Thank you for joining us for the Second Quarter of Fiscal Year 2023 Financial Results Presentation. GitLab's Co-Founder and CEO, Sid Sijbrandij, along with Chief Financial Officer, Brian Robins, will provide insights into the quarter and the fiscal year. After their commentary, we will open the line for questions from panelists. To ask a question, please use the chat feature and direct it to IR questions using the drop-down menu. Before we start, I want to mention the Safe Harbor statement. During this call, we may make forward-looking statements under federal securities laws. These statements involve assumptions and are subject to risks and uncertainties that could lead to actual results differing from those anticipated. We encourage you to review our earnings release issued today in our SEC filings, including our most recent quarterly report on Form 10-Q, for a comprehensive discussion of the risks associated with these statements. Our forward-looking statements are based on the information currently available to us. We advise against placing undue reliance on these statements, and we do not have any duty or obligation to update or revise them or report future events that may occur. Additionally, during this call, we may discuss certain financial performance measures that differ from those in our financial statements prepared according to U.S. Generally Accepted Accounting Principles, known as non-GAAP financial measures. These non-GAAP measures are not intended to replace our GAAP results but are believed to provide valuable insights into our performance and allow for comparison of results over different periods, as detailed in the supplemental schedules included with our earnings release. A reconciliation of these non-GAAP measures to the most comparable GAAP financial measures can be found in our earnings press release submitted to the SEC. This information, along with further details, is accessible in the Investor Relations section of our website, and a replay of today's call will also be available online. Now, I will turn the call over to Sid Sijbrandij, GitLab's Co-Founder and CEO.

