GitLab Inc. (GTLB) Earnings Call Transcript & Summary

Well, we'll get started. Hopefully, some people started in. I'm Jonathan Ruykhaver. I cover the cybersecurity infrastructure software sectors at Cantor. Very glad to have GitLab. From the company, we have Brian Robins, who is the Chief Financial Officer. Thanks, Antonio. So if anybody has a question, don't hesitate to raise your hand.

But to get started, Brian, maybe just talk about fiscal 2025. It just kind of feels like it's -- when the demand trends improved, your execution improved, some of the products, particularly security seem to be doing better -- just -- and when we saw 4Q, I think the billings growth was strong. RPO growth was 40%. Your SaaS growth was 40%. So those are all very impressive numbers. Can you just talk about how you saw 2025 play out and how you see demand trends in the overall market as you go into fiscal '26.

Absolutely. Before I jump in, I just want to thank you for hosting us today. Appreciate the conference. Quality of investors have been great and it's been a great conference so far. So '25, we're really pleased with '25 on how we ended. 4Q was a very strong quarter, grew revenue 29% year-over-year, for the year, we grew revenue 31% year-over-year, which was top decile. Our net dollar retention rate still remains top decile as well at 123%. We saw a lot of growth in that fourth quarter. We break it down between seats increased customer yield and tier upgrade. About 75% of that was seats, 15% of that was increased customer yield and 10% was tier upgrade. We saw the spending environment remains cautious. With that said, the last 3 quarters, we've talked about -- it's been relatively stable, but cautious. It's really been driven by the strength in the enterprise. And so we announced a lot of large enterprise deals. And companies are looking to consolidate on a platform. And so GitLab enables companies to eliminate a number of point solutions, consolidate on a platform and get really good time to value and positive business outcomes.

So I just want to touch on that seat expansion opportunity. Over the last couple of months, I think this concern has died down a lot, but with all these Gen AI-enabled software development tools, that this -- or the threat that could pose to developer seats. That doesn't seem to be case. If anything, you saw that we see the need for more tools, more platform capabilities to really address the increased code that you see generated from these new AI types of solutions. So what are your thoughts on that? How do you see that dynamic?

Yes. So AI is super fascinating. It's just really got launched. AI has been around for a while. But Gen AI has been around for a little over a year now Gen Tech AI is what people are talking about. We have 3 AI products in the market. One is Duo Pro, Duo Pro similar to code suggestions. And so it helps you actually recommend code if you're doing the development. Duo Enterprise injects AI throughout the entire software development life cycle. And so it's about 15 different AI features that helps people do AI throughout the entire life cycle. We did a study of the developer and the developer spends roughly about 25% of their time actually writing code. The other 75% of the time they're planning, managing, deploying in a number of different things. And then we just announced a private beta of Duo Workflow, which is our Gen Tech AI. It will say, hey, go out and get the bugs and fix the bugs. And so it's actually a replacement of some what a developer would do. It does it on its own. When you talk about seats, the way I think about that is sort of a math equation. And so you have developers times productivity equals output. If you hold output constant and their productivity goes up, by default, developers have to go down to get there. I'm a strong believer, and I think a lot of others are that with greater efficiency, companies are going to demand more output because software is actually a true differentiator. It's a competitive differentiator in the market. And so you think about software applications that you have today, how you interact with your phone, what you can get on your computer. People are constantly innovating and doing more software development. And so we feel that there's going to be more software development, more output as the products -- as the developers get more productive.

Okay. So the seat expansion you see in -- that's mainly a reflection of adoption of additional products and the seat associated with that.

That's correct. This past quarter, as I said, 75% of our net dollar retention rate was made up through seat expansion. We had a very large customer that we announced Barclays. They did 20,000 Ultimate seats and 20,000 Duo seats. We also announced a number of other customers such as Anthropic, CACI, NatWest and Amazon. And it's really a combination of buying more Duo seats and the seat expansion -- the seats that we saw over the prior year. There had been some concern in the past about premium seat net adds. This quarter, we had more Premium net adds and seats in the last 6 quarters. And so premium, it's a -- we don't set our compensation around ultimate sales and premium sales. Each sales rep carries a net ARR number that they have to book and we allow them to go out and do a consultative sales approach and get there the best way they can for what's right for the customer. And so it's a mix between Ultimate and Premium. Now that ultimate makes up 50% of the total ARR by default, you're sound a little less premium, but we had a really good quarter on net Premium seat adds.

