GitLab Inc

NASDAQ:GTLB

Earnings Call Analysis

GitLab's Strong Start in FY 2025 with AI-Driven Growth

In Q1 FY 2025, GitLab reported 33% revenue growth, reaching $170 million, and significantly improved year-over-year margins. Notably, their dollar-based net retention rate was 129%, driven by substantial customer adoption of their AI-enhanced DevSecOps platform. SaaS revenue jumped 50%, now accounting for over 28% of total revenue. Positive strides were seen in operating cash flow and non-GAAP operating losses. For FY 2025, GitLab guides $733-737 million in revenues, with non-GAAP operating income of $34-38 million. Their AI offering, GitLab Duo Pro, showed productivity gains, and GitLab Duo Enterprise anticipates further adoption with enhanced security features.

Strong Revenue Growth and AI Integration

In the first quarter of the fiscal year 2025, GitLab reported impressive revenue growth of 33%, bringing in $169 million. An important adjustment worth noting is the newly completed annual stand-alone selling price analysis, which decreased Q1 revenue by approximately $1 million. However, without this impact, the revenue growth would have been 34% year-over-year. This growth is driven by the broad AI integration into their platform, offering enhancements that span planning, security, and operations—far beyond just coding.

Customer Expansion and Retention

GitLab has seen significant expansion in its customer base, with 8,976 customers now having an annual recurring revenue (ARR) of at least $5,000, marking a 21% increase. Notably, customers with ARR exceeding $100,000 grew by over 35%, underscoring GitLab’s success in retaining and upselling to larger clients. The company's dollar-based net retention rate (DBNRR) stands at an impressive 129%, driven by seat expansion and price increases.

Improvements in Profit Margins and Cash Flow

The company reported non-GAAP gross margins at 91% for the quarter, reflecting operational efficiency. While the non-GAAP operating loss was $3.8 million, this represented a significant improvement from the $15 million loss in the same quarter last year. This improvement was even after a $15 million investment in their global team member gathering, Summit. Moreover, GitLab's cash from operating activities soared to $38.1 million, compared to an $11 million use of cash in the corresponding quarter of the previous year.

Guidance for FY 2025

Looking ahead, GitLab has revised its revenue guidance for the full fiscal year 2025 to a range of $733 million to $737 million, implying a growth rate of 26% to 27% over the previous year. For the second quarter of FY 2025, the company expects revenue between $176 million and $177 million, accompanied by a non-GAAP operating income of $10 million to $11 million and a non-GAAP net income per share of $0.09 to $0.10.

Product Innovations: GitLab Duo and AI Capabilities

GitLab continues to innovate by integrating AI deeply within its platform. The company’s AI offering, GitLab Duo, now includes GitLab Duo Chat, an AI-powered conversational interface that aids in various tasks without switching contexts. Additionally, new privacy controls have been introduced to enhance data security, addressing compliance risks associated with AI adoption. Looking forward, GitLab plans to release GitLab Duo Enterprise, which integrates advanced security tools like root cause analysis and vulnerability resolution.

Macro Environment and Demand Stability

Despite a cautious macro environment, GitLab's sales cycles and discounting have remained consistent from Q4 to Q1. The company reported that procurement departments are being thoughtful about commitments, but there has been strong business from both new and existing customers. Specifically, the net dollar retention rate was bolstered by seat expansion, increased customer yield, and up-tiering.

Financial Model and Go-To-Market Strategies

GitLab is focused on growth while maintaining responsible spending. The company has seen a contribution margin improvement, adding $42 million in incremental revenue against an increase of $31 million in expenses. Investments in growth include hiring field CTOs and solution architects. Despite these expenses, GitLab achieved an adjusted free cash flow of $37.4 million. The company plans to continue scaling its sales and marketing efforts, especially for larger enterprise accounts.

Earnings Call Transcript 2025-Q1

[Operator]

Greetings, and welcome to the GitLab First Quarter Fiscal Year 2025 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Kelsey Turcotte, Vice President of Investor Relations. Thank you, Kelsey, you may begin.

[Kelsey Turcotte, executive]

Thank you for joining us today for GitLab's First Quarter Fiscal Year 2025 Financial Results Conference Call. GitLab's Co-Founder and CEO, Sytse Sijbrandij; and GitLab's Chief Financial Officer, Brian Robins, will 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. Sid?

[Sytse Sijbrandij, executive]

Thank you for joining us today. We had a strong first quarter with 33% revenue growth and significant year-over-year margin expansion. The value customers derive from GitLab comes through not only in our top line growth but also in our best-in-class dollar-based net retention rate of 129%. We continue to differentiate our platform with security compliance and AI throughout the software development life cycle and we also continue expanding our total addressable market for new use cases in personas. AI is quickly transforming the way software is delivered.

