GitLab (NASDAQ: GTLB) delivered a Q2 that was strong on both the top and bottom lines. The more important story sits inside the cohort data. Dollar-based net retention rate improved sequentially to 117%, and net ARR grew more than 40% year over year. These expansion metrics suggest the company's land-and-grow motion is accelerating, not just holding.
Revenue of $286.3M came in 4.8% above the $273.1M consensus and grew 21% from $236M a year ago. Non-GAAP diluted EPS of $0.24 beat the $0.18 estimate by a third, though it was flat with the prior year's $0.24. The EPS beat came from operating leverage: non-GAAP operating income of $42.6M was up $3M YoY on a revenue base that grew $50.3M, implying incremental margins that are starting to show the model's scalability.
The sequential improvement in dollar-based net retention from 116% in Q1 to 117% in Q2 is worth pausing on. For a company at GitLab's scale, a 100bps sequential uptick in NRR is not noise. It signals that existing customers are expanding their commitments faster than they were a quarter ago, consistent with the record gross bookings and the 40%+ net ARR growth management highlighted. Total RPO hit $1.2B, up 16% YoY, and current RPO grew 20% to $744.7M, giving good visibility into the next 12 months.
First order growth of more than 100% YoY is the other standout. That number, combined with the 17% increase in customers with over $100K of ARR (to 1,571), suggests GitLab is landing larger deals and landing them faster. The new Flex commercial model likely contributed. It bundles platform seats, credits, and future capabilities into a single annual commitment with monthly reshapability, reducing friction for customers who want to commit without locking into rigid seat counts.
Non-GAAP gross margin of 86% was down 400bps from 90% a year ago, driven by higher subscription cost of revenue. The GAAP gross margin fell 400bps to 84%. This compression is worth watching. The company added $16.5M in subscription cost of revenue year over year, more than double the $7.5M increase in the prior year's comparable quarter. Some of that is cloud infrastructure costs tied to the SaaS business, which grew faster than self-managed. But if this trend continues, it will eat into the operating leverage the company is otherwise demonstrating.
The GAAP operating loss widened to $56.9M from $18.4M, largely due to $19.4M in restructuring charges from the May 2026 workforce reduction. Excluding those, non-GAAP operating income was $42.6M, a modest $3M increase. The restructuring is a one-time event, but it does mean the underlying cost structure is still absorbing the headcount actions taken earlier this year.
GitLab repurchased approximately 3.5 million shares in the quarter for $104.6M, a significant acceleration from prior quarters. The company ended the period with $1.26B in cash and short-term investments, so the buyback is well funded. It is worth noting that operating cash flow was negative $3.1M in Q2 versus positive $49.4M a year ago. The swing was driven by a $57.3M increase in accounts receivable, which may reverse in Q3. Non-GAAP adjusted free cash flow was $9.8M, down from $46.5M, but that includes $14M in non-recurring payments related to the JiHu joint venture formation.
Guidance for Q3 revenue of $281M to $283M and non-GAAP EPS of $0.19 to $0.20 came in above consensus. The full-year revenue outlook of $1.129B to $1.133B implies roughly 20% growth at the midpoint, in line with the Q2 print. Management did not raise the full-year guide despite the Q2 beat, which signals caution. Given the macro uncertainty and the restructuring, that prudence is understandable. But with net retention accelerating and first orders doubling, the risk to the guide looks more to the upside than the downside.
The forward read is straightforward: GitLab is executing well in a market where AI-driven software creation is expanding the total addressable surface area for DevSecOps tools. The expansion metrics are the real signal. If NRR stays at 117% or above, the revenue growth algorithm has room to run even without a step-up in new customer acquisition. The margin compression in subscription cost of revenue is the one metric that needs watching in the coming quarters.