Thank you for joining us today for GitLab’s First Quarter of Fiscal Year 2023 Financial Results Presentation. GitLab's Co-Founder and CEO, Sid Sijbrandij; and GitLab’s Chief Financial Officer, Brian Robbins will provide commentary on the quarter and fiscal year. Please note, we will be opening up the call for panelists’ questions. To ask a question, please use the chat feature and post your question directly to IR questions using the drop down menu. Before we begin, I'll cover the Safe Harbor statement. During this conference call, we may make forward-looking statements within the meaning of the federal securities laws. These statements involve assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those discussed or anticipated. For a complete discussion of risk associated with these forward-looking statements in our business, we encourage you to refer to our earnings release distributed today in our SEC filings, including our most recent quarterly report on Form 10-Q. Our forward-looking statements are based upon information currently available to us. We caution you to not place undue reliance on forward-looking statements, and we do not undertake any duty or obligation to update or release any revisions to any forward-looking statement, or to report any future events, or circumstances or to reflect the occurrence of unanticipated events. In addition, during this call, certain financial performance measures may be discussed that differ from comparable measures contained in our financial statements prepared in accordance with U.S. generally accepted accounting principles referred to by the Securities and Exchange Commission as non-GAAP financial measures. These non-GAAP measures are not intended to be a substitute for our GAAP results. We believe that these non-GAAP financial measures assist management and investors in evaluating our performance and comparing period-to-period results of operations as discussed in greater detail in the supplemental schedules to our earnings release. A reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is included in our earnings press release submitted to the SEC. These reconciliations together with additional supplemental information are available at the Investor Relations section of our website, and a replay of today's call will also be posted on the website. I will now turn the call over to GitLab's Co-Founder and Chief Executive Officer, Sid Sijbrandij.

Thank you for joining us for our fiscal year 2023 first quarter earnings presentation. But before discussing the quarterly results, as I stated last quarter, we remain deeply saddened and concerned by the unprovoked and unjustified Russian military invasion of Ukraine. The horrific acts of violence against the sovereign nation and its people and the terrible impact to all of those in the region. We continue to work directly with a small number of impacted GitLab team members in the region, and we're committed to providing ongoing assistance and support to them until the conflict is (ph) over. Now turning to our results. We believe that every company needs to become a software company, regardless of the macroeconomic environments. Our One DevOps platform drives compelling business outcomes providing our customers with what we believe to be distinct competitive advantage, being able to build, deploy, and secure software better (ph). Our pipeline of opportunities remain strong across the globe as we are addressing a large and early stage market opportunity. In the first quarter of fiscal 2023, we exceeded our guidance with revenue of $87.4 million and this represents revenue growth of 75% year-over-year. Our dollar-based net retention rate remains strong and exceeded our reporting threshold level of 130%. The primary driver of this metric continues to be an increasing number of users at existing customers, which we believe to demonstrate a significant return on investment we provide. We are committed to grown (ph) in a responsible manner and believe our first quarter results demonstrate the attractive unit economics underlying our business. While continuing to accelerate revenue growth, we also were able to show significant operating leverage. Our non-GAAP operating margin improved by 1,700 basis points year-over-year by 700 basis points quarter-over-quarter. Underpinning this acceleration in revenue growth is both a…

Thank you, Sid and thank you again to everyone joining us today. I will quickly recap our first quarter results for FY 2023 and key operating metrics, introduce guidance and conclude with some additional context regarding our business, and how strong demand for our DevOps platform translates into a strong financial profile. First, let me turn to the quarter. We are pleased with our results as our business continues to perform at a very high level demonstrating improving unit economics despite macroeconomic volatility. We continually hear from our customers that GitLab is a highly strategic platform for them. Our platform is offered with a free version and two-paid subscription tiers, which we call Premium and Ultimate. Our paid tiers are priced per user with different features per tier. Every user within an organization is on the same plan, which helps us keep our business model transparent and easy to understand. Our customer base is very well diversified across industry verticals, customer sizes, and geographic regions. We do not see any slowdown in any key business metrics during the quarter. In fact, our pipeline in EMEA is actually stronger than it's ever been. We are happy with how we executed on team member hiring as we added more new people to the organization this quarter than in each of the previous eight quarters. We remain steadfast in our commitment to growing in a responsible manner. We also view the uncertainty in the macro economy as a benefit for hiring new team members. Now, turning to the numbers. Revenue of $87.4 million this quarter represents an increase of 75% organically from the prior year As of quarter end, we had over 5,100 customers with ARR of at least $5,000 compared to 4,500 customers in the prior quarter and over 3,100 customers in…

Thank you, Brian. We will begin by going to Kash at Goldman Sachs. Kash, will you please verbalize your question.

