We're kind of vibing to the house music. Exactly. All right. Thank you all for joining our after-lunch session here. I'm Rob Owens with Piper. Pleased to welcome the CFO of GitLab, Brian Robbins, to my left. And as Brian promised, he would be very upbeat and energetic. I realize this is the after-lunch session, so maybe some jumping jacks at the end or something of that nature. Yeah, we can do some stretching. There you go. Brian, welcome. Thank you, Rob. Thanks for having me back. Absolutely. It's always great to be back in Nashville. Brian spent a lot of his undergrad and graduate years here. It's changed a little bit in the last five years since I graduated. Why isn't your guidance that aggressive? Let's just- Maybe we just get right into it. Here we go. So, Q2 has proven to be a, I think, a really choppy environment for many of your DevOps peers, and you guys put up a heck of a quarter. I think it was one of the few beat and raises, and we argued about the how much of the raise, but there was a little raise in that. Right. So absolutely, that we saw across the space. What do you think you're seeing right now in terms of prioritization of DevOps platform, consolidation, a lot of the trends that are likely buoying the GitLab story? Yeah, absolutely. Well, we're super happy with the print that we put out in Q2. Revenue grew over 30%. We actually saw great strength in the enterprise, and so our customers, over 100K, grew 33% year over year. cRPO grew 42% year over year, and we did that with increasing the operating leverage in the business. And so we continue to, you know, grow, number one, but do that responsibly. When we look at the spending environment, we've noted on the last couple of calls that the spending environment's been relatively the same, and so it hasn't improved, hasn't declined. Spending out there is cautious, but with GitLab, the price to buy our product for the value that we bring to our customers is a really good bargain, so the time to value is good, the business outcome is good. We just updated our Forrester Total Economic Impact study, and the ROI is about 482% over three years, and so we're actually seeing a lot of people buy the product, deploy the platform, and get really good use out of it. Okay, I'm going to do the Wall Street thing and ask the question a different way. Why you in the enterprise right now? Because I think that's not what we're seeing across the board. Is there something unique about the proposition that GitLab is bringing? Who are you displacing in these enterprise opportunities? Yeah, great question. So, you know, there's really not many platform players out there that have a DevSecOps platform, and so us and our closest competitor combined only have about 5% of the total market, so roughly about a $40 billion TAM. The fact that you can buy the product and implement it and have a payback within six months is really what's driving the strength in the enterprise to consolidate that disparate tool chain. Great. Then, who do you think you're displacing in that? Is it a lot of open source capabilities? Is it the different point vendors, homegrown, all the above? All the above. If you take a look at the software development life cycle, there's about ten different stages, and each stage there's ten plus providers in each stage from a point solution standpoint. And so when we're out there displacing people, we run across a couple of the dev players a lot, but there's a lot of different people that we displace across the whole toolchain. I think what really surprised investors just was the CRO departure- Yep. -the strength that you saw on the heels of that. So, maybe talk about just where the pipeline was, is relative to that, and as you're especially out there mining for new logos, number one, and then just the replacement of the, the CRO and any time frames that you guys are, trying to hit. Yeah, absolutely. So when I think about the quarter, let me touch on a couple of different things. One, you know, we talked about the quarter had strength across the entire business, and so a couple of different things I'll throw out there is, you know, we had the revenue growth that I talked about. Dedicated grew 150% year over year. We had the best churn and contraction in eight quarters. And then we talked about sort of our AI products were 3x our internal expectations. So we saw really strength across the entire enterprise. On the CRO transition, you know, Ashley and Chris worked very, very closely with one another, and so it was as seamless of a transition as you could actually probably have. I jokingly around said on a couple of the calls, I've been signing Ashley's expense reports, and she's probably been out seeing more customers than probably most, people in the sales team. So she's been on the road, seeing customers with Chris, helping with the strategy, and so there's a really good trade-off. She's super well-respected internally. So we actually had such confidence in what we saw with that transition and how we exited the quarter, as you said, we actually issued a beat and raise, for the full year. I'd like to hit on a couple of the growth drivers right now. Number one, let's talk uptake of Ultimate, which continues to show really strong traction and the value proposition under that, and what's driving that decision, because it is considerably more expensive at roughly 4x list price relative to Premium. Yes, really happy with Ultimate performance. Ultimate, every quarter now has been taken