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GitLab (GTLB +17%) is surging after reporting strong EPS upside with its Q2 (Jul) report last night. This provider of software development tools, also known as DevOps Platforms, also reported healthy revenue growth of +30.8% yr/yr to $182.6 mln, which was above analyst expectations. Revenue growth was driven by new logos as well as expansion within existing customers. GitLab also guided Q3 (Oct) EPS above consensus.

• The company said that enterprises are looking to integrate AI into all aspects of software development. This requires measurable benefits and improved security, which GitLab says are areas where it excels. AI is also resulting in larger deal sizes. For example, Barclays purchased GitLab Duo seats this quarter coupled with additional ultimate licenses.
• The company said that its customers are excited about the meaningful productivity and security benefits of GitLab Duo. This includes up to 90% reduction in time spent on toolchain operations, 50% faster lead time and 50% faster vulnerability detection.
• The metric that really jumps out at us is adjusted operating margin which jumped to 10%, which GitLab said meaningfully exceeded its expectations. That compares to -3% a year ago and -2% in Q1 (Apr). This metric shows the operating leverage in its business model and was a major reason for the EPS upside.

After a surprise profit in Q1 and now significant margin expansion in Q2, it seems investors are giving GitLab a fresh look. The stock has pulled back quite a bit since early March, but the back-to-back strong earnings results are getting this name on some radar screens again after falling out of favor.