Thank you for joining us for our fiscal year 2023 second quarter earnings presentation. We continue to see strong momentum in our business, and we believe that our second quarter results indicate that the market is embracing our DevOps platform leadership position. We also executed well in the quarter, demonstrating our ability to achieve high growth with increasing operating leverage. In the second quarter of fiscal 2023, we exceeded our guidance with revenue of $101 million. This represents revenue growth of 74% year-over-year. Our dollar-based net retention rate exceeded our own reporting threshold of 130%. This remains best-in-class and consistent with our track record as a public company. Our second quarter results also continue to demonstrate the attractive unit economics underlying our business. Our non-GAAP operating margin improved by 1,500 basis points year-over-year, and we remain committed to growing in a responsible manner. Every company needs to be great at developing, securing, and operating software, or they will be disrupted. This core capability, what's called DevOps, is a must-have in any macroeconomic environment. Enterprises are navigating economic uncertainty while still needing to embrace the imperatives of digital transformation, cloud migration, and app modernization. Our customers choose GitLab to accomplish more with the people that they already have. Delivering software fast and efficiently in a secure way is essential for success. Our one DevOps platform empowers them to do exactly that. With one data model and a single interface, we create a more efficient and captivating user experience. With GitLab, everything from planning, building, securing, deploying, and monitoring software, all resides in a single application. This mission-critical software helps companies eliminate the costly integration work you have when using point solutions, and it also allows them to create and release software faster while strengthening software security and compliance. This combination drives business and technology transformation. There are three main topics that I will cover today. First, I will explain how we enable all types of customers to realize the promise of DevOps by moving to a platform approach. Second, I will discuss how we are leading the industry in product innovation and highlight the recent enhancements from our major GitLab 15 launch. Third, I will share our view of GitLab's value proposition and how we are well-positioned to succeed. Our differentiation starts with our core value of iteration, which in turn drives our rapid pace of innovation. GitLab is far ahead in the comprehensiveness of its DevOps platform. Every month, on the 22nd, we ship a new version of GitLab with many new features and improvements. We've done this for 130 months in a row. Our innovation is also driven by the open core nature of GitLab, which means that our customers and users contribute to the capabilities of the platform, enabling us to drive even more differentiation and value for all of our customers. Every quarter, hundreds of improvements are contributed by our customers. Our differentiation also extends to security and compliance. In today's environment, security is a business imperative. We believe we have the most comprehensive security offering in the market, enabling companies to truly adopt DevSecOps practices. With GitLab, security is integrated throughout the software development and deployment process. Our capabilities include dynamic and static testing, vulnerability management, dependency and container scanning and coverage guided first testing, which enables customers to find vulnerabilities that other QA processes cannot find. Organizations shouldn't have to trade-off compliance requirements with their speed of innovation. Developers should be able to easily verify the compliance of their code without having to leave their workflow. In GitLab, visibility to perform compliance is automated and resides within the platform. This removes the need for compliance managers to require developers to contact switch among different point solutions, losing productivity and efficiency in the process. We believe the future of compliance requires automation. When you create software today, you don't write all of the code yourself. Instead, you have a supply chain of external dependencies like open-source libraries that are bundled into modern software development. However, a problem arises with so many dependencies. There is no way to accurately and efficiently check all of it manually for security vulnerabilities. This can have devastating effects when failing to identify security threats, roll back vulnerable code, and fix and redeploy that code. This manual process can translate into significant financial and brand damages given the existing threat landscape. The only effective pathway forward is to automate that process, making the cycle time from identifying a vulnerability, rolling back code, and redeploying it shorter and shorter. GitLab makes that level of automation seamless for our customers. We have the most advanced offering in the market as validated by customers like HackerOne and Deutsche Telekom. They use our comprehensive capabilities to secure their software supply chain and make their security and compliance checks more efficient. Our differentiated value to customers is that this security is integrated into our product. It's not bolted on as an afterthought. GitLab's comprehensive security offering with so many features allows customers to consolidate their spend. They no longer have to integrate with so many other security vendors. More importantly, they can create more secure software by shifting security practices earlier in the development process, performing threat and vulnerability analysis as developers create the code, not after they deploy it. The earlier you integrate security, the easier it is to address potential concerns. So, you become more productive, and you can enforce it for every project and every change. Furthermore, because all of the security checks are happening on the same platform, customers can prove that they perform all of the security checks for that code. With a Do-It-Yourself or DIY DevOps approach that requires stringing together disparate point solutions, a similar endeavor will require much more personnel and resources. Next, I would like to discuss the new advancements in GitLab 15, our latest major release. We focused on three main areas of innovation across the DevOps life cycle. The first area of innovation is enterprise agile planning. When we talk to customers, a primary pain point we hear is that existing point solutions lead to a poor user experience. While they may meet the needs of the individual, they fall short of addressing the needs of the broader organization. As an end-to-end platform, GitLab is uniquely positioned to integrate planning with execution in a seamless manner. We enable business leaders to drive their vision while empowering DevOps teams to deliver value more effectively and efficiently by improving how they collaborate. The second area of innovation is continuous security and compliance. Our customers are looking to solve the pain point of a fragmented security experience, which slows down development cycle time and creates more risk. They don't want to make a full trade-off between speed and security. They want security and compliance to be embedded end-to-end across the software development life cycle without sacrificing speed. In GitLab 15, we've introduced new capabilities around software supply chain security, advanced security scanning, streamed audit events, and more comprehensive governance. The third area of innovation involves our use of artificial intelligence and machine learning. This area is particularly exciting because it makes our product better and enables us to broaden the appeal of our platform to even more use cases and personas. To illustrate how we are leveraging AI to improve the product, we now have a feature where GitLab will suggest to developers who should review their code. They can find an expert who can provide better feedback, which creates more efficiency as well as higher quality, more secure code. To invite more personas to the platform like data scientists, we are also integrating the DevOps process with the MLOps process. We see this as the next big step in consolidating historically separate development workflows. Today, machine learning is an essential part of modern application development. Every significant application is going to have both code and models. Those models go through a lifecycle themselves, which includes training, testing, and deploying. Data scientists and engineers are critical stakeholders in this process, yet traditionally, they have been excluded from the collaboration and efficiency benefits of DevOps and automation, relying on either manual processes or a bespoke toolchain that they need to maintain. The benefits of our platform will help data scientists and engineers in several ways from collaboration with other teams, planning and managing project sprints, version control for automated workflows, streamline testing and validation, and simplified infrastructure management across multiple cloud providers. We are excited about the significant amount of innovation on our platform from enterprise agile planning to security to compliance to AI and machine learning. Finally, I would like to address why our One DevOps platform value proposition is mission-critical and resonating with customers in the market. From speaking with customers and prospects, we've assessed that companies are looking to achieve five main outcomes from their DevOps IT budget. They want to consolidate their software spend. They don't want to spend money on engineering time integrating tools. They would like to get more productivity from the current people they already hired. They would like the DevOps process to better enable their entire organization to deliver value to their customers faster. And they would like to generate more revenue by releasing customer-facing applications faster. GitLab provides the solution to achieve all of these outcomes. Our One DevOps platform helps companies reduce costs by consolidating from many vendors down to one. It frees up people from integration work. And in addition, moving to a platform allows for closer collaboration between development, security, and operations teams with fewer contact switches, which increases productivity and user satisfaction. What GitLab delivers is a faster cycle time, faster execution on cost-saving initiatives, and the opportunity for revenue acceleration. To quantify these benefits based on a study conducted by Forrester Consulting and commissioned by GitLab, our customers saw a 407% return on investment within three years of deployment of our DevOps platform. Having a comprehensive platform that solves so many problems while at the same time saving money is a superpower in economically challenging times. This value proposition translated into a number of strong business highlights in the second quarter. I'm proud to share that we added 696 net new base customers. Now let me give you an example of a new logo win, an up-tier and a customer expansion. First, a North American based global leader in cross-border peer-to-peer payments needed the DevOps platform that streamlined and automated processes, reduced cycle time, and provided the ability to set and enforce organizational policy across every stage of their development process. From a GitLab proof-of-value engagement, they realized a 30% efficiency improvement in building, securing, and deploying versus their previous toolchain implementation for both new and changing applications. As a result, they became a GitLab SaaS Ultimate customer, replacing a previous vendor's implementation. Second, a North American consumer research, data and analytics firm who has been a GitLab starter customer since 2015, merged multiple business units which had completely siloed DevOps tools. A new corporate initiative to move to the cloud catalyzed the need to quickly consolidate onto a single platform, to standardize their entire DevOps life cycle to increase operational efficiencies, decrease cycle time, and increase developer productivity. By migrating to GitLab, they immediately saw a threefold increase in productivity due to less maintenance time and fewer costs with a fully integrated GitLab SCM and CI and subsequently upgraded to Premium. Finally, a North American based motor vehicle manufacturing company was looking for an alternative to their existing DevOps products, because their workloads far exceeded the scaling capabilities of those tools. After working closely with GitLab, we've demonstrated our unique ability to scale to meet their volume needs while also enabling them to consolidate their tools. As a result, the customer expanded in the second quarter, increasing their number of Premium licenses by 40%. Another key strength of our go-to-market value proposition is our relationship with cloud hyperscalers. They view GitLab as an accelerant for customers to move to the cloud faster. We're also pleased with the number of higher-level strategic conversations that are happening at the C-level, addressing how GitLab can help them solve their business problems. In fact, in Q2, we were named as Google Cloud Partner of the Year for application development, following up from last year when GitLab was awarded Google Cloud Partner of the Year for DevOps. A powerful example of the result from these alliances is KeyBanc, one of North America's largest financial services companies. KeyBanc recently formed a partnership with Google Cloud Platform, or GCP, to move workloads from data centers to Google Cloud. In addition to their cloud migration effort, app development and modernization are key parts of their digital transformation goals. Their employees embraced a continuous integration and continuous deployment software development model, which the industry calls CICD. They chose GitLab to bring together their DevOps process, making an initial purchase of several hundred Ultimate licenses. We see this type of close alignment with other cloud providers, including AWS. In the second quarter, GitLab and AWS worked together to help a major airline manufacturer significantly reduce their risk of loss and downtime that was required for their business critical development needs. GitLab is now critical to this customer's developer team's success. They have now standardized us across thousands of users and crossed the $1 million threshold as a customer. These customer success stories in combination with the growth of our alliances and partnerships clearly show that the market is moving towards a platform approach to DevOps. We recently published our sixth Annual State of DevSecOps Report, a landmark research study of over 5,000 DevOps professionals from around the world. Among the many findings, we see a continued need for tool consolidation. 85% of DevOps teams used between tool chains and 69% of survey participants said they'd like to consolidate their tool chains. The need for a DevSecOps platform is clear. In summary, I'm very pleased with the quarter. We continue to innovate and create new capabilities for an expanded set of customers. We continue to demonstrate the promise of a platform over a point solution approach, and we continue to show that GitLab is mission-critical. We believe that we are early in a large and growing market. Our Q2 results demonstrate that we're well-positioned to drive durable growth with improving unit economics. I'm grateful to all our team members, partners, the wider GitLab community, and customers who contributed to our results. I also want to thank Eric Johnson, our CTO. He has resigned effective October 1 and will stay on as an adviser for six months. Eric has been with GitLab since 2017, and I want to thank Eric for our partnership over the last five years and wish him the best of luck. I will now turn the call over to Brian Robins, GitLab's Chief Financial Officer.

