GitLab Q2 Fiscal 2027 Beats Revenue Outlook as Net ARR Grows 42%

Image source: The Motley Fool.

DATE

Tuesday, Sept. 1, 2026, at 4:30 p.m. ET

CALL PARTICIPANTS

• Nick Edwards, VP of Finance, Strategy, and Operations
• William Staples, Chief Executive Officer
• Jessica Ross, Chief Financial Officer

KEY TAKEAWAYS

• Revenue: Reached $286.3 million, up 21% year over year and approximately five points above management guidance.
• Non-GAAP operating income: Rose to $42.6 million, producing a 15% operating margin. Results exceeded expectations as sales productivity improved and investment timing benefited the quarter.
• Net ARR growth: Accelerated 42% year over year, the company’s second-fastest growth rate in four years.
• First orders: Reached approximately 1,700, more than doubling from a year earlier and setting a three-year record.
• First-order net ARR: Increased nearly 40% year over year, supported by a dedicated first-order sales organization and product-led growth initiatives.
• Account executive capacity: Expanded approximately 30% year over year, while output per representative improved by about 10%.
• Flex commitments: More than 130 customers committed over $20 million to the new model within its first six weeks.
• Paid consumption run rate: Surpassed $40 million at quarter-end, up from $15 million at the end of the first quarter.
• Duo Agent Platform paid CRR: Increased roughly 50% quarter over quarter as adoption broadened geographically and across commercial sectors.
• GitLab Orbit adoption: More than 2,200 organizations enabled the knowledge-graph beta, representing 70% growth in four weeks.
• Ultimate tier mix: Accounted for 59% of ARR and eight of the quarter’s top 10 deals.
• Ultimate ARR growth: Advanced approximately 35% year over year, driven by demand for security, governance, and compliance capabilities.
• Large-deal growth: Transactions worth $500,000 or more increased by more than 150% year over year.
• Calculated billings: Grew 24%, nearly doubling the 12% rate recorded in the previous quarter.
• Total remaining performance obligations: Reached $1.2 billion, a 16% year-over-year increase.
• Current RPO: Increased 20% to $744.7 million, despite a three-percentage-point headwind from Flex accounting.
• Non-GAAP gross margin: Rose to 86.5%, benefiting from a higher share of SaaS revenue.
• SaaS revenue mix: Represented 34% of total revenue and grew 36% year over year.
• JiHu expenses: totaled approximately $3 million for the quarter. Management expects around $50 million in full-year costs.
• Adjusted free cash flow: amounted to $9.8 million, or a 3% margin, as collection timing weighed on cash generation.
• Share repurchases: GitLab bought back about 3.5 million shares and had $245 million remaining under its authorization.
• Q3 revenue guidance: Increased to $281 million-$283 million, implying growth of 15%-16% year over year.
• Full-year revenue guidance: Raised to $1.129 billion-$1.133 billion, representing 18%-19% year-over-year growth.

KEY RISKS

• Revenue-timing shifts: The transition to Flex changes when licensed revenue is recognized. Management estimates that every $50 million of self-managed licenses available to renew and converted to Flex in fiscal 2027 would move roughly $5 million of revenue out of that year. The maximum fiscal 2027 impact is estimated at $13 million.
• Current RPO excludes Flex: Because Flex customers control the timing and mix of future consumption, those commitments do not qualify for current RPO. This created a three-point headwind for the metric relative to total RPO.
• Restructuring charges: The company recorded $23.3 million in restructuring costs during the quarter.

SUMMARY

GitLab Inc. (NASDAQ:GTLB) reported a record quarter for bookings, new customer formation, and net annual recurring revenue growth. Account executive capacity increased by about 30%, first-order volume more than doubled, and the company attracted its largest early-stage customer base in three years.

GitLab is moving from a primarily seat-based subscription model toward a hybrid structure that combines seats with usage-based offerings for AI agents and developer tools. Management expects the transition to generate some near-term noise in reported revenue and RPO, but said Flex is designed to reduce purchasing friction and let customers increase spending as human and automated development work expands across the software lifecycle.

• A top-20 U.S. commercial bank increased its AI credit allocation nearly tenfold, underscoring demand for AI-assisted development at large enterprises.
• Roughly 80% of Orbit query volume came from customers connected to external tools such as Claude Code and Code Llama.
• Some rapidly adopting enterprises reported codebase growth of as much as 500% as they increased AI-assisted development.
• GitLab is rearchitecting its Git infrastructure to operate at roughly 100 times the scale traditionally required for human developers.
• More than half of GitLab’s more-than-$1-billion run-rate revenue now comes from customers whose first order was $5,000 or less.
• The company introduced Secrets Manager and Dedicated Runners as its second and third usage-based products for the year, expanding monetization beyond conventional seats.

