Ladies and gentlemen, thank you for joining us, and welcome to the JFrog Fourth Quarter and Fiscal Year 2020 Earnings Conference Call. I'll hand the conference over today to JoAnn Horne of the JFrog Investor Relations team. JoAnn, please go ahead.

Good afternoon, and thank you for joining us as we review JFrog's fourth quarter and 2020 fiscal year financial results, which were announced following the market close via press release earlier today. Joining us will be JFrog's CEO and Co-Founder, Shlomi Ben Haim; and Jacob Shulman, JFrog's CFO. During this call, we will make statements related to our business that are forward-looking under federal securities laws and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements related to our future financial performance, including our outlook for the first quarter of 2021. The words anticipate, believe, continue, estimate, expect, intend, will and similar expressions are intended to identify forward-looking statements or similar indications of future expectations. You are cautioned not to place undue reliance on these forward-looking statements which reflect our views only as of today, not as of any subsequent date. Please keep in mind that we are not obligating ourselves to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For a discussion of material risks and other important factors that could affect our actual results, please refer to our prospectus and our Form 10-Q filed with the SEC on September 15, 2020, and November 5, 2020, respectively, which are available in the Investor Relations section of our website and the earnings press release issued earlier today. Additional information will be made available in our annual report on Form 10-K for the year ended December 31, 2020, and other filings and reports that we may file from time to time with the SEC. Additionally, non-GAAP financial measures will be discussed on this conference call. These non-GAAP financial measures, which are used as measures of JFrog's performance, should be considered in addition to, not as a substitute for or in isolation from GAAP measures. Please refer to the tables in our earnings release for a reconciliation of those measures to their most directly comparable GAAP financial measures. A replay of this call will be available on the JFrog Investor Relations website for a limited time. With that, I'd like to turn the call over to JFrog's CEO, Shlomi Ben Haim. Shlomi?

Thank you, JoAnn. Good afternoon, and thanks for joining us for JFrog's 2020 fourth quarter and fiscal year earnings call. This is our second earnings call as a public company, reflecting the first time we will be announcing our performance versus prior quarter's guidance. And I'm proud to say we exceeded the revenue numbers we had provided. Before we start, I'd like to take the opportunity to express my appreciation to JFrog's employees for the great job and going beyond expectations in 2020. Well done. Now I'm excited to share both our 2020 annual and Q4 results with you. Q4 was a strong finish to what has been a milestone year for JFrog. Results were driven by large customers' adoption, further expansion into the APAC region, partnerships in the ecosystem and ongoing technology innovation in the JFrog Platform. As a brief overview of the business and financials, I'm pleased to report that for the fiscal year of 2020, ending on December 31, 2020, JFrog's overall revenue grew 44% over the previous year to $150.8 million, with 133% net dollar retention for the trailing 4 quarters. In Q4, JFrog's revenue climbed to $42.7 million, a growth of 39% over the same period last year. Our multi-cloud business achieved substantial growth of 69% due to the increased demand of our consumption-based DevOps services. Our free cash flow for the fourth quarter came in at a record of $11.9 million. Despite the COVID-19 pandemic, JFrog grew significantly in 2020, successfully securing new customers while achieving remarkable retention of our installed base in all verticals and across all company sizes. This growth and demonstrated customer retention supports our belief that DevOps solutions and more specifically software packages are driving the next wave of digital transformation and innovation for modern businesses. Now I would like…

Thank you, Shlomi, and good afternoon, everyone. I will provide a brief overview of our fourth quarter and full year 2020 financial results and discuss our outlook for 2021, both Q1 and the full year. As a reminder, please note that all numbers referenced in my remarks are on a non-GAAP basis unless otherwise stated. A reconciliation to comparable GAAP measures can be found in today's earnings release, which is available on our website and as an exhibit to the Form 8-K furnished to the SEC. So let's turn to our financial results. We are pleased to have finished the year on a solid quarter. The remote work trends again drove faster growth in our cloud business. Total revenues for the 3 months ended December 31, 2020, were $42.7 million, up 39% year-over-year. Self-managed revenues, also often called on-prem, were $32.9 million, up 32%. Cloud revenues, again, grew significantly faster, up 69% to $9.8 million or 23% of total revenues compared to 19% of total revenues last year. For the full fiscal year, total revenues were $150.8 million, up 44% year-over-year. Self-managed revenues were $118.2 million, up 38%. Cloud revenues for the year were up 71% to $32.6 million or 22% of total revenues compared to 18% in 2019. Net dollar retention for the trailing 4 quarters was 133%. As of quarter end, we had 352 customers with ARR of over $100,000, up from 313 customers as of September 30, our fastest sequential increase in 5 quarters. Of this group, 10 customers had ARR greater than $1 million, adding an additional $1 million customer in Q4. At year-end, we had approximately 6,050 customers compared to approximately 5,600 customers at the end of 2019. We continue to believe COVID's most significant impact is on the length of the sales cycle. In…

