“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.”

In context

“Brian Robins (CFO): 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.”