GitLab Q2 FY2027 Earnings: Revenue Rose 21% but Margins Narrowed

GitLab (NASDAQ: GTLB) reported Q2 FY2027 revenue of $286.3 million, up 21% year over year, while GAAP diluted loss per share widened to $0.22 from $0.06; non-GAAP diluted EPS remained $0.24. Revenue growth produced higher gross profit and non-GAAP operating income, but margins narrowed and quarterly operating cash flow turned negative amid higher costs and working-capital outflows.

Core Earnings Data

The quarter ended July 31, 2026, with revenue increasing by $50.3 million from the prior-year period. However, GAAP gross profit rose by only about $33.2 million while operating expenses increased by approximately $71.7 million, causing the operating loss to widen.

Non-GAAP operating income increased by $3.0 million, but its margin declined by two percentage points. This indicates that profitability pressure extended beyond the stock-based compensation, restructuring, and other items excluded from GitLab’s non-GAAP measures.

Business and Customer Performance

Subscription revenue from self-managed and SaaS offerings reached $258.3 million, up approximately 21% from $212.7 million. License and other self-managed revenue increased about 20% to $27.9 million, meaning the two revenue categories expanded at similar rates.

Customer metrics showed faster growth among larger accounts:

• Customers generating more than $5,000 of annual recurring revenue reached 11,114, up 8%.
• Customers generating more than $100,000 of ARR increased 17% to 1,571.
• Dollar-based net retention was 117%, indicating that the prior-year customer cohort generated 17% more ARR after accounting for expansions, contractions, and attrition.
• Total remaining performance obligations increased 16% to $1.2 billion, while current RPO rose 20% to $744.7 million.
• GitLab reported more than 100% growth in First Orders and net ARR growth exceeding 40%, although it did not disclose the underlying absolute values.

The faster increase in customers above $100,000 of ARR suggests that larger deployments contributed more to customer-base expansion than the broader group of customers above $5,000.

Revenue Growth Did Not Prevent Margin and Cash-Flow Compression

Cost of revenue increased to $45.6 million from $28.5 million, an increase of about 60% that substantially exceeded revenue growth. As a result, GAAP gross margin declined from 88% to 84%, while non-GAAP gross margin fell from 90% to 86%. The release did not identify a single specific cause for this increase in cost of revenue.

Operating costs also grew faster than sales. Sales and marketing expense rose about 23% to $134.4 million, research and development increased approximately 33% to $95.0 million, and general and administrative expense climbed about 52% to $68.2 million. Total GAAP operating expenses were $297.6 million, compared with $225.8 million a year earlier.

Stock-based compensation increased to $75.0 million from $54.3 million, while GitLab recorded $19.4 million of restructuring charges versus none in the prior-year quarter. These items explain much of the gap between the $56.9 million GAAP operating loss and $42.6 million of non-GAAP operating income. Nevertheless, the decline in non-GAAP operating margin shows that excluded expenses were not the only source of margin pressure.

Cash conversion weakened as well. Accounts receivable movements consumed $57.3 million of quarterly operating cash flow, compared with a $3.9 million contribution one year earlier. Changes in accrued expenses and other current liabilities also produced a $21.4 million outflow. These working-capital movements helped push operating cash flow from a $49.4 million inflow to a $3.1 million outflow.

Balance Sheet and Capital Allocation

GitLab ended the quarter with $226.5 million in cash and cash equivalents and $1.03 billion in short-term investments, for combined liquidity of approximately $1.26 billion. Current assets were $1.60 billion compared with current liabilities of $662.3 million.

The company repurchased approximately 3.5 million shares during the quarter for $104.6 million. This contributed to a $95.5 million net financing cash outflow and helped reduce cash and cash equivalents by $108.9 million during the three-month period. GitLab did not state that the repurchases reflected a view that its shares were undervalued.

Earnings Guidance

GitLab issued quantitative guidance for Q3 and the full FY2027 period. The Q3 revenue and non-GAAP operating income ranges are below the Q2 actual results of $286.3 million and $42.6 million, respectively, setting a lower sequential financial range. The source did not provide previous guidance ranges, so a comparison with earlier company expectations is unavailable.

The EPS guidance assumes approximately 172 million weighted-average diluted shares for both Q3 and the full fiscal year.

Management Commentary

CEO Bill Staples emphasized record gross bookings and net ARR growth above 40%, arguing that increasing AI-driven software creation raises demand for GitLab’s development context, security, governance, and control capabilities. CFO Jessica Ross pointed to sequential acceleration in dollar-based net retention and increasing scalability, although the year-over-year financial comparison showed lower GAAP and non-GAAP margins.

GitLab also introduced its Flex commercial model, launched Secrets Manager as a usage-based add-on, and placed GitLab Orbit into public beta. These offerings are intended to support AI-assisted development and additional usage-based monetization, but the company did not quantify their contribution to quarterly revenue.

Risks Investors Need to Watch

• Margin pressure: Both GAAP and non-GAAP gross and operating margins declined as cost of revenue and operating expenses grew faster than sales.
• Cash-flow volatility: Operating cash flow turned negative because of working-capital outflows, particularly the $57.3 million use of cash associated with accounts receivable movements.
• GAAP and non-GAAP divergence: Stock-based compensation and restructuring charges created a large difference between GAAP losses and non-GAAP profit. Stock-based compensation also rose materially year over year.
• Near-term growth pacing: The Q3 revenue range of $281 million to $283 million is below Q2 revenue, while the Q3 non-GAAP operating income range is also below the latest quarterly result.
• Conversion of bookings into revenue: Gross bookings, First Orders, and net ARR grew rapidly, but total RPO increased 16%, below the quarter’s 21% revenue growth. Future results depend on sustained customer expansion and conversion of contracted obligations.

Summary

GitLab maintained 21% revenue growth and expanded its larger-customer base, but higher delivery costs, faster operating-expense growth, and working-capital pressure reduced the financial benefit. The main issues to monitor are whether gross and operating margins stabilize, operating cash flow recovers, and strong booking and ARR indicators translate into sustained revenue growth under the company’s FY2027 guidance.