GitLab : GTLB Q1 FY25 Earnings Transcript

Corrected Transcript

03-Jun-2024

Gitlab, Inc. (GTLB)

Q1 2025 Earnings Call

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Gitlab, Inc. (GTLB)	Corrected Transcript
Q1 2025 Earnings Call	03-Jun-2024

CORPORATE PARTICIPANTS

Kelsey Turcotte	Brian G. Robins
Vice President-Investor Relations, GitLab, Inc.	Chief Financial Officer, Gitlab, Inc.
Sytse Sid Sijbrandij
Co-Founder, Chairman & Chief Executive Officer, Gitlab, Inc.

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OTHER PARTICIPANTS

Matthew Hedberg	Koji Ikeda
Analyst, RBC Capital Markets LLC	Analyst, BofA Securities, Inc.
Ryan MacWilliams	Michael Turrin
Analyst, Barclays Capital, Inc.	Analyst, Wells Fargo Securities LLC
Jason Ader	Pinjalim Bora
Analyst, William Blair & Co. LLC	Analyst, JPMorgan Securities LLC
Nick Altmann	Adam Tindle
Analyst, Scotiabank	Analyst, Raymond James & Associates, Inc.
Karl E. Keirstead	Derrick Wood
Analyst, UBS Securities LLC	Analyst, TD Cowen
Joel P. Fishbein	Jason Celino
Analyst, Truist Securities, Inc.	Analyst, KeyBanc Capital Markets, Inc.
Kash Rangan	Mike Cikos
Analyst, Goldman Sachs & Co. LLC	Analyst, Needham & Co. LLC
Ethan Weeks
Analyst, Piper Sandler & Co.

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Gitlab, Inc. (GTLB)	Corrected Transcript
Q1 2025 Earnings Call	03-Jun-2024

MANAGEMENT DISCUSSION SECTION

Operator: Greetings and welcome to the GitLab First Quarter Fiscal Year 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Kelsey Turcotte, Vice President of Investor Relations. Thank you, Kelsey. You may begin.

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Kelsey Turcotte

Vice President-Investor Relations, GitLab, Inc.

Thank you for joining us today for GitLab's first quarter fiscal year 2025 financial results conference call. GitLab's Co-Founder and CEO, Sid Sijbrandij, and GitLab's Chief Financial Officer, Brian Robins, will provide commentary on the quarter and guidance for the fiscal year.

Before we begin, I'll cover the Safe Harbor statement. I would like to direct you to the cautionary statement regarding forward-looking statements on page 2 of our presentation and in our earnings release issued earlier today, which are both available under the Investor Relations section of our website. The presentation and earnings release included discussion of certain risks, uncertainties, assumptions and other factors that could cause our results to differ from those expressed in any forward-looking statements within the meaning of the Private Securities Litigation Reform Act. As is customary, the content of today's call and presentation will be governed by this language.

In addition, during today's call, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures exclude certain unusual or non-recurring items that management believes impact comparability of the periods referenced. Please refer to our earnings release and presentation materials for additional information regarding these non-GAAP financial measures and the reconciliations to the most directly comparable GAAP measure.

I will now turn the call over to GitLab's Co-Founder and Chief Executive Officer, Sid Sijbrandij, Sid?

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Sytse Sid Sijbrandij

Co-Founder, Chairman & Chief Executive Officer, Gitlab, Inc.

Thank you for joining us today. We had a strong first quarter with 33% revenue growth and significant year-over- year margin expansion. The value customers derived from GitLab comes through not only in our top line growth but also in our best-in-classdollar-based net retention rate of 129%. We continue to differentiate our platform with security, compliance and AI throughout the software development lifecycle, and we also continue expanding our total addressable market with new use cases and personas. AI is quickly transforming the way software is delivered. With GitLab, our AI extends well beyond coding and development. Because we have the broadest platform, we uniquely enable our customers to also leverage AI for planning, security and operations.

