Key Points
- Revenue hit the lower end of guidance at $103 million.
- Non-GAAP earnings per share came in at $0.15, the higher end of management's guidance.
- Fiscal year guidance was revised down, reflecting cautious growth expectations.
JFrog (FROG -0.64%), a leading company in DevOps and security solutions, released its second-quarter 2024 earnings on 2024-08-07. The report showed revenue of $103 million, matching the lower end of its goal of $103 to $104 million. Earnings per share (EPS) on a non-GAAP basis reached $0.15, the high end of the expected $0.13-$0.15 range. However, the company adjusted its full-year 2024 revenue outlook downward to $422-$424 million from the earlier guidance of $425.5-$429.5 million. Despite strong quarterly results, these adjustments reflect a more measured approach considering macroeconomic conditions. The quarter was characterized by effective cost management and strong adoption of the company's platform, though significant GAAP losses due to stock-based compensation and acquisitions were notable.
| Metric | Current Period (Q2 2024) | Management's Guidance | Prior Year (Q2 2023) | Percent Change (YoY) |
|---|---|---|---|---|
| Revenue | $103 million | $103 to $104 million | $84.2 million | 22.3% |
| Non-GAAP Operating Income | $13.6 million | $13 to $14 million | $8.2 million | 65.9% |
| Non-GAAP EPS | $0.15 | $0.13 to $0.15 | $0.11 | 36.4% |
| GAAP Operating Loss | ($19.1) million | N/A | ($18.9) million | 1.1% |
| Source: Expectations based on management's guidance, as provided in 2024-05-09 earnings report. |
Business Overview and Strategy
JFrog offers an end-to-end, hybrid, universal software supply chain platform that integrates everything from development to deployment, across different environments. This versatility helps organizations manage continuous and secure software updates, avoiding vendor lock-in. The company focuses on integrating advanced technologies such as DevOps and security practices (DevSecOps), empowering developers and IT operators to deliver efficient and secure software releases.
Recently, JFrog has expanded its platform to include MLOps (Machine Learning Operations) via the acquisition of Qwak AI. The company's Enterprise+ subscription has seen robust adoption, generating $51 million and making up 50% of total revenue for the quarter. This integrated approach helps secure greater customer retention and continuous product innovation, both crucial for long-term success.
Detailed Quarterly Achievements
The second quarter of 2024 was marked by several notable financial and operational achievements. Total revenue rose by 22% year-over-year to $103 million. This growth was driven by a 35% increase in Enterprise+ subscription revenue, and cloud revenue surged by 42% year-over-year to $39.3 million. Notably, customers with annual recurring revenue (ARR) greater than $1 million rose by 75% to 42 customers.
From a financial perspective, JFrog reported non-GAAP operating income of $13.6 million, up from $8.2 million in the prior-year period. This aligns well with management's guidance of $13 to $14 million, demonstrating effective cost management. However, the GAAP operating loss of ($19.1) million, largely due to stock-based compensation and acquisition-related costs, presents a significant gap compared to the non-GAAP figures. The company maintained a non-GAAP gross margin of 85.1%, up from 82.9% in the same period last year.
During the quarter, JFrog expanded integration capabilities, including a notable partnership with Microsoft GitHub that enhances navigation between source code and binaries. The company's focus on security and compliance solutions is evident through these existing and new product integrations. Cloud revenue, which saw a significant 42% increase, further underlines the company's growth in secure cloud-based solutions.
The second quarter also saw continuous growth in high-value customer segments. Customers with greater than $1 million ARR reached 42, a 75% year-over-year increase. Additionally, customers with ARR greater than $100,000 increased to 928 from 813 in the previous year. This highlights JFrog's scalable solutions that appeal to and retain larger enterprise clients, contributing significantly to the company's revenue.
JFrog maintained a strong Net Dollar Retention Rate (NRR) of 118%, showcasing high customer satisfaction and increased spending by existing users. This indicates the effectiveness of JFrog’s bottom-up and top-down strategies in organic adoption and expansion within organizations. Despite significant GAAP losses, the company managed to meet or exceed its non-GAAP guidance, highlighting its solid financial management.
Looking Ahead
Looking forward, JFrog provided optimistic guidance for the third quarter of 2024, expecting revenue between $105 and $106 million and a non-GAAP operating income between $10 and $11 million. The expected non-GAAP net income per share ranges from $0.09 to $0.11. However, for the full fiscal year, the company revised its revenue guidance downward to $422 to $424 million from the previous range of $425.5 to $429.5 million. Non-GAAP operating income was also revised down to $52 to $54 million from $56 to $58 million.
Management's tempered outlook reflects both external economic pressures and challenges within the competitive landscape. As JFrog continues to navigate these hurdles, investors should closely monitor its ability to sustain growth, particularly in high-value customer segments and cloud revenue streams. The company’s integration of advanced AI and security solutions will be crucial for long-term success and maintaining its market position.
In conclusion, while JFrog Ltd. showed robust quarterly performance, achieving or surpassing many of its guiding metrics, the cautious outlook for the full year suggests careful consideration of broader economic conditions and competitive dynamics. Investors should stay vigilant about these updates to gauge the company's ongoing performance and strategic adjustments.
