[Call Starts Abruptly] GitLabs Co-Founder and CEO, Sid Sijbrandij; and GitLab's Chief Financial Officer, Brian Robbins will provide commentary on the quarter and the fiscal year. Please note, we will be opening up the call for panelist questions.

To ask a question please use the chat feature and post your question directly to IR Questions using the drop-down menu. Before we begin, I'll cover the safe harbor statement. During this conference call, we may make forward-looking statements within the meaning of the federal securities laws.

These statements involve assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those discussed or anticipated. For a complete discussion of risks associated with those forward-looking statements in our business.

Please refer to our earnings release distributed today in our SEC filings, including our most recent quarterly report on Form 10-Q. Our forward-looking statements are based upon information currently available to us.

We caution you to not place undue reliance on forward-looking statements, and we undertake no duty or obligation to update or revise any forward-looking statement or to report any future events or circumstances or to reflect the occurrence of unanticipated events.

We may also discuss financial performance measures that differ from comparable measures contained in our financial statements prepared in accordance with U.S. GAAP. These non-GAAP measures are not intended to be a substitute for our GAAP results.

A reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is included in our earnings press release, which along with these reconciliations and additional supplemental information are available at ir.gitlab.com. A replay of today's call will also be posted on ir.gitlab.com.

I will now turn the call over to GitLab's Co-Founder and Chief Executive Officer, Sid Sijbrandij..

reducing costs of software as a result of choosing a single platform vendor over multiple point solutions, reducing costs associated with tool chain integration, creating higher developer productivity and a better user experience and increasing revenue due to faster cycle time of application releases.

In a single application, GitLab provides all the functionality of a complete Dev SecOps platform. We allow organizations to deliver software faster while strengthening security and compliance, thereby maximizing the return on software development. The story of CARFAX is a powerful example of these benefits.

CARFAX, which owns the world's largest vehicle history database and helps millions of people daily shop for vehicles, wanted to consolidate its software development tool chain and reduce security vulnerabilities.

Purchasing GitLab Ultimate enabled CARFAX to automate security practices, including SaaS, dependency scanning, container scanning and secret detection. This resulted in accelerating and simplifying deployment processes, reducing tool chain complexity and improving visibility of performance metrics.

CARFAX has increased the number of software builds by 341% in one year using GitLab. In Q3, we continued to deliver new solutions to the market. For instance, we announced GitLab Govern, which brings together our security and compliance capabilities.

We introduced GitLab Govern because we see that organizations across many industries are facing increasingly stringent regulatory and compliance requirements. GitLab Govern includes vulnerability management, audit events, compliance management, dependency management and security policy management.

These capabilities help organizations achieve continuous security and compliance of their software supply chain without compromising on speed and agility. With this solution, we help customers proactively identify vulnerabilities by integrating and automating vulnerability management within the development life cycle.

Issues can be identified, locked, triage, tracked and remediated all in the same application. Developers can address vulnerabilities in real time, avoiding release delays. The story of Agoda, one of the world's largest and fastest-growing online travel booking platforms demonstrates many of these benefits.

Agoda had been employing a multitude of both free and pay tools in their software development life cycle. With most of these products in silos, Agoda is experiencing a poor developer experience and a slow pace of new product development, along with governance and compliance challenges.

Consolidating many of these systems on GitLabs single application resulted in increased productivity and visibility, a single source of truth for governance, security, audit and compliance and a greater empowerment and retention of developers. Agoda can now process over 1 million pipelines per month.

The average billed queue time has decreased from 40 minutes to 32 seconds and their developer NPS score has increased. In Q3, we also advanced our machine learning capabilities with the release of Suggested Reviewers, which represents GitLabs first ML-powered feature.

Recommending the right person to review a merge request eliminates potential delays, issues with quality control and a lack of compliance. As we move further into ModelOps and beyond, we're taking software development life cycle practices and unlocking next-gen DevSecOps practices for organizations.

Another product innovation is GitLab Dedicated, which we officially announced and limited availability at AWS re:Invent. GitLab Dedicated is a new way to use our enterprise DevSecOps platform as a single-tenant SaaS offering.

This new offering provides all the benefits of an enterprise DevSecOps platform with a focus on data residency, isolation and private networking to meet complex compliance needs.