Both new customers like financial services company [ph] ANB (03:14) and existing customers like NASA, Artemis, Carrefour, Indeed and the FBI understand the value of a platform that enables software development across the end-to-end lifecycle. It improves productivity and security without sacrificing speed. We believe the benefits and improved quality delivered by our end-to-end approach are unmatched in the market. A great example of this is a

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Gitlab, Inc. (GTLB)	Corrected Transcript
Q1 2025 Earnings Call	03-Jun-2024

leading financial services company that decreased pipeline outages by 90% since deploying GitLab, and that has translated in hundreds of thousands of dollars in savings every year. They are also leveraging our AI offering, GitLab Duo Pro, and GitLab Duo Pro has already delivered increases in productivity for this customer.

We're seeing GitLab Duo adoption by customers who are excited about the benefits it's bringing to their teams. For example, a leading provider for the global communications industry purchased GitLab Duo in Q1 to help engineering teams code faster and more securely.

We continue to add new capabilities to GitLab Duo. In Q1, we released GitLab Duo Chat into general availability. Chat is a conversational AI interface for GitLab Duo that helps customers quickly understand project status, get help with planning and configuration, receive explanations of suggested code and generate tests, all without complex switching. I'm excited about Chat because it transforms software development by seamlessly integrating AI to a single, easy-to-use natural language chat interface. This optimizes DevSecOps workflows and boosts productivity. We also introduced new privacy controls that enable organizations to manage sensitive data at the project, group and subgroup levels. This helps reduce the security and compliance risks of AI adoption.

Our next AI add-on is GitLab Duo Enterprise. GitLab Duo Enterprise combines the developer-focused AI features of GitLab Duo Pro with enterprise-focused features to help teams collaborate faster together. Our customers are particularly excited about the security tools coming as part of GitLab Duo Enterprise, such as root cause analysis, along with vulnerability explanation and resolution. In the future, GitLab Duo Enterprise will also allow customers to deploy AI models in air-gapped environments. This feature will further differentiate GitLab Duo in the market.

Now, I'd like to turn to security and compliance. These capabilities are core to our platform and continue to be big business drivers for us. Customers turn to GitLab because they need to integrate security earlier in the development process. For example, a major US technology company and government contractor removed seven different point solutions when they consolidated on the GitLab platform. Now, they are doing security scans 13 times faster and are seeing 90% savings in tool chain administration.

In Q1, we closed a six-figure deal with a global financial services company, a new logo for GitLab. They were looking to improve security in the DevSecOps lifecycle and GitLab was the only option that would let them bring software composition analysis, SaaS and DaaS into a single platform. With our advanced security capabilities, the company can shift security left and address vulnerability sooner. At the same time, they are consolidating their toolchain, reducing their total cost of ownership and increasing visibility across the software supply chain. GitLab's integrated security is driving upgrades to our ultimate tier.

In Q1, we continue to build on our security capabilities with our acquisition of Oxeye. We acquired Oxeye for their robust SaaS technology. This will help streamline vulnerability management and remediation for GitLab customers. We also acquired the intellectual property Rezilion, which will enrich our vulnerability risk data and auto remediation capabilities, as well as runtime vulnerability reachability.

Together, these acquisitions are intended to extend GitLab's detection and remediation capabilities from code through runtime, and this will help organizations resolve vulnerabilities more efficiently and quickly. We will be integrating Oxeye and Rezilion's technologies into GitLab over the next several quarters.

Turning to compliance, one of our big differentiators here is GitLab Dedicated, our single tenant SaaS solution, which provides customers with data isolation and residency. One of the largest public service departments in Europe adopted GitLab Dedicated in Q1 to help them break down silos and build a culture of collaboration across organization's hybrid landscape while maintaining strict compliance requirements.

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Gitlab, Inc. (GTLB)	Corrected Transcript
Q1 2025 Earnings Call	03-Jun-2024

Now, I'd like to discuss our go-to-market strategy. As we scale past $500 million and move to $1 billion in revenue, our customer profile is evolving and so are we. Customers recognize this is more than just a vendor. We're a partner. We recently won Ally Financial's Technology Operational Excellence Award for driving simplified and resilient solutions for Ally and its customers. This follows from last year, when we won Ally's Velocity with Quality Award for helping Ally Financial deliver value to customers quickly.

