Q1 2026 GitLab Inc Earnings Call
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Speaker Change: And the firm you're with and if you're joining via phone you May press star nine to ask a question. Please note. This call is being recorded it is now my pleasure to turn the conference over to Kelsey Turcotte.
Kelsey Turcotte: Good afternoon. We appreciate you joining us forget launch first quarter fiscal year 2026 financial results Conference call with me are Bill Staples, our CEO and Brian Robbins, our CFO. During this afternoons call. We will provide an overview of the business commentary on our first quarter results.
Kelsey Turcotte: Guidance for the second quarter and fiscal year 2026, 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 two of our presentation and in our earnings release issued earlier today, both of which are available under the Investor Relations section of our website the presentation.
Speaker Change: <unk> and earnings release include a discussion of certain risks uncertainties assumptions and other factors that could cause our results to differ from those expressed in any forward looking statements within the meaning of the private Securities Litigation Reform Act as is customary the content of today's call and presentation will be governed by this.
Speaker Change: Language. In addition, during today's call we will 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.
Speaker Change: Information regarding these non-GAAP financial measures and the reconciliations to the most directly comparable GAAP measures.
Speaker Change: I'll now turn the call over to Bill Bill. Thank you Joseph and good afternoon, everyone. Thank you for joining us today.
Speaker Change: First quarter revenue increased 27% year over year to $215 million with non-GAAP operating margin, reaching 12% I wanted to thank our team for your focus on execution and our customers. Our continued growth underscores the demonstratable value customers realize with our AI native deaths that golf's platform.
Speaker Change: Unlike competitors, we are the only AI native cloud agnostic model neutral depths hiccups platform capable of running anywhere, including air Gapped environments. We offer comprehensive solutions across the software development lifecycle with built in contextual AI, that's really only possible on our platform with a unified data store.
Speaker Change: <unk> everyday organizations face pressure to maximize efficiency and software is an essential lever they have to create business agility and competitive advantage. Our Deb Zack ups platform stands at the core of enabling customers to build that mission critical software I view, our strategic Differentiators.
Speaker Change: As an opportunity for that lab to advance conversations about a strategic role in software development as enterprises embrace AI and transform development practices, our unified platform uniquely enables them to maintain enterprise security and compliance we believe our market is moved.
Speaker Change: <unk> rapidly in a direction that's inherently advantageous for platform solutions I expect AI co creation tools to empower more co creators than ever. The result is that the volume of co being created will expand and all of those users and agents still required a platform in order to test validate secure.
Speaker Change: Your package and deploy their code to production environments. This is what get lab does today.
Speaker Change: Micro and AI solutions provider recently doubled the size of their software team and upgraded from our free tier in Q1.
Speaker Change: Selected getting that premium and duo pro to build an internal software acceleration program targeting two X faster feature development for their end to end AI infrastructure solutions. It was a big quarter for our R&D team with the annual launch of new product capabilities across the platform and good lab.
Speaker Change: <unk> this may introduction and product roadmap build upon the essential capabilities of successful software development core Dev ops security and AI and core Dev ops, we are centralizing artifact management, optimizing see ICD pipelines for speed and security and making it easier for users to find.
Speaker Change: And filter and embed content from anywhere in the platform, we want to ensure customers can easily collaborate and drive maximum ROI from their get lab investments.
Speaker Change: We're also deepening our security capabilities to help customers achieve comprehensive visibility and control. This includes custom frameworks to design implement and enforce compliance vulnerability dashboards to pinpoint critical findings and innovation to improve detection accuracy reduce false positives and help customers focus on.
Speaker Change: The code that threat actors can exploit security is a key driver of get lab ultimate adoption and we want to deliver market leading solutions that are even more effective because they are embedded in our Deb Zack off the platform and finally, we are natively integrating AI throughout the platform customers, who use our premium and Ulta.
Speaker Change: Tears now have access to both do a chat and code suggestions. In addition get love duo Enterprise is now available for get lab premium customers. We now include chat and coat suggestions with premium and ultimate because we see every engineer is experimenting with AI and we want duo to be an aldi.
Speaker Change: <unk> solution for them with no barriers to adoption. This integrated approach offers an ideal starting point for both new and existing customers, allowing them to leverage chat and coat suggestions with limited usage limits and providing them a smooth upgrade path to our offerings with higher usage limits and more comprehensive.
Speaker Change: Capabilities, including get lab do a pro duo enterprise and when G E get love duo workflow.
Speaker Change: We also made duo enterprise available to premium customers for the first time in response to customer demand for self hosted models and its ability to inject AI and planning collaboration and deployment by lowering barriers to adoption and expanding the serviceable market with more flexible packaging, we believe we will be able.
Speaker Change: To unlock more duo adoption in coming quarters, new and existing customers are increasingly finding duo a compelling solution versus competitors. For example are in reinsurance a top five German insurer is expanding their get lab deployment by implementing duo enterprise in their regulated environment. After a.
Speaker Change: Adopting get lab ultimate in 2023 to integrate their full depth setups lifecycle are in these recent duo enterprise evaluation demonstrated significant improvements with a more than 35% acceleration in AI assisted test generation and 25% acceleration in both root cause analysis and code explanation.