With GitLab, our AI extends well beyond coding and development because we have the broadest platform, we uniquely enable our customers to also leverage AI for planning, security and operations. Both new customers like financial services company, AMB, and existing customers, NASA, Artemis, Carrefour, Indeed, and the FBI understand the value of a platform that enables software development across the end-to-end life cycle. It improves productivity and security without sacrificing speed. We believe the benefits and improved quality delivered by our end-to-end approach are unmatched in the market.

A great example of this is a leading financial services company that decreased pipeline outages by 90% since deploying GitLab, and that has translated in hundreds of thousands of dollars in savings every year. They are also leveraging our AI offering, GitLab Duo Pro and GitLab Duo Pro has already delivered increases in productivity for this customer.

We're seeing GitLab Duo adoption by customers who are excited about the benefits it's bringing to their teams. For example, a leading provider for the global communications industry purchased GitLab duo in Q1 to help engineering teams go faster and more securely.

We continue to add new capabilities to GitLab Duo. In Q1, we released GitLab duo chat into general availability. Chat is a conversational AI interface for GitLab Duo. It helps customers quickly understand project status, get help with planning and configuration, receive explanations of suggested code and generate texts, all without contact switching. I'm excited about Chat because it transforms software development by seamlessly integrating AI through a single easy-to-use natural language chat interface. This optimizes DevSecOps workflows and boosts productivity.

We also introduced new privacy controls that enable organizations to manage sensitive data at the project group and subgroup levels. This helps reduce the security and compliance risks of AI adoption. Our next AI add-on is GitLab Duo enterprise. GitLab Duo Enterprise combines the developer-focused AI features of Gitlab Dua Pro with enterprise-focused features to help teams collaborate faster together. Our customers are particularly excited about the security tools coming as part of GitLab Duo Enterprise, such as root cause analysis, along with vulnerability explanation and resolution.

In the future, GitLab Duo Enterprise will also allow customers to deploy AI models in air gap environments. This feature will further differentiate GitLab Duo in the market.

Now I'd like to turn to security and compliance. These capabilities are core to our platform and continue to be big business drivers for us. Customers turn to GitLab because they need to integrate security earlier in the development process. For example, a major U.S. technology company and government contractor removed 7 different point solutions when they consolidated on the GitLab platform. Now they are doing security scans 13x faster and are seeing 90% savings in tool chain administration.

In Q2, we closed a 6-figure deal with a global financial services company, a new logo for GitLab. They were looking to improve security in the DevSecOps life cycle and GitLab was the only option that would let them bring software composition analysis, SaaS and DAS into a single platform. With our advanced security capabilities, a company can shift security left and address vulnerability sooner. At the same time, they are consolidating their tool chain, reducing the total cost of ownership and increasing visibility across the software supply chain. GitLab's integrated security is driving upgrades to our ultimate tier.

In Q1, we continue to build on our security capabilities with our acquisition of Oxeye. We acquired Oxeye for their robust SaaS technology. This will help streamline vulnerability management and remediation for GitLab customers.

We also acquired the intellectual property of Rezilion, which will enrich our vulnerability risk data and auto remediation capabilities as well as run-time vulnerability reachability. Together, these acquisitions are intended to extend GitLabs detection and remediation capabilities from code through run-time. And this will help organizations resolve vulnerabilities more efficiently and quickly. We will be integrating Oxeye and Rezilion technologies into GitLab over the next several quarters.

Turning to compliance. One of our big differentiators here is GitLab Dedicated, our single-tenant SaaS solution, which provides customers with data isolation and residency. One of the largest public service departments in Europe adopted GitLab Dedicated in Q1 to help them break down silos and build a culture of collaboration across the organization's hybrid landscape while maintaining strict compliance requirements.

Now I'd like to discuss our go-to-market strategy. As we scale past $500 million and move to $1 billion in revenue, our customer profile is evolving and so are we. Customers recognize us as more than just a vendor, We're a partner. We recently won Ally Financial's Technology Operational Excellence Award for driving simplified and resilient solutions for Ally and its customers. This follows from last year when we won Ally's Velocity with Quality Award for helping Ally Financial deliver value to customers quickly.

In addition, our partnerships with Google Cloud and AWS accelerate cloud migration for them, and we benefit from wider distribution. In April, GitLab received the 2024 Google Cloud Technology Partner of the Year Award in the application development category for the fourth consecutive year. At Google Cloud Next, we announced our Google console integration. This helps our customers improve developer experience and decrease contact switching across GitLab and Google Cloud.

We're also excited about our integration with Amazon Q. The integration gives our joint AWS and GitLab customers, the unified interface, whether they are working in AWS or in GitLab. AWS customers using GitLab can opt to have GitLab Duo [indiscernible] and vice versa.

