GitLab Inc. — Q1 FY2023 Form 10-Q
Reporting period: Three months ended April 30, 2022; fiscal year ends January 31. Amounts below are in U.S. dollars. GitLab sells its DevOps platform through self-managed and SaaS subscriptions, with additional license and professional-services revenue.
Financial results and liquidity
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Revenue | $87.4 million | $49.9 million | +75% |
| Gross profit / margin | $77.6 million / 89% | $43.5 million / 87% | Margin +2 percentage points |
| Operating expenses | $120.4 million | $69.5 million | +73% |
| Operating loss | $(42.9) million | $(26.0) million | Loss widened |
| Net loss | $(26.6) million | $(28.3) million | Loss narrowed |
| Net loss attributable to GitLab | $(26.1) million | $(27.9) million | Loss narrowed |
| Operating cash flow | $(28.2) million | $(21.5) million | Cash use increased |
- Subscription revenue was $76.9 million, up 71%; self-managed license and other revenue was $10.5 million, up 109%. SaaS revenue was $17.2 million, versus $8.8 million a year earlier. Subscription revenue represented 88% of total revenue.
- Net loss per share attributable to GitLab was $(0.18), versus $(0.53); weighted-average shares were 146.6 million, versus 52.7 million.
- Cash, cash equivalents and short-term investments totaled $934.8 million at April 30, compared with $934.7 million at January 31. Current assets were $1.04 billion and current liabilities $234.6 million. Management said existing liquidity should support working capital and capital expenditures for at least 12 months.
- There was no separate corporate debt balance disclosed. Consolidated current liabilities included a $2.9 million short-term advance to JiHu from a potential investor, expected to be repaid after a capital contribution.
- Stock-based compensation was $17.5 million, versus $3.4 million a year earlier. Accumulated deficit was $579.4 million.
Changes and notable items
- Revenue growth reflected new customers and expansion within existing customers. Base Customers rose 64% year over year to 5,168; customers with at least $100,000 ARR rose 68% to 545. Dollar-based net retention remained above 130% in both periods; the filing reports this metric only as a threshold.
- Gross margin improved to 89% from 87%, while operating expenses rose sharply, chiefly from higher personnel costs and stock-based compensation. Sales and marketing increased 72%, research and development 49%, and general and administrative 134%.
- Other income included a nonrecurring $17.8 million gain from losing control of Meltano after its financing round. GitLab retained an investment accounted for under the equity method; the filing also reported a $0.2 million equity-method loss, net of tax. The gain contributed to the net loss narrowing despite a larger operating loss.
- Operating cash use increased. Financing provided $43.7 million, including $35.5 million in contributions from noncontrolling interests, $5.3 million from stock-option exercises and the JiHu advance. Investing used $8.8 million, including cash outflow related to Meltano’s deconsolidation.
- JiHu remained consolidated as a variable interest entity; its assets are available only to settle its own obligations. It raised $27.7 million, net of issuance costs, in March, and GitLab’s equity stake fell from 72% to 62% while GitLab retained control.
Outlook, risks and controls
- The filing provides no numerical revenue or earnings guidance. Management expects continued investment and higher research and development, sales and marketing, and public-company costs; it cautioned these may weigh on near-term profitability. It also noted that a growing SaaS mix may increase hosting costs and pressure gross margins.
- Management said COVID-19 had not adversely affected results to date, but cited possible longer sales cycles, delayed services, customer spending reductions and collection risks. The filing also identifies macroeconomic uncertainty, inflation, higher interest rates and the Ukraine conflict as risks.
- Key disclosed risks include sustaining growth and customer renewals, converting free users to paid subscriptions, competition, security and privacy incidents, international and China/JiHu operations, currency movements, and the possibility of continued losses. Management reported no legal proceeding expected to have a material adverse effect; a $2.6 million estimated liability for certain foreign labor matters remained recorded.
- Disclosure controls and procedures were assessed as not effective at a reasonable assurance level because of an unremediated material weakness in timely, effective review of accounting for and disclosure of non-routine transactions. Management described remediation efforts and said the weakness would remain until controls operate effectively for a sufficient period. Management nevertheless concluded the interim financial statements were fairly presented in all material respects.
Important facts for investors to verify
- How much revenue growth is recurring and sustainable, particularly the pace of SaaS growth, customer expansion and renewals.
- The underlying operating-loss and cash-burn trajectory excluding the one-time Meltano deconsolidation gain, and the scale and effect of stock-based compensation.
- Whether the internal-control material weakness is remediated and whether subsequent filings report any control deficiencies or accounting changes.
- JiHu’s financial performance, financing and governance, the repayment status of its advance, and the continuing basis for consolidating it.
- Exposure to the recorded labor contingency, tax examinations and unrecognized tax benefits; the filing reports $5.5 million of unrecognized tax benefits and an ongoing Netherlands examination.