Thank you for joining us for our Fiscal Year 2023 Second Quarter Earnings Presentation. We continue to see strong momentum in our business, and we believe that our second quarter results indicate that the market is embracing our DevOps platform leadership position. We also executed well in the quarter, demonstrating our ability to achieve high growth with increasing operating leverage. In the second quarter of fiscal 2023, we exceeded our guidance with revenue of $101 million. This represents revenue growth of 74% year-over-year. Our dollar-based net retention rate exceeded our own reporting threshold of 130%. This remains best in class and consistent with our track record as a public company. Our second quarter results also continue to demonstrate the attractive unit economics underlying our business.
Our non-GAAP operating margin improved by 1,500 basis points year-over-year, and we remain committed to growing in a responsible manner. Every company needs to be great at developing, securing, and operating software, or they will be disrupted. This core capability, what's called DevOps, is a must-have in any macroeconomic environment. Enterprises are navigating economic uncertainty while still needing to embrace the imperatives of digital transformation, cloud migration, and app modernization. Our customers choose GitLab to accomplish more with the people that they already have. Delivering software fast and efficiently in a secure way is essential for success. Our One DevOps Platform empowers them to do exactly that. With one data model and a single interface, we create a more efficient and captivating user experience. With GitLab, everything from planning, building, securing, deploying, and monitoring software all resides in a single application.
This mission-critical software helps companies eliminate the costly integration work you have when using point solutions, and it also allows them to create and release software faster while strengthening software security and compliance. This combination drives business and technology transformation. There are three main topics that I will cover today. First, I will explain how we enable all types of customers to realize the promise of DevOps by moving to a platform approach. Second, I will discuss how we are leading the industry in product innovation and highlight the recent enhancements from our major GitLab 15 launch. Third, I will share our view of GitLab's value proposition and how we are well-positioned to succeed. Our differentiation starts with our core value of iteration, which in turn drives our rapid pace of innovation. GitLab is far ahead in the comprehensiveness of its DevOps platform.
Every month on the 22nd, we ship a new version of GitLab with many new features and improvements. We've done this for 130 months in a row. Our innovation is also driven by the open core nature of GitLab, which means that our customers and users contribute to the capabilities of the platform. Provide even more differentiation and value for all of our customers. Every quarter, hundreds of improvements are contributed by our customers. Our differentiation also extends to security and compliance. In today's environment, security is a business imperative. We believe we have the most comprehensive security offering in the market, enabling companies to truly adopt DevSecOps practices. With GitLab, security is integrated throughout the software development and deployment process.
Our capabilities include dynamic and static testing, vulnerability management, dependency and container scanning, and coverage-guided fuzz testing, which enables customers to find vulnerabilities that other QA processes cannot find. Organizations shouldn't have to trade off compliance requirements with their speed of innovation. Developers should be able to easily verify the compliance of their without having to leave their workflow. In GitLab, this ability to perform compliance is automated and resides within the platform. This removes the need for compliance managers to require developers to context switch among different point solutions, losing productivity and efficiency in the process. We believe the future of compliance requires automation. When you create software today, you don't write all of the code yourself. Instead, you have a supply chain of external dependencies, like open source libraries that are bundled into a modern software development. However, a problem arises with so many dependencies.
There's no way to accurately and efficiently check all of it manually for security vulnerabilities. This can have devastating effects when failing to identify security threats, roll back vulnerable code, and fix and redeploy that code. This manual process can translate into significant financial and brand damages given the existing threat landscape. The only effective pathway forward is to automate that process, making the cycle time from identifying a vulnerability, rolling back code, and redeploying it shorter and shorter. GitLab makes that level of automation seamless for our customers. We have the most advanced offering in the market, as validated by customers like HackerOne and Deutsche Telekom. They use our comprehensive capabilities to secure their software supply chain and make their security and compliance checks more efficient. Our differentiated value to customers is that this security is integrated into our product. It's not bolted on as an afterthought.
GitLab's comprehensive security offering with so many features allows customers to consolidate their spend. They no longer have to use so many other security vendors. More importantly, they can create more secure software by shifting security practices earlier in the development process, performing threat and vulnerability analysis as developers create the code, not after they deployed it. The earlier you integrate security, the easier it is to address potential concerns. You become more productive, and you can enforce it for every project and every change. Furthermore, because all of the security checks are happening on the same platform, customers can prove that they performed all of the security checks for that code. With a do it yourself or DIY DevOps approach that requires stringing together disparate point solutions, a similar endeavor would require much more personnel and resources.
Next, I would like to discuss the new advancements in GitLab 15, our latest major release. We focused on three main areas of innovation across the DevOps life cycle. The first area of innovation is enterprise agile planning. When we talk to customers, a primary pain point we hear is that existing point solutions lead to a poor user experience. While they may meet the needs of the individual, they fall short of addressing the needs of the broader organization. As an end-to-end platform, GitLab is uniquely positioned to integrate planning with execution in a seamless manner. We enable business leaders to drive their vision while empowering DevOps teams to deliver value more effectively and efficiently by improving how they collaborate. The second area of innovation is continuous security and compliance.
