GitLab Inc. ($GTLB)

I'm Koji Ikeda. I'm one of the software analysts here at Bank of America. Welcome to day 3 of our tech conference. I am absolutely thrilled to be hosting GitLab for a fireside chat. We have Bill Staples, CEO; and Jessica Ross, CFO with us today. Thanks so much for joining us.

Absolutely.

Hello, everyone. Thank you.

Hello.

So I think you guys just reported results this week. It's been a busy week I've been running around the tech conference. And so maybe even just to help me would you recap the first quarter results, kind of the big news coming out of it and how we're thinking about guidance going forward?

Yes. You kick off with the members and I'll fill...

I know we had a very strong first quarter, very excited. We beat on both revenue and profitability. Revenue was $264 million, growing 23% year-over-year. We delivered 14.2% in NGOI margin, which is a 200 basis point increase year-over-year. Our enterprise business is strong. We are growing seeds. We saw strength across all geographies, and we saw some particular strength in [indiscernible] in EMEA. So we're very, very excited about that. A couple of other just data points. Our 100,000 customer cohort grew 18%. We just crossed a big milestone with GitLab Dedicated with $70 million in ARR. And overall, the business is very strong.

Yes. Maybe I'll just add a few other data points and color around leading indicators for growth. We shared, this quarter, we had 30% year-over-year increase in first orders. So new customers coming into the business. That's been a focus for us because we've traditionally been a land-and-expand business. but have never focused as a company on winning new logos per se. It's always been take what comes. But now as a $1 billion revenue company, we've decided to specialize our sales force and have dedicated focus on first orders as well as a product-led growth motion that we've kind of rebooted and that's starting to pay off. Customers tend to land small with us but grow over time, but it also demonstrates our competitive position and ability to win in this very dynamic market. . Second, we also shared a number of activity metrics in the platform. We're the beneficiary of all of the AI coding dynamics that are underway with Claude, Cursor, Code, and multiple other players. All of that code that gets generated drives demand for GitLab. And while our business model currently doesn't capture that because we've always had a seat-based business model, that allows engineers to use whatever coating tools they want, to use GitLab to productize that code. We see the platform usage surging. So last quarter, we shared, for example, 60% growth in projects that use our security capabilities. This quarter, we shared nearly 50% increase in year-over-year in Code pushes. So more code getting pushed into GitLab, also significant growth in pipelines. Those are the things that take code and verify it, secure it, get it ready for deployment and then push it out. We saw that go from the 20s in the last half of FY '26, growing month-over-month now to 38% year-over-year growth in Q1. So those are all leading indicators that we're really benefiting from the AI coding work that's going on around the industry. And I shared during the quarter, 5 new architectural bets that we're making that set us up not only to deliver more value for customers but also capture that value over time. One last kind of data point for the quarter, which is, it was the first quarter that we've actually had our new agent platform product in market. This is us taking LLMs and providing agents across the software life cycle to help with all the tasks that engineers have to do to not only write the code, but actually ship the code out to their customers. And in our first quarter, we captured more net new ARR than any previous quarter combined across our prior 2 AI products. So it was a very strong start. We also shared an interesting early data point around consumption because this new agent platform is a new pricing model. It's a consumption-based model, not our seat-based model. And in the first quarter, we saw a $20 million consumption run rate. That's a measure of both committed credits and on-demand credits that were built up both pre-GA and then in our first quarter of business. So I feel that it was a very strong start, nothing that you should depend on in terms of $20 million on the other side. It's a run rate based on one quarter only. So we're not building it into our forecasts, but we thought it was valuable to share none the less.

