“We shared that we expected the premium price increase to have minimal impact in FY'24 with greater impact in FY'25 and beyond.”

In context

“Brian Robins (CFO): Thank you, Sid, and thank you again for everyone joining us today. I'd like to spend a moment discussing the macro environment, the financial impact of our recently implemented premium pricing change and provide some insights into the financial impact of our AI products. Then I will quickly recap our first quarter financial results and key operating metrics and conclude with our guidance. Let me first touch on some of the watch points I discussed on prior calls. We continue to see sales cycles remaining at 4Q levels due to more people involved in deal approvals. Contraction improved over 4Q, but is higher than prior quarters. Like 4Q, contraction is driven almost entirely by lower seat counts with minimal downgrading. I was pleased with the bookings predictability in 1Q. It was much better than 4Q. As we mentioned on the prior call, we raised the price of our premium SKU for the first time in five years. Over that time frame, we added over 400 new features, transitioning from a Dev platform to a DevSecOps platform. We shared that we expected the premium price increase to have minimal impact in FY'24 with greater impact in FY'25 and beyond. The price increase, which took effect on April 3rd, is going as planned. We only had one month of renewals impacted by the price increase in the quarter. To date, customer churn is unchanged for the premium customers who renewed in April, and our average ARR per customer increased in line with our expectations. Now on to the way we are thinking about the financials and the impact of our AI products. We continue to invest in people and infrastructure to support AI. While we have had some teams working on AI features, we recently shifted additional engineers from other teams to support the work on AI. As a result, this has not led to significant incremental expenses on engineering talent. Additionally, we have made investments in our cloud provider spend to support our AI and R&D efforts. In addition, we also continue to leverage partners to help drive our AI vision. This has included partnership announcements with Google Cloud and Oracle. The Google Partnership allows us to use Google Cloud AI functionality to make our own AI offerings better by leveraging their toolset. The partnership with Oracle makes it easier for our customers to deploy their own AI and machine learning workloads using Oracle's cloud infrastructure. Both of these partnerships help create strategic differentiation for our customers in a financially responsible manner. Now turning to the quarter. Revenue of $126.9 million this quarter represents an increase of 45% organically from the prior year. We ended 1Q with over 7400 customers with ARR of at least $5,000 compared to over 7000 customers in the fourth quarter of FY'23 and over 5100 customers in the prior year. This represents a year-over-year growth rate of approximately 43%. Currently, customers with greater than $5000 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 first quarter of FY'24, we had 760 customers with ARR of at least $100,000 compared to 697 customers in 4Q of FY'23 and 545 customers in the first quarter of FY'23. This represents a year-over-year growth rate of approximately 39%. 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 37% year-over-year to $460 million, and cRPO grew 44% to $324 million for the same time frame. We ended our first quarter with a dollar-based net retention rate of 128%. As a reminder, this is a trailing 12-month metric that compares expansion activity of customers over the last 12 months with the same cohort of customers during the prior 12-month period. The dollar-based net retention of 128% was driven by lower seat expansion and contraction due to seats. The ultimate tier continues to be our fastest-growing tier, representing 42% of ARR for the first quarter of FY'24 compared with 39% of ARR in the first quarter of FY'23. Non-GAAP gross margins were 91% for the quarter, which is slightly improved from both the immediate preceding quarter and the first quarter of FY'23. SaaS represents over 25% of total ARR, and we've been able to maintain non-GAAP gross margins despite the higher cost of delivery. This is another example of how we continue to drive efficiencies in the business. We saw improved operating leverage this quarter, largely driven by realizing greater efficiencies as we continue to scale the business. Non-GAAP operating loss of $15 million or negative 12% of revenue compared to a loss of $24.8 million or negative 28% of revenue in 1Q of last year. 1Q FY'24 includes $5.6 million of expenses related to our JV and majority-owned subsidiary compared to $3.7 million in 1Q FY'23. Operating cash use was $11 million in the first quarter of FY'24 compared to $28.2 million used in the same quarter of last year. Now let's turn to guidance. We are assuming the macroeconomic headwinds and trends in the business we have seen over the last few quarters continue. There has been no change to our overall guidance philosophy. For the second quarter of FY'24, we expect total revenue of $129 million to $130 million, representing a growth rate of 28% to 29% year-over-year. We expect non-GAAP operating loss of $11 million to $10 million, and we expect a non-GAAP net loss per share of negative $0.03 to negative $0.02, assuming a 153 million weighted average shares outstanding. For the full year FY'24, we now expect total revenue of $541 million to $543 million, representing a growth rate of approximately 28% year-over-year. We expect non-GAAP operating loss of $47 million to $43 million, and we expect a non-GAAP net loss per share of negative $0.18 to negative $0.14, assuming a 153 million weighted average shares outstanding. On a percentage basis, our new annual FY'24 guidance implies a non-GAAP operating improvement of approximately 1200 basis points year-over-year at the midpoint of our guidance. Over a longer term, we believe that a continued targeted focus on growth initiatives and scaling the business will yield further improvements in unit economics. The guidance has us on track to achieve cash flow breakeven for FY'25. For modeling purposes, we estimate that our fully diluted share count is 173 million. Separately, I would like to provide an update on JiHu, our China joint venture. Our goal remains to deconsolidate JiHu. However, we cannot predict the likelihood or timing of when this may potentially occur. Thus, for modeling purposes for FY'24, we now forecast approximately $29 million of expenses related to JiHu compared with $19 million in FY'23. These JiHu expenses represent approximately negative 5% of our total implied negative 8% non-GAAP operating loss for FY'24. Our number one priority as a management team is to drive revenue growth, but we'll do that responsibly. There has been no philosophical change in how we run the business to maximize shareholder value over the long term. Before we take questions, I'd like to thank our customers for trusting GitLab to help them achieve their business objectives. I also want to thank our team members, partners, and the wider GitLab community for their contributions this quarter. With that, we'll now move to Q&A.”