JFrog Ltd. (FROG) Earnings

Management highlights

- General Business Momentum * Q2 2026 results exceeded the high end of management guidance across all metrics, with strong first half 2026 execution driven by growing demand for JFrog's software supply chain infrastructure amid the AI-driven expansion of software development. * The number of customers with annual spend exceeding $1 million grew 59% year-over-year to 97, while customers with annual spend over $100,000 grew 20% year-over-year to 1,291. * Trailing four-quarter net dollar retention was 121%, up 3 percentage points year-over-year and 1 percentage point sequentially, with gross retention holding at 97%. * Overall profitability improved: operating margin reached 19.9% (up from 15.2% year-over-year), and free cash flow hit a record $53.8 million with a 33% margin (up from 28% year-over-year). * Remaining Performance Obligations (RPO) reached $659 million, growing 38% year-over-year, reflecting larger customer commitments to the JFrog platform. - Cloud Business * AI adoption is driving cloud consumption growth: increased software development velocity from AI tools generates far more binary artifacts, new AI-specific package types (such as MCP and Skills) require management, and market uncertainty leads customers to favor the flexibility of consumption-based cloud pricing. JFrog offers customers a flexible balance between committed capacity and on-demand usage. - Security Business * JFrog was named a Leader in the Gartner Magic Quadrant for Software Supply Chain Security, recognized for strong execution and its integrated single-platform approach that combines security with the software supply chain system of record. * Over 80% of new customers joining the >$1 million annual spend cohort added JFrog security in Q2, and over 40% of all new logo deals include security as an initial component. Growth is driven by rising scale and sophistication of software supply chain attacks, especially AI-fueled threats targeting open source ecosystems. * JFrog has extended security integrations to leading AI coding agents (including Cloud Code and Cursor), embedding security directly into AI-driven development workflows to block malicious packages before they enter enterprise environments. * Security is positioned as one of JFrog's most significant long-term growth drivers. - Governance (DevGovOps) * Management identifies DevGovOps (native embedded governance and compliance for AI development workflows) as the next evolution of software supply chain management, required to enable trusted enterprise-scale AI adoption. * JFrog won a seven-figure Q2 deal with a leading AI infrastructure electronic design provider that adopted JFrog UpTrust bundled with security solutions to embed centralized governance and meet global regulatory requirements. - AI Ecosystem Strategy * JFrog has announced key integrations with Anthropic and Cursor, expanding its footprint and solidifying its position as the enterprise standard for AI-powered software supply chain infrastructure. * The company won a large new logo deal with a leading AI native company, displacing a competitor that could not scale to meet the customer's growth requirements, for a multi-region hybrid deployment as the customer's system of record. * JFrog's value proposition is aligned with enterprise token economy optimization: the company monetizes trusted binary software outputs, not the number of AI prompts or lines of code generated, so it benefits from AI-driven software growth regardless of token consumption adjustments.

Guidance

- Management raised full-year 2026 revenue guidance to a range of $648 million to $652 million, representing 22% year-over-year growth at the midpoint. - Baseline full-year 2026 cloud growth guidance was raised to a range of 41% to 43%, and the net dollar retention floor for 2026 was set at 120%. - Full-year 2026 non-GAAP operating income is expected to be between $116 million and $120 million, with non-GAAP diluted earnings per share expected between 96 cents and $1.00. - Annual gross margins are expected to remain in the 82% to 83% range for 2026, consistent with prior guidance. - Q3 2026 revenue guidance is set between $164 million and $166 million, with non-GAAP operating profit expected between $27 million and $29 million, and non-GAAP diluted earnings per share expected between 22 cents and 24 cents. - Management continues to exclude revenue from cloud usage above contractual minimum commitments from guidance to maintain predictability, and de-risks guidance due to large deal timing uncertainty.

Segment performance

Total Q2 2026 revenue was $163.8 million, an increase of 29% year-over-year. Cloud revenue hit $87.5 million, growing 53% year-over-year and representing 53% of total revenue (up from 45% in the prior year). Self-managed/on-premise revenue was $76.3 million, growing 9% year-over-year and accounting for the remaining 47% of total revenue. Revenue from Enterprise Plus subscriptions contributed 59% of total revenue, up from 55% in the prior year, with 39% year-over-year revenue growth for the segment.

Risks & headwinds

- A zero-day vulnerability was discovered by OpenAI's AI model in self-hosted JFrog Artifactory; while the issue was remediated quickly and the cloud SaaS solution was not affected, unpatched self-hosted instances remain at risk. - Increasingly sophisticated AI-fueled software supply chain attacks targeting open source packages create ongoing security threats that could impact customers if vulnerabilities are not remediated promptly. - AI-driven scaling of binary volume and new artifact types creates scaling demands that competitors have failed to meet, requiring ongoing investment in JFrog's platform infrastructure. - Enterprise AI budget uncertainty and ongoing token consumption optimization create forecasting challenges for customer adoption and usage levels. - The emerging nature of agentic AI development means security and governance requirements for AI workflows are still evolving, requiring continuous platform adjustment to meet new risk profiles.

Analyst Q&A

• Q: After OpenAI's AI model discovered the self-hosted Artifactory zero-day vulnerability, has this incident delayed pipeline conversions, and how have self-hosted customers reacted? /

  A: JFrog partnered with OpenAI to remediate the vulnerability quickly immediately after it was reported, released a patched version confirmed to resolve the issue, and was fully transparent with all customers. The SaaS cloud solution was never breached, so the incident has created an opportunity to highlight the security benefits of cloud deployment and JFrog's integrated security offerings. No major customer disruption has been reported, and the incident demonstrates the value of JFrog's fast response capabilities as AI models increasingly discover new vulnerabilities.

• Q: What is the relative contribution of JFrog's different security product lines, and how has customer behavior around cloud commitment levels evolved? /

  A: Curation, JFrog's software supply chain firewall that blocks malicious packages before they enter the organization, is seeing the fastest current adoption due to the rising frequency of open source supply chain attacks. After curation, X-Ray and Advanced Security provide ongoing scanning and monitoring for deployed pipelines, with growing adoption as customers expand their security footprint. AI-driven growth has increased on-demand cloud usage above committed levels, and JFrog's sales team is actively converting this excess usage to higher commitments, but guidance still only includes committed volumes to maintain forecast predictability amid ongoing market uncertainty.

• Q: What drove the strong Q2 RPO growth, and was there any pull forward from the second half pipeline? /

  A: The main driver of strong RPO growth is growing adoption of JFrog's security products, which increase average selling prices and often lead to multi-year customer agreements. 80% of new >$1 million annual spend customers added security this quarter, and 40% of new logos include security in their initial deal. There was no meaningful pull forward of deals from the second half; the strong RPO reflects solid execution on a pipeline that has been building since Q3 2025. Rising software supply chain attacks may have expedited some pipeline opportunities, but no major pull forward occurred.

• Q: How is JFrog positioned to become the home for new AI-native artifacts like models, and what is the outlook for additional large AI native customer wins? /

  A: JFrog's long-standing focus on binaries (the final output of software development) positions it well to become the leading registry for AI models and new AI artifacts, beyond its existing position as a leading container registry. JFrog won a large deal with a top AI lab this quarter, displacing a competitor that could not handle the required binary scaling; this customer uses a hybrid model, with a cloud mothership and on-premise instances in private data centers. Working with these leading AI labs pushes JFrog to improve its scaling and security capabilities, and there is a strong pipeline of additional similar opportunities with large AI native companies.