GitLab Inc

NASDAQ:GTLB

Earnings Call Analysis

GitLab Posts Strong Q3 Growth with 31% Revenue Increase and Promising Outlook

In Q3 FY '25, GitLab reported a revenue of $196 million, marking a 31% year-over-year increase, while achieving a non-GAAP operating margin of 13.2%, up from 3.1% last year. The company has 9,519 customers, with over 95% of annual recurring revenue (ARR) coming from those with at least $5,000 in ARR. For Q4 FY '25, GitLab expects revenue between $205 million and $206 million, reflecting a growth rate of 25-26%. They anticipate a non-GAAP operating income of $28 million to $29 million, demonstrating strong operational efficiency and demand for their AI-powered DevSecOps platform.

Strong Growth in Q3 FY '25

GitLab reported impressive Q3 FY '25 results, with revenue reaching $196 million, showing a significant increase of 31% compared to the same quarter last year. This growth is a continuation of the momentum from Q2 and aligns with the company’s commitment to profitable growth. The increase in revenue is reflected in a record non-GAAP operating margin of 13.2%, which is a substantial growth of over 1,000 basis points year-over-year.

Customer Base and Retention

GitLab now boasts 9,519 customers with an Annual Recurring Revenue (ARR) of at least $5,000, contributing over 95% of total ARR in Q3. Notably, the segment of customers with ARR above $100,000 also grew by 31%, reaching 1,144 customers. The company’s dollar-based net retention rate stands at 124%, driven by seat expansion at 50%, increased customer yield at 40%, and tier upgrades at approximately 10%. This indicates strong customer loyalty and continued investment in the GitLab platform.

Strong Performance of GitLab Ultimate

The GitLab Ultimate tier continues to drive significant demand, representing 48% of the total ARR and exceeding 50% of bookings for the quarter. The emergence of GitLab Duo and other new offerings has also led to considerable upsell opportunities, which positions the company favorably in the DevSecOps landscape. Enhancements, such as the recently launched GitLab Advanced SaaS, have further improved product offerings and customer value.

Financial Health and Cash Flow

Non-GAAP gross margin for Q3 reached 91%. GitLab's adjusted free cash flow was $9.7 million, a substantial improvement from the negative $6.7 million in the same period last year. However, cash from operating activities was negative at $177 million primarily due to settlements associated with tax authority negotiations. Moving forward, the company expects a tax-related payment to be finalized in the next quarter, impacting the cash flow.

Guidance for Q4 and Full Year FY '25

Looking ahead, GitLab expects total revenue for Q4 FY '25 to be between $205 million and $206 million, representing a year-over-year growth rate of 25% to 26%. Non-GAAP operating income for the same period is projected at $28 million to $29 million, alongside a non-GAAP net income per share expected to be between $0.22 and $0.23. For the full fiscal year, total revenue is forecasted to be between $753 million and $754 million, amounting to an approximate 30% growth year-over-year.

Market Position and Future Prospects

GitLab is positioned in the early stages of a rapidly evolving market, which is expected to expand significantly as enterprises increasingly consolidate their software development tools. There is a large addressable market of approximately $40 billion, presenting substantial growth opportunities. The company's robust performance and continuous product enhancements underscore its ongoing commitment to driving shareholder value in the long term.

Leadership Transition and Strategic Vision

The call also marked the introduction of Bill Staples as the new CEO, who brings extensive experience in enterprise software. His leadership is anticipated to accelerate GitLab's growth trajectory and innovation, focusing on enhancing developer experiences and driving deeper customer engagement. The transition symbolizes a new chapter for GitLab, aiming to capitalize on the ongoing transformations in the software development landscape, especially with the integration of AI capabilities into their offerings.

Earnings Call Transcript 2025-Q3

[Operator]

Good day, everyone, and welcome to today's GitLab Third Quarter Fiscal Year 2025 Conference Call. [Operator Instructions] Please note, this call is being recorded.

I will be standing by should you need any assistance. And it is now my pleasure to turn the conference over to Kelsey Turcotte.

[Kelsey Turcotte, executive]

Good afternoon. We appreciate you joining us for GitLabs Third Quarter Fiscal Year 2025 Financial Results Conference Call. With me are Cincy Brandy, our Co-Founder and Executive Chair of the Board; Brian Robins, our CFO; and Bill Staples, our newly appointed CEO.

During this afternoon's call, we will introduce Bill, provide commentary on our third quarter results and guidance for the fourth quarter and fiscal year 2025. 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, both of which are 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'll now turn the call over to Sytse Sijbrandij. Sid?