INDUSTRY GLOSSARY

• GitLab Flex: A commercial model in which customers make a fixed dollar commitment that can be allocated across seats and eligible consumption products as needs change.
• GitLab Orbit: A knowledge graph connecting repositories, issues, merge requests, pipelines, and related context to improve AI-agent performance.
• Duo Agent Platform: GitLab’s agentic AI layer for supporting tasks across the software development lifecycle.
• Paid CRR (Consumption Run Rate): An annualized, point-in-time measure of committed and paid on-demand consumption.
• RPO (Remaining Performance Obligations): The value of contracted revenue that has not yet been recognized.
• ARR (Annual Recurring Revenue): The annualized value of subscription agreements.
• JiHu: GitLab’s Chinese joint venture, which management intends to deconsolidate when conditions permit.

Full Conference Call Transcript

Operator: Welcome to GitLab’s second-quarter fiscal 2027 earnings call. Participants are currently in listen-only mode. Questions will be taken during the Q&A session using the meeting’s question function. The call is being recorded.

Nick Edwards: Good afternoon, and thank you for joining us to review GitLab’s second-quarter fiscal 2027 results. I’m Nick Edwards, VP of Finance, Strategy, and Operations. Joining me are CEO William Staples and CFO Jessica Ross. We’ll discuss the quarter, our full-year performance, and our updated outlook. Additional materials are available through our investor relations website.

Our remarks include forward-looking statements subject to important risks and uncertainties. Actual results may differ materially from those projected. We also discussed non-GAAP measures that exclude certain items management considers unusual or nonrecurring. Reconciliations to the closest GAAP measures are included in today’s earnings release and presentation materials.

William Staples: GitLab delivered an exceptional second quarter. Revenue was $286.3 million, up 21% year over year, and non-GAAP operating income reached $42.6 million, for a 15% margin. We recorded our largest gross-bookings quarter ever, grew net ARR by more than 40%, and exceeded our first-order targets by more than 100%.

These results reflected progress across five priorities we outlined for the year.

First, we accelerated new-customer formation. The quarter produced our largest first-order volume in three years, with first-order count rising more than 100% and first-order net ARR increasing nearly 40%. Our specialized first-order team is building a more repeatable sales process, while product-led investments are expanding the pipeline. Landing customers at their current level remains important: more than half of our $1-billion-plus run-rate revenue base comes from organizations whose initial order was $5,000 or less.

Second, increased and more productive sales capacity began improving reacceleration. Account executive capacity grew approximately 30% year over year, while productivity per representative increased by 10%. Attrition also improved for a second consecutive quarter. Growing capacity and productivity together is challenging, but the results suggest that our investments in the sales organization are beginning to compound, helping drive record bookings and net ARR growth above 40%.

Third, we are expanding how GitLab creates revenue. Seat subscriptions remain a strong business, while AI is opening additional opportunities to monetize work across the software lifecycle. Flex is central to that strategy. Fewer than six weeks after launch, more than 130 customers had committed over $20 million, indicating strong demand for a purchasing model that can move fluidly between seats and consumption products.

Under Flex, customers establish an annual or multiyear dollar commitment and decide how to deploy it across eligible products. Unused capacity no longer has to remain stranded as shelfware; customers can redirect it toward the products creating the most value. Once the commitment is in place, they can also allocate spending across new and existing offerings without repeatedly restarting contract negotiations.

Flex also supports demand-driven expansion. Customers can provision eligible seats and usage above their reservations as needed, with excess consumption billed in the month incurred. That flexibility reduces true-ups and contracting cycles while creating another potential source of growth. Paid CRR ended the quarter above $40 million, compared with $15 million at the end of Q1.

Paid CRR annualizes GitLab credits, Flex commitments, and paid on-demand consumption at a specific point in time. It excludes trials and promotional credits. Management’s objective is to exceed $100 million in paid CRR by the end of fiscal 2027, leaving the year with both a growing seat business and a meaningful consumption business.

Fourth, performance has stabilized in price-sensitive SMB and midmarket segments. Both expansion and first orders came in above target, although management intends to see that momentum persist before drawing stronger conclusions. Fifth, GitLab’s AI strategy is gaining traction. Duo Agent Platform paid CRR increased approximately 50% quarter over quarter, and adoption expanded beyond the company’s originally U.S.-focused customer base.