I guess like maybe a couple of other things. And there was a lot of goodness in the quarter. We did also highlight though that the quarter saw some churn and contraction related to layoffs and also some unique contraction related to M&A. We view those both as temporal, especially the M&A side unique. But without that, the quarter would have been even stronger. And I think just so know you asked about guidance, too, so just maybe stepping back for those newer to the story, when we gave guidance at the beginning of the year, we gave a very wide range of 15% to 17% in terms of revenue growth. There's a lot of moving parts, which we'll talk about as we have this conversation. We really positioned this year as a year of investment and execution. And I think the big message this quarter is that is playing out as planned. Our assumptions are playing out a quarter of tighter execution, which gave us confidence to raise the guide. So we narrowed that to 16% to 17% and really just, again, excited about the year ahead.

Is there a metric that investors should be focusing on as the best leading indicator of the ability to not only achieve the guide, but potentially beat it? Is it billings, RPO, the duo agent platform, 20 million metric? I mean what did investors be focusing on as an indicator of health?

I think we've really laid out 5 growth initiatives. I don't think it's 1. I think with our business, you've got it, it's really about us having a firing on all cylinders. And so I think that's why we're very intentional about laying out the metrics that Bill talked about. At the end of the day, though, in terms of our guide, we have a ratable revenue model, and that gives us a lot of visibility. And so we really focus on revenue as our forward metric that you should also be focused on as well.

Okay. So a couple of weeks ago, you guys announced that there might be some changes within the organization, and then you fully laid it out on Tuesday of this week. And so help us understand the strategy behind it, the benefit of -- what you think will be the benefits of it and then how to think about head count growth going forward?

Yes. So a couple of weeks ago, I published a letter. if you haven't read it, it's published on our website. It's called Act 2. GitLab Act 1 has been an incredible successful efforts, right? We're now over $1 billion in revenue, growing at 23% this quarter, and we're sort of over 50% of the Fortune 100, some of the largest companies and organizations around the world depend on GitLab. We're incredibly proud of what we've built and what we have. At the same time, you all see it, I'm sure the way software engineering is happening is changing. It's changing rapidly. And we sit down with our customers all the time. But this quarter, in particular, we had several opportunities to have our advisory board. These are some of our largest, most strategic customers. Come together in person with us and talk about the future of software engineering, where we believe it's going and what the opportunities are for GitLab to add value and solve their problems. And we came up with 5 architectural events that we believe set GitLab up to benefit from the AI structural tailwinds that are happening around coding. These are investments that often relate to the scale of infrastructure that we provide as well as the capability that we already provide for humans, but now are needed across humans and agents. I can walk through them if you're interested. But the bet starts there, the Act 2 starts there. We realize in order to serve our customers going forward in this agentic era, we need to focus on the scale and the capability of what we do across both humans and agents. So that work was laid out. We also, as a management team, this is the first quarter since I became CEO, 6 quarters ago now, where I've had the entire exec team together. We've gone through some executive changes since I joined. Jessica just a few weeks before the quarter began as did my CTO. And as an executive team, we got together, we looked at that strategy, those architectural bets, and we feel very confident and convicted that those are the right things for us to go laser focus on and execute. We also asked ourselves, though, like what else do we need to change to move faster as an organization to capture this opportunity while it's right here in front of us? And that led to a discussion around a restructuring and changing both the operational footprint of TAM as well as the organizational layers and some of the cultural dynamics. So when we looked at the operating footprint of GitLab, GitLab really came into its own amidst the COVID era. It was really unique in kind of defining a remote-first async culture that was native to that era. And the hiring strategy at one point was higher in any country where there is talent. We ended up with 60-plus different countries, where we have employees. And for a company our size, that is pretty unwieldy. We had a long tail of countries where we had 1, 2 or 3 employees, and we've decided to shrink that. So we reduced the number of countries by [ 22 ]. And now we're smaller in that regard. We also looked at our management layers. We had 8 layers of management. And we decided in order to streamline communications prioritization decision making, we wanted to shrink that to 5. So we've done that. And then third, we looked at how we execute, how we focus as an organization. And our previous core values were really centered around flexibility. Again, born in that COVID era, everyone was struggling to figure out how to do remote work and how to work from home. And we decided that for the agentic era, the #1 thing to focus on is speed. So we're shifting from flexibility to speed with quality, is our #1 operating principle. Second, operating principle that we've defined is ownership mindset. We want to empower -- truly empower every individual in the organization to think like an owner of the business, to be able to own decisions and execute versus just take actions and check boxes on tasks. And then third, our third operating principle is all about customer outcomes. We want every individual in the organization, thinking about the reason we exist is to serve customers and deliver value to them. And so everything we do can we clearly define the customer benefit or customer outcome that, that work produces? So those are the 3 new operating norms that we created or operating principles. Those are the structural changes we made. And when I introduced these changes to the company, we decided, given the magnitude of opportunity and the magnitude of change that we're introducing, we would explain all of that to our company and transparently and also do the restructuring openly. So we spent a couple of weeks with all leaders in the hierarchy to work through exactly how the reorganization would work. And we offered the opportunity for every employee to decide to if they wanted to opt out of all of this change and be part of the restructuring. We felt like that was important because, again, the magnitude of change is great, and this is an opportunity to exit the restructure with an aligned committed team versus a team that feels like changes being thrusted upon them and then they have to go find something different if they don't like it. It's been a tough couple of weeks of the company, but I can say I think we're coming out of it much stronger as a result of the approach we took to the restructuring, and new energy kind of infusing in the company now. Next week, we have a customer event. It's an annual customer event that we do at the start of every major release. It's in London, but it's broadcast here, if you'd like to watch it. And we're getting unveiling a bunch of new innovation, including several of the architectural bets that I shared in that Acts 2 letter, which are definitely going to be interested in watching. If you get a chance, I recommend it.

