Q4 2025 GitLab Inc Earnings Call
Speaker Change: Later, you will have the opportunity to ask a question during the question and answer session. And if you'd like to ask a question, please use the raise hand feature located in the menu at the bottom of your screen.
Speaker Change: We'll be discussing certain non-GAAP financial measures. These non-GAAP financial measures excludes certain unusual or nonrecurring items 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.
Speaker Change: To the most directly comparable GAAP measure.
Bill: Now I'll turn the call over to Bill Bill.
Bill: Thank you Chelsea and good afternoon, everyone.
Bill: Thank you for taking the time to join US today on our fourth quarter earnings call.
Speaker Change: Before I get any further into the call I want to take this opportunity to welcome Ian Steward to get lab and the role of CFO, Jim will join US later this quarter from trade centers, where he currently serves as CFO. Ian has spent his career driving revenue growth with a strong analytical and operational bias and brings a wealth of experience in helping developers Nike organization.
Speaker Change: Realized value I am thrilled in his joining the company and will help drive get lab through our next growth stage I also want to thank Ashlee Kramer for her service as interim CFO over the past few quarters Ashley will remain in the interim CFO role through the end of Q1, FY 'twenty six and we will work with <unk> to ensure a smooth.
Speaker Change: <unk> leadership transition and move it and pursue opportunities outside of good lab.
Speaker Change: Turning back to the quarter Q4 was a strong finish in FY 'twenty five continuing the momentum get lab is built throughout the year driven in part by ultimate dedicated and get lab duo fourth quarter revenue increased 29% year over year to 211 million once again coming in ahead of our expectations and consistent with <unk>.
Speaker Change: Our commitment to responsible growth our non-GAAP operating margin reached 18%. This is an increase of 960 basis points year over year, Brian will give a deeper dive into the quarter and provide guidance for Q1 and fiscal year FY 'twenty six in just a moment.
Speaker Change: First let me step back and share what I've learned in my first quarter I get lab and how we're approaching the opportunity ahead I spent most of my time this quarter meeting with customers investors and team members learning everything I could I engaged with more than 50 customers, including booking dot com and USAA and listening to how get lab uniquely accelerates there.
Speaker Change: Team's ability to deliver secure software faster three key themes emerged from those conversations.
Speaker Change: First get labs comprehensive platform approach drives enormous productivity and efficiency improvements with very clear ROI.
Speaker Change: Second the momentum around Dev checkups, and specifically the need for security responsibilities to shift left we believe every engineer needs to understand and be part of delivering secure software and AI is only going to accelerate that trend.
Lee: Lee every customer even those who admitted they were skeptics just a few quarters ago are actively evaluating AI tools and exploring how they can benefit by incorporating AI into their <unk> strategy.
Lee: As we brainstorm their AI strategy together it became even more clear our customers bet on get lab will become a competitive advantage for them and the foundation for a successful AI strategy in the years to come nearly every customer I spoke with feels it with the power of generative AI for co creation, we're almost certain.
Lee: Going to see a significant increase in both software creators and code in the coming years. We believe organizations won't just have more developers they'll have more production ready code generated by AI and more applications built and deployed by agents.
Lee: With any software this code will need to meet the quality security privacy and compliance requirements of the business.
Lee: Successful AI strategy, therefore depends on a successful approach to managing the software lifecycle at scale something get lab is already proven to do better than anyone else in the category.
Lee: Organizations, who have already adopted or in the process of moving to get lab and taking a platform approach benefit from automated security scanning enforceable compliance guardrails and standardized workflows not only with their human developers, but for agent generated code as well, we believe organizations without an integrated.
Lee: <unk> approach will struggle to manage the complexity and potential risk of Agentic AI development for organizations that want to leverage the benefits of AI agents, while delivering a safe and reliable experience for their customers. We believe the best path is to standardize on an end to end <unk> platform and get little offers the most comprehensive.
Lee: <unk> platform today I spent a lot of time this quarter meeting team members around the world and at every level of the organization I heard their commitment to our values their passion for both the people and the mission of get lab and the many things we're doing well today as a company I also heard the typical growing pains of a public company at our age and maturity.
And the desire to go faster with less friction. So we can scale to become a defining generational company in our category driven by that and with the help of the executive team and leaders around the company. We put together in FY 'twenty six plan to help us improve our plan is very simple and really focused on the fundamentals of our <unk>.
Lee: Accessible business number one we will focus on adding more new paying customers this year, especially in the mid market and enterprise segments, where our ability to expand as the highest and our value is the most number two we will focus on our expansion motions and helping customers realize the value of our platform.
Lee: Faster and number three we will focus on delivering customer value through innovation at a faster pace, especially in our core Dev ops security and AI areas with an eye to provide higher quality more complete in market leading solutions in all three areas every team member.
Lee: <unk> is now orienting their work around these three objectives I sense, a renewed energy and excitement as we enter the new fiscal year.
Lee: Let's talk about each of the three objectives and the momentum we saw in Q4 that we're building on a great example of execution against objective number one is the deal we closed in Q4 with Entropic the creator of Claude a large language model trusted by millions of users worldwide with ultimate self managed the anthropic.
