Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- JFrog Ltd (FROG, Financial) reported total revenue of $103 million for Q2 2024, marking a 22% year-over-year increase.
- Cloud revenue grew by 42% year-over-year, reaching $39.3 million.
- The company added 115 net new logos to the greater than $100,000 ARR category in Q2, increasing the total to 928.
- Gross margin improved to 84.4% from 83.6% in the previous year.
- The acquisition of Qwak AI positions JFrog Ltd (FROG) as the first company to offer a comprehensive end-to-end DevOps and MLOps solution.
Negative Points
- High TCV deal cycles are taking longer than anticipated due to budget constraints.
- The company anticipates slower growth in customer expansion due to a strict budget environment and longer sales cycles.
- Cloud revenue growth guidance for the full year 2024 has been revised down to around 40%, from an earlier expectation of mid-40s.
- The company expects lower anticipated cloud revenue growth and changes in customer purchasing habits.
- Material revenue from JFrog advanced security and curation is now expected to be achieved in 2025, rather than in the second half of 2024.
Q & A Highlights
Q: I just wanted to understand a little bit more on what transpired and you had reaffirmed guidance. Did you notice the change in the sales cycle dynamics maybe in the month of July?
A: We noticed a pushout in the final few days of the quarter and a marketable change in the macroeconomic environment in the first month of the new quarter. Therefore, we revisited our forecast and adjusted our guidance going forward for the full year.
Q: On the cloud revenue guidance coming down five points, how much of that is driven by the monthly cloud part and the annual cut?
A: The monthly subscribers from our cloud growth account for around 2 to 3 percentage points of the decline.
Q: Just on the Microsoft partnership, what does this JFrog-GitHub partnership mean from a product standpoint for the customers?
A: The partnership is driven by customer demand for a seamless native workflow between GitHub for source code management and JFrog for binary management. We have high hopes for this integration, especially around DevOps security and AI.
Q: Is there a way for us to think about the historical contribution to cloud revenue growth from existing customers moving over from on-prem?
A: For customers migrating from self-hosted to cloud, we see anywhere from 20% to 80% uplift in the subscription. Regarding the timing, we have derisked any migrations going forward.
Q: Was there any particular segments that stood out that drove the incremental weakness or was it broad-based?
A: It was broad-based across geographies, customer profiles, and different demands, whether it's security or DevOps. It's more about budget concerns and procurement environments.
Q: On the timing of the contribution of advanced security, why would it push out given the focus on software supply chain security?
A: Most of our strategic customers are looking at consolidating point solutions, leading to higher TCV deals and longer proof of concept processes. We want to be conservative about the security revenue expectations.
Q: Trying to understand the linearity of cloud deals with the guidance given. Is that typically how buyers are consuming cloud?
A: The seasonality of purchasing typically sees majority of deals done at the end of the quarter. During Q2, decisions that were high probability were pushed to later periods, leading us to derisk our forecast.
Q: The revised guidance for the full year on the cloud implies mid-30s growth rate in the second half. Is there anything else within that guidance aside from migrations?
A: In addition to migrations, we are not seeing the level of expansion expected in the second half due to the macro environment and rigid purchasing environment.
Q: Can you remind us what percent of the cloud is month-to-month?
A: Approximately 25% of our cloud business is monthly.
Q: What changed from last quarter when you were confident about mid-40s growth in cloud?
A: We saw significant migration deals that have been de-risked and a decline in monthly consumption without commitments. Both factors led to the adjustment in our cloud growth guidance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