With the planned general availability of GitLab Dedicated anticipated next year, our DevSecOps platform will be available in three deployment methods, Gitlab.com, a multi-tenant SaaS platform; GitLab Dedicated, a single-tenant SaaS platform; and Self-Managed a download, which provides users the ability to run GitLab anywhere.

That brings us to our partnerships with cloud hyperscalers. We view the hyperscalers as increasingly important partners for GitLab. In our conversations with them, we know they view GitLab as an accelerant for their customers to move faster to the cloud. This symbiotic relationship makes cloud hyperscalers a core part of our success in go-to-market.

They accelerate time to market for GitLab customers on the cloud of their choice, and they broaden the depth and breadth of our market reach. You can see our cloud migration value proposition with customers like the Dunelm Group, the U.K.'s market leader in homewares.

Dunelm was challenged with ensuring application security while rapidly transforming their digital footprint. As their engineering teams accelerated their move to their target architecture of serverless technologies and cloud first, they identified significant gaps in their existing CI/CD tooling.

These included a lack of automation, governance, security and visibility, which is creating strengths on administrative management and performance. Comparative evaluations led Dunelm to choose GitLab SaaS Ultimate to integrate tools and seamlessly deploy secure pipelines on the AWS cloud.

The resulting benefits included increased pipeline volume, accelerated productivity, reduced administrative burden, turbocharges team collaboration and an upfront security focus to capture vulnerabilities much earlier. Dunelm can now deploy software 50 to 70 times per week rather than 10 to 20 times and onboarding now takes hours rather than days.

In addition, last quarter, we partnered with Google Cloud to launch Cloud Seed, a new capability that simplifies the developer experience for procuring and consuming cloud services.

Cloud Seed is built into the GitLab web UI and leverages our CI/CD pipeline capabilities in order to give developers a frictionless experience and make it easier to deploy their web applications directly to Google Cloud from GitLab. In our annual DevSecOps survey, we found that cloud adoption remains a high priority for organizations.

And it is the second highest investment area for DevSecOps teams. Innovations like Cloud Seed enable organizations to accelerate their shift to the cloud. In summary, I'm very pleased with the quarter. We continue to innovate and create new capabilities for an expanded set of customers.

We continue to demonstrate the benefits of a platform over point solution approach. And we continue to show that GitLab is mission critical, and we continue to believe we are early in a large and growing market. Our Q3 results demonstrate that we're well positioned to drive durable growth with improving unit economics.

I'm grateful to all of our team members, our partners, the wider GitLab community and customers who contributed to our results. I'll now turn the call over to Brian Robbins, GitLabs Chief Financial Officer..

Thank you, Sid, and thank you again for everyone joining us. I'd like to spend a moment reviewing the key characteristics of our business model and what we are seeing in the macro environment. Then I'll quickly recap our third quarter financial results and key operating metrics and conclude with our guidance.

Our third quarter results continue to demonstrate our ability to drive high growth with improving incremental margins. Fueling these results are a number of key aspects of our business model that I would like to discuss briefly.

These include the predictability of a subscription model that provides high visibility, a platform sale rather than a point solution with very little revenue based on consumption, a diversified customer base across industry verticals, customer sizes and geographic regions and a short implementation cycle with an established and well-documented ROI.

These attributes contribute to the results we are seeing. To illustrate this, customer cohorts from seven years ago are still expanding today.

Despite the ongoing volatility in the macroeconomic environment in the third quarter, we see customers continuing to prioritize the need to leverage a mission-critical platform to build software better, faster, cheaper and in a more secure manner. We're also happy on how we executed on hiring.

We added over 200 new team members in 3Q, and we continue to experience lower attrition than the industry. We view the uncertainty in the macro economy as a benefit for hiring new team members, and we continue to be active in recruiting, primarily focusing on adding new team members in sales and R&D. Next, turning to the numbers.

Revenue of $113 million this quarter represents an increase of 69% organically from prior year. We ended 3Q with over 6,400 customers with ARR of at least $5,000 compared to over 5,800 customers in the prior quarter and over 4,000 customers in the prior year. This represents a year-over-year growth rate of approximately 59%.

Currently, customers with $5,000 or greater in ARR represent approximately 95% of our total ARR. We also measure the performance and growth of our larger customers, who we define as those spending more than $100,000 in ARR with us.