GitLab has long consolidated the context used to build, secure, and ship software, including source code, issues, merge requests, pipelines, vulnerabilities, policies, approvals, and deployments. As AI systems become more capable, that connected context becomes more valuable. Since Orbit entered public beta in June, more than 2,200 organizations have enabled indexing, a 70% increase in four weeks.

Customers have issued more than 170,000 queries, with roughly 80% coming from integrations with external agents such as Claude Code and Code Llama. Early evaluations suggest that contextual knowledge improves agent accuracy. In one test using 79 real merge requests, results improved from 58% under traditional retrieval methods to 70% with Orbit. Broader platform activity also accelerated: secure repositories grew 60%, code pushes increased 50%, and CI/CD pipeline creation rose 40% year over year. Some fast-moving customers have seen codebases expand as much as 500%.

Ultimate remained the company’s strongest tier. It represented 59% of ARR and eight of the top 10 deals in the quarter, while Ultimate ARR grew approximately 35%. Security, governance, and compliance are increasingly important purchasing considerations as AI expands the number of people creating and managing software.

Before turning to Jessica, I recognized CRO Ian Steward and the sales organization for the disciplined work behind this result. I also thanked the broader GitLab team for staying through a difficult restructuring at the beginning of the quarter. We are entering the next phase with a healthy core, accelerating customer growth, promising new products, and a consumption model suited to an environment where people and agents build software together.

Jessica Ross: Q2 was an important inflection point. Revenue rose 21% to $286.3 million, roughly five points ahead of guidance. Gross bookings set a company record, net ARR grew 42%, and dollar-based net retention accelerated for the first time since the first quarter of 2024. The performance was broad-based across customer types, geographies, and the core platform.

Our go-to-market organization exceeded expectations on large deals, pipeline conversion, bookings consistency, and attainment. Deals valued at $500,000 or more grew more than 150%, while the public sector recovered meaningfully as buying patterns normalized. Approximately 1,700 first orders more than doubled the prior-year total, and new-logo net ARR increased 39%.

The company continues to serve both large and small customers effectively. More than half of its run-rate revenue base originated with first orders under $5,000. Ultimate ARR grew approximately 35% and now makes up 59% of total ARR.

Customer metrics remained strong. Gross retention stayed well above 90%, while dollar-based net retention reached 117%. Total RPO increased 16% to $1.2 billion, and current RPO rose 20% to $744.7 million. Calculated billings grew 24%, nearly twice the 12% rate from the prior quarter. Duo Agent Platform paid CRR increased 50%, and platform-wide paid CRR exceeded $40 million. Creation of CI pipelines and code-push activity both grew by more than 40%.

Non-GAAP gross margin was 86.5%. SaaS revenue represented 34% of the total and grew 36%, helped by GitLab Dedicated and Duo. Non-GAAP operating income increased from $39.6 million to $42.6 million, producing a 15% margin. Better sales and marketing productivity and favorable investment timing contributed. The company also recorded $23.3 million in restructuring charges, consistent with prior expectations.

Non-GAAP expenses related to JiHu were approximately $3 million, essentially flat year over year. GitLab remains committed to deconsolidating the joint venture, although the timing remains uncertain. Adjusted free cash flow was $9.8 million, or 3% of revenue, as collections weighed on the quarter. GitLab repurchased approximately 3.5 million shares and had $245 million of remaining authorization.

Flex appeared in reported results for the first time. Its immediate impact was small relative to GitLab’s existing revenue base, but the first six weeks generated more than 130 commitments totaling over $20 million. Flex replaces commitments tied to fixed seat quantities with a flexible dollar allocation that customers can draw across Premium and Ultimate seats, GitLab credits, and other usage-based capabilities.

Management expects Flex to become a larger part of future reported results. Two accounting areas require particular attention: revenue recognition and RPO.

Under a traditional self-managed license, about 15% of the contract value is recognized upfront. With Flex, the customer can change the mix of products within the commitment, so revenue is recognized over the contract term instead. For every $50 million of self-managed licenses available to renew and converted to Flex in fiscal 2027, management estimates that approximately $5 million of revenue would otherwise have appeared in that year will move into later periods. Based on the available-to-renew pool and second-half pipeline visibility, the maximum fiscal 2027 revenue-timing impact is estimated at $13 million.

This is only a timing difference. Customer commitments and cash economics are unchanged, and customers continue to pay annually in advance. The full Flex commitment is included in total RPO, but Flex is excluded from current RPO because customers determine when products will be consumed and in what mix. As Flex expands, total RPO and revenue may therefore grow at different rates.

The absence of Flex commitments from current RPO created a three-point headwind in Q2. GitLab plans to disclose the accounting effect explicitly each quarter so investors can distinguish it from underlying operating performance.

