GitLab Inc. (GTLB) Q2 2026 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call highlights strong financial performance, with a 29% revenue growth and improved operating margins. Positive customer expansion and high retention rates further strengthen the outlook. Despite cautious guidance due to market changes, the company's strategic focus on AI integration and new partnerships, along with a robust shareholder return plan, suggest a positive sentiment. The Q&A reveals management's confidence in overcoming current challenges and leveraging AI opportunities. Overall, the strong financial metrics and strategic initiatives are likely to result in a positive stock price reaction over the next two weeks.

Key Financial Performance

Revenue Revenue increased 29% year-over-year to $236 million. This growth underscores the value customers realize with GitLab's AI-native DevSecOps platform.

Non-GAAP Operating Margin Non-GAAP operating margin reached 17%, demonstrating commitment to responsible growth and operating discipline.

Customer Base GitLab now has 10,338 customers with ARR of at least $5,000, contributing over 95% of total ARR in Q2. The larger customer cohort of $100,000+ in ARR increased 25% year-over-year to 1,344.

Dollar-Based Net Retention Rate (DBNRR) DBNRR was 121%, driven by seat expansion (approximately 80%), increased customer yield (approximately 5%), and tier upgrades.

Total RPO and cRPO Total RPO grew 32% year-over-year to $988.2 million, while cRPO grew 31% year-over-year to $621.6 million.

Non-GAAP Gross Margin Non-GAAP gross margin was 90%, reflecting operating efficiencies and the scaling of the SaaS business, which grew 39% year-over-year and now represents approximately 30% of total revenue.

Non-GAAP Operating Income Non-GAAP operating income was $39.6 million compared to $18.2 million in Q2 of last year, with a non-GAAP operating margin of 16.8%, an increase of approximately 682 basis points year-over-year.

Adjusted Free Cash Flow Adjusted free cash flow was $46 million with adjusted free cash flow margins of 20%, compared to $10.8 million in the prior year.

GitLab Dedicated ARR GitLab Dedicated contributed approximately $50 million in ARR, growing 92% year-over-year.

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Operating Highlights

GitLab Ultimate and Dedicated products: GitLab Ultimate now represents 53% of total ARR, with 8 of the 10 largest deals in the quarter including Ultimate. GitLab Dedicated contributes approximately $50 million in ARR, growing 92% year-over-year.

New features: 72 new features were introduced across paid tiers, including enhancements in DevOps, security, and compliance. Examples include Maven virtual Registry, GitLab Runner 18.1, and centralized security policy management.

AI capabilities: GitLab Duo Agent Platform is in beta, with general availability expected by year-end. Weekly active usage of GitLab Duo has increased nearly 6x this year.

Customer growth: 10,338 customers with ARR of at least $5,000, contributing over 95% of total ARR. Larger customer cohort ($100,000+ ARR) increased 25% year-over-year to 1,344.

Geographic and industry diversification: Diversified customer base with no single customer accounting for more than 2% of ARR.

Revenue and profitability: Revenue increased 29% year-over-year to $236 million. Non-GAAP operating margin reached 17%, and adjusted free cash flow margin was 20%.

Sales-led and product-led growth: Sales-led initiatives include a global new business team and post-sales motion. Product-led growth focuses on self-service customer acquisition.

AI strategy and partnerships: Strategic partnerships with Anthropic, OpenAI, Google, Amazon, and Cursor. GitLab Duo integrates with multiple AI tools, emphasizing interoperability.

Leadership changes: CFO Brian Robins will step down, with James Chen as Interim CFO and Simon Mundy as Chief Accounting Officer.

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Risk or Challenges

Go-to-market organizational changes: The company is implementing changes in its go-to-market strategy, which could create short-term disruptions and uncertainties in revenue generation and operational execution.

Small and medium-sized business (SMB) segment softness: Incremental softness in the SMB segment is expected to persist, driven by budget pressures, which could negatively impact revenue growth in this segment.

New customer acquisition challenges: New business cohort member sizes have been getting smaller, indicating potential challenges in acquiring larger customers, which could impact long-term growth.

AI impact on seat growth: Concerns exist that AI could reduce engineering headcount, potentially impacting seat-based revenue growth, though the company is transitioning to a hybrid seat plus usage-based model.

Competitive pressures in AI tools: The market is seeing an influx of new AI code generation tools, creating a highly competitive environment that could challenge GitLab's market position.

JiHu joint venture expenses: The company continues to incur expenses related to its China joint venture, JiHu, with no clear timeline for deconsolidation, which could weigh on financial performance.

