Today's call is being recorded. I will be available for assistance. Now, I will hand the conference over to Kelsey Turcotte. Kelsey, it’s your turn.

Good afternoon. We appreciate you joining us for GitLab's second quarter fiscal year 2025 financial results conference call. GitLab's Co-Founder and CEO, Sid Sijbrandij; and GitLab's Chief Financial Officer, Brian Robins, will provide commentary on the quarter and guidance for the fiscal year. Before we begin, I'll cover the safe harbor statement. I would like to direct you to the cautionary statement regarding forward-looking statements on Page 2 of our presentation and in our earnings release issued earlier today, which are both available under the Investor Relations section of our website. The presentation and earnings release include a discussion of certain risks, uncertainties, assumptions and other factors that could cause our results to differ from those expressed in any forward-looking statements within the meaning of the Private Securities Litigation Reform Act. As is customary, the content of today's call and presentation will be governed by this language. In addition, during today's call, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures exclude certain unusual or nonrecurring items that management believes impact the comparability of the periods referenced. Please refer to our earnings release and presentation materials for additional information regarding these non-GAAP financial measures and the reconciliations to the most directly comparable GAAP measure. I will now turn the call over to GitLab's Co-Founder and Chief Executive Officer, Sid Sijbrandij.

Thank you for joining us today. I'm excited to share our second quarter results with you and discuss our market-leading DevSecOps platform and its AI capabilities. We continue to deliver strong results that reflect our team's focus on customers, helping them achieve faster time to value and tailored business outcomes. In the second quarter, revenue rose by 31% year-over-year to $183 million, driven by new clients like Delaware North and Guild Mortgage, in addition to expansion from existing customers. Our non-GAAP operating margin also significantly surpassed our expectations for the quarter, increasing over 1,300 basis points year-over-year to 10%. This highlights our ongoing commitment to responsible growth. Now, more than ever, organizations need to deliver software faster to respond to intense competition and improve performance. This is the purpose of our DevSecOps platform. We connect developers, security experts, and operations teams to enhance collaboration, improve quality, and prioritize security, all while reducing software delivery cycle times. With AI integrated throughout the software development lifecycle, GitLab customers can maximize these benefits. Enterprises are focused on real results and practical applications for AI, looking to incorporate it into every facet of software development to achieve measurable outcomes. This necessitates a strategic approach that aligns AI solutions with business objectives, offering verifiable advantages and improving security. This is where GitLab stands out. Our customers appreciate the substantial productivity and security enhancements of GitLab Duo, which has shown a reduction of up to 90% in time spent on toolchain operations, alongside a 50% decrease in lead time and a 50% quicker detection of vulnerabilities. They are also enthusiastic about our ability to assist them in achieving real business results. For instance, the State of Washington Public Disclosure Commission remarked that GitLab Duo is enhancing their developer productivity and effectiveness, allowing their teams to focus more on meaningful work. AI is contributing to larger deal sizes; Barclays purchased GitLab Duo seats this quarter along with additional Ultimate licenses, rolling it out to thousands of developers to leverage AI-powered features within the same platform where they develop and deploy their code. It's exciting to witness large enterprises like Barclays embrace AI as a natural progression toward simplifying toolchains and enhancing the developer experience. F5, a multi-cloud application security and delivery firm, is another customer adopting GitLab Duo after realizing value from Ultimate in enhancing developer experience and productivity. Developers involved in F5's pilot of GitLab Duo reported that our AI features are user-friendly and increased their productivity. F5 is now making GitLab Duo available to all its two thousand developers. The KeyBank team sought to enhance developer productivity, so they implemented GitLab Duo. Together with our DevSecOps platform, GitLab Duo is enabling KeyBank developers to resolve pipeline issues six times faster. GitLab Duo is KeyBank’s first approved AI technology, aligning with our emphasis on transparency and privacy. The combination of our end-to-end platform and AI is driving results for our clients. According to Gartner, by 2027, the utilization of AI in platform engineering teams for every phase of the software development lifecycle is anticipated to rise from 5% to 40%. This underscores our satisfaction with the results of two recent Gartner