Thank you, Jacob. 2020 was a challenging and unexpected year for every business, yet JFrog exceeded the guidance we had provided. We believe JFrog continues to be positioned well in the market to address the growing need of digitally rich businesses. Our success to date is a testament to our core business values. JFrog hybrid, universal DevOps end-to-end platform give companies an easy way to manage, secure, build and release software updates fearlessly and with a joyful customers' experience. As we close 2020 and move into 2021, I couldn't be more proud of the Frogs, our employees, who have taken us through an unforgettable year. The platform innovation, the journey through our IPO and their never-ending commitment to quality and success have inspired our entire team. I would like to thank our community and customers who partnered with us on this journey in 2020. We couldn't have done it without you, and we look forward to more success together. Thanks for your attention. Best wishes for a healthy new year, and may the frog be with us all. And now we'll be happy to take your questions.

[Operator Instructions] Our first question will come from the line of Sanjit Singh from Morgan Stanley.

Congrats to the team on a year of 40%-plus revenue growth. I wanted to start with the momentum you're seeing on Enterprise+. That had a big jump in the quarter. And I wanted to get a sense, Shlomi, what's sort of driving that. Did you see a benefit kind of after the SolarWinds compromise with Xray? Or is it more about Pipelines? If you could sort of unpack the momentum we're seeing in that Enterprise+ subscription, that will be a good place to start.

Yes. Sure, Sanjit. Great to hear you again and greeting from Israel. Thank you for your question. Actually, it's 3 different questions, and I'll try to address it one by one. Regarding the growth we see in the adoption of the Enterprise+, the one thing we see very, very impactful is the Distribution software packages' ability that we added to the platform a bit more than a year ago. Companies are not anymore satisfied with just CI/CD and security solution. They also want to make sure that software packages are reaching their destination. And with JFrog Platform, they have an embedded solution from build to secure to release their software packages. This is what we call the circle of trust. That's one of the main drivers for customers to adopt the Enterprise+ solution. The second thing that you have asked about is security and SecOps and referring to SolarWinds, and this is a very good question because we expect all of our customers to understand that in a world of software automation and software acceleration where machines are building software and bringing software from the outside world, you should secure your repositories, especially software packages that comes in all shape and types from the public market and from the internal development team. So with Xray, you can actually scan and secure your Artifactory, your repository. That's also a proxy software from the outside. It natively sits on Artifactory. Now back to the original question. When you get all 6 products under 1 subscription, the Enterprise+ subscription, which represent the platform and the full access to all of our products, obviously, this drives a lot of attention to the market. And JFrog provides an end-to-end solution with a hybrid notion so you can have it in the cloud and on-prem. So we see more and more customers are using our platform not just on their self-hosted solution but also in the cloud and multi-cloud.

Understood. And then if I can go back to sort of the components of growth. The dollar-based net expansion is sustaining above 130%. That's great to see. On the new customer -- on the customer base growth side of the equation, that was about 7% growth this year versus 20% last year. And obviously, that was sort of impacted by COVID. But I wanted to understand what the impact of the free offering has on your paid customer growth and whether that -- there's some sort of pent-up demand you're sort of seeding the market today to maybe drive that free-based conversion later this year or maybe next. Is that the right way to think about potential improvements on the new customer growth side?