Speaker Change: In April we launched get lab duo with Amazon to a strategic integration that Embeds Amazon Twos Autonomous software development agents directly within the get lab Deb Checkups platform early access participants Volkswagen digital solutions reported significant productivity gains, noting that joined capabilities.
Speaker Change: Dramatically reduce context switching and accelerate their entire pipeline from code commit to production deployment, our partnership with AWS extends beyond technical integration to coordinated go to market initiatives, including get labs position among the select AWS Global summit sponsors listened.
Speaker Change: Irons amplifies, our market presence and drives higher quality customer engagement over the coming months, we will showcase this powerful combination at AWS Global summit events further expanding our enterprise reach.
Speaker Change: Finally, we remain on schedule to launch that lab do a workflow orogenic AI solution. This winter, we're getting great feedback from our workflow private beta participants what began as a private beta with six major customers have now expanded to dozens developers reported that workflow is beginning to transform their daily production.
Speaker Change: Activity Engineers described confidently delegating complex multi step refactoring tasks to workflow and then watching as it methodically outlines a transparent execution plan, resulting in clean properly committed code our private beta satisfaction metrics are really compelling 82% of survey.
Speaker Change: Users already classify themselves as either satisfied or very satisfied with workflows capabilities validating our strategic investment in a gentex software development.
Speaker Change: Momentum with good love duo continues to grow, particularly with duo enterprise in Q1, the number of customers who purchase get love duo for the first time increased 35% quarter over quarter. We also closed some great expansion deals with existing customers for example, Highmark health and engine health Tech subs.
Speaker Change: City area of Highmark Health added get love duo enterprise to their existing get lab ultimate deployment multiple strategic objectives drove this decision. This includes enhanced developer productivity and a comprehensive enterprise wide AI solution that strengthens both code quality and security while simultaneously.
Speaker Change: <unk> generative AI benefits beyond developers to their broader technical teams.
Speaker Change: Ultimate now represents 52% of total ear are with eight of our 10 largest deals in the quarter purchasing ultimate. We're also seeing ultimate continue to increase as a percentage of total new customer lands. This quarter's new ultimate customers include ethic code and techno Silda premise health and S.
Speaker Change: G. K, we also had significant expansions at American family Mutual insurance company and the F. B I in Q1, our leading AI powered market intelligence and search platform chose get lab in a competitive evaluation that included getting their goal is to unify their growing developed.
Speaker Change: The team under a single solution to manage what has become a very complex environment. In addition to get lab ultimate they chose duo enterprise to power AI development capabilities and streamline workflows. These large scale adoption validate our comprehensive platform strategy and demonstrate growing market.
Speaker Change: Recognition of the value delivered Baidu enterprise.
Speaker Change: Turning to dedicated or single tenant SaaS solution, we continue to see broad adoption across industries and I'm pleased to announce that we achieved fed ramp moderate authorization. We expect this will create a nice tailwind in our public sector business with dedicated for government. The rapid adoption we're seeing.
Speaker Change: Validates our strategic investment in providing enterprise grade isolation with cloud native convenience, particularly among security conscious sectors, where compliance requirements traditionally slowed digital transformation efforts.
Speaker Change: In Q1, German based for via a hell of a one of the world's oldest automotive suppliers purchase get lab dedicated and duo enterprise dedicated will enable them to streamline their highly complex environment and reduce R&D overhead costs. Additionally, ignite by four via Hello to the organization.
Speaker Change: <unk> software factory shared with us that get lab duos intelligent code suggestions have become a daily asset for their developers combined with the chat feature duo allows for immediate feedback and iteration, resulting in faster development cycles and are more secure code base. According to ignite get lab.
Speaker Change: <unk> is a seamless and powerful addition to their workflows also in Q1 Natwest expanded their investment with us since Natwest became a dedicated customer in 2022, we've partnered closely with them to drive results that include 20% improvements in deployment frequency over the last 12 months, which has increased the pace.
Speaker Change: Of outcomes to colleagues and customers utilizing AI cogeneration and governance simplification based on the success. They have seen over the past several years Natwest increased their get lab footprint to 17000 users on dedicated and 6000 duo enterprise seats one.
Speaker Change: One of the things that distinguishes get lab is our vibrant co creation ecosystem with April setting an all time record for customer contributions to our platform. This represents customer driven innovation with industry leaders like tallies Scania and Siemens recent submissions include package registry capability.
Speaker Change: These and expanded logging functionality for our AI gateway. This collaborative model delivers real world value across multiple dimensions. It accelerates our feature velocity insurers innovations match enterprise requirements and fosters deeper partnerships with our customers I believe our mission to.
Speaker Change: Help customers deliver secure software faster is of critical importance to every business in the world and our technology holds transformational power, we aspire to be the world's best AI Native Dev ops platform unlocking step function productivity improvements by redefining the software engineer.
Speaker Change: Experience through human and agent collaboration.
Speaker Change: I shared this new vision for get lab with our team members a few weeks ago and I will introduce it along with the innovation. We are building today and the roadmap ahead at our get lab 18 launch event later this month and with that I'll turn it over to Brian. Thank you Bill and thanks again to everyone for joining us today I am pleased with our team's focus on.