Lee: Team is trusting get lab to securely house all their code in one place, while providing greater performance insight control and customization over their development workflows. We also landed one of the largest cyber security companies in a competitive displacement for source code management as a global cyber security leader the customer requires a reliable.
Lee: <unk> scalable solution, they can run in their own environment, which our competitor could no longer provide after sunsetting their on premises offering the customers' engineering teams were also unhappy with the user experience in their existing tool. They chose get lab for our enterprise grade scalability ease of use and continued investment in on Prem.
Lee: Mrs capabilities. This strategic decision will help them dramatically improved developer productivity and accelerate product delivery, while maintaining control of their development infrastructure.
Lee: Our second half FY 'twenty six objective is to unlock value faster for our customers' customers on our platform are enjoying 15 times faster time to market four times faster feature delivery and up to 60% reduction in manual tasks, we know that when customers see results like these they expand usage and <unk>.
Lee: Best more with us.
Lee: A good example of this is costa de Paul a constant ICR and investment arm of the French state after seeing success with an initial deployment of get level ultimately in their infrastructure team. They're now standardizing their entire development organization on get lab, replacing a complex array of point solutions, including source control see ICD.
Lee: Enterprise agile planning and security scanning tools.
Lee: This decision will help CDC streamline their development experience reduce technical debt in their tool chain and strengthen their security posture through integrated security scanning and compliance controls.
Lee: Further strengthen our ability to grow with customers, we're making numerous go to market enhancements, including expanded customer success and professional service teams and offers intensive onboarding and training to get our reps ramped more quickly improved enablement on new innovation and standardized customer success plans.
Lee: Partners are also critical to success, both landing and expanding with customers. This year, we will expand our relationships with services and consulting partners and we continue to invest in our hyperscale or relationships in December we announced an integrated AI offering with AWS at reinvent, which went into beta in January this collaborative prop.
Lee: Development brings together get labs, AI powered Dev setups platform with Amazon queues autonomous AI agents to create a seamless AI powered developer experience, which we expect to be available in the coming months.
Lee: Our third FY 'twenty six objective is to accelerate innovation and focused ways that increased value for customers. This year, our R&D investments will be made across three themes. The first is our core Dev ops platform to help customers accelerate tool chain consolidation.
Lee: Second is to build upon our differentiated security and compliance capabilities and third we will continue to drive AI innovation, including duo enterprise and do a workflow.
Lee: Our goal here is to enhance and deliver world class products in all three areas with clear monetization paths and while we expect these innovations will have some modest impact on FY 'twenty six they will set our field organization up with multiple expansion pads for customers in FY 'twenty seven.
Lee: To get a sense for the opportunity ahead as we focus on these areas. Let me share a few customer stories and the business expansion. We saw from them in Q4, FY 'twenty five this quarter Zee scalar a leader in cloud security selected get lab and a competitive win what started as a migration opportunity.
Lee: Became a strategic decision to invest in our market leading platform.
Lee: And I recognize it's that good lab can streamline developer onboarding enhanced security and compliance and consolidate their tool chain into a single application.
Lee: The value of our platform is also why we're seeing such tremendous momentum with get lab Ultimate Ultimate has now reached 50% of our total <unk> and our top seven largest deals in the fourth quarter, where ultimate expansions.
Lee: Also in Q4, AWS professional services expanded their get lab commitment by moving from our open source free tier to get lab Ultimate <unk>.
Lee: Ws professional services chose to use ultimate to help their customer facing teams deliver solutions and proof of concept code more efficiently, while maintaining amazon's strict security requirements.
Lee: This strategic expansion strengthens our partnership with AWS.
Lee: Getting a dedicated grew approximately 90% year over year in Q4, and we also sold our largest first order dedicated deal customers across industries value the flexibility and efficiency of ultimate delivered at a single tenant SaaS solution, which reduces labor and infrastructure costs, while providing the control in <unk>.
Lee: Clients of a self hosted solution. We're also seeing healthy adoption of get lab dedicated among our existing enterprise customers Delta Airlines, which already uses get lab ultimate is expanding their investment by moving to get lab dedicated as part of their broader cloud transformation journey with dedicated get labs fully man.
Lee: <unk> and deploys deltas Deb Zack off platform with controls freeing the team to focus on creating value and accelerating their monetization rather than maintaining infrastructure.
Lee: Another customer Natwest extended their investment in both get lab dedicated and duo enterprise in Q4, continuing their digital transformation initiatives with get lab as their strategic Dev ops partner.
Lee: Now, let me share a few additional wins, we're seeing with get lab duo we had a very good quarter with duo, particularly with duo enterprise as customers realize the power of AI throughout the entire software development lifecycle longtime get lab customer Barclays, a leading global financial institution has steadily expanded.
Lee: Their use of our products and did so again in Q4, initially and ultimate customer. They made their first duo purchase in Q2, FY 'twenty five with duo pro because of the success. They had with get lab to date in Q4 Barclays invested in 20000 get lab ultimate and duo enterprise seats.
Lee: Another key win with cap Gemini a global leader in engineering, and R&D services by selecting get lab cap Gemini is upgrading and scaling its software engineering delivery platform, which is used by thousands of engineers worldwide to drive AI powered software defined product transformation across industries.
Lee: Get lap ultimate streamlines, the tool chain for greater transparency security and efficiency and with good lab duo AI capabilities are embedded throughout the development lifecycle.
