GitLab Inc. (GTLB) Earnings

Management highlights

### Overall Business Performance - Q1 27 total revenue hit $264 million, up 23% YoY and 4 points above management's prior guidance. Non-GAAP operating income was $38 million, with a 14% non-GAAP operating margin (up 200 bps YoY), and adjusted free cash flow was $147 million (56% free cash flow margin). Non-GAAP gross margin was 88%. - GitLab Act 2 restructuring: The company is implementing a workforce reduction of ~14% (350 team members), exiting 22 countries, reducing geographic footprint by ~37%, and removing up to 3 management layers to flatten the organizational structure. Total pre-tax restructuring charges are expected to be $30-35 million, with ~$19 million incurred in Q2 FY27. Most restructuring savings will be reinvested in growth and strategic initiatives. ### Strategic Growth Initiatives - Accelerate first-order (new customer) growth: Product-led growth resurgence and a dedicated first-order team are ramping ahead of schedule, driving the highest new customer count in 10 quarters, building a pipeline of future expansion similar to historical customer cohorts that have delivered 100x growth over 10 years. - Scale sales capacity: Quota-carrying headcount investments continue, with most benefits expected to materialize in the second half of FY27. - Expand monetization vectors: (1) Non-technical users (product managers, designers, security teams) are increasingly adopting GitLab for agentic workflows, driving additional seat demand; (2) Agentic workloads are straining competitor infrastructure, positioning GitLab's cloud-neutral, reliable architecture to capture new infrastructure opportunity; (3) Consumption-based business got off to a strong start, with DAP paid CRR hitting nearly $20 million in its first full quarter. - Support price-sensitive customers: This cohort, which makes up ~20% of ARR, continues to face headwinds, and growth initiatives for this segment are underway and will take time to deliver results. - Execute AI strategy: DAP launched GA two weeks before the quarter began, and unlocks incremental AI budgets separate from existing DevSecOps spend, expanding total addressable opportunity. New partnerships with AWS, Google Cloud, and Anthropic allow DAP spend to count against customers' committed cloud budgets, removing procurement friction. ### Core Architectural Bets 1. **Machine scale infrastructure**: A generational rebuild of Git is underway to support 100x the scale required for agentic workloads, developed in partnership with an external AI lab, optimized for agent context storage and retrieval. 2. **Agentic orchestration**: Build on existing CI/CD pipeline leadership to coordinate software development tasks between humans and agents, expanding across artifact management, governance, and compliance, with value scaling with work volume. 3. **Context engine (GitLab Orbit)**: Build a new API-accessible service that leverages GitLab's unique accumulated connected data across all projects/repositories to improve agent outcome quality and reduce costs, monetized via consumption credits and accessible to both DAP and external third-party agents. 4. **Enterprise-native governance**: Design identity, audit, policy, and deployment flexibility as core platform services, building on existing GitLab Ultimate differentiation to address enterprise demand for platform-level governance of agentic activity. 5. **Unified single platform**: Maintain a single platform that spans all three modes of software development (manual human-led, task-based agent, and fully autonomous agentic engineering) with one control/ data plane and cloud/model neutrality, avoiding the costs of fragmented infrastructure for customers. ### New Product/Commercial Updates - By FY27 end, GitLab plans to transition Duo Pro and Duo Enterprise subscriptions into DAP, consolidating the AI portfolio into a single agentic platform on a consumption-based model. - GitLab Flex, a new buying program launching at the upcoming Transcend event, will allow customers to mix seat-based and credit-based products for greater flexibility.

Guidance

- Management raised full-year FY27 guidance, driven by stronger-than-expected Q1 performance, while embedding conservative assumptions for macro and restructuring risks. New full-year guidance is total revenue of $1.112 billion to $1.118 billion, representing 16% to 17% YoY growth; non-GAAP operating income of $135 million to $141 million; and non-GAAP net income per share of $0.79 to $0.82. - Q2 FY27 guidance: Total revenue of $272 million to $274 million (15% to 16% YoY growth); non-GAAP operating income of $30 million to $32 million; non-GAAP net income per share of $0.17 to $0.18. - Full-year gross margins are expected to remain between 85% and 87%. Profitability is expected to trough in Q3 FY27 due to timing of post-restructuring investments. - Guidance assumes no meaningful macro improvement in FY27, continued pressure on the 20% price-sensitive ARR cohort, no material revenue contribution from DAP in FY27 (focus remains on converting pilots to production), and accounts for near-term operational disruption from Act 2 restructuring.