Yes. So we committed -- we aimed ourselves to have a greater than 130% net dollar retention. And obviously, we exceeded that and we are very proud of the team. But one thing that we did in the management level and the highest management level in JFrog, once COVID started, we actually put together a 3 scenarios' playbook. And one of the elements that we were very clear with our sales and support team was no matter what happened, we keep our customers and we make sure that we retain our customers at whatever cost it means, whatever engagement it requires, whatever level of support it requires. We worked very hard, and this goal was achieved during the pandemic. Obviously, new logos in the first quarter of the pandemic, Q2, and the second quarter of the pandemic, Q3, had a lot of them, had some budget reviews and budget concerns. Some of them also expressed some difficulties to reach out to procurement and legal. So the sales life cycle got a bit longer. So the new logo slowdown that we see was a combination of both our focus on retaining our installed base, making sure that our net dollar retention is high as committed. And the second thing is what happened due to the pandemic. The third thing, and you mentioned it and you are very right, we launched in the end of Q3 and throughout Q4 the free tier. The free tier is very promising, providing us the insights from the customers' journey. But also, what we see is thousands of new logos starting to use JFrog full platform, exposed to all of our abilities, all of the capabilities of the platform, but now they are not limited by time. This is not a downloadable trial. This is actually a cloud-based, consumption-based free tier for them to use when we expect to see them convert as they adopt our tool and use more of our cloud services.

Shlomi, congrats on Q4.

Thank you very much, Sanjit.

Next question will come from the line of Brad Reback from Stifel.

Jacob, as we think about the significant growth in the SaaS product and how that's going to become a larger and larger percent of revenue going forward, how should we think about the mix change and the potential impact to gross margin from that?

Yes. So obviously, our cloud margins are lower than on-prem margins. Therefore, as cloud revenues represent bigger portion, we'll see some impact on our overall gross margin. We did not see that in 2020 because we did a lot of work on streamlining our infrastructure and improving our cloud margins. Our long term, we will see convergence towards about 80% gross margin. But in the short term, we will see around similar levels, margins. As we continue to grow and cloud business continue to grow, only then we will see a gradual conversion towards 80%.

Our next question will come from the line of Jack Andrews from Needham.

I want to ask about the customers who have reached the $1 million threshold for you. Are there any lessons learned as you've taken a look at these customers' journeys that could be applied more broadly to your customer base? And how many customers do you think might be able to potentially reach that threshold over time?

Yes. Jack, that's a great question. And we build the platform, aiming to have customers at this size. We understand that DevOps and software automation is kind of driving the digital transformation, which according to any survey that we read recently is the #1 priority of a CIO. So obviously, the budget is there, the need is there, the demand is there, the pain is there, and we see more and more customers upgrading to higher subscriptions and to multiple zones. Now what will drive over $1 million PO in ARR? The #1 is a full hybrid solution not just self-hosted but also in the cloud in order to be able to provide the flexibility to the organization to push software closer to the developers and to the consumers. The #2 thing is the multiple projects that you have in a company. And when you need to consolidate that into one platform, that obviously provide benefit to the organization and a bigger opportunity for us to grow. And then the third thing is the multi-cloud solution. JFrog is the only DevOps provider that offers you not just a hybrid solution but also a multi-cloud solution so you can actually choose where and when you want to push your software to. And if JFrog have end-to-end solution that not just serves you on-prem to your thousands of developers, in this specific case of the over $1 million ARR account, and pushes to all clouds, that's obviously a great avenue for us to generate growth.

Appreciate that -- the perspective there. Just as a follow-up question, I wanted to ask specifically about how you're thinking around -- a little bit more about what you're doing in CI/CD in particular and how you're thinking about the opportunity of Pipelines. I mean do you view this as sort of a greenfield market? Or is there a potential displacement with other CI/CD tools that people are using today?

Yes. So the CI/CD -- we used to say CI/CD like it's a one market. We start to see that CI is what is closer to the developers, what we call left to Artifactory. CD is more closer to your production deployment environment, run time environment, what we call right to Artifactory. Artifactory is the control point now of every organization. And JFrog Pipelines fully embedded into the platform and natively speaks with Artifactory and Xray provide you with a few benefits over the other CI/CD tools. The first thing is that JFrog Pipeline is agnostic to any tools that you have on the CI side and integrate seamlessly with old CI tools. The second thing is that continuous deployment coming from your binaries is something that every continuous deployment solution will have to use. So instead of going to a different repository, Pipeline is natively integrated with Artifactory. Another benefit that we added to Pipeline just recently is what we call signed pipeline and -- that secure your build and secure the software delivery through the different gate. So as we see Pipeline getting more and more mature and more and more integrated to the platform, we think that it will bring new benefits to the world of CI/CD, and we'll complete the circle of trust of not only build and test but also deploy and push software packages to the on-prem.

