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Good day, everyone, and welcome to today's GitLab third quarter fiscal year 2026 conference call. At this time, all participants are in a view and listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. If you would like to ask a question, please use the raise hand feature located in the menu at the bottom of your

Good afternoon. We appreciate you joining us for GitLab's third quarter 2026 Financial Results Conference Call. With me are Bill Staples, our CEO, and James Shen, our Interim CFO. During this afternoon's call, we will provide an overview of the business, commentary on our third quarter results, and guidance for the fourth quarter and fiscal year 2026. Before we begin, I will cover the Safe Harbor statement. I would like to direct you to the cautionary statement regarding forward-looking statements on Page two 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 the 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. Additionally, during today's call, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures exclude certain unusual or non-recurring 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 Bill. Bill?

Thank you, Yao, and good afternoon, everyone. Thank you for joining us today. I am pleased to report strong third quarter results. Revenue grew 25% year over year to $244 million, two points above our Q3 guidance. Non-GAAP operating margin reached 18%, a full five points above our Q3 guidance. It is my first anniversary as GitLab's CEO, and I wake up every day feeling incredibly lucky to build upon the foundation that Sid and the team have created. When I first got here, I said three things. There has never been a better time to serve developers. We are in the early stages of how software gets transformed through AI. And GitLab sits at the heart of the software development life cycle and has the best and most comprehensive platform to enable this transformation. My conviction in the company and our opportunity has only grown stronger. A year into this journey and hundreds of customer conversations later, I can confidently say that we are stronger today than even one year ago. We have built the foundation to deliver more value through AI in the coming year, architecting GitLab and Duo Agent platform to remain mission-critical and delivering increasing value as LLMs and markets evolve. I truly believe there has never been a more exciting time to be at GitLab. We are seeing the rise of AI expand our total addressable market. AI has drastically reduced barriers to entry of software creation and is driving the marginal cost of code generation towards zero. However, software is more than just code. Software with all its embedded business processes and sensitive data is business-critical. The global economy runs on software. Human lives rely on software. Businesses cannot afford negligence in their quality assurance, security, compliance, or governance of their software development and delivery practice. I believe what we do becomes even more critical in a world where teams want to take advantage of agents to author code given the nondeterministic nature of AI. For decades, I have watched my own teams and countless customer teams struggle to stay on top of bug backlogs, technical debt, and business requirements all while innovating. The pattern is universal and long-standing. The tools for building software are technically pretty good, but things consistently break down wherever people and processes are required. GitLab has been solving this problem by providing teams an opinionated view with proven ROI. The key differentiator we automate the end-to-end software delivery flow, including quality, security, compliance, and governance, in a single process flow as part of our unified platform. Ironically, as we have studied teams using agents and new AI tools, we see the familiar pattern. Agents act eerily like humans. Sometimes they follow prompts. But sometimes they do not. Sometimes they write secure code, but sometimes they do not. Why is this? Because LLMs will always be nondeterministic. It is the nature of the algorithms used to build them. And every business has unique requirements that LLM simply cannot guess. Even if LLMs become superior at code to humans, external validation of that code which will also be driven agentically with human oversight, will be required to ensure they meet the complex human requirements of doing business. We believe LLMs will continue to improve in accuracy and cost but they will always require systems that can validate they are supporting complex business requirements. Let's take a look at how that shows up today. IDE tools like Cursor, Copilot, and Cloud Code have contributed to an explosion in code generation. The downstream effects are now clearly visible to us in our business. GitLab engagement has grown significantly across our gitlab.com SaaS customer base. In the first ten months of 2025, key activity metrics CI pipelines, deployments, and releases, are up about 35% to 45% year over year. Similar to what peers are seeing. For customers paying us more than $5,000 in ARR, usage proxies like deployments and CI pipelines on a per seat basis are up 20% to 40% annually. Simply put, more code means more of a need for GitLab. Our 2025 global DevSecOps report shows that while AI accelerates coding, more code does not necessarily mean better outcomes. We call this the AI paradox. We believe long-term winners are not the vendors who can generate code the fastest, but those who can maximize the customer's ability to deliver high-quality secure software to the consumers of their business and drive meaningful business outcomes through software. GitLab is in position to do that better than anyone else. How? We have extended our end-to-end platform which already powers full life cycle actions for more than 50% of the Fortune 100, and hundreds of thousands of organizations across 100 different countries around the world, and now provide that same set of capabilities natively to agents along with shared context for both humans and agents. This not only facilitates greater trust and accuracy, but will help accelerate the end-to-end software process required to win. Instead of just building new AI assistance tools, and agents to solve specific use cases, like our competition we have extended our platform to provide intelligent orchestration across the software life cycle, enabling our partners, customers, and ourselves to solve any engineering problem across the life cycle. GitLab Duo agent platform is our answer to the AI paradox most companies are experiencing today as they adopt new AI tools and will be a driver of new revenue stream beyond seats. The context we have is rich. It includes semantic understanding of the code and dependencies across repositories, granular changes to it over time, quality assurance tests, planning and issue tracking, and collaboration on those plans, security and compliance checks, and build, integration, and deployment pipelines, just to name a few. Our underlying platform becomes more valuable as the volume of code explodes regardless of whether a human or agent made the change. I believe the primitives of code collaboration will prove to be powerful moats. And with Duo Agent Platform, we are in a great position even as LLMs improve and the market evolves. I am pleased to share that Duo Agent platform is on track for general availability in the coming weeks. Turning to the quarter. The highlights this quarter were continued strength in GitLab Ultimate, which is now 54% of total ARR. And was in seven of our top 10 net ARR deals this quarter. Ultimate represents one of the best value propositions for companies who need a single DevSecOps platform. Ultimate drove expansions at customers like Indeed, SBI Securities, and Currys. We executed well on the initiatives we discussed last quarter that served to strengthen the foundation of the company. I am pleased with the steady progress we are making on our first order build-out, and