Yahoo Finance

Brian Robins

Thank you, Bill, and thanks again to everyone for joining us today. We delivered a strong end to FY25, and I want to thank the GitLab team for your ongoing commitment to our customers and partners.
Driving results for our customers is the most important thing we do. Q4 was a strong quarter for our enterprise segment. We closed the largest net ARR deal in company history. We had a record quarter of net adds for customers over $100,000 in ARR. This group of new customers also included the most first orders of more than $100,000 in ARR in the company's history.
With GitLab, customers can deliver software faster and more securely. They can also consolidate into a single platform, saving both time and money, which is a high priority in any spending environment.
I'll start with a brief recap of our full year and then turn to the fourth-quarter results and guidance. FY25 revenue grew 31% to $759.2 million as our growth continues to be driven by our land and expand motion. FY25 non-GAAP operating margin reached 10.2%, an increase of approximately 1,050 basis points year over year, while adjusted free cash flow grew [259%] to $120 million.
Turning to Q4, I'm really pleased with our results which exceeded our expectations. Revenue for the quarter reached $211.4 million, an increase of 29% from Q4 of the prior year, and we delivered a record non-GAAP operating margin.
We now have 9,893 customers with ARR of at least $5,000 which contributed over 95% of total ARR in Q4. In particular, we monitor performance of our larger customer cohort of $100,000-plus in ARR, which increased 29% this quarter and reached 1,229. This includes 123 customers of $1 million or more in ARR and an increase of 28% year over year. As a scale, this cohort continues to make significant investments in Ultimate and Duo.
On the expansion front, we ended the quarter with a dollar-based net retention rate, or DBNRR of 123%. Q4 DBNRR was driven by a combination of seat expansion at approximately 75%, increased customer yield at approximately 15%, and tier upgrades at approximately 10%. Seat strength this quarter was driven, in part, by a large expansion with a strategic customer as well as growing traction with our Duo offerings. As we've mentioned, we expect these ratios to fluctuate quarter to quarter based on the composition of the underlying renewal portfolio.
Total RPO grew 40% year over year to $945 million, while CRPO grew 35% year over year to $579.2 million. We encourage investors to look at these metrics over a multi-quarter period.
Non-GAAP gross margin was 91% for the quarter. The team has maintained a best-in-class gross margin, even as our SaaS businesses quickly scaled, driven in part by GitLab dedicated. SaaS now represents 29% of total revenue and grew 36% year over year.
We ended the year with 2,375 team members, an increase of 12% over FY24. The majority of the hiring was in sales for additional sales capacity and in R&D.
Once again, we saw a significant increase in operating leverage. Q4 non-GAAP operating income was $37.4 million compared to $13.2 million in Q4 of last year. Similar to previous quarters, we dropped our revenue outperformance to the bottom line, which in combination with the team's focus on execution, translated to a record quarterly non-GAAP operating margin of 17.7% compared to 8.1% of Q4 last year. This is an increase of more than 960 basis points year over year.
Q4 FY25 adjusted free cash flow was $62.1 million compared to $24.5 million in the prior-year period. Cash from operating activities was $63.2 million in the fourth quarter compared to $24.9 million in the prior-year period.
Now turning to guidance. Guidance assumes that the macroeconomic environment we've been operating in over the last year stays consistent. In addition, we have completed our annual standalone selling price analysis, or SSP, which determines the upfront revenue recognition rate for license revenue. Year over year, SSP has no material impact on revenue allocation and is included in today's Q1 and FY26 guidance.
For the first quarter of FY26, we expect total revenue of $212 million to $213 million, representing a growth rate of 25% to 26% year over year. We expect a non-GAAP operating income of $21 million to $22 million, and we expect a non-GAAP net income per share of $0.14 to $0.15, assuming 172 million weighted average diluted shares outstanding.
For the full year FY26, we expect total revenue of $936 million to $942 million, representing a growth rate of approximately 24% year over year. We expect a non-GAAP operating income of $109 million to $114 million, and we expect a non-GAAP net income per share of $0.68 to $0.72, assuming 173 million weighted average diluted shares outstanding.
Before I move on, I have two final points on guidance. First, in Q1 FY25, we invested $15 million in a global gathering for our team that will not recur in FY26. As a result, we anticipate non-GAAP operating margin to be flat from Q1 to Q2 FY26. Second, with the conclusion of the bilateral advance pricing agreement, or BAPA, with the IRS and the Netherlands' Dutch Tax Authority, beginning in FY 26, we will be applying a 22% long-term non-GAAP projected tax rate.
The new 22% rate is included in both Q1 and FY26 non-GAAP net income per share guidance. This rate reflects the new location of our IP in the US following the conclusion of our BAPA. It does not imply any incremental increase on actual cash tax is paid.
Separately, I would like to provide an update on JiHu, our China joint venture. In Q4 FY25, non-GAAP expenses related to JiHu were $3.2 million compared to $3.8 million in Q4 of last year. Our goal remains to deconsolidate JiHu. However, we cannot predict the likelihood or timing of when that may potentially occur. Thus, for FY26 modeling purposes, we forecast approximately $18 million of expenses related to JiHu compared with $13 million from last year.
In summary, Q4 was a strong close to FY25, a year which we saw tremendous demand for GitLab Ultimate, achieved triple-digit growth with Dedicated, acquired strategic capabilities and security with Oxeye and Resilience, delivered both Duo Pro for code assistance and Duo Enterprise, injecting AI throughout the entire software development life cycle, and we announced key integrations with Google and AWS. All this sets us up for a strong FY26, and I'm excited for the year ahead.
Thank you for joining us today. With that, I'll turn over the call to Kelsey, who will moderate the Q&A.