Okay. Understood. So we had JFrog this morning and I asked a similar question. Just when you look at the software development life cycle market, you see a lot of different tools. They're disparate. They work independently of each other. And that's basically how software development was done historically. Now you talk about a platform and JFrog comes at it from the binary, the repository angle. You are very strong in CI/CD. But beyond that, there's a lot of other areas within that life cycle. Just talk about your positioning, your strength in CI/CD and then how you view the overall platform where you see the strongest adoption where you have more room to make improvements.

Yes, it's a great question. There's not many full platform companies with the end-to-end software development life cycle platform. GitLab has done that really since the inception, and we've seen some others follow us. But we feel that we're the leader in that market today. It's really important that we land with the developers. We feel that landing with the developers and showing increased efficiency, positive business outcomes is good. And then you can actually go down and start landing with security professionals, operations professionals as well as package, which competes in Artifactory. I sit and deal reviews every week. We don't sell individual Blaze. And so we're actually selling to the developer. And that's really where the main competition is. Our #1 competition really comes from DIY DevOps. And so this is all the point solutions that people are trying to put together with Bubble Gum and Bailwire and actually do that integration themselves. As you know, when you do that, it breaks down. And one of the reasons sort of the secret sauce to GitLab is the ability to integrate all those stages into a single pane of glass into a system of record that can actually track and monitor all changes throughout every part of the software development life cycle.

Yes. So the portion of the market that you think is DIY Dev Ops. What do you think that looks like? How many companies are actually moved to a platform. I think it's probably pretty small, right, because who else is out there maybe GitHub but no one else really.

Yes, it's a great question. Gartner has a report out talking about platforms and DevOps, and they talk about roughly about 25% of the companies are on the platform today. That doesn't mean we're 25% penetrated. 25% of the companies are on a sort of platform. And they say by 2027, that's likely to reach 75%. And so I think consolidation on these point solutions and having a sort of one system of record is really helpful.

Yes. So talk about security. We've been hearing about this ship left into the development cycle, the need to do testing, software composition analysis, all those things before you go into a production environment. Just talk about the solutions you have there and how they're performing.

Yes. So when you buy GitLab, whether you buy a Premium or Ultimate, it comes with every stage of the software development life cycle, with Ultimate, you get our advanced security features, compliance, some additional reporting, support is a little bit different. And our advanced security features really are strong against the competitors in the market because you get it when you buy CI and CD, it's not -- we don't go head-to-head and compete against folks. But sometimes, we'll see customers replace Checkmarx, Synopsys, Black Duck and others for our security offering. We offer a number of different things in our security vertical. We have fuzz testing, container scanning, vulnerability assessment, SAST, DAST and a few other things because that's integrated into the platform and is why you're doing the coding, the security vulnerabilities automatically come up and get remediated. That's what actually helps cut down on cycle time.

I'd love to hear your thoughts on the repository, the binary management portion of that development life cycle. Do you have a product in that area. And what kind of adoption have you seen for that in particular?

Yes. So we have -- that stage of our software development life cycle is called Package, and that's the one that competes against JFrog Artifactory, and that's where the binaries are at. And we have a very mature package offering. And so we're happy with how we're doing there. We don't sell it individually. And so it's not like I say, Package is done X, here's our win rate and here's how we've done, but we get really good feedback from our customers on Package.

Can you actually see the usage across all the different solutions when people buy the high-end package?

Yes. So we allow consumers consume our products two different ways. You can consume it self-managed, which means it's hosted on your prem, which we don't have great telemetry or SaaS, which is our, by far, our fastest-growing sort of segment. And with SaaS, we can actually see telemetry in the product to see the amount of stages that have been adopted.

Okay. And looking at the SaaS customers then, is there a pretty broad usage across all the applications.

There is.

Okay. Okay. So that really does validate that platform positioning. Yes, again, it's just modern software development. It's not like the old days. It's like some of the companies I cover on the security side, they introduce new code into their products almost weekly. And why they used to have these milestone type of development cycles where that would happen once a year.