In addition, our partnerships with Google Cloud and AWS accelerate cloud migration for them and we benefit from wider distribution. In April, GitLab received the 2024 Google Cloud Technology Partner of the Year Award in the Application Development category for the fourth consecutive year. At Google Cloud Next, we announced our Google Console integration. This helps our customers improve developer experience and decrease context switching across GitLab and Google Cloud.

We're also excited about our integration with Amazon Q. The integration gives our joint AWS and GitLab customers a unified interface, whether they are working in AWS or in GitLab. AWS customers using GitLab can opt to have GitLab Duo route tasks to Q and vice versa.

To help us penetrate the estimated $40 billion market opportunity ahead of us, we are investing in a number of initiatives. First, we are adding more global field CTOs to help amplify our message and articulate our value to the executive suite. Second, we are bringing in more solution architects and also expanding our services offering to ensure post-sale success. Third, we are increasing our global theater presence to more closely meet the needs of specific regions and markets. And fourth, we are sharpening our focus on industries with complex security and compliance requirements such as financial services.

During the quarter, we closed the second-largest deal in GitLab history, with a US-based global investment banking firm. Given their success with our core capabilities, they upgraded to GitLab Ultimate for our security and compliance capabilities and significantly expanded seats.

Finally, we're looking forward to next month's anticipated GitLab 17 product launch event. We invite you to join us on June 27. Registration information can be found on the GitLab website. Many innovations are planned for GitLab 17, including enhanced security scanning and governance controls, and the general availability of our CI/CD catalog. Then we'll be taking GitLab 17 on the road as part of our DevSecOps World Tour event focused on business leaders and practitioners.

On a personal note, during a recent routine scan, I learned that I need to again undergo treatment for osteosarcoma, the same form of cancer I was treated for in 2023. My doctor believes that this finding is part of the original lesion and that as such the disease has not metastasized. I'm working on making a full recovery, as the last time, my scope and responsibilities as GitLab's CEO and Chair remain unchanged. Like to thank our executive team and the board of directors for their support.

In closing, I'm confident we will continue to win the large market opportunity in front of us. I want to thank our team members and partners for their focus on customer success, and our customers for trusting us. Like to thank our shareholders for your support. And I look forward with speaking with many of you this quarter.

With that, I'll turn it over to Brian.

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Brian G. Robins

Chief Financial Officer, Gitlab, Inc.

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Gitlab, Inc. (GTLB)	Corrected Transcript
Q1 2025 Earnings Call	03-Jun-2024

Thank you, Sid, and thank you again for everyone joining us today. I am pleased with our start to FY 2025 as the team delivered strong top line growth. We also achieved a significant year-over-year increase in operating margin, and for the first time generated positive Q1 operating and adjusted-free cash flow. Our number one objective is to grow, but we continue to do that responsibly.

It is clear from our results that our customers see the value of our end-to-end DevSecOps platform that allows them to consolidate spends, avoid vendor lock-in, and deliver outcomes to the business more quickly. Customers report to us that they were able to consolidate their toolchain anywhere from 3 to 20 solutions into our platform, accelerate release cycles by 7 times, and even realize 70% improvements in annual savings. These outcomes move the needle for our customers in the software development lifecycle, maximizing budgets, and increasing their competitiveness.

Turning to the numbers. First quarter revenue of $169 million represents an increase of 33% from Q1 of the prior year. Please note that our acquisition, Oxeye, did not contribute to Q1 revenue. As a reminder, when we guided for Q1 and FY 2025, we had not completed our annual standalone selling price analysis or SSP, which determines our revenue recognition rate for upfront license revenue. As a result, we use our FY 2024 rates for FY 2025 guidance. That evaluation is now complete and had the effect of decreasing Q1 revenue approximately $1 million and decreasing expected FY 2025 revenue by approximately $4 million relative to guidance. Excluding the impact of the new SSP allocation, Q1 revenue was $170 million, an increase of 34% year-over-year. Going forward, guidance for FY 2025 includes our updated SSP allocation.