Our customers are looking to solve the pain point of a fragmented security experience, which slows down development cycle time and creates more risk. They don't want to make a false trade-off between speed and security. They want security and compliance to be embedded end-to-end across the software development life cycle without sacrificing speed. In GitLab 15, we've introduced new capabilities around software supply chain security, advanced security scanning, streamed audit events, and more comprehensive governance. The third area of innovation involves our use of artificial intelligence and machine learning. This area is particularly exciting because it makes our product better, and it enables us to broaden the appeal of our platform to even more use cases and personas. To illustrate how we are leveraging AI to improve the product, we now have a feature where GitLab will suggest to developers who should review their code.
They can find an expert who can provide better feedback, which creates more efficiency as well as higher quality, more secure code. To invite more personas to the platform like data scientists, we are also integrating the DevOps process with the MLOps process. We see this as the next big step in consolidating historically separate development workflows. Today, machine learning is an essential part of modern application development. Every significant application is going to have both code and models. Those models go through a life cycle themselves, which includes training, testing, and deploying. Data scientists and engineers are critical stakeholders in this process. Yet traditionally, they have been excluded from the collaboration and efficiency benefits of DevOps and automation, relying on either manual processes or bespoke tool chain that they need to maintain.
The benefits of our platform will help data scientists and engineers in a number of ways, from collaboration with other teams, planning and managing project sprints, version control for automated workflows, streamlined testing and validation, and simplified infrastructure management across multiple cloud providers. We are excited about the significant amount of innovation on our platform, from enterprise agile planning to security, to compliance, to AI and machine learning. Finally, I would like to address why our one DevOps platform value proposition is mission-critical and resonating with customers in the market. From speaking with customers and prospects, we've assessed that companies are looking to achieve five main outcomes from their DevOps IT budget. They want to consolidate their software spend. They don't want to spend money on engineering time integrating tools. They would like to get more productivity from the current people hired.
They would like the DevOps process to better enable their entire organization to deliver value to their customers faster. They would like to generate more revenue by releasing customer-facing applications faster. GitLab provides the solution to achieve all of these outcomes. Our one DevOps platform helps companies reduce costs by consolidating from many vendors down to one. It frees up people from integration work. In addition, moving to a platform allows for closer collaboration between development, security, and operations teams with fewer context switches, which increases productivity and user satisfaction. What GitLab delivers is a faster cycle time, faster execution on cost-saving initiatives, and the opportunity for revenue acceleration. To quantify these benefits, based on a study conducted by Forrester Consulting and commissioned by GitLab, our customers saw a 407% return on investment within three years of deployment of our DevOps platform.
Having a comprehensive platform that solves so many problems, saving money is a superpower in economically challenging times. This value proposition translated into a number of strong business highlights in the second quarter. I'm proud to share that we added 696 net new base customers. Let me give you an example of a new logo win, an up-tier, and a customer expansion. First, a North American-based global leader in cross-border peer-to-peer payments needed a DevOps platform that streamlined and automated processes, reduced cycle time, and provided the ability to set and enforce organizational policy across every stage of their development process. From a GitLab proof of value engagement, they realized a 30% efficiency improvement in building, securing, and deploying versus their previous tool chain implementation for both new and changing applications.
As a result, they became a GitLab SaaS Ultimate customer, replacing a previous vendor's implementation. Second, a North American consumer research data and analytics firm, which has been a GitLab Starter customer since 2015, merged multiple business units which had completely siloed DevOps tools. A new corporate initiative to move to the cloud catalyzed the need to quickly consolidate onto a single platform to standardize their entire DevOps lifecycle, to increase operational efficiencies, time, and increase developer productivity. By migrating to GitLab, they immediately saw a 3x increase in productivity due to less maintenance time and fewer costs with a fully integrated GitLab SCM CI and subsequently upgraded to Premium. Finally, a North American-based motor vehicle manufacturing company was looking for an alternative to their existing DevOps products because their workloads far exceeded the scaling capabilities of those tools.
After working closely with GitLab, we demonstrated our unique ability to scale to meet their volume needs, while also enabling them to consolidate their tools. As a result, the customer expanded in the second quarter, increasing their number of Premium licenses by 40%. Another key strength of our go-to-market value proposition is our relationship with cloud hyperscalers. They view GitLab as an accelerant for customers to move to the cloud faster. We're also pleased with the number of higher level strategic conversations that are happening at the C-level, addressing how GitLab can help them solve their business problems. In fact, in Q2, we were named as Google Cloud Partner of the Year for application development, following up from last year when GitLab was awarded Google Cloud Partner of the Year for DevOps.