Magic Quadrants. Firstly, GitLab was recognized as a Leader in the inaugural 2024 Gartner Magic Quadrant for AI Code Assistants. We believe this acknowledgment reflects our dedication to providing AI-powered capabilities that accelerate software delivery, enhance security, and foster innovation for our clients. Additionally, for the second consecutive year, GitLab was acknowledged as a Leader in Gartner’s 2024 Magic Quadrant for DevOps Platforms, where we ranked highest in both our Ability to Execute and Completeness of Vision. Our market leadership stems from our integrated security and compliance features, deployment flexibility, and unified data storage, providing comprehensive context throughout an organization’s software development and deployment workflow. Customers gain significant returns on their investments by adopting our DevSecOps platform. A recent Forrester study on the Total Economic Impact of GitLab Ultimate indicated that organizations can realize a 482% return on investment over three years, nearly a 60 percentage point rise compared to our previous study two years ago. These findings reflect our continuous efforts to enhance developer productivity, improve developer experience, accelerate feature delivery, strengthen security, and consolidate toolchains. Our customers frequently mention the benefits of toolchain consolidation. In our annual survey of over 5,000 DevSecOps professionals, 62% indicated that their teams utilize more than five tools, and 64% expressed a desire to consolidate their toolchain for greater efficiency. This presents a considerable opportunity for us as a platform to enable customers to consolidate vendors and lower their total cost of ownership. One of GitLab's strengths is our capacity to assist customers in replacing outdated point solutions. For example, Lockheed Martin consolidated on GitLab, achieving 80-fold faster CI pipeline builds, retiring thousands of legacy CI servers, and reducing system maintenance time by 90%. This change led to a substantial boost in efficiency and productivity for Lockheed Martin. Another case is that of a leading innovator in materials science, which is using our Enterprise Agile Planning add-on along with GitLab Ultimate to centralize planning tools within a single platform and improve visibility across the organization. Our customers also prioritize security as a vital necessity. Recent events have heightened awareness and urgency among executives regarding the need to embed security in the earliest stages of software development. GitLab Ultimate addresses this need by shifting security left in the process, seamlessly incorporating security checks and guardrails into the software development pipeline. This comprehensive approach not only instills confidence among security leaders but also significantly enhances the developer experience by minimizing context switching and post-deployment troubleshooting, allowing developers to maintain their critical state of flow. Consequently, this leads to faster, more secure code delivery. GitLab transforms security from a hindrance into a strategic advantage for innovation and reliability. Security and compliance capabilities are foundational to Ultimate and distinguish us from competitors. Ultimate is particularly suited for customers needing enterprise-grade functionalities to meet ongoing demands for speed and increased software production. In the second quarter, 7 of our 10 largest deals involved Ultimate purchases, and 7 of our top 10 first-order customers opted for Ultimate. By the end of Q2, Ultimate represented 47% of total annual recurring revenue. For example, the National Oceanic and Atmospheric Administration upgraded from Premium to Ultimate this quarter for enhanced security and compliance, also acquiring GitLab Duo to boost their developer productivity. Security is a crucial consideration for customers adopting GitLab Dedicated, our single-tenant SaaS offering fully managed by GitLab. This distinctive offering is especially beneficial for companies with complex security and compliance needs, particularly in regulated sectors like the public sector and financial services. Snowflake recently transitioned to GitLab Dedicated for source code management, CI, and security in their corporate environment. With GitLab Dedicated, Snowflake benefits from the security of a single-tenant environment along with all the advantages of an end-to-end DevSecOps platform. We are also pleased to announce that we have attained the “In Process” designation for FedRAMP Moderate, further aiding public sector agencies and clients in highly regulated fields to meet stringent security and compliance standards imposed by the U.S. government. We expect this designation to enhance the significant momentum we’ve already gained in the public sector. In summary, Q2 was a strong quarter, and I am proud of our accomplishments. I also want to express gratitude to the GitLab team for their contributions to our ongoing success. As we look to the second half of fiscal 2025, I am truly enthusiastic about our ability to continue driving customer success and the potential AI has to accelerate business outcomes. Now, I'll hand it over to Brian.

