JFrog (FROG) FY Conference August 12, 2025 09:00 AM ET Company ParticipantsKingsley Crane - MD - Equity ResearchEd Grabscheid - CFOJeffrey Schreiner - VP-IRConference Call ParticipantsNone - AnalystKingsley CraneHey everyone, thanks for joining. I'm Kingsley Crane, I'm a software analyst here at Canaccord Genuity. With me today, have Jay Frog, I have the CFO, Ed Grabshied, and VP of Investor Relations, Jeff Schreiner. Thanks for being here, guys.Ed GrabscheidThank you for having us.Jeffrey SchreinerThank yo ...

JFrog (FROG) Conference Summary - August 11, 2025 Company Overview - JFrog was founded in February 2008 and operates in the DevOps and DevSecOps space, also expanding into ML Ops [4][5] - The company focuses on fast and secure software releases, addressing the needs of developers and Chief Security Officers (CSOs) [5] Financial Performance - JFrog reported a cloud growth of 45% in Q2, with sustained usage and increased annual commitments from customers [6][7] - The company observed significant usage across its portfolio, particularly with Docker, Hugging Face, and PyPI [6][8] Key Drivers of Growth - The growth is attributed to the adoption of security products and increased developer workloads, rather than solely AI workloads [10][11] - JFrog is seeing momentum in discussions with customers to increase their annual commitments, indicating a shift from experimental to sustained usage [7][10] AI and Security Initiatives - JFrog is working with three of the top five AI native companies, with one expanding its subscription significantly during Q2 [13][16] - The company emphasizes the importance of security in its offerings, with a focus on X-ray and advanced security products [18][19] - JFrog's security products are gaining traction, with large enterprises making multi-year commitments [22][24] Strategic Partnerships - The partnership with GitHub is highlighted as a significant strategic move, enhancing distribution and product integration [35][36] - JFrog aims to provide a comprehensive solution from source code to binary management, leveraging the GitHub relationship [38][41] Market Position and Differentiation - JFrog positions itself as a consolidator of security solutions, reducing vendor sprawl for customers [33][34] - The company is focused on being the system of record for binaries, which enhances its value proposition in security [34] Go-to-Market Strategy - JFrog has made significant investments in its enterprise sales team to better engage with C-suite executives [63][64] - The company is also enhancing its product marketing capabilities to explain complex solutions effectively [66] Cloud Migration Trends - JFrog supports customers in migrating workloads from self-hosted environments to the cloud, viewing this as a significant growth driver [67][68] - The company anticipates that as customers migrate, they will also add security solutions, further increasing deal sizes [69] Future Outlook - JFrog is exploring opportunities in AI, particularly in securing AI-generated code and models [42][50] - The acquisition of Quark is expected to enhance JFrog's capabilities in ML Ops, aligning with the growing demand for managing large language models [51][53] Conclusion - JFrog is experiencing robust growth driven by increased cloud adoption, security product demand, and strategic partnerships, positioning itself as a leader in the DevSecOps space while expanding into ML Ops and AI security solutions.

