JFrog Ltd. (FROG) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a strong financial performance with 22% YoY revenue growth and a promising partnership with Hugging Face. The guidance aligns with expectations, and the Q&A highlights strategic AI and cloud investments, strong cash flow, and positive analyst sentiment. However, management's reluctance to provide specific future details slightly tempers enthusiasm. Given the market cap, a 2% to 8% positive reaction is likely.
Key Financial Performance
Software Revenue $127.2 million, up 23% year-over-year. The increase was attributed to consistent execution and disciplined strategic investments.
Cloud Revenue $57.1 million, representing 45% year-over-year growth. Growth was driven by sustained cloud usage and a strategic focus on converting customers with steady usage above minimum commitment into annual contracts.
Customers Spending Over $1 Million 61 customers, up from 42 in the year-ago period, equaling 45% growth year-over-year. This growth was attributed to enterprise focus, product, and go-to-market strategies.
Customers Spending Over $100,000 Annually 1,076 customers, up from 928 in the year-ago period, equaling 16% year-over-year growth. This was driven by broader customer adoption of the JFrog platform.
Net Dollar Retention 118%, up 2 points sequentially. The increase was driven by the adoption of security core products and increased data consumption, resulting in higher customer commitments.
Gross Margin 83.1%, compared to 84.4% in the year-ago period. The slight decrease was due to the increased mix of cloud revenues.
Operating Margin 15.2%, compared to 13.2% in the year-ago period. The improvement was due to a balance between strategic investments and operational efficiency.
Cash Flow from Operations $36.1 million, with free cash flow reaching $35.5 million or 28% margin, compared to $16 million or 15% margin in the year-ago period. The increase was due to strong operational execution.
Cash and Short-Term Investments $611.7 million, up from $522 million at the end of 2024. The increase was attributed to strong cash flow generation.
Remaining Performance Obligations (RPO) $476.7 million, a 75% increase year-over-year. This growth was driven by customers' multiyear commitments to JFrog's DevOps and security offerings.
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Operating Highlights
AI and Machine Learning: JFrog has invested in making its platform the system of record for MLOps and AI-driven software delivery. It partnered with Hugging Face to secure open-source AI models and launched JFrog ML for enterprise customers. JFrog was also announced as the cornerstone software artifact repository for NVIDIA's enterprise AI factory.
JFrog MCP Server: Launched in mid-July during the AWS Summit in New York, the JFrog MCP server integrates deeply into the AI ecosystem, addressing emerging threats tied to MCP usage.
Cloud Revenue Growth: Cloud revenue grew to $57.1 million in Q2, representing a 45% year-over-year increase. The company focuses on converting customers with steady usage into annual contracts.
Enterprise Plus Subscriptions: Revenue from Enterprise Plus subscriptions grew 36% year-over-year, now contributing 55% of total revenues.
Operational Efficiency: Operating margin improved to 15.2% in Q2, up from 13.2% in the prior year. Free cash flow reached $35.5 million, a 28% margin compared to 15% in the prior year.
Customer Growth: Customers spending over $1 million annually grew to 61, a 45% year-over-year increase. Customers spending over $100,000 annually grew to 1,076, a 16% year-over-year increase.
Hybrid Cloud Strategy: JFrog has been hybrid from the start, offering solutions that run in the cloud, on-prem, or both. This aligns with the shift from 'cloud-first' to 'fit-for-purpose' strategies by enterprises.
AI and Security Partnerships: JFrog is deepening partnerships with AI industry leaders and expanding support for the AI ecosystem. It also focuses on driving community standards for responsible AI adoption.
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Risk or Challenges
Hybrid Cloud Demand: The shift from cloud-first to hybrid cloud due to AI adoption may extend sales cycles for customers migrating workloads to public clouds, potentially delaying revenue realization.
AI Cost Predictability: The unpredictable cost of running AI at scale is forcing enterprises to rethink infrastructure, which could impact JFrog's ability to secure predictable revenue streams.
Macroeconomic Uncertainties: The company acknowledges macroeconomic uncertainties and exercises caution in its forward outlook, which could affect customer spending and deployment timing.