Maybe just kind of marrying on how that kind of works from a financial impact perspective as well. So just to be clear, this restructure was more intended to be a cost-cutting or margin exercise. This is really about aligning the organization strategically to win in the [indiscernible] era. So ultimately, with all the decisions, we ultimately reduced our workforce by about 14%, 350 of our team members, and we are recognizing a restructuring charge of about $30 million to $35 million, $19 million in Q2 with the remainder through the rest of the year. But we are reinvesting the intent of all of those savings in the architectural bets that Bill has outlined, we're really looking at it in 3 ways: people, technology, process. This is a big cultural shift for GitLab, and we are asking a lot of our Act 2 members. So we're investing in our people. Secondly, again, from a technology lens, I think Koji, you're asking about head count strategy, especially in R&D, this is about making sure we have the right talent to really capitalize on this moment, and we're probably going to be growing and investing in R&D. And then from a process lens, we are looking at every single workflow across the business and reconfiguring that to the AI first. So really excited about those and the opportunity ahead.

With such a big change, one thing I think about is culture, maybe near-term risk, but also long-term benefit. And I love the speed with quality for any technology company that makes a lot of sense and especially anybody working in software development. I mean speed with quality is a paramount. So how do you -- as much as you can, how do you think about building culture from here going forward within the company.

Yes. One of the things that's really interesting is I've been building software for 30 years, and I've been working with software engineering teams. I came up through a product and engineering background. And so I've seen a lot of software and how teams build software. And even within GitLab, it's been interesting to watch how the engineering team has evolved in accepting new ways of building software with agents. And on -- even within GitLab, I see the full spectrum of attitudes, skill sets and approaches, right? On the one hand, I have an engineering team that we'll be shipping next week at Transcend, who literally writes and delivers more code than the average of the organization by 20x. They have the luxury of a brand-new service built from scratch in a modern stack using AI tools, and what they've built is phenomenal. I have other teams that are struggling because they have an enormous amount of legacy code, built over the last 10-plus years. There's technical debt there, and they're using AI. Their usage of even our own platform, dual-agent platform has accelerated 2 to 4x faster than our historical average. So that's awesome to see. But I also see others in the engineering organization who feel like AI as a threat. AI is taking over their jobs, reducing the importance of the skills that they've spent decades building. And I understand how that can feel. At the same time, over 30 years, I've watched how the engineering practice has changed so many times that I feel like this is just another evolution of the same thing, right? And so we've tried to give the coaching, the encouragement of the space to adapt towards this new modern ways of engineering. But the to your culture question, what we're now saying is, look, we've identified what it looks like to be highly successful in angentic engineering. We have several of these teams that are going multiples faster than our historical norms. Let's snap that as the cultural icon. Let's find ways to train and enable and give tools to everyone to reach that new standard, because that's going to not only benefit you and your careers and your ability to harness the best technology to build software, but it's going to help us prove our platform, live it first as customer zero and share with the rest of the world that depend on us, how to take advantage of AI tools in this era. So that was what Act 2 was about, was taking those bright spots, those early wins that are already within our organization and setting that as the new standard for everyone. That's how we got to where we're going.