Financial Data and Key Metrics Changes - JFrog's total revenue for Q2 2025 was $127.2 million, representing a 23% year-over-year increase [5][18] - Operating margin improved to 15.2%, up from 13.2% in the previous year [6][21] - Cloud revenue reached $57.1 million, a 45% increase year-over-year, accounting for 45% of total revenue compared to 38% in the prior year [6][18] - Net dollar retention rate for the trailing four quarters was 118%, up two points sequentially [20] - Free cash flow for Q2 was $35.5 million, or a 28% margin, compared to $16 million, or a 15% margin, in the year-ago period [22] Business Line Data and Key Metrics Changes - Cloud revenue growth was driven by increased annual commitments and the adoption of security products [18][19] - Self-managed or on-premises revenues were $70.1 million, up 10% year-over-year [19] - Revenue contribution from Enterprise Plus subscriptions grew to 55% of total revenues, up from 50% in the prior year [19] Market Data and Key Metrics Changes - JFrog's RPO (Remaining Performance Obligations) totaled $476.7 million, a 75% increase year-over-year, benefiting from multi-year commitments [22] - The company noted a strategic shift in customer infrastructure towards hybrid solutions due to the unpredictable costs associated with AI [10][11] Company Strategy and Development Direction - JFrog aims to become the system of record for all software packages, focusing on DevOps, security, and MLOps [7][12] - The company is deepening partnerships with AI industry leaders and expanding support for the AI ecosystem [13][14] - JFrog is positioning itself as a model registry for AI, emphasizing the importance of a unified software supply chain [13][51] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's alignment with modern software demands and the ongoing growth in cloud and security solutions [8][11] - The company is cautious about future guidance due to macroeconomic uncertainties but expects continued growth in cloud commitments and security adoption [23][25] - Management highlighted the resilience of the team amid external challenges, reinforcing the strength of the business [26][27] Other Important Information - JFrog will hold its Annual User Conference on September 9, 2025, to announce new products and strategic partnerships [17] - The company is committed to addressing emerging security threats associated with AI and MCP (Model-Centric Programming) [14][100] Q&A Session Summary Question: Can you discuss the evolution of customer hesitations regarding self-managed data centers? - Management noted that customers are rethinking their cloud strategies due to the unpredictability of AI costs, leading to a more cautious approach to cloud migration [34][35] Question: How has the sunsetting of JFrog Pipeline affected partnerships with CI/CD players? - The decision to sunset JFrog Pipeline has allowed for better integration and partnerships with companies like GitHub, focusing on security and cloud migration [38][39] Question: Can you provide insights into the pipeline of large enterprise deals? - Management highlighted a focus on migrating workloads to the cloud and the addition of security solutions as key factors driving large enterprise deals [43][45] Question: What impact have AI coding tools had on the DevOps toolchain? - The introduction of code assistance tools has changed the developer landscape, increasing the need for a model registry and security solutions [85][88] Question: How is JFrog leveraging hyperscaler partnerships for co-selling? - Collaboration with cloud providers is crucial for accelerating deals and optimizing costs, with strong relationships established with AWS, GCP, and Microsoft Azure [78][79] Question: What is the outlook for security's contribution to JFrog's business? - Management plans to provide metrics around security's contribution and sees strong momentum in this area [92]

Core Insights - JFrog reported Q2 FY2025 earnings with GAAP revenue of $127.2 million, exceeding analyst expectations of $122.8 million, and non-GAAP EPS of $0.18, surpassing the expected $0.16 [1][2] - The company experienced significant growth in its cloud segment, with cloud revenue reaching $57.1 million, a 45% increase year-over-year, now accounting for 45% of total revenue [1][5] - Customer expansion was notable, with the number of customers generating over $1 million in annual recurring revenue (ARR) increasing to 61, a 45% rise from the previous year [1][6] Financial Performance - Non-GAAP operating income improved to $19.4 million, up from $13.6 million year-over-year, with a non-GAAP operating margin of 15.2%, an increase of 2 percentage points [2][9] - Free cash flow (non-GAAP) more than doubled to $35.5 million, reflecting a 122.3% increase from the prior year [2][9] - Remaining performance obligations (RPO) stood at $476.7 million, indicating strong momentum in onboarding large customers [10] Business Overview and Strategic Focus - JFrog's platform aids organizations in managing, automating, and securing software packages throughout the development lifecycle, focusing on binary management, vulnerability scanning, and compliance [3] - The company