Question and Answer Session

Operator

Great. Thanks, Brian. (Operator Instructions)
Karl Keristead, UBS.

Karl Keirstead

Okay. Congrats on the nice results, particularly the NRR mix from a seat expansion stood out to me, but, Bill and Brian, I'd love to ask about the code gen space. Maybe Brian, if you can offer any -- even qualitative color about the contribution from Duo, Duo Enterprise in that 24%.
And then Bill, just maybe a question for you about the market development. It sounds like you've had some good success. You called out obviously Barclays and Capgemini, among others, but the code gen market from our vantage point is looking increasingly competitive with, obviously GitHub Copilot, but you've got some standalone tools like Cursor that are already at $100 million in revenues. Even Anthropic is launching their own version of Claude code. How do you differentiate Duo Enterprise in what's likely to be a more competitive code gen market throughout the year? Thank you.

Brian Robins

Thanks, Karl. I'll start first and appreciate the question. This quarter, we're really pleased with the performance of Duo. It exceeded our expectations again this quarter. If you looked at the deals that included Duo, about a third of that was Duo ARR versus the total ARR. And so once again, people are buying enough licenses to match the Ultimate licenses that they have within the purchase.
On the prepared remarks, Bill mentioned a number of customers, we have Barclays this quarter, CACI, Zscaler, and NatWest. So happy with the logos and the large enterprises that are buying Duo. From a contribution standpoint, with our FY26 guide at the midpoint, about $939 million, it's going to take a little while for Duo to move the needle. But happy with where it's at. We have this ratable model, and it exceeded our internal expectations again.
I'll turn it over to Bill for the second part of the question.

Bill Staples

Yeah. Thanks, Brian. Karl, you asked about the market, how I see it in our differentiation. First, let me say there are a lot of tools in this space, and it seems like every day, there's a new one. AI is the hot new technology trend. Obviously, we're going to see rapid advancements like this, I think, ongoing for a while.
It's just a really exciting time. This new technology wave is one of the reasons that I wanted to come to GitLab, because I believe it's going to be transformational for the world and transformational for our business.
In terms of how we compete and our differentiation, it really goes back to the platform. As you know, AI models work when they're fed context, and GitLab provides some of the best context when it comes to working with code.
First, our source code capability is one of the best in the world, and we're known in the Gartner Magic Quadrant as number one in both vision and execution for DevOps. We not only have that, but we also have a full life cycle set of capabilities from planning and issue tracking through integration, packaging, and deployments. We also have our security tools, which are also world-class. And so we're building a knowledge graph that lets us take all of that context, feed it into the models, and then help developers throughout the software life cycle to make decisions with our Duo Pro and our Duo Enterprise product.
In addition, as we mentioned, we are shipping this month, a private beta of our Duo Workflow, which is our autonomous AI agent service that allows for AI to drive proactive action for engineers. Think of it as an autonomous engineering buddy that you can work with to get work done. Inside GitLab, we're testing that already and seeing really good results, but I think it will present a step function in productivity improvement, and it's all driven off of that context that we have as a platform provider.
Last, I'll say I'm really excited about AI for another reason, not just our ability to bring context and inject AI throughout the software life cycle, but I believe AI is going to increase the number of software creators and the amount of code that's generated both by humans as well as by machines or by AI models. That code needs to adhere to the organization's quality, security, compliance, all of the requirements that software has today, and GitLab, as a platform, provides all of that capability.
So whether the codes is generated by AI tools like the ones you mentioned or by a Duo product, whether it's built by a human or a machine, it will still need all of the capabilities of our platform in order to ensure the organization can govern their software life cycle. So I believe it presents an even greater opportunity for us than in years past.

