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JFrog Ltd (FROG)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 delivered above-company-guided results: revenue $109.1M (+23% YoY) vs prior Q3 guide $105–$106M, and non-GAAP diluted EPS $0.15 vs prior guide $0.09–$0.11; overperformance came from several large, previously derisked deals closing in the quarter .
  • Cloud revenue grew 38% YoY to $42.4M and reached 39% of total revenue (up from 35% a year ago), while self-managed revenue was $66.7M; management noted usage trends are steady but migrations remain elongated in a tight procurement environment .
  • Platform strategy advanced with Runtime Security, deeper GitHub integration (Copilot + single-pane security), and NVIDIA NIM collaboration (MLOps) – catalysts for 2025 security monetization and AI-driven workloads .
  • FY24 guidance raised: revenue to $425.9–$426.9M, non-GAAP operating income to $56.4–$57.4M, and non-GAAP EPS to $0.59–$0.61, while Q4 revenue guided to $113.5–$114.5M; management remains cautious on large migrations timing and macro rigidity .

What Went Well and What Went Wrong

  • What Went Well

    • “Some of the largest enterprise wins in JFrog’s history” closed in Q3, driving beats vs internal guidance and stronger free cash flow ($26.7M) .
    • Cloud momentum: $42.4M (+38% YoY), with Enterprise+ platform subscriptions at 50% of revenue and NDR of 117% TTM – underscoring platform consolidation trends .
    • Strategic updates: launched Runtime Security, expanded GitHub partnership (Copilot chat + single-pane security), and integrated NVIDIA NIM – reinforcing end-to-end DevOps/DevSecOps/MLOps positioning .

  • What Went Wrong

    • Gross margin mix headwind as cloud scales: GAAP GM fell to 75.0% (vs 83.7% non-GAAP GM a year ago), and management reiterated a gradual margin drift lower as cloud mix rises .
    • Cloud migrations/consumption linearity remain cautious; management derisked large pipeline items and highlighted elongated procurement cycles despite strong proof-of-concept wins .
    • Self-managed can pause ahead of cloud moves (“twilight zone”), muting on‑prem expansion until migrations execute; CFO also noted modest near-term self-managed growth variability .

Financial Results

MetricQ1 2024Q2 2024Q3 2024
Revenue ($USD Millions)$100.3 $103.0 $109.1
GAAP Diluted EPS ($)($0.08) ($0.13) ($0.21)
Non-GAAP Diluted EPS ($)$0.16 $0.15 $0.15
GAAP Gross Margin %79.5% 78.8% 75.0%
Non-GAAP Gross Margin %85.1% 84.4% 82.8%
Non-GAAP Operating Margin %14.0% 13.2% 13.5%
Operating Cash Flow ($USD Millions)$17.5 $16.7 $27.6
Free Cash Flow ($USD Millions)$16.6 $16.0 $26.7

Segment and mix

MetricQ1 2024Q2 2024Q3 2024
Cloud Revenue ($USD Millions)$36.9 $39.3 $42.4
Cloud Mix of Revenue (%)37% 38% 39%
Self-Managed Revenue ($USD Millions)N/A$63.8 $66.7
Cloud Revenue YoY Growth (%)47% 42% 38%

KPIs

KPIQ1 2024Q2 2024Q3 2024
Net Dollar Retention (TTM)118% 118% 117%
Customers >$100K ARR911 928 966
Customers >$1M ARR40 42 46
Enterprise+ as % of Revenue49% 50% 50%
RPO ($USD Millions)$261.7 $272.0 $346.1
Gross Retention Rate (%)N/A97% 97%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($M)Q4 2024N/A (no prior Q4 guide)$113.5–$114.5 New
Non-GAAP Operating Income ($M)Q4 2024N/A$14.0–$15.0 New
Non-GAAP Diluted EPS ($)Q4 2024N/A$0.13–$0.15 (117M diluted shares) New
Revenue ($M)FY 2024$422–$424 $425.9–$426.9 Raised
Non-GAAP Operating Income ($M)FY 2024$52–$54 $56.4–$57.4 Raised
Non-GAAP Diluted EPS ($)FY 2024$0.54–$0.56 (116M shares) $0.59–$0.61 (116M shares) Raised
Cloud Revenue Growth YoYFY 2024~40% ~40% (reiterated) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Cloud migrations & usageQ2: Migrations postponed; monthly consumption slowdown; derisked H2; cloud growth trimmed to ~40% .Sequential cloud growth; usage steady but moderated vs prior year; cautious on migration timing; limited Q4 “true-up” expected .Gradual progress; timelines remain elongated.
Security monetizationQ2: Security a key driver; material revenue more in 2025 .Security attached to all big platform deals in Q3; renewals expanding seats; Enterprise+ packaging supports upsell .Building pipeline; 2025 contribution reaffirmed.
GitHub partnership & AIQ2: Deep integration phase 1; Copilot + security roadmap .Single-pane security + Copilot chat for packages; GitHub CEO highlighted CoPilot + JFrog data synergies .Deepening integration; potential funnel catalyst.
MLOps (Qwak) & NVIDIAQ2: Acquired Qwak; early integration; no material FY24 revenue .NVIDIA NIM integration; Artifactory as trusted model registry; customers still in “experiment mode” on AI .Strategic positioning; revenue tail later.
Macro & procurementQ2: Rigid purchasing, late-quarter pushouts .Caution maintained; derisking large deals; board-level approvals elongate cycles .Still a headwind.
Gross margin trajectoryQ2: Expect 83–84% near-term, drifting lower with cloud mix .GM down to 75.0% GAAP / 82.8% non-GAAP on mix; margin drift reiterated .Mix-driven pressure persists.
RPO/BillingsQ2: RPO $272M .RPO $346.1M; strength from large multi‑year wins .Improving visibility.