up as a percent of total ARR. This quarter, we reported 47% for Ultimate. And people are really driven to Ultimate for security and compliance. We have advanced security in Ultimate, and that payback that I talked about- Mm-hmm. is really what's helping driving it as well. And, you know, there's been some pretty large security breaches out there, and so that's raised awareness. It hasn't directly impacted the pipeline, but that's helped. You know, since we did the price increase in Premium to $29. Ultimate's $99, so the price is less between the two. And, with Ultimate, you know, we just the Gartner MQ just came out on DevOps, and we're the farthest up and to the right on execution and the vision for the platform. So I think there's a number of different things that actually, when people come in and evaluate, when we sell the product, it's solution selling. And so we're actually going out to the customer, trying to find out what their problems are, how we can help. We don't set quotas between Premium and Ultimate. We allow, at the very end, to sell to the customer what's the best solution, and Ultimate has continued to do well, and I think it's a value proposition that we're offering. Are you landing more with Ultimate, or is it a tier upgrade that you're seeing more success with? Both. Okay. And the Premium price increase seems to have been sticking better than expected. I think you even commented on the call. How have conversations gone with customers about uplift to price there? Yeah, so let me, let me go on a little bit how I think about the Premium price increase and sort of break it down on what's going on internally. So, you know, one, just for context, for those who may not be as familiar with the story, you know, since 2019, we've put tens of millions, hundreds of millions of dollars on our platform, and we kept the price the same. And so we did a price increase from $19 to $29 for new customers. If you're an existing customer, you go from $19 to $24, then $24 to $29, so we offered sort of a rolling increase, if you will. And we purposely, when we did it, we did not allow early renewals. And so a lot of companies will do it, try to get a rush of bookings to come in, but if your renewal date wasn't within two weeks, you couldn't do an early renewal. And so there's been a lot of questions about the price increase, and the one thing I'd love for you to take away is that the price increase will be layered in over time. And so it took effect April this year, and so if you had a renewal in December, we haven't actually increased your price yet. You'd go from $19 to $24 as an existing client, and then next December, you go $24 to $29. And so we'll get actual impact throughout the next couple of years of this. The other thing that is a takeaway is, you know, we're really seeing great on the expansion of our existing clients, which actually improves the unit economics of the business. And so, you know, they're getting positive business outcomes, they're paying us more, we're doing well there. Where we've actually seen a little price sensitivity is in SMB and mid-market. But overall, I'm really happy on the price increase, the value that we're providing our clients, and where that's ended up at. With that price sensitivity in the SMB market, you guys have taken some proactive steps to kind of address it from a customer acquisition standpoint. I know it did create some concern out there, but maybe you can speak to it. Yeah, and that leads into probably another question you may ask about just seats in general. And so when you look at seats in general across a business, you know, since we don't compensate. You know, I look at Ultimate and Premium and then sort of break it down from there. If I look at my net add Ultimate seats, it's been very consistent and has done well, around expectations. If I look at my Premium seats, because the mix of Ultimate, and we don't compensate different between the two, you have to sell less seats if you sell more Ultimate, 'cause the price difference between the two. So the fact that we're landing more on Ultimate is great. It's our highest tier product, and, you know, by multiples, as you alluded to, but then you sell less seats on the Premium side. So mix has sort of impacted the Premium seats, and then, as I alluded to a little bit earlier, the SMB and mid-market has some price sensitivity. And so we're playing around with some pricing and packaging at the low end to try to find out sort of what the right gauge is, you know, from the low end of the market. From a financial statement standpoint, that low end of the market doesn't have any material impact on the financials. And so, you know, this quarter, we're a little lower than base customers added. That's customers over $5,000 in ARR, and that was really at the low end of the market I'm talking about. And so if you had a customer that said was doing $3,800 a year, and they went to $5,200 a year times fifty, that's a pretty small impact on the overall numbers. But we're really trying to play with that so we can find the right solution for the lower end of the market. If we look at a seat-based model, I know you encouraged us not to, but, of course, we're gonna get down to every metric and then pick at them. Are we almost through the COVID hangover in your perspective? I mean, we obviously, we saw a massive ramp into COVID with digital transformation and spend, and as we've come off the back of that, as you look at pipelines and things, are you