rollouts of GitLab Duo Agent platform. We also saw stronger international results. Overall, sales cycles and win rates remain consistent. However, softness in the US public sector offset part of that performance. GitLab continues to be viewed as the preferred software factory and trusted partner to leading US agencies. But slower decision-making related to the subsequent government shutdown created some new headwinds in the quarter. Our differentiated platform approaches seeing strong third-party validation, as GitLab was named a leader in the 2025 Gartner Magic Quadrant for DevOps platforms, for the third consecutive year. And a leader in the 2025 Gartner Magic Quadrant for AI coding assistance for the second consecutive year. Now let me turn to our key growth objectives. Our first objective is to add more new paying customers, especially in the mid-market and enterprise segments. We are starting to see some cases of AI mandates catalyzing enterprises to look for a future-proof solution. GitLab's approach to a cohesive workflow on a unified platform across developer, security, and operations teams has never been more relevant. Mediametry France's leading media measurement company needed to accelerate their internal development processes and had an AI mandate to reduce maintenance costs. While they were already using a free version of GitLab for source code management, this first order, Ultimate, and GitLab Duo win saw us replace seven different other tools out of the gate. While maintaining ISO 2701 compliance. Duo will enable secure AI-powered development allowing media metric to deliver new measurement products and data analysis at a much faster base. We won a landmark deal with a global consumer tech platform this quarter, to our dedicated offering. They had grown frustrated after experiencing critical reliability issues with their incumbent source code management provider. This customer has over 5,000 developers, is well known for world-class engineering, and has exacting standards on reliability responsiveness, and technical excellence. GitLab dedicated was chosen to provide the environment for their most mission-critical code repositories, ensuring business continuity and operation resilience. While our mix of first order versus expansion improved slightly this quarter, it is still not where I would like it to be. We are expanding our go-to-market capacity and have hired a new business leader to build out our global first order team with a focus on acquiring new logos. It is important to note that resourcing and ramping up this team will take time, I believe the payoff will be worth the investment. Every new customer we win today matters. Given their lifetime value. We are operating with urgency. We work every day to earn the trust of our customers, which is reflected in our best-in-class gross retention rates and demonstrated cohort growth across multiple cycles. We see a long runway for growth in our core DevSecOps opportunity as our TAM continues to expand and our competitive position remains strong. We offer choice, neutrality, and openness in ways that others do not, and that message is resonating. Our competitors are actively choosing to limit choices for their customers in the form of hyperscaler infrastructure, or self-managed versus SaaS options. Indirect contrast, we recognize that every customer journey is different. And make active efforts to meet our customers where they are. Our second objective is to help customers realize the value of our platform more quickly thereby driving revenue expansion. Our biggest expansions this quarter share a compelling pattern. They are all spending on some form of AI tooling in their engineering org but they continue to use GitLab as the back of their SDLC. We continue to see strong potential for up-tiering and attach within our existing customer base. Which the following customer stories help illustrate. A leading financial SaaS provider for small businesses has been a happy GitLab customer since 2017. This quarter, they have created from premium to ultimate across almost a thousand engineers. GitLab's approach to scanning the code at the point of commit before it ever leaves developer's hands allows us to replace multiple fragmented security tools. GitLab will help this customer reduce false positives cut down manual overhead, and empower their developers with AppSec results immediately. A large European public sector organization expansion demonstrates the potential within our existing customer base. Like many large enterprises, they had multiple silo deployments across different groups, and 4,000 developers. This meant maintenance complexity and inconsistent developer experiences. After working closely with them for years across more than 120 stakeholders, they chose GitLab dedicated and Duo this quarter as a foundation of a modern and secure SaaS-based software delivery platform. GitLab meets the highest customer standards in regulated industries and critical national infrastructure. Our third objective to accelerate customer-focused innovation. We continue to invest across three pillars, core DevOps, security, and AI. In core DevOps, we delivered a redesigned interface and a new intelligent pipeline repair flow that helps developers resolve issues faster. Directly translating to increase the development velocity and reduce troubleshooting time. Security and compliance are mission-critical customer priorities, as companies deploy AI toolkits and remain key drivers of ultimate adoption. We introduced new security capabilities, including static reachability analysis, secret validity checks, and diff-based scanning to bring security directly into the development process. The new security analyst agent also introduced this quarter simplifies access to these sophisticated tools and can provide recommendations for engineers on where to focus. And with DuoAgent platform, we launched the AI Catalog. A central place where teams can discover foundational GitLab Duo agents best-in-class external agents like Claude, OpenAI Codex, Google Gemini CLI, as well as create, share, and their own custom-built agents for any software engineering task. Customer feedback has been strong. Many now tell us that GitLab is ahead of our peers in our vision and rapidly evolving capability. We closed our first few GitLab Duo agent platform-based expansions this quarter. Even before general availability. While our progress is rapid and early results are promising, we are at the very start of our journey on this massive opportunity. Pricing and packaging will likely be an iterative process as the platform matures and we discover the most effective ways to deliver value to our customers. And a reminder for any new investors much of our customer base remains on self-managed solutions. And may be slower to adopt some of these solutions. We will be live streaming a product-specific event in February where more details will be made available. As the only pure-play cloud and model-neutral independent public company, delivering DevSecOps we offer true independence. Bill in the cloud you choose with the vendors and tools that you like best. While giving your engineers the very best possible experience. The world needs GitLab more than ever. I want to thank our team members for living our values and our mission and to our customers for their trust our partners for their support, and the broader GitLab community. Before I turn the call over, I also want to thank James Shen for his contributions during this period of transition at GitLab. He is one of the rock stars of this company and has done an amazing job rising to the occasion as interim CFO. I am excited to welcome our new chief financial officer, Jessica Ross, who will be starting in January. Jessica was most recently CFO of Frontdoor and has more than 25 years of experience in finance, accounting, and operational leadership at companies like Salesforce and Stitch Fix. You will all have an opportunity to get to know her in the coming months. With that, I will turn it over to James.