At the end of third quarter of FY 2023, we had 638 customers with ARR of at least $100,000 compared to 593 customers in the prior quarter and 427 customers in the third quarter of FY 2022. This represents a year-over-year growth rate of approximately 49%.

As many of you know, we do not believe calculated billings to be a good indicator for our business, given that prior period comparisons can be impacted by a number of factors, most notably our history of large prepaid multiyear deals. This quarter, total RPO grew 62% year-over-year to $393 million and CRPO grew 67% to $278 million.

We ended our third quarter with a dollar-based net retention rate consistent with previous quarters. This exceeded our reporting threshold of 130%, which we believe remains best-in-class and consistent with our track record as a public company.

The ultimate tier continues to be our fastest-growing tier, representing 39% of ARR for the third quarter of FY 2023 compared with 32% of ARR in the third quarter of FY 2022. Non-GAAP gross margins were 89% for the quarter, which compares to 89% in the immediately preceding quarter and 90% for third quarter of FY 2022.

As we move forward, we are estimating a moderate reduction in this metric due to the rapid year-over-year growth rate of our SaaS offering. We saw improved operating leverage across the business this quarter, largely driven by revenue outperformance.

Non-GAAP operating loss is $21.6 million or negative 19% of revenue compared to a loss of $23.9 million or negative 36% of revenue in Q3 of last fiscal year. 2023 includes $5 million of expenses related to our JV and majority-owned subsidiaries. In addition, we incurred $2.1 million termination payments relating to events that were canceled.

Operating cash use was slightly over $1 million in the third quarter of FY 2023 compared to $10.1 million used in the same quarter last year. In summary, we're pleased with our performance during the third quarter of FY 2023 on both the top and bottom line, and we believe our business is set up for continued strength. Now let's turn to guidance.

For fourth quarter of FY 2023, we expect total revenue of $119 million to $120 million, representing the growth rate of 53% to 54% year-over-year. We expect non-GAAP operating loss of $27 million to $26 million, and we expect non-GAAP net loss per share of $0.15 to $0.14, assuming 150 million weighted average shares outstanding.

For the full year FY 2023, we now expect total revenue of $420.5 million to $421.5 million, representing a growth rate of 66% to 67% year-over-year. We expect a non-GAAP operating loss of $100 million to $99 million, and we expect non-GAAP net loss per share of $0.56 to $0.55, assuming 148 million weighted average shares outstanding.

On a percentage basis, our new annual FY 2023 guidance implies non-GAAP operating margin improvement of approximately 1,525 basis points year-over-year at the midpoint of our guidance ranges.

Over the longer term, we believe that a continued targeted focus on growth initiatives and scaling the business will yield further improvements in unit economics. A few more details on guidance in our model.

We now estimate that we will incur approximately $16 million of incremental expenses related to the resumption of travel and in-person customer and marketing events as well as new public company costs that were not incurred during FY 2022. In addition, we forecast approximately $20 million of expenses related to JiHu, our China joint venture.

This compares with $12 million of combined JiHu and Meltano costs in FY 2022. We are in the early stages of our FY 2024 planning process, but would like to provide an update on FY 2024 revenue growth and our path to achieving free cash flow breakeven.

Based on everything we know today, we are currently comfortable with the Street estimates, which have us growing revenue over 40%. On the expense side, we continue to evaluate our hiring plans going forward as we monitor leading indicators in our business as it relates to the macro economy.

As Sid and I have said over the last several quarters, our number one priority is growth but we'll do it responsibly. There has been no philosophical change in how we run the business to maximize shareholder value over the long term. We continue to be focused on growth while driving improvements in the unit economics of our business.

In addition, we're targeting to be free cash flow breakeven for FY 2025. We hope this provides some greater visibility into our financial targets. On our next earnings call, we'll provide more detailed guidance for FY 2024.

We believe we're addressing a very substantial market opportunity that is currently underpenetrated and that we'll be well positioned to capture an outsized portion of it. We continue to drive positive business outcomes, time to value and ROI for our customers. With that, we'll now move to Q&A.

To ask a question, please use the chat feature and post your question directly to IR questions. We're ready for the first question..

Our first question comes from Sterling from MoffettNathanson..