Lee: Also in Q4, CACI, a major U S technology company and government contractor previously removed seven point solutions by consolidating on the get lab platform, resulting in 13 times faster security scans and a 90% savings in tool change administration this quarter they invested in <unk>.
Lee: <unk> enterprise to continue to drive efficiencies and improve developer experience.
Lee: Finally, we are pleased to announce that do a workflow is entering private beta. This month do a workflow is our move from AI assisted to AI driven software development leveraging both the power of a gentex AI and the comprehensiveness of our Dev ops platform a few weeks ago, we announced the private beta of do.
Lee: Workflow, where we will work with a set of customers to gain rapid feedback on use cases and product direction. Our intention is to move swiftly into public beta. This summer looking forward I am really energized by the opportunity ahead of us and excited for what FY 'twenty six will bring consistent with the commitment we made at our IPO.
Lee: So we are prioritizing growth and we're doing that responsibly.
Speaker Change: Before I turn the call over to Brian I'd like to also welcome David Henshall to get Labs Board of directors, David brings a wealth of leadership deep technology experience and financial acumen, having long tenure in the CFO and CEO roles at Citrix as well as extensive service on multiple public boards I'm, even more convinced.
Speaker Change: Now than I was 90 days ago that this is the time to be in the software business and serving developers I look forward to speaking with many of you in the coming weeks and with that I'll turn it over to Brian.
Brian: Thank you Bill and thanks again to everyone for joining US today, we delivered a strong end to FY 'twenty five and I want to thank they get lab team for your ongoing commitment to our customers and partners drive results for our customers is the most important thing we do Q.
Brian: Q4 was a strong quarter for our enterprise segment, we closed the largest net IRR deal in company history, We had a record quarter of net adds for customers over $100000 than they are this group of new customers. Also included the most first orders of more than $100000 in <unk> in the company's history with get lab cuts.
Brian: <unk> can deliver software faster and more securely. They can also consolidate into a single platform save in both time and money, which is a high priority and any spending environment I'll start with a brief recap of our full year and then turn to the fourth quarter results and guidance FY 'twenty five revenue grew 31% to $759 2 million as.
Brian: Our growth continues to be driven by Atlanta, and expand motion FY 'twenty five non-GAAP operating margin reached 10, 2% an increase of approximately 1050 basis points year over year, while adjusted free cash flow grew 259% to $120 million.
Brian: Turning to Q4, I'm really pleased with our results, which exceeded our expectations revenue for the quarter reached $211 $4 million, an increase of 29% from Q4 of the prior year and we delivered a record non-GAAP operating margin.
Brian: We now have 9893 customers, where they are or at least $5000, which contributed over 95% of total <unk> in Q4.
Brian: In particular, we monitor performance of our larger customer cohort of $100000, plus an error, which increased 29% this quarter and reached 1229. This.
Brian: This includes 123 customers of $1 million or more in <unk>, and an increase of 28% year over year.
Brian: As they scale. This cohort continues to make significant investments in ultimate and do them well.
Brian: On the expansion front, we ended the quarter with a dollar based net retention rate or DB and our arm of a 123% Q4 DB in <unk> was driven by a combination of seed expansion at approximately 75% increase customer yield at approximately 15% and tier upgrades at approximately 10% seat strength. This quarter was driven in part by a <unk>.
Brian: Large expansion with a strategic customer as well as growing traction with our dual offerings. As we've mentioned, we expect these ratios to fluctuate quarter to quarter based on the composition of the underlying renewal portfolio.
Brian: It'll RP O grew 40% year over year to $945 million, while CRE grew 35% year over year to $579 $2 million, we encourage investors to look at these metrics over a multi quarter period.
Brian: non-GAAP gross margin was 91% for the quarter. The team has maintained a best in class gross margin, even as our SaaS business is quickly scale driven in part by get lab dedicated SaaS now represents 29% of total revenue and grew 36% year over year. We ended the year with 2375 team members an increase of.
Brian: 12% over FY 'twenty for the majority of the hiring was in sales for additional sales capacity and in R&D. Once again, we saw a significant increase in operating leverage Q4, non-GAAP operating income was $37 4 million compared to $13 $2 million in Q4 of last year similar to previous quarters, we dropped our revenue out.
Brian: Performance bottom line, which in combination with the team's focus on execution translated to a record quarterly non-GAAP operating margin of 17, 7% compared to eight 1% of Q4 of last year. This is an increase of more than 960 basis points year over year.
Brian: Q4, FY 'twenty five adjusted free cash flow was $62 1 million compared to $24 $5 million in the prior year period.
Brian: From operating activities was $63 $2 million in the fourth quarter compared to $24 $9 million in the prior year period.
Brian: Now turning to guidance.
Brian: Guidance assumes that the macroeconomic environment, we've been operating in over the last year stays consistent. In addition, we have completed our annual standalone selling price analysis, or SSP, which determines the upfront revenue recognition rate for license revenue year over year SSP has no material impact on revenue allocation in <unk>.
Brian: Included in today's Q1, and FY 'twenty six guidance for the first quarter of FY 'twenty six we expect total revenue of $212 million to $213 million, representing a growth rate of 25% to 26% year over year, we expect a non-GAAP operating income of 21 million to $22 million.