Thank you, Sid, and thank you again for everyone joining us today. This quarter's results validate the value that our customers get from our integrated platform. In today’s cautious macroeconomic environment, technology needs to deliver quick time to value while solving complex, impactful problems. That is what our AI-powered DevSecOps platform does. A great example is Intuitive Machines, which became the first U.S. venture in 50 years to land a spacecraft on the moon. Integral to the success of the project was GitLab. Our end-to-end platform enabled dozens of developers to write code, gain visibility, and collaborate on shared projects. The result was a 10X increase in release cadence, a 99% reduction in downtime, and a 20X decrease in pipeline execution time. Quoting one of the software leads on the project, we absolutely could not have built a spacecraft in five years without GitLab. It helped us make history. Turning to Q2 FY25, results exceeded our expectations as we delivered another quarter of greater than 30% top-line growth and significant year-over-year operating margin expansion. Second quarter revenue reached $182.6 million, an increase of 31% from Q2 of the prior year. We ended the quarter with a dollar-based net retention rate, or DBNRR, of 126%. Q2 DBNRR was driven by a combination of seat expansion, at approximately 40%; increased customer yield at approximately 50%; and tier upgrades, at approximately 10%. In addition, all of our historical cohorts continue to steadily expand. We now have 9,314 customers with ARR of at least $5,000, an increase of approximately 19% year over year, and contributed over 95% of total ARR in Q2. In particular, we monitor performance of our larger customer cohort of $100,000 plus in ARR, which reached 1,076 this quarter, an increase of 33% year over year. In fact, more than 65% of new dollars invested by this cohort was in Ultimate this quarter. A great example of customer success with these large customers is bol, one of the biggest online retailers in the Netherlands. As bol's revenue grew, they needed to keep up with the strict and constantly changing compliance regulations. With GitLab, bol can set up policies that automate compliance configurations and checks, saving thousands of developer hours per month. This quarter total RPO grew 51% year-over-year to $747.9 million, while cRPO grew 42% year-over-year to $475.0 million. Non-GAAP gross margins were 91% for the quarter. SaaS now represents 28% of total revenue, in part a reflection of the considerable traction we are getting with GitLab Dedicated. Year-over-year SaaS revenue grew 46%. Given the continued high growth in SaaS, I am very happy with the team’s attention to operating efficiencies which continues to result in best-in-class non-GAAP gross margins. Once again, we saw significant year-over-year improvement in operating leverage. Q2 non-GAAP operating income was $18.2 million, compared to a loss of $4.3 million in the second quarter of last year. This quarter, we dropped all of our revenue outperformance to the bottom line which, in combination with the team’s continued focus on smart resource allocation, translated to a non-GAAP operating margin of 10% compared to negative 3.1% in Q2 of last year. This once again demonstrates our commitment to responsible growth. Cash from operating activities was $11.7 million in the second quarter compared to $27.1 million in the prior year period. Adjusted free cash flow was $10.8 million in the second quarter of FY25 compared to $26.8 million in the prior year period. Q2 FY25 cash flow from operations and adjusted free cash flow reflect the timing of payments for our Q1 global employee gathering made in Q2. Now, turning to guidance. For the third quarter of FY25, we expect total revenue of $187 million to $188 million, representing a growth rate of 25% to 26% year-over-year. We expect a non-GAAP operating income of $19 million to $20 million, and we expect a non-GAAP net income per share of $0.15 to $0.16, assuming 168 million weighted average diluted shares outstanding. For the full year FY25, we expect total revenue of $742 million to $744 million, representing a growth rate of approximately 28% year-over-year. We expect a non-GAAP operating income of $55 million to $58 million. And, we expect a non-GAAP net income per share of $0.45 to $0.47, assuming 168 million weighted average diluted shares outstanding. Separately, I would like to provide an update on JiHu, our China joint venture. In Q2 FY25 non-GAAP expenses related to JiHu were $3.3 million compared to $4.8 million in Q2 last year. Our goal remains to deconsolidate JiHu. However, we cannot predict the likelihood or timing of when this may potentially occur. Thus, for FY25 modeling purposes, we forecast approximately $14 million of expenses related to JiHu, compared with $18 million last year. Thank you all for joining this afternoon. We delivered a strong Q2 and I am really pleased with how we are positioned as we head into the back half of FY25. We appreciate your support and look forward to speaking with many of you during the quarter. With that, I will turn it over to Kelsey who will moderate the Q&A.