[Sytse Sijbrandij, executive]

Thank you for joining us today. And before I get to the numbers, I couldn't be more excited to welcome Bill Staples to the team. This afternoon, we announced Bill will succeed me as CEO of GitLab. He will also take a seat on the GitLab Board, and I'll continue on as Executive Chair of the GitLab Board.

As I have gotten to know Bill, his passion for software and commitment to innovation makes me confident he is the right person to lead the company going forward. Over his career, Bill has an impressive track record of building a scaling enterprise software organizations. He most recently served as CEO of New Relic and held senior leadership roles at Adobe and Microsoft.

I couldn't be more excited to welcome Bill to the team. Congratulations. Bill, over to you.

[Unknown Executive]

Thank you, Sid, and good afternoon, everyone. I'm humbled to have been asked by Sid and the Board to take on the role of GitLabs CEO. I spent nearly 3 decades building developer platforms and tools, and I know our customer and category very well. I'm convinced that we have a significant opportunity ahead of us.

We've all seen how software has changed all aspects of our lives and transformed every business into a software-driven business. However, I believe we're still in the early stages of the software transformation, which I expect AI to further accelerate.

In my view, there's never been a better time to serve developers, and GitLab offers the best and most comprehensive platform to do that. We sit at the heart of the software development life cycle, improving the development experience for everyone involved, and enabling customers to create better quality software faster for enterprises.

I look forward to rolling up my sleeves, spending time with customers, partners and you as well as GitLab team members. SId, I'm honored to take the helm of the company that you work so hard to build. Thank you for entrusting me with your vision. Now I'll turn the call back to you.

[Sytse Sijbrandij, executive]

Thanks, Bill. I really look forward to working with you. Turning back to the business. I want to talk about a few things. First, our really strong Q3 second, our competitive advantage in AI and where we are going. And finally, the tremendous momentum we are seeing with GitLab Ultimate. .

We executed well and once again, we exceeded both revenue and profitability guidance. Third quarter revenue increased 31% year-over-year to $196 million. And consistent with our commitment to responsible growth, our non-GAAP operating margin reached 13.2%. This is an increase of over 1,000 basis points year-over-year.

From cybersecurity threats to compliance mandates, CTOs, CIOs and CISOs are facing increasingly complex challenges. And despite all of this, organizations need to accelerate the pace of software development to remain competitive and respond to ever-increasing customer expectations. This is why our DevSecOps platform resonates so well.

On the AI front, we continue to build momentum with GitLab Duo Pro and Enterprise. Customers are realizing tangible value with it. One recently told us that 40% of their developers are saving more than 2 hours per week with Duo and another customer is seeing productivity improvements of up to 50%.

In their first purchase with GitLab, Emirates, the world's largest international airline chose Ultimate and Duo Pro. After comparing different AI-powered developer tools, it was our platforms, building security and compliance capabilities and our AI code assistance that made us the choice. Another new customer, Oxblu, a leading global provider of construction video camera services, chose Ultimate and Duo Enterprise in a competitive assessment against GitHub. This is because of our ability to improve the developer experience across the entire software development life cycle, including productivity improvements and security.

The combination of Ultimate and Duo Enterprise is a powerful one. While there are many AI solutions that can generate we go beyond that. We integrate AI throughout the software development life cycle, and we serve all stakeholders involved in shipping grade software, including product managers, security engineers and operations teams. To take advantage of our end-to-end AI capabilities beyond the code creation, F5 moved from Duo Pro to Duo Enterprise in Q3.

An international insurance and financial services company expanded their ultimate deployment and purchase dual enterprise. By the end of 2024, they will have replaced 4-point products. saving over $2 million. They plan to consolidate more tools over the next 3 years, securing their entire software supply chain with a single DevSecOps platform.

And with Duo Enterprise, they estimate that their engineering teams will spend up to 45% less time on mundane tasks like writing code, allowing them to spend time on more strategic valuable work. LATAM Airlines, the largest airline in Latin America and a new GitLab customer, selected Ultimate and Duo Enterprise in a competitive evaluation between us and several security, AI and CICD point solutions.

Now can consolidate their software tool chain, reduce costs and improve productivity and we can leverage our extensive security scanner coverage and AI throughout the software development life cycle. Looking ahead, we intend to be the vendor customers choose to partner with for a comprehensive approach to AI. There are 3 reasons we believe we are uniquely positioned to do this. First, is our end-to-end DevSecOps platform. To be effective, AI models need context.

And our platform's unified data store allows us to give the AI more and more relevant context. Second, customers value security when it comes to AI. I'm excited to share that GitLab Duo Enterprise customers can now deploy self-hosted models. This is a significant differentiator for us.

With self-hosted models, customers can implement AI capabilities without their private data leaving the organization. This lowers the risk of security breaches and enables adherence to data protection laws.