Thank you, Bill. And thanks again to everyone for joining us today. I am happy to report that we beat our guidance across the board as the team executed through a dynamic environment. Third quarter revenue reached $244 million. An increase of 25% from Q3 of the prior year. We now have 10,475 customers, Our larger customer cohort with ARR of at least $5,000, which contributed over 95% of total ARR in Q3. of $100,000 plus in ARR increased 23% year over year and reached 1,405. Our customer base is well diversified across industry, and geography. And no single customer accounts for more than 2% of ARR. On the expansion front, we ended the quarter with a dollar-based net retention rate, or DBNRR, of 119%. Total RPO grew 27% year over year to $1 billion while CRPO grew 28% year over year to $659 million. We remain pleased with this very healthy growth rate. Non-GAAP gross margin was 89% for the quarter. The team continues to do a good job of driving operating efficiencies even as our SaaS business has become a greater portion of our mix. Driven in part by the continued strength in GitLab dedicated and 31% of total revenue and grew 36% year over year. Q3 non-GAAP operating income was $43.7 million, compared to $25.9 million in Q3 of last year. Non-GAAP operating margin was 17.9% compared to 13.2%. In Q3 of last year, an increase of approximately 470 basis points year over year. We are making steady progress on building out a dedicated first order team and increasing our quota-carrying capacity. Q3 FY 2026 adjusted free cash flow was $27.2 million, with an adjusted free cash flow margin of 11.1%. Compared to $9.7 million in the prior year. We ended the quarter with $1.2 billion in cash and investments. Our strong balance sheet and predictable business model give us the flexibility to continue to invest in our AI capabilities, platform enhancements, and go-to-market organization. As we deliver strong margins and cash flow for our shareholders. Separately, I would like to provide an update on Jihue, our China joint venture. In Q3 FY 2026, non-GAAP expenses related to Jihoo were $3.3 million compared to $3.5 million in Q3 of last year. Our goal remains to deconsolidate Jehu. However, we cannot predict the likelihood or timing of when that may potentially occur. Thus, for FY 2026 modeling purposes, we forecast approximately $16 million of expenses related to Jehu. Compared with $13 million from last year. Now turning to guidance. While we are encouraged by our strong year-to-date performance, the SMB softness that we called out last quarter persists. Additionally, the lingering effects of the recent US government shutdown are likely to impact deal dynamics in our US federal business into Q4. These dynamics are factored into our guidance. For the '26, we expect total revenue of $251 million to $252 million representing a year-over-year growth rate of approximately 19%. We expect a non-GAAP operating income of $38 million to $39 million. And we expect a non-GAAP net income per share of 22¢ to 23¢. Assuming 172 million weighted average diluted shares outstanding. For the full year FY '26, we expect total revenue of $946 million to $947 million, representing a growth rate of approximately 25% year over year. We expect a non-GAAP operating income of $147 million to $148 million and we expect a non-GAAP net income per share of 95¢ to 96¢ assuming 171 million weighted average diluted shares outstanding. While we are not providing guidance for FY '27, I would remind you for modeling purposes that the April FY '24 premium price increase has now been largely implemented. And will not be a discrete tailwind in FY '27. In summary, I am pleased with our third quarter results. We are building GitLab for healthy growth at scale. Investing strategically against opportunities that drive long-term value, and enhancing profitability and delivering free cash flow. GitLab is positioned for long-term success and to take advantage of a rapidly transforming market from a place of strife. Thank you for joining today. With that, I will turn the call over to Yao who will moderate the Q&A.