To help us penetrate the estimated $40 billion market opportunity ahead of us, we are investing in a number of initiatives. First, we are adding more global field CTOs to help amplify our message and articulate our value to the executive suite. Second, we are bringing in more solution architects and also expanding our services offering to ensure post sales success. Third, we are increasing our global theater presence to more closely meet the needs of specific regions and markets. And fourth, we are sharpening our focus on industries with complex security and compliance requirements such as financial services.

During the quarter, we closed the second largest deal in GitLab history with a U.S.-based global investment banking firm. Given their success with our core capabilities, they upgraded to GitLab Ultimate for our security and compliance capabilities and significantly expanded seats.

Finally, we're looking forward to next month's anticipated GitLab 17 product launch event. We invite you to join us on June 27. Registration information can be found on the GitLab website. Many innovations are planned for GitLab 17, including enhanced security scanning and governance controls and the general availability of our CICD catalog. Then we'll be taking GitLab 17 on the road as part of our DevSecOps World Tour. We then focused on business leaders and practitioners.

On a personal note, during a recent routine scan, I learned that I need to again undergo treatment for osteosarcoma, the same form of cancer I was treated for in 2023. My doctor believes that this finding is part of the original lesion and that as such, the disease is not metastasized. I'm working on making a full recovery as the last time my scope and responsibilities as GitLabs CEO and Chair remain unchanged. I'd like to thank our executive team and the Board of Directors for their support.

In closing, I'm confident we will continue to win the large market opportunity in front of us. I want to thank our team members and partners for their focus on customer success and our customers for trusting us. I'd like to thank our shareholders for your support, and I look forward with speaking with many of you this quarter.

With that, I'll turn it over to Brian.

[Brian Robbins, executive]

Thank you, Sid, and thank you again for everyone joining us today. I am pleased with our start to FY 2025 as the team delivered strong top line growth. We also achieved a significant year-over-year increase in operating margin, and for the first time, generated positive Q1 operating and adjusted free cash flow. Our #1 objective is to grow, but we continue to do that responsibly.

It is clear from our results that our customers see the value of our end-to-end DevSecOps platform that allows them to consolidate spend, avoid vendor lock-in and deliver outcomes to the business more quickly. Customers report to us that they were able to consolidate their tool chain anywhere from 3 to 20 solutions into our platform, accelerate release cycles by 7x and even realize 70% improvements in annual savings. These outcomes move the needle for our customers in the software development life cycle, maximizing budgets and increasing their competitiveness.

Turning to the numbers. First quarter revenue of $169 million represents an increase of 33% from Q1 of the prior year. Please note that our acquisition Oxeye did not contribute to Q1 revenue. As a reminder, when we guided for Q1 and FY 2025 we had not completed our annual stand-alone selling price analysis or SSP, which determines our revenue recognition rate for upfront license revenue. As a result, we used our FY 2024 rates for FY 2025 guidance. That evaluation is now complete and had the effect of decrease in Q1 revenue approximately $1 million and decrease in expected FY 2025 revenue by approximately $4 million relative to guidance. Excluding the impact of the new SSP allocation, Q1 revenue was $170 million, an increase of 34% year-over-year. Going forward, guidance for FY 2025 includes our updated SSP allocation.

We ended our first quarter with a dollar-based net retention rate, or DBNRR of 129%. Q1 DBNRR was driven by a combination of seat expansion at approximately 55% priced at approximately 35% and tier at approximately 10%. Over the last 4 quarters, seat expansion has been greater than 50% of the growth in DBNRR and we are very pleased to see customers' commitment to our platform reflective in this expanding adoption.

We now have 8,976 customers with ARR of at least $5,000, an increase of approximately 21%. Consistent with previous quarters, our customers with greater than $5,000 in ARR contributed over 95% of our total ARR in Q1. In particular, we monitor performance of our larger customer cohort of $100,000 plus in ARR, where average ARR per customer continues to increase and unit economics continue to improve. This is a testament to the importance of security and compliance for these large customers. At the end of the first quarter of FY 2025, we had 1,025 customers with ARR of more than $100,000, an increase of over 35% year-over-year. Expanding this cohort, both in absolute number and total ARR is a focus of our go-to-market team and as Sid mentioned, we'll continue to invest additional resources to drive momentum across these customers.

This quarter, total RPO grew 48% year-over-year to $681 million, while CRPO grew 34% to $436 million. Non-GAAP gross margins were 91% for the quarter. SaaS now represents over 28% of total revenue and grew 50% year-over-year. The team continues to identify efficiencies that allows us to maintain best-in-class non-GAAP gross margins. Once again, we saw a year-over-year improvement in operating leverage. Q1 non-GAAP operating loss was $3.8 million compared to a loss of $15 million in the first quarter last year. As a reminder, in this Q1, our non-GAAP operating loss included a $15 million investment in Summit, our global team member gathering. I'm really pleased with the team's continued focus on execution which resulted in a non-GAAP margin expansion of more than 900 basis points year-over-year.