Thank you, Sid, and thank you again to everyone joining us today. I'd like to spend a moment reviewing the key characteristics of our business model and what we're seeing in the macro environment. Our platform delivers a strong ROI and positive business outcomes. Customers continually tell us that they strongly support our pricing model. 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 to keep our business model transparent and easy to understand. Our second quarter results continued to demonstrate our ability to drive high growth with improving incremental margins. Fueling these results are a number of key aspects of our business model that I would like to discuss briefly. These include: the predictability of a subscription model that provides high visibility; a platform sale rather than a point solution sale; a diversified customer base across industry verticals, customer sizes, and geographic regions; a short implementation cycle and an established and well-documented ROI. In addition, we price our platform in U.S. dollars, so we have no currency impact. These attributes contribute to the results we are seeing. To illustrate this, customer cohorts from seven years ago are still expanding today. Despite the volatility in the macroeconomic environment in the second quarter, we have not seen any impact on our business. Customers increasingly recognize the need to address multiyear digital transformation challenges. The current environment is not slowing down customer decisions, nor elongating our sales cycles. Buying cycles have actually sped up across the business, and we continue to see strong win rates. We're also happy with how we executed on hiring. We added a similarly strong number of new team members as we did in 1Q, and we experienced lower attrition. We view the uncertainty in the macro economy as a benefit for hiring new team members, and we currently have over 225 open positions that we're actively looking to fill. Next, turning to the numbers. Revenue of $101 million this quarter represents an increase of 74% organically from the prior year. We added the largest number of base customers ever in a single quarter. We ended 2Q with over 5,800 customers with ARR of at least $5,000 compared to over 5,100 customers in the prior quarter and over 3,600 customers in the prior year. This represents a year-over-year growth rate of approximately 61%. Currently, customers with greater than $5,000 in ARR represent approximately 95% of our total ARR. We also measure the performance and growth of our larger customers, who we define as those spending more than $100,000 in ARR with us. At the end of the second quarter of FY 2023, we had 593 customers with ARR of at least $100,000 compared to 545 customers in the prior quarter and 383 customers in the second quarter of FY 2022. This represents a year-over-year growth rate of approximately 55%. As many of you know, we do not believe calculated billings to be a good indicator of our business. Given that prior period comparisons can be impacted by a number of factors, most notably our history of large prepaid multiyear deals. This quarter, total RPO grew 76% year-over-year to $362 million. We ended the second quarter with a dollar-based net retention rate consistent with the previous quarter. This exceeded our reporting threshold of 130%, which remains best-in-class and consistent with our track record as a public company. The Ultimate tier continues to be our fastest-growing tier, representing 39% of ARR for the second quarter of FY 2023 compared with 29% of ARR in the second quarter of FY 2022 and continues to grow in excess of 100%. Non-GAAP gross margins were 89% for the quarter, which compares to 90% in the immediate preceding quarter and 88% for the second quarter of FY 2022. As we move forward, we are estimating a moderate reduction in this metric due to the rapid year-over-year growth rate of our SaaS offering. We saw improved operating leverage across the business this quarter, largely driven by revenue outperformance. Non-GAAP operating loss was $27 million or 27% of revenue compared to a loss of $24.8 million or 42% of revenue in Q2 of FY 2022. Q2 FY 2023 includes $5 million of expenses related to our JV and majority-owned subsidiary. We incurred a $2.3 million cancellation fee in Q2 as a result of our decision to postpone Contribute, our annual GitLab team event. Operating cash used was $36.3 million in the second quarter of FY 2023 compared to $17.1 million used in the same quarter last year. In summary, we're pleased with our operating performance during the second quarter of FY 2023 on both the top and bottom line and believe our business is set up for continued strength. We continue to see rapid growth while improving the underlying unit economics in the business. We monitor the key leading indicator metrics of our business, and we are not seeing any softening in these indicators. Now, let's turn to guidance. For the third quarter of FY 2023, we expect total revenue of $105 million to $106 million, representing a growth rate of 57% to 59% year-over-year. We expect a non-GAAP operating loss of $27.5 million to $26.5 million, and we expect a non-GAAP net loss per share of $0.16 to $0.15, assuming 149 million weighted average shares outstanding. For the full year FY 2023, we now expect total revenue of $411 million to $414 million, representing a growth rate of 63% to 64% year-over-year. We expect a non-GAAP operating loss of $111.5 million to $108.5 million, and we expect a non-GAAP net loss per share of $0.67 to $0.64, assuming 148 million weighted average shares outstanding. On a percentage basis, our new annual FY 2023 guidance implies non-GAAP operating margin improvement of approximately 1,250 basis points year-over-year with the midpoint of our guidance ranges. A few more details on guidance and our model. We now estimate that we will incur approximately $17 million of incremental expenses related to the resumption of travel and in-person customer and marketing events, as well as new public company costs that were not incurred in the first three quarters of FY 2022. In addition, we forecast approximately $20 million of expenses related to JiHu, our China joint venture. This compares with $12 million of combined JiHu and Meltano costs in FY 2022. I'd like to note we have deconsolidated Meltano, our majority-owned subsidiary. On the finance team front, Dale Brown, our Principal Accounting Officer, has shared his intentions of retiring next year. I want to thank Dale for all his contributions over the last three years and allowing for a smooth transition. As Sid mentioned earlier, we believe we're addressing a very substantial market opportunity that is currently underpenetrated and that we're well-positioned to capture our outsized portion of it. There has been no philosophical change in how we run the business to maximize shareholder value over the long-term. We continue to be focused on growth while driving improvements in the unit economics of our business. With that, we'll now move to Q&A. To ask the question, please use the chat feature and post your question directly to IR questions. We're ready for the first question.