We were talking about that earlier today. I remember in the old days, there's always sort of in spending a lot of time with sales and traveling the world with the CROs I worked with. Sales, engineering and product development, product marketing, always sort of had a disagreement. And you're exactly right, you'd want to get not locked down the product requirements and then sort of let the product engineers do the development and not sort of touch it for a year until the big release came out. And now with the ability to do all this in a single platform, you can do it on a much more iterative basis.

Yes. Yes, it's a very dynamic market. Another topic that comes up a lot is just regarding code gen and you see these tools from GitHub Cursor, Anthropic is coming out with Cloud Code, I think they call it. But historically, it was the developer who essentially ensure that certain guardrails were in place and you get here to certain standards of trust and security and compliance. And that's just throwing out the wind up with these new solutions. And so I think when I look at the market, the thesis is that all of this is a positive, it could be an inflection point in terms of the need for a more holistic approach. And we saw really good growth from you last year. I'm wondering, is that a dynamic that you think is impacting your business yet? I think it's very early. So it might not be, but just your thoughts on how that could shape the opportunity to look it out in the next couple of years.

Yes. It is super early. We have a product in the market today called Duo Pro. Gartner did do a Magic Quadrant on code suggestions, and we are a leader in that on sort of execution and vision. And so we are a leader in that market as well. Coding, like I said, is 25% of the overall sort of software development process. And so it helps with that element. These code generation tools are great. What it's going to do is it's going to create more code, which in theory is going to create more complexity and the more complexity we believe the DIY DevOps will break down. And so that will drive people towards a platform approach.

Yes, Yes. So I just wanted to kind of take a step back and talk about the CEO change briefly. Bill Staples, I think was appointed in December. He was at New Relic. When he was at New Relic, he moved to a seat-based pricing model to a usage consumption model. And we do see a number of your peers operating under more consumption or usage model. And just the question I have is, is there a discussion on maybe some products moving to consumption-base? And then just big picture thoughts on his role in the company where he's focused relative to Sid, who was the previous CEO. So a lot in there.

A couple of different questions. So let me unpack that for you. Let me start first with consumption pricing, then I'll talk about Bill's first 90 days and the focus for FY '26 and going forward. And so currently, today, GitLab is primarily a seat-based model. We do have some things such as runners and storage and other things that are consumption based, but it's a very small portion of our revenue. We talked about Duo Workflow, which is a Gen Tech AI. It went in private beta about 2 weeks ago. And we're focused more right now and started getting it out into a limited set of customers to allow them to try that product. When you think about pricing, we like pricing really 3 different ways. One is what value is the customer getting out of the product. Two is how much does it cost to deliver? And 3 is, what are other products like that, priced like in the market. And so we haven't announced any pricing around Duo Workflow yet. But those are the things that we'll take into consideration as we look at doing the pricing. A lot of these tools today are based on consumption pricing. And so we have the flexibility. We have the time. We're going to get it in market, we're going to see the value that we're delivering to our customers, then coming up with pricing and packaging for that. For those not aware, we had a CEO transition about 90 days ago. So 2 earnings calls ago now. We announced that Sid is going to become the Chairman of the Board and Bill Staples is going to become the CEO. For those who don't know, we announced that Sid has cancer. So he stepped aside, it's been a battle that he's been fighting for over a year. He stepped aside to focus on his health. And I've been through a couple of CEO transitions in my life and this one in particular, I feel better than a lot of them. Typically, you have a CEO who's reluctant to leave. And so there's not really a great transition, and there's sort of that struggle. Sid remains active at the company today. Bill actually has one-on-one calls with him every week. And so it's been a really best of both worlds, where still get to get Sid as a founder, the visionary, the strategist and the product vision, coupled with Bill's experience and what Bill brings along as well in a very collaborative way. And so that's good from a transition perspective. And so Bill entered the company at a really opportunistic time in the sense that we're just finishing up our FY '26 plan. We just entered fourth quarter and so forth. So one of the first things Bill did was he sent an e-mail to the company, asking them. Everybody send me an e-mail, tell me what you love most about GitLab, if you could change one thing, what you would change and then why you're at GitLab, what inspires you to be at GitLab. So he took all those responses, he responded to every one of them personally, and he actually put it into AI Claude and actually summarized all the responses. And out of that, coupled with the plan that we did, we came up with 3 initiatives for FY '26. And if you -- for those who listened to the earnings call, we sort of layered these into the earnings script. But #1 is focus on first orders. Over the last couple of years, we've tweaked compensation a little, focused on first orders. But it's really important because we land small, it's a land and expand model. Sometimes we have wall-to-wall sales, we typically land very small. And those customers expand with us for years to come. And so if you look at our dollar-based net retention from cohorts 10 years ago, it's similar to cohorts 2 years ago. I can't think of many technology companies that have relatively the same product set where you have expansion 10 years ago, 9 years ago, 8 years ago. So the cohorts for every year are expanding at roughly about the same dollar amount. And so it's important that we land first orders and continue to fill up the moat so we can expand in them for time to come. And so we're making that one of our initiatives this year. The second one is deliver more value to our customers. This is really focused on Premium to Ultimate transition. So a lot of people will land with Premium, then eventually upgrade to Ultimate for advanced security and compliance. And so we're going to continue to invest in the core platform and in our security functionality. And then the third initiative for FY '26 is R&D innovation. And this is all around AI. So today, we have Duo Pro, which is code completion. We have Duo Enterprise, which is injecting AI throughout this entire software development life cycle. All of that's GA today, but in a limited fashion, it's getting better every day. And then we have Duo Workflow, which is a Gen Tech AI. And so they are the 3 priorities and what we're doing about each.

