Executive Summary
Executive Overview: GitLab reported a strong second quarter with revenue of $235.96 million, up 29% year over year, and non-GAAP operating income of $39.6 million, equating to a 16.8% non-GAAP operating margin. The company maintained full-year revenue guidance of $930–$942 million while raising profitability, underscoring disciplined growth execution amid a broader go-to-market (GTM) transformation. Gross margins remained best-in-class (non-GAAP gross margin at 90%), and free cash flow reached $46 million (20% of revenue), highlighting the durability of GitLab’s land-and-expand model and scalable SaaS footprint.
Strategic Positioning and Growth Engine: Management reinforced a dual GTM approach—sales-led and product-led growth—tied to a broad AI-enabled roadmap. Highlights include two parallel tracks to accelerate first orders and accelerate value realization, a newly appointed Chief Product & Marketing Officer, Manav Khurana, and a portfolio expansion that includes GitLab Ultimate (53% of ARR) and Duo (AI-enabled agent platform). The company cited robust customer momentum, with 10,338 customers generating ARR of at least $5,000 and 1,344 customers with ARR above $100,000, while DBNRR stood at 121%. Near-term guidance reflects continued strength in enterprise, tempered by SMB softness.
Outlook and Key Risk Factors: Q3 revenue guidance of $238–$239 million implies ~23% YoY growth; FY2026 revenue guided at $930–$942 million (approximately +24% YoY). Management noted incremental softness in SMB could persist through the year. The China JV (Jihu) remains a headwind in the modeling of expenses for FY2026, with ~$18 million of Jihu-related costs anticipated. Investors should monitor the GTM transition progress (six-to-nine month ramp for new enterprise sellers; adoption of product-led growth to broaden self-serve channels), Duo usage monetization (hybrid seat-plus-usage model), competitor dynamics in AI-assisted development, and the ongoing impact of macro conditions on SMB budgets. Overall, GitLab remains well-positioned as a cloud-agnostic, model-neutral DevSecOps platform with embedded AI capabilities and a growing ecosystem of strategic partnerships, poised to capture accelerated value from AI-native software development.
Key Performance Indicators
QoQ: 74.33% | YoY:-171.11%
QoQ: 74.77% | YoY:-168.43%
Key Insights
Revenue: $235.96M in Q2 2026, +29% YoY, +10% QoQ; Gross profit: $207.46M; Gross margin (GAAP for gross profit ratio): 87.92%; Non-GAAP gross margin: 90%; Operating income: -$18.35M; Operating margin: -7.78%; Non-GAAP operating income: $39.6M; Non-GAAP operating margin: 16.8%; Net income: -$9.21M; Net income margin: -3.90%; EPS (GAAP): -$0.0555; EPS (non-GAAP): -$0.0555; Weighted avg diluted shares: ~165.95M; DBNRR: 121%; ARR with >$5k: 10,338 customers (95%+ of ARR); $100k+ ARR customers: 1,3...
Financial Highlights
Revenue: $235.96M in Q2 2026, +29% YoY, +10% QoQ; Gross profit: $207.46M; Gross margin (GAAP for gross profit ratio): 87.92%; Non-GAAP gross margin: 90%; Operating income: -$18.35M; Operating margin: -7.78%; Non-GAAP operating income: $39.6M; Non-GAAP operating margin: 16.8%; Net income: -$9.21M; Net income margin: -3.90%; EPS (GAAP): -$0.0555; EPS (non-GAAP): -$0.0555; Weighted avg diluted shares: ~165.95M; DBNRR: 121%; ARR with >$5k: 10,338 customers (95%+ of ARR); $100k+ ARR customers: 1,344; SaaS revenue ~30% of total revenue (growth 39% YoY); Non-GAAP gross margin: 90%; Adj. free cash flow: $46M (FCF margin 20%); Cash and investments: ~$1.2B; Net debt: -$261.4M (net cash); RPO: $988.2M (YoY +32%); CRPO: $621.6M (YoY +31%); Cash flow from operations: ~$49.37M; Capex: ~$2.9M; Free cash flow: ~$46.465M; Jihu non-GAAP expenses: ~$3.3M (Q2 FY2026) with ~$18M forecast for FY2026; Enterprise $5k+ ARR customers cover 95%+ of ARR; Premium/Ultimate share of ARR remains elevated (Ultimate ~53% of ARR).