At this time, if you would like to ask a question, please use the raise hand function located on your

Yep. Hey, guys. Thanks so much for taking the question. My one question here is on the guide, the fourth quarter guide. And specifically on subscription revenue growth. You did grow subscription revenue in the third quarter 27%. That is pretty darn good for a, you know, primarily a seat-based model. But it is a deceleration from 30% last quarter and I do hear you on the public sector softness. I get that. And so I wanted to ask on the implied fourth quarter total revenue guide of 19%. Can you help us walk us through a little bit more on the demand environment, any sort of Fed sector catch-up that has already happened? Pipeline coverage into the fourth quarter, and any additional color on how to think about what the guide means for fourth quarter subscription revenue growth. Thank you.

Thanks, Koji. You know, our guidance approach this quarter was fairly similar to the one we took last quarter. We developed independent roll-ups across the field. Across CRO leadership teams. And across the finance team. You know, the prudence that we called out last quarter for both the SMB weakness and the go-to-market disruption were well warranted. And some of that remains into Q4. Additionally, as you called out, we will see some lingering effects from the recent US government shutdown. Guidance, you know, at the end of the day, reflects our best view of the business today. With what we know, and we feel good about the guidance heading into Q4.

Next question, Matt Hedberg followed by Rob Owens from Piper Sandler. Matt, go ahead, please.

Great. Thanks, Yao, for the question. Bill, in your prepared remarks, you noted progress on the first order business was better than last quarter, but I think you said it is still not where it needs to be yet. Understanding this is probably a multi-quarter trend, could you provide a bit more color on from your perspective, what is left from the team? And perhaps how long we think to see some of the full benefits from that?

Yeah. Thanks, Matt. As we shared last quarter, we decided to hire a global leader focused just on acquiring new business reporting to the CRO. I am happy to share that we closed that search and hired the individual. Exceptional executive that has now joined us and is onboarding. We are beginning the hiring ramp for that team. Which again will be a global team reporting to him directly into the CRO. Expect that hiring ramp to take a couple of quarters with results in the back half of FY 2027. In addition, I will share on the product-led growth front. Manav, our chief product and marketing officer, has now been in seat for a quarter. Has begun digging in there. Looking really at two things with regard to product-led growth. First, tightening the feedback loop with customers who are earlier in their journey with GitLab, as well as removing friction in the customer journey to make it easier to go from a free into a paid product with GitLab. And the early results there are really promising. It is exciting to see the efficiency in the funnel improving. Very early results. But here again, I would expect, you know, these kinds of incremental gains to aggregate over time. And would expect to see that show up in terms of new customer acquisition acceleration the later half of FY 2027.