Cash from operating activities was $38.1 million in the first quarter of FY 2025 compared to an $11 million use of cash in operating activities in the same quarter of last year. Adjusted free cash flow was $37.4 million in the first quarter of FY 2025 compared to an $11.2 million use of cash in the same quarter of last year.

Turning to guidance. I'd like to start with a few comments on guidance. First, as I mentioned already, guidance includes our updated SSP revenue analysis. FY 2025 revenue guidance includes the approximately $4 million SSP net headwind for FY 2025 and raises in line with our first quarter top line outperformance.

For the second quarter of FY 2025, we expect total revenue of $176 million to $177 million representing a growth rate of 26% to 27% year-over-year. We expect a non-GAAP operating income of $10 million to $11 million, and we expect a non-GAAP net income per share of $0.09 to $0.10, assuming 167 million weighted average diluted shares outstanding. For the full year FY 2025, we expect total revenue of $733 million to $737 million, representing a growth rate of approximately 26% to 27% year-over-year. We expect the non-GAAP operating income of $34 million to $38 million and we expect a non-GAAP net income per share of $0.34 to $0.37, assuming $168 million weighted average diluted shares outstanding.

Separately, I'd like to provide an update on JiHu, our China joint venture. Q1 FY 2025, non-GAAP expenses related to JiHu were $3 million compared to $5.6 million in Q1 of last year. Our goal remains to deconsolidate JiHu. However, we cannot predict the likelihood or timing when this may potentially occur. Thus, for FY 2025 modeling purposes, we forecast approximately $14 million of expenses related to JiHu compared with $18 million in FY 2024.

In closing, Q1 was a strong start to the year, highlighting the differentiation of our DevSecOps platform and the power of our financial model. We're excited about the introduction of AI across the entire software development life cycle. The significant value we deliver for our customers and a large market opportunity in front of us. Thank you all for joining us this afternoon.

With that, I'll turn it over to Kelsey who will moderate the Q&A.

[Operator]

Hello, everyone. Thank you very much for joining us this afternoon, and it's time for questions. [Operator Instructions]. We will take our first question from Matt at RBC.

[Matthew Hedberg, analyst]

Great. Thanks, Kelsey. First of all, thoughts and prayers out to you. as you continue this journey here. Certainly, you're in our thoughts and prayers. Maybe just to start with you, Sid, on the demand environment, there's obviously been a lot of volatility in -- I guess, I'd say, off quarter software earnings over the past couple of weeks. Can you just maybe just pull the lens back a little bit and kind of just talk about what you're seeing from an [indiscernible], it looked like you had good results. But just a little bit more perspective there.

[Brian Robbins, executive]

Matt, thanks for the question. This is Brian. I'll start in. There weren't any major macro changes from Q4 to Q1. Sales cycles and discounting were consistent. The macro continues to be cautious, I would say, from the procurement departments on how they're being thoughtful in what they commit to. If you get specific to GitLab though, first, if I look at new business, our first quarter of business continues to be strong. And so that's a great indicator.

And then second, I look at existing customers, and we reported the dollar-based net retention rate of 129%. This is led by seat expansion, followed by the increased customer yield and then up tiering and so that was better than what we modeled. The cohort of $100,000, which we view as a proxy for enterprise customers, grew more than 35% year-over-year. And so hopefully it gives you some context on the macro and then also what we look at from GitLab specific within the quarter.

[Matthew Hedberg, analyst]

Okay. That's great, Brian. And then maybe just a follow-up for you. On the $4 million SSP headwind you talked about, I just want to be clear, it feels like, a, that's a full year headwind, not just Q1, which you alluded to on the call. But I just want to make sure that my math is right because it feels like you beat by, I think, $3 million, and you're raising by, I think, $7 million, but you talked about this $4 million SSP headwind. I just want to make sure I understand kind of the puts and takes to the full year. It sounded like you said you're basically just pushing the Q1 through, but maybe if you can just provide a bit more color on that.

[Brian Robbins, executive]

Yes, absolutely. And thanks for the question. The -- when we reported the guidance for last quarter, it was based on the 2024 SSP allocation. We completed that analysis, and there was $1 million impact in Q1. And so the $3.7 million beat includes the $1 million impact. The guidance we gave for the full year of $7.33 to $7.37 includes the $4 million headwind. And so that would be added into those numbers. So we've absorbed those in the numbers that we provided.

[Operator]

Great. Thanks for that question. Next question is coming from Ryan at Barclays.

[Ryan MacWilliams, analyst]

Just on your incremental pricing guide you offered last quarter, you usually guide the $10 million in benefit for this fiscal year. Any update to that guide? And are you seeing any differences at renewal for the additional price increase this year in this macro.