Management’s outlook reflects improved public-sector demand, stronger bookings execution, and confidence in the long-term business trajectory. It also assumes a more normalized level of bookings than the exceptional quarter just reported and limited fiscal 2027 contribution from Duo Agent Platform relative to GitLab’s much larger existing revenue base. Adoption and conversion of pilots into production deployments remain the near-term priorities.

For Q3 fiscal 2027, GitLab expects revenue of $281 million-$283 million, or 15%-16% year-over-year growth. Non-GAAP operating income is expected to be $35 million-$37 million, with adjusted non-GAAP earnings per share of $0.19-$0.20 based on approximately 172 million weighted-average diluted shares.

Full-year revenue guidance is now $1.129 billion-$1.133 billion, representing 18%-19% growth. Management expects non-GAAP operating income of $148 million-$152 million and adjusted non-GAAP earnings per share of $0.85-$0.87, also based on approximately 172 million weighted-average diluted shares. Full-year gross margin is expected to remain between 85% and 87%, and JiHu-related expenses are projected at about $50 million versus $13 million in the prior year.

Operator: We will now open the call for questions.

Operator: Our first question is from Kingsley Crane of Canaccord Genuity.

Kingsley Crane: Git is not inherently designed for agent-scale workloads. How is GitLab changing its source-code management strategy, and could this create opportunities with AI-native firms or research laboratories?

William Staples: AI demand is strengthening GitLab’s product roadmap. Duo Agent Platform has already gained traction, and we launched Secrets Manager and Dedicated Runners in August as additional consumption-based products. Orbit, now in public beta, connects code, issues, merge requests, pipelines, and security findings so people and agents can retrieve context more effectively.

We are also rearchitecting Git infrastructure to operate at roughly 100 times the scale historically required for human developers. Agents can execute dozens or even hundreds of operations for a single task, so this infrastructure change is critical.

A new artifact-management product, currently in private beta, will allow customers to store, version, govern, and sign binaries and other artifacts. Combined with GitLab’s source-code and CI/CD capabilities, it should support a more complete and secure software supply chain. Duo provides the agentic layer, while Orbit, next-generation Git, and artifact management broaden the platform’s scale and utility.

Operator: Our next question is from Matthew Hedberg of RBC.

Matthew Hedberg: Beyond developer seats, how large is the nondeveloper opportunity?

William Staples: AI is supporting all three parts of GitLab’s growth framework. First, it enables more people to become builders. Any generated code still needs to be stored, governed, protected, and aligned with enterprise compliance requirements, creating demand for more customer accounts and seats.

Second, GitLab is adding more products across the software lifecycle. Secure repositories grew 60%, code pushes rose 50%, and CI/CD activity increased more than 40% in the second quarter. Third, Flex unlocks paid consumption across both seats and credits through one commitment.

Customers can therefore start with a modest order and expand as AI-assisted development spreads. That progression is now evident in our first-order base, platform usage, consumption products, and growing account penetration.

Operator: Our next question is from Sanjit Singh of Morgan Stanley.

Sanjit Singh: As pricing evolves, will Premium and Ultimate remain the central distinction, or will GitLab rely more heavily on add-ons and consumption products?

William Staples: Seats will remain core to the business, and we intend to keep growing Premium and Ultimate. Flex does not remove that foundation; it adds flexibility around it.

For customers, Flex converts unused capacity into spending that can be redirected among seats and new products. It also allows new offerings to be adopted without a separate procurement cycle and lets usage expand on demand beyond the original commitment. For GitLab, the model can improve retention, free sales teams from repeated contracting, and create an additional consumption channel.

We began fiscal 2027 as a seat-based business. We expect to finish it with that business still expanding alongside a meaningful, growing consumption operation that monetizes work performed jointly by people and agents.

Operator: Our next question is from Ethan Drake Weeks of Piper Sandler.

Ethan Drake Weeks: How much of the strong quarter came from better execution versus improving market demand?

William Staples: The result reflects both sustained investment and favorable demand. Public-sector buying recovered, and AI-related demand contributed to larger deals. Transactions of $500,000 or more grew more than 150%, with customers increasing commitments to both seats and consumption products.

AI is also strengthening each part of the growth framework: it attracts more customers, supports early adoption of products such as Orbit, and increases consumption. Net ARR growth above 40% shows those forces compounding together.

Operator: Our next question is from Koji Ikeda of Bank of America.

Koji Ikeda: What is the best measure for tracking Flex, and would guidance have been $13 million higher if Flex had not affected revenue recognition?