Brian: And we expect a non-GAAP net income per share of <unk> 14 to 15, assuming a $172 million weighted average diluted shares outstanding for.
Brian: For the full year FY 'twenty six we expect total revenue of 936 million to $942 million, representing a growth rate of approximately 24% year over year, we expect a non-GAAP operating income of $109 million to a $114 million and we expect a non-GAAP net income per share of <unk> 68 cents to.
Brian: 72, assuming 173 million weighted average diluted shares outstanding.
Before I move on I have two final points on guidance first in Q1, FY 'twenty five we invested $15 million and a global gathering for our team that will not recur in FY 'twenty six as a result, we anticipate non-GAAP operating margin to be flat from Q1 to Q2 FY 'twenty six.
Brian: Second with the conclusion of the bilateral advanced pricing agreement or be a PPA with the IRS in Netherlands, Dutch tax authority beginning in FY 'twenty six we will be applying a 22% long term non-GAAP projected tax rate. The new 22% rate is included in both Q1 and FY 'twenty six non-GAAP net income per share.
Brian: Guidance this rate reflects a new location of our IP in the U S. Following the conclusion of our API it.
Brian: It does not imply any incremental increase our actual cash taxes paid separately I would like to provide an update on <unk>, our China joint venture in Q4, FY 'twenty five non-GAAP expenses related G, who were $3 2 million compared to $3 $8 million in Q4 of last year.
Brian: Our goal remains to deconsolidation <unk>, however, we cannot predict the likelihood or timing of when that may potentially occur. Thus for FY 'twenty six modeling purposes, we forecast approximately $18 million of expenses related to <unk> compared with $13 million from last year.
Brian: In summary, Q4 was a strong close to FY 'twenty five a year, which we saw tremendous demand for get lab ultimate achieved triple digit growth with dedicated acquired strategic capabilities in security with oxide and resilient deliver both duo Pro four code assistance and do enterprise injecting AI throughout the entire software development lifecycle.
Brian: And we announced key integrations with Google and AWS all of this sets us up for a strong FY 'twenty six I'm excited for the year ahead.
Brian: For joining us today with that I'll turn over the call to Kelsey, who will moderate the Q&A.
Kelsey: Great. Thanks, Brian at this time, if you'd like to ask a question. Please use the raise hand function or if you joined via phone you May press star nine.
Kelsey: Please limit yourself to one question and we will take our first question from Karl Keirstead at UBS corollary there.
Speaker Change: Chelsea do we hear Carl.
Kelsey: Can you hear me.
Speaker Change: You're almost there yes youre back go ahead, yes.
Speaker Change: Yes, sorry about that.
Speaker Change: Congrats on the nice results, particularly the.
<unk> mix from our seat expansion stood out to me, but.
Speaker Change: Bill and Brian I'd Love to ask about the co Gen space, maybe Brian if you can offer any even qualitative color about the contribution from duo duo enterprise in that 24% and then bill just maybe a question for you about the market development. It sounds like you've had some good success.
Speaker Change: <unk>, obviously, Barclays and cap Gemini among others, but the co gen market from our vantage point is looking increasingly competitive with obviously get have co pilot, but you've got some standalone tools like cursor that are already at $100 million in revenues, even though the tropic is launching their own version of.
Speaker Change: Claude code.
Speaker Change: How do you differentiate duo enterprise and what's likely to be a more competitive co gen market throughout the year. Thank you.
Speaker Change: Thanks, sure I'll start I'll start first and I. Appreciate the question. This quarter, we're really pleased with the performance of duo it exceeded our expectations again this quarter.
Speaker Change: If you looked at the deals that included duo.
Speaker Change: A third of that was duo <unk> versus the total AAR and so once again people are buying enough licenses to match the ultimate licenses that they have within the purchase.
Bill: On the prepared remarks, Bill mentioned, a number of customers we have.
Bill: Barclays This quarter CACI zee scalar in that west so happy with the logos in the large enterprises are buying duo.
Bill: The contribution standpoint.
Bill: Our FY 'twenty six guide at the midpoint about $939 million.
Bill: Going to take a little while for <unk> to move the needle.
Bill: But happy with where it's at we have this ratable model.
Bill: We exceeded our internal expectations again, I'll turn it over to Bill for the second part of the question.
Bill: Yes, Thanks, Brian.
Bill: Yeah, you asked about the market how I see it in our differentiation.
Bill: First let me say there are a lot of tools in this space and it seems like every day, there's a new one.
Bill: AI is the hot new technology trend, obviously, we're gonna see rapid advancements like this I think ongoing for a while.
It's a really exciting time this new technology wave is one of the reasons that I wanted to come to get lab, because I believe it's going to be transformational for the world and transformational for our business.
Bill: In terms of how we compete and our differentiation. It really goes back to the platform as you know AI models work when they're fed context and get lab provides some of the best context, when it comes to working with code.
Bill: First our source code capability is one of the best in the World and where no one in the Gartner Magic quadrant as number one in both vision and execution for Dev ops.
Bill: We not only have that but we also have a full lifecycle set of capabilities from planning and issue tracking through <unk>.
Bill: Integration packaging and deployment, we also have our security tools.