We ended our first quarter with a dollar-based net retention rate or DBNRR of 129%. Q1 DBNRR was driven by a combination of seat expansion at approximately 55%, price at approximately 35%, and tier at approximately 10%. Over the last four quarters, seat expansion has been greater than 50% of the growth in DBNRR. And we are very pleased to see customers' commitment to our platform reflected in this expanding adoption.

We now have 8,976 customers with ARR of at least $5,000, an increase of approximately 21%. Consistent with previous quarters, our customers with greater than $5,000 in ARR contributed over 95% of our total ARR in Q1. In particular, we monitor performance of our larger customer cohort of $100,000-plus in ARR, where average ARR per customer continues to increase and unit economics continue to improve. This is a testament to the importance of security and compliance for these large customers. At the end of first quarter of FY 2025, we had 1,025 customers with ARR of more than $100,000, an increase of over 35% year-over-year. Expanding this cohort both in absolute number and total ARR is a focus of our go-to-market team, and as Sid mentioned, we'll continue to invest additional resources to drive momentum across these customers.

This quarter, total RPO grew 48% year-over-year to $681 million, while cRPO grew 34% to $436 million. Non- GAAP gross margins were 91% for the quarter. SaaS now represents over 28% of total revenue and grew 50% year-over-year. The team continues to identify efficiencies that allows us to maintain best-in-classnon-GAAP gross margins.

Once again, we saw year-over-year improvement in operating leverage. Q1 non-GAAP operating loss was $3.8 million compared to a loss of $15 million in the first quarter last year. As a reminder, in this Q1, our non-GAAP operating loss included a $15-million investment in Summit, our global team member gathering. I'm really pleased with the team's continued focus on execution, which resulted in a non-GAAP margin expansion of more than 900 basis points year-over-year.

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Gitlab, Inc. (GTLB)	Corrected Transcript
Q1 2025 Earnings Call	03-Jun-2024

Cash from operating activities was $38.1 million in the first quarter of FY 2025, compared to an $11 million use of cash in operating activities in the same quarter of last year. Adjusted free cash flow was $37.4 million in the first quarter of FY 2025, compared to an $11.2 million use of cash in the same quarter of last year.

Turning to guidance, I'd like to start with a few comments on guidance. First, as I mentioned already, guidance includes our updated SSP revenue analysis. FY 2025 revenue guidance includes the approximately $4 million SSP net headwind for FY 2025, and raises in line with our first quarter top line outperformance. For the second quarter of FY 2025, we expect total revenue of $176 million to $177 million, representing a growth rate of 26% to 27% year-over-year. We expect a non-GAAP operating income of $10 million to $11 million, and we expect a non- GAAP net income per share of $0.09 to $0.10, assuming 167 million weighted average diluted shares outstanding.

For the full-year FY 2025, we expect total revenue of $733 million to $737 million, representing growth rate of approximately 26% to 27% year-over-year. We expect a non-GAAP operating income of $34 million to $38 million, and we expect a non-GAAP net income per share of $0.34 to $0.37, assuming 168 million weighted average diluted shares outstanding.

Separately, I'd like to provide an update on JiHu, our China joint venture. In Q1 FY 2025, non-GAAP expenses related to JiHu were $3 million, compared to [ph] $5.6 million (18:19) in Q1 of last year. Our goal remains to deconsolidate JiHu. However, we cannot predict the likelihood or timing when this may potentially occur. Thus, for FY 2025 modeling purposes, we forecast approximately $14 million of expenses related to JiHu, compared with $18 million in FY 2024.

In closing, Q1 was a strong start to the year, highlighting the differentiation of our DevSecOps platform and the power of our financial model. We're excited about the introduction of AI across the entire software development lifecycle, the significant value we deliver for our customers, and the large market opportunity in front of us.

Thank you all for joining us this afternoon. With that, I'll turn it over to Kelsey, who will moderate the Q&A.