Jessica Ross: Flex has only been available for about 10 weeks, so it is too early to incorporate its timing mechanics precisely into guidance. We maintained our usual forecasting approach for consistency and disclosed the accounting impact for transparency.

Management estimates that every $50 million of self-managed licenses converting to Flex would move about $5 million of fiscal 2027 revenue into later periods, with a maximum annual impact of $13 million. We are confident in that estimate because we have strong visibility into the second-half available-to-renew pool and pipeline. We will continue quantifying the effect quarterly.

William Staples: Paid CRR is the clearest current measure of money flowing through the consumption model. It includes Flex commitments, credit commitments, and paid on-demand usage, while excluding trials, promotions, and other unpaid activity. Our goal is to exceed $100 million by year-end.

Operator: Our next question is from Radi Sultan of UBS.

Radi Sultan: Are Flex customers tending to increase their deal sizes, or is the model mainly a change in contract format?

Jessica Ross: It is still early, so we do not yet have enough conversion data to quantify that effect.

William Staples: Flex can support both expansion and retention. Customers testing beta products can preserve their renewal value while creating room to begin using new offerings. Others may have left capacity unused under a seat forecast; Flex lets them maintain or increase the overall commitment and redeploy that spending to consumption products instead of shrinking the account.

That creates upside from new usage while reducing the risk of contraction. We are applying the model wherever customer needs and the value of their GitLab commitment align.

Operator: Our next question is from Derrick Wood of TD Cowen.

Derrick Wood: What are you seeing in the competitive landscape, particularly against traditional rivals and emerging AI-native companies?

William Staples: Competitive dynamics were consistent with recent quarters. We believe our position against our primary competitor is stronger than ever because that rival has faced reliability, security, trust, and agent-era challenges. We are seeing improved win rates in both new-logo and expansion activity.

AI-native tools are a different kind of opportunity. By lowering the barrier to creating code, they expand the number of people who need governed repositories, collaboration features, and enterprise controls. We are also seeing those users request more GitLab seats and, later, consumption credits. GitLab can benefit from partnerships with agentic coding tools rather than viewing every AI startup solely as a competitor.

Operator: Our next question is from Nick Altman of U.S. Bancorp.

Nick Altman: How much of the interest in Flex and the $100-million CRR target is driven by Duo Agent Platform, Orbit, Secrets Manager, and Dedicated Runners?

Jessica Ross: It is still too early to isolate the financial contribution of each product.

William Staples: GitLab had only six weeks with Flex in the second quarter. Customers may fund an initial Flex agreement with money that previously supported seat subscriptions, but the structure gives them room to adapt as new products emerge. That adaptability is the core value proposition.

Duo Agent Platform launched in January, followed by Secrets Manager and Dedicated Runners in August. Customers are also evaluating Orbit and other beta products now. Paid CRR has already increased, but we expect the strategic value of Flex to grow as more products and use cases become available.

Operator: Our next question is from Zach, calling on behalf of Shrenik Kothari of Baird.

Zach: How much of the recent gross-margin pressure comes from AI inference and infrastructure, and what supports attractive unit economics as usage grows?

Jessica Ross: The quarter did not show a major change from our earlier expectations. SaaS contributed 34% of revenue, up from 22% around the IPO, and we expected margin pressure as that mix increased. We also invested during the year to develop consumption products and move pilots into production.

William Staples: Duo Agent Platform can be deployed in a cloud- and model-agnostic manner, including with open-weight models and in constrained or air-gapped environments. For many customers, inference costs are not embedded in their GitLab agreement. They pay for GitLab’s access layer, context, governance, harness, and auditability rather than token usage.

Those platform capabilities can carry stronger economics than inference alone. GitLab is also pursuing dynamic model routing and optimization as adoption develops. Most of the margin movement seen so far has come from the shift toward SaaS, rather than early AI usage, and we expect continued optimization as agent workloads scale.

Operator: Our final question is from Lucky Schreiner of D.A. Davidson.

Lucky Schreiner: What drove the top U.S. bank’s tenfold commitment increase, and is that expansion pattern broadly replicable?

William Staples: The bank began with a relatively small Duo Agent Platform commitment. After deploying it among engineers and validating the value, it increased its allocation tenfold this quarter.

We believe that value is real and that Duo complements tools focused narrowly on coding. We now have several customers using credits at multiples of their Premium or Ultimate seat value. That pattern remains early, but it provides a model we hope to understand, refine, and replicate across more accounts.

Operator: That concludes today’s call.

William Staples: Thank you for joining GitLab’s second-quarter fiscal 2027 call. We look forward to continuing the discussion at upcoming investor events.

Source link