Bill: <unk> are also world class and so we're building a knowledge graph that lets us take all of that context feed it into the models and then help developers throughout the software lifecycle to make decisions with our duo pro and our <unk> enterprise product. In addition.
Bill: As we mentioned we are.
Bill: Shipping this month, a private beta of our dual workflow, which is our autonomous AI agent service.
Bill: It allows for.
Bill: To drive proactive action for engineers think of it as autonomous.
Bill: Engineering, Buddy that you can work with to get work done inside get lab, we're testing that already and seeing really good results, but I think we will present, a step function and productivity improvement and it's all driven off of that context that we have as a platform provider last I will say I'm really excited about.
Bill: AI for another reason not just our ability to bring context and inject AI throughout the software lifecycle, but I believe AI is going to increase the number of software creators.
Bill: The amount of code that has generated both by humans as well as by machines or by the AI models that code needs to adhere to the organizations quality security compliance all of the requirements that software has today and get lab as a platform provides.
Bill: All of that capability, so whether the cubs generated by AI tools like the ones you mentioned, whereby our duo product, whether it's built by a human or a machine.
Bill: Still need all of the capabilities of our platform in order to ensure the organization can govern their software lifecycle.
Bill: I believe it presents an even greater opportunity for us than in years past.
Carl Cash: Great. Thank you. Thanks for the question Carl cash.
Carl Cash: Cash Rangan from Goldman Sachs. Your next.
Cash Rangan: Thank you very much congrats on your first full quarter of the company clearly your tone sounds quite encouraging youre encouraged by AI duo in the walk the walk.
Hello, Hey, Gentex technology.
Cash Rangan: And also the impact of pricing.
Cash Rangan: Not to mention that.
Cash Rangan: Yet when I look at the reported results is there something that is not reported in the reported results that is representative of the broader enthusiasm that you share and also look at the guidance the sequential.
Cash Rangan: Sequential growth in CRP is good as it is in Q4 and the guidance.
Cash Rangan: Maybe the tone out there in the financial outlook is not matched by the SEC.
Speaker Change: John that you optimistically share with all the changes youre, making and granted that it's.
Speaker Change: Super early its just one quarter and hopefully it's a very very long.
Speaker Change: Amazing career, but help us understand.
Speaker Change: The fundamental conviction and the company is not quite express and the financial although Im sure Brian would agree to disagree with me that you would say that the guidance is very very good.
Speaker Change: But maybe.
Speaker Change: Maybe there's some bridge between the optimism and the numbers the way we look at it theres something else underneath the surface that is behind your conviction what is that.
Speaker Change: Yeah.
Speaker Change: Yeah. Thanks Kash.
Speaker Change: Let me start with how I spent my time this quarter was an amazing opportunity to get on the road you spend a lot of time with customers and really hear from them what get lab does for them.
Speaker Change: Met with more than 50 customers as I said and hearing their enthusiasm forget lab is really a big component of what makes me excited we have some fantastic customers as you all know and they are dependent on us to build their software to run their business.
Speaker Change: And it's you know it's amazing what get lab has built and I'm honored to be part of it.
Speaker Change: I also think that's recognized as you look at the Gartner Magic quadrant as I already mentioned.
Speaker Change: We're known as a platform with world class and brings incredible ROI.
Speaker Change: 500% in three years with a six month payback and I think our strengths are really well known in it.
Speaker Change: And customers are.
Increasingly betting on this platform approach because they see the productivity and efficiency gains that it provides them.
Speaker Change: I also spent a lot of time with team members learning get lab from the inside and hearing their conviction their commitment to our values and our mission.
Speaker Change: And their excitement to be part of this next chapter of growth that also I think increases my confidence in.
Speaker Change: Optimism for the road ahead.
Speaker Change: I also do believe as I just shared.
Karl Keirstead: Karl asked about AI.
Karl Keirstead: This is one of the most exciting times in technology that I've experienced in my career and I've seen quite a bit from.
Karl Keirstead: The launch of the Internet to the rise of the smartphone and social media and cloud and all of the technology waves that we've seen in the last couple of decades I do believe AI represents an enormous opportunity.
Karl Keirstead: For World transformation, and that's driven by software and get lab is at the heart of building software. So.
Karl Keirstead: From my perspective, there's no better place to be certainly you know.
Karl Keirstead: We've got competition, we've got you know.
Karl Keirstead: Things to navigate as a company to in order to continue to grow at the scale that we're reaching but I believe those are challenges that any great competitor would face and I'm optimistic given what I'm hearing from customers and from team members that we can tackle them and continue to grow.
Rob Owens: Great. Thanks for that though Rob Owens from Piper Sandler Your question now.
Great. Thanks, Kelcey and good afternoon, everyone.
Rob Owens: Bill would love to drill down on some of these conversations that you had with customers throughout the quarter. I think you cited 50 customers, especially relative to your view about increasing the number of software developers because.
Speaker Change: I guess in other areas of the enterprise stack, we're seeing more optimization as a result of AI and so help us understand kind of the view of a lot of these customers and why it doesn't creep into a a less developer type of argument versus taking the other side of the coin in terms of increasing the number of software creators. Thanks.
Rob Owens: Yes, Rob I get that question a lot actually mostly from investors it doesn't come up often from customers interestingly enough.