[Brian Robbins, executive]

Yes. Thanks, Ryan. This is Brian. We gave that range out a couple of quarters ago to help with calibrating the models because there was such a wide range on this year's revenue. Our assumptions that we gave out, included in our guidance on a go-forward base includes that. And so I'm happy to report that we're doing better than what we internally modeled and in sort of what we internally model.

[Ryan MacWilliams, analyst]

Perfect. Appreciate that color. And just 1 housekeeping item. Maybe I missed it on the prepared remarks, but did you provide ultimate as a percentage of ARR. And then maybe one for Sid. I love to hear about how you're thinking about the initial uptake in terms of demand for Duo Pro and maybe any other kind of demand for Duo Enterprise.

[Brian Robbins, executive]

I'll do all real quickly. That's 46% of total ARR, up from 44% from last quarter.

[Sytse Sijbrandij, executive]

And thanks for the question about Duo Pro and Duo enterprise. So we're seeing the momentum there for Duo Pro, we've got some great initial results on major Americas financial services company reported 35% to 40% developer productivity as a result of using it. We got a great deal with a major APAC telecommunications company that wanted to have AI power capabilities, not just in coding, but in all stages, and we made a sell to a major security infrastructure company.

As for Duo Enterprise, the features they really like are the ones around security and root cause analysis. And the security features they like is vulnerability, explanation and resolution. So they're looking forward to that. And in the future, Duo Enterprise will also allow customers to deploy AI models in air gap environments. And a lot of our customers are looking forward to that.

[Operator]

Next question goes to Jason at William Blair.

[Jason Ader, analyst]

Yes. Thank you. I was just wondering, have you explored recently any changes to the pricing model? I know you can perceive pricing for both the self-managed and the SaaS. Especially for the SaaS business, where most of your peers are using some form of usage-based pricing. It would seem like that could be in the cards for you guys. Just any comments on how you're thinking about pricing going forward would be great.

[Sytse Sijbrandij, executive]

Yes, there -- for the most important part, our pricing is the same as you said, it's based on users. The value we add is we make people more productive, 10x faster cycle time getting more work done. On SaaS, we also charge for example, storage, but the big benefit in GitLab is in how we make people more productive. For example, the storage costs are not very high. Another indicator of that is our gross margins like 91%. It kind of indicates that there's not a ton of compute cost that we drive down. It's making the people more efficient with things like replacing point solutions with a platform and the AI, and that's what we charge for.

[Jason Ader, analyst]

Okay. Great. And then 1 quick follow-up just on the road product road map. And maybe just for you Sid. But as we think about this fiscal year, what would you say is your kind of top priority in terms of the kind of the product's capabilities, the GitLab applications capabilities.

[Sytse Sijbrandij, executive]

Yes. A top focus, of course, is AI, Duo Pro, Duo Enterprise, but we also continue to invest in our -- the ability of our customers to replace point solutions. Really excited about the acquisition of the 2 security companies that's going to make our security offering better, also investing in our compliance, our planning capabilities. And just making it easier to replace all the other point solutions that our customers have. Currently, with GitLab, our customers can replace more point solutions than any other way, but we want to make sure they can replace all their point solutions. And I think in security, we're getting pretty close, and we'll keep driving for all the other sectors, including planning and binary storage and everything else.

[Jason Ader, analyst]

Thank you. Best of luck with you.

[Operator]

Next question goes to Nick from Scotiabank, please.

[Nicholas Altmann, analyst]

I wanted to ask a question, Brian, on the RPO. The sequential change from 4Q to 1Q is a little bit smaller than we've historically seen. And just -- is there anything to call out mechanically as to why that change is a little bit smaller? Was there a pull into the Q4? Are customers signing shorter duration deals? Is there more sort of renewal activity and the renewals go from 3 years to 1 year. Just anything else to call out on that RPO number and why that sequential change is a little bit smaller?

[Brian Robbins, executive]

Yes. Thanks, Nick. We've talked about with billings and RPO, them being somewhat a little bit noisy within a quarter. I was happy with the CRPO at 34% year-over-year. That was in line with the revenue growth of 33%. Q4 to Q1, there is some seasonality. Q4 is our strongest quarter. And Q1 is seasonally our lowest quarter. And so we had a real strong finish to the year. So that impacts it a little as well. But I'm pleased where we're at and the visibility that we have in the model.

[Nicholas Altmann, analyst]

Awesome. And then just a quick follow-up on the $4 million headwind. Is that all related to license revenues and if so, just any goal post as to how we should be thinking about license for self-managed contract support for this year?

[Brian Robbins, executive]

Yes. Thanks for that. We don't break down because we don't forecast that level. We don't set sales compensation targets between self-managed or ones that we're going to host. And so when we go through the SSP allocation, it's based on what we deem to deliver value when it's received versus value over the time of the license, and that's what causes a switch. And so the headwind we eventually get because we don't recognize upfront, we recognize over the period of the contract. And so the $4 million that we called out is lower than what our recognition would have been last year, but we've included that in our guidance and absorb that.