Sure. Happy to. Congratulations on the quarter. Sid, I'm curious to get your take on the product roadmap that's impressive and as wide as it is. I wonder how you prioritize which features you will be investing in, so as to maximize that revenue productivity. And also to furlough the company's ambition of getting to as many users as possible on the Ultimate edition. And as a follow-up to Brian, just a logical sequence there. What would be the company's targets or ambitions with respect to Ultimate edition. And therefore, if that works out well, whatever the numbers from it? What could be the impact of the financial model of the company? Thank you so much. Congrats again.

Yeah. Thanks so much for your question. We're focusing our investment to enable people to go from DIY DevOps to the platform. We know If they can do that, if they can replace the point solutions, they see a great return on investment. On average, they're able to replace four point solutions in year one, year two, year three. The majority of our investment is going into create, verify and secure, but we're also making long term investments. Example, in compliance and in model ops, because with model ops, we see that software development, code development and ML and AI will converge in the future and want GitLab to be ready for that. This month, we released GitLab 15, our annual major release and we're excited about having our launch event in the third week of June. Brian?

Thanks, Kash. Appreciate the question. In terms of adoption for Ultimate, we see tremendous business outcomes from our customers who adopt Ultimate. And so we, as a company, GitLab believe that every customer should adopt Ultimate over time, given the tremendous value at the price point of owing $1,200 per developer per year. So ultimately, it gives our customers enhanced security features, compliance, vulnerability management and so forth just to name a few. And so Ultimate Now, just to remind you, 39% of our ARR up from 26% first quarter of last year.

Got it. Thank you so much.

Thanks, Kash.

Great. Our next question will be from Michael at KeyBanc.

Hey, guys. How are you? Just trying to -- gratefully on mute. Didn't happen [indiscernible], please.

Doing well.

Thanks, Sid. So fantastic -- the quarter results are great and fantastic to hear, you are not seeing any negative impact. But maybe Sid and Brian, if you can drill down on how you see customers, enterprises, midsize were reacting to fears of recession inflation, in terms of development projects or they simply saying, okay, no problem development in full speed ahead. Are they shifting those development projects from one priority to next? And then Brian, I just have a questions for you on the JV (ph) basis.

Yeah. Thanks for that. Great question. We believe that every company needs to become a software company regardless of what the macroeconomic environment is. And the way to do that is DevOps. And maybe I can share a story what happened during the pandemic. Global Airlines saw their revenue crash, 90% plus reduction in revenue. And at that time, we partnered with three global airlines to help them expand their GetLabs footprint and to help them make that transformation. So our message resonates well. The platform approach helps customers to consolidate tools. And with that, they save money both on licensing and on integration costs. Brian?

And Michael, what was your question in regards to the JV?

So on -- well, just to say this to be, just if I got to get there, this is a quick follow-up before the JV question. Do you see any change in the priority of projects. Obviously, you're saving the money, but are you -- and you've seen them shift the type of projects they want to do through you?

I believe we've not seen changes in any key indicators. In fact, our pipeline in Europe is stronger than it’s ever been.

All right. And then Brian, on the JVs, so the JiHu expenses go from 12% to 22% in all time of deconsolidated. Is there any benefit to the income statement above the line by moving that below those expenses below the line?

No. Meltano is the only thing that we're deconsolidating. We did say that this would be last quarter that approximately it would be about $30 million and now it's going to be $22 million because we're deconsolidating it. We still are consolidating JiHu, our Chinese joint venture. And so all of our guidance basically incorporates us and you'll see the details on JiHu when we file our 10-Q later this evening.

Okay. So $8 million benefit from the JiHu consolidation. Sound alike.

Correct.

Thanks.

Thank you. Now we're moving on to Joel Fishbein at Truist.

Congrats on the strong execution. I have -- I get two questions often. I just love you to address them both. First on competition and profitability. Can you discuss the competitive win rates? And then maybe give us some color on the balance or how you're thinking about the balance of growth and profitability going forward? Thanks.

Absolutely. Thanks, Joel. I guess first, it's important to say we're really, really early in a $40 billion market and our main competition as we talk about continues to be DIY DevOps. Companies need a way to plan, build and secure and deploy software. You enter deals and about half the deals, we don't see anyone else in the deal. We're competing against DIY or what they currently have. When we do see companies, we typically most run into Microsoft, Atlassian and Jenkins. They are the three that make up over 70% of what we run into on the deals. It's important to note that our win rate against Microsoft, whether they're in a deal or not in a deal is almost identical. And if you look at the total amount of deals that we're in, Microsoft accounts for less than 20% of the deals that we see them in. And so that's a little bit on the competition side. On profitability, I just want to go back and remind everyone, we land small and expand over time and the quarterly cohorts from over six years ago are still expanding to that, which is remarkable, which helps us with our net dollar retention rate. And these cohorts, not only are they still expanding, they're extremely predictable. And so we're continuing to show improving unit economics in the business. As a private company, a newly public company we’re grow at any expense or a public company in uncertain times. We have not deviated from our Strategy one bit (ph). And so if you look at this quarter versus this quarter last year, I think we actually demonstrated that. If you exclude JiHu, we almost had identical non-GAAP operating income for this quarter versus the quarter last year, we grew revenue 75%, which basically added $38 million of revenue for the same absolute profitability. And this is really consistent with the full year guidance we gave as well. And so Sid and I, as we said before, and we remain to this as we're committed and responsible growth.