Great. Next question, Rob Owens from Piper Sandler followed by Sanjit Singh from Morgan Stanley. Rob, go ahead, please.

Great. Thank you guys for taking my question. I was hoping you could drill down a little bit more into the Fed impact that you spoke about, you know, since it probably impacts the license line. Anything you can do to quantify that would be great. And then was that something that impacted your retention rate as well, or are there other things at play in that metric, ticking down a couple points sequentially? Thank you. Rob, any important thing to keep in mind here is that our long-term public sector thesis remains very much intact. You know, we are the preferred software factory to a lot of these countries. Leading federal agencies. PubSec is about 12% of our ARR, Haven't quantified specifically the headwind that we saw in Q3. What I would say is that we did see disruption from both the shutdown and the ongoing effects of Doge that are rolling through the government and we are very much partnered with our customers and these agencies. In helping them overcome these challenges.

Next question from Sanjit followed by Shrenik Kothari from Baird. Sanjit, go ahead, please.

Yeah. Can you hear me?

We can.

Awesome. Thank you. Bill, I think we can all agree that no matter what the debate is around seat-based models, there is tons of software being developed and created particularly right now. And, again, you pointed to some of the metrics around activity and usage in the platform, which is well above the revenue growth that you guys are delivering at least for right now. And so it is kind of a longer-term question, Bill, but what is the ultimate, you know, ultimate sort of answer solution on how to get activity in the platform to converge with the revenue growth that you would like to see. Is that is the answer there sort of dual agents, or is there anything beyond that? That we should be thinking about over the medium term? Good question, Sanjit. Yes.

I believe the medium to long-term answer there does lie in our shift from a pure seat-based business model to more of a hybrid seat plus usage-based business model, as we introduce Duo Agent platform I mentioned in my prepared remarks, that we are on the cusp of that in the coming weeks, declaring general availability and introducing pricing. So that will help monetize the activities downstream from AI code generation. By bringing AI acceleration across the software life cycle and solving that AI paradox that we talked about in our prepared remarks. In addition to that, we are looking at incremental innovation on top of our premium and ultimate SKUs which, you know, provide customers additive value at an incremental cost, which would also be part of our FY '27 road map and provide new monetization opportunities as well.

Yeah. Today, in our Duo Pro and Duo Enterprise products, they are monetized with seat-based add-ons. And we have not shared the specifics of the revenue contribution of those products. But they have been in the early stages. What we did earlier this year is shift or pivot from a use case-driven innovation agenda around AI to a platform-driven agenda. Meaning, we have augmented our core platform with AI capabilities at every layer, unlocking an agentic approach to AI that can help customers solve any number of challenges across the software life cycle. It allows them to choose the best-in-class AI tools, like those from Amazon, Google, OpenAI, and Anthropic. As well as create their own agents using Duo technology to solve, again, any class of engineering problem across the software life cycle. That has been in beta now for a couple of quarters. And is reaching general availability. And will introduce usage-based pricing once we reach general availability. So the very early stages of both the innovation and introduction of that monetization stream but it is the tone and the conversation with customers I have engaged over the last year on the topic of AI just continues to grow stronger and more excited about the platform approach that we are now taking. So I am really excited about the future opportunity. Do see that as expanding our TAM and incredible new value to customers.

Great. Next question, Raimo Lenschow from Barclays. By Howard Ma from Guggenheim. Raimo, go ahead, please.

Hey. Thanks. Thanks for squeezing me in. Bill, one for you. Like, the, you know, the SMB weakness is obviously something that impacts everyone. And it is just, you know, it is, you know, you cannot control that. But is there anything that you could do, for example, from a SKU perspective? Etcetera, to kind of help kind of play better in market? Anything is doable, or do we just have to wait for the kind of improvement in the overall market sentiment there? Thank you.

Yeah. SMB is a very small share of our overall revenue. And not something we optimize for from a business, you know, strategy and go-to-market perspective. However, it is in particular, business, you know, start-ups and smaller companies that are on a growth path. Are important for us to, you know, drive awareness and early adoption. On. I would say, primary approach there has been to deliver a really great free product in the form of our open-source packages and free tier on gitlab.com. Which we have seen healthy adoption of in a very, very broad community. I do think Duo Agent platform brings new opportunities for us to convert those free customers into a first paid engagement with GitLab as we deliver AI on top of those free products in the coming year. Obviously, that has not been in a path that we have pursued to date with the Duo Pro and Duo Enterprise add-ons. But it is something that I think we will look seriously at Duo agent platform reaches GA. And I do think it plays into customers of all sizes who want to start their GitLab journey on a free DevSecOps platform but are willing and excited to pay for AI because they understand incredible value and the cost associated with delivering that.