Great. Thank you very much. I appreciate everyone joining. We are going to start by taking one question and one follow-up question. And our first participant is Joel Fishbein at Truist. Joel, go ahead.

Congrats on a strong quarter. I would love to get an update from you on how you're thinking about the go-to-market going forward? Obviously, you had a changeover in leadership there. And despite that, you had a very solid quarter. Just curious what you're looking for in a new leader. And just a quick question for you, Brian, on a follow-up.

Thanks for that, Joel. Yes, Chris was doing a great job; we would love to continue to have him here, but he found another opportunity. We've launched the search and we've been really impressed with the quality and the quantity of candidates. And in the interim, we're really pleased with how smoothly the team has transitioned to Ashley's leadership. In her role as Chief Marketing and Strategy Officer, she was already very in touch with both our customers and the sales leadership, but that enabled a smooth transition, which supported our raising guidance this quarter.

Great. And Brian, just a quick one for you. I mean, you outperformed very significantly on the operating margin line. I believe you're still going to prioritize growth over margins, but any color you could give us there would be really helpful.

Thanks, Joel. I appreciate that. Yes, we have not changed our approach regarding pre-IPO matters each quarter. Sid and I have emphasized that growth remains our top priority, and we will pursue it responsibly. We continue to enhance our operating leverage with year-over-year growth exceeding 30%. I'm pleased with our performance this quarter and satisfied with the upward adjustments for the year.

Next question goes to Ryan MacWilliams at Barclays. Ryan, go ahead.

Just in terms of what you're seeing in the macro right now, do you know us any differences between the second quarter and the first quarter? And how are you seeing developer hiring at this point?

Yes. Thanks for the question. There's really been no difference between the two quarters. It still remains a cautious spending environment out there. And so, we're enabling our teams to go out there and the pitches are more financially related. And we haven't seen really any changes in trends on developer hiring either, and so first order continues to remain really strong. That's really the power of the platform in the payback period that Sid talked about with the Forrester report and the ROI that our customers are receiving.

Second question was around developer hiring?

Yes, developer hiring has remained the same. No changes.

Excellent. And then for Sid, there's been a lot of focus on the coding assistance around generative AI. But as you're seeing the velocity of software development pick up, are you seeing more interest from customers around non-coding tools, as they utilize AI within their coding process, such as securing binaries or more security around their software development lifecycle? I would appreciate more color here.

Yes. We view the market this way. The initial focus was on AI code creation, and we're pleased that the latest Gartner AI Assistant Magic Quadrant recognizes us as the only non-hypercloud leader in this area. The next phase involves integrating AI throughout the entire software lifecycle. We believe we are well-positioned with our dual enterprise approach. In the recently released Gartner Magic Quadrant for DevOps, we are recognized as a leader, achieving the highest scores for both execution and vision. Our robust and expansive platform gives us a competitive edge in this field. Additionally, we anticipate more autonomous AI and a shift in augmented reality from reactive to proactive. I am genuinely excited about our progress. At our GitLab 17 event, we showcased GitLab Duo, a workflow and autonomous agent designed to take more initiative. This is where the industry is headed, and we are scaling our operations in alignment with this direction.

Jason Ader, next, from William Blair. Jason, go ahead.

All right. I guess there's a sense out there Sid that because of GitHub's faster growth rate recently that they're growing faster than you and taking share. I mean, I guess they are growing faster than you, but how do you think about the kind of share shift, if at all, in the market? Are you just both doing better than everybody else, and that's the explanation? Or do you think you have GitHub could be taking some market share?

I believe customers are moving towards platforms, which is advantageous for both of us. We are still in the early stages. Looking at our combined revenue, it represents a minor segment of the $40 billion market. However, it's important to note that they gained an advantage in AI co-creation by acquiring OpenAI early on. Currently, we are the only non-hypercloud provider recognized as a leader by Gartner. This achievement is due to two key factors: having an excellent model and strong context. We maintain a vendor-agnostic approach. Presently, we utilize Anthropic Claude 3.5, the best model available for co-generation. In terms of context, we have a deeper understanding of what users are engaged in and their past activities because we operate on the broadest platform and have more contracts. Enhanced context results in improved AI responses. Consequently, we feel confident in our competitive position.