[Operator]

Next question is from Karl at UBS.

[Karl Keirstead, analyst]

Okay. Great. Brian, you talked a little bit about the macro being reasonably stable relative to 4Q. Could we talk specifically about seat growth, your disclosures of the seat contribution to NRR both in Q1 and 4Q would lead one to believe that seat growth is either stable or even slightly improved. Is that the correct assumption?

[Brian Robbins, executive]

When I look back at seats from a contribution to the net dollar retention rate over the last 4 quarters, it's averaged over 50%. And so that's been the #1 contributor. That's both in, obviously, Ultimate and Premium.

[Karl Keirstead, analyst]

Okay. So it sounds more stable than not. Okay. And then on the contribution, the assumed contribution of Duo Pro and Enterprise to the fiscal '25 guidance, Brian, are you including anything in there, maybe a minimal amount, maybe just to add some color there.

[Brian Robbins, executive]

Yes. Thanks for that. Like we said on previous calls, it's early. It takes some time. Happy with the sales process as it's going, but it's included in our guidance that we provided.

[Karl Keirstead, analyst]

Okay. Congrats on the nice numbers.

[Operator]

Great. Our next question comes from Joel Fishbein of Truist.

[Joel Fishbein, analyst]

I just [indiscernible] Brian. First, congrats [indiscernible].

[Operator]

Joel, you're breaking up a little. I don't know if there's a way to fix that.

[Joel Fishbein, analyst]

Can you hear me better now?

[Operator]

Yes.

[Joel Fishbein, analyst]

Yes. So congrats to you and [indiscernible] prayers with you. Brian, Congrats [indiscernible]. I see you talked a lot about scaling the [indiscernible] here, and I would love to get a reiteration how you're thinking about growth versus margin going forward?

[Brian Robbins, executive]

Yes. Thanks, Joel. We've been very consistent in our messaging that the #1 goal of the company's growth, but we'll do that responsibly. If you look at sort of what we added this quarter, we added $42 million of incremental revenue, and that was done with an increase of $31 million of incremental expense. But in that incremental expense was the onetime cost of Summit, which was roughly about $15 million. And so we grew 33% quarter-over-quarter, and we did that with good incremental profit.

[Operator]

Our next question comes from Kash from Goldman Sachs.

[Kasthuri Rangan, analyst]

How would you describe GitLab's product competitiveness versus your leading competitor, how is that gap today versus, say, 6 months ago versus especially in light of the generative AI features that you've introduced with Duo, Duo Chat and also other things like Agile and Dedicated. I know it's a qualitative thing, but I just wanted to get that perspective from you.

And one for you, Brian, when the effect of Duo, Agile, Dedicated price increases do kick in into full gear, what is the rough contribution that these vectors have to your reported growth in this quarter? So in other words, how much additive will be the effect of those vectors to your current reported growth.

[Sytse Sijbrandij, executive]

Yes. Thanks for that question. I think we are -- if you look at the AI features, with Duo Pro where we were later than our main competitor. But I think we have a competitive offering now. If you look at Duo Enterprise, we can use where we're really strong at, namely integrating security in Dev and Ops. And that leads to a very strong offering that only reported. It will have the most AI features available. That comes because we have the broadest platform. We can replace more point solutions for our customers. And that's really important because then they can have a faster cycle time, deprecate all those old tools and not only not have to pay for them, but they save on the integration costs as well. And because we have more in the platform and customers use more of GitLab, we also have more contacts to make more relevant AI features. So I think that's really exciting, and I'm looking forward to all the security help we can offer our customers to with AI, and I think we're leading there. So that makes me really excited.

[Brian Robbins, executive]

And Kash on your question around Duo and all the number of things that you mentioned, what's the rough contribution. On the new products that we've launched, it's price times quantity is a [indiscernible] on that. And so based on the number of seats sold and what the prices that we sell that for in a given month or quarter would be the revenue that we'd recognize that would be additive to what we currently sell today in the base business.

[Kasthuri Rangan, analyst]

And I'm just looking to quantify that. I appreciate the math, Brian, but I appreciate the process, but the math behind it, how much roughly would contribute when it all hits the P&L? Incremental to the reported growth because today's growth is not benefiting from those vectors, right, which is the heart of my question.

[Brian Robbins, executive]

Yes, that's correct. We've included in our guidance, and we haven't broken that out separately.

[Kasthuri Rangan, analyst]

Okay.

[Operator]

Great. Thank you very much. Our next question comes from Rob at Piper.