Great. Next question, Howard Ma Guggenheim followed by Mike Cikos from Needham. Howard, go ahead, please.

Great. Thanks. Last quarter, you shared a stat that seat count is double digits year over year and has been accelerating. My question is, does that trend still hold? And what does seat count growth look when you exclude Duo seats? Howard.

That was a one-time disclosure that we gave last quarter to help you think through and understand the seat dynamics in the business. We are happy with the seat growth. This quarter, but we will not comment on the specifics that we gave last quarter.

Great. Next question, Mike Cikos followed by Needham followed by Kingsley Crane from Canaccord. Mike, go ahead, please.

Great. Thanks, team. I just wanted to come back to the public sector element for a second, and I appreciate the disclosure in the headwinds from that shutdown. Can you help us parse out when we think about the 4Q guide that we have versus the 3Q results that you guys just posted? Are you expecting the public sector headwind from the shutdown in Doge to actually compound or increase in magnitude when we think about this January? And, again, I know we are getting to, I guess, a fine-tooth comb here, but just wanted to see how you guys are thinking about your assumptions here as we look at this forecast. Thank you so much.

Yeah. Thanks, Mike, for the question. You know, I comment on the specific magnitude and whether larger or smaller quarter over quarter. What I would say is that we are seeing lingering effects from the shutdown. You know, the US federal government does not turn on overnight. And we are working with our customers through these deals and renewals that have pushed from Q3 into Q4.

Great. Next question, Kingsley Crane, Canaccord, followed by Derrick Wood from TD Cohen. Kingsley, go ahead, please.

Great. Thank you. And it was nice to hear about the Duo agent expansions even pre-GA. I know investors are eager to see the impact of '27? Thank you.

Kingsley, could you repeat your question, please? You have cut out on our end. Can you hear us?

Yes. Can you hear me?

Yep. We lost you at Investors. Right? Excited, and then you cut out. Please repeat the question.

Sure. So investors are excited about the impact of DuoAgent in the market, the eventual impact. Just want to know more about the product proof points that you are evaluating signal GA readiness and then how to think about the ramp in twenty-seven. Thank you.

Yeah. We have said a number of criteria to evaluate readiness. You know, first and foremost, being the reliability, the performance, and the overall stability of the platform in meeting our customers' expectations. Also measuring the quality of the responsiveness and the responses of the agents that we are building and our customers' ability to build their own custom agents and get quality responses. And then finally, you know, we obviously must ensure that we meet our own high-security standards. And avoid shipping vulnerabilities or exposing our customers to any kind of vulnerability. So a number of quality-related criteria that we are measuring in addition to customer adoption and usage. And we think we are reaching the point of meeting all of that criteria as I mentioned in the coming weeks. And once we do, we will be declaring general availability. In terms of adoption and usage, you know, in the quarters ahead, it is hard to forecast exactly how fast that will go. I will just repeat what I have shared previously, which is you know, 70% of our revenue is based on self-managed customers who do require an upgrade to take advantage of Duo Agent platform, and that does take often multiple quarters to get a majority of the customer base onto a new version. So, you know, we will see some slowness there versus a pure cloud SaaS business. And you know, I will also share I am pretty excited about the opportunity to deliver the Duo agent platform into the public sector since that has been a topic of conversation today. Unlike many AI tools, in the market today, which rely completely on cloud-hosted models, DuoAgent platform delivers both cloud-hosted models, but also the ability to run-in completely air-gapped environments against custom self-hosted models which many of our public sector customers have as a configuration today. So we look forward to delivering that into those environments as those customers are able to adopt.

Great. Next question. Derek Wood from TD Cohen followed by Cyrus Nautica from Wells Fargo. Derek, go ahead please. Derek, are you on? It looks like your phone is muted.

Sorry about that. Okay. Can you hear me?

We can.

Yeah. Okay. Thanks, guys. James, can you give us the mix within the net revenue retention rate of seats versus tier upgrades versus price yield? And I think last Q4, you guys had a very large seat expansion deal. Any color, to provide on how to think about the impact on NRR? As we anniversary this large deal in Q4 this year?