Sterling Auty, SVB MoffettNathanson. So really appreciate not only the results but the color on next year. And that kind of brings me to my one question, which is investors are concerned in light of the macroeconomic backdrop that what we're going to see is declining IT budgets for next year.

What gives you the confidence beyond what you kind of gave in the prepared remarks driving demand? Or maybe it's the same thing.

Why should we see that durability of growth continue throughout next fiscal year?.

Thanks, Sterling. Appreciate the question. I guess, let's just touch briefly on the macro in general. And so we're starting to feel some impact with the macro. I'll go through some of the good that we're looking at and some watch points. The good is we land small and expand. We talked about cohort seven years ago we're still expanding today.

The cohort seven years ago are expanding at the same rate that cohorts two years ago are expanding at. And so, we're still seeing great expansion in cohorts from seven years ago. Also, we had our largest first quarter, quarter in company history. Our first orders grew over 75% year-over-year on an absolute dollar basis.

And there's this overall trend to move to platforms. We provide a great ROI. We're super cost efficient and the time to value is what people are seeing. Some of the watch points that we're looking at is, I think all companies today are looking at expenses.

It reminds me of right when COVID first hit, everybody just sort of clamped down, we had a V recovery. And so I think right now, every company is looking at expense. And I think that this is actually impacting us a little in expansion. Obviously, it didn't impact us on first order, being a mission-critical platform.

People are trying to see how they can get more efficient and our ROI provides a -- there is a small uptick in contraction. We've had great gross retention. It's been about the same for the last four quarters. So no major uptick there.

And then also, we aren't seeing the sales cycle elongate that actually shrank again this quarter, but we are seeing more scrutiny on deals. And so, there are a couple of the watch points that we're looking at.

We have mentioned prior their number one objective that the Company is to grow, but we'll do that responsibly, and we showed that in an increased unit economics in the business. We have sort of two controls over the business. One is pipeline, and we have great visibility into the pipeline.

We have all the data on win rates, coverage ratios and so forth, and the other is open headcount. And so we'll continue to drive growth we'll do it responsibly and we'll monitor those demand drivers on a regular basis..

Thank you for the transparency. I appreciate it..

Next, we have Kash from Goldman Sachs..

Thank you very much. Congrats on a fantastic finish to the year. Sid, I was curious to get your take on AWS. AWS re:Invent was a massive, massive conference. Among the several announcements that they made, the one area that stood out as far as really no news flow was the developer angle.

So how does that leave -- I've got to believe that that is an opportunity for GitLab. Can you tell us a little bit more about what you made out of AWS re:Invent the opportunities that is affordable to GitLab, considering AWS didn't really tell us what they're strategically investing in terms of the development life cycle space, if you will..

Yes. Thank you so much. For sure, like DevOps is hot, like everyone understands that this is the way to make an impact and to bring it closer together to make it more usable, people see that, that is the way to get ahead. So that's great to see. We're getting closer to every single hyperscaler.

For us, it was a great event as a company, a very successful event where we connected to a ton of customers. We were also very excited about GitLab Dedicated that we announced. GitLab Dedicated is our single-tenant SaaS platform, and we announced limited availability with general availability in the coming year.

And GitLab Dedicated addresses a ton of customer use cases for us.

Customers can get data residency to get more isolation, private networking, and we're excited having that in the market and talking with customers, for people wondering about pricing, it's going to be mainly per user with an infrastructure component as well, and we were excited to announce that at re:Invent..

Next, we have Rob from Piper Sandler..

Hi, thanks for taking my question. This is Ethan on for Rob. Sid, I wanted to ask a question around open source projects. It seems like right now, one of your larger competitors host a lot of the bigger open source projects that are out there.

And so I was curious if you are focusing at all on trying to migrate some of these projects over trying to encourage new open source projects to be hosted on the GitLab platform kind of as a way to gain more visibility and interaction with the developer community on your platform? Or are you kind of more focused on the commercial side of things right now?.

Yes. Thanks for that. We do have a program to host open source protect and that has many different open source projects on it. Not as many as our biggest competitor. We are focused on winning commercial business. And one of our imperatives is to make sure that people also contribute back to GitLab.

