Business context and reporting period
GitLab Inc. filed this unaudited Form 10-Q for the fiscal third quarter and nine months ended October 31, 2021. GitLab sells a DevOps platform through self-managed and SaaS subscriptions, with additional license and professional-services revenue. The company operates remotely and reports as one segment.
Financial performance and position
| Metric | Three months ended October 31, 2021 | Nine months ended October 31, 2021 |
|---|---|---|
| Revenue | $66.8 million; up 58% year over year | $174.9 million; up 65% |
| Gross profit / margin | $59.6 million / 89% (89% prior year) | $154.0 million / 88% (88% prior year) |
| Operating loss | $32.5 million, versus $24.5 million | $88.4 million, versus $85.4 million |
| Net loss attributable to GitLab | $41.2 million; diluted loss per share $0.62 | $109.4 million; diluted loss per share $1.89 |
| Operating expenses | $92.1 million, up 49% | $242.4 million, up 35% |
Subscription revenue was $59.8 million for the quarter, up 63%; SaaS revenue was $12.6 million, compared with $4.6 million a year earlier. Revenue growth reflected new customers and expansion within existing customers. Base Customers increased 66% to 4,057, and customers with ARR of at least $100,000 rose 73% to 427. Dollar-based net retention remained above 130% in both periods, as defined by the company.
For the nine months, operating cash use was $48.7 million, down from $66.2 million. Investing activities used $100.0 million, primarily for certificates of deposit; financing provided $691.6 million, primarily from the IPO. Cash and cash equivalents were $824.7 million and short-term investments $100.0 million at October 31, for total cash, equivalents and short-term investments of $924.7 million. Current assets were $1,012.4 million and current liabilities $178.9 million. The filing reports no borrowings; the company terminated its unused $15 million revolving credit line in April 2021.
Material changes versus the prior comparable period
- Revenue accelerated, while operating expenses also grew substantially. Quarterly operating loss widened despite higher revenue; nine-month operating loss increased modestly.
- Quarterly net loss widened to $41.7 million from $28.6 million. Foreign-exchange expense was a significant factor: other expense was $10.2 million for the quarter and $21.3 million for the nine months, versus a nine-month gain of $13.4 million in 2020.
- On October 18, 2021, GitLab completed its IPO, issuing 8.94 million Class A shares at $77 per share and receiving $654.6 million net of underwriting discounts, before offering costs. Preferred shares converted into Class B common stock.
- Stock-based compensation, excluding tender-offer expense, rose to $8.6 million for the quarter and $17.2 million for the nine months, from $2.1 million and $5.7 million, respectively.
Outlook, risks, contingencies and unusual items
The filing provides no numerical revenue or earnings guidance. Management expects continued investment in research and development, sales and marketing, international expansion and public-company functions; it cautions these expenditures may weigh on near-term profitability. Management believes existing liquidity is sufficient for working capital and capital expenditures for at least 12 months. SaaS growth may increase hosting costs and pressure gross margins.
- Controls and reporting: Management concluded disclosure controls were not effective due to a material weakness in review of accounting for and disclosure of non-routine transactions. Remediation efforts are underway but had not operated long enough to establish that the weakness was resolved. The company also identified an immaterial error: $50 million of short-term investments had been classified as cash in previously reported six-month figures; the current filing corrected relevant nine-month cash-flow presentation and said it would update the six-month figures in a future filing.
- Foreign exchange: The company does not hedge currency exposure and recorded substantial foreign-exchange losses. Revenue contracts are denominated in U.S. dollars, but many international expenses are in local currencies.
- Commitments and contingencies: Hosting infrastructure purchase commitments totaled $78.6 million, including $27.3 million due within one year. An estimated $2.6 million liability was recorded for labor matters involving contractors in certain foreign countries. Management reported no legal proceedings expected to have a material adverse effect.
- Joint venture and acquisitions: GitLab consolidates JiHu, its China venture, despite holding 72.25% of its equity; JiHu’s assets are restricted to its own obligations, and its creditors have no recourse to GitLab’s general credit. Subsequent to quarter-end, GitLab agreed to acquire a technology company for cash, shares and milestone-based contingent consideration; the transaction closed December 3, 2021.
- Governance and execution risks: Class B shares carry ten votes each and held approximately 99% of voting power at quarter-end. The filing highlights risks including competition, growth management, customer conversion and retention, cybersecurity and privacy, international regulation, and the company’s history of losses.
Most important facts for investors to verify
- Whether revenue growth, customer expansion and retention persist, and how the company-defined ARR and retention measures are calculated and validated.
- Whether operating expense growth, stock-based compensation and foreign-exchange volatility affect the path to profitability and cash generation.
- Progress in remediating the material weakness, and the planned correction of the previously reported six-month cash classification.
- Liquidity needs relative to ongoing operating cash use, hosting commitments and planned investment; confirm that the stated 12-month liquidity assessment remains supportable.
- Effects of dual-class voting control, potential share sales after IPO lockups, and the financial and operational outcomes of the JiHu venture and post-quarter acquisition.