Speaker Change: Execution in the first quarter, which resulted in 27% revenue growth significant year over year operating margin expansion and record adjusted free cash flow. These results highlight the effectiveness of our intelligent deaths hiccups platform and demonstrates our ability to generate sustainable growth, while enhancing profitability. We believe all of this positions us for long term success.
Speaker Change: Even amid evolving market conditions, turning to the numbers first quarter revenue reached $214 $5 million, an increase of 27% from Q1 of the prior year. We now have 10104 customers with <unk> of at least 5000 hours, which contributed over 95% of total <unk> in Q1, our larger customer.
Speaker Change: <unk> of $100000, plus an AR increased 26% year over year and reached 1288, we have a diversified customer base, both by industry and geography, and no single customer accounts for more than 2% of a R. On the expansion front. We ended the quarter with a dollar based net retention rate or DB and our or of 112.
Speaker Change: 2% Q1, DB and R. R was driven by a combination of seat expansion at approximately 80% increased customer yield at approximately 5% and tier upgrades at approximately 15% Q1 seat growth was driven in part by strength in ultimate and get lab do as customers started on their AI journey and continue to expand it.
Speaker Change: We also continue to see a tailwind on mix of seats from the large deal we signed in Q4, which will continue through Q3 of this year as we have mentioned, we expect these ratios to fluctuate quarter to quarter based on the composition of the underlying renewable portfolio total RP over 40% year over year to $955 $1 million while.
Speaker Change: CRT over 34% year over year to $584 $8 million, we encourage investors to look at these numbers over a multi quarter period non-GAAP gross margin was 90% 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 the strength and get lab dedicated SaaS.
Speaker Change: 30% of total revenue and grew 35% year over year. Once again, we saw a significant increase in operating leverage Q1, non-GAAP operating income was $26 $1 million compared to a loss of $3 $8 million in Q1 of last year. As a reminder, we hosted summit a global gathering of our team in Q1, FY 'twenty, five which was a nonrecurring.
Speaker Change: A $15 million non-GAAP operating margin was 12, 2% compared to negative two 3% in Q1 of last year, an increase of approximately 1400 basis points year over year with a very strong business model with minimal fixed expenses given our remote work environment. This gives us the flexibility to continue to invest in the business and expand operating margins.
Speaker Change: Now turning to guidance our guidance philosophy has not changed and assumes that the macroeconomic environment. We've been operating in since April continues for the second quarter of FY 'twenty, We expect total revenue of $226 million to $227 million, representing a growth rate of approximately 24% year over year, we expect a non-GAAP operating income of <unk>.
Speaker Change: 23 million to $24 million and we expect a non-GAAP net income per share of <unk> 16 to 17 cents, assuming 171 million weighted average diluted shares outstanding for the full year FY 'twenty six we expect total revenue of 936 million to $942 million, representing a growth rate of approximately 20.
Speaker Change: 4% year over year, we expect a non-GAAP operating income of $117 million to a $121 million and we expect a non-GAAP net income per share of <unk> 74 to 75, assuming 172 million weighted average diluted shares outstanding the fundamentals of our business are very strong we generated $104 1 million and adjusted free cash.
Speaker Change: Cash flow in Q1, a record adjusted free cash flow margin of 49% free cash flow is driven by ongoing improvements in operating leverage in Q4 to Q1 seasonality in collections. We ended the quarter with $1 1 billion in cash and investments, providing us with significant flexibility to navigate market fluctuations, while continuing to invest in both our.
Speaker Change: AI capabilities platform enhancements and go to market organization.
Speaker Change: Separately I'd like to provide an update on <unk>, our Chinese joint venture in Q1, FY 'twenty six non-GAAP expenses related to <unk> were $3 $1 million compared to $3 million in Q1 of last year. Our goal remains to be consolidate jehu. However, we cannot predict the likelihood or timing when that may potentially for thus for FY 'twenty six modeling purposes.
Speaker Change: We forecast approximately $18 million of expenses related to G. He compared with $13 million from last year in closing I am pleased with our team's focus on execution in Q1, which resulted in another strong quarter of topline growth, increasing operating leverage and growing momentum and AI adoption. We also continued to meaningfully enhance our platform are very.
Kelsey Turcotte: Cited about all the new secure scalable AI needed capabilities, we're delivering get lab 18, and what that can mean for customers. We invite you to join our get lab 18 launch event on June 24 to learn more about the red shirt. Please visit our Investor Relations website. Thank you for joining today with that I'll now turn it over to Kelsey, who will moderate the Q&A.
Speaker Change: Thank you very much Brian at this time, if you would like to ask a question. Please use the raise hand function located on your zoom toolbar or if you have joined via phone you May Press Star nine we request that you limit yourself to one question with that well take our first question from Rob Owens at Piper Sandler Iraq go ahead.
Speaker Change: Great. Thank you very much hope that you guys can hear me on the other end and I will stick to one question and just to try and stay on her good sign.
Speaker Change: Bill and a high level, obviously, a lot of noise around what AI is doing with coding, especially with code suggestion and code completion and I think he did a good job in your prepared remarks kind of laying out the value that you add beyond that right in terms of packaging testing see ICD. So.
Speaker Change: All of US understand just where customer conversations are strategically right now with things just moving so fast in this space.
Speaker Change: For engineers and every single customer conversation that I have.
Speaker Change: At one point or another lands on AI I think our customers see that and every team leader is looking for ways to use AI to make their teams more productive accelerate innovation improve quality.