Thank you, Sid and Brian. We'll begin by going to Kash at Goldman Sachs. Kash, will you please verbalize your question?

Sure. I'm happy to do it. Thank you very much. Congratulations on the quarter and the great improvement in operating margins. Sid, as you observe the competitive landscape, Microsoft has mentioned that collaboration is not only about developers, but also about collaboration among office workers, which is a significant focus for Teams. Additionally, Atlassian is undergoing a cloud transition and prioritizing collaboration between developers and non-developers. Monday has targeted developers specifically. Everyone seems to be attempting to make progress in an area where you already have a natural focus. How does this impact the competitive environment? Is there an added momentum due to the increasing awareness of what you can offer regarding development productivity and the software development life cycle? Also, how does your competitive standing change, if at all? Brian, regarding the various factors affecting the income statement and cash flow, particularly concerning one-time joint venture expenses, how should we view the trajectory for calendar year 2023 in relation to underlying improvements in operating efficiencies that might not be immediately obvious? Thank you very much.

Thanks so much, Kash, for those questions. So, if you look at GitLab, it's not just for developers. It's for developers, security people, and operations teams. Getting them to collaborate, well, that's the essential part because then you can get from, hey, we plan to do this, to getting it out there, getting it in the hands of your customers, getting feedback. So, closing that loop is the most important thing. And we have the leading DevSecOps platform in our opinion. That's really spectacular because think about security, it's a really big market. We are replacing vendors like Checkmarx, Veracode, and Synopsys because we have the whole thing. We have static and dynamic analysis. We have container independency scanning. We have the best processing tools in our opinion in the market. And not only do we have the most comprehensive security offering, we're able to link it with a really compelling development solution. We are expanding into operations. So, people can do the entire cycle. That's the power of one platform, and we believe that is really attractive in the market. So, we're not in a chat-tool business or something like that, but we do have the most comprehensive DevSecOps solution.