Security Threats in AI: Emerging exploitation risks tied to MCP usage in AI development could pose challenges to JFrog's security solutions and reputation if not adequately addressed.
Conflict Impact on Operations: The recent conflict in Israel posed operational challenges for the team, which could have impacted productivity and execution.
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Guidance & Outlook
Q3 2025 Revenue Guidance: Expected revenues to be in the range of $127 million to $129 million.
Q3 2025 Non-GAAP Operating Profit: Anticipated to be between $16.5 million and $18.5 million.
Q3 2025 Non-GAAP Earnings Per Share: Expected to be $0.15 to $0.17, assuming a share count of approximately 122 million shares.
Full Year 2025 Revenue Guidance: Anticipated revenue range of $507 million to $510 million, representing approximately 18.7% year-over-year growth at the midpoint.
Full Year 2025 Non-GAAP Operating Income: Expected to be between $75 million and $78 million.
Full Year 2025 Non-GAAP Diluted Earnings Per Share: Expected to be $0.68 to $0.70, assuming a share count of approximately 121 million shares.
Full Year 2025 Baseline Cloud Growth: Estimated to be in the range of 34% to 36%, excluding contributions from usage above annual customers' minimum commitments.
Net Dollar Retention Rate for 2025: Expected to remain in the mid-teens during 2025.
Annual Gross Margins for 2025: Expected to remain between 82.5% and 83.5% due to continued focus on cost optimization with cloud service providers.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Can you discuss the evolution of cloud-first and self-managed data center offerings, particularly in the context of AI and cost predictability?
A:Shlomi Ben Haim explained that customers, especially large-scale organizations, are reconsidering their cloud strategies due to uncertainties in cost predictability in the AI era. While smaller developer shops may not establish their own data centers, larger organizations are exploring hybrid models to manage data and AI workloads responsibly.
Q:How has the sunsetting of JFrog Pipelines impacted growth and partnerships, particularly with CI/CD players like Microsoft GitHub?
A:Shlomi Ben Haim stated that discontinuing JFrog Pipelines allowed the company to focus on its strengths, particularly in security and cloud migration. This decision has improved integration and partnerships with CI/CD players like GitHub, reducing customer confusion and enhancing market collaboration.
Q:Can you provide insights into the pipeline of large enterprise deals and their impact on the second half of the year?
A:Shlomi Ben Haim highlighted that the pipeline focuses on cloud migration, security solutions, and MLOps. A notable deal involved a telecommunications company adopting JFrog Advanced Security and JFrog Curation. The company remains positive about the second half, with a conservative approach to derisking large deals.
Q:Was the strong performance in security expected, and how are renewals progressing?
A:Shlomi Ben Haim noted that security adoption is accelerating due to the consolidation of security tools and the relevance of JFrog's solutions. Renewal rates remain high, and the company is optimistic about continued adoption and partnerships in 2025.
Q:What are the consumption trends when customers use Artifactory as a model registry?
A:Shlomi Ben Haim explained that AI models are treated as binaries, and Artifactory serves as a unified system of record for all assets, including models. This approach enhances platform stickiness and positions JFrog as a critical component in the software supply chain.
Q:Can you provide an update on the key AI technology leader customer and their ramp-up?
A:Shlomi Ben Haim shared that the AI technology leader doubled their subscription with JFrog within one quarter, reflecting strong growth in AI-related usage.
Q:How does AI enable smaller teams to ship code faster, and what is JFrog's role in this context?
A:Shlomi Ben Haim stated that AI introduces code assistance tools, fundamentally changing development processes. JFrog's model registry and security solutions are critical for managing these new workflows, positioning the company as a strong infrastructure provider.
Q:Why was cash flow strong in the first half of the year, and is it expected to continue?
A:Eduard Grabscheid attributed strong cash flow to multiyear deals and disciplined deal execution. While the second half depends on large deals, the company remains focused on profitability and free cash flow.
Q:Has there been a change in cloud budgets, and are experiments transitioning to actual programs?
A:Shlomi Ben Haim observed healthy cloud consumption growth, particularly in AI-related data and storage usage. The company converts over-usage into annual commitments, maintaining a conservative approach.