As it relates to the go-to-market and the focus -- the higher incentives on new logos. Can you just put that into context in terms of how that looked last year fiscal '25 and what that is expected to drive that to this year?

Yes. So every year, I've been very involved in the variable sales compensation, what behavior that's going to drive out of the sales force. And since it's a very big market, and we're barely penetrated in the market, I purposely have kept the sales plans fairly easy to understand. So I didn't want to set a quota for Ultimate and set a quota for Premium because I didn't want to try to drive behavior out of the sales team for a product that maybe doesn't align with the customer. I also have historically paid the same base commission rate for our first order, which is a new logo versus expansion. And I also haven't charged a customer differently whether we manage and host it and incur the infrastructure, the SaaS cost or whether they do it on-prem. So from that perspective, it's very easy. This year, we're actually going to pay a different base commission rate on first orders than we are on expansion. And so they'll get better retirement of that quota by doing a new order versus an expansion order.

So how should we think of NRR as we move through the year? Is it likely to continue to slowly tick down as a result, and the focus should be on new customer lands. I mean we love those new customer cohorts because it's expansion opportunity for the next 2 or 3 years?

Yes. Great question. We get a lot of question about net dollar retention rate. Net dollar retention is a metric that is an output. It's not something that we are solving internally to and have sales compensation set up that way or management reports that come out every week. And it's really an output. And so there are things that are happening today that are super positive for shareholders in the company that are a downtick on net dollar retention rate, and there are things that happen today, that are uptick. And so if we land a customer, wall-to-wall, they will typically buy for every employee that they're going to launch a license to, they want to sign a 3- to 5-year deal, and they want to put small price increases in the -- we request if they do that, small price increases in the contract. The ability to expand with them if they bought our whole product portfolio, is relatively none. But instead of buying 100 licenses this quarter, 300 licenses in 3 quarters, 1,000 licenses in 18 months and gone up. If they just bought 2,000 licenses day 1. That would be a downward pressure on our net dollar retention rate, but it would be great for the company because the amount that we're getting from that customer over that contract life would be greater than a gradual ramp. And so now that we're seeing more and more C-level conversations. We are seeing more wall-to-wall purchases, especially for large companies who adopt the product and want to roll it out to really drive that consolidation of all these tools.

So we should be looking at Ultimate adoption. As a result because it represents the platform, I think 50% or more or slightly more of ARR comes from Ultimate. But that would be the strategy to get that wall-to-wall type of purchase and it would show up in Ultimate.