So we have hundreds of users and customers who contribute back to GitLab every quarter. We're starting a leading organizations program to help them contribute back and to help them even more in doing that.

If you want to contrast it, we are focused on hosting closed source software, the software that makes our customers' money, and we are an open core platform, one that benefits from the innovation of all of the users.

Next, we have Joel from Truist..

Thank you for taking my questions. Brian, this is for you. I would -- we got your message loud and clear about growth is the priority here. But you've also talked about -- you also talked about the path to profitability, and I would love to understand some of the drivers of the operating leverage as you move towards free cash flow profitability.

I know it's FY '25, but the trajectory and what's going to drive that?.

Yes, absolutely. Thanks, Joe. Yes, I guess, number one is, we want to win the DevSecOps platform category, and we're doing that through growth and doing that responsibly. We'll continue to invest as long as our unit economics remain strong.

I think we demonstrated that quarter-over-quarter, if you look at third quarter this year over third quarter last year, we added $46 million of incremental revenue and did that for $2.3 million less. We also had increased public company expenses, JiHu increases and so forth in there. And so we're continuing to get more leverage out of the model.

The more efficiency and scale, we're going to be, provide better unit economics. We land relatively small. But as I mentioned, we expand with those customers over time. And so our sales and marketing is getting more efficient as we grow. I think gross margin, we're best-in-class. There's not a lot to do there.

On G&A this year, we absorbed a lot of public company expenses. Thank goodness, D&O insurance has gone down. We have our management and G&A. And so we're building up more at the staff level. And then in R&D, we're just continuing to invest in the platform. As we get larger, we don't have to grow R&D as high to the revenue growth on a relative basis.

And so, we're looking at things across the entire company. We're measuring them. We have a lot of internal metrics that we look at, and we're continuing to drive profitability..

Our next question comes from Karl at UBS..

We can skip to the next person and then come back to Karl..

Next, we have Matt from RBC..

Thanks for taking my question. Sid, first of all, I love the change in your tagline from DevOps platform to the DevSecOps platform, something I think we've all sort of heard in checks in terms of how you guys are resonating with security use cases.

Can you just talk about, I guess, the significance of that and how you think about even a security-led sale and maybe even adding even more SecOps functionality..

Yes. Thanks for that, Matt. Security is getting more and more important. And not only is secured again and more important, people are recognizing security needs to be an integral part of the DevSecOps life cycle. You need to shift security left. And as a DevOps platform, we are leading in the number of features we offer within that security tier.

Static and dynamic analysis, container scanning, secret detection, we have the best security offering, and that is resonating in the market. And this quarter, we also put a focus on Govern because it's not enough to just have all the security functionality.

When the auditors walk into your company and say, "Hey, that environment tell me what runs there, who signed off on that code. Did another person sign off on the code? Did you run all the tests?" You need answers. You need documented answers that you did that.

And the alternative for GitLab is building that yourself and no company wants to do that, especially not in this economy. So, we're super excited that we not only have the most security technology, we also allow you to prove it that you did all of that..

Our next question comes from Michael at KeyBanc..

I wanted to ask about sort of the macro question in the sense that, obviously, headcount expansions are going to reverse. In some cases, there are other cuts.

How is it that you're doing well to expand with customers within that? Is that because you're getting greater penetration? Or is it more a function of expansion from an ARPU perspective? And so, we'll start to see that in more ultimate percentage at some point, which has flattened a bit..

Thanks, Michael. Appreciate the question. We talked about this before as because it's a bottoms-up land when we land a new customer, it's typically 50 to 100 licenses. In some cases, they have thousands and thousands of engineers and expand over time. And that's why the cohorts are still expanding.

The number one -- sorry, on net dollar retention rate, the number one reason why they're expanding as seat expansion. The second is for tier upgrade to Ultimate. And then the third is increased yield from the customer. When we set our sales compensation, we don't differentiate from Premium versus Ultimate.

We try to remove the friction out of the buy process as well as the sell process. And so when you're buying Self-Managed and SaaS is priced exactly the same. From an accounting standpoint, it's relatively the same revenue recognition and cash upfront.

And from a sales standpoint, we want to go in and see how we can drive quick time to value and a business outcome, so they can actually get the ROI in the Forrester report that we had talked about in the prepared remarks, 427% over three years.

