Executive Summary

Q2 delivered solid top-line and profitability: revenue $103.0M (+22% YoY), non-GAAP operating margin 13.2%, non-GAAP EPS $0.15; cloud revenue $39.3M (+42% YoY) reaching 38% of total .
Guidance reset: Q3 revenue $105–$106M; FY24 revenue $422–$424M, non-GAAP EPS $0.54–$0.56; FY cloud growth now “around 40%” vs prior mid‑40s, and FY net dollar retention expected “mid-teens” vs high‑teens previously due to slower migrations and rigid procurement .
Strategic momentum: deep GitHub integration and Qwak AI acquisition position JFrog as unified DevOps, Security and MLOps platform; Enterprise+ mix rose to 50% of revenue (+500 bps YoY) and $1M+ ARR customers reached 42 (+75% YoY) .
Cash and execution: RPO $272.0M; OCF $16.7M; FCF $16.0M; cash and investments $591.3M as of 6/30/24, supporting continued investment in security/AI while maintaining discipline .
Likely stock reaction catalysts: guidance cut (cloud growth and FY revenue/OP), delayed security monetization to 2025, vs. strategic positives (GitHub, Qwak) and durable platform adoption signal .

What Went Well and What Went Wrong

What Went Well

Platform adoption and enterprise mix expanded: Enterprise+ subscriptions rose to 50% of revenue (+500 bps YoY); $1M+ ARR customers reached 42 (+75% YoY), reflecting successful outbound enterprise motion .
Cloud growth remained strong despite headwinds: $39.3M cloud revenue (+42% YoY), now 38% of total; management cited migrations’ uplift (20–80%) when they occur and strong multi-cloud demand .
Strategic partnerships and AI expansion: announced deep integration with Microsoft GitHub; acquired Qwak AI to unify DevOps, Security and MLOps; customers (e.g., AT&T, Admiral) validate value proposition and security differentiators .

Quote: “With the innovative power of our Qwak AI acquisition, JFrog proudly stands as the first to support DevOps, Security, and MLOps in a single platform.” — CEO Shlomi Ben Haim .

What Went Wrong

Guidance reduction and momentum moderation: FY24 revenue cut to $422–$424M (from $425.5–$429.5M) and cloud growth tempered to ~40% amid delayed migrations, monthly usage softness, and rigid procurement .
Security revenue timing pushed out: material revenue contribution from Advanced Security and Curation now anticipated in 2025 due to higher TCV deals requiring longer PoCs/procurement cycles .
Monthly cloud subscribers weighed on growth: management quantified a 2–3 pt drag from monthly, non‑commitment cloud customers; fewer Q4 true‑ups expected versus 2023, reducing a potential tailwind .

Financial Results

Core Financials vs Prior Periods

Metric	Q4 2023	Q1 2024	Q2 2024
Revenue ($USD Millions)	$97.3	$100.3	$103.0
GAAP Gross Margin (%)	79.0%	79.5%	78.8%
Non-GAAP Gross Margin (%)	84.6%	85.1%	84.4%
GAAP Operating Margin (%)	(15.8%)	(16.6%)	(18.6%)
Non-GAAP Operating Margin (%)	16.6%	14.0%	13.2%
GAAP EPS ($)	($0.11)	($0.08)	($0.13)
Non-GAAP Diluted EPS ($)	$0.19	$0.16	$0.15

Notes: YoY revenue growth: Q4 +27% , Q1 +26% , Q2 +22% .

Segment Mix and KPIs

Metric	Q4 2023	Q1 2024	Q2 2024
Cloud Revenue ($M)	$36.0	$36.9	$39.3
Cloud % of Total	37%	37%	38%
Self-Managed Revenue ($M)	—	$63.4	$63.8
Net Dollar Retention (TTM)	119%	118%	118%
Gross Retention	—	97%	97%
Customers >$100K ARR	886	911	928
Customers >$1M ARR	37	40	42
Enterprise+ % of Revenue	49%	49%	50%
Remaining Performance Obligations ($M)	$259.8	$261.7	$272.0
Cash & Investments ($M)	$545.0	$579.6	$591.3
Operating Cash Flow ($M)	$32.6	$17.5	$16.7
Free Cash Flow ($M)	$32.0	$16.6	$16.0

Results vs Estimates

Metric	Q2 2024 Actual	Q2 2024 S&P Global Consensus	Delta
Revenue ($USD Millions)	$103.0	N/A (Unavailable)	N/A
Non-GAAP Diluted EPS ($)	$0.15	N/A (Unavailable)	N/A

S&P Global consensus estimates were unavailable at time of writing due to data access constraints. Values would normally be retrieved from S&P Global.