Recently, a large U.S. government agency chose to add 2,000 GitLab Du enterprise users to their existing ultimate licenses to provide their developers with an AI experience in an off-line environment. They chose GitLab Duo because they could use their own self-hosted large language models with their existing GitLab incidents. Finally, customers need to trust the AI they are using. This concern is raised at all levels of our customers' organization, including the Board of Directors. We partner with LLM vendors who do not use our customers' proprietary code to train their models. And we have adopted a transparency and privacy first approach to safeguard customers' data and IP.

Earlier this week, we announced a bundled offering for GitLab Duo with Amazon Q, allowing developers to create and deploy high-quality secure code faster on AWS. The joint offering integrates AI capabilities from GitLab Duo and Amazon Q into a single interface for AWS customers using GitLab Ultimate.

Gen AI innovations started with AI-powered code creation, which we offer in GitLab Duo Pro. With the introduction of dual enterprise, we expanded AI to everyone in the software development life cycle. We anticipate the next evolution in AI will be agentic, where AI will be autonomous and proactive rather than pump based and reactive. Agentic AI is the foundation of GitLab Duo workflow.

An autonomous agent for end-to-end software development that we shared a preview of earlier this year. This is where we see the industry going and we intend to be the leader.

Now I'll move on to the success we're seeing, but ultimate, there are multiple drivers creating demand for Ultimate and interest from partners like AWS. These include integrated security and compliance, GitLab Dedicated and as I discussed, dual enterprise.

Ultimate has now reached 48% of our total ARR. During the quarter, indeed the #1 job site in the world moved from GitLab premium to Ultimate. Prior to the upgrade, indeed migrated thousands of projects from a legacy competitor to GitLab, increasing daily pipelines by 79% and cutting hardware costs by up to 20%.

In Q3, they chose Ultimate to consolidate multiple tools into 1 platform for Sourcescope management, CICD and security, Ultimate creates a paradigm shift in how customers can embed security in the earlier stages of software development. We also seamlessly integrate security checks and guardrails as the code is being written.

Our recent Forrester study found that ultimate customers can decrease their incident response times from 1 month to 1 hour. USAA is 1 of our longest-standing customers. With Ultimate, we have been able to boost the productivity and efficiency of their developers by setting and enforcing security and compliance scans and shifting security left.

In addition, a large global supermarket chain with 12,000 stores in 18 countries upgraded to Ultimate to take advantage of our platform's full suite of security and compliance features.

With Ultimate, Dave told us they expect to save 90 minutes per developer per day on manual security tasks and reduced costs by $10 million to $15 million per year. Ultimate is also attracting new customers like [indiscernible] Group a provider of enterprise asset management software for plans and facilities. They chose GitLab to increase security and complaints with a single all-in-one platform while also consolidating their tool chain and increasing visibility across projects.

In fact, 9 of our top 10 largest new first order customers in Q3, all purchased Ultimate. In the third quarter, GitLab Advanced SaaS became generally available for all our ultimate customers. Advanced SaaS is powered by technology we acquired with the acquisition of oxide. It uses a proprietary detection engine to identify exploitable vulnerabilities in first-party code. This delivers more accurate results.

So developers and security teams don't have to sort through the noise of false positive results. And unlike other stand-alone security scanners, advanced SaaS is natively built into the Gilad Dessau platform. This provides a developer experience free from the overhead that comes with integrating multiple point solutions.

GitLab Dedicated, which continues to exceed our expectations is also driving demand for Ultimate to leverage dedicated customers must be on ultimate because Dedicated is fully managed by GitLab, customers can achieve quicker time to value compared to hosting the platform themselves while maintaining high security and compliance standards.

Enterprise Work Management platform, Smartsheet purchase dedicated through a hyperscaler partner to remove the need for maintenance, reduce infrastructure costs and give teams time back for innovation, all while ensuring they have a highly reliable software development process.

Blackstone the world's largest alternative asset manager, purchase dedicated for tool chain consolidation, compliance and visibility. Dedicated also contributed to a record quarter in our public sector business. and we are building momentum with our in-process designation for FedRAMP moderate. The U.S. General Services Administration or agency sponsor for FedRAMP, selected GitLab dedicated for government. Dedicated will reduce the burden of building new tools and will establish a factory floor with an end-to-end FISMA compliant descopatfon. Hub is a great choice for highly regulated industries, and I am pleased with our performance in this market.

I want to finish by saying thank you. First, to our team members for living our values and mission to our customers for placing their trust in us and our partners for their support and finally, to the wider GitLab community. And with that, I'll turn it over to Brian.