A powerful example of the result from these alliances is KeyBank, one of North America's largest financial services companies. KeyBank recently formed a partnership with Google Cloud Platform, or GCP, to move workloads from data centers to Google Cloud. In addition to their cloud migration effort, app development and modernization are key parts of their digital transformation goals. Their employees embrace a continuous integration and continuous deployment software development model, which the industry calls CI/CD. They choose GitLab to bring together their DevOps process, making an initial purchase of several hundred Ultimate licenses. We see this type of close alignment with other cloud providers, including AWS. In the second quarter, GitLab and AWS worked together to help a major airline manufacturer significantly reduce their risk of loss and downtime that was required for their business-critical development needs. GitLab is now critical to this customer's developer team success.
They have now standardized us across thousands of users and crossed the million-dollar threshold as a customer. These customer success stories, in combination with the growth of our alliances and partnerships, clearly show that the market is moving towards a platform approach to DevOps. We recently published our sixth annual State of DevSecOps report, a landmark research study of over 5,000 DevOps professionals from around the world. Among the many findings, we see a continued need for tool consolidation. 85% of DevOps teams use between 2 and 10 tools. With 69% of survey participants saying they'd like to consolidate their tool chains, the need for a DevSecOps platform is clear. 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 promise of a platform over point solution approach, and we continue to show that GitLab is mission-critical. We continue to believe that we are early in a large and growing market. Our Q2 results demonstrate that we're well-positioned to drive durable growth with improving unit economics. I'm grateful to all our team members, partners, the wider GitLab community, and customers who contributed to our results. I also want to thank Eric Johnson, our CTO. He has resigned effective October first and will stay on as an advisor for six months. Eric has been with GitLab since 2017, and I want to thank Eric for our partnership over the last five years and wish him the best of luck. I'll now turn the call over to Brian Robins, GitLab's Chief Financial Officer.
Thank you, Sid, and thank you again to everyone joining us today. I'd like to spend a moment reviewing the key characteristics of our business model and what we're seeing in the macro environment. I will quickly recap our second quarter financial results and key operating metrics and conclude with our guidance. Our platform delivers a strong ROI and positive business outcomes. Customers continually tell us that they strongly support our pricing model. Our platform is offered with a free version and two paid subscription tiers, which we call Premium and Ultimate. Our paid tiers are priced per user with different features per tier. Every user within an organization is on the same plan, which helps to keep our business model transparent and easy to understand. Our second 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 sale, a diversified customer base across industry verticals, customer sizes, and geographic regions, a short implementation cycle and an established and well-documented ROI. In addition, we price our platform in U.S. dollars, so we have no currency impact. These attributes contribute to the results we are seeing. To illustrate this, customer cohorts from seven years ago are still expanding today. Despite the volatility in the macroeconomic environment in the second quarter, we have not seen any impact to our business. Customers increasingly recognize the need to address multi-year digital transformation challenges. The current environment is not slowing down customer decisions nor elongating our sales cycles.
Buying cycles have actually sped up across the business and we continue to see strong win rates. We're also happy with how we executed on hiring. We added a similarly strong number of new team members as we did in Q1, and we experienced lower attrition. We view the uncertainty in the macroeconomy as a benefit for hiring new team members, and we currently have over 225 open positions that we're actively looking to fill. Next, turning to the numbers. Revenue of $101 million this quarter represents an increase of 74% organically from the prior year. We added the largest number of base customers ever in a single quarter.
We ended Q2 with over 5,800 customers with ARR of at least $5,000, compared to over 5,100 customers in the prior quarter and over 3,600 customers in the prior year. This represents a year-over-year growth rate of approximately 61%. Currently, customers with greater than $5,000 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 the second quarter of FY 2023, we had 593 customers with ARR of at least $100,000, compared to 545 customers in the prior quarter and 383 customers in the second quarter of FY 2022. This represents a year-over-year growth rate of approximately 55%.
As many of you know, we do not believe calculated billings to be a good indicator of our business. Given that prior period comparisons can be impacted by a number of factors, most notably our history of large prepaid multi-year deals. This quarter, total RPO over 76% year-over-year to $362 million. We ended the second quarter with a dollar-based net retention rate consistent with the previous quarter. This exceeded our reporting threshold of 130%, which 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 second quarter of FY 2023, compared with 29% of ARR in the second quarter of FY 2022 and continue to grow in excess of 100%.
Non-GAAP gross margins were 89% for the quarter, which compares to 90% in the immediate preceding quarter and 88% for the second 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 was $27 million or 27% of revenue, compared to a loss of $24.8 million or 42% of revenue in Q2 of FY 2022. Q2 FY 2023 includes $5 million of expenses related to our JV and majority-owned subsidiary. We incurred a $2.3 million cancellation fee in Q2 as a result of our decision to postpone Contribute, our annual GitLab team event.
Operating cash use was $36.3 million in second quarter of FY 2023, compared to $17.1 million used in the same quarter last year. In summary, we're pleased with our operating performance during the second quarter of FY 2023 on both the top and bottom line, and believe our business is set up for continued strength. We continue to see rapid growth while improving the underlying unit economics in the business. We monitor the key leading indicator metrics of our business, and we are not seeing any softening in these indicators. Now let's turn to guidance. For the third quarter of FY 2023, we expect total revenue of $105 million-$106 million, representing growth rate of 57%-59% year-over-year.