Segment performance

1. Core Enterprise DevSecOps: Gross bookings growth reached its highest level in four quarters, with 1,519 customers paying over $100,000 annually (up 18% YoY), representing just over 75% of total ARR. 10,831 customers paying at least $5,000 in ARR account for over 95% of total ARR. New logo growth was 30% higher YoY, with the highest absolute first order count in 10 quarters. Dollar-based net retention was 117%, and gross retention remains above 90%. 2. GitLab Dedicated: Hit $70 million in ARR, a new milestone, and contributed to strong SaaS growth (37% YoY). 3. GitLab Duo Agent Platform (DAP): In its first full quarter of GA availability, DAP generated a paid consumption run rate (CRR) of nearly $20 million, and contributed more net new ARR in Q1 than Duo Pro and Duo Enterprise combined in any prior quarter. Ultimate plans now represent 57% of total ARR and 7 of the company's top 10 deals, with 4 of 10 top deals including DAP attachments. 4. SaaS overall: SaaS now makes up ~33% of total revenue, growing 37% YoY. 5. Self-managed: Self-managed revenue was roughly flat QoQ, amid a continued long-term trend of higher growth for cloud offerings (SaaS and Dedicated).

Risks & headwinds

- Persistent macro headwinds: Continued pressure on price-sensitive small and mid-market customers (20% of ARR), accelerating tech sector layoffs driving higher-than-expected customer seat contraction, and M&A activity adding additional churn headwinds. - Near-term operational disruption: Large-scale organizational restructuring carries inherent risk of near-term execution disruption, even with intentional protections for sales and R&D capacity. - Early stage AI business: DAP consumption-based growth is still in early stages, with only one quarter of data available, so meaningful revenue contribution is not expected in FY27 and long-term adoption trends are not yet established. - Enterprise sales cycle length: Platform decisions are core infrastructure choices that require full enterprise alignment, so competitive gains from competitor infrastructure strain are expected to materialize gradually rather than immediately. - Market uncertainty: Customer caution around long-term contracts due to rapid change in the agentic software development space has led to shorter deal duration, pressuring near-term RPO growth.

Analyst Q&A

• Q: How has the competitive landscape vs GitHub trended recently, and what is the outlook for win rates and pricing?

  A: Agentic workloads are driving far higher infrastructure load than human development, pushing competitors to their limit. GitLab is squarely focused on the enterprise segment, and saw a small but meaningful year-over-year improvement in win rates in Q1, alongside a 30% YoY increase in new customer orders driven by combined product-led and sales-led growth. GitLab is building 100x-scale Git infrastructure purpose-built for agentic requirements, which is expected to create additional competitive advantage moving forward.

• Q: What level of conservatism is embedded in the raised guidance, given ongoing macro headwinds and restructuring?

  A: Guidance retains prior conservative assumptions: no immediate macro bounce back even with strong public sector performance in Q1, and no material revenue contribution from DAP in FY27. New additional conservatism accounts for recent higher-than-expected customer churn from tech layoffs and M&A activity, as well as inherent near-term disruption risk from large-scale restructuring, even with intentional protections for quota-carrying sales capacity.

• Q: How will GitLab monetize new non-technical user adoption of the platform, and do current SKUs fit this cohort?

  A: Non-technical users (project managers, designers, etc.) increasingly need GitLab seats to contribute to code via agentic tools, and require access to core GitLab functionality like repositories and CI pipelines. GitLab currently uses the same seat-based pricing model for these users as it does for engineers, which already aligns with the value and requirements of this cohort, so no new SKUs are needed at this stage. Both seat-based pricing and DAP's consumption model are positioned to capture this incremental growth.

• Q: Why did the AI lab partner with GitLab to rebuild Git for large-scale agentic workloads, rather than building this capability in-house?

  A: GitLab is the leading contributor to the open source Git community, and already serves many AI labs as a DevSecOps vendor. GitLab also serves more than half of the Fortune 100, has hundreds of thousands of existing organizations using the platform, and the AI lab wants to deliver a quality experience to customers through GitLab's established enterprise presence. The partnership has progressed well, with a demo of the current work planned for the upcoming Transcend event.

• Q: Where will restructuring savings be reinvested, and how will ROI be measured?

  A: Savings will be reinvested in three core areas: (1) People: Investments to retain remaining team members, who will lead Act 2 execution; (2) Technology: Reallocation of R&D resources to accelerate the five architectural bets outlined in prepared remarks; (3) Process: Updates to internal workflows to leverage AI and speed up organizational decision-making. It is too early to share detailed ROI metrics, but management will invest with clear guardrails and tradeoffs, given the size of the long-term market opportunity.