And our next question will come from the line of Alex Kurtz from KeyBanc.

This is Michael on for Alex. Congrats on the quarter. So how do you see the expansion of Artifactory server licenses and existing customers? Is it like growth sector versus landing new accounts?

Michael -- Alex, I think that -- I'm sorry. Michael, right? Did I get your name right?

Yes, Shlomi.

Yes. Michael, I think that what we see now is that every organization started to understand that in the world of cloud-native, when containers are the #1 software package that every organization will use, you still use multiple technologies. We spoke about universality. We spoke about the radical universality approach that we have in JFrog. We now support over 30 different technology types, and this increases the demand and the adoption of Artifactory at the core in every organization. The second thing that is aligned completely with our technology is the fact that Artifactory is part of every subscription. From the free tier -- sorry, from the open source to the free tier, to our higher subscription, Artifactory is based at the core and every product -- every other product that we have is added on top of it with a different value. So to your question, we will see more and more adoptions of Artifactory, not just in a self-hosted solution but also in the cloud, on every cloud.

Okay. Great. And I'd like to just ask one more. On the billings side, could you give any color on what helped drive the outperformance in the quarter?

Yes. We believe that the best metric to assess our performance is actually ARR and billings, dependent on various factors, including sometime customers enter into multiyear agreements, which actually happened in Q4. Therefore, we believe that the best KPI to assess our growth is net dollar retention and ARR.

And our next question will come from the line Ittai Kidron from Oppenheimer.

Congrats on a great quarter and super-interesting speech, Shlomi. I wanted to kind of dig into Pipelines. It certainly feels like the CD side is broken. And so I think Pipelines is really -- offers a very unique opportunity. I guess I'm kind of wondering, would you -- just given the growing maturity of Pipelines and given how the market truly needs a good CD type of solution out there and given the agnostic nature of Pipelines, as you've described just a minute ago, I guess I kind of wonder if there's an opportunity do you see for selling Pipelines independently, not part of only your Enterprise+ subscription. Would you be looking to also potentially sell that product independently aggressively? Or you would just want to make that as a driver for Enterprise+?

Yes. Ittai, great to hear from you again. I think that you actually pointed right that the real pain that we see in the market is in the world of CD, continuous deployment. I don't want to say broken, but continuous deployment, this environment, is not yet completed. Vendors are adopting new technologies, as we speak. Kubernetes is challenging everyone. Peer-to-peer distribution is something that we just recently released, and it boosted distribution in every organization that work with our platform and powered by Pipeline. Now Pipeline is the result of an acquisition we've done 3 years ago. We acquired a company called Shippable. They built a CI/CD tool based on binaries and the metadata that binaries brings with them. We were very excited about that. And since then, we are working closely with the team that grew significantly in order to improve the integration with our platform. Now to be clear, Pipeline is available on every package, every tier of our cloud offering. The Pipeline is also part of our free tier. Pipeline is a CI/CD tool that natively sits and speaks with the Artifactory and Xray and JFrog Distribution. Now to your question about maybe offer Pipeline as a stand-alone product, maybe in the future, we will consider it. Currently, what we see, Ittai, is that the power of the platform, the end-to-end solution, what JFrog can give you, not just one security tool that scans your repository, not just as a CI/CD. To be honest, the CI world is commoditized. CD is very challenging, and it cannot come without a very powerful distribution. It cannot come without a very powerful access to the metadata of all binaries. But when it comes with this kind of assets, when it comes with this benefit, Pipeline is far more advanced than all the CD tools that you will see in the market. Pipeline comes with a vision of not just managing your automation between one gate to another but also seamlessly secure your pipeline, seamlessly push your software packages and distribute quickly to every edge. And when we look to the future, as you know, we think that DevOps journey -- the DevOps journey is not ending in the data center. It will end on the device and the edge devices. And we see Pipeline a great [ catalysator ] in this journey. So we might consider, in the future, selling Pipeline as a stand-alone. Currently, we see the benefit of all 6 products playing together, stronger and more valuable to all of our customers.

Got it. Okay. Very helpful. And then, Jacob, thanks for walking us through the cadence over the quarters, just getting all the moving pieces, but maybe you can talk about it also in the context of the net retention rate? Clearly, it's been slowly coming down here. I guess with people landing at higher tiers, how does that complicate retention rate stability? Help us think about what should we really expect from that metric as we go through these complicated year-over-year comps over the next 2, 3 year -- 2, 3 quarters?