[Ethan Drake Weeks, analyst]

Great. This is Ethan on for Rob. Just 1 for me. I wanted to ask around how customer conversations around hiring intentions of trends specifically for developers. Are you seeing any sort of customers look to step up hiring in the second half as they invest behind, kind of the resumption of cloud migrations or any gen AI initiatives at this point?

[Brian Robbins, executive]

Yes. Thanks, Ethan. As you can -- there's not a report that we can run per se and actually see what the hiring tensions are of the customer base. I would say just more broadly that there weren't major macro changes from Q4 to Q1. And it was fairly consistent. And then I spoke earlier a little bit about first order and the net dollar retention rate. And I think that's reflected in the -- within the net dollar retention rate, that seat expansion is approximately 55%.

[Operator]

Great. Next question comes from Koji at Bank of America.

[Koji Ikeda, analyst]

Sid, we are all rooting for you here. A couple of questions from us. First one, big picture question, maybe for Sid. So the DevSecOps world is evolving very, very quickly. And there is a lot of focus on generative AI code. But really, that's only a sliver of DevSecOps workflows. So the question is on what's really going on out there? What are developer teams and IT ops teams and security ops teams most focused on today that is driving demand for GitLab?

[Sytse Sijbrandij, executive]

Yes. Thanks for that. You're totally right. Helping people code is only part of the equation. It's Helping the developers and even they don't spend most of their time coding. They spend a lot of their time, for example, interpreting issues. And that's where generative AI can help as well.

And then if you produce code, you still have to secure it. And then the bar for security is coming -- going up, like you have to have a tighter security profile, you've got to address things quicker. So that's where generative AI can help a lot. Super excited about all the features coming out in Duo Enterprise that help with that.

And then it's also operations, keeping everything up and having AI respond faster to security incidents, both augmenting people. But even with things like planning, we're the only platform that has enterprise agile completely integrated. And with AI, you can have a better forecast of when you're going to deliver something. It helps managers with research allocation. So we're really excited to have AI throughout the life cycle, and we think the platforms are in a great position to have more contacts to feed the AI better and the broader the platform, the more point solutions you replace the better that AI is going to work and the more it can do for you.

[Koji Ikeda, analyst]

Got it. And a follow-up here for Brian. Just thinking about the performance in the first quarter and the guidance methodology. You just beat the first quarter guidance, the revenue guidance midpoint by 2.2%. If the guidance methodology is the same, is this the right way to think about upside potential And if not, how should we be thinking about upside drivers from that?

[Brian Robbins, executive]

Yes. Thanks for that, Koji. The guidance that we gave out includes the upsides that we talked about in the various products that we have. And so we -- as I spoke earlier, we didn't break that out and are reporting on that separately.

[Operator]

Great. Koji, just one thing to note is with the $1 million headwind to revenue in the first quarter, the -- what you referred to as the beat would have been actually 2.7%, up from the 2.2% that you mentioned.

Next question will come from Michael at Wells Fargo.

[Michael Turrin, analyst]

Just one for me. On free cash flow, 22% margin. It's what's generally the seasonally lighter period. So Brian, I was just hoping you can speak to the drivers of outperformance there. And how should we think about the seasonality or progression of free cash flow throughout the course of the coming year?

[Brian Robbins, executive]

Yes, absolutely, Michael. We had a very strong fourth quarter. And so fourth quarter collections happen in first quarter. So we did better on the top side and we spent less on the bottom side. And so there was some timing, not much, but there was some timing associated with that. But it is basically the strong collections based on fourth quarter performance and less spending. Timing was about 1/4 of the total.

[Michael Turrin, analyst]

And is it -- I mean, as far as on a go forward, if we look at just the change in operating income assumptions between Q4 guidance and where things sit today, is it fair for us to assume at least sort of a similar progression of free cash flow? Or was sort of the onetime benefit something that we should more carefully contemplate within Q1?

[Brian Robbins, executive]

Yes. 1Q is stronger from a cash collection standpoint because of 4Q. And so it really has some dependency on the prior quarter. And so I'll leave it at that.

[Operator]

Great. Thank you. In the interest of time to see if we can get everyone on. If you could limit yourself to 1 question, please, that would be great. Next question is coming from Pinjalim, JPMorgan.

[Pinjalim Bora, analyst]

Wishing you a rapid recovery. One question for Brian. You said you're doing better on the pricing assumptions that is embedded in the guidance. Is there a way to understand the raise? Does that include a little bit of uptick on that assumption as well?

[Brian Robbins, executive]

Yes. So we broke that out, like I said, a couple of quarters ago to help with calibrating the models. It's included in our guidance on a go-forward basis. We won't be -- we don't break that out. And so it's better than what we modeled internally. And we'll just guide to the full year.

[Operator]

Next question is from Adam at Raymond James.

