JFrog(FROG)2023-08-03 03:42Financial Data and Key Metrics - Total revenue for Q2 2023 was $84.2 million, up 24% year-over-year, driven by strong cloud business growth and higher subscription tiers [25][96] - Cloud revenue reached $27.6 million, up 44% year-over-year, while self-managed revenue was $51.8 million, up 17% year-over-year [78] - Gross profit was $70.4 million, with a gross margin of 83.6%, flat compared to the previous year [26] - Operating expenses were $62.2 million, down $1 million sequentially, representing 73.9% of revenue [26] - Net income for Q2 was $12.1 million, or $0.11 per diluted share, compared to a net loss of $2.2 million in the same period last year [87] - Cash and short-term investments stood at $470 million, up from $443 million at the end of 2022 [11] - Free cash flow margin was 19.3%, with expectations for low double-digit free cash flow margins for fiscal 2023 [11] Business Line Data and Key Metrics - The cloud business saw sequential expansion, with revenues of $27.6 million, up 44% year-over-year [78] - Self-hosted business growth remains constrained as customers transition to cloud and hybrid deployments [17] - Customers with ARR over $100,000 grew to 813, up 26% year-over-year, while customers with ARR over $1 million increased to 24, up 41% year-over-year [96] - Net dollar retention (NDR) for the trailing four quarters was 120%, a decline of 4 percentage points sequentially, with stabilization expected around this level [101][29] Market Data and Key Metrics - The company continues to see strong adoption of its security solutions, with tens of customers adding JFrog Advanced Security to their subscriptions [14] - JFrog Curation, a new security solution, has gained traction since its release in mid-July, with many customers exploring its capabilities [12][18] - The company is seeing consolidation of tooling around its binary-centric pipelines, with a Fortune 100 company migrating from Google's container management services to JFrog's platform [15] Company Strategy and Industry Competition - JFrog aims to provide end-to-end security across the software supply chain, with a focus on consolidating security solutions into a single platform [76][86] - The company believes its approach will outpace and displace point solutions in the market, particularly in the DevSecOps space [14] - JFrog is exploring AI-driven advancements to enhance its DevOps and security solutions, with a focus on managing AI models as binaries [74][77] - The company is leveraging partnerships with major cloud providers (AWS, GCP, Azure) to accelerate its go-to-market efforts [30] Management Commentary on Operating Environment and Future Outlook - Management expects cloud optimization to remain an ongoing exercise for large enterprises, with a baseline cloud growth rate of mid-40s for fiscal 2023 [78][41] - The company anticipates total revenue for 2023 to be between $343.5 million and $345.5 million, with non-GAAP operating income of $24 million to $25 million [60] - Management is optimistic about the potential of JFrog Curation and Advanced Security to re-accelerate revenue growth in the self-hosted business [17] - The company sees AI as a significant opportunity, with more code and binaries being generated, creating demand for JFrog's platform [74][56] Other Important Information - JFrog's annual swampUP user conference is scheduled for September 13, 2023, where the company will announce major product and strategy updates [103] - The company is exploring AI-driven enhancements for future versions of its DevOps and security solutions [77] - JFrog Curation is offered as an add-on to enterprise X and enterprise plus subscriptions, with a seat-based pricing model [12][120] Q&A Session Summary Question: Can you elaborate on the adoption of JFrog Curation and its impact on the DevSecOps lifecycle? [89] - JFrog Curation is targeted at both CIO and CISO offices, with demand driven by DevOps and DevSecOps engineers. It automates policy enforcement to prevent malicious binaries from entering the organization [18] Question: What is the outlook for net dollar retention (NDR) for the rest of the year? [43] - Management expects NDR to stabilize around 120% for the year, based on customer renewal trends and consumption patterns [29][64] Question: How is JFrog positioning itself in the AI space? [56] - JFrog sees AI as a driver of increased code and binary generation, with its platform well-positioned to manage AI models as binaries. The company is exploring AI-driven enhancements for its DevOps and security solutions [74][77] Question: Can you provide more details on the go-to-market strategy for security solutions? [143] - Security solutions are typically sold top-down, with decisions often involving both CIO and CISO offices. The company is focusing on consolidating security capabilities into a single platform to meet customer demand [117][118] Question: What is the TAM for JFrog Curation? [120] - The TAM for JFrog Curation aligns with the broader DevSecOps market, targeting all developers who consume software packages from external sources. The solution is priced based on the number of developers using it [147]