Okay. Great. And then Brian, just a follow-up for you on net retention rate and DRR, it was 126, it's continuing to come down? Do you think we bottomed? Where do you see NRR maybe exiting the year?

Thanks for the question. We're happy with where we landed in the quarter. I don't see anything with the dollar-based net retention rate that's a concern for me. All our historical cohorts continue to steadily expand. The composition of our net dollar retention rate includes seats, which is an output for us. Just as a quick reminder, last year, we signed the largest deal in company history, which has been a tailwind for us for seats over the year. We don't view a change in the ratio as a reflection of any recent developer hiring trends. As Sid said, this is a big market, very low penetration. We have lots of room in front of us for growth.

Next question goes to Kash Rangan from Goldman Sachs. Kash, go ahead.

Great. Congrats on the beaten race quarter. I hope you enjoyed your summer. One for Sid, one for Brian. You talked about GitLab as being the unique company that it's not a hyperscaler, you have these AI capabilities, is that strength a key selling point in your end markets? I think we can all safely agree that Duo just got going seven to eight months ago. It's still too early in the AI race. So, how do you think that, given that we're early and you're off to a good start, that this hyperscaler neutral positioning actually does give you an advantage in the long run? And then one for you, Brian, I think you talked about a smaller percentage of the growth rate in ER coming from price increases. Can you help us understand what is ahead for the Company, especially as you go through the motions of renewals from the other pricing tiers and the subsequent price increases that could help your contribution to the growth get even better.

Yes, Kash, thank you for that question. Being hyperscaler-independent and vendor-agnostic is good, but it's not enough. The key reasons we win against Microsoft GitHub are that we have, first of all, the most comprehensive platform. When the platform can do more, our customers can get a 10x faster cycle time. The second reason is we have the best security. We allow our customers to shift security left, always do security and prove that they've done it. The third reason is that we really listen to our customers. We're the only vendor with a single-tenant SaaS solution, GitLab Dedicated, that's going really, really fast. We're getting the acknowledgment that we're executing well. Today, we are a leader in the MQ for DevOps. We're all the way to the top, all the way to the right, and that's enabling our customers to get the biggest return, or 182% ROI according to Forrester. The interesting thing is that's 60% more than the previous study. The benefits of being on the broadest platform are increasing. Our customers are better and better off over time being on GitLab.

Thanks, Sid. I'll touch on the price increase real quickly, Kash. There's a couple of things to touch on there. One is we do break out quarterly and dollar-based net retention what impact is related to seats, price, which has also increased customer yield as well as tier upgrades. What I really care about when I look at that is that the positive unit economics are growing really nicely in the business. I talked about this in the Q1 call, and I'm happy with how we're doing there. Going forward, we expect the price increase to continue to layer in overtime as we cycle through the renewal portfolio. We're partially there, but we'll see impact throughout this year and next year related to that. Overall, I'm really pleased with the returns that we're seeing from the price increase and the consistently improving unit economics, which shows the value that customers are getting from the platform and as part of the total economic study increasing as well.

Next question comes from Karl Keirstead of UBS.

Okay. Great. Maybe on the AI side, so those anecdotes about Barclays, F5 and KeyBanc are pretty powerful, maybe a two-parter for you. Are any of those customers or maybe some of your other early Duo wins, customers that were using GitHub CoPilot and now that Duo has closed a lot of those functionality gaps are moving off of Microsoft? And then I guess the second question said, I could be wrong on this, but my understanding was that to Duo at least initially, was quite rooted in Google's LLMs. I'm wondering if this change, assuming it is to Anthropic's Claude model, had a marked improvement in the functionality of that co-gen tool.

Yes. Thanks for that, Karl. If you look at customers evaluating Duo Pro and Duo Enterprise, I think there's nearly zero customers that don't know that Copilot exists. For most of these customers, they've had pockets of use, and they do commonly a head-to-head comparison. So, we're winning against Copilot. Regarding the best model for the task, we're still using some of Google's models, but for co-generation, the most vivid application right now, the best model on the planet is Anthropic Claude 3.5. You can look on the Internet, that's consensus. We found the same in our testing, and we can switch to that. We're not beholden to using any HyperCloud product. We haven't bought an AI company or an AI foundational modeling company, and being able to use the latest and greatest is a great advantage because it gives our customers better code.