emphasizes integrating security into software development processes and expanding support for emerging technologies like machine learning [4] - Strategic partnerships with major players in cloud and AI sectors are crucial for sustaining growth and enhancing the company's value proposition [4] Product Innovation - New MLOps modules were launched, allowing organizations to manage and secure AI and machine learning model artifacts [7][12] - Enhanced security functions for both standard software components and machine learning models were introduced, addressing the growing need for security in AI applications [7] - Collaborations with NVIDIA, Hugging Face, and GitHub are driving new enterprise deals and platform adoption [8] Outlook and Guidance - For Q3 FY2025, JFrog expects revenue between $127.0 million and $129.0 million, with non-GAAP EPS projected in the range of $0.15 to $0.17 [13] - The full-year revenue outlook for FY2025 has been raised to between $507.0 million and $510.0 million, with non-GAAP operating income projected between $75.0 million and $78.0 million [13][14] - Management maintains a conservative forecasting approach, not factoring in potential upside from large enterprise deals or continued high cloud usage [14]

Summary of JFrog Conference Call Company Overview - JFrog is positioned as a leader in the software supply chain management, focusing on binary management and DevSecOps, with a unique platform that integrates these functionalities [2][3][5] - The company aims to enhance developer efficiency by managing the transition from source code to machine language, addressing the rapid pace of software updates [5][7] Key Highlights from Q1 Performance - Q1 results reflect a culmination of efforts over multiple quarters, particularly in enterprise sales and security integration [10][11] - Significant growth in large deals, with one customer achieving an annual contract value (ACV) of over $30 million, indicating a shift from smaller deals to larger enterprise contracts [12][16] - Security revenue has grown from essentially zero to 3% of total revenue, showcasing successful penetration into security budgets [13] - Unexpectedly high cloud usage across diverse customer segments, indicating robust demand despite Q1 typically being a slow quarter [14][15] AI and Large Language Models (LLMs) - JFrog is exploring the integration of AI and LLMs into its offerings, believing that increased binary usage will benefit the company [19][21] - The acquisition of QuocAI aims to position JFrog as a key player in managing LLMs, with plans for both cloud and self-hosted versions of the product [20][48] - Current usage trends suggest experimentation with AI tools among customers, but mass adoption is still pending due to industry uncertainties [49][50] Competitive Landscape - JFrog is the only publicly traded company in the DevOps binary management space, with limited competition from private firms like Sonatype and small startups [34][36] - The company differentiates itself through its comprehensive technology stack and security capabilities, which are critical for managing binaries [36][38] M&A Strategy - JFrog maintains a focus on free cash flow to remain agile for potential acquisitions, particularly in the AI and ML sectors [51][52] - The company is not currently seeking transformational acquisitions but is open to tuck-in acquisitions based on customer feedback and market needs [52] Security as a Growth Vector - JFrog sees significant growth potential in security, with plans to deepen penetration into existing customer bases [54][55] - The integration of security sales into a unified approach involving developers and security teams is a strategic focus [56] Financial Outlook and Guidance - The company has adopted a cautious approach to guidance, excluding large deal migrations and usage upside due to market uncertainties [27][30] - JFrog aims to balance growth with profitability, maintaining a free cash flow margin target of 26% to 29% [59][62] Conclusion - JFrog is strategically positioned to capitalize on the growing demand for software supply chain management and security solutions, with a focus on innovation and profitability while navigating a competitive landscape and evolving market dynamics [60][62]

Summary of JFrog Conference Call Company Overview - JFrog has over 7,300 customers as of the end of 2024 [3] - The company has penetrated more than 82% of the Fortune 100 across all industries [4] - JFrog employs over 1,600 people and has a Total Addressable Market (TAM) exceeding $40 billion [4] - The company reported $450 million in revenue over the last twelve months, reflecting a 22% year-over-year growth [4] - JFrog generated $119 million in free cash flow and has a net dollar retention rate of 116% [4] Business Model and Financial Metrics - JFrog operates on a subscription-based model, with consistent revenue growth [12][13] - The company has a high gross retention rate of 97%, indicating strong customer loyalty [14] - The revenue growth for Q1 was also 22%, with guidance indicating a 17% growth for the upcoming year [13] Product Offerings - JFrog aims to streamline the DevOps process, integrating