Rob Owens: I think the reality is for many customers. They have always felt resource constrained the number of engineers in the world has.
Rob Owens: If you think about it as a percent of the world's total population.
Rob Owens: It's less than a 1% it's a fraction of 1% that's created all the software in the world that now reaches billions and billions of <unk>.
Rob Owens: People around the World every day on their smartphones and through the cloud.
Rob Owens: And what AI represents is an opportunity to raise the abstraction level again to make it easier than ever to build software and.
Rob Owens: So.
Rob Owens: That's an incredible productivity boost but it also.
Rob Owens: The process of building software is not just about authoring code.
Rob Owens: That abstraction is going to go higher it's going to be easier to generate code or write code.
Rob Owens: Just like it has over the last couple of decades with higher level languages and with the cloud.
Rob Owens: But.
It's not just about writing the code right you've got to ensure that the code is high quality you've got to make sure. It's secure you've got to make sure it adheres to the compliance practices and everything else.
Rob Owens: And that is what gets that really specializes in not necessarily in the code offering although we help engineers do that with our duo pro product.
Rob Owens: But with the entire software management the entire software lifecycle. So we serve a number of persona is not just developers, but all of the roles around the software lifecycle and as I said earlier I think that's only going to drive more demand for our platform.
Rob Owens: As more software creators are coming.
Rob Owens: Come about as well as more code is generated.
Speaker Change: Great. Thanks, Bill next question goes to Matt Hedberg of RBC, Matt go ahead.
Matt Hedberg: Great. Thanks, Kelsey Thanks for the time, guys and Bill Congrats on.
Speaker Change: Joining and look forward to working with you.
Speaker Change: I had a question on ultimate it was a big part of the prepared remarks, and we've seen a pretty dramatic increase in the mix, there, which is really great to see it really resonates the especially the SEC ops piece I'm wondering you talked about a couple of nice wins in a couple of Upsells. There how should we think about the sustainability because it's done quite well on an improvement in mix over the last year.
Speaker Change: Is that something that you think continues into fiscal 'twenty six and maybe just like if you could summarize the one or two items why customers are still trying to ultimate I think that would be helpful.
Speaker Change: Okay.
Speaker Change: Yeah, Matt This is Brian Thanks for the question Super Happy with the Ultimate performance.
Speaker Change: As we said, it's now 50% of the total <unk>.
Speaker Change: And that is even with the price increase it's doing that well and the reason why people are attracted to ultimate are really for security and compliance.
Speaker Change: And so the payback period is less than six months ROI is over 480% in three years.
We're really seeing the strength of the enterprise come into ultimate.
Speaker Change: Yes, we talked about.
Speaker Change: In <unk>, we had the most first orders greater than a 100 K in company history.
Speaker Change: And obviously thats, mostly ultimate and so there's a there's a number of reasons why people come into ultimate we're getting more and more lands on ultimate.
Speaker Change: It's really for the payback period, the time to value the ease of use the positive business outcomes.
Speaker Change: Great. Thank you next question goes to Joel Fishbein I Trust.
Joel Fishbein: Thanks for taking my question and congrats on the great results.
Speaker Change: I guess it's.
Speaker Change: For both of you guys.
Speaker Change: Congrats on hiring Ian.
Speaker Change: To see our CRM I'm just curious to see if there is do you expect any significant changes to go to market.
Speaker Change: Sales comp.
Speaker Change: Any of that and is that already baked into the guidance you've given thanks.
Speaker Change: Yeah, Thanks, Joe I'm really excited.
Speaker Change: To bring on and I spent a.
Speaker Change: You know quite a bit of time this quarter meeting with nearly a dozen candidates looking at all different kinds of profiles of crows different stages of their career I've got a lot of help from the board as well.
Speaker Change: Some pretty wise directors, who spend all the time and go to market as well as members of the management team.
Speaker Change: And Ian really represents an amazing profile forget lab.
He's been his career in the trenches. He has been an account executive he has been a sales manager. He has been a region leader and the CRO. He has opened new regions expanded into countries driven partner channel He's built territories and compensation models.
Speaker Change: And he has a strong operational and analytical operator, I really believe he's going to bring a level of rigor to our go to market strategy as we plan beyond the 1 billion mark to scale the business.
Speaker Change: He starts with the customer success and the market opportunity in mind and he map that back to individual contributors success as he builds out their go to market strategy. So I'm really excited to.
Speaker Change: To bring that into the company I believe it will only build on the strengths that we already have from a go to market motion perspective, and help us continue to scale as we grow.
Speaker Change: In terms of.
Speaker Change: Go to market changes really are I think they're mostly incremental at this point, we are incentivizing as I mentioned on our first orders to increase our ability to win new customers.
Speaker Change: We're starting a small new inside sales team is also focused on landing new customers.
Speaker Change: Looking at global expansion to ensure that we're capturing the opportunity around the world.
Speaker Change: We're continuing to invest in our partner ecosystem to ensure that we can get their leverage and driving expansion as well.
Speaker Change: So we just.
<unk> finished up last week, our company kick off and our sales kickoff.
Speaker Change: So organizations aligned around our goals now and I think as it comes out at the start of Q2. It will only continue to help us.
