Gitlab Inc. Q2 FY2023 earnings

GitLab reported total revenue of $101.0 million for FY2023 Q2, up 74% from $58.1 million in the prior-year quarter. For the first six months of FY2023, revenue reached $188.4 million, up 74% from $108.1 million. Gross profit was $88.0 million for the quarter, up from $50.9 million a year earlier, and $165.6 million year to date, up from $94.4 million. Gross margin slipped to 87.1% from 87.6%, a decline of 0.5 percentage points. The year-to-date gross margin of 87.9% was up 0.5 percentage points from 87.4%. The top line keeps compounding at a fast clip, and the company said it added its largest number of base customers ever in a single quarter.

Profitability remains the pressure point. Operating loss was $65.3 million for the quarter, wider than the $29.8 million loss a year earlier, and $108.2 million year to date, wider than $55.9 million. Operating margin fell to -64.6% from -51.3%, a decline of 13.3 percentage points. Net loss attributable to GitLab was $59.0 million, wider than $40.2 million, and $85.1 million year to date, wider than $68.1 million. Diluted loss per share was $0.40, narrower than $0.75, and $0.58 year to date, narrower than $1.29. On a non-GAAP basis, operating loss was $27.0 million versus $24.5 million, and non-GAAP net loss was $21.5 million versus $26.1 million. Non-GAAP loss per share was $0.15, narrower than $0.49. The gap between the GAAP and non-GAAP results comes largely from stock-based compensation, which the company excludes from its adjusted figures.

Customer metrics kept moving in the right direction. Customers with more than $5,000 of annual recurring revenue rose to 5,864, up 61% from the prior-year quarter, and customers with more than $100,000 of ARR reached 593, up 55%. Dollar-based net retention stayed above 130%. GitLab shipped versions 15, 15.1 and 15.2, marking 130 consecutive months of innovation as of July 31, 2022. New and expansion customers included KeyBank, Indeed and Worldline. The company partnered with Dynatrace, LaunchDarkly, Split, Flagsmith and CloudBees to launch OpenFeature. Deferred revenue, current portion, stood at $201.3 million, and remaining performance obligations were $361.9 million.

Cash generation slipped. Operating cash flow was negative $36.3 million for the quarter, compared with negative $17.1 million a year earlier. For the first six months, operating cash flow was negative $64.5 million versus negative $38.6 million. Capital expenditures were $1.4 million in the quarter and $3.2 million year to date. Management states that existing cash, cash equivalents and short-term investments should support working capital and capital expenditure requirements for at least the next 12 months.

Guidance points to continued growth alongside losses. For FY2023 Q3, GitLab expects revenue of $105.0 million to $106.0 million and a non-GAAP operating loss of $27.5 million to $26.5 million. For the full FY2023, revenue guidance is $411.0 million to $414.0 million, with a non-GAAP operating loss of $111.5 million to $108.5 million. Non-GAAP loss per share guidance is $0.15 to $0.16 for the quarter and $0.64 to $0.67 for the full year. The company did not provide comparable GAAP guidance because certain items are out of its control or cannot be reasonably predicted. Risks flagged in the filing include intense competition and possible loss of market share, a decline in customer renewals and expansions, security and privacy breaches, customers staying on the free or open-source offering, the ability to manage growth and hiring, the armed conflict in Ukraine, and general economic conditions such as inflation and interest rates. GitLab also maintains a full valuation allowance against deferred tax assets in certain jurisdictions and is under examination in the Netherlands for tax years 2015 and 2016.