Yes, correct. Ultimate is our highest priced product. It's $99 per month per user. Premium is $29 per month per user. Ultimately, by far is the highest-priced product in the industry of all dev tools and it now makes up 50% of our total ARR, and it's been doing really well. The reason why people are going to that is for the advanced security and compliance. I think there's a couple of different ways you can sort of extrapolate the fundamentals of the business. One, we talked about revenue growth. This FY '24 over FY '25, we did 31% growth, which there's not a lot of software companies doing that. Two is the cash generation you see that we're doing that more profitably than we've done it before. So we're getting increased operating leverage in the business. Net dollar retention rate, I think, directionally, you can look at it in the commentary around that. CRP, obviously, is a good one as well. So I think there's a number of different things. But from where we guided to and what we're going to do this year is a company that's quickly approach $1 billion in revenue. I think is -- I was very happy with that.

Yes. And if a customer bought Ultimate for $99 a seat a month, there's always an opportunity for Duo and other new products that are coming out.

100%. And another product that we have is Dedicated. And so Dedicated is our single tenant SaaS. And so if they buy Ultimate in if it's Ultimate size or Ultimate self-managed, there's also a potential to upsell them to Dedicated as well.

Yes. So that product grew 90%. Just to kind of put that into perspective for us. I know it's off a small base, but is there a specific industry, specific type of customer? Is it sovereign nations, I mean it seems like that the product could become pretty material as a percentage of overall revenues.

Dedicated is our single-tenant SaaS solution. If you buy our SaaS products, it's a multi-tenant solution. Originally, we got pulled into creating the Dedicated product. There's a number of customers that we didn't have that we're in a highly regulated field they said, if you guys had a single-tenant SaaS product, we would buy it. And so we went out, we created the product, the highly regulatory customers we went out to sell to. But what we found out was that there's a lot of people that weren't in highly regulated industries that wanted us to manage it for them and actually deploy it for them. And so our SaaS product as well as Dedicated has done really well. And the reason why is because people can get up and running much quicker. They don't have to hire the personnel to manage it. They don't have the expense of running it. As we have thousands and thousands of customers, we need to do it very economically. And so Dedicated now is for -- you have to be on Ultimate to buy Dedicated. You have to have a certain amount of licenses to set up the single-tenant solution, but it's being bought by all types of customers in all industries because of the value proposition that Dedicated offers.

Yes. Okay. Well, let me ask if anybody have a question in the audience? We're good. So when you look at competition, Microsoft, GitHub is obviously a competitor worth watching long term. But then you have the other cloud providers that don't have this capability. And you have a partnership with Amazon, and you had Duo Q, you went into preview in December. So talk about that partnership, how strategic is it and what are these lines could potentially mean from a monetization standpoint.

Yes. So super happy at main stage, Amazon announced a couple of different partnerships. We are one of those with Amazon Q, it's taken the best of Duo and the best of Amazon Q, putting them together and allowing them and us to go out and sell that. And so Amazon is going to have dedicated salespeople to actually go sell this. I think that's really a testament to our thought leadership, the product and what we have in the market. Currently today, both Amazon and GCP resell our product. And so typically, they bundle our product with their cloud to compete against a GitHub, Azure bundle.

Yes. Okay. So is that going to impact financials at some point? And what would that be?

It's early, right? And so from the way that I think about when we put together guidance, we do it in a very detailed bottoms-up by SKU. If I have a lot of history on the past performance, I will tend to have a smaller standard deviation on what that is, if I don't have a lot of history to go off of in current history. I can't put a lot of that into the model. And so it's early. We hope it's a great partnership and that both parties sell a lot of it. It's a differentiated solution. But we'll keep you sort of updated on future calls on how that's doing. And we'll build that in the guidance as we see fit.

Yes. So with Duo, the code assist opportunity, you talked about some pretty notable wins in the quarter, I think Barclays Zscaler, Capgemini, it's early. So just talk about how the demand is at this stage for those products? Was that something that sales reps had been involved with for some time and you got to the finish line? Or is there something else in the market that kind of drove a shorter sales cycle just because those companies are really serious about having that capability.