Speaker Change: Achieve our objectives.
Speaker Change: Great. Thanks, Bill next question goes to Derrick Wood at Cowen Derek go ahead.
Speaker Change: Great.
Derrick Wood: And Brian 18% operating margin in Q4, Congrats that is impressive and really just leads me to want to ask about the balance.
Derrick Wood: Growth investments versus margin expansion, we're thinking about that in calendar 2025 versus the last couple of years.
Derrick Wood: Given that you've had such a big improvement on margins and I know Bill mentioned, some things that youre doing on the R&D side, but it was just.
Derrick Wood: And to double click on the go to market side just.
Derrick Wood: Just get a sense of how active you have been and build it up sales capacity, how youre thinking about.
Derrick Wood: Driving more growth make sure you've got that.
Derrick Wood: Growth in capacity going forward.
Speaker Change: And I know Bill you just mentioned some of the some of the tweaks youre, making but just would love to hear about.
Speaker Change: The balance of investment in growth and margins.
Speaker Change: Yes, So let me let me jump in just on the margin profile since we've gone public we've been.
Speaker Change: Say the number one thing to do our number one objectives as growth, but we'll do that responsibly.
Speaker Change: We've been doing that.
Speaker Change: After a quarter and so we want to invest in growth to the extent, we exceed what our internal estimates are that typically falls to the bottom line.
Speaker Change: So we've been doing that quarter over quarter, we had roughly a 1000 basis points improvement year over year and so the way we set our models for next year is the same when we look at investing in go to market.
Speaker Change: Dollars. It is pretty much we have the management built out we have the second layer of management built out and so the hires are pretty much in capacity and we have a pretty deep down capacity planning model, where depending upon what we do on a quarter.
Speaker Change: Higher certain amount of reps base.
Speaker Change: Based on time to ramp and its driven really on a quarter by quarter basis, and so the biggest investments that we're making next year or this year that we're in.
Speaker Change: Is sales capacity and in engineering from an engineering standpoint, it's really a focus on AI and increase in a feature functionality across the platform.
Speaker Change: With a focus towards security.
Kochi Ikea: Great. Thanks for the question next question goes to you at Kochi Ikea at Bank of America could you go ahead.
Kochi Ikea: Yeah, Hey, guys. Thanks, Thanks, so much for taking the questions I wanted to ask.
Speaker Change: How you drive strong utilization of the lab platform offering.
Speaker Change: Across the <unk> workflow and the reason why I ask that is I totally get that you can sell the premium and ultimate versions.
Speaker Change: From a high value proposition consolidation theme, how do you drive higher utilization of the platform and does utilization of the platform need to come first and is that the key to unlock adoptions of add ons like duo and agile planning. Thank you.
Yeah I'll jump on that this is bill thanks Koji.
Speaker Change: Our approach to helping customers realize value or as you describe it utilization to realize that value is really a full team approach as well as a partner approach. So as we engage customers one of the things that we like to do as part of the.
Speaker Change: Contract renewal or the first order.
Speaker Change: It is to build out a customer success plan, where we identify their objectives and.
Speaker Change: How they want to adopt the platform the resources and time frame that they have in mind and you know.
Speaker Change: In particular for our larger enterprise customers, where there's a lot at stake.
Speaker Change: We often talk about new offerings that we have both in terms of customer success dedicated customer success resources available to them as well as professional services.
Speaker Change: Could help them with that adoption journey. In addition, we have a number of technical partners.
Speaker Change: Who we can bring into the conversation or our customers can tap into to.
Speaker Change: To help them with their Dev ops journey, both with the technical migration as well as the practice of Dev setups, often requires process and organizational changes in order to fully realize the value and our partners are well utilized.
Speaker Change: By our customers as well.
Speaker Change:
Speaker Change: I guess I'll also share a R.
Speaker Change: Approach to help customers.
Speaker Change: Meet customers, where they are also plays a large role with the get lab adoption experience.
Speaker Change: We are the only software provider in this category that allows customers to run the software on premise and air gapped environments in their own cloud or in a public cloud and so that makes the transition to run get lab with <unk> platform.
Speaker Change: Perhaps a little smoother and easier for customers in particular for high regulatory environments.
Speaker Change: Or compliance such as government or financial.
Speaker Change: Institutions.
Speaker Change: Next question goes to Kingsley Crane at Canaccord Genuity case. They go ahead.
Speaker Change: Yeah.
Speaker Change: Hey, Thanks, just to expand on that it's nice to hear that youre expanding customer success initiatives 26. It sounds like it is also a big focus for Ian.
Speaker Change: Just a couple quick what's the state of that organization today, how much transformation do you think needs to occur if any or is it really just about finding more scale and adding more resources to the existing framework. Thanks.
Speaker Change: Okay.
Speaker Change: Yes, thank you very much the latter.
Speaker Change: As I mentioned and spent a lot of time with customers and of course with that comes a lot of time with the field and really impressed with our go to market organization.
Speaker Change: With.
Speaker Change: Their commitment to customer success and.
Speaker Change: And to get that back into our mission.
Speaker Change: So the team has been performing really well.
But this is an opportunity to bring in.
Speaker Change: Another level of leader with that deep sales background and experience and the operational and analytical skill to help us scale beyond the $1 billion Mark that we're currently putting in the cross hairs. So.