Operator

Kash Rangan, Goldman Sachs.

Kash Rangan

Hey, thank you very much. Congrats, Bill, on your first full quarter of the company. Clearly, your tone sounds quite encouraging. You're encouraged by AI, Duo, and the workflow agentic technology and also the impact of pricing, I assume a new CRO, not to mention that. Yet when I look at the reported results, is there something that is not reported in the reported results that is representative of the broader enthusiasm that you share?
And also, when I look at the guidance, the sequential growth in CRP, as good as it is in Q4 and the guidance, maybe the tone there in the financial outlook is not matched by the tone that you optimistically share with all the changes you're making. Granted that it's all super early; it's just one quarter. And hopefully, it's a very, very long, amazing career.
But help us understand why the fundamental conviction in the company is not quite expressed in the financial -- although I'm sure Brian would agree to disagree with me that you would say that the guidance is very, very good, and I agree. But maybe there's some bridge between the optimism and the numbers the way we look at it, and there's something else underneath the surface that is behind your conviction. What is that? Thank you.

Bill Staples

Yeah. Thanks, Kash. Well, let me start with how I spent my time. This quarter was an amazing opportunity to get on the road, spend a lot of time with customers and really hear from them what GitLab does for them. I met with more than 50 customers, as I said. And hearing their enthusiasm for GitLab is really a big component of what makes me excited.
We have some fantastic customers, as you all know, and they are dependent on us to build their software and to run their business. And it's amazing what GitLab has built, and I'm just honored to be part of it.
I also think that's recognized and as you look at the Gartner Magic Quadrant, as I already mentioned, we are known as a platform that's world-class and brings incredible ROI, nearly 500% in three years with a six-month payback. And I think our strengths are really well known and customers are increasingly betting on this platform approach, because they see the productivity and efficiency gains that it provides them.
I also spent a lot of time with team members, learning GitLab from the inside and hearing their conviction, their commitment to our values and our mission, and their excitement to be part of this next chapter of growth. That also, I think, increases my confidence and optimism for the road ahead.
I also do believe, as I just shared when Karl asked about AI, this is one of the most exciting times in technology that I've experienced in my career. And I've seen quite a bit from the launch of the internet to the rise of the smartphone and social media and cloud and all the technology waves that we've seen in the last couple of decades. I do believe AI represents an enormous opportunity for world transformation, and that's driven by software, and GitLab is at the heart of building software. So from my perspective, there's no better place to be.
Certainly, we've got competition. We've got things to navigate as a company in order to continue to grow at the scale that we're reaching. But I believe those are challenges that any great competitor would face. And I'm optimistic, given what I'm hearing from customers and from team members that we can tackle them and continue to grow.

Operator

Rob Owens, Piper Sandler.

Robbie Owens

Great. Thanks, Kelsey, and good afternoon, everyone. Bill, would love to drill down on some of these conversations that you had with customers throughout the quarter -- I think you cited 50 customers -- and especially relative to your view about increasing the number of software developers, because I guess in other areas of the Enterprise stack, we're seeing more optimization as a result of AI.
And so help us understand kind of the view of a lot of these customers and why it doesn't creep into a less developer type of argument versus taking the other side of the coin in terms of increasing the number of software creators. Thanks.