Q:What should be considered regarding RPO or cRPO dynamics for the second half?
A:Eduard Grabscheid emphasized that RPO and cRPO are not direct indicators of revenue. The company focuses on revenue guidance, considering the timing and nature of large deals.
Q:How are hyperscaler partnerships influencing security wins and cloud adoption?
A:Shlomi Ben Haim highlighted strong collaboration with AWS, GCP, and Microsoft Azure, which accelerates deals and optimizes costs. These partnerships are crucial for scaling and co-selling.
Q:Are there plans to adjust pricing models to capitalize on AI/ML trends?
A:Eduard Grabscheid mentioned that AI-related usage is stabilizing, and the company is evaluating monetization strategies as the market matures.
Q:What is the impact of AI coding tools on the DevOps tool chain and JFrog's business?
A:Shlomi Ben Haim noted that AI coding tools introduce new binaries and security threats, increasing the relevance of JFrog's solutions. While the impact is still emerging, the company is well-positioned to address these changes.
Q:What is the outlook for security as a material part of the business in 2025?
A:Eduard Grabscheid confirmed strong momentum in security and plans to provide detailed metrics at the end of the year.
Q:How does JFrog address MCP server vulnerabilities and secure AI agent behavior?
A:Shlomi Ben Haim explained that JFrog integrates with MCP servers to enable AI agent interactions while addressing security vulnerabilities. The company aims to be a system of record for all binaries, including AI models.
Q:What is the opportunity for MCP solutions in foundational model providers and large enterprises?
A:Shlomi Ben Haim stated that MCP solutions are relevant for all AI agents and enterprises, enabling secure and efficient integration with JFrog's platform.
Q:What are the drivers of self-managed subscription growth?
A:Shlomi Ben Haim identified AI-driven hybrid solutions and security adoption as key drivers for self-managed subscription growth.
Q:How has the competitive landscape for security evolved, and what are customer conversations like?
A:Shlomi Ben Haim noted that customers are consolidating security tools and adopting modern solutions to address new threats. JFrog's contextual analysis and model security capabilities are gaining traction.
Q:What is the customer reception to runtime security, and how does it contribute to the security business?
A:Shlomi Ben Haim emphasized that runtime security complements JFrog's software supply chain security solutions, addressing different threats and needs.
Q:How is pricing impacted by customers adopting the end-to-end portfolio?
A:Shlomi Ben Haim mentioned that pricing and subscription models are under review, with potential new packages for advanced security adopters to be announced at swampUP.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the percentage of new security wins sourced via marketplaces, the exact impact of AI coding tools on revenue, and the granularity of security's contribution to the business. Additionally, they did not comment on third-quarter trends or provide precise RPO/cRPO dynamics for the second half.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI adoption
AI community
AI ecosystem
AI factory
AI industry
AI scale
Co Research
Conference
Enterprise AI
Inc Research
Investor Relations
MCP server
Research Division
Security Core
adoption AI
adoption security
chain platform
commitment contract
core
cost
demand
enterprise AI
infrastructure
innovation
launch
predictability
software package
standard
swampUP
system record
th
usage commitment
workload cloud
world
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JFrog Ltd. (FROG) Q3 2025 Earnings Call Transcript
Positive11-7
The earnings call summary and Q&A indicate strong cloud growth, successful go-to-market strategies, and a significant increase in RPO, all positive signs. Despite a decrease in margins, optimistic guidance and execution in cloud and security sectors suggest positive sentiment. The market cap indicates moderate sensitivity, but overall, the outlook is positive due to strong strategic positioning and growth drivers.
JFrog Ltd. (FROG) Q2 2025 Earnings Call Transcript
Positive8-8
The earnings call presents a strong financial performance with 22% YoY revenue growth and a promising partnership with Hugging Face. The guidance aligns with expectations, and the Q&A highlights strategic AI and cloud investments, strong cash flow, and positive analyst sentiment. However, management's reluctance to provide specific future details slightly tempers enthusiasm. Given the market cap, a 2% to 8% positive reaction is likely.
FROG Slides
FROG Report
Frequently Asked Questions
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