[Brian Robbins, executive]

Thank you, Sid, and welcome, Bill. I'm really pleased with our Q3 FY '25 results, which exceeded our expectations. We built off the momentum we saw in Q2 and continue to deliver against our commitment to profitable growth. Q3 revenue reached $196 million, an increase of 31% from Q3 of the prior year and we delivered a record non-GAAP operating margin.

We now have 9,519 customers with ARR of at least $5,000, which contributed over 95% of total ARR in Q3. In particular, we monitor performance of our larger customer cohort of $100,000 plus in ARR, which increased 31% this quarter and reached 1,144.

As a scale, this cohort continues to make significant investments in Ultimate, including our top 7 deals in the quarter. We are also seeing new customers land with GitLab Duo. In Q3, this included 5-, 6-figure first order deals that included Duo.

On the expansion front, we ended the quarter with a dollar-based net retention rate, or DBNRR of 124%. Q3 DBNRR was driven by a combination of seat expansion at approximately 50 increased customer yield at approximately 40%, and tier upgrades at approximately 10%.

So I total your gopre RPO grew 48% year-over-year to $811.8 million while CRPO grew 39% year-over-year to $515.2 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 continues to do a very good job of driving operating efficiencies to maintain our best-in-class gross margin.

SaaS now represents 29% of total revenue and grew 44% year-over-year. The considerable traction we are getting with GitLab Dedicated is helping drive this momentum. Once again, we saw a significant increase in operating leverage. Q3 non-GAAP operating income was $25.9 million compared to $4.7 million in Q3 of last year.

Similar to Q2, we dropped our revenue outperformance to the bottom line, which, in combination with the team's focus on execution, translated to a record non-GAAP operating margin of 13.2% compared to 3.1% in Q3 of last year. This is an increase of more than 1,000 basis points year-over-year.

As we scale, our land and expand model becomes increasingly efficient, which allows us to both invest in future growth, while also driving operational efficiencies. Q3 FY '25 adjusted free cash flow was $9.7 million compared to negative $6.7 million in the prior year period. Cash from operating activities was negative $177 million in the third quarter compared to negative $6 million in the prior year period.

Cash flow from operations reflects the conclusion of the bilateral advanced pricing agreements or APA, with the IRS and the Netherlands Dutch tax authority. In addition to the third quarter payment of $188 million to the Dutch tax authority, which resulted from the APA negotiations, we have reserved an additional $10 million to be paid to the IRS. Although we have petitioned for an abatement of this amount, we expect it to be finalized in Q4. Now turning to guidance.

For the fourth quarter of FY '25, we expect total revenue of $205 million to $206 million, representing a growth rate of 25% to 26% year-over-year. We expect non-GAAP operating income of $28 million to $29 million. and we expect a non-GAAP net income per share of $0.22 to $0.23, assuming $170 million weighted average diluted shares outstanding. For the full year FY '25, we expect total revenue of $753 million to $754 million, representing a growth rate of approximately 30% year-over-year.

We expect a non-GAAP operating income of $69 million to $70 million, and we expect a non-GAAP net income per share of $0.63 to $0.64, assuming $168 million weighted average diluted shares outstanding. Separately, I would like to provide an update on GH.

Our China joint venture. In Q3 FY '25, non-GAAP expenses related to Jio were $3.5 million compared to $4.3 million in Q3 of last year. Our goal remains to deconsolidate GH. However, we cannot predict the likelihood or timing of when this may potentially occur. Thus, for FY '25 modeling purposes, we forecast approximately $14 million of expenses related to Jio compared with $18 million last year. In summary, Q3 was another strong quarter driven by demand for our leading AI-powered DevSecOps platform to help our customers build better software GitLab brings together developers, security experts and operations teams on a single platform to collaborate, improve quality and prioritize security.

And in a time when there is intense demand for software, -- this allows customers to both drive innovation and reduce cycle times. This is a large market that is ripe for consolidation, and I'm confident in our ability to build long-term shareholder value. The team is focused on a strong close to the year, and we look forward to seeing many of you over the coming weeks. Thank you all for joining today. With that, I'll turn it over to Kelsey who will moderate the Q&A.

[Adam Tindle, analyst]

Thanks, Brian. At this time, if you'd like to ask a question, please use the raise hand function or if you join via phone, you may press star nine. We also request that you limit yourself to 1 question and 1 follow-up. We'll take our first question from Koji Ikeda of Bank of America.

[Koji Ikeda, analyst]

I wanted to ask a question actually before that said, Real high level here. Thank you for everything you've done for the DevSecOp industry as CEO of GitLab. We wish you very much the best on your journeys from here.