Bill Staples

Yeah, Rob. I get that question a lot, actually, mostly from investors. It doesn't come up often from customers interestingly enough. I think the reality is for many customers, they've always felt resource-constrained. The number of engineers in the world has -- if you think about it as a percent of the world's total population, it's less than 1%. It's a fraction of 1% that's created all the software in the world that now reaches billions and billions of people around the world every day on their smartphones and through the cloud. And what AI represents is an opportunity to raise the abstraction level again, to make it easier than ever to build software.
And so that's an incredible productivity boost, but also the process of building software is not just about authoring code. And that abstraction is going to go higher. It's going to be easier to generate code or write code, just like it has over the last couple of decades, with higher-level languages and with the cloud. But it's not just about writing the code, right? You've got to ensure that the code is high quality. You've got to make sure it's secure. You've got to make sure it appears to the compliance practices and everything else. And that is what GitLab really specializes in, not necessarily in the code authoring, although we help engineers do that with our Duo Pro product, but with the entire software management, the entire software life cycle.
So we serve a number of personas, not just developers, but all of the roles around the software life cycle. And as I said earlier, I think that's only going to drive more demand for our platform as more software creators come about as well as more code is generated.

Operator

Matt Hedberg, RBC.

Matt Hedberg

Great. Thanks, Kelsey. Thanks for the time, guys, and Bill, congrats on joining. Look forward to working with you. I had a question on Ultimate. It was a big part of the prepared remarks, and we've seen a pretty dramatic increase in the mix there, which is really great to see. I think it really resonates -- especially the SecOps piece.
I'm wondering, you talked about a couple of nice wins and a couple of upsells there, how should we think about the sustainability, because it's done quite well on an improvement in mix over the last year. Is that something that you think continues into fiscal '26? And maybe just like if you could summarize the one or two items why customers are so drawn to Ultimate, I think that would be helpful.

Bill Staples

Hey, Matt. This is Brian. Thanks for the question. Super happy with the Ultimate performance. As we said, it's now 50% of the total ARR, and that is even with the price increase, it's doing that well. The reason why people are attracted to Ultimate are really for security and compliance. And so the payback period is less than six months. ROI is over 480% in three years.
And we're really seeing the strength of the enterprise come into Ultimate. We talked about -- in 4Q, we had the most first orders greater than 100,000 in company history and obviously, that's mostly ultimate. And so there's a number of reasons why people come into Ultimate. We're getting more and more lands on Ultimate, and it's really for, the payback period, the time to value, the ease of use, the positive business outcomes.

Operator

Joel Fishbein, Truist.

Joel Fishbein

Thanks for taking the question, and congrats on the great results. I guess it's a question for both of you guys. Congrats on hiring Ian to be your CRO. I'm just curious to see if there's -- you expect any significant changes to go-to-market sales comp, any of that? And is that already baked into the guidance that you've given? Thanks

Bill Staples

Yeah. Thanks, Joel. I'm really excited to bring on Ian. I spent quite a bit of time this quarter meeting with nearly a dozen candidates, looking at all different kinds of profiles of CROs, different stages of their career. I got a lot of help from the Board as well and some pretty wise directors who spend a lot of time in go-to-market as well as members of the management team.
And Ian really represents an amazing profile for GitLab. He's spent his career in the trenches. He's been an account executive. He's been a sales manager. He's been a region leader and a CRO. He's opened new regions, expanded into countries, driven partner channels. He's built territories and compensation models, and he's a strong operational and analytical operator. I really believe he's going to bring a level of rigor to our go-to-market strategy as we plan beyond the $1 billion mark to scale the business.
He starts with the customer success and the market opportunity in mind, and he maps that back to individual contributor success as he builds out the go-to-market strategy. So, I'm really excited to bring that into the company. I believe it will only build on the strengths that we already have from a go-to-market motion perspective and help us continue to scale as we grow.
In terms of go-to-market changes, really, I think they're mostly incremental at this point. We are incentivizing, as I mentioned, on first orders to increase our ability to win new customers. We're starting a small new inside sales team, who's also focused on landing new customers. We're looking at global expansion to ensure that we're capturing the opportunity around the world. And we're continuing to invest in our partner ecosystem to ensure that we can get their leverage in driving expansion as well.
So we just finished up last week, our company kick-off and our sales kick-off. The whole organization is aligned around our goals now. And I think as Ian comes on the start of Q2, it will only continue to help us achieve our objectives.