Derek, I am happy to share the mix of DB NRR this quarter, and I also want to talk about this specific disclosure more broadly. So Q3 was similar to Q2, where seats contributed slightly over 80% of the mix. Yield was about 10% and the remaining from up-tiering. As our business evolves, this disclosure will become less relevant, both because we have evolved from a two SKU company into multiple SKUs but also because we are augmenting our seat-based business with a usage-based business that Bill referred to. And so we will look to share more in the quarters to come on this topic.

Yeah. Our plan is to capture through usage. I believe, you know, the right long-term approach to monetization is to have a pricing plan that provides an equal exchange in value for cost. And what I see competitors doing with AI pricing is really all over the place, and it has been rapidly evolving. I expect some evolution with regard to our price. But rather than introduce another seat-based price, as I shared earlier, we will be moving to a more usage-based pricing model where customers can pre-commit upfront for usage, to earn the very best rates. But that commitment is a pool of usage that could be shared across all users. And as we have tested that and introduced it to customers, they are very excited about that approach. And I believe, ultimately, when customers are excited and see the value they buy more over time.

Great. Next question, Jason Celino from KeyBanc followed by Steve Koenig from Macquarie. Jason, go ahead please.

Perfect. Thank you. Bill, you in your prepared remarks, you talked about some interesting stats. On the deployment activity you are seeing across the platform. You know, I forget the exact percentages, but how much of this elevated activity you think is from, you know, customers developing applications, you know, for AI. Like the underlying development activity. Or do you think it is from more, you know, better productivity from, you know, AI going tools? Hope you understand kind of the difference in the question, but curious you are seeing.

Yeah. It is exciting to see the downstream effects of AI coding on the platform. And I think it is driven through a mix of things. Probably both of the dynamics that you described. But, you know, ultimately, what a software team is doing is not just thinking about the code they are generating. They are thinking about the innovation they are delivering to customers. That is really, you know, the full software life cycle that is required. Everything from, you know, planning those changes, to testing them, to integrating deploying them, making sure that they meet the security and compliance standards. And that is what GitLab does. And because the code volumes are increasing, because engineers are able to take on more projects faster we see that acceleration in the rest of the stages of the software life cycle. To date, none of those have been AI accelerated, That is what we are doing with Duo Agent platform. And once we bring that full life cycle acceleration, I believe, we will begin to see the monetization benefits that we have talked about on the call. Because customers want to take advantage of those as well to accelerate not just the cogeneration, but the entire software delivery process.

Great. Next question, Steve Koenig from Macquarie. By Miller Jump from Truist. Steve, go ahead, please.

Okay. Thanks, Yao. Can you guys hear me okay?

We can.

Great. Okay. Yeah. So maybe building on the last question, you know, Bill, I understand, like, the platform, the value there is holistically throughout the software development life cycle. I am wondering, as you begin to deploy Duo Agent platform, is generally available, and it starts to be adopted. What where do you think it is going to make the most immediate impact in terms of improving productivity of the various aspects of the life cycle? And then if I could just sneak in, I am wondering more color on the SMB softness. Is that more of a macro or execution on your part? Thanks a lot for taking my question.

Yeah. I will answer the first part on Duo, and maybe, James, you can take the SMB one. So on Duo Agent platform, the important thing to understand about it versus other AI tools is that it is really a platform approach to AI, meaning customers can take advantage of the capabilities of the platform that is now AI native to orchestrate actions with AI tools for any class of engineering problem. So we have seen customers take advantage of it, for example, in terms of helping them plan and document what they are going to go work on upfront before the code even gets generated. To help analyze bugs and help triage and prioritize the work that needs to be done in code. We have also seen them take advantage of Duo Agent platform to author and to review the code. We have seen them take advantage of Duo Agent platform to do security analysis. To do prioritization, based on the advanced characteristics that we capture as part of our security scanning capabilities. We have seen them take advantage of it in terms of troubleshooting pipelines that are failing when, you know, code is not passing the quality standards, security standards, or other compliance guardrails that a company has put in place. So it is really across the board. And that is what is so exciting because, you know, having spent many decades now, software engineering, the process of software engineering is very complex. And there is any number of ways that things can break down. What customers will be able to do with dual agent platform instead of waiting for a human to engage in a manual process to recover from any one of those failure classes or any of those work tasks, they can now apply an agent that can automatically work on their behalf to triage, to analyze, to debug, and to recommend a fix or even automate a fix. And we believe that is what is going to bring incredible value to our customers. James, on the SMB question?