And Bill, great to meet you and Brian. Okay. So first question, Brian, this is a numbers game here, and you just beat the midpoint of your guidance by 4.6%. And so what stood out from this quarter that was maybe above the less conservative guidance posture that you had from earlier this year?

[Brian Robbins, executive]

Thanks, Koji. I appreciate the question. This quarter was a strong quarter across the board. We executed well across all fronts. A couple of things I'd like to point out is in the prepared remarks, I said this was the best quarter in pub sec that we've had in the company history.

Ultimate continues to perform really well. 48% of total ARR now. It's greater than 50% of bookings. Net dollar retention was strong and 124% remains best-in-class, CRPO at 39%.

And so last thing I'll mention is churn and contraction as a percent of available to renew. It was the best quarter we had in the last 12 quarters. And so every aspect of the business performed really well, really driven by the strength of the enterprise. So really happy how we ended the quarter.

[Ashley Kramer, executive]

Got it. And for a follow-up here. Fourth quarter guide revenue guidance looks about 25.5% at the midpoint. So as we're thinking about the next 12 months, anything other than the law of larger numbers, is there anything we should be thinking about that would cause that exit growth rate to meaningfully slow from there.

From a guidance perspective, we'll give next year's guidance on the next call. We have a number of different growth factors that we've talked about, the dual enterprise SKU dedicated agile planning. It's just important to note that these things take time to ramp. You have roughly $800 million in revenue, growing 30%. It takes a while for them to make a meaningful impact.

[James Wood, analyst]

Thank you, Koji. Next question goes to Sanjit Singh of Morgan Stanley. And congrats, Bill, and congratulations on an astounding career looking forward to what you do next. I guess I wanted to talk a little bit about the category and how said, you mentioned the move to workflows and the genetic architecture as sort of the next phase of this -- of AI in this category.

And I wanted to say like how you anticipate that playing out? Is that sort of going to be in conjunction in parallel with copilots does it sort of subsume code assistance and copilots? And what do you think is going to be GitLabs sort of strategic advantage when it comes to agents and the genetic architectures?

[Connor Murphy, analyst]

Thanks for that question. Both are going to exist in parallel. So you'll have GitLab Duo Pro assisting people with coating, GitLabDuO enterprise, helping people with everything else that they need to do their job from planning to securing and everything else.

On the other hand, you'll have the AI taking more initiatives being proactive, that's the agenticAIthe dual workflow. And we have an advantage there because we have an end-to-end solution. Our application does everything from planning all the way to deploying. And what's really important with AI is not so much the models anymore. The state-of-the-art models are all really, really good.

Two things are important in AgenticAI. You give them the right context. For example, it's good that they not only know about the code base, but also what your plans are with the applications. So it's great to have planning in GitLab as well, so we can give that context. It's also important that the agents can take action.

So what's great about GitLab, deployments are already part of GitLab. It's already existing functionality. So the Agentic AI can look into that to trigger the action. So that's our strategic advantage. It's again the end-to-end platform. It not only makes things easier for humans, faster cycle by 10x. It makes things easier for the AI agents as well.

[Koji Ikeda, analyst]

And as a follow-up, I'm here in AWS Revit. I'm sure a number of us are. You made a pretty big announcement with AWS and may offering I guess the question there is, it sounds like it's limited to self-hosted at least out of the gate. Do you -- does that integration ultimately show up in a SaaS offering with GitLab Cloud? And commercially, do you think that can be a driver for the business as well?

[Sytse Sijbrandij, executive]

We're super, super excited about this partnership with AWS. We were mentioned as a partner in the main keynote from Gara Garmin it was very, very exciting. And it's not just us at GitLab that are excited. Our joint customers are excited. We got more than 1,000 visits to our booth the day of the announcement. So incredible response.

We want to make things better for our joint customers. And right now, that's in closed beta, and it's accessible to beta participants who are get up ultimate self-managed customers. But you might remember our GitLab dedicated offering, that is launched on AWS. It's AWS is where a lot of our customers are. And we can't wait to -- bring to bring it to joint offering to get a lot dedicated, but we don't have a time line for that yet.

[Operator]

next question goes to Matt Hedberg of RBC. SP-2 Thanks, guys. Can you hear me.

[Sytse Sijbrandij, executive]

Yes, we can now. Okay. Great. First of all, congrats on everything you've done for GitLab. It's just been a real pleasure to work with you. And Bill, congrats on the role. We look forward to working with you in greater detail here.

So there's a lot of good details that you just presented with us to dig in. I guess, could I start with just a macro buying question? It certainly seems like you guys are doing exceptionally well here. A lot of good upsell, a lot of first order business. Do you get a sense that demand trends are improving maybe since 90 days ago?

