GitLab Inc.

Good afternoon. We appreciate you joining us for GitLab's second quarter fiscal year 2025 financial results conference call. GitLab's co-founder and CEO Sidsi Brandi and GitLab's chief financial officer Brian Robbins 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 two 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 the comparability of the periods referenced. Please refer to our earnings release and presentation materials for additional information regarding these non-GAAP financial measures and the reconciliations to the most directly comparable GAAP measure. I will now turn the call over to GitLab's co-founder and chief executive officer, Sid C. Brandy.

Thank you for joining us today. I'm excited to share our second quarter results with you and talk about our market leading DevSecOps platform and its AI capabilities. We continue to deliver strong results that reflect our team's focus on customers, helping them realize faster time to value and customer specific business outcomes. Second quarter revenue increased 31% year over year to 183 million, driven by new logos like Delaware North and Guild Mortgage, as well as expansion by existing customers. Our non-GAAP operating margin also meaningfully exceeded our expectations in the quarter, increasing over 1,300 basis points year over year to 10%. This underscores our continued commitment to responsible growth. Now, more than ever, organizations need to deliver software faster to respond to intense competition and accelerate performance. This is what our DevSecOps platform is purpose-built to do. We bring together developers, security experts and operations teams to better collaborate, improve quality and prioritize security. all while decreasing software delivery cycle times. And with AI integrated throughout the software development lifecycle, GitLab customers can take those gains even further. Enterprises are focusing on real results and real use cases for AI. They're looking beyond just code generation. They are looking to integrate AI into all aspects of software development to deliver tangible results. This requires a strategic approach that aligns AI solutions with business goals. provides measurable benefits and improves security, and this is where GitLab excels. Our customers are excited about the meaningful productivity and security benefits of GitLab Duo, which has demonstrated up to 90% reduction in time spent on toolchain operations, 50% faster lead time, and 50% faster vulnerability detection. They are also excited about our ability to help them drive real business outcomes. For example, we recently heard from the State of Washington Public Disclosure Commission about GitLab Duo. They mentioned that GitLab Duo is improving their developer productivity and effectiveness, which is helping their teams focus more on the substance of their work. AI is also resulting in larger deal sizes. Barclays purchased GitLab Duo seats this quarter coupled with additional ultimate licenses. They are rolling out GitLab Duo to thousands of developers so they can take advantage of AI-powered capabilities in the same platform where they're building and deploying their code. It's exciting to see large enterprises like Barclays adopt AI as a natural step for simplifying tool chains and improving their developer experience. F5, a multi-cloud application security and delivery company, is yet another customer who's adopting GitLab Duo after seeing value from Ultimate in driving improved developer experience and productivity. Developers who participated in F5's pilot of GitLab Duo shared that our AI capabilities are easy to use and help them to be more productive in their work. Now, F5 is rolling out GitLab Duo to all of the company's 2,000 developers. The KeyBank team also wanted to improve developer productivity, so they adopted GitLab Duo. Combined with our DevSecOps platform, GitLab Duo is helping KeyBank developers resolve pipeline issues six times faster. GitLab Duo is KeyBank's first approved AI technology due to our focus on transparency and privacy first. It's the combination of both our end-to-end platform and AI that's driving results for our customers. According to Gartner, by 2027, the number of platform engineering teams using AI to augment every phase of the SDLC will have increased from 5% to 40%. This is why we're very pleased with the outcomes of two of Gartner's recent magic quadrants. First, GitLab was recently recognized as a leader in the first-ever 2024 Gartner Magic Quadrant for AI code assistance. We believe this recognition highlights our commitment to delivering AI-powered capabilities that accelerate software delivery, enhance security, and drive innovation for our customers. And for the second year in a row, GitLab was recognized as a leader in Gartner's 2024 magic quadrant for DevOps platforms. We