DevOps, DevSecOps, and MLOps into a single platform [5][9] - The company manages binaries, which are critical in the software supply chain, and offers advanced security products to protect these binaries [6][7] - JFrogML, a recently launched product, manages large language models and integrates with repositories like Hugging Face [9][10] Market Position and Competitive Landscape - JFrog has a strong position in the market, with significant penetration in various industries and a long runway for growth [12][17] - The company faces competition primarily from Sonatype and Cloudsmith in the Artifactory space, with Sonatype experiencing scalability issues [49][50] - JFrog differentiates itself by focusing on binary management and security, which is increasingly becoming an attack vector in software development [54] Strategic Partnerships - JFrog has established a partnership with GitHub to enhance integration between source code and binaries, improving user experience and security [40][41] - The collaboration aims to consolidate security tools and streamline the management of vulnerabilities [46] Future Outlook - JFrog is confident in its go-to-market strategy, having invested in building a strong enterprise sales team and seeing growth in million-dollar customers [62] - The company anticipates that the migration from self-hosted to cloud solutions will drive additional revenue growth [66] - JFrog expects its net dollar retention rate to remain stable at 116%, with potential for growth as customers increase usage beyond minimum commitments [68] Additional Insights - The shift towards AI and machine-generated code is expected to increase the volume of binaries, benefiting JFrog's business model [71][72] - JFrog's pricing model varies based on deployment type, focusing on data transfer, storage, and the number of contributing developers for advanced security [78]

Financial Data and Key Metrics Changes - JFrog reported a revenue growth rate of 22% in the last quarter, with guidance for the current year set at 18% [12][60] - The company has shifted to a more conservative guidance approach after experiencing unexpected challenges in the past [12][15] Business Line Data and Key Metrics Changes - The company has seen a significant increase in larger deals, with "mega deals" now reaching eight figures in size, driven by cloud migration and security needs [15][20] - Security has become a major driver for deal sizes, with many contracts now incorporating security solutions, leading to larger initial adoptions [20][21] Market Data and Key Metrics Changes - Approximately 80% of JFrog's cloud revenue is derived from annual contracts, providing more visibility into revenue streams compared to pure usage models [17] - The company has a strong presence in the enterprise market, with over 50% of revenue coming from the Enterprise Plus tier, which has grown significantly over the past two years [30][46] Company Strategy and Development Direction - JFrog is focusing on expanding its security offerings and integrating them with its existing products to create a comprehensive platform for customers [26][28] - The partnership with GitHub is seen as a strategic move to enhance integration and drive new customer acquisition, although a joint go-to-market strategy is not yet in place [39][44] Management's Comments on Operating Environment and Future Outlook - Management noted a disconnect between corporate America and Wall Street perceptions, indicating a cautious spending environment among customers [61][62] - The company is optimistic about future growth, particularly in cloud migrations, which are expected to drive higher net retention and better economics [52][55] Other Important Information - JFrog has successfully met or exceeded its long-term targets set in 2023, with a focus on profitable growth and maintaining a "Rule of 40" as a guiding principle [59][60] - The importance of binaries has increased as they have become a central attack vector in cybersecurity, emphasizing the need for robust security measures [66][67] Q&A Session Summary Question: What drove the recent increase in developer activity? - Management attributed the increase to experimentation with AI and MLOps, although they cautioned that it may not be a sustained trend [4][6] Question: How has the guidance philosophy changed? - The company has adopted a more conservative approach to guidance to protect investors after past experiences with unexpected customer behavior [12][15] Question: What is the impact of cloud migrations on revenue? - Cloud migrations have led to significant revenue uplifts, with customers experiencing a 20% to 80% increase in revenue after migrating to the cloud [52][55] Question: How does JFrog's security offering differentiate it from competitors? - JFrog's security solutions are integrated with its core offerings, allowing for the consolidation of multiple point solutions, which is a key competitive advantage [26][28] Question: What is the outlook for new customer acquisition? - Management sees potential for new customer acquisition, particularly in the SMB market, as they consider developing a lighter version of their products [32][39]