Operator

Derrick Wood, Cowen.

Derrick Wood

Great. Thanks. And Brian, 18% operating margin in Q4, congrats. That is impressive and really just leads me to want to ask about the balance growth investments versus margin expansion if you're thinking about that in calendar 2025 versus the last couple of years given that you've had such a big improvement on margins.
And I know Bill mentioned some things that you're doing on the R&D side. But we just looking to double-click on the go-to-market side, just get a sense of how active you have been in building up sales capacity, how you're thinking about driving more growth to make sure you've got the right growth in capacity going forward. And I know, Bill, you just mentioned some of the tweaks you're making, but just would love to hear about the balance of investment growth and margins.

Brian Robins

Yes. So let me jump in just on the margin profile. Since we've gone public, we've been -- we say the number one thing to do -- our number one objective is growth, but we'll do that responsibly. And we've been doing that quarter after quarter. And so we want to invest and grow to the extent we exceed what our internal estimates are that typically falls to the bottom line. And so we've been doing that quarter over quarter. We had roughly 1,000 basis points improvement year over year. And so the way we set our model up for next year is the same.
When we look at investing in go-to-market dollars, it is pretty much -- we have the management built out. We have the second-layer management built out. And so the hires are pretty much in capacity. And we have a pretty deep delve capacity planning model, where depending upon what we do in a quarter, we'll hire a certain amount of reps based on time to ramp, and it's driven really on a quarter-by-quarter basis. And so the biggest investments that we're making next year or this year that we're in is sales capacity and in engineering. From an engineering standpoint, it's really a focus on AI and increasing the feature functionality across the platform with a focus towards security.

Operator

Koji Ikeda, Bank of America.

Koji Ikeda

Yeah. Hey, guys. Thanks so much for taking the questions. I wanted to ask about how you drive strong utilization of the GitLab platform offering across the DevSecOps workflow. And the reason why I ask that is I totally get it, you can sell the Premium and Ultimate versions from a high-value proposition consolidation theme. But how do you drive higher utilization of the platform? And does utilization of the platform need to come first? And is that the key to unlock adoptions of add-ons like Duo and Agile planning? Thank you.

Bill Staples

Yeah. I'll jump on that. This is Bill. Thanks, Koji. Our approach to helping customers realize value or as you describe it, utilization to realize that value is really a full-team approach as well as a partner approach. So as we engage customers, one of the things that we like to do as part of the contract renewal or the first order is build out a customer success plan, where we identify their objectives and how they want to adopt the platform, the resources and timeframes that they have in mind.
And in particular, for our larger Enterprise customers, where there's a lot of stake, we often talk about new offerings that we have, both in terms of customer success, dedicated customer success, resources available to them as well as professional services that could help them with that adoption journey. In addition, we have a number of technical partners, who we can bring into the conversation or our customers can tap into to help them with their DevSecOps journey, both with the technical migration as well as the practice of DevSecOps often requires process and organizational changes in order to fully realize the value. And our partners are well utilized by our customers as well.
I guess I'll also share our approach to help customers -- basically meet customers where they are, also plays a large role with the GitLab adoption experience. We're the only software provider in this category that allows customers to run the software on-premise, in air-gapped environments in their own cloud or in a public cloud. And so that makes the transition to run GitLab as a DevSecOps platform, perhaps a little smoother and easier for customers, in particular, for high regulatory environments or compliance such as government or financial institutions.

Operator

Kingsley Crane, Canaccord Genuity.

Kingsley Crane

Hey. Thanks. Just to expand on that, it's nice to hear that you're expanding customer success initiatives in fiscal '26. It sounds like it's also a big focus for Ian. So just to double-click, what's the state of that organization today? How much transformation do you think needs to occur, if any, or is it really just about finding more scale and adding more resources to the existing framework? Thanks.

Bill Staples

Yeah. Thank you. Very much the latter. As I mentioned, we spend a lot of time with customers. And of course, with that comes a lot of time with the field and really impressed with our go-to-market organization with their commitment to customer success and to GitLab and to our mission.
So the team has been performing really well. This is an opportunity to bring in another level of leader with that deep sales background experience and the operational and analytical skill to help us scale beyond the $1 billion mark that we're currently putting in the crosshairs. So really excited for Ian and what he brings to the organization.