[Brian Robbins, executive]

Matt, this is Brian. Let me start on that. And so let me start off high level and talk about sort of the macro, and then I'll talk a little bit specifics around GitLab. And so on the macro, we're seeing what other companies are seeing.

And so no changes there. People are buying GitLab for the value that we deliver. And so the payback period is pretty quick. So I would say that we're resilient there. From a specific to a GitLab perspective, as mentioned, it was a really good quarter all across the board.

And so I think that the platform and the value and the payback, people are wanting to consolidate to a platform with a system of record, and that's what we're seeing driving the growth.

[Matthew Hedberg, analyst]

Got it. And then maybe one, I don't think it came up too much in the script, but we continue to hear a lot of good things about your enterprise agile planning module. I'm curious, could you talk a little bit about that, where you're seeing success? Are you seeing some general replacements or these days. Just sort of curious on an update there.

[Sytse Sijbrandij, executive]

Yes. Thank you so much, and thanks for your kind words. So the enterprise agile planning, it's a really important part of GitLab Ultimate. We're still in the early stages of this market opportunity, and we will further enhance this functionality.

But planning is an essential part of the DevSecOps life cycle, and doing that for the largest customers is amazing. And for example, North American professional sports league will leverage GitLabs Enterprise Agile planning offering as part of a broader effort to streamline its technology stack, and this will allow them to reduce reliance on Atlassian products like Jira and Bamboo and they're going to enhance their efficiency across their development and operations teams.

[Unknown Analyst]

Great. Rob from Piper Sandler.

[Robbie Owens, analyst]

Great. And said best wishes to you and your family. Given some of the productivity gains that you guys talked about from Duo and obviously some exciting metrics, how are conversations with customers just around developer seats and thought process moving forward? And then I guess, more tangibly, just what is the pricing yield that you're seeing as you're adding Duo to these seats? Are you getting full price near full price, we'd love to just get a sense.

[Brian Robbins, executive]

Yes. Thanks, Jon. I appreciate the question. This is Brian. In Duo, very -- like I said, very happy with where we landed for the quarter. We're seeing a lot of a lot of deals. And for the top 5 deals that we had for sort of deals, they all had duo attached to it.

And dual itself when it's attached to a deal, if you look at the net ARR, Duo makes up over 25% of the total net ARR in year 1. And so a number of people are deploying Duo and seeing the productivity gains up to 50%. And so the feedback we've been getting from the customers has been extremely positive. Great.

[Unknown Analyst]

And I guess, any comment on the seat side of things, just in terms of how customers are thinking about seats, given the productivity gains you guys articulated earlier.

[Brian Robbins, executive]

Yes. I think they're -- when you look at seats, the way that -- obviously, we have a long tail of customers, and so this is sort of talking broadly for our customer base and what we're seeing on some of the implementation. And so when they're buying when they come to get lab and buying Duo, they're buying it for most of their users. But they're doing more of a rolled out approach on implementing.

And so say a customer will buy 100 to 150 seats, they'll roll out a subset of that over time to different groups within the organization.

[Operator]

Great. Next question goes to Joel Fishbein at Truist.

[Unknown Executive]

You the best as well. And Bill, congrats on the new role. I said, I'm going to ask something that was sort of on tape with Sanjet asked earlier, which was -- 2 things are happening -- 1 is that people are the skeptics out there, say that the market's saturated.

Obviously, your acceleration of revenue growth says that that's not true. Number one. Number 2 is, as part of that, how much -- what inning do you think that we're in, in terms of this vendor consolidation and these disparate tools? And how much room do we have to go from that standpoint.

[Sytse Sijbrandij, executive]

Yes. Thanks for that, Joe. We believe it's still early we think that the vast, vast majority of enterprises, they are on DIY DevOps today. They have so-called best-in-class solutions, but they have all kinds of point solutions and the really hard part is integrating that.

And you can -- you know our revenue. You can make an estimate about GitHub's revenue. And when you look at the market, it's a $40 billion market. And whatever your estimate is for GitHub, that means that we're in a very early inning here. I would say we're in the first inning. So that's why we're so excited about this market.

And we see every time that we can make those replacements, the more point solutions they replace, the better the result and every month becomes better, and we're able to replace more of these point solutions. We're better able to take out more of them when we have an implementation.

[Karl Keirstead, analyst]

That's great. And Brian, just a real quick follow-up. Great outperformance on the margin side of the business. I know you've always historically said Paris prioritizing growth over profitability, but I'd love to know how we were thinking about margins going forward.

[Brian Robbins, executive]

Yes. Thanks, Joe. We're super happy with the increased operating leverage we can continue to get in the model. We look at doing that across the entire enterprise. When we went public, we talked about there may be some pressure on our non-GAAP gross margins due to the increase in SaaS SAS has grown 44% year-over-year and is now 29% of our total revenue.