SMB budget pressures: Budget constraints in the SMB segment are creating headwinds, potentially limiting growth opportunities in this market.

Leadership transition: The CFO's departure and leadership changes could create short-term uncertainties in financial strategy and execution.

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Guidance & Outlook

Revenue Guidance for Q3 FY '26: GitLab expects total revenue of $238 million to $239 million, representing a growth rate of approximately 23% year-over-year.

Revenue Guidance for Full Year FY '26: GitLab expects total revenue of $936 million to $942 million, representing a growth rate of approximately 24% year-over-year.

Non-GAAP Operating Income for Q3 FY '26: GitLab expects non-GAAP operating income of $31 million to $32 million.

Non-GAAP Operating Income for Full Year FY '26: GitLab expects non-GAAP operating income of $133 million to $136 million.

Non-GAAP Net Income Per Share for Q3 FY '26: GitLab expects non-GAAP net income per share of $0.19 to $0.20, assuming 171 million weighted average diluted shares outstanding.

Non-GAAP Net Income Per Share for Full Year FY '26: GitLab expects non-GAAP net income per share of $0.82 to $0.83, assuming 171 million weighted average diluted shares outstanding.

Small Business Segment Outlook: Incremental softness in the SMB segment is expected to persist through the rest of FY '26 due to budget pressures.

Go-to-Market Organizational Changes: GitLab is implementing foundational changes in its go-to-market organization, expected to position the company for strong future performance.

AI and Usage-Based Monetization: GitLab plans to evolve its business model to a hybrid seat plus usage-based model, charging for work done by AI agents and partners' agents hosted on its platform.

GitLab Duo Agent Platform: The platform is on track for general availability by the end of the year, with expectations to meet quality standards and customer readiness before launch.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:What changes are being made in GitLab's management and how will they impact the company?

A:William Staples, CEO, stated that the combination of new executives and experienced team members creates a dynamic environment aimed at scaling GitLab. The focus is on capitalizing on the AI cycle and scaling towards the company's second billion in revenue.

Q:Why is there a forecasted slowdown in growth from the first half to the second half of the year?

A:Brian Robbins, CFO, explained that the company is being prudent with guidance due to go-to-market changes and incremental softness in SMB. The guidance for the full year was held steady, with adjustments made to Q3 and Q4 numbers.

Q:What is the timeline for the go-to-market changes to show results?

A:William Staples mentioned that the changes will ramp over H2 and are expected to show results early in FY '27. These changes include a new business division, evolving enterprise sales motion, and adjustments in sales capacity.

Q:What is the impact of SMB softness on GitLab's revenue?

A:Brian Robbins noted that SMB accounts for only about 8% of total revenue. The softness is attributed to price sensitivity and lighter-than-expected performance despite promotions. The company is continuing to monitor and adjust pricing and packaging.

Q:How does GitLab view the competitive threat from AI coding vendors?

A:William Staples stated that GitLab complements AI coding tools by managing the change of code across the software lifecycle. The company is integrating popular AI tools into its platform and sees this as an additive opportunity rather than a competitive threat.

Q:What is GitLab's strategy for new customer acquisition?

A:William Staples explained that the company is focusing on specialized sales teams for first-order acquisition and a product-led growth approach. These initiatives are expected to ramp in H2 and show early returns in FY '27.

Q:What are the expected benefits of hiring Manav as Chief Product and Marketing Officer?

A:William Staples highlighted Manav's experience with product-led growth and enterprise adoption. The goal is to balance high-touch sales-led approaches with increased customer acquisition and innovation velocity through product-led growth.

Q:What is the timeline for ramping new enterprise sales reps?

A:William Staples stated that the ramp-up period for new enterprise sales reps is between 6 and 9 months.

Q:What are the key features and customer feedback on the Duo Agent Platform?

A:William Staples mentioned that the Duo Agent Platform offers unified data for AI-based collaboration, an open ecosystem for tool integration, and customizable agents for specific engineering challenges. Customer feedback has been positive, and the platform is expected to go GA by the end of the year.

Q:What drove the acceleration in subscription and SaaS business in Q2?

A:Brian Robbins explained that strong month 1 bookings and a higher mix of self-managed versus SaaS contributed to the acceleration. These were onetime factors, and the company remains agnostic to how customers purchase the product.

Q:Review of Unclear Management Responses

A:Management avoided directly addressing the specific timeline for when the go-to-market changes would fully impact revenue growth. Additionally, while they discussed SMB softness, they did not provide detailed data or a clear plan for reversing the trend.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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