Operator

Gregg Moskowitz, Mizuho.

Gregg Moskowitz

Great. Thanks, Kelsey. Hi, everyone. Bill, it's encouraging that every customer you met with so far is actively evaluating the incorporation of AI tools into their DevSecOps strategy. If you were to look out maybe a couple of years from now, how often might you expect or might we expect GitLab to upsell entire DevOps workforces to Duo Pro or Duo Enterprise versus a mix and match type of outcome? How do you see this evolving?

Bill Staples

Yeah. It's a good question. I think of AI is becoming an essential part of the developer experience, both for code creation as well as every stage of the life cycle. And that's why we're investing in that right now with our Duo Enterprise and our Duo Workflow products, injecting AI at every stage. I don't think a few years from now, developers will be building software without AI.

Operator

Sanjit Singh, Morgan Stanley. Okay. Maybe we'll get you back in the queue again.
Pinjalim Bora, JPMorgan.

Pinjalim Bora

Thank you for taking the question. Brian, just a two-parter for you. Could you maybe talk about the assumptions around the guidance, especially around NRR has kind of reached around 123%? I'm trying to think if we have reached kind of a trough. Are you seeing underneath kind of the seat growth stabilizing? Are you expecting any kind of a ramp?
And then lastly, what did you see with respect to the pricing benefit in fiscal '25 versus initial expectations? And are you baking in any for fiscal '26?

Bill Staples

Yeah. So thanks for the question. Let me start off with pricing. We exceeded our expectations last year on pricing. And I said that we're about halfway through. And so we expect the same amount of incremental impact next year as we did this year. If you look at -- we'll get everything that we got this year, plus we'll get incrementally what we got last year this year as well. And so we're about halfway through the pricing impact. That is factored into our guidance.
And so when we looked at this quarter compared to the prior two or three quarters, they've been consistent. It's still people -- a cautious spending environment out there, but there is consistency. And so we've had less standard deviations when we do the bottoms-up build.
And we looked at guidance from several different angles. We did a field AE roll-up. The CRO leadership team did a roll-up, and then we do one in our FP&A team -- and based on all the historical numbers and trending and pipeline and so forth. And so we use that to come up with guidance. There's been no change in our guidance philosophy.

Operator

Ryan MacWilliams, Barclays.

Ryan MacWilliams

Hey, guys. Thanks for taking the question. Following the third quarter's strong public sector deal result, any update on your public sector business and pipeline under this new administration? And is there any extra conservatism baked into your guide for the sector for this year? Thanks.

Bill Staples

Great question. We debated this a lot internally for the call. We don't know what we don't know. PubSec makes up roughly about 12% of our total ARR. What we do as a platform helps people become more efficient and actually save money. We've gone through the payback stats and ROI stats. And so our biggest quarter in PubSec third quarter. We're watching closely with the team, but we assume no changes at this time.

Operator

Nick Altmann, Scotiabank.

Nick Altmann

Awesome. Thanks, guys. There were some great commentary around the Dedicated SKU. And so can you just talk about the underlying drivers there and why Dedicated is resonating with those larger customers? And then going forward, kind of going back to Matt's question around the Ultimate ARR mix this year, how impactful can Dedicated be to that Ultimate mix moving higher? Thank you.

Bill Staples

Yeah. Thanks, Nick. Good question. Dedicated really is doing well. It grew more than 90% year over year in Q4. I think that's really driven off of the fact that we're the only ones in our category that can provide that single-tenant SaaS offering. And it's a really important competitive advantage.
As you know, when customers adopt Dedicated, it also does drive an Ultimate upgrade for us. So they get the full value of the complete platform. And it's particularly valuable for certain verticals, in particular, where there's complex security and compliance requirements. So I'm thinking about industries like embedded software, financial services, and the public sector.
We see a lot of potential to move our large, self-managed customers to this Dedicated SaaS offering as time goes on. For example, Delta, an existing customer, chose Dedicated as part of their cloud transformation this last quarter. So I believe we'll continue to see that opportunity, and it's really driven off of our unique competitive advantage.

Operator

Great. That concludes our Q4 FY25 earnings call. Thanks again for joining us, and have a great evening. We look forward to seeing a lot of you in the coming weeks.