Yeah. Just quickly on SMB. This is segment-specific weakness that we have called out for a few quarters now. What I would say is a few things. One is we have a very strong free offering as you heard Bill talk about, and we see price sensitivity in this so both price and overall spend sensitivity. And as these are coming up for renewal, there is a lot of scrutiny and auditing around license usage. SMB is a small part of our business. It is roughly about 8% of ARR. And we are assuming that this weakness continues into Q4 in our guidance.

Great. Next question from Miller Jump from Truist followed by Mark Cash from Raymond James. Miller, go ahead, please.

Hey. Great. Thank you for taking the question. You all mentioned in the prepared remarks that all of your largest expansions in the quarter were with customers using some form of AI tooling. I guess, I am wondering, are most of your customers using AI tooling at this point? Or is that indicative of a smaller subset of the group? And, you know, was there any difference in the growth drivers for those accounts between the seats, customer yield, and up-tiering that you talked about for the broader business? Thanks.

Yeah. I think I shared last quarter, we did a customer survey where we analyzed a few different questions around customer AI tool usage, there. Forecast in terms of, you know, increased GitLab usage, as well as seats. And we did see in that survey fairly pervasive use of AI tools, along with GitLab. It is important to remember it is an and and not an or. Many times, I have heard investors refer to some of these other AI tools as competitors. And while it is clear there is some overlap in terms of what we are doing and what they are doing, ultimately, customers see them as complementary because they serve a variety of different use cases and support one another. So, yes, I believe AI tool usage is pervasive across our customer base. Many of them implementing multiple AI tools as part of their current AI strategy. And, I believe we are in a good position with Duo Agent platform to capture our fair share of that demand because we are solving inherently different problems than other AI tools on the market.

Great. Final question will come from Mark Cash of Raymond James, and I will pass it over to Bill for closing remarks. Mark, go ahead, please.

Yeah. Thank you. Yeah. Bill, maybe building on that last question. So we have seen some larger players like OpenAI and Google add more DevSecOps functionality alongside the smaller AI natives this quarter, and just kind of curious how you are considering deploying that $1.2 billion of cash and really strong free cash flow we are seeing maybe help further wedge GitLab's differentiation that spans this software development lifecycle against those guys. Appreciate it. Thank you.

Yeah. There is probably two parts to that question. You know, how do I think about what Git how GitLab competes with small and large vendors? And then there is, you know, deployment of cash. Maybe, James, you can take the second part. I will take the first part. Yep. Really, you know, when you think about what agents are made up, there are really four ingredients to every agent. There is an LLM, and we provide, like, almost every vendor access to all of the major foundational LLMs on the market. And the cost of those is going to continue to go down. The quality of those is going to continue to go up. Not a lot of differentiation to be had there. It is just, like, electricity for any kind of electronic system. Second part of an agent is the prompt that steers the LLM into solving the problem. And that is, you know, defined with human language, and, again, here, the IP value is fairly shallow. There are many, many libraries of open-source prompts. Out there and available. There are only so many ways you can tell and then allow them to solve the problem. And, you know, we provide dual agents with great prompts out of the box, but we also allow customers to customize and extend those prompts. So a little level of extensibility beyond what competitors offer today. But those two ingredients, would say, largely are commodity, and it is really the second two ingredients that make GitLab stand out and that even the large AI vendors cannot match. The first is context. We provide not only the system of record for all of the source code that our customer store, but all of the changes to that source code over time all of the testing and quality validation of that source code, the security of that source code, all of the related plans, and bug tracking, and everything else. That context all goes into feeding agents the ability to reason and make good decisions. And, virtually no other competitor has the breadth of context that we have as part of our unified platform approach. And we believe that is a durable differentiator over time. The fourth ingredient that agents have or are made up of is tools to actually action on behalf of users various actions. And here again, our unified platform really comes out as a strength because anyone can generate code. It basically involves generating streams that get written into text files. Right? But when it comes to full life-size cycle software engineering, you are talking about much more sophisticated operations, everything from planning and testing and securing and integrating and deploying code that requires a rich set of capabilities that have to be integrated one with another. We have delivered that to humans for now more than a decade. But with Duo Agent platform, we are unlocking all of those rich capabilities for agents as well. So agents can take those actions. And that is the really exciting differentiator and value that we provide our customers that I really do not think either small or large AI competitors can match.

Yep. On the cash position, you know, the $1.2 billion of cash and investments really puts us in a position of strength. In this market. And, you know, we have a strong track record of fiscal discipline here, and we are constantly looking at the most optimal avenues for capital allocation. That best deliver value both to our customers and to our shareholders.

Great. With that, that concludes our Q&A. I would like now to turn the call over to Bill for closing remarks. Bill, go ahead, please.