Speaker Change: Yeah everything.
Speaker Change: It is evolving very rapidly every day it seems like there's new tools, new techniques, new innovation and were right there along with that and.
Speaker Change: In fact, this quarter I had a chance to really dive in with our product and engineering organization.
Speaker Change: Understand more deeply what we're building as you know my second quarter here as CEO.
Speaker Change: And get really excited about the level of focus and the accelerated in innovation that I'm seeing coming out of the engineering team with our new vision. So I think it's a time, where there's going to be a lot of fluctuation for example, when I go talk to customers right now, it's very common that they'll say hey.
Speaker Change: Amusing duo and testing it side by side.
Speaker Change: Other competitive tools, whether that's co pilot or cursor or Windsor for others are there truly open to experimenting with multiple tools in fact buying multiple tools to compare them side by side I think it makes sure that giving their engineers the best.
Speaker Change: I think that's likely to continue and you know the great thing about that is are all of those tools that are really focusing on code creation are creating more code and more code creators that end up needing get lab for all the things that we do you know after the Coe gets created all the testing and all the validation of the secure.
Speaker Change: Verity packaging publishing and the rest so we believe long term.
Speaker Change: This is an exciting time for engineers and it only.
Speaker Change: <unk> helps get lab further our mission as well.
Speaker Change: Great. Thanks for the question next question goes to Koji Aikido Banc of America could you go ahead.
Koji Aikido: Yeah, Hey, guys. Thanks, so much for taking the questions.
Speaker Change: I wanted to ask maybe a question on the growth and so when I look at the business and the financial metrics, it's almost like a tale of two growth stories here. So when we look at the fiscal Q1 beat probably wanted the skinniest piece that we've seen since the IPO and you're keeping the revenue guide for the full year.
Speaker Change: But when I dig a little bit deeper RP O C. R. P O billings, all look pretty good and so help us understand the puts and takes there and maybe any commentary on deal linearity in the quarter and if you could may demand versus April demand. Thank you.
Brian Robbins: Thanks Koji this is Brian.
Brian Robbins: Quarter, there wasn't any surprises and I'm happy with how the team executed in the quarter. There were two things that we observed in the quarter. One is the mix favored more SaaS.
Speaker Change: And then to the linearity was back end weighted in the quarter.
Speaker Change: As a reminder, also once you had a few less days a few less days and once you have last year.
Speaker Change: Theres been no change in guidance philosophy, and we're assuming the same macro economic conditions that we've seen this year in the guidance.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Alright. Thanks <unk> next question goes to send it sang of Morgan Stanley's <unk> go ahead.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Good thanks.
Speaker Change: Congratulations on the improving profit back really nice to see.
Speaker Change: I guess my question I guess for Brian.
Speaker Change: We look at the sequential customer adds this quarter.
Speaker Change: When we look at like net new ads on both 100 gig side and on the customers about five K it looks like they decelerated a little bit and I was wondering if theres any seem there with some of the pricing changes you announced this quarter with respect to new customer signing up for premium and just any sort of color behind the net new customer additions this quarter I appreciate it. Thanks.
Speaker Change: Yeah.
Speaker Change: Yeah, absolutely Great question, let me break the answer down and hitting a few things one let me hit on first orders and then also break down the composition of the numbers and less than greater than five day.
Speaker Change: So first one of the company's three objectives that we announced in the last earnings call was to increase the volume of new first orders on a logo on a logo basis, we performed better this quarter than last year for enterprise and mid market segment, and we also performed a lot better on dollars added within the quarter.
Speaker Change: So that initiatives that we that we put into place is starting to pay dividends when.
Speaker Change: When you look at the components of new customer adds greater than five day. There is a number of different things that go into that versus new customers second is lost customers and churn third as customers who expanded into the five day bucket and then fourth is customers who contracted into the five K bucket when I look at the breakdown of all of those.
Speaker Change: The biggest change that we had with customers expanding into the five day bucket and customers contracting into the <unk> bucket and that basically is comprised of 160 logos different year over year and so at the low end of the market SMB and low.
Speaker Change: And in mid market is where we're seeing some price sensitivity, but it's not impacting the financials is impacting the new customer adds.
Speaker Change: As a reminder, we don't compensate on new customer adds we compensate on bookings within the quarter. So I hope. That's helpful. You know the new customer adds this quarter grades and five K didn't concern me.
Speaker Change: Great. Thanks, Brian next question goes to cash Rangan of Goldman Sachs cash go ahead.
Speaker Change: Oh yeah.
Cash Rangan: My apologies I'm on a train here, but.
Speaker Change: But can you tell us.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Hey, Kash.
Speaker Change: But the the training we're actually having some trouble hearing you.
Speaker Change: Okay.
Speaker Change: If you wanted to drop for a minute and then we'll put you back in the queue.
Speaker Change: Okay.
Speaker Change: Okay. So we'll take the next question from <unk>.
Speaker Change: Derrick Wood at Cowen Derek go ahead.
Derrick Wood: Great. Thanks, guys, I guess, either for bill or Brian.
Speaker Change: We got investor questions around because the adoption of AI show strong inside of developer use cases, and there's just such good proven productivity gains is there a reason to be worried about job growth in the software developer market.