So Transcend next week, we'll be excited to tune in. As much as you can tell us, what should we be focusing on? And I know there's a somewhat of a new pricing model you alluded to on the call, Flex. Tell us as much as you can about Flex because I know you're going to talk about it a lot next week. .

Maybe I'll talk about some of the cooler technology. You can you talk about Flex?

Yes.

So next week is going to be amazing. We're going to have incredible customers on stage, partners on stage and do demos of a whole bunch of new innovation that we've been building out over the last quarter. And it is -- I'm so excited about it. So you can expect to see, for example, one of the architectural bets that's really unique to GitLab is, the first part of our name is Git. It's the same as GitHub, our competitor. Based on an open source layer where code gets stored and burden controlled. GitLab is the #1 contributor to that project in the world today. But I think 3 of the top 5 contributors are GitLab employees. And we have decided that, that scale of infrastructure that was built for humans is not going to meet the needs of agents. We believe agents are going to push it 100x beyond what it is capable of doing today. And so we've joined forces with an AI lab, and we are building a new architecture and a new set of capabilities for agents for that infrastructure layer, and we'll be demoing it next week with our partner at 100x scale is impressive to watch. You'll see both Dual Agent platform and Claude Code and other external agents, driving volumes of code that is impossible today. So that's an exciting one. We are also going to be debuting our new orbit service, GitLab Orbit, is we take all of the data inside GitLab, everything from -- of your code, obviously, but all of the connections to that code. So the people who wrote it, the changes over time, the plans and bugs against it, the security scans, the builds, everything. We stitch it together into this graph, and we then provide an API for agents to read that context. The reason that's so important is agents thrive on context, the better quality context you give them, the better quality outcomes they produce, and they can do it at lower cost. And you'll see just how much quality and cost GitLab Orbit provides next week. There will be several other amazing demos. I don't want to steal the whole show, but those are some of the highlights to look forward to.

And then just on Flex Pricing, not much to share here, you'll have to tune in. But as we're thinking about the future for our customers, it's really about providing optionality, and we're really solving for cost, value and predictability. And Flex Pricing will be a contract that will allow customers to have both seats and GitLab credit, so to be able to access our consumption-related products, which we'll be talking about some of those more next week, and we are really excited about this offering. We've had early conversations with customers. I think they're very excited about it. Our sales force is excited to sell it. But we'll come back with more next week. So please tune in and then follow up with all the fun financial details when we get to Q2.

Bill, I wanted to follow up with you on the AI lab that you mentioned. So both bullish, but I want to be measured here. Anytime a company says, AI lab, we could kind of get over our skis. So I want to stay measured. And I really want to ask around why would an AI lab want to partner with GitLab? Because a common bear thesis out there is an AI lab could just build the entire software development life cycle to chain themselves. .