We expect a non-GAAP operating loss of $27.5 million-$26.5 million, and we expect a non-GAAP net loss per share of $0.16-$0.15, assuming 149 million weighted average shares outstanding. For the full year FY 2023, we now expect total revenue of $411 million-$414 million, representing a growth rate of 63%-64% year-over-year. We expect a non-GAAP operating loss of $111.5 million-$108.5 million, and we expect a non-GAAP net loss per share of $0.67-$0.64, 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 1,250 basis points year over year with the midpoint of our guidance ranges. A few more details on guidance and our model. We now estimate that we will incur approximately $17 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 in the first three quarters of 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. I'd like to note we have deconsolidated Meltano, our majority-owned subsidiary.
On the finance team front, Dale Brown, our Principal Accounting Officer, has shared his intentions of retiring next year. I want to thank Dale for all his contributions over the last three years in allowing for a smooth transition. As Sid mentioned earlier, we believe we're addressing a very substantial market opportunity that is currently under-penetrated and that we're well-positioned to capture our outsized portion of it. There has been no philosophical change 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. 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.
Thank you, Sid and Brian. We'll begin by going to Kash at Goldman Sachs. Kash, will you please verbalize your question?
Sure. Happy to. Thank you so much. Congrats on the quarter and great operating margin improvement. Sid, when you look at the landscape, the competition, I mean, Microsoft has been talking about how it's not just about collaboration with developers, but collaboration among office workers. There's a big thrust behind Teams. You also see Atlassian going through a cloud transition. They've made collaboration amongst developers and non-developers a key priority. monday.com's chosen developer persona as... Everybody is trying to make inroads into a domain that you have natural focus and concentration. How does this change the competitive landscape? Is there an accelerant because there's more awareness of what you can do for developer productivity and the software development life cycle? And how does your competitive position change or not change?
One for you, Brian, as you go through the puts and takes of the income statement, cash flow, et cetera, with the one-time joint venture expenses, how should we be thinking about the trajectory of next year, calendar 2023, with respect to some of the underlying improvements in operating efficiencies that may not be otherwise apparent? Thank you so much.
Thanks so much, Kash, for those questions. If you look at GitLab, it's not just for developers. It's for developers, security people, and operations people. Getting them to collaborate well, that's the essential part, because then you can get from, "Hey, we plan to do this," to getting it out there, getting it in the hands of your customers, getting feedback. Closing that loop is the most important thing, and we have the leading DevSecOps platform, in our opinion, and that's really spectacular because think about security. It's a really big market. We are replacing vendors like Checkmarx, Veracode, Synopsys, because we have the whole thing. We have static and dynamic analysis. We have container and dependency scanning. We have the best fuzz testing tools, in our opinion, in the market.
Not only do we have the most comprehensive security offering, we're able to link it with a really compelling dev solution. We are expanding into operations, so people can do the entire cycle. That's the power of one platform, and we believe that is really attractive in the market. We're not in a chat tool business or something like that, but we do have the most comprehensive DevSecOps solution.
Got it.
Kash, I'll answer the question just around cash flow and so forth. Yeah, I'm really happy, you know, with the business and the fact that, you know, we have a ratable business, so it's got a lot of visibility. We're really pleased with the trends that we're seeing. The number one thing that Sid and I have articulated to, on the roadshow as well as to the investor base is growth is the number one thing that we wanna do, but we'll do that responsibly. If you look at the second quarter, we delivered $101 million in revenue with a non-GAAP operating loss of $27 million.
If you compare that to second quarter of last year, we added $43 million of incremental revenue. At the same operating loss, if you extract JiHu, if you look at our guidance at the midpoint, we're gonna deliver approximately $160 million of additional revenue this year over last year at an improved absolute operating loss than what we did last year if you take away JiHu and some of the one-time events that we went through. I'm really happy on the incremental improvements that we've been making and the improving unit economics.
Thanks so much.
Our next question is from Karl at UBS.
Karl, if you're talking, you're muted. Sharlene, will you go to the next one?
Next we have Matt at RBC.
Hey, guys. Thanks for taking my questions. Congrats on the quarter. Sid, I wanted to start with you. You know, I'm curious, you in your prepared remarks, you called out a cloud or a SaaS win, and I asked you this a couple years ago, but I'm curious for an update here. Is there a network effect that customers see from increased cloud adoption in a sort of. Do they all benefit from your learnings of what's happening with your SaaS deployment?
I think there's something to that. With SaaS, you're able to run experiments on a more gradual level, and you're able to see more detailed results. The data we get from our SaaS services on, like, how new features are performing helps us improve the product for everyone. Increased SaaS users means we know better how our customers are using the platform, what features they enjoy, what we should improve, and that improves the product for both SaaS and self-managed customers.