Got it.

And Kash, I'll answer the question just around cash flow and so forth. Yeah. I'm really happy with the business and the fact that we have a ratable business, so it's got a lot of visibility. We're really pleased with the trends that we're seeing. The number one thing that Sid and I have articulated on the road show as well as to the investor bases, growth is the number one thing that we want to do, but we'll do that responsibly. If you look at the second quarter, we delivered $101 million in revenue with a non-GAAP operating loss of $27 million. If you compare that to the second quarter of last year, we added $43 million of incremental revenue at the same operating loss if you extract JiHu. If you look at our guidance at the midpoint, we're going to deliver approximately $160 million of additional revenue this year over last year at an improved absolute operating loss than what we did last year, if you take away JiHu and some of the one-time events that we went through. So, I'm really happy with the incremental improvements that we've been making and the improving unit economics.

Thank you so much.

Our next question is from Karl at UBS.

Karl, you are talking. You are muted. Sharlene, we go to next one.

Next, we have Matt at RBC.

Thank you for taking my questions. Congratulations on the quarter. Sid, I wanted to start with you. In your prepared remarks, you mentioned a cloud or SaaS win. I asked you this a couple of years ago, and I'm looking for an update. Is there a network effect that customers experience from increased cloud adoption? Do they all benefit from your insights on what's happening with your SaaS deployment?

I think there is something to that. With SaaS, you're able to run experiments on a more gradual level and you're able to see more detailed results. So, the data we get from our SaaS services on how new features are performing helps us improve the product for everyone. So, increased SaaS users means we know better how our customers are using the platform, what features they enjoy, and what we should improve, and that improves the product for both SaaS and self-managed customers.

Super helpful. We appreciate the increased traction there. Brian, I'd like to ask you about the macro environment. It seems you’re not experiencing significant macro pressure, and there doesn’t appear to be any adjustments to your guidance. Could you clarify if it has been a consistent business environment for you? Was there a more back-end loaded aspect to the quarter? Any additional details on that would be great.

We're very pleased with the quarter, achieving a 74% year-over-year growth and gaining the largest number of new customers in our history. Upon reviewing our sales cycles, we found that they actually shortened this quarter, without any delays. As I prepared for this earnings call, I noticed that many other CEOs and CFOs discussed the shift in focus from point solutions to platforms for mission-critical applications and software. We observed significant movement in that direction this quarter and are very satisfied with the results we delivered.

Congrats, guys.

Thank you.

Next, we move on to Michael from KeyBanc.

Hi, everyone. I'm going to ask both questions at the same time. First, Sid, I want to commend what you've accomplished in a time when many are reducing their workforce, including reports of developer layoffs. At a high level, what do you attribute your continued growth to despite these reductions and the potential cutting of some projects? Also, I have a quick housekeeping question for Brian.

Thank you very much, Michael. We're definitely seeing that companies are cutting back on hiring developers, that they are sometimes instituting a hiring freeze. The situation they're faced with is that they have to do more with the people they already have, and GitLab enables them to do that. When they move to GitLab, they save on the integration effort. So the people who before were doing the integration of DevOps tools can start doing something that adds value to the business directly. Second, all their existing people get more efficient with GitLab because you don't have to go from point solution to point solution to point solution to get more work done in a day. So, without hiring, it kind of feels like they have more development capacity. Last but certainly not least, GitLab helps them to go faster. So, they're able to move to the cloud faster, close their data centers, and free up those people to directly add to their business. So, on three levels, moving to a platform helps. And that's why in this environment, GitLab is mission-critical. Companies are willing to free their budget for it. It's not an option to not do this; they have to undergo the digital transformation. They have to move to the cloud.

Thank you. Brian, similar to last time, you experienced significant growth in the licensing area of the business. In the previous quarter, there was a noticeable increase due to your standalone selling accounting, which affected revenue recognition. Was there any change in the year-over-year boost? I believe we are anticipating a couple of million dollars.

Before I respond, I’d like to build on Sid's comments briefly. Our cohorts from seven years ago continue to grow with us today. Regarding developer hiring, one internal metric we consider is landed total addressable market. When we secure an account, those cohorts from seven years ago are still expanding with us, and this is consistent across every quarterly cohort. We see significant upsell opportunities within all our current accounts. Customers typically start with Premium, then branch out to vision departments, and eventually upgrade to Ultimate, and so on. Despite some challenges in hiring, we believe there is considerable landed market for us to pursue. In terms of licenses, I mentioned we had a record quarter in terms of new customer additions. It was an excellent quarter. We do recognize a portion of the revenue upfront, which affected license revenue. With ASC 606, we conduct an annual assessment, and the percentage we applied this year is slightly higher compared to last year. We will maintain this assessment every quarter for the rest of this year. When we enter the first quarter of next year, we will conduct another annual assessment to evaluate the situation.

Thanks Brian. Thanks Sid.