seeing stabilization in those types of numbers, where we might start to see a more normalized or better growth rate around seat count? Yes, so, and tell you how I look at the business, just from how we set the budget and how I manage the business and so forth. You know, since we don't compensate on seats, and we really just compensate on ARR, we look at sort of the ARR attainment and a whole bunch of different metrics in sales. Yeah, I would say for us, you know, COVID was probably different than other companies. You know, what we've seen with COVID and sort of the new purchasing environment is, people are just buying differently today than they bought three years ago, five years ago, seven years ago. What I mean by that is, you know, procurement departments historically wanted to buy as much as they could buy, talk to you as little as they could talk to you, and get the biggest discount they could get. They would buy for a new headcount that was projected. They'd also buy for new projects that were projected, and then they would, you know, basically get a ramp deal, try to do a three-year deal and not come back and talk to you. Now, procurement departments, and you're hearing this on other software calls as well, people are just coming back and saying, "Hey, I need 35 licenses. I need 70 licenses." Because, you know, the headcount and the spend is cautious, and so now they're coming back to you literally on a quarterly basis. So some of the comps, not particularly this quarter, but maybe the quarter prior to that versus the prior year, you're comping off of two different buying behaviors. And so from a seat perspective, you know, I think, you know, software developers are obviously in demand. Companies are differentiating by creating better software, letting you know where your packages are, taking pictures of your packages, a whole bunch of stuff. And so I think there will always be a demand for software developers. Lastly, in terms of growth, let's touch on Duo adoption, and I think it was three times your internal expectations. Mm-hmm. Realize it's still very early. Gartner had some very compelling statistics out in terms of what they thought the take rate was against your entire customer base, not just your 5K and above. Can you comment on the success that you've seen thus far? Yeah, absolutely. I'll go back to also the Gartner Magic Quadrant. So there's two quadrants that were released in the last two, three weeks. One was on DevOps, where we're the leader up and farthest to the right, and the next was on AI Code Assist, which we're also named the leader in that Magic Quadrant as well. And so, quite frankly, we got a late start on AI. We didn't have 10-plus billion to invest in a company, and so but we've closed the gap really, really quickly. And so we have two products out today. One is GitLab Duo Pro, which is really our AI Code Assist product, and that's helped developers with productivity. Our next product that we have out is GitLab Duo Enterprise, that we just went GA a couple weeks ago, and that's to help organizational productivity. And so Duo Pro is more of a Copilot competitor. Enterprise actually injects AI throughout the entire software development life cycle, and so we've gotten a lot of great feedback on that. We talked about on the call, we had three references on the call that we talked about Barclays, F5, and KeyBank, and so there's a lot of excitement there. And the excitement's around making the developer security and operations persona more productive. And there's only about 25% of the process to create software is spent on coding, and so that's why we're injecting it throughout the entire process. And so we're early. It hasn't really impacted the financials, but the feedback's been positive, and I'm very excited about that. Could we see further fragmentation within the Duo family, you going after other opportunities that are GenAI based? Man, it sounds personal that the family is gonna get more fragmented. You know, with Duo itself, we have Pro and Enterprise. We're still super early, and so the focus there for us as a company is, one, you know, increase the quality, right? And so if you're a developer and you're getting code suggestions thrown at you, latency is really something that's super big, right? So we're building out, you know, regional sites all across the world to help with latency. We're trying to improve the code suggestions that come out, and so right now, we're using a Claude 3.5 Sonnet model for that. And then on Enterprise, we just launched it. So we're working on the quality aspect, we're working on the education, the customer aspect, and then we'll put case studies together on what companies have done and what they've seen, how much they saved, and then we'll take that and bundle it up in sales enablement and go out and continue to sell it to the market. Any change to your view around developer hiring as a result of GenAI and as a result of code assist? This has been a lot of- Yeah Obviously, investor trepidation around asymptotically, we're going to one developer per organization, but that, you know, hiring will slow- Right over time as a result of productivity. Great question. I can tell you what I believe. You know, and so as we talk to our customers and as we sell the product, we have not heard anything about, "I don't have to hire more developers because we actually became 25%, 50%, 60% more productive." They're actually getting to more software writing, getting software out