Super helpful. Yeah, we love seeing the increased traction there. Brian, one for you. I mean, it sounds like you're not seeing any real macro pressure. It doesn't feel like you're embedding anything into your guide. Was it a sort of just, you know, like the linearity question, was it sort of business as usual for you guys? Was there any more back-end loaded nature of the quarter? Just maybe a little bit more granularity on that side.
Yeah, absolutely. We're super happy with the quarter to grow 74% year-over-year, and then also to add the largest number of base customers in the company history. You know, when we went back and looked at the sales cycles, the sales cycles are actually compressing this quarter, so we didn't see any elongation. One of the things that, you know, as I was preparing for this earnings call and listened to a number of other CEOs and CFOs talk, you know, really with the mission-critical applications and software, people are seeing, you know, moving away from the point solutions into a platform. We saw a lot of that this quarter and really happy with the results that we delivered.
Congrats, guys.
Thank you.
Next, we'll move on to Michael from KeyBank.
Hey, guys. Maybe I'll ask both at once, but first, Sid, you know, I think this is fantastic what you've done, and it's in an environment where people are cutting back, including some reports of developer hiring cutting back. And at that high level, what's making it work that you continue to grow at these rates even while some developer hiring is cutting back, and there probably are some projects that are being cut. Then I have a question, quick sort of housekeeping question for Brian.
Well, thank you very much, Michael. We're definitely seeing that companies are cutting back on hiring developers, that they are sometimes instituting a hiring freeze. The situation they're faced with is that they have to do more with the people they already have, and GitLab enables them to do that. When they move to GitLab, they save on the integration effort, so the people who before were doing the integration of DevOps tools can start doing something that adds value to the business directly. Second, all their existing people get more efficient with GitLab because you don't have to go from point solution to point solution to point solution. You can get more work done in a day. They can, without hiring, it's kind of feels like they have more development capacity.
Last, but certainly not least, GitLab helps them to go faster, so they're able to move to the cloud faster, close their data centers, and free up those people to directly add to their business. On three levels, moving to a platform helps, and that's why in this environment, GitLab is mission critical. Companies are willing to free up budget for it, and it's not an option to not do this. They have to undergo the digital transformation. They have to move to the cloud.
Great. Thanks, Sid. Brian, somewhat like last time, you did have strong upside on the license side of the business. Last quarter, there was something of a boost from the way that you accounted your standalone selling price, and so it boosted rev recs a little bit. Was there any change in what that year-over-year boost would have been? I think we're looking for $2 million.
Yeah. Before I answer that, let me just add on to Sid's comments just a little. You know, our cohorts from seven years ago are still expanding with us today, so you were asking about developer hiring. One of the things that we look at internally is landed TAM, and so when we land an account, you know, cohorts from seven years ago are still expanding with us today. Every single quarterly cohort has been doing that. There is a lot of upsell within all of these accounts that we currently have today, and they start with Premium, they expand division departments. Eventually, they upgrade to Ultimate and so forth. We feel that there's, despite some of the hiring things, a lot of landed TAM for us to address.
On the license side, I talked about the record quarter of base customer adds. We just had a great quarter, and, you know, we do recognize a small portion of the revenue up front, and that's what impacted the license revenue. With ASC 606, you do an annual assessment, and so the percentage that we use this year versus last year is slightly higher, and we will use that every quarter for the remainder of this year. Then as we go into first quarter of next year, we'll do another annual assessment and see where that's at.
Thanks, Brian. Thanks, Sid.
Thanks, Michael.
Our next question is from Rob from Piper Sandler.
Great. Thanks for taking my question. Would love to just drill down a little bit more relative to the record quarter of base customer adds. Sid, is this maturity of the platform? Is this economic? Is it channel? Can you kinda stack rank for us why you're seeing such success right now in this environment relative to those new net adds? I do have a follow-up for Brian.
Yeah. Thanks for that. We believe that we're very early in a big market opportunity. Us and our biggest competitor together, we're less than 5% of a $40 billion market. Gartner said that DevOps platform adoption is 20% now, growing to 60% over a couple of years. If anything, the need to consolidate, the need to have fewer tools, less integration efforts, is only accelerating. Companies can't afford anymore to spend and solve everything by hiring more people. The macroeconomic challenges that company faces only makes it more of an imperative to consolidate, to go to the cloud faster, and to embrace platforms like GitLab.
Great. Brian, building a little bit on Matt Hedberg's question around linearity, you did see, AR creep up, and so if we match that kind of a billings days outstanding, higher than previous quarters. Is this linearity? Is this economic? Is this big deals? Are these new levels should be sustained moving forward? Can you help us out a little bit on that front? Thanks.
Yeah. I would just say that, you know, on the billing, we had two invoices, one that's been collected, one that we'll get any day now. That's on the billing that you've seen sort of the DSOs tick up a little.
Okay.
And I-
Um-
I would just.
All right.