Thanks, Michael.

Our next question is from Rob from Piper Sandler.

Great. Thanks for taking the question. I'd love to just drill down a little bit more relative to the record quarter of base customer adds. And Sid, is this maturity of the platform? Is this economic? Is it channel? Can you kind of stack rank for us why you're seeing such success right now in this environment relative to those new net adds? And then I do have a follow-up for Brian.

Yeah. Thanks for that. We believe that we're very early in a big market opportunity. Us and our biggest competitor together, we're less than 5% of a $40 billion market. Gartner said that DevOps platform adoption is 20% now, growing to 60% over a couple of years. If anything, the need to consolidate, the need to have fewer tools, and less integration efforts are only accelerating. Companies can't afford anymore to spend and solve everything by hiring more people. So, the macroeconomic challenges that the company faces only makes it more of an imperative to consolidate, to go to the cloud faster, and to embrace platforms like GitLab.

Great. And then, Brian, building a little bit on Matt Hedberg's question around linearity. You did see AR creep up. And so, if we match that kind of a billings days outstanding, higher than previous quarters. So, is this linearity? Is this economic? Is this big deals? Are these new levels that should be sustained moving forward? Can you help us out a little bit on that front? Thanks.

Yeah. I would just say that on the billing, we had two invoices, one that's been collected, and one that we'll get any day now. So that's on the billing that you've seen sort of the DSOs tick up a little. I would just say for the quarter, there wasn't really anything outside in the quarter that happened that has happened in other quarters. We landed a record quarter as well with AWS and GCP contribution. So once again, it was the largest quarter in company history of what they contributed as well.

And do those tend to lag relative to payments?

They do not. They're relatively same payment terms.

All right. Thanks.

And Rob, maybe to add to that, maybe give you an example. We had a global airline manufacturer signed with us this quarter. They are not in the business of spending more money right now. They're in the business of spending less money. But it is an imperative to get better at development, security, and operations. They became a customer this quarter even though there are a lot of ways in which every company needs to save money. They make the budget available to become a customer from previously using GitLab for free.

Great. Thanks for the color.

Next, we'll move on to Joel at Truist.

Thank you for taking my questions. One for Sid, one for Brian. Just to follow up on that, Sid, I would love to get your take on some of the partnerships that are really driving value for you right now and how you're positioned with them. And Brian, just to double down on that operating leverage. I know you talked about some of the operating leverage was driven by revenue outperformance. But I'd love to know what the other major drivers are of operating leverage going forward. Thank you.

Thanks so much. I'll go first and let Brian add. The most important partnerships for us are the ones with the hyperclouds. They're important for us because more and more of the purchasing is happening by these hyperclouds. They have access to the important C-level people. We are important to AWS and GCP. We mentioned we won a GCP award because they know if GitLab is in the account, they move to the cloud faster. The fastest way to do the cloud migration is to first get on one platform and then move, not to try to move 10 different point solutions at different speeds. That is way more hassle. So, it’s a partnership that's very symbiotic. We're super excited about the additional opportunities that are in partnering with hyperclouds like that and big partners like IBM that we love to work with.

And Joel, on the operating leverage side, I mean, we're seeing operating leverage across the business in all aspects. One great example I'll give is 2Q of this quarter versus 2Q of last year. Last year was 88% non-GAAP gross margin, and this quarter was 89%. So, even though with SaaS growing as fast as it is and costs us more to deliver, we're still putting in operational efficiencies to improve our delivery costs. Within the company, we pretty much have built out the management layer. Most of the net adds that we're doing is for capacity and in R&D to continue the enhancements and the releases that we've done. Across the entire business, we're seeing operating leverage in the business model.

Thank you very much.

Next, we have Koji from Bank of America.

Hey, Sid. Hey, Brian. Thanks for taking the questions. Just kind of a follow-up here on the record net new customer adds. Really great number there. I wanted to ask kind of on the average land ASP for those customers. Are they coming in bigger now, or are they coming in about the same from a historical perspective? And how are you thinking about customer land ASPs in the future, given all the macro factors that are going on out there?

I'm happy to take that, Koji. Thank you. The trends we've noticed indicate that average selling prices are increasing across all segments of the business. Contrary to some industry reports suggesting a decline, we have not experienced that. Instead, we've observed an increase across the board, which has been consistent with previous quarters.

Got it. Thanks Brian. And then just one follow-up here for maybe Sid or Brian. I noticed in the press release, you announced a partnership with a bunch of companies like Dynatrace and LaunchDarkly to launch this feature, OpenFeature. So, I guess, could you explain maybe from a high level, what is OpenFeature? And what sort of opportunity does this unlock for GitLab? Thanks guys.

Yeah. Thanks for the question. So, OpenFeature is a standardized way to make Feature Flags. Feature Flags is a functionality that allows you to put mostly new functionality to turn that on and off really quickly. It helps the company to release faster and more frequently while being able to quickly remediate if something gets broken. We already offer Feature Flags in GitLab today, but we want to make them better over time. We're excited to partner with Dynatrace, Google, LaunchDarkly, and a whole bunch of other great companies to standardize this. We believe that Feature Flags are much better as part of a platform. Feature Flags hook into your source code; they need to hook into your observability, and with GitLab, we can make that work right out of the box.