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Gitlab, Inc. (GTLB)	Corrected Transcript
Q1 2025 Earnings Call	03-Jun-2024

QUESTION AND ANSWER SECTION

Kelsey Turcotte

Vice President-Investor Relations, GitLab, Inc.

A

Hello, everyone. Thank you very much for joining us this afternoon, and it's time for questions. [Operator Instructions] We'll take our first question from Matt at RBC. Matt, please go ahead. We're requesting one question and one follow-up, please.

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Matthew Hedberg

Analyst, RBC Capital Markets LLC

Q

Great. Thanks, Kelsey. First of all, Sid thoughts and prayers out to you as you continue this journey here. Certainly, you're in our thoughts and prayers. Maybe just to start with you, Sid, on the demand environment, there's obviously been a lot of volatility [indiscernible] (19:54) guess I'd say, off-quarter software earnings over the past couple weeks. Can you just maybe just pull the lens back a little bit and kind of just talk about what you're seeing from [indiscernible] (20:03) looks like you had good results this quarter? But just a little bit more perspective there.

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Brian G. Robins

Chief Financial Officer, Gitlab, Inc.

A

Hey, Matt, thanks for the question. This is Brian. Yeah, I'll start in. There weren't any major macro changes from Q4 to Q1. Sales cycles and discounting were consistent. The macro continues to be cautious, I would say, from the procurement departments on how they're being thoughtful and what they commit to. If you get specific to GitLab, though, first, if I look at new business, our First Order business continues to be strong. And so, that's a great indicator. And then second, I look at existing customers, and we reported the dollar-based net retention rate of 129%. This is led by seat expansion, followed by the price increase/increased customer yield, and then up- tiering. And so, that was better than what we modeled. The cohort of $100,000, which we view as a proxy for enterprise customers, grew more than 35% year-over-year. And so, hopefully, it gives you some context on the macro, and then also, what we look at from GitLab specific within the quarter.

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Matthew Hedberg

Analyst, RBC Capital Markets LLC

Q

Okay, that's great, Brian. Then maybe just [indiscernible] (21:18) for you, on the $4 million SSP headwind you talked about, I just want to be clear, it feels like, A, that's a full-year headwind, not just Q1, which I think you alluded to on the call. But I just want to make sure that my math is right because it feels like you beat by, I think, $3 million and you're raising by, I think, $7 million. But you talked about this $4 million SSP headwind. I just want to make sure I understand kind of the puts and takes to the full year. It sounded like you said you're basically just pushing the Q1 beat through, but maybe you can just provide a bit more color on that.

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Brian G. Robins

Chief Financial Officer, Gitlab, Inc.

A

Yeah, absolutely. And thanks for the question. The - when we reported the guidance for last quarter, it was based on the 2024 SSP allocation. We completed that analysis and there was $1 million impact in Q1. And so, the $3.7- million beat includes the $1-million impact. The guidance we gave for the full year of $733 million to $737 million includes the $4-million headwind. And so, that would be additive to those numbers. So, we've absorbed those in the numbers that we provided.

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Gitlab, Inc. (GTLB)	Corrected Transcript
Q1 2025 Earnings Call	03-Jun-2024

Kelsey Turcotte

Vice President-Investor Relations, GitLab, Inc.

Great.

[indiscernible] (22:26)

A

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Kelsey Turcotte

Vice President-Investor Relations, GitLab, Inc.

Thanks, Matt. Next question's coming from Ryan at Barclays. Ryan, your line is open.

A

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Ryan MacWilliams

Analyst, Barclays Capital, Inc.

Q

Thanks for taking the question. Just on the incremental pricing guide you offered last quarter, [ph] you obviously guide the (22:44) $10 million to $20 million in benefit for this fiscal year. Any update to that guide? And are you seeing any differences at renewal for the additional price increase this year in this macro? Thanks.

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Brian G. Robins

Chief Financial Officer, Gitlab, Inc.

A

Yeah. Thanks, Ryan. This is Brian. We gave that range out a couple quarters ago to help with calibrating the models because there was such a wide range on this year's revenue. Your assumptions that we gave out, including our guidance on a go-forward basis, includes that. And so, I'm happy to report that we're doing better than what we internally modeled and, yeah - and so what we internally modeled.