Management Commentary

  • “Our third quarter results reflect strong execution in a tight budgetary environment, with some of the largest enterprise wins in JFrog’s history.” — Shlomi Ben Haim, CEO .
  • “Cloud revenues…$42.4 million, up 38% YoY… Self-managed revenues were $66.7 million… we anticipate self-managed revenue growth trends to remain stable…but note some customers…planning to migrate to the cloud have paused their investment in on‑prem deployments.” — Ed Grabscheid, CFO .
  • “We continue to be cautious…de-risking large-scale pipeline opportunities…customers [are] sensitive to the timing of large-scale budgetary commitments.” — CFO .
  • “Together with JFrog, we are bringing the power of JFrog to GitHub Copilot… and this is just the beginning.” — GitHub CEO (quoted on JFrog’s call) .
  • “AI equals models, model equals binary… most…are at the experiment mode… it will take a bit longer than just a few quarters.” — CEO on AI monetization timing .

Q&A Highlights

  • Beat vs guidance driven by large deals, including deals pushed from Q2; management built the Q4/FY outlook conservatively given macro rigidity .
  • Security attached to big platform deals; introductory pricing cohorts renewing and expanding seats; packaged within Enterprise+ to drive consolidation and upsell .
  • Cloud usage steady for annual/committed customers; monthly cohort ~20–25% of cloud and being migrated toward annual to reduce volatility; no comparable Q4’23 one-time true-up expected .
  • RPO strength reflects multi‑year, large wins; billings/RPO benefited from those closings .
  • Gross margin dilution driven by cloud mix; as cloud rises as a % of revenue, management expects margins to trend lower over time .

Estimates Context

  • Attempted to retrieve S&P Global (Capital IQ) consensus for Q3 actuals and Q4 outlook but the daily request limit was exceeded; therefore, “vs estimates” comparisons are unavailable. We benchmark performance against the company’s prior guidance instead . Values retrieved from S&P Global were unavailable due to request limits.

Key Takeaways for Investors

  • Q3 execution was strong with notable large enterprise closures, driving beats vs company guidance and a sharp RPO increase ($346.1M), improving revenue visibility into 2025 .
  • Cloud momentum remains intact (+38% YoY; 39% mix), but migration timing is the swing factor; management is prudently derisking big projects amid rigid procurement cycles — an important sentiment driver for the stock near term .
  • Security is becoming the primary attach across platform deals; 2025 should be the first year of more material revenue contribution, supported by Runtime Security and deeper GitHub integration .
  • Margin mix headwinds will likely persist as cloud scales; long-term model anticipates lower gross margins with higher cloud mix, but Q3 free cash flow was strong ($26.7M) .
  • FY24 guide raised across revenue, non-GAAP operating income and EPS, signaling confidence despite macro caution; Q4 guide embeds conservatism on large migrations .
  • AI/MLOps positioning is strategic (Qwak + NVIDIA NIM), but near-term revenue impact is limited; treat as a medium-term optionality lever .
  • Trading lens: near term, watch Q4 cloud contribution and any evidence of migration acceleration; medium term, track security attach rates/renewals, Enterprise+ mix, and RPO growth as signposts for durable expansion .

Appendix: Additional Detail on Q3 Press/Announcements

  • Runtime Security: first runtime solution spanning “code to cloud,” real-time Kubernetes visibility, and integrated remediation across the supply chain .
  • GitHub integration: Copilot chat on package insights and unified security dashboard across JFrog Advanced Security and GitHub Advanced Security .
  • NVIDIA NIM: Artifactory as trusted registry + NIM microservices integration to deliver compliant, GPU‑optimized AI models at scale .