter. Have a great evening.

Q2 2025 GitLab Inc Earnings Call

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