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Ryan MacWilliams

Analyst, Barclays Capital, Inc.

Q

Perfect. Appreciate that color. And just one housekeeping item. Maybe I missed it on the prepared remarks, but did you provide Ultimate as a percentage of ARR? And then maybe one for Sid. Love to hear about how you're thinking about the initial uptick in terms of demand for Duo Pro and maybe any early signs of demand for Duo Enterprise. Thanks.

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Brian G. Robins

Chief Financial Officer, Gitlab, Inc.

I'll do Ultimate real quickly. That's 46% of total ARR, up from 44% from last quarter.

A

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Sytse Sid Sijbrandij

Co-Founder, Chairman & Chief Executive Officer, Gitlab, Inc.

A

Thanks for that, Brian. And thanks for the question about Duo Pro and Duo Enterprise. So, we're seeing the momentum there. For Duo Pro, we got some great initial results. A major Americas financial services company reported 35% to 40% developer productivity as a result of using it. Got a great deal with a major APAC telecommunications company that wanted to have AI-powered capabilities not just in coding, but in all stages. And we made a sale to a major security infrastructure company.

As for Duo Enterprise, the features they really like are the ones around security and root cause analysis, and the security features they like is vulnerability explanation and resolution. So, they're looking forward to that. And in the future, Duo Enterprise will also allow customers to deploy AI models in air-gapped environments, a lot of our customers are looking forward to that.

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Gitlab, Inc. (GTLB)	Corrected Transcript
Q1 2025 Earnings Call	03-Jun-2024

Ryan MacWilliams

Analyst, Barclays Capital, Inc.

Thanks for the color. Thanks, guys.

Q

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Kelsey Turcotte

Vice President-Investor Relations, GitLab, Inc.

Great. Thanks, Ryan. Next question goes to Jason at William Blair.

A

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Jason Ader

Analyst, William Blair & Co. LLC

Q

Yeah, thank you. Guys, I was just wondering, have you explored recently any changes to the pricing model? I know you can perceive pricing for both the self-managed and the SaaS, especially for the SaaS business where most of your peers are using some form of usage-based pricing. It would seem like that could be in the cards for you guys. Just any comments on how you're thinking about pricing going forward would be great.

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Sytse Sid Sijbrandij

Co-Founder, Chairman & Chief Executive Officer, Gitlab, Inc.

A

Yeah, for the most important part, our pricing is the same, as you said, it's based on users. The value we add is we make people more productive, 10 times faster cycle time, getting more work done. On SaaS, we also charge for, for example, storage. But the big benefit in GitLab is in how we make people more productive. For example, the storage costs are not very high. Another indicator of that is our gross margins, like 91%. It kind of indicates that there's not a ton of compute cost that we drive down. It's making the people more efficient with things like replacing point solutions with the platform and the AI. And that's what we charge for.

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Jason Ader

Analyst, William Blair & Co. LLC

Q

Okay, great. And then one quick follow-up just on the product roadmap, maybe this is for you Sid, but as we think about this fiscal year, what would you say is your kind of top priority in terms of the kind of the products capabilities, the GitLab applications capabilities?

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Sytse Sid Sijbrandij

Co-Founder, Chairman & Chief Executive Officer, Gitlab, Inc.

A

Yeah, a top focus, of course, is AI, Duo Pro, Duo Enterprise, but we also continue to invest in our - the ability of our customers to replace point solutions. Really excited about the acquisition of the two security companies, that's going to make our security offering better. Also investing our compliance, our planning capabilities, and just making it easier to replace all the other point solutions that our customers have. Currently with GitLab, our customers can replace more point solutions than any other way, but we want to make sure they can replace all their point solutions. And I think in that, in security, we're getting pretty close and we will keep driving for all the other sectors, including planning and binary storage and everything else.

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Jason Ader

Analyst, William Blair & Co. LLC

Thank you. Best of luck with your treatment.

Q

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