were positioned highest in both our ability to execute and our completeness of vision. Our market leadership comes from our integrated security and compliance capabilities, deployment flexibility, and our unified data store. This provides end-to-end context across an organization's entire software development and deployment workflow. customers realize significant return on investment from adoption of our DevSecOps platform. Our new Forrester study on the total economic impact of GitLab Ultimate found that organizations can achieve 482% return on investment over three years. That's a nearly 60 percentage point increase over the last time we conducted this study two years ago. These results are based on our continued focus on increasing developer productivity, improving developer experience and accelerating feature delivery, improving security and toolchain consolidation. Toolchain consolidation and related benefits are mentioned frequently by our customers. In fact, in our annual survey of more than 5,000 DevSecOps professionals, 62% reported that their teams use more than five tools and 64% wanted to consolidate their tool chain to drive efficiencies. This presents a tremendous opportunity for us as a platform to allow customers to consolidate vendors and reduce total costs of ownership. One of GitLab's strengths is our ability to help customers replace legacy point solutions. For example, by consolidating on GitLab, Lockheed Martin managed to run CI pipeline builds 80 times faster, retired thousands of legacy CI servers, and reduced the time spent on system maintenance by 90%. That shift resulted in a significant increase in efficiency and productivity for Lockheed Martin. Another example is one of the world's leading innovators in materials science. They are using our enterprise agile planning add-on in combination with GitLab Ultimate to centralize planning tools into a single platform and improve visibility across the business. Our customers also see security as a mission critical need. Recent news cycles continue to increase awareness and urgency in the executive suites about the need to embed security at the earliest stages of software development. GitLab Ultimate helps solve this by shifting security left in the process. seamlessly instrumenting security checks and guardrails into the software development pipeline. This comprehensive approach not only earns the confidence of security leaders, but also dramatically enhances the developer experience. By eliminating context switching and post deployment firefighting, developers maintain their crucial state of flow. This results in faster, more secure code delivery. GitLab transforms security from a bottleneck into a strategic advantage in innovation and reliability. Security and compliance capabilities are at the heart of Ultimate and set us apart from the competition. Ultimate is a particularly good fit for customers who require the enterprise-grade capabilities of our platform to meet constant demands to move faster and produce more software. In the second quarter, seven of our 10 largest deals were Ultimate purchases and seven of our top 10 first order customers landed with Ultimate. At the end of Q2, Ultimate is now 47% of total ARR. For example, the National Oceanic and Atmospheric Administration upgraded from Premium to Ultimate this quarter for its enhanced security and compliance. They also purchased GitLab Duo to improve their developer productivity. Security is an important factor when customers adopt GitLab Dedicated, our single-tenant SaaS offering that is completely managed by GitLab. This offering is unique in the market and is especially valuable to companies with highly complex security and compliance requirements and in regulated industries such as the public sector and financial services. Snowflake recently migrated to GitLab Dedicated for source code management, CI, and security for their corporate environment. With GitLab Dedicated, Snowflake has the security of a single-tenant environment plus all the benefits of an end-to-end DevSecOps platform. We're also excited to share that we have achieved the in-process designation for FedRAMP Moderate. GitLab Dedicated for Government helps public sector agencies and customers in highly regulated industries meet stringent security and compliance requirements from the US government. We expect this designation to build upon the significant momentum we already have in the public sector. In summary, Q2 was a good quarter and I'm proud of what we accomplished. I also want to thank the GitLab team for everything you contributed to our ongoing success. Looking at the second half of fiscal 25, I'm really energized by our ability to continue to drive customer success and the opportunity we have with AI to accelerate business outcomes. With that, I'll turn it over to Brian.