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue ($M)	Q3 2024	N/A	$105–$106	New
Non-GAAP Op Income ($M)	Q3 2024	N/A	$10–$11	New
Non-GAAP Diluted EPS ($)	Q3 2024	N/A	$0.09–$0.11 (≈115M shares)	New
Revenue ($M)	FY 2024	$425.5–$429.5	$422–$424	Lowered
Non-GAAP Op Income ($M)	FY 2024	$56–$58	$52–$54	Lowered
Non-GAAP Diluted EPS ($)	FY 2024	$0.59–$0.61	$0.54–$0.56	Lowered
Cloud Revenue Growth (YoY)	FY 2024	Mid‑40s	~40%	Lowered
Net Dollar Retention (TTM)	FY 2024	High‑teens	Mid‑teens	Lowered

Management commentary: reduction driven by delayed migrations, softer monthly cloud consumption, and procurement rigidity; material security revenue now expected in 2025 .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4’23, Q1’24)	Current Period (Q2’24)	Trend
AI/MLOps platform	Flagged as potential tailwind; integrations with MLflow and Qwak; ML models treated as packages	Qwak acquisition closed in early Q3; JFrog positions as unified DevOps, Security & MLOps platform	Accelerating platform scope
Cloud growth & migrations	Q4 cloud +59%; FY24 baseline mid‑40s cloud growth; Q1 cloud +47% with digestion	Q2 cloud +42%; FY cloud ~40%; derisked large migrations given macro; monthly usage headwind	Decelerating growth, delayed migrations
Security consolidation	Enterprise+ mix up in Q4/Q1; strong pipeline and consolidation narrative	Material security revenue pushed to 2025; higher TCV PoCs lengthen cycles	Pipeline strong, revenue timing pushed out
Macro/purchasing	Q1 digestion, budget caution and seasonality	Abrupt deterioration end of Q2/into July; rigid procurement across geos/segments	Worsened into early Q3
Partnerships/ecosystem	AWS SageMaker integration; MLflow/Qwak integrations	Deep GitHub integration; enterprise demand for unified code/binaries workflow; Copilot tie-ins	Deepening, strategic
Gross margin	Non-GAAP GM 84.6% (Q4); improved in Q1 (85.1%) from cost synergies	84.4% (Q2); reiterated 83–84% near term, trending to low‑80s long term with cloud mix	Stable high-80s, slight drift lower

Management Commentary

Strategic platform vision: “We are on a mission to revolutionize the software industry with a unified platform that encompasses EveryOps… first to support DevOps, Security, and MLOps in a single platform.” — CEO .
Enterprise momentum with higher ASPs: outbound enterprise motion increased ASPs; retention 97% highlights durability .
Cloud dynamics: “Monthly subscribers… around 2 to 3 percentage points” headwind; migration uplift 20–80% when they occur .
Guidance rationale: derisked pipeline given macro change, rigid purchasing environment; FY cloud growth reset to ~40%; fewer Q4 true‑ups vs 2023 .
GitHub integration impact: customer‑driven unified experience, security and AI collaboration expected to be a differentiator, with next phase unveiled at swampUP .

Q&A Highlights

Macro shift timing: demand deteriorated in final days of Q2 and markedly in July; large strategic deals pushed out, prompting guidance reset .
Cloud growth composition: 2–3 pts impact from monthly subscribers lacking commitments; derisked migrations and expansion on renewals in H2 .
True‑ups: moving customers to monthly “use it or lose it” implies fewer Q4 true‑ups versus 2023; not contemplated in guidance .
Security monetization: higher TCV consolidations extend PoCs/procurement; material revenue now anticipated in 2025 despite strong pipeline and GitHub tie‑ins .
Competitive posture: management sees macro/procurement, not competitive displacement; 97% retention and GitHub partnership bolster confidence .

Estimates Context

S&P Global consensus estimates for Q2 2024 revenue and EPS, and for Q3/FY24 were unavailable due to data access limitations at time of drafting; consequently, we cannot quantify beat/miss versus Wall Street consensus. Results were within the company’s prior guidance ranges .

Key Takeaways for Investors

FY24 guide reset reflects pragmatism: revenue, operating income, and EPS lowered; cloud growth moderated to ~40% and NDR to mid‑teens, driven by delayed migrations and rigid procurement—expect continued scrutiny on H2 execution .
Durable enterprise adoption: Enterprise+ mix at 50% and $1M+ ARR customers up 75% YoY signal platform consolidation tailwinds that should support medium‑term growth .
Security and AI are strategic but back‑end weighted: pipeline strong, but monetization pushed to 2025; watch swampUP updates on GitHub Advanced Security and Qwak integration as potential narrative catalysts .
Cash/FCF provide flexibility: $591.3M cash/investments and positive FCF enable continued investment in security/MLOps while maintaining operating discipline .
Near‑term trading: sentiment likely hinges on migration re‑acceleration evidence and monthly cloud usage stabilization; absence of Q4 true‑ups vs 2023 reduces year‑end optionality .
Medium‑term thesis: unified DevOps/Security/MLOps platform with deep GitHub ecosystem positioning, strong enterprise retention/mix, and expanding AI use cases support durable growth once procurement cycles normalize .
Monitoring items: cloud mix/margins trajectory (toward low‑80s over time), Enterprise+ mix, security attach rates, and RPO growth as forward indicators .

Other Relevant Q2 Press Releases

Qwak AI acquisition: definitive agreement announced June 25 to expand JFrog into unified DevOps, Security, and MLOps; integration underway, with technology and talent assimilation roadmap .
Board appointment: Unity CFO Luis Visoso joined the Board (Audit Committee), adding cloud/security leadership experience and financial acumen .

JFrog Ltd (FROG)·Q2 2024 Earnings Summary