Speaker Change: How are you guys seeing seat growth trend during renewals and what's your kind of broader view on how AI impacts demand for developers in the enterprise looking out over the next couple of years.
Speaker Change: Yeah, Thanks, Derik I'll talk a little bit about how I see the outlook and Brian feel free to add any commentary on let's see trends in the quarter.
Speaker Change: I know theres, a raging debate about this and I think a lot of it is born out of anxiety about the future by engineers frankly, as they see how powerful AI can be it helping to do software engineering.
Speaker Change: Frankly, ive seen this trend throughout my career building developer tools.
Speaker Change: And around this space for about 30 years every time, we create advances in productivity.
Speaker Change: And higher levels of abstraction, where no prize engineering skills become maybe less required.
Speaker Change: And sometimes no longer required the same kind of phenomenon occurs and I'd say this means definitely.
Speaker Change: Stronger than other times because of the power of AI, but every time I have also seen that higher level of distraction and more productivity actually yield.
Speaker Change: More opportunity and I believe the same is true here with AI I see the number of engineers continuing.
Speaker Change: Two.
Speaker Change: Be sustained and even grow I think the number of people who are able to create code is only going to increase.
Speaker Change: With some of the power of AI and ability to create code without having necessarily the deep technical skills and at times required.
Speaker Change: And then I also believe the volumes of code will also increase.
Speaker Change: And both of those are really important for good lab as you know.
Speaker Change: You know we price today based on users, but also a large part of our business is taking that code in helping users manage it throughout the software lifecycle and so more code and more users means good business forgive them, Brian you want to talk about any of that.
Speaker Change: I'll just comment a little bit on seats and develop our hiring in general and so yeah from a seat perspective, and our dollar based net retention rate, 80% of the contribution came from seats and that's really a combination of a couple of different things one the large deal that we had in Q.
Speaker Change: Sorry, <unk>, but also the additional seats that were selling for duo and the add on Skus that we have and so happy with the number of additional seats that we're selling into our customer base from a developer hiring perspective, we arent correlated directly with the market.
Speaker Change: It's a very large Tam, we're barely penetrated and there's a big market in front of us.
Speaker Change: With that said some of the recent reports that I've read is developer hiring has turned positive and we've seen an uptick over the last quarter or two.
Speaker Change: Great. Thanks for the question.
Speaker Change: I appreciate it our next question goes to pendulum Guara at J P. Morgan Pendulum go ahead.
Speaker Change: Yeah.
Pendulum Guara: Can you hear me.
Speaker Change: Okay.
Speaker Change: Great.
Speaker Change: Bill It seems like the bottleneck has kind of shifted right.
Speaker Change: From kind of AI, driven cogeneration and get lab is obviously poised.
Speaker Change: To break that bottleneck for a lot of your customers as we infuse AI.
Speaker Change: But how do you make sure that get lab extracts the value that is aligned with that unlock that customers might enjoy.
Speaker Change: Beyond coding.
Speaker Change: Since youre pricing is kind of more on a seat basis right. How are you thinking about that.
Speaker Change: Yeah pendulum really good question.
Speaker Change: And that's something we've been studying why intensely.
Speaker Change: For some time and especially in my last quarter as I had a chance to dive in with product and engineering and help really.
Speaker Change: We refine our vision with greater aspiration and focus.
Speaker Change: In the coming quarters, and as I mentioned in the pre recorded remarks, I'm really excited to talk more about that vision in our June 24th get lab 18 launch event.
Speaker Change: Let me maybe share.
Speaker Change: Five ways that we're focusing on creating value and differentiation with our AI approach.
Speaker Change: You know get lab today is really known as a place where engineers collaborate.
Speaker Change: And teams come together to build software across the software lifecycle and as we think about AI, we think about building around that core strength unlock a really unique collaborative experience with many to many interactions between humans and agents.
Speaker Change: We also are building on our reputation for open source and co creation.
Speaker Change: And so we're pursuing a strategy that allows for that to extend into agenda AI as well.
Speaker Change: And we're going to provide pervasive extensibility and flexibility with an open community approach for catalog and catalog for agent discovery and development.
Speaker Change: Third we're also building on our reputation for security and privacy, we already provide cloud neutrality LLM neutrality and the support for self hosted models in our agenda approach, which will.
Speaker Change: Provide agents that span the software lifecycle continues to support the best in class standards for security and privacy.
Speaker Change: Four we're also in a unique position given our single database platform approach.
Speaker Change: And we're taking advantage of that by building, what we call a knowledge graph.
Speaker Change: That stitches together all of the context for a given task whether the human is executing that task or an agent's executing the task.
Speaker Change: To give really high quality context that allows for better outcomes.
Speaker Change: So for example, one of the things that we're looking at the teams actually implementing right now is a deep research feature that allows an agent to crawl the entire hierarchy of all of the context that we understand about a given project all of the issues all of the work items all of the code obviously that people were.
Speaker Change: On that code the security scans the test cases everything related.
Speaker Change: So they can create a summary, and help and engineer engineering leader understand exactly where the state of that project is that something that really is not possible without a platform built a way to get lab is.
Speaker Change: Finally, the fifth thing that we're really looking deeply at is integrating software lifecycle agents.