Thank you, Sid. And thank you again for everyone joining us today. This quarter's results validates the value that our customers get from our integrated platform. In today's cautious macroeconomic environment, technology needs to deliver quick time to value while solving complex, impactful problems. That is what our AI-powered DevSecOps platform does. A great example is Intuitive Machines, which became the first US venture in 50 years to land spacecraft on the moon. Integral to the success of the project was GitLab. Our end-to-end platform enabled dozens of developers to write code, gain visibility, and collaborate on shared projects. The result was a 10x increase in release cadence, 99% reduction in downtime, and 20x decrease in pipeline execution time. Quoting one of the software leads on the project, we absolutely could not have built a spacecraft in five years without GitLab. It helped us make history. Turning to Q2 FY25, results exceeded our expectations as we delivered another quarter of greater than 30% top-line growth and significant year-over-year operating margin expansion. Second quarter revenue reached $182.6 million, an increase of 31% from Q2 of the prior year. We ended the quarter with dollar-based net retention rate, or DBNRR, of 126%. Q2 DBNRR was driven by a combination of seed expansion at approximately 40%, increased customer yield at approximately 50%, and tier upgrades at approximately 10%. In addition, all of our historical cohorts continue to steadily expand. We now have 9,314 customers with ARR of at least $5,000, an increase of approximately 19% year over year, and contributed over 95% of total ARR in Q2. In particular, we monitor performance of our larger customer cohort of $100,000 plus an ARR, which reached 1,076 this quarter, an increase of 33% year-over-year. In fact, more than 65% of new dollars invested by this cohort was an ultimate this quarter. A great example of customer success with these large customers is Bolt, one of the biggest online retailers in the Netherlands. As Bolt's revenues grew, they needed to keep up with the strict and constantly changing compliance regulations. With GitLab, Bolt can set up policies that automate compliance configurations and checks, saving thousands of developer hours per month. This quarter, total RPO grew 51% year over year to $747.9 million, while CRPO grew 42% year over year to $475 million. Non-GAAP gross margins were 91% for the quarter. SAS now represents 28% of total revenue, in part a reflection of the considerable traction we were getting with GitLab Dedicated. Year-over-year SAS revenue grew 46%. Given the continued high growth in SAS, I am very happy with the team's attention to operating efficiencies, which continues to result in best-in-class non-GAAP gross margins. Once again, we saw significant year-over-year improvement in operating leverage. Q2 non-GAAP operating income was $18.2 million compared to a loss of $4.3 million in the second quarter of last year. This quarter, we dropped all of our revenue outperformance to the bottom line, which in combination with the team's continued focus on smart resource allocation, translated to non-GAAP operating margin of 10% compared to negative 3.1% in the Q2 of last year. This once again demonstrates our commitment to responsible growth. Cash from operating activities was $11.7 million in the second quarter compared to $27.1 million in the prior year period. Adjusted free cash flow was $10.8 million in the second quarter of FY25 compared to $26.8 million in the prior year period. Q2 FY25 cash flow from operations and adjusted free cash flow reflect the timing of payments for our Q1 global employee gathering made in Q2. now turning to guidance for the third quarter of fy25 we expect total revenue of 187 million to 188 million dollars representing a growth rate of 25 to 26 percent year-over-year we expect a non-gap operating income of 19 million to 20 million dollars and we expect a non-gap net income per share of 15 cents to 16 cents assuming 168 million weighted average diluted shares outstanding. For the full year FY25, we expect total revenue of $742 million to $744 million, representing growth rate of approximately 28% year-over-year. We expect a non-GAAP operating income of $55 million to $58 million, and we expect a non-GAAP net income per share of 45 cents to 47 cents, assuming 168 million weighted average diluted shares outstanding. Separately, I'd like to provide an update on Jihoo, our China joint venture. In Q2 FY25, non-GAAP expenses related to Jihoo were $3.3 million compared to $4.8 million in Q2 of last year. Our goal remains to deconsolidate Jihoo. However, we cannot predict the likelihood or timing when this may potentially occur. Thus, for FY25 modeling purposes, we forecast approximately $14 million of expenses related to Jihoo compared with $18 million of last year. Thank you all for joining this afternoon. We delivered a strong Q2. I'm really pleased with how we are positioned as we head into the back half of FY25. We appreciate your support and look forward to speaking with many of you during the quarter. With that, I will turn it over to Kelsey, who will moderate the Q&A.