And we've still been able to maintain best-in-class non-GAAP gross margins of -- so I'm happy with how we've done there. Sales and marketing EDR is the best it's been in company history this quarter, and so we continue to work on margin. Our #1 thing is to grow, but we'll do that responsibly. And so we continue to invest in growth. the new SKUs, AI and so forth. But we're doing that responsibly. And so that's what you saw this quarter from 3Q '25 to 3Q '24, we had over 1,000 basis points improvement. Next question goes to Kash Rangan at Goldman Sachs.

[Kasthuri Rangan, analyst]

Thank you very much. I said all the very best. And Bill, congratulations. hellow of brian. Wondering if you could share your insights into granted you're going to be getting to know the business in more and more detail, as you really immerse yourself in the role.

But what do you see -- what did you see at GitLab? And what do you see as the playbook that you can bring to the company given your experience at other formidable tech companies before. And how would you go about it in your own unique imprint to realize the full potential of GitLabs you have somebody who is fantastic, it's like I said, still on board.

[Unknown Executive]

Thank you, Kash. I really am thrilled to be here. I mean, if you just listen to this narrative and look at the numbers, who wouldn't want to be a part of GitLab. I've spent nearly my entire career of building software for developers and I have a ton of respect for what it said and the GitLab team has done and the fit really is perfect.

For our customers, GitLab is a strategic partnership because we sit the heart of their software development process and we directly help them increase the quality, the speed and the security of their software, and that drives direct improvements to their business. I also believe there's just an enormous opportunity ahead of us. So Dudad just described it as the first inning. We -- as I look at recent technology trends, including all the rapid advancements in AI, I believe the ability for software to transform our world is enormous, and GitLab can play a central role in unlocking that transformation.

Really couldn't be more excited to lead the company. And my immediate priority is to spend time with our customers, our partners, GitLab team members around the world and all of you to learn how I can better serve as CEO. So thanks for the question.

[Brian Robbins, executive]

Goodbye. 5 Great. Next question goes to Shane Kothari at Baird. P-6 Great. Again, Wishing you said a swift recovery and healthy future. And welcome Bill, it's great to interact you back in the day at the future tax and good here, you outlined your vision for GitLab. Of course, we'll look forward to hearing more from you. Andof course, you mentioned the excitement about AI and also heard from Sid about gante and Duo workflow, all of that sounds super exciting.

Just on the GitLab Ultimate, that's kind of hit a big milestone, 48% of total ARR reflects strong customer adoption. Of course, you talked about did have Dua Enterprise, it's driving significant upsell. Just on a high level, just curious said, what are you guys seeing in terms of like any inflection for features like integrated security, compliance, which, of course, we've heard before, it's always had a kind of a slower adoption curve overall steps.

And mostly tied to organizational challenges. Just could you help us provide some color on anything which is evolving changing and primary factors, which is now driving this acceleration?

[Sytse Sijbrandij, executive]

Yes. GitLab Ultimate is doing really well. And over time, its features are becoming better. And I think 1 remarkable thing was the advanced SaaS launch. We acquired Oxide and we were able to really quickly turn that into a much better product offering.

And our product offering that advanced SaaS is going to make things better for humans, like the humans will have fewer false positives, so they can focus on what matters and not -- don't have to do work that doesn't matter, but it also helps to inform the AI to give the AI better context about what's happening. So kind of the 1 acquisition is helping both humans and AI and that's making security better. We'll make the compliance better over time. And it's such an advantage to have it integrated into the whole workflow. We are -- we see that customers are able to be more secure or more projects, more of the time if it's totally integrated. And that's a big reason for customers to buy Ultimate. SP-8 Great. Thanks. We're going to go to 1 question now just for efficiency. Next up is Ryan MacWilliams from Barclays. .

[Brian Robbins, executive]

For Sid, any differences in adoption between Duo Pro and dual enterprise adoption at this point? And then where are your customers stand overall in terms of their developer tool AI rollout? Like -- have they done test use cases today and now ready to go from like initial ROI to broader throughout the organization? Or do you think that's more of a 2025 story as they just familiarize themselves with your air tools?

[Sytse Sijbrandij, executive]

Yes. So what we're seeing is that if a customer is on GitLab Ultimate and they're really bought into using GitLab end-to-end, that Duo Enterprise is the better candidate. So that's been amazing to Sco. I think if you talk about dual workflow, we're very, very early. It's in the hands of a few customers, but -- we're looking forward to a beta this winter, but we're.

Arly. It's -- don't expect a lot this year, this fiscal year. this is the future. We're working on it, and it will come, and we're doing our best to make sure it's great and that it's secure.