Speaker Change: Natively into get lab, so that every premium and ultimate customer can automatically start collaborating with then friction free of box. That's one of the reasons that we introduced duo chat and duo code suggestions into premium and ultimate loss this last quarter.
Speaker Change: So that we can lay the groundwork for that kind of human to agent collaboration in the quarters to come.
Bill: Great. Thanks Bill.
Speaker Change: Next question goes to Nick.
Speaker Change: Bank Nick go ahead.
Speaker Change: Awesome. Thank you.
Speaker Change: Bill you mentioned seeing a higher mix of customers land and ultimate can you just give us a sense for how much that has changed over the last couple of quarters.
Speaker Change: Why do we should expect expansion rates that come up.
Speaker Change: Out of that just given youre seeing kind of more customers land in the ultimate care and then the follow up is just any implications on.
Speaker Change: How we should consider that the new pricing and packaging model with duo enterprise being available to premium customers and whether you expect that to impact the cadence of customer planning and ultimate thanks.
Speaker Change: Yeah, well first part of your question around more customers choosing ultimate it's awesome to see obviously.
Speaker Change: When a customer adopts ultimate theyre getting the very best and capabilities from get lag from the start and we love seeing that and I think it speaks to the strength of our security offerings as part of the ultimate and the real market trend to shift left and really focus on security as part of them.
Speaker Change: The Dev ops lifecycle, and so happy to see that the reality is most customers still do start with premium and premium and ultimate of kind of the ultimate one two punch right premium is a great SKU low cost affordable most capable product I think in the market at its price point.
Speaker Change: And a very attractive for customers to start with and that is where the majority of customers do start today and then they.
Speaker Change: They mature and scale, both the number of engineers and teams using good lab as well as the level of capability they buy into with that ultimate upgrade providing a greater expansion path for us.
Speaker Change: I don't see that changing honestly, it's great to see more customers landing in ultimate but.
Speaker Change: I believe that one to land and expand strategy. We have is working and we will continue with regard to the second part of your question around the shift to make enterprise available with a premium or to premium customers that some.
Speaker Change: Really a change that we've done for a couple of reasons.
Speaker Change: You know first.
Speaker Change: We do see demand from premium customers for that enterprise product.
Speaker Change: There are a number of capabilities there that make a lot of sense for them.
Speaker Change: Including self hosted models as well as our AI capabilities across.
Speaker Change: The software lifecycle.
Speaker Change: They don't have the security capabilities or as part of ultimate but majority of the features that we havent do enterprise do apply to those premium customers and we're happy to unlock that for them. As we studied that change. We also saw that while many customers Dubai, both ultimate and enterprise together the duo.
Speaker Change: Enterprise SKU was not a driver of the upgraded to ultimate and so therefore, I'm not a significant risk in terms of expanding the service of addressable market by more flexible packaging.
Speaker Change: Great great. Thank you.
Speaker Change: Thanks, Nick next question guests to Gray Powell of BTG granite go ahead.
Gray Powell: Okay, great. Thank you can you hear me okay.
Speaker Change: Okay.
Speaker Change: Awesome Oh.
Speaker Change: Look I know like a lot of the questions were focus on top line momentum, but I just kind of got to ask you posted a huge free cash flow number in Q1, what was there anything that was onetime in nature that helped the result, and then if I just look at past seasonality Q4 actually tends to be the biggest quarter for free cash flow. So that's key.
Speaker Change: Correct and it seems like you all could potentially pose 20% plus margins this year.
Speaker Change: Again on the free cash flow side. So I guess is there anything you'd say there would or anything else you'd highlight to talk me down because.
Speaker Change: It feels like something that broader market seems to be nothing.
Speaker Change: Yes. Thanks for the question Q4 is seasonally our strongest quarter and so we collect that cash in Q1.
Speaker Change: And we generated over $100 million in free cash flow, so happy with that.
Speaker Change: But theres nothing anomalistic within the quarter that led to the higher free cash flow collections that resists normal business operations.
Speaker Change: Okay, great. Thank you fair enough.
Speaker Change: Thanks, Greg.
Speaker Change: Next question goes to Mike see cause of that Needham Mike go ahead.
Mike: Hey, Thanks for taking the questions guys I just wanted to come back to the earliest comments it might've been in response to Rob over at Piper, but Bill when you were talking about the AI experimentation that's going on out there you'd rather both paid people are.
Mike: Testing multiple vendors, whether it's get live with dual versus cursor Windsor.
Mike: And I just wanted to see how how is it you guys gained confidence that you're you're winning in this market right.
Mike: Tiptoed around the new logo growth this quarter.
Mike: The skinny B I just wanted to see like.
Mike: With the strength of the offering here how do you ensure you.
Mike: Timing of both some of the marketing pundits out there are you sure that you're continuing to gain.
Mike: Yeah.
Mike: We actually engage with those customers who are testing multiple vendors you know the typical bake off.
Mike: And.
Mike: Frankly, we see a good lab duo win out against other leading competitors in some of our largest customers. So I don't have a lot of.
Mike: Concern about our ability to compete in the market I think there's lots of opportunity still ahead of us as I said earlier I think we're building on a really strong strategy and some clear differentiation or get lab do a workflow products. That's been in private beta has been getting really strong feedback as well and we're on track to.
Mike: Make that public data available later this summer is as well as G. A a to come.