Next question goes to Rob Owens of Piper Sandler. Rob, go ahead.

Great. Brian, realizing there's a lot of puts and takes around the revenue growth number, just with changes to our SSP. I guess I'll have two questions kind of masked in one. Number one, did that come in relative to your expectations? And is there no change to the year if we think about the headwind that you called out on last quarter? And I guess, secondarily, looking at a lot of the leading indicators, RPO up quarter-over-quarter, CRP up quarter-over-quarter. I think one of the best growth results you've seen in the last year, can you speak to large deal activity right now upsell versus new customer commitments and just what you guys are seeing on that front?

Yes, absolutely. Thanks for the question, Rob. When you look at sort of the SSP and for everybody, that's just accounting on how it gets allocated. It doesn't impact the overall deal itself. We actually took a little bit of a hit this quarter related to SSP that we talked about on the last call. That was assumed in the numbers. We're doing well across the business. First-order is doing well. Expansion was well. We had the best quarter in churn and contraction in the last eight quarters. On prior calls, I said that I thought that second quarter, we would have run through most of the contracts and churning contraction was better in eight quarters. The other thing that we saw is we actually saw real strength in the enterprise greater than $100,000 customers growing over 30% year-over-year. We saw a lot of expansions and lands in that area as well. I think it just goes to some of the things that Sid said previously around time to value, positive business outcomes, ROI, consolidating a tool chain onto a single platform has just created a lot of benefit, and we're seeing the positives of that sort of show up in the model.

Next question comes from Michael Turrin at Wells Fargo. Michael, go ahead.

Thank you, Kelsey. I appreciate you asking the question to your team. I'll ask both parts upfront. In response to some of the earlier questions, the leading indicators look promising, and we are not observing many similar trends in the software sector. CRPO billings and bookings have increased by more than 40%. Could you provide more insight into that strength and let us know if there's anything one-time in nature that we should be aware of in those metrics? Brian, could you also explain the assumptions you've included in the forecast for the remainder of the year considering the Q2 strength in relation to the macro environment, seats, sales execution, or anything else worth discussing?

I appreciate the two questions. On the forecast and how we're running the business and the transition of actually taking over the interim CRO role, there's really been no changes whatsoever and actually has been really plugged into the entire sales force and visiting customers and worked really closely with Chris. So, we're happy about the minimal disruption there with Chris' departure. All the metrics that you talked about, CRPO have grown 42% year-over-year, short-term calculated billings around 40% year-over-year, Ultimate ARR now 47% of total ARR and was greater than 50% of bookings within the quarter and that really coming from the enterprise base that we have. Our deals are getting larger, Ultimate adoption is increasing, Ultimate is good for us and our customers, and I think you see that in the metrics itself. We also saw Dedicated grow roughly 150% year-over-year, SaaS was great. We're seeing strengths sort of across the board from our customers who are adopting the platform.

We'll turn the questions over to Pinjalim Bora of JPMorgan.

Congrats on the quarter. I wanted to ask you, Sid, obviously, it seems like we are seeing some of the AI adoption. But any way to further quantify it in terms of maybe the portion of the customer base or users that are touching the product today and what portion of the codes that are being written by the AI as being committed? Any further kind of quantitative metrics?

Yes. Thanks for that. It's still early for us. You heard from Barclays, F5 Nova, but if you look at the quotes going on, not all of them have AI in it. If they have AI, they typically don't have AI for all the users of our customer yet. So, customers are early in this adoption cycle. We cater to the enterprise. They are relatively slower to adopt this and more considerate. It's really important that we listen well to these customers. For example, we are accelerating our work on offline models because our customers are requesting that. We see a giant opportunity for AI throughout the lifecycle. Our GitLab Ultimate customers predominantly think that Duo Enterprise is a really, really good value proposition, and that's a big focus of ours.