And so it's not that we're fully insulated from it, but -- and I did say we are seeing some impacts to the macro, such as just overall people looking at every expenses, higher level of people looking at them.

But when you have a mission-critical platform and everybody needs to basically drive quicker time to value, you're seeing a move to a platform, and those returns are paying off for those companies..

Now we'll move on to Derrick at Cowen..

Great. Congrats on a solid quarter. Brian, just could you double click on the macro and talk about kind of what you're seeing across enterprise versus mid-market versus SMB and maybe kind of U.S. versus international. Just kind of tease out a little bit more around where there's a little bit more macro pressure.

And then I guess just as a follow-up, we've heard of instances of when people make expense reductions. This can be a catalyst to replatform to GitLab. I'm sure that's not a common reason.

But are you seeing this as being the case more frequently in this environment?.

Yes. Let me answer the first -- or the last and I'll move to the first. And so as I noted, this was our highest first order quarter in company history. And so as the platform trend is picking up, and people are looking to consolidate, that's part of the reason why we had so many new logos from a first order perspective this quarter.

And your first question was enterprise, mid-market and SMB and sort of what we're seeing there. In U.S. versus rest of the world, our pipeline remains healthy all over the world.

And so, there's not a particular region like Europe, in particular, that we're saying, "Hey, we're seeing some issues in Europe." It remains healthy all over the world because we have such a long tail of customers, and there's really -- there's not a few customers that are heavily weighted towards making up a large percent of our revenue, they're all acting relatively about the same.

We have very little exposure to the tech. If you look at or startups, overall, we're about 20% exposure tech, but if you look at start-ups, we're less than 5%, and that's companies less than 200 employees in the tech field.

And so the fact that we have one platform, whether it's Self-Managed or SaaS, we do zero customization to it and this push to go to the cloud and to reduced costs is helping us. Some of the things that we are seeing is, as I mentioned, some of the watch points is we're seeing a slight uptick in contraction.

And so maybe some of those companies who did a layoff where we were more fully penetrated, they've cut back in a couple of licenses. And we have seen some of the deals require greater scrutiny. And so where this is typically done at sort of a division department basis, we may require CFO approval or some C-level approval to acquire new software..

We'll now move on to Jason from William Blair..

Yes, when you go through -- and you talked a little bit about this, Brian, but can you go through the puts and takes on NRR relative to seat expansion and upsell.

Where do you see the strength currently? It sounds like maybe some contraction on seats may affect -- may have affected you this quarter? And then you also talked about upsell maybe being under a little bit of pressure. But yet your NRR was sort of -- sounds like it was similar.

So how is it manifesting? And what are some of the puts and takes here? Help us reconcile all this?.

Yes, absolutely. Thanks, Jason. We haven't seen too much change in our net dollar retention rate overall. Seat expansion remains the biggest driver. As I mentioned, the cohort seven years ago that's still expanding at the same rate as a cohort two years ago. Seat expansion is the biggest driver there as well. The second biggest is tier upgrades.

We mentioned Ultimate is still 39% of ARR, but growing in excess of 100%. And so we had a -- like I said, we had a really great first order quarter and so that did well. The expansion, as I mentioned, some deals are getting greater scrutiny. So this quarter, we saw a little bit more scrutiny on expansion.

But I would say the -- there hasn't been too much dramatic changes in the net dollar retention rate. It's been fairly consistent for the last several quarters..

Okay. So maybe just a slight downtick.

Is that the right way to think about it?.

Correct..

Our next question comes from Koji from Bank of America..

Thanks for taking my question. Maybe one for Sid. I wanted to go back to the GitLab Govern product that you're talking about. You mentioned vulnerability management. Also in the press release, you mentioned the supply chain of software.

So just curious, this vulnerability management at what level or depth does it go? Does it go to the binary level, the source code level? And the vulnerability management or maybe the visibility, does it go across all applications that may be using similar blocks of source code or binaries? Any sort of help there would be helpful..

Yes, for sure. Thanks for the question. So GitLab Govern vulnerability management, it goes as deep as you expect. So we do, for example, container space scanning, which are typically binaries. Additionally, in GitLab Govern is also audit events, compliance management.