Mike: Later in the winter so I don't know.
Mike: We strengthen our competitive position and put us in a really great product and it really gets a good spot with customers.
Mike: Great. Thank you.
Speaker Change: Thanks, Mike next question goes to Jonathan Cantor Fitzgerald, Jonathan go ahead.
Jonathan: Yeah. Thank you.
Speaker Change: Can you just talk about the enhancements with get lobby teens, just specifically what are the features that you see differentiating and demos and then just as a quick follow up what are the factors that played into the decision not to charge for those features especially in light of the comment.
Speaker Change: You've made today.
Speaker Change: The innovation, you're driving around AI, the high quality contacts improve outcomes.
Speaker Change: How do you expect to capture that value.
Speaker Change: Yeah. It's a good question you know I have heard some questions about our.
Speaker Change: Unlock of the duo chat and do a code suggestions as part of our premium and ultimate and why we're doing that it's really important strategy point to understand.
Speaker Change: The reality is every engineer is looking for AI tools today to help them with their job.
Speaker Change: We Wanna get lab premium or ultimate both to be an obvious.
Speaker Change: No friction.
Speaker Change: No barrier approach to AI, and so by including it we eliminate all of the friction for adoption.
Speaker Change: Now we do have usage limits on it so you can't use it unlimited.
Speaker Change: Developers can use it they can get started they can get a really good feel for its usability and its capability.
Speaker Change: And then we offer a very smooth ramp up to pro and enterprise now for all customers. So we think it's a natural part of our ramp to value that's going to just lower the barrier to adoption and expand the market that's available to the full AI capabilities from good lab.
Speaker Change:
Speaker Change: Yes with regard to your first the first part of your question around AI around a broader capabilities of the platform with the get lot 18 lunch I shared a few of those you know.
Speaker Change: In the prepared remarks, but I'd really just encourage everyone to tune into the June 24th event, we've got some incredible demos.
Speaker Change: In that event as well as we talk through the big releases.
Speaker Change: As I looked across the innovation you know there's just some amazing things just in the last year alone, we launched more than 100, new innovations and capabilities for our premium customers and even more than that for our ultimate customer so the.
Speaker Change: The volume of innovation is really.
Speaker Change: Our goal for core Dev ops in particular with 18, we are centralizing artifact management, that's been a very strong requests that I personally gotten from many customers who are using more legacy vendors for that.
Speaker Change: We're improving our world class the ICD pipelines for speed and security.
Speaker Change: And when it comes to security as well a lot of customers and as we've mentioned upgrading to ultimate for those tools they've been asking for better vulnerability dashboards improved detection accuracy reduction in false positives are fairly common for these security tools, who are on the side of conservatism.
Speaker Change: And we're delivering on those promises.
Speaker Change: And then finally with AI I mentioned, a bold new vision that we're sharing in some really incredible innovation.
Speaker Change: Including our agenda chats and the ability to do asynchronous work in many to many collaborations between humans and agents all of that to come in the days ahead building on the duo chat and do a code suggestions that we unlocked now for every customer. So hopefully that gives you a flavor Jonathan yes. Thank you.
Speaker Change: Okay. Our next question comes from Adam Tindle, Raymond James Adam Go ahead.
Adam Tindle: Okay. Thank you I just wanted to start from Q1 and the results versus buying them and I was kind of mentioned earlier, no skinny deed sort of no.
Speaker Change: Pardon me sneaking a call in a little while just the rationale for La you mentioned more days in Q1 I don't think you had mentioned that on the Q4 call. So I wonder if that was maybe part of the reason or what would be the rationale for starting that skinny or be and have you thought about guidance for Q2.
Speaker Change: What about your assuming the macro since April continues much as a fair assumption, but I just wonder you might reflect on how may in this early part of June happen similar or different from a problem because we've heard from a lot of bundling.
Speaker Change: I'm sort of bounce back I'm, just wondering what you might be seeing thank you.
Speaker Change: Yes, So let me let me first set on days, so going into the quarter. We knew how many days or was that would just as a reminder, that there were fewer days in the quarter. So that didn't really have much to do with guidance from a guidance perspective, there's been no change in guidance philosophy. The two things that happened in the quarter that I mentioned was.
Speaker Change: The mix favored SaaS now from a Rev. Rec self managed we recognize more upfront on size is 100% ratable and the linearity was a little bit more backend weighted.
Speaker Change: From a sort of an environment perspective, you it remains cautious.
Speaker Change: People are still buying we haven't really seen too much difference from a macroeconomic perspective.
Speaker Change: <unk> also hit a little bit on federal as well I know that's been out there a lot of them, we had a really great quarter and first quarter in federal.
Speaker Change: We over exceeded our expectations and we had good growth year over year and so the federal business continues to do well as well.
Speaker Change: Great. Thanks for the question next question goes to Steve kind of given Aquarius, Jim go ahead.
Speaker Change: Okay.
Speaker Change: Alright, great. Okay. Thanks Kelsey.
Speaker Change: Hi, good labs.
Speaker Change: Wanted to just dig in maybe a follow up on that last question a little bit more so Bryan in your comment about that.
Speaker Change: In the quarter, there was a bit more of a SaaS.
Speaker Change: The unusual and linearity was back end weighted.