Yes. Understood. One follow-up for Brian. Brian, what portion of the contracts from existing customers at this point are completely through kind of the first phase of your pricing change from 19 to 24? Is it fair to assume that it's largely complete by this point? And the second phase of the rollout, which I believe started at the end of April, if I'm not wrong, did it have any impact in billings or RPO performance this quarter?

Yes. So, on the price increase impact overall, remember, we weren't allowing people to early renew. It really comes up when their renewal comes up and they would go 19 to 24 than 24 to 29, and then new customers will go straight to 29. It’s really important that the price increase will continue to layer in over time as we cycle through the renewal portfolio. I expect next year to continue to see the benefit of that. It really points to the unit economics improving based on what we're delivering to our customers.

So, from now until the end, we're going to go to just one question so we can get as many people on the phone as possible. And with that, I'll turn it over to Gregg Moskowitz at Mizuho.

Great. Congrats on a very good performance. I wanted to follow up on Ultimate because the percentage of ARR continues to expand nicely and Sid, you called out some very good success among your largest customers. Despite the much higher price point that exists for Ultimate as compared with premium, what I'm curious about is if you're finding that you're landing more frequently with Ultimate versus where what you were seeing 6 to 12 months ago?

Thanks for that. We're certainly changing our approach to leading with Ultimate when we approach a new customer because the more comprehensiveness is driving so much value because this integrated security is driving so much value. We've started to lead with Ultimate just talked about the return, like the 482% return that is for GitLab Ultimate. So maybe counterintuitively, our most expensive product is the one you get the biggest return on because the return is not coming so much from paying us less, but it's about deprecating all those existing point solutions. We talked about Lockheed Martin. Being able to deprecate our legacy CI vendor, it's not just on software, not just on cycle time, not just on efficiency, even on hardware costs. So being able to consolidate is the big winner, and Ultimate can replace the most point solutions, and that's why we're leading with it.

Our next question comes from Matt Hedberg at RBC. Matt, go ahead.

I want to extend my congratulations as well. For either of you, regarding Gen AI, it appears that you are increasingly becoming integral to customers as they consider their own Gen AI adoption. I'm curious about how significant Gen AI is during your conversations with customers. It seems to be the primary topic of discussion for everyone. In your discussions with customers, how essential is it in their software development lifecycle at this time? Additionally, how do they perceive GitLab’s role within the ecosystem they are building?

Yes, it's really important to our customers. We had a bunch of caveats why they're not all of them are rushing to implement it to 100% of their users. First of all, they want it secure. Second of all, they wanted to work for the people who are working on existing applications. A lot of the demos you see out there, they're for new applications. Most developers in enterprises are working on giant existing applications. Making that work well is really important. We have a project internally called Da Vinci to make AI even work even better for those existing applications. That's super, super important. It has to meet all the security requirements that the customer has, and they want to see an actual return, and most of the time, that return comes now when it's just for coding, but when it's throughout, so those are the considerations we run into. They want vendors who can deliver on that. We have a great vision going forward, but they're not jumping in to 100% of the people for just a coding solution today.

Next question goes to Zach Schneider at RW Baird. You there, Zach?

Zach, you can now unmute on your phone, if you'd go ahead and unmute for us, you have that capability.

Okay, so we'll go on to Mike from Needham. Mike, go ahead.

Just wanted to circle up, and I appreciate you guys continuing to give us the composition of the DBNRR. If I could just focus on the seats contributing about 40% this quarter. Wanted to get a sense, first, how that compared versus your internal expectations? And then secondly, can you help us think about like is the sales force indexing more potentially toward pricing given the changes to the different packages you have out there in the market? Or any other color there as well to help us get a better sense of how the DBNRR flows from one quarter to the next?

Yes, absolutely. Thanks for the question. The dollar-based net retention with the seat fluctuation based on the largest deal that we had last year, we knew that was going to be different this quarter than previous quarters. It's also an output. As we go in and solution sell, we're trying to figure out what the best solution is for the customer, and then we'll land there. The fact that we're landing larger and landing more on ultimate, that's good news and will have an impact on dollar-based net retention rate, but there's nothing that's all within the quarter that caused any concerns as it relates specifically to seats as that component of the dollar-based net retention rate.