As for the quarter, there wasn't really anything outsize in the quarter that happened that hasn't happened in other quarters. You know, we had a record quarter as well with AWS and GCP contribution. Once again, another large quarter, the largest quarter in company history of what they contributed as well.
Do those tend to lag relative to payments?
They do not. They're relatively the same payment terms.
All right, thanks.
Rob, maybe to add to that, maybe give you an example. We had a global airline manufacturer sign with us this quarter, and they are not in the business of spending more money right now. They're in the business of spending less money. It is an imperative to get better at development, security, and operations, and they became a customer this quarter even though there's a lot of ways in which every company needs to save money. They made the budget available to become a customer from previously using GitLab for free.
Great. Thanks for the color.
Next, we'll move on to Joel at Truist.
Thank you for taking my questions, one for Sid, one for Brian. Just to follow up on that, Sid, I would love to get your take on some of the partnerships that are really driving value for you right now and how you're positioned with them. Brian, just to double down on that, operating leverage, I know you talked about some of the operating leverage was driven by revenue outperformance, but I'd love to know what the other major drivers are of operating leverage going forward. Thank you.
Thanks so much. I'll go first and let Brian add. The most important partnerships for us are the ones with the hyper clouds. They're important for us because more and more of the purchasing is happening via these hyper clouds. They're influential in accounts. They have access to the important C-level people. We are important to AWS, GCP. We mentioned we won a GCP award, because they know if GitLab is in the account, they move to the cloud faster. The fastest way to do the cloud migration is to first get on one platform and then move, not to try to move 10 different point solutions at different speeds. That is way more hassle.
It's a partnership that's very symbiotic, and we're super excited about the additional opportunities that are in partnering with hyperscalers like that and great partners like IBM that we love to work with. Brian?
Joel, on the operating leverage side, I mean, we're seeing operating leverage, you know, across the business in all aspects. You know, one great example I'll give is 2Q of this quarter versus 2Q of last year. Last year was 88% non-GAAP gross margin, and this quarter was 89%. So even though with SaaS growing as fast as it is and costs us more to deliver, we're still putting in operational efficiencies to improve, you know, our delivery cost. You know, within the company, we pretty much have out, you know, built out the management layer. Most of the net adds that we're doing is for capacity and in R&D to improve, you know, to continue the enhancements and the releases that we've done.
You know, across the entire business, you know, we're seeing operating leverage in the business model.
Thank you very much.
Next, we have Koji from Bank of America.
Hey, Sid. Hey, Brian. Thanks for taking the questions. Just kind of a follow-up here on the record net new customer adds. You know, really, really great number there. Wanted to ask kind of on the average land ASP for those customers. You know, are they coming in bigger now, or are they coming in about the same from a historical perspective? And how are you thinking about customer land ASPs in the future given all the macro factors that are going on out there?
Yeah, I'm happy to take that, Koji. Thank you. The trends that we've seen increasing ASPs across all segments in the business. You would expect on some of the reports that people have talked about in the industry that you may see a decline. We haven't seen that. We've seen an uptick across the board, and that's been consistent with all the other quarters.
Got it. Thanks, Brian. Just one follow-up here for, maybe Sid or Brian. I noticed in the press release when you announced a partnership with a bunch of companies like Dynatrace and LaunchDarkly, to launch this feature, OpenFeature. I guess could you explain, you know, maybe from a high level, what is OpenFeature and what sort of opportunity does this unlock, for GitLab? Thanks, guys.
Yeah. Thanks for the question. OpenFeature is a standardized way to make feature flags. Feature flags is functionality that allows you to put mostly new functionality to turn that on and off really quickly. It helps a company to release faster and more frequently while being able to quickly remediate if something gets broken. We already offer feature flags in GitLab today, but we want to make them better over time, and we're excited to partner with Dynatrace, Google, LaunchDarkly, whole bunch of great companies in order to standardize this. We believe that feature flags are much better as part of a platform. Feature flags hook into your source code, they need to hook into your observability, and with GitLab, we can make that work right out of the box.
Got it. Thanks, guys. Thanks for taking the questions.
Thank you.
Derrick at Cowen, will you please verbalize your question?
Great. Thanks. Good to see you guys. I mean, so we've heard from a lot of CIOs that consolidation, vendor consolidation is certainly a priority. Obviously, that caters to your strategy very well, and it sounds like that's been a driver. Would you say that the macro environment has actually accelerated the rate of legacy displacements in the last quarter or two? Are there certain verticals that you would say consolidation is a bigger trend or a bigger tailwind for you?
Yeah. We're certainly seeing that with customers that say, "Look, we need to consolidate, and we want to move to fewer tools, and that's why we're considering GitLab." There's a tailwind. In this macroeconomic environment, you have to be able to save people money, do more with fewer people, so that's been a great thing. We are seeing that across all verticals. All verticals are cutting back and want to consolidate. We do see that the more projects companies have and the more tools they have, the more compliance they need, the more attractive it is to consolidate because kind of their complexity grows almost exponentially. We believe that's also kind of just the future, like, companies are gonna have more and more future software projects. Companies are gonna need more compliance, whatever industry you're in. It's been consistent across verticals.
