GitLab’s Q3 2026 Earnings Call: Contradictions Emerge in Guidance, AI Integration, and SMB Strategy

Date of Call: None provided

Financials Results

• Revenue: $244M, up 25% YOY, 2 points above Q3 guidance
• Gross Margin: 89% non-GAAP
• Operating Margin: 17.9% non-GAAP, compared to 13.2% in Q3 prior year (+470 bps YoY)

Guidance:

• Q4 FY'26 revenue expected $251M–$252M (~19% YOY).
• Q4 non-GAAP operating income $38M–$39M; non-GAAP net income per share $0.22–$0.23 (assumes 172M diluted shares).
• FY'26 revenue expected $946M–$947M (~25% YOY); FY'26 non-GAAP operating income $147M–$148M; non-GAAP net income per share $0.95–$0.96 (assumes 171M diluted shares).
• Not providing FY'27 guidance; April FY'24 price increase largely implemented and won’t be a discrete FY'27 tailwind.

Business Commentary:

* Revenue and Profitability Growth: - GitLab reported revenue growth of 25% year-over-year to $244 million in Q3 2026, surpassing Q3 guidance. - The non-GAAP operating margin reached 18%, a full 5 points above their Q3 guidance. - This growth was driven by strong adoption of GitLab Ultimate, which is now 54% of total ARR, and expanding into the enterprise segment.

• AI Expansion and Platform Enhancements:
• GitLab engagement metrics such as CI pipelines, deployments, and releases increased about 35% to 45% year-over-year.

• The company's strategic shift to integrate AI capabilities, including the launch of Duo Agent platform, is designed to capitalize on the expanding market for AI-driven development tools.

• Customer Retention and Expansion:

• GitLab achieved a dollar-based net retention rate (DBNRR) of 119%, indicating strong customer retention.

• Key growth was driven by expansions at existing customers leveraging AI tools within their engineering organizations.

• Public Sector Challenges:

• GitLab saw softness in the U.S. public sector, offsetting some of the performance, with slower decision-making related to a government shutdown impacting sales.
• The company remains optimistic about its position as a preferred software factory for leading U.S. agencies, anticipating continued future growth in the segment.<

  Sentiment Analysis:

  Overall Tone: Positive

  • Management highlighted: "Revenue grew 25% year-over-year to $244 million" and non-GAAP operating margin of ~18% (5 points above guidance). They said Duo Agent platform is "on track for general availability in the coming weeks" and emphasized strong SaaS growth (SaaS ~31% of revenue, +36% YoY).
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Q&A:

• Question from Koji Ikeda (Bank of America): Can you walk us through the demand environment and how to think about the guide's implications for Q4 subscription revenue growth given the deceleration from 30% to 27% subscription growth?
  Response: Guidance is conservative: field roll-ups reflect ongoing SMB weakness and lingering U.S. government shutdown effects; management feels guidance reflects current best view and is comfortable with it.

• Question from Matthew Hedberg (RBC): What's left to do to improve first-order/new-logo performance and how long until the benefits show?
  Response: Hired a global first-order leader; ramping the new team over a couple of quarters with results expected in the back half of FY'27; product-led funnel improvements are showing early promise.

• Question from Robbie Owens (Piper Sandler): Can you quantify the federal (public sector) impact on license revenue and did it affect retention?
  Response: Cannot precisely quantify the Q3 headwind; observed disruption from the shutdown and ongoing effects, but public sector thesis remains intact; federal accounts are being worked through with customers.

• Question from Sanjit Singh (Morgan Stanley): Will platform activity converge to revenue and is Duo the solution or is more needed?
  Response: Management plans to shift from pure seat-based to a hybrid seat-plus-usage model via Duo Agent platform (GA imminent) and pursue incremental premium SKUs to better monetize elevated activity.

• Question from Zack (Baird): How are you tracking monetization of Duo today versus core DevSecOps and what percent of new ACV includes Duo features?
  Response: Duo currently monetized as seat-based add-ons in early stages; specifics not disclosed; usage-based pricing will be introduced at GA to create a new monetization stream.

• Question from Howard Ma (Guggenheim): Does the previously disclosed double-digit seat growth trend still hold and what is seat growth excluding Duo seats?
  Response: Will not provide updated specifics; prior seat-count disclosure was a one-time datapoint and they won't repeat those granular metrics this quarter.

• Question from Derek Wood (TD Cowen): What's the mix of DBNRR (seats vs yield vs uptiering) and how should we think about anniversarying a large seat deal?
  Response: In Q3 seats contributed slightly over 80% of DBNRR, yield ~10%, remainder from uptiering; disclosure will evolve as product SKUs and usage-based monetization mature.

• Question from Jason Celino (KeyBanc): How much of the elevated deployment activity is AI-app development versus AI-driven productivity?
  Response: It's a mix of both: increased code/innovation demand plus productivity gains from AI; Duo will accelerate the full software lifecycle and enable monetization of that downstream activity.

• Question from Unknown (referenced by operator re: Raymond James): How will you deploy the $1.2B cash to further differentiate GitLab vs. small and large AI vendors?
  Response: Cash provides flexibility; strategic, disciplined capital allocation will be prioritized to drive customer and shareholder value while differentiation relies on GitLab's unique context and integrated lifecycle tooling for agents.