[Adam Tindle, analyst]

Okay. I want to just return to the Duo conversations to see if I can ask it a little bit differently. I know, Brian, you're talking about it is early. It's going to take time. But if you compare it to Microsoft Developer Copilot, they had 400,000 paid subs that launched 2 years ago. They just announced 1.8 million. And you can back into more than $100 million of ARR for that platform for them. I wonder if you guys might compare and contrast that versus what you're seeing in the initial launches versus Duo. Feel like different scale than -- but what's the [ stopes ] from tens of millions of ARR in the next 12 to 18 months?

[Sytse Sijbrandij, executive]

Thanks for the question. Yes, we're not giving out specific numbers on the adoption. Typically, we see more to enterprises, where it's more of a top-down sale versus a bottoms-up approach. So it takes a little bit longer. I also think with Duo Pro with the coding, we were later. I think with Duo Enterprise, the everything else. I think we're more on time. We have very high expectations. We do foresee the majority of impact in coming fiscal years, not this year. What we have estimated is in our guidance. But what we're very excited about is that customer CD effect of Duo in productivity and the our enterprise customers, they choose GitLab, they choose GitLab Ultimate for the security features, they also want the AI security features. So I think we've got a really compelling offering there. Really excited to see how that develops in the rest of the year and other fiscal years.

[Operator]

Great. Next question is coming from Derrick at TD Cowen.

[James Wood, analyst]

Sid, good luck with your next treatment and for Brian. I just wanted to go back to the change in guide just to get more clarification. At midpoint, it went up by $7 million. we're also absorbing an incremental $4 million. So apples-to-apples, it seems like you're raising by $11 million. Just wanted to confirm that. And then it looks like a lot of that raise, at least relative to where [Streak] was is expected to be seen more in the back half of the year. Can you just walk us through how you're thinking about seasonal mix over the course of the year and what could drive a stronger second half?

[Brian Robbins, executive]

Yes, absolutely, Derrick. Your math is almost correct. And so we beat by $3.7 million. That included a $1 million headwind. And so we raised by $7 million. And then if you add the additional $3 million for the remaining 3 quarter headwind for SSP, you would get to $10 million that will not be $11 million, so close, but it's $10 million total. And the revenue that we're expecting is ramp consistent with what the quarterly spread has been. And so first quarter seasonally is our weakest, fourth quarter seasonally is our strongest and second and third quarter is relatively about the same.

[Operator]

Next question is coming from Jason at KeyBanc.

[Jason Celino, analyst]

Great. Maybe just one for Sid. Duo Pro, still pretty new, but surprised to see the enterprise announcement in the quarter. Curious if this was already always planned to come out around this time frame or if you were able to accelerate it? And if so, why?

[Sytse Sijbrandij, executive]

Yes, thanks for that. I think what we're seeing is that AI is not thing, like it's not -- we have a few teams that help with AI overall. But the implementation of AI, we can frequently rely on the individual teams. So it's not that -- we just have an IT team, AI is going to change the whole DevSecOps life-cycle and we're enabling our team members, our people in R&D to apply AI in the individual aspect. So it's really cool to see like AI is not just going to help you write the line of code. It's also going to help you describe what you coded. It's also going to help you plan for the next thing. And for example, if you have 200 comments from customers and what you should build, it helps you kind of give you a summary and if something goes wrong, it gives you the root cause of what actually went wrong.

If there's a security warning, it helps you write the code to fix that. And in the future, it will start solving some of these security issues automatically. So I'm super excited about the broadness with which we can apply AI and I think Duo Enterprise going relatively fast after Duo Pro, shows that we're able to apply AI very broadly as does the [indiscernible] report show. So great opportunity in the future to get a lot of our ultimate customers using AI throughout the software life-cycle.

[Operator]

Next question is from Mike at Needham.

[Michael Cikos, analyst]

I just wanted to ask about the profitability and the rate that we have for the full year operating profit here. Just trying to size up the magnitude. Can you help me think about how much of that is coming from expectation setting or spending initiatives potentially moving out? And I'd also just like to get a sense if we can marry up the raised profitability outlook with Sid's earlier comments in the prepared remarks regarding investments in field CTOs and solution architects. Is that a fiscal '25 event? Or is this a little bit longer term in scope?

[Sytse Sijbrandij, executive]

No, we're certainly going to -- we're already hiring these people. I'll leave it to Brian to talk about the financial impact for now, but this is happening these changes in go-to-market are happening this fiscal year. Brian?

[Brian Robbins, executive]

Yes. That's -- everything as it said and what we included earlier is included in our financial results. As we mentioned, the #1 objective is to grow, but to do that responsibly. And based on where we're at and looking out at the forecast, the amount of operating income that we're forecasting for the year is what we gave out as guidance.

[Operator]

Great, Mike. Thank you for your question. Unfortunately, we have run out of time. So this does conclude this afternoon's call. We appreciate your participation. You can disconnect at this time, and we'll talk to you a little later. Thank you.