Income Statement
| Metric |
Value |
YoY Change |
QoQ Change |
| Revenue |
235.96M |
29.23% |
10.00% |
| Gross Profit |
207.46M |
28.68% |
9.49% |
| Operating Income |
-18.35M |
55.25% |
46.98% |
| Net Income |
-9.21M |
-171.11% |
74.33% |
| EPS |
-0.06 |
-168.43% |
74.77% |
Management Commentary
Key management takeaways from the QQ2 2026 earnings call:
- Strategy and GTM transformation: Bill Staples outlined two parallel tracks—sales-led growth and product-led growth—with a focus on expanding first-order customer acquisition and post-sales value realization. The plan includes a global new business team, a ramp in H2, and a retooled enterprise sales motion with better pipeline generation and AI-focused training. Quote: “We’re establishing two parallel tracks: sales-led growth and product-led growth… ramp this initiative over H2, with the goal of starting to provide benefits for FY '27.”
- Product and AI emphasis: The new CMO, Manav Khurana, will lead expansion in product-led growth; GitLab highlighted 72 total new features across paid tiers in the last quarter (28 Premium, 33 Ultimate, 11 Duo Pro/Enterprise), with ongoing Duo Agent enhancements and partnerships (Cursor, Anthropic, OpenAI, Google, Amazon). Quote: “Manav… He's an expert in product-led growth… I expect this to gradually ramp over multiple quarters.”
- Customer momentum and value realization: Wins with Chaos, Virgin Media O2, a major European fintech, and GovTech Singapore illustrate broad enterprise adoption. DG: Ultimate represents 53% of ARR; 8 of the 10 largest deals include Ultimate. Virgin Media O2 expanded Ultimate adoption and added Duo; Emirates renewed Duo Enterprise. Quote: “Virgin Media O2 has become one of the most prolific adopters across source code management, CICD, and security scanning.”
- AI strategy and competitive positioning: The company emphasized an AI-native DevSecOps platform with model-neutral deployment and ecosystem partnerships to enable customers to run across clouds and AI providers. Bill stated, “As an AI native DevSecOps orchestration platform, we welcome engineers and AI code generation tools… We see these partnerships as a strong affirmation of the value of our platform.”
- SMB headwinds and profitability emphasis: The call notes SMB softness may persist, while full-year guidance remains unchanged due to continued operating leverage. Quote: “incremental softness in SMB that we expect will persist through the rest of this year.”
- Leadership transition: CFO Brian Robbins to step down; James Shen to interim CFO; Simon Mundy to CAO, signaling a governance transition during scale-up. Quote: “Brian Robbins will step down as chief financial officer.”
"Seat growth has accounted for more than 70% of our revenue growth, and in fact, we've seen accelerating double-digit paid seat growth rates over the past year."
— Bill Staples
"91% of customers we surveyed believe AI native dev tools will increase their use of GitLab within the next 24 months."
— Bill Staples
Forward Guidance
Forward-Looking View and Assumptions:
- Revenue trajectory: Q3 revenue guidance of $238–$239 million implies ~23% YoY growth, while FY2026 guidance remains $930–$942 million (~+24% YoY). The guided CAGR suggests a transition phase as GTM changes take hold, with stronger accelerations expected in FY2027 as enterprise and product-led motions mature.
- Operating leverage and profitability: Non-GAAP operating income guidance of $31–$32 million for Q3 and $133–$136 million for FY2026, with EPS of $0.19–$0.20 (Q3) and $0.82–$0.83 (FY2026), reflect continued leverage from scale, improved efficiency, and higher ARR from larger customers.
- Growth drivers and timing: The two-track GTM (sales-led and product-led) coupled with Duo Agent monetization and AI partnerships should progressively lift new customer acquisition and value realization over H2 2026 into FY2027. The ramp is expected to be gradual (enterprise sellers typically require 6–9 months to ramp), with early benefits anticipated in FY2027 as per management commentary.
- Key risks: SMB softness, potential slower-than-expected GTM onboarding, Jihu deconsolidation uncertainty, and broader macro/economic pressure on IT budgets could dampen near-term growth. The company explicitly warned SMB softness could persist; investors should monitor quarterly progression of ARR mix, DBNRR stability, and the effectiveness of product-led growth experiments.
- Valuation and milestones: The favorable gross margin (non-GAAP 90%), robust FCF (20% margin), and a strong liquidity position (~$1.2B) support a disciplined investment approach in GTM and product development. Continuous improvement in Duo adoption, strategic partnerships, and a broadened enterprise footprint will be key catalysts for FY2027 growth.
- Bottom line: The company’s guidance appears achievable given the mid-term ramp of new GTM motions and Duo monetization, but the magnitude of the upside depends on successful execution of the product-led growth model, sustained enterprise deals, and continued AI partnerships. Investors should focus on quarterly progression of ARR growth, DBNRR trends, and the speed of GTM transformation as primary indicators of the durability of the upside.