Next question goes to Peter Weed at Bernstein. Peter, go ahead.

Thank you very much, and congrats on the continued momentum. I think if I'm doing my back of the envelope properly, it looks like you are anticipating a nice acceleration in quarter four implied in the numbers. How should we think about that acceleration relative to what appears to be a little bit of a deceleration in your guidance for quarter three?

Thanks, Peter. As always, appreciate the question. When I look back at last year, and looked at when we reported Q2 and what we guided for Q3 and Q4, they're somewhat similar. I didn't see any sort of sequential or year-over-year changes that jumped out to me to be surprising. Fourth quarter historically has always been the strongest quarter in the Company. Q2 and Q3 have relatively been the same and Q1 seasonally has been a little weak. We continue to guide to strong top-line growth rates and improving non-GAAP operating margins. The thing I'd personally like about the business model is we have a lot of visibility heading into any given quarter, given the ratable nature of the business. As we continue to scale, we're seeing efficiencies at scale in the business, which is great as well. I'm pleased with the guidance we provided this afternoon for the third quarter and for the full year.

Next question goes to George McGreehan at Bank of America.

George McGreehan on for Koji Ikeda. I wanted to say congrats on Duo Enterprise going GA; the list of features highlighted in the press release were very impressive. I kind of wanted to dig in more specifically about how you're selling the product to the installed base. Can you talk a bit about the strategy there and in terms of any changes to sales incentives? Just you could kind of get a sense of how to think about potential adoption rates over the next several quarters.

Yes. Thanks for that. The main audience for Duo Enterprise is existing GitLab Ultimate customers. Ultimate is typically our larger companies, and they are served by our sales force. So, it's a direct motion. Ultimate is also our fastest-growing SKU if you think about it, if you look at the cohort of $100,000 plus, 2/3 of the net new ARR went into Ultimate, so that's growing, and we want to build this Duo enterprise growth on top of that. We're talking to the customer because there are lots of considerations, implementing it. That’s, for example, why we're working on an offline version. We have tons of features to control who's using it, when they are using it. We're selling it because of the improvement in productivity, not just for coding, not just for devs, but also for their security people and their operations people.

We have time for two more questions. I'll go to Nick Altmann at Scotiabank. Nick, go ahead.

Just a quick one for me. Last quarter, you guys talked about Duo being to be sort of a bigger needle mover next year, you guys did rattle off a handful of marquee wins. So, I guess, when you think about the second-half pipeline, as you sort of get more customers on Duo have more referenceable logos. What are you sort of anticipating from the second half of the year in terms of Duo contribution versus, say, a quarter ago?

Thanks for the question. I'll answer directly and then I'll give some more context on sort of how I think about it. We really expect AI to start contributing to the model in FY 2026 and beyond. From just a practical perspective, there was sort of a big media hype cycle, and people are just partially adopting it now. Right now, we're starting to see customers trying to figure out how to implement AI safely and compliantly within their organizations. We're starting to see that with what we gave you from a reference perspective. Just from a mechanics perspective, it makes sense to say it is from a new product perspective for it to have an impact at a company that's $700 million plus in run rate revenue growing 30%, it's just going to take a little while to sort of build that. From the AI contribution in 2Q, I'll say that we were 3x our plan number. We did a lot better than we expected internally. Long-term, I just view this as good news because it's going to be a long-term growth driver for the business.

Last call for our questions coming from Kingsley Crane at Canaccord. Kingsley, go ahead.

It sounds like you've had some nice wall due deployments with a couple of banks and F5; should we continue to think about high user penetration, but a smaller total number of customers? Or are you seeing some green shoots in terms of some bottoms-up adoption with Duo?

We are experiencing some bottom-up adoption as well. Looking at our entire customer base, it's more common for them to purchase Duo for a portion of their users. For various reasons, they are not yet prepared to implement it for all users. We believe this will change over time as the benefits become apparent; this is the more typical situation. Additionally, we have some great customers who implement it role by role right away, and if we can meet all their requirements, that's preferable for us. However, the partial adoption is more frequent.

So, this concludes our second quarter call. Thank you very much for joining us, and we look forward to seeing many of you over the coming quarter. Have a great evening.