That's fantastic. Thank you.

Thanks, Joel.

Matt at RBC. You have the next question.

Thanks for the question. Congrats from me as well. So, Sid, I had a question, it's great to hear about all the success in the platform. I'm wondering with all the advancements you're making in security, are you increasingly seeing customers come to GitLab from a security first perspective?

I think it's an important driver. We know that for Ultimate, the main driver is security and Ultimate is our fastest growing tier. So it's a very important driver. We said in the prepared remarks, C level exec’s(ph) are increasingly common to us and they already know that their DIY DevOps isn't scaling and they need to consolidate. So that's very encouraging. And our security solution is helping customers shift security left, do it earlier so that it can be more comprehensive that it's easier to incorporate. I believe we have a very strong offering with static and dynamic analysis, first testing, container scanning, and also increasingly our compliance is a selling point, where with GitLab, it's much easier to prove to the auditors that you've done everything that's needed. They can just point at something. You have all the relevant documentation where today a lot of customers are doing that with DIY DevOps would have to make all of that themselves. So it's increasing and we more and more view ourselves as not just a DevOps company, but a DevSecOps company.

That's fantastic. I couldn't agree more that certainly what our checks indicate. And then I guess just as a question, one question I think we all get on the phone here is the priority of spend. If the economy were to slow and it's great to hear a record pipeline in EMEA, how do you think your customers prioritize your spending? And I think we all believe we're in an apps driven economy. And that what you guys are delivering is super important. I mean, is it that level of criticality? And I suppose especially if there's a security angle here as well, you have to be pretty high up on the priority list. Is that kind of what you're hearing as well?

I think I've touched on that with the global airlines. Brian, you have anything to add to that?

Yeah, Matt. Absolutely, I guess I learned in prep for this earnings call, I listened to several of the earnings announcements. And one common theme I heard is, the economic downturn and some of the uncertainty has been a catalyst for digital transformation. And we sit right at that critical spot where we run one platform, we have great business outcomes, you and every company is a plan, manage, secure and deploy software. And so we're positioned really well with that. We added more base customers this quarter than in the history of the company. And metrics across the board we’re extremely positive. And I think that really is attributed to the value proposition that we're offering our customers.

Got it. Makes a lot of sense. Well done guys.

Thanks Matt.

Karl at UBS. Will you please ask your question?

Hey, great. Thanks, team. Maybe this one for Sid. Sid, I think everybody on the line has heard a lot of anecdotes about smaller VC backed tech internet companies that are being forced to cut their OpEx and headcount. I'm just wondering whether -- and I'm assuming by the way that a lot of those young engineering focused companies use GitLab. So maybe the question is two-fold. Are you seeing any pressure from that customer cohort that may have been offset by enterprise strength? And secondly, a related question, Brian, how large is the enterprise exposure of GitLab? I think at the time of the IPO, you gave us a 60% number, if I remember correctly. Are you able to date that, so really just trying to get at your exposure to these younger customers that might be under a little bit of duress? Thank you.

Thanks for the question. Great question. I'll let Brian add to my answer. GitLab is the best when you have like a ton of point solutions that you replace. So the more complex the organization, the bigger the compliance requirements, the more value we can add. So we've always been very strong in large organizations. And what you see now is that maybe there is a hiring slowdown, but most people aren't on GitLab yet. So we have a lot of room to expand within the organizations in which we already landed. Together, GitLab and GitHub, we believe to be less than 5% of that $40 billion market. And as customers are forced to slow down hiring, they want to get more out of their existing people. And that's what GitLab can bring. They can do more with the people they already have instead of having -- without an end. Brian?

Yeah, absolutely. Just to echo what Sid said and what Sid said was spot on. We looked at sort of the VC backed startup community and to see how much of our current ARR was comprised of that and how much we think it will be. And we cut it several different ways and it was less than 5% every way that we looked at it. And so really, really small by sort of ARR and absolute volume. And then when you -- the enterprise amount as a percent of the total continues to be about the same. There's really been no change to that. So it's approximately 60%. If you throw PubSec on that, you're over 70% and so the two of those combined is pretty strong. And so very little exposure to start up VC backed companies and approximately 70% when you add Enterprise and PubSec. And Enterprise is as a percentage of the total. It's been very consistent since we went public and for a long period of time.