quicker, which is actually giving them a more positive return. I believe that GitLab sits in a very interesting spot in the ecosystem, in the sense that the more software created, the more complex it's gonna be, tool chains are gonna break, and you'll have to go to a platform, and so Gartner put out another report at one point that says roughly about 25% of companies are on platform play today. This is in the DevSecOps arena, and, like, within a couple of years, three years, that's gonna be 75%. And so I think you'll see more and more companies go to a platform because the complexity that will come with these AI tools to create software better, faster, cheaper, and I think it would just, and will allow companies to become more competitive. And quite frankly, developers today are getting a lot of pressure to produce stuff quicker, and there's burnout, there's fatigue, and a number of different things. So I think you'll have a whole bunch of happy developers, too. Shifting gears a little bit and asking the financial question about unit economics, and granted, you're not a government-granted monopoly at this point, which you used to work at Verisign, so we can all debate that. But the unit economics here were absolutely... That's where we first met. This guy gets cowboy boots on, he goes a little cowboy on you. A little rogue on you. But the unit economics here have been fantastic, and is that a result just... I mean, software company, obviously, high contribution margin on every sale, but a lack of investment opportunity on the other side here? You know, you drove to double-digit operating margin pretty quickly. Free cash flow margin probably looks a little bit better than that, given your model. So just curious around, A, the unit economics, and B, how investors should kind of contemplate future investments and just how quickly you're gonna grow that, because you guys have always talked about responsible growth, and obviously- Right You're at a point where you're dropping a lot of free cash flow. So let me answer that in two different ways. Let me answer it from a company perspective. I'll answer it from an AI perspective. And so you've known me for about twenty years, and I've known to be an operator to increase operating leverage in virtually, actually every company I've been at. And so part of, you know, when I came into the company, you know, sales and marketing was over 100% of revenue. You know, the company was losing a lot of money and, you know, and really a short three and a half years, just had my four-year anniversary yesterday, we were able to, you know, basically get the benchmarks where you would expect to see and turn the company, you know, cash flow positive and non-GAAP operating income positive. And so, super happy about what we've done, but more importantly, we've done that while we continue to grow. Putting growth before profit, I think is really a key point. But if you can't grow as fast as you want to, not just spend the money to spend the money, actually get, you know, show more leverage in the model. I think that, you know, Sid, the entire E-Group, has really embraced that, and we've been able to execute on that for the last couple of years. When you look at AI now, and there's been a lot of discussion about building out, you know, big server farms and all this stuff, that's really to run the models. That's to create the LLMs, to do the models and so forth. And I really, truly believe that GitLab sits at a really interesting spot in the ecosystem, in the sense that all these large companies have wanted to partner with us that have actually spent the infrastructure costs to create the LLMs. And the LLMs themselves have somewhat become commoditized because they're out in the open world, if you will. And so we have a partnership with Google, Anthropic, we've worked with Oracle, and we're trying to find the best LLM to do purpose-built solutions for the DevSecOps space. And then, you know, we actually have the ecosystem. A lot of these companies that create AI products don't have distribution, and so we actually have the distribution to take those LLMs for a purpose-built solution to infuse AI across the entire DevSecOps life cycle. And so, you know, our investment in that has been more people-oriented, and when we give guidance out, we always sort of incorporate that, you know, into our guidance. And so, you know, and the guidance that we just gave out showed, you know, once again, great operating leverage in the model for the full year. We got time for one or two questions. Go ahead, Ethan. Yeah, I understand Duo is not material to the business currently, but as it starts to be a real contributor to growth, how should we expect you to kind of bucket that into NRR based on kind of the three breakout you're doing currently, or does it become a fourth bucket that you start? It will fall into seats. Okay. And so, you know, we'll sell additional seats, so it'll go in the seat category. And, you know, if you think about it, though, you know, dollar-based net retention is, you know, this twelve months over that twelve months, and so it's gonna be a while before you actually see it in the dollar-based net retention rate. It will start contributing, you know, on the top line, but you have to have, you know, sort of twelve months of data to compare it to the next twelve months, and so it'll be a little while before it actually gets in there. Sure. One last quick question. All right. Well, Brian, thank you. Thanks, Rob.