Got it. Thanks guys. Thanks for taking the questions.

Thank you.

Derrick at Cowen, will you please verbalize your question?

Great to see everyone. We've heard from many CIOs that vendor consolidation is a priority, which aligns well with your strategy and seems to be a driving factor. Would you say that the macro environment has actually increased the pace of legacy displacements over the past couple of quarters? Are there specific sectors where consolidation is a more significant trend or a greater advantage for you?

Yeah. We are certainly seeing that with customers that say, 'Look, we need to consolidate, and we want to move to fewer tools, and that's why we're considering GitLab.' So, this is a tailwind. In this macroeconomic environment, you have to be able to save people money, do more with fewer people. So that's been a great thing. We are seeing that across all verticals. All verticals are cutting back and want to consolidate. We do see that the more projects companies have and the more tools they have, the more compliance they need, the more attractive it is to consolidate because kind of their complexity grows almost exponentially. But we believe that's also kind of just the future, right? Companies are going to have more and more future software projects. Companies are going to need more compliance, whatever industry you're in. So, it's been consistent across verticals.

Great. Thanks. Maybe one for you, Brian. Last quarter, you talked about EMEA having a record pipeline. Clearly, it doesn't sound like you're seeing any macro headwinds. But could you just compare and contrast what you're seeing out of Europe versus the U.S.?

Yeah. I would just say we have strong macro tailwinds around digital transformation and the growing security threat landscape. The pipeline across the entire company is the strongest it's ever been. Win rates have been pretty consistent with last quarter and we are not seeing deals being pushed.

Great to hear. Thanks.

Thank you.

Now we move on to Jason from William Blair.

Thank you. Hi, guys. First one for Sid. On their earnings call last week, MongoDB talked about their consumption-based model and linkage to application utilization as reflecting almost a real-time view of the macro environment, which according to them, is getting worse. My question is, how would you compare and contrast where you guys sit relative to Mongo and your confidence in terms of how close you are to feeling macro impact in real-time?

Yeah. We're a different model. We charge per user per year and we're seeing that there's a lot of upside for us still. So, there's a lot of ways to grow within the companies we're already at, like we're nowhere near kind of having all their users and we have a lot of room to grow in upselling from free to paid, but also from Premium to Ultimate. So, we're not seeing those consumption headwinds. In fact, as we talked about before, companies now need to save money, and GitLab is a way to save money and make your existing people more effective to do more despite having a hiring stop. Brian, anything you want to add?

I would agree. We have excellent visibility. One of the advantages of our ratable model is the clarity it provides into revenue. With over 200 open positions and insight into our pipeline, we can make macro adjustments as needed. So far, we haven't encountered any issues. We're very pleased with the growth in our customer base, our net dollar retention rate, and the operational leverage we're achieving in the business. Overall, we're satisfied with the trends we are seeing.

And then one quick follow-up for you, Brian. Can you remind us at a high level on expectations for JiHu for next year, both in terms of OpEx and revenue contribution?

We haven't given out anything for next year yet on JiHu.

Okay. But at some point, you're going to get some revenue contribution, correct?

That is correct. Thank you.

Next, we have Karl at UBS.

Okay. Great. Thanks for taking the question. Sorry about before. Hey, Brian, maybe this is for you. On the 3Q revs guide, 59% is pretty phenomenal. But optically, it's a 15-point decel on an 11-point easier compare. So, I just wanted to press you: is there anything either in the year-ago period or in the coming October period that might be distorting that comparison? Any one-time stuff? Maybe anything related to the SSP issue you called the last quarter to share with all of us? Thank you.

Yeah. Thanks for your question. We're super happy with our performance and guidance. We beat by $7 million. We raised the full year by $12.5 million to midpoint. We're currently guiding to a 63% to 64% year-over-year revenue growth. Our guidance includes the impact of Russia, the true-ups, where we don't have FX exposure, but we bill and collect in U.S. dollars. All that we've put into our guidance. I'm really happy that we've been able to raise the annual guidance and continue to get operating leverage in the business. If I look at the guidance from the beginning of the year, we've increased guidance by $24 million at the midpoint of 1Q, and we're doing this for $30 million less in non-GAAP operating income.

Yeah. Agreed. Thank you Brian.

Thanks Karl. Appreciate it.

Next, we have Pinjalim at JP Morgan.

Thank you for taking the question, and congratulations on the fantastic quarter. I wanted to ask about the free user elements that seem to be implemented for October this year. Can you provide an estimate of how many users will be affected? How should we understand the impact of this change on the business or in the fourth quarter of the next fiscal year? Will it be material?

Yeah. Thanks for that. So, we want to make sure that our free plan is sustainable, so we've instituted stores and user limits and that's going to help us become more efficient. Some users will opt to reduce their usage or leave, and some of them will opt to become paid customers, and that is baked into our guidance.

Okay. Understood. And one for Brian. The net retention rate seems like it's 130%, pretty good. Is it possible to directionally understand that number maybe in terms of the gross expansion or the gross churn within that particular number directionally if it is up or down versus last quarter?