Yes. Ittai, our midpoint of our guidance for 2021 implies 33% growth. So obviously, revenue growth is primarily driven by expansion of existing customers. Therefore, we'll continue to target our net dollar cash to be approximately 130% or above of that.

And our next question will come from the line of Jason Ader from William Blair.

My question is what is the biggest gating factor for you in getting more customers to adopt the end-to-end platform, Enterprise+? And how important is it for you to keep building out a field sales force as you strive to increase the attach rates for Enterprise+?

Yes. I think that what you see in JFrog now, that we are working very hard to have first access to our new customers and existing customers, by the way, to a full platform. It is a completely different playbook to allow our customers having or running a trial on 1 product or even 2 products versus the full platform. And therefore, we've created the free tier, the free offering in the cloud, by the way, available on every cloud, on every region to expose those customers to all of our products. So what we can see is that -- the starter journey using the full platform, and we're also looking forward to convert the thousands of new users we have on the free tier as we move on. Regarding the strategic team, what you mentioned as the field team, our strategic team is focused on the top 100 customers. This is the team that we hired in order to expand our footprint within our top 100 customers. This team is already -- working already in action, already started to bring results. We mentioned some of those successes and wins in the script. The biggest companies in the world are now looking at the second wave of digital transformation. And obviously, this team can introduce them to more and more solutions coming from JFrog.

And Jacob, one follow-up for you. Is there any change in the average new customer ARR as you guys have more success with the bundled platform?

Yes. Jason, we did start to see, as Shlomi alluded to it, customers landing on high-level subscriptions. Still, majority of customers today land on entry-level subscriptions, but gradually, we will see increase in land and average ARR per new customer.

So that's -- it's kind of a consistent trend line you expect kind of up into the right?

Yes.

And our next question will come from the line of Rob Owens from Piper Sandler.

Great. Jason, you mentioned in evaluating the business, that's going to look as NRR and ARR. And I think you guys give the ARR relative to large accounts, but are you willing to offer what the overall ARR is right now and what the growth rate's been there?

Overall ARR met our targets, and this is the metric that we're currently not disclosing. Net dollar retention is the primary metric to assess our growth in revenue.

Okay. Sounds good. And then as I look at some of the international expansion that you guys are doing, that incremental sales capacity, will you follow a similar model where it's going to be more inside-sales-driven initially before you have field sales? Or are you looking to have field sales there right away?

It's -- we are expanding our presence and footprint in different territories and obviously work very hard with our strategic team to analyze what territories we want to penetrate first. It's a combination of the maturity of DevOps in these territories and also the potential, the size of the market. In different places like China and Japan, obviously, it's a completely different playbook in Japan. We see a lot of integration and relations that we build with the -- with larger companies that serve as system integrators. In China, it requires a lot of professional services sometimes. So we have partners in this field. And locality is also very important in these territories in terms of support language and supporting our users there. So we are coming with the same subscription and adopting some of these territories' demand, the need in order to scale our footprint in this new area.

And our next question will come from the line of Brad Sills from Bank of America.

This is actually [ Sherry ] on for Brad Sills. Congrats on a strong end to the year. So you saw strong customer growth this quarter. So I wanted to ask if you would maybe call out any verticals, industries or geographies where you saw particularly strong adoption.

Yes. It's a great question. We spoke about the new territories. Obviously, Japan, China, India, Australia, the APAC territory is almost a greenfield for DevOps. The great thing about that is that while coming in late, they are adopting immediately the enterprise solution. They don't start with CI/CD or -- so they start with enterprise solution and they scale immediately. Those are 1 -- or 2 of the biggest organizations in these territories are already in touch with us, and we are in process and we see the demand there. Regarding new verticals, we believe that we should reinforce our footprint in the federal and government vertical. This requires more than just a field team or a strategic team that is expert with this vertical but also regulations that we are completing now and preparations and FedRAMP that we are in the process of completing. JFrog will exceed the ARR generated from this vertical in 2021.

And for our last question, it will come from the line of Sterling Auty from JPMorgan.

This is Matt on for Sterling. I know that the net retention rate is disclosed on a trailing 12-month basis. So I was just curious, what did the net retention rate look like just in the December quarter? And have you seen the customer expansion trends improving?

Yes. Matt, as discussed previously, we