Got it. Those are really helpful metrics. Thank you both and congrats on a great quarter.

Thanks, Karl. Appreciate it.

Our next question is from Koji of Bank of America.

Hey, guys. Thanks for taking the questions. Just one for me here. Maybe this question is for Brian. Just wanted to kind of ask you the magnitude of the B question. We got this question a lot over the past few months thinking about your performance here and where it could go and clearly here 12% of the revenue top line beat above the high end of the guide versus 10% last quarter, clearly better this quarter. So any thought process or just from a high level change to the guidance methodology or the way you're thinking about the annual guide versus the beat in the raised cadence, just what we experienced in the first quarter, especially considering the commentary that you had with the demand environment? Sure. Sounds really strong out there even with EMEA, even stronger than today. So any sort of help there in the way we should be thinking about your guidance methodology? Thank you.

Appreciate, Koji. Thanks for the question. Super happy with the quarterly results. It was a great quarter overall and happy that we committed to guidance at the midpoint of delivering $400 million in revenue, which is approximately 59% year-over-year growth. There's no change in the guidance philosophy. Early in the year there's lots of variables and so we guided to the number, we had an excellent quarter and so we did obviously beat and raise. One of the most favorite things about our model is the visibility that we have into our business. And so almost all of our revenues ratable which makes -- when you come up with guidance, makes it a little bit easier. And so as we reported the quarter, we're extremely happy with our results and guidance. And like I said, we raised our guidance for the remainder of the year.

Got it. And just one quick follow-up. Kind of the license line with how has the self-managed and professional services and other kind of $10 million there in the quarter. Real strong growth, just could you talk a little bit about the components there? Was there a bit more professional services than anticipated or maybe could you break that down just a little bit?

Yes, absolutely. As I said in my prepared remarks, we reevaluate our stand alone selling price every year. This analysis is required and we're taking a little bit more upfront revenue. And so this quarter, we had roughly about $2.5 million worth of revenue that we took. Our growth rate would have still been 70%. Additionally, as a reminder, we've changed our business practice around our licensing earlier in the year. And so true ups have gone down from last year to this year. True ups in the SSP difference pretty much canceled out one another. And so all this is baked into our guidance for the full year.

Got it. Thanks guys. Appreciate the color. Thank you so much.

Thanks, Koji.

Thank you. And it looks like our final question is from Derrick Wood at Cowen. Can you please verbalize your question?

Yeah. Great. Thanks. Congrats guys. Fine. I mean, you had mentioned the strength in the new customer generation. And I'd think of, but maybe kind of three core variables on what drives that and we've been seeing that number very strong for quite some time. But if you think about putting more feet on the street from direct sales, versus more of a C level agenda around DevOps platform initiatives versus companies kind of moving off of open source and wanting to get to a commercial vendor. How would you guys comment on kind of the rank order of those drivers?

Thanks for the great question. So I think what's really important is the increase in channel. So channel is getting more and more important for us. And the other thing we're seeing is that Increasingly, C level exec’s are already convinced that they want to consolidate tools, where a few years ago, maybe they said, look, I'm doing this DIY DevOps thing. I just need some version control and can you sell me that? And we had to start from, hey, you know, there's something better. There's a DevOps platform. Today, they come in and say, look, I want to consolidate. I'm just looking for the best platform out there. So that helps us and it's great to see that recognition. I think it was first us and maybe our competitors who realized it and the analysts and now we see traction with customers. Brian?

Yeah, absolutely, Derrick. Great question. When we were going public, I talked about all the new go-to-market motions that we're adding. We're starting to see the benefit from all those. I think that plus the fact that the overall economy, the uncertainty there's been a catalyst for this whole digital transformation. Really happy as well with the AWS GCP since we're sort of a Switzerland and aren't aligned with one specific cloud provider, it's great to see the deals and the momentum that we're getting with them as well.

Great. And I guess just a follow-up on that same topic you guys hired Ashley Kramer as Chief Marketing and Strategy Officer. Anything to highlight that that we should be looking at out of what she's going be trying to do as she is on board?

Yeah. We're super happy to be able to have her in the organization. She's really talented. I think what's important for us is that we appeal both to buyers and to users. So we have to do both right? And it's still a question of like telling the story, telling the story of, hey, you're going to move from DIY DevOps to DevOps platform. We're so very early in this market and that's where we're focusing our marketing efforts on.

That's great. Congrats again. Thanks guys.

Appreciate it.

All right. Thank you for the questions. And with that, I'll turn things back over to Sid for closing remarks.

Thank you for your time today. I'd like to thank our customers for trusting GitLab to help them achieve their business objectives. I'd also like to thank our partners, the wider GitLab community and GitLab team members for all their contributions. You all had a big part in our continued success. Thank you.