Great. Thanks. Maybe one for you, Brian. Last quarter, you talked about, you know, EMEA having a record pipeline. Clearly it doesn't sound like you're seeing any macro headwinds. Could you just compare or contrast what you're seeing out of, you know, Europe versus the U.S.?
Yeah. I would just say, you know, we have strong macro tailwinds around digital transformation and the growing security threat landscape. The pipeline across the entire company is the strongest it's ever been. Win rates have been pretty consistent with last quarter, and we're not seeing any deals being pushed.
Great to hear. Thanks.
Thank you.
Now we move on to Jason from William Blair.
Hey. Thank you. Hi, guys. First one for Sid. On their earnings call last week, MongoDB talked about their consumption-based model and linkage to application utilization as reflecting almost a real-time view of the macro environment, which according to them is getting worse. My question is, how would you compare and contrast where you guys sit relative to Mongo and your confidence in terms of how close you are to feeling macro impact in real time?
Yes. We're a different model. We charge per user, per year, and we're seeing that there's a lot of upside for us still. There's a lot of ways to grow within the companies we're already at. Like, we're nowhere near kind of having all their users, and we have a lot of room to grow in up tiering from free to paid, but also from Premium to Ultimate. We're not seeing those consumption headwinds. In fact, as we talked about before, companies now need to save money, and GitLab is a way to save money and make your existing people more effective to do more despite having a hiring stop. Brian, anything you wanna add?
Yeah, same thing. I mean, we have great visibility. You know, one of the great things about being a ratable model is we have great visibility into the revenue. You know, with having, you know, over 200 open recs and being able to see the pipeline, we can adjust anything from a macro perspective, but we haven't, you know, we haven't seen anything. We're super happy with, you know, the base customer adds or net dollar retention rate, you know, the operating leverage that we're having in the business. Across the board, you know, we're very pleased with the trends.
One quick follow-up for you, Brian. Can you remind us at a high level on expectations for JiHu for next year, both in terms of OpEx and revenue contribution?
We haven't given out anything for next year yet on JiHu.
Okay. At some point you're gonna get some revenue contribution, correct?
That is correct.
Okay. Thank you.
Thank you.
Next we have Karl at UBS.
Okay, great. Thanks for taking the question. Sorry about before. Hey Brian, maybe this is for you. On the 3Q revs guide, 59% is pretty phenomenal, but optically it's a 15-point decel on an 11-point easier compare. I just wanna address you. Is there anything either in the year ago period or in the coming October period that might be distorting that comparison? Any one-time stuff, maybe anything related to the SSP issue you called out last quarter to share with all of us? Thank you.
Yep. Thanks for your question. You know, we're super happy with our performance and guidance. We beat by $7 million. We raised the full year by 12 and a half million at the midpoint. We're currently guiding to 63%-64% year-over-year revenue growth, and our guidance includes impact of Russia, you know, the true-ups. You know, we don't have ex-FX exposure, but you know, we bill and collect in US dollars, and so there's other companies out there who, you know, based on the currency devaluation, it's more expensive for them to buy. All that we've put into our guidance. You know, I'm really happy that we've been able to raise the annual guidance and continue to get operating leverage in the business.
You know, if I look at the guidance from the beginning of the year, you know, we've increased guidance by $24 million at the midpoint of Q1, and we're doing this for $30 million less in non-GAAP operating income.
Yeah. Okay. Agreed. Thank you, Brian.
Thanks, Karl. Appreciate it.
Next we have Pinjalim Bora at J.P. Morgan.
Oh, great. Hey, thank you for taking the questions, and congrats from me as well for fantastic quarter. I want to ask you about the free user limits that you're putting in place that'll go into October of this year, I believe. Is it possible to quantify kind of the number of users that'll be impacted, or how should we think about the impact of that change to the business or in Q4 next fiscal year, or would you say it's gonna be material?
Yeah, thanks for that. We wanna make sure that our free plan is sustainable, so we've instituted storage and user limits, and that's gonna help us become more efficient. Some of the users will opt to reduce their usage or leave, and some of them will opt to become a paid customer, and that is baked into our guidance.
Okay. Understood. One for Brian. The net retention rate seems like it's 130%, pretty good. Is it possible to directionally understand that number maybe in terms of the gross expansion or the gross churn within that particular number? Directionally, is it up or down versus last quarter?
Yeah. Let me just a point of clarification. We report that as a threshold greater than 130%, so it's not 130%. In my prepared remarks, I said it was actually consistent with prior quarters, and so that should give you some indication where that's at. You know, number one thing from a net dollar retention rate is additional seats, and then number two is uptiering to Ultimate.
Got it. Thank you.
Our next question comes from Nick at Scotiabank.