AI, in general, has been super interesting because it's Gen AI now Gen Tech AI is relatively new. And in every sales call that we have today, people are speaking about AI. As I said, our AI products, if you go talk to customers or look at the Gartner Magic Quadrant, are doing well today. And so our sales team has taken it into new -- they're wrapping it into new customer pitches as well as taking this opportunity to go back to our existing customers and sell that to the customers. When you think about AI, one of the data points I gave out on our earnings call was when AI first came out, there was a lot of companies that were prohibiting people from actually using AI products at work. As there are some concerns around privacy, around IP, around proprietary code getting used by other companies and training models and so forth. And so AI was really being used more in test pockets. It wasn't being used broadly within companies. When I look at the Duo sales today, if I took all the deals in fourth quarter that included Duo, Duo as a percent of ARR, made up about 1/3 of the ARR. And so when Duo attaches to a deal, it's attached into almost a one-to-one basis of seats sold for Duo seat. So they're buying it now for the number of seats and then they're deploying that out into the organization.

Any kind of incentives around that product? Or it seems like that natural attach it doesn't require any extra type of incentive to...

There's no special incentives around Duo.

Yes. I bet sales guys are pretty excited about that. So product-led growth had been kind of the foundation of the company way back when and you've been moving this more kind of C-level suite approach tapping into those bigger budgets. Just talk about how you balance that. And then also with the new CEO, I think he has worked when he was at New Relic with the SI channel more closely. Just talk about that as a potential opportunity as well from a channel perspective.

Yes. So we do have some SI partnerships and SIs do sell our tool set. The reality is most developers have used GitLab, either through like an EDU program or we have about 50 million registered users using our product today. And so the implementation and the time to value is very quick. And so usually, with SIs, it's a very complicated multi-month implementation where there's a lot of integration. We do have a professional service organization that does that and then we also use SIs. It's a relatively small part of our revenue stream, but definitely an opportunity, but the integration is much easier than like a 9-month ERP implementation.

Okay. I'm curious, when you look at the success with Ultimate, the more wall-to-wall platform type success, is that isolated to a certain segment of the market, a certain size of company? I'm just trying to figure out when you talk about the do-it-yourself type of mentality that we see in the industry. How much of the industry can go -- will go to more of a commercial type platform? Is it just large enterprise, do you see evidence that it's broader than that?

We have a very long tail of business. And so there's not one customer that makes up more than 5% of our revenue. So it's an extreme long tail of business. Ultimate, whether you're a mid-market, an SMB, you still have to have security, right? You still got to test your code. Ultimate gives you advanced security features in compliance. And so all type of companies are buying Ultimate. Obviously, it tends just skew a little bit more -- if you looked at percent of total ARR between the enterprise, mid-market and SMB, just do the enterprise deals are way bigger, it tends to skew a little bit more up there. But from a logo perspective, it's all across the spectrum.

Okay. And there seems to be pricing leverage in the industry. The number of companies we've talked to have been able to take pricing up pretty successfully year in, year out, and you've taken prices up as well. Just talk about that dynamic, the financial implications of which product it impacts the most?

Yes. So we announced a price increase on premium back in 2023. That's in the process of rolling out now. That's the only price increase that we've done. Pricing is always a lever and option that we could pull. We feel like we give our customers a lot of value for what we're charging. But it really is an early market, and we have a lot of market to capture. And so we know once we land a customer, they'll stay with us for a very long period of time. And so to me, market capture is super important.

And so the 2023 increase, is that fully flowed through the model at this point? Or is there still a positive impact?

Yes. Good question because there's a little confusion on that on the earnings call. So I'll take the opportunity to clear this up here at the conference. And so when we announced a price increase in 2023, there is a big range of the impact for FY '24 and what the impact would be. And so we came -- so that'd be roughly $10 million to $20 million in revenue is what you can model for the price impact. So fortunately, the model sort of came closer from an FY '25 perspective. In FY '25, we're asked about the price increase. First and foremost, we're really happy with improved unit economics as there's no additional cost to actually do that. And then secondly, every earnings call, we said it was better than our internal expectations. And so we're happy about that as well. And then we said that we will also get impact from FY '26, and FY '26 will be larger than FY '25. We gave a little additional disclosure on the last call and said the incremental impact in FY '26 will be about the same as FY '25. Some people interpret that as we said it was larger and when we said incrementally would be the same. And so if you take what we did in FY '25, ratable model, all that's going to move to FY '26 and then that amount would get added on to FY '26 as well.

Yes. Okay. Understood. All right. We've hit our time limit. Thanks, everybody. Brian, thank you very much for...

Appreciate it.