Let me clarify. We report that as a threshold greater than 130%, so it's not exactly 130%. In my prepared remarks, I mentioned that it is actually consistent with previous quarters. The primary factor for net dollar retention rate is the addition of seats, followed by up-tiering to Ultimate.

Got it. Thank you.

Our next question comes from Nick at Scotiabank.

Thanks for the update. You mentioned that sales cycles are getting shorter and land ASPs are increasing. Can you elaborate on the factors behind this? It seems like you have highlighted this trend multiple times recently. Is this primarily due to a more developed go-to-market strategy, or is the top-down sales approach facilitating faster budget approvals? Any insights you can provide would be appreciated.

Yeah. Happy to. Thanks for the question. When we were getting ready to go public, one of the things I talked about was we're adding a whole bunch of new go-to-market motions. Up until that time, the company was primarily a direct sales go-to-market. Since then, we added alliances, hyperscalers, a channel program, and so forth. We've added a number of new go-to-market motions. They're still relatively early, but we're very happy with the progress we've seen. As I mentioned, the hyperscalers, AWS and GCP, combined had their largest quarter with us in company history, and we're seeing a lot more deals come through that channel. We're really happy across the board. We wanted to be aware of a lot of other comments that were made, so we went and looked at deal cycles and looked at that. We looked at ASPs. I think it just goes, as Sid alluded to earlier, we're so early in such a big market. People are wanting to get rid of point solutions and move on a platform to develop software better, faster, more securely, and that's what our platform does. As we get greater penetration, you'll see the results that we're publishing.

Great. And then just another quick one. The federal side of the business is roughly 10% of revenue. Can you just give an update there given that fiscal year's closing? How is that pipeline looking? Was there any contribution from that sector that fell into 2Q? Any color around that would be helpful.

We're super happy with how we're doing in the public sector and in the government market. What we're doing is baked into our guidance, but we're seeing increased adoption, and we're very happy with how that is developing.

Great. Thank you.

Our final question comes from Mike at Needham.

Hey, great. Thanks for squeezing me on guys. First question I had was with respect to these sales cycles which we're talking to. And I wanted to see if we could slice it up just a little bit differently here. Is there a way to give a sense for the magnitude of what the delta is when thinking through those shortening sales cycles? Or better said, I guess, how much would you attribute to the elevated conversations or engagement that you guys are having with the C-suite? What is the durability in your view of these shortened sales cycles? Or is it really just a data point today, not yet calling a trend as far as these shorter cycles we're seeing? And then, I have a follow-up as well. Thank you.

Yeah. I think you're right on that. It's just a data point that we wanted to point out. As we prepare for these calls and look at all the data across the board, this was something that was mentioned or asked about on a lot of other calls. The awareness of just a DevOps platform and GitLab helps, and then also the time to value and business outcomes that we're driving and a number of people wanting to get rid of point solutions and get on a platform for the efficiency. I think all of these are key characteristics that contribute to the shortening of sales cycles.

Thank you for that. I appreciate it. And if I could just follow-up with one other question. It was more around the GitLab v15 launch that you guys spoke about. You highlighted three things, one of them being the AI/ML. I think it probably goes back to some of the earlier comments from you guys with respect to how early we are in this $40 billion TAM. But I just want to take broad brushstrokes here for a second. If I think about DevOps, like we've been talking about this now since I want to say like 2008, 2009 timeframe and DevSecOps, maybe 2014, 2015 timeframe, and both of those are still very, very early. Now, we're talking about DevOps plus MLOps, which is intuitive, makes all the sense in the world to me. But just wanted to get a sense again about how early stage are we? I have to imagine that the decision to combine those two workflows is based on customer feedback. But if you could frame out those parameters in any way, I would definitely appreciate it.

Yeah. Thanks for that question. If we look at AI/ML, there are two things happening. We're using it to make GitLab better. A great example of that is code reviewers. GitLab now suggests, 'hey, this person might be the best person to review your code.' So that's making GitLab the DevSecOps better for everyone. The other thing is helping data scientists do their work. Today, they have a completely different tool stack. That tool stack would really benefit from the practices that are already prevalent in DevOps. We're starting there now with features like better Jupyter notebook tips. After launching that, we've seen the usage of Jupyter notebooks in GitLab increased. We'll continue to add to that. For example, while our planning is fluid, we're considering a model registry, adding that to GitLab in the future. We're not sure we will do that, but that's something we're looking at. These investments will bear fruit over a very long period of time. It’s not that we're going to be great tomorrow, but we're sowing the seeds along with the wider community. We see a great convergence happening where AI/ML engineers have to collaborate with DevSecOps people and vice versa, because every significant application in the future will need both.

Thank you for that. I appreciate the color, and I totally appreciate how this is all very early. But great to see how you guys are thinking about the product picture here, and looking forward to seeing more with respect to the evolution of the platform. Thank you.

Thanks so much.

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. I'd also like to thank our partners, the wider GitLab community, and all of our GitLab team members for all of their contributions. You all have a big part in our continued success. Thank you very much.

Thanks again everyone for joining us. Have a great day. Goodbye.