Yeah, great. Thanks, guys. You guys mentioned that, you know, sales cycles are shortening, land ASPs are increasing. Can you just talk about what's driving that? Because I think it's something you guys have called out several times recently. Like, is it more just, you know, you guys have a more mature go-to-market motion now? Is it more that, you know, the top-down sales motion is kind of allowing for quicker budget approvals? Just any color you can give around that I think would be helpful.
Yeah, happy to. Thanks for the question. You know, when we were getting ready to go public, one of the things I talked about was we're adding a whole bunch of new go-to-market motions. You know, up until that time, the company was primarily a direct sales go-to-market, and since then we added alliances, hyperscalers, a channel program, and so forth. You know, we've added a number of new go-to-market motions. They're still relatively early, but we're very happy with the progress we've seen. As I mentioned, the hyperscalers, AWS and GCP, combined, had their largest quarter with us in company history, and we're seeing a lot more deals come through that channel. Really happy, you know, across the board.
We wanted to be aware of a lot of other comments that were made, and so we went and looked at deal cycles and looked at that. We looked at ASPs, and I think it just goes, as Sid alluded earlier, we're so early in such a big market and, you know, people are wanting to get rid of point solutions and move on a platform to develop, you know, software better, faster, more secure, and that's what our platform does. You know, as we get greater penetration, you know, you'll see the results that we're publishing.
Just another quick one. You know, the federal side of the business is roughly 10% of revenue. Can you just give an update there, just given that fiscal year is closing? You know, how's that pipeline looking? Was there, you know, any, you know, any contribution from that sector that fell into 2Q? Any color around that would be helpful.
You know, we're super happy with how we're doing in the public sector and in the government market. What we're doing is baked into our guidance, but we're seeing increased adoption, and we're very happy with how that is developing.
Great. Thank you. Our final question comes from Mike at Needham.
Okay, great. Thanks for squeezing me in, guys. First question I had was with respect to these sales cycles we're talking about, and wanted to see if we could slice it up just a little bit differently here. Is there a way to give a sense for the magnitude of what the delta is when thinking through those shortening sales cycles? Or, better said, I guess how much would you attribute to the elevated conversations or engagement that you guys are having with the C-suite? What is the durability in your view of these shortened sales cycles, or is it really just a data point today, not yet calling a trend as far as these shorter cycles we're seeing? I have a follow-up as well. Thank you.
Yeah, I think you're right on that. It's just a data point that we wanted to point out. You know, as we you know prepare for these calls and look at all the data across the board, you know, this was something that was mentioned or asked about on a lot of other calls. You know, I think the awareness of just a DevOps platform and GitLab helps, and then also the time to value and business outcomes that we're driving, and a number of people wanting to get rid of point solutions to get on a platform, you know, for the efficiency. I think all these are key characteristics that you know contribute to you know the shortening of sales cycles.
Thank you for that. I appreciate it. If I could just follow up with one other question. It was more around the GitLab 15 launch that you guys spoke about. You highlighted three things, one of them being the AI/ML. And I think it probably goes back to some of the earlier comments from you guys with respect to how early we are in this $40 billion TAM, but I just wanna take broad brush strokes here for a second. If I think about DevOps, like we've been talking about this now since I wanna say like 2008, 2009 timeframe, and DevSecOps maybe 2014, 2015 timeframe, and both of those are still very, very early.
Now we're talking about DevOps plus MLOps, which is intuitive, makes all the sense in the world to me. Just wanted to get a sense again, how early stage are we? I have to imagine that the decision to combine those two workflows is based on customer feedback, but if you could frame out those parameters in any way, I would definitely appreciate it.
Yeah. Thanks for that question. If we look at AI/ML, there are two things happening. We're using it to make GitLab better, and a great example of that is code reviewers. GitLab will now suggest, "Hey, this person might be the best person to review your code." So that's making GitLab, the DevSecOps workflow better for everyone. The other thing is helping data scientists do their work. Today, they have a completely different tool stack, and that tool stack kind of would really benefit from kind of the practices that are already prevalent in DevOps. We're starting there now with features like better Jupyter Notebook diffs. After launching that, we've seen the usage of Jupyter Notebooks in GitLab increase. We'll continue to add to that. For example, while our planning is fluid, we're considering a model registry, adding that to GitLab in the future.
We're not sure we will do that, but that's something we're looking at. These investments will bear fruit over a very long period of time. It's not that we're gonna be great tomorrow, but we're sowing the seeds, and together with the wider community, we see a great convergence happening where the AI/ML engineers have to collaborate with the DevSecOps people and vice versa, because every significant application in the future will need both.
Thank you for that. I appreciate the color, and I totally appreciate how this is all very early. Great to see how you guys are thinking about the broader picture here and looking forward to seeing more with respect to the evolution of the platform. Thank you.
Thanks so much.
With that, I'll turn things back over to Sid for closing remarks.
Thank you for your time today. I'd like to thank our customers for trusting GitLab, and I'd also like to thank our partners and the wider GitLab community and all of our GitLab team members for all of their contributions. You all have a big part in our continued success. Thank you very much.
Thanks again, everyone, for joining us. Have a great day.