Speaker Change: Was that a function of kind of little bit more of the macro and our execution related or both and and youre not the first company that has comment, especially in the Dev ops area that is seeing that that phenomenon. So some more color about why you.
Speaker Change: That was it.
Speaker Change: And then secondly.
Speaker Change: You know as Youre looking at the macro and you're seeing impacts like what what metrics are you all tracking internally.
Speaker Change: To understand the macro and and lastly in your in your Q2.
Speaker Change: We can make would you make any execution adjustments are tactical adjustments in your go to market.
Speaker Change: To try to try to improve that linearity. That's all I got thanks for taking the question.
Speaker Change: No that was a that was a tax question was.
Speaker Change: So.
Speaker Change: From a macro.
Speaker Change: They sit in trying to sit in all of our forecast calls that we have and you only on a couple of occasions has it come off that.
Speaker Change: Tariffs people were contemplating delay and it was really from the procurement department not actually the owner the buyer itself and so not sure if that was a negotiation tactic or something that that company was seriously contemplating.
Speaker Change: From a macro perspective, they get lab platform you ultimate has less than a six month payback and over 480% ROI in three years and so people are buying a platform to consolidate and save money and so we haven't really seen much overall from a macro perspective some of the metrics that we.
Speaker Change: Look at internally is all around the linearity within a quarter and so we have that tracked over last.
Speaker Change: Several years, we had a plan that we track to see how we're doing against that we look at pipeline creation wed look at pipeline movement.
Speaker Change: So for us within the quarter itself, yes about execution.
Speaker Change: Every quarter there.
Speaker Change: Deals that you think youre going to close in the door in the quarter and yeah. There is approvals that you need to get that may or may not happen.
Speaker Change: So that was a normal sort of in the quarter phenomenon not something specifically that we saw this quarter versus some of the previous quarter. So.
Speaker Change: As CFO I think you can always improve on execution and focusing on that and we're driving better execution across the entire organization, but there was nothing specific to call out within the quarter.
Speaker Change: Great great. Thank you.
Speaker Change: Our last question goes to Jason Ader, William Blair, Jason go ahead.
Speaker Change: Okay.
Jason Ader: Can you hear me okay.
Speaker Change: Can now alright awesome.
Speaker Change: Yeah.
Speaker Change: Bill, where where do you see the biggest risk of disruption to the current Davox Tor chain and obviously this will change has been in place for awhile.
Speaker Change: Guys play across the entire tool chain.
Speaker Change: But with the emergence of these AI coding assesses that are taking off like wildfire.
Speaker Change: Especially some of the startup players.
Speaker Change: Where where does that how does that ripple.
Speaker Change: Effect.
Speaker Change: Impact other parts of the tool chain I know you've kind of said earlier.
Speaker Change: You thought it was good for you, but I imagine there are some parts of the tool chain that could be more impacted than others. And then just secondly would it make sense for you guys to partner with a cursor of wind surf.
Speaker Change: Because.
Speaker Change: You know maybe that actually could be a channel for you to bring in new customers.
Speaker Change: Yeah.
Speaker Change: Hey, Great question, you know I know Theres a lot of market excitement about those tools and you know frankly, we're really.
Speaker Change: We are excited about them as well.
Speaker Change: I know, it's also sometimes confusing about where one tool begins in another tool ends.
Speaker Change: But the way I think about this is.
Speaker Change: Cursor and Windsor since you mentioned those two there.
Speaker Change: They're helping engineers create applications and new code in particular.
Speaker Change: And get lab actually picks up where those code assistance leave off all of the code that they generate.
Speaker Change: Does need all of the things that get lab does so well testing securing analyzing packaging building deploying right and so.
Speaker Change: They already actually work great with good lab cursor works great Winter if it works great and they already are driving code integrate lab and so that's why a lot of our customers do test those tools.
Speaker Change: In addition to do them.
Speaker Change: And we.
Speaker Change: We do offer a co creation capabilities as well as I mentioned you know the.
Speaker Change: The duo our code suggestions capability. That's now part of every premium and ultimate license has the same ability as a cursor or Windsor in multiple ice's development tools to create code and create applications and our capability. There is only going to get stronger over time.
Speaker Change: We really believe in interoperability and being an open platform and so we embraced those tools. We're excited by the innovation or brand developers and we don't see them.
Speaker Change: Challenging the domain the parts of the Dev ops lifecycle that we are world class at today.
Speaker Change: So.
Speaker Change: I guess I'll just finalize this by saying we also.
Speaker Change: As we think about our AI strategy, we're just thinking much broader from the start it's a multi pronged strategy that looks across the software lifecycle and.
Speaker Change: We're really excited about it.
Speaker Change: Approach we've.
Speaker Change: Brought to the market already with a gentex AI with Amazon <unk> and our partnership there as well as the duo workflow products and the beta that's now playing out with GE to come so.
Speaker Change: As I think about the.
Speaker Change: The broader picture of work were doing versus what the startups are doing I think they're really complementary in and really exciting for customers down the road.
Speaker Change: If that answers your question. Thank you.
Speaker Change: Great. Thank you very much to everyone who has participated this concludes our Q1 FY 'twenty six earnings presentation.
Speaker Change: Have a great day, and if you have any questions just follow up with the IR team take care Bye bye.