Speaker Change: Really excited for and what he brings to the organization.
Speaker Change: Next question goes to Gregg Moskowitz Mizuho, Greg go ahead.
Gregg Moskowitz: Great. Thanks Kelsey.
Hi, everyone, Hi, Bill its encouraging that every customer who you met with so far is actively evaluating the incorporation of AI tools into their Dev Tech op strategy. If you were to look out maybe a couple of years from now how often might you expect or might we expect.
Gregg Moskowitz: Get lab to upsell entire Dev ops work for US is to do a pro or dual enterprise versus a mix and match type of outcome. How do you see this evolving.
Gregg Moskowitz: Yes, it's a good question I think of AI is becoming an essential part of the developer experience.
Both for code creation as well as every stage of the lifecycle and that's why we're investing in that right now with our duo enterprise and our dual workflow products injecting AI at every stage.
Gregg Moskowitz: I don't think a few years from now developers will be building software without AI.
Sandra Zhang: Great next question. Please go to Sandra Zhang at Morgan Stanley Sanjay go ahead.
Sandra Zhang: Okay, maybe it will get you back in the queue again.
Speaker Change: Next question goes to pendulum Bora at J P. Morgan.
Sandra Zhang: Okay.
Sandra Zhang: Great.
Sandra Zhang: Yes can you hear me.
Sandra Zhang: Yep.
Sandra Zhang: Yes. Thank you. Thank you for taking the question.
Speaker Change: Brian just to partner for you could you maybe talk about the assumptions around the guidance, especially around MLR has kind of reached around 123% I'm trying to think if we have reached kind of a trough are you seeing underneath kind of the seat growth stabilizing I'm expecting any kind of a ramp and then lastly, what did you see with rich.
Speaker Change: Back to the pricing benefit in fiscal 'twenty five versus initial expectations and are you baking in any are for fiscal <unk>.
Speaker Change: Yeah. So thanks for the question let me.
Speaker Change: Let me start off with pricing.
Speaker Change: We exceeded our expectations last year on pricing and I said that we're about halfway through and so we expect the same amount as incremental impact next year as we did this year. If you look at we'll get everything that we got this year plus we'll get incrementally what we got last year.
Speaker Change: Here this year as well so.
Speaker Change: We're about halfway through the pricing impact that is factored into our guidance and so when.
Speaker Change: When we looked at this quarter.
Speaker Change: Compared to the prior two or three quarters, they've been consistent it's still people are cautious spending environment out there, but there is consistency and so we've had less standard deviations when we do the bottoms up build and we looked at guidance from several different angles, we did a field AE rollout.
Speaker Change: The <unk> leadership team did a rollout and then we do one and our <unk> team and based on all of the historical numbers and trending in pipeline and so forth and so we use that to come up with guidance, there's been no change in our guidance philosophy.
Speaker Change: Great next question goes to you Ryan Macwilliams at Barclays. Brian Go ahead.
Ryan Macwilliams: Hey, guys. Thanks for taking the question.
Speaker Change: Following the third quarter strong public sector deal result, any update on your public sector business and pipeline under this new administration and is there any extra conservatism baked into your guide for the sector for this year.
Speaker Change: Yes, great question and we debated this a lot internally for the call.
Speaker Change: We don't know what we don't know pub SEC makes up roughly about 12% of our total IRR.
Speaker Change: What we do as a platform helps people become more efficient and actually save money.
Speaker Change: We've gone through the payback stats and the Rois that.
Speaker Change: And so our biggest quarter.
<unk> third quarter.
Speaker Change: Watching closely with the team, but we assume no changes at this time.
Speaker Change: Great.
Speaker Change: Last question, we'll go to Nick Altmann at Scotiabank, Nick go ahead.
Speaker Change: Awesome. Thanks, guys.
Speaker Change: There was some great commentary around the dedicated SKU and so can you just talk about the underlying drivers there and why dedicated is resonating with those larger customers and then going forward kind of going back to Matt's question around the ultimate mix. This year, how impactful can can dedicated to that up that ultimate next moving higher thank you.
Speaker Change: Yeah. Thanks, Nick Good question dedicated really is doing well.
Speaker Change: It grew more than 90% year over year in Q4 I.
Speaker Change: I think that's really driven off of the fact that we're the only ones in our category that can provide that single tenant SaaS offering and it's a really important competitive advantage.
Speaker Change: As you know when customers adopt dedicated it also does driving ultimate upgrade for us so they get the full value of the complete platform.
Speaker Change: And it's particularly valuable for.
Speaker Change: No.
Speaker Change: Verticals in particular, where there is complex security and compliance requirement.
Speaker Change: Thinking about industries like embedded software financial services and the public sector.
Speaker Change: We see a lot of potential to move our large self managed customers to this dedicated SaaS offering as time goes on for example.
Speaker Change: Delta and existing customer chose dedicated.
Speaker Change: As part of their cloud transformation. This last quarter. So I believe we will continue to see that opportunity and it's really driven off of our unique competitive advantage.
Speaker Change: Okay.
That concludes our Q4 FY 'twenty five earnings call. Thanks, again for joining us and have a great evening, we look forward to seeing a lot of you in the coming weeks.