[Unknown Analyst]

Go ahead. Moving on to Michael Turn at Wells Fargo Michael, Yes. I was waiting for the notification. -- sorry. I wanted to ask the sort of the miraquestion to what Kash asked earlier. Certainly, wishing you the best fit, but I think it would be useful just to hear more on your thoughts on, Bill, what made him the right fit anything you saw from the experience perspective and really just thinking about the stage that GitLab is at in terms of maturity, all of the new product innovation and efforts, your rolling out. Just kind of would just love to hear your thoughts on the overall transition there.

[Sytse Sijbrandij, executive]

Yes, I couldn't be more excited than with Bill as a success. I think he's a perfect fit for GitLam. I've talked to a lot of CEOs and I haven't found anyone that is such a kind of good fit with us. Bill has amazing leadership qualities. He's learned from the best leader. She's a great leader himself. But he also really cares about the software process.

He's been a software developer himself. He has been in this market. He knows or what the market is like, what our users are like, what our buyers are like. Of course, he's going to go on tour and see our -- speak to our customers. But this is someone who cares very deeply about it and has the operational skills to write an amazing next chapter forget late.

[Ashley Kramer, executive]

Next question goes to Gray Powell of BTIG. Okay. GREAG. okay, can you hear me? Again, Awesome. Well, thanks, Kelly. I'll keep this 1 short. Help speed things along. A question for Brian. Just how do you feel about your visibility on the pipeline and the demand environment today versus 6 or 12 months ago?

[Brian Robbins, executive]

Yes. Thanks, Greg. Appreciate the question. When we went and talked about Q3, there wasn't many changes from Q2, nor Q3. So there's been a -- as I mentioned, there's still the spend environment out there, we're seeing what others are seeing. It's cautious, but we haven't seen a lot of great fluctuations. And so we had enough confidence to pass through the beat. And raise for the year. And so happy with where the pipeline is for 4Q. Next question goes to Pendolino at JPMorgan. Pendolino Martel.

[Pinjalim Bora, analyst]

Great said all the best and welcome, Bill. I want to talk about agenetic again. As the air agents kind of become a reality with a resortware developer might a potential emeralagents working for them. How do you envision Gulab pricing model evolving to fit that world over time?

[Sytse Sijbrandij, executive]

That's a great question. And -- the background is, hey, if the agents do the work, and it's not directly tied to a user, how do you price that? Do you still price that per seat? And I can't comment on future pricing. But I've already given some ideas of what Bill is great, 1 of the things he's also overseen at New Relic as a move to consumption pricing.

That's not the reason we brought them in. We brought them in because he's a great leader, but never hurts. And despite kind of it going to that like pricing maybe differently for these workflows, we do see a great future for people working in software. And if you look at AI, it's making it easier for people to get on in software. With Duo, it's easier to program something. So I'm not going to give forecast or preannounced pricing, but those are my thoughts. Thanks, Kindle.

[Ishan Majumdar, analyst]

Next and final question goes to Nick Altman at Scotiabank. .

[Nicholas Altmann, analyst]

Awesome. Thank you. So wishing you all the best. My question is on the ultimate premium mix. And it sounds like door prize is gaining some nice traction, especially with the net new customers and being a driver for ultimate option.

But when you're talking to customers, can you just talk about how much of a driver for enterprises for customers maybe looking to upgrade from brine to ultimate? And then -- as we kind of think about that dynamic going forward and potentially more net new customers landing in ultimate, just how should we think about the pace of mix shift as it pertains to ARR from ultimate versus premium .

[Sytse Sijbrandij, executive]

Yes, I think there's different customers. We talked about the Emirates becoming a customer. And they combine ultimate with DuoPro. There's also a ton of customers combining ultimate dual enterprise. So it's going to vary by customer. I think we should recognize that it's also going to evolve over time.

What's important to us is that we are end-to-end with customers. And we're super excited about working with the hyperscalers to make sure that customers use all of GitLab. We're also making progress with the system integrators of the world, making sure people get all the value out of GitLab.

If you look at how much functionality get lab offers, there's very few companies using everything today. So that's a big thing we can focus on, making sure to use more of the platform and get even more value. And even though, nobody uses everything of GitLab.

They already have a 480% return in 3 years. Think about all the features we're still going to. Think about all the features we still can get adopted. That's where a lot of the leverage is. Use more of GitLab, become even better in writing software. Yes, the AI is helping even without the AI, it's already great. And I, I think the adoption in the future is going to be greater and greater.

[James Wood, analyst]

Thanks, Sid. This concludes our Q3 FY '25 earnings presentation. Thanks to all of you once again for joining us, and have a great evening.