Yes. Yes. Sometimes, nontechnical people look at how powerful AI agents are and LLMs are and think, "Oh, well, they can build anything," right? And theoretically, that's true, but practically speaking, it's a lot harder than it looks. And as I mentioned, for this infrastructure layer where we're partnering, we are the #1 contributors in the world. So there's both domain expertise and historical momentum and buying from the community that they get by working with us. Second, we actually are the Git provider for a number of AI startups and AI labs. And so in particular, this one is a customer of GitLab. And the respectful and beneficial partnership in action, I think, as we work together because we're also a consumer of their products and services. And then third, I think, as I said before, we support hundreds of thousands of organizations around the world. We have more than 50% of the Fortune 100 that use GitLab today. They see us also as a distribution channel. When we can support agents at 100x load, that's going to mean they can drive more volumes of tokens through their agents. And so it benefits them by partnering with us because then their agents running on our infrastructure go way faster and lead to more value for everybody.

I can't believe we made it 26 minutes without talking about Duo Agent Platform, or DAP, that you guys always talk about it on the calls. And so you guys gave a $20 million metric. It's a CRR consumption run rate.

That's right.

What exactly is in that $20 million? How do we think about it? And with any time a company gives a metric that's -- what is the expectation on the frequency of when we might hear this metric?

Yes. No. So we're very excited about this. It is an early green shoot. Essentially, what consumption run rate is, is it takes our committed DAP credits plus overages over 28 days and annualizes that number as a run rate. We are very, very excited about it. But again, this is for quarter end, it's data that is just a signal of product market fit. It's a signal of -- we're excited that the product is launched. It's doing very well. Just, I think, one point of clarification because on the call, there was a couple of questions about this. So it doesn't include any of our prior AI products, Duo Enterprise or Duo, but it does include a small minority of conversions from those products into DAP. I think the big takeaway is that this is like additive. And I think the other thing that Bill highlighted at the beginning of the call is that first quarter out, we have higher AR from dual agent platform compared to either of our prior AI products combined. So again, very exited about it. And we -- as the business evolves, we will continue to come back with metrics on a more frequent basis.

Not a quarterly metric, but a milestone?

A milestone. I think that's a great way to...

How do you guys Dua Agent Platform has been out in the market for some time with your beta customers, and it went live earlier this year. And so how are you going to market with it? And how should we broadly be thinking about adoption, consumption, how does it show up in the model?

Yes. We go to market both product-led motions as well as sales-led motions. So on the product-led side, we introduced $12 in premium credits for every premium seat and $24 for every ultimate customer seat, which allows engineers that are already in GitLab, to begin to experiment and try the platform without having to have their organization make a commitment. The organization does have to unlock the feature. But once they've unlocked it, there's no monetary commitment required. That is kind of a product-led growth motion. The sales-led growth motion is we have now enabled our sales force this quarter, Q1, once again, our first quarter, to go and sell Duo Agent Platform as repo side. So server side agenetic engineering across the software life cycle. And that is in contrast to what Claude, Cursor, Codex do, which are more client side or developer side, authoring the code, where we run on the organization or server side where the code is stored, to do all of the actions, not just coding, but all of the security, all of the planning, all of the pipeline remediation on the repo side. So it's a complement. Our sales force often goes in and helps educate the customer on the use cases that we provide that are different and additive to what Claude or Cursor or whatever their tooling strategy is and how those 2 can come together to accelerate the full software engineering life cycle. And then there was another part of your question I'm missing.

I forgot too. But in the last 30 seconds here, I wanted to ask you on security. I mean security offering is very good, very, very strong from GitLab. And so what is top of mind for your customers around software development and security? .

Yes. You've probably seen the news a lot of software supply chain attacks going on. Hackers and attackers are using Ms. now to discover and exploit software vulnerabilities in record time. Agents make that easy too. And so it is more important than ever. that companies put security practices in place, not on production code, but before the code ever ships because once it's in production, you're exposed and the hacker time to find that and exploit it is lower than ever. What GitLab does is we provide the real-time security scanning in the code pipeline before the code gets deployed. So that's a really powerful value proposition and it always has been, but even more critical today.

Got it. We're all out of time. Bill, Jessica, thank you so much for doing this. We appreciate it.

Thank you.

Thank you.