We're working on security policy management, which is in the product, but still has some maturing to do. And what it helps companies do is to prove their auditing but also to do it every single time. So we see a lot of companies. They bought multiple point solutions for security and use it for some of their applications, some of the time.

And what GitLab really helps them do is do it for every application, all of the time and prove that to the auditors. So that's a big benefit. And the ways to do there is to be able to provide the visibility to be able to enforce it, but also to make it frictionless for the developers and the security people..

Got it. And maybe just one quick follow-up for Brian. The comment about the additional scrutiny in the deal cycle, any sort of color you can give on maybe the linearity of the quarter of when you started to see that additional scrutiny.

Did it happen beginning of the quarter, end of the quarter into November? I mean, any sort of color there would be helpful, too..

Yes, it was more towards the end of the quarter. I will note, though, that in the closed deals, the overall deal cycle did not elongate. It actually shortened by a couple of days, but we are starting to notice more scrutiny on some of the deals and requiring more sign off at higher sort of seniority.

And so, the linearity for the quarter has been the same as our historicals..

We'll now move on to Pinjalim from JPMorgan..

Thank you so much for taking the question. Two part. One, Sid, can you talk about maybe the significance of the Cloud Seed with Google? Could it further help you maybe competitively against GitHub? And would you be -- should we think of maybe you adding AWS at some point? And the second part is the GitLab Dedicated.

How are you pricing it relative to the multi-tenant offering as I'm assuming that it has maybe a lower gross margin being single tenant?.

Yes. Thanks for those questions. So Cloud Seed makes it easier to set up all the services that you need with a hyperscaler. And it kind of does two things. It makes it easier to set up an application in a way that allows you to do day two operations. Instead of outsourcing everything, you now have control.

You have Terraform and everything else that you need to do it later on. And we're doing it first with GCP, very excited to work with them. We're open to doing it with any hyperscale, AWS, Azure. We want to meet our customers where they are, irrespective of the cloud they are using. For Dedicated, it's a great offering.

It has additional infrastructure costs. It's a single tenant offering, so you're not sharing infrastructure like databases with other customers that comes at a higher cost, and we are pricing that in. And so compared to Gitlab.com, it's going to be -- have a higher price.

There are certain minimums in the number of seats, and there's an infrastructure cost component to it..

Now we move on to Nick at Scotiabank..

Brian, I wanted to ask about some of your assumptions for the 40% or over 40% revenue growth guidance for next year. NRR has remained around 130% or over 130%. You said land ASPs are up 75% year-over-year.

So when you think about that over 40% growth guidance for next year, what are your -- some of your assumptions around the expansion side of the equation versus sort of that 130% NRR today? And on the higher land ASP side of the equation, sort of as it relates to the 40% growth guidance?.

Yes. Let me just one point of clarification. So the first quarter net ARR grew 75% year-over-year, not the ASP. And so I just want to make sure we have clarity there. So -- but it's great that in this environment, we're seeing such a strong demand for first order. I would just say is we we're early in our FY 2024 planning as we look at it.

I'm super happy that we have such a predictable business model that about 90% of our revenues are ratable. And based on where we're at today, no changes in our guidance loss and we can sort of build out where consensus is at today and say it's in line with our expectations..

Our final question comes from Mike at Needham..

Thanks for getting me on here, guys. And I appreciate the qualitative commentary on the fiscal '24 growth and the free cash flow target in fiscal '25, both those bogeys, good to have that out there and appreciate the visibility you guys are pointing to.

What I'd like to cycle back to, you guys are one of, if not among the very few who are calling out sales cycles, again, compressing. And in the midst of that, we also have this commentary that you are seeing some more deal scrutiny.

Can you help me think about that deal scrutiny versus the sales cycles actually accelerating, right? Is -- are the sign-offs really more at the margin? Or how is that coming into play when we think about the sales cycles versus that scrutiny you guys are talking about.

Can you help us marry those two up, please?.

Absolutely. There's several different stages in closing a deal, and the review process is getting a little longer, but the overall closed deal sales cycle has shortened by a couple of days. It doesn't have really any impact to the financials, the way that you do revenue recognition. And so, just as we go through it, I wanted to call that out.

We called out last quarter. But I also want to address that overall we are starting to feel some of the impacts of macro and some of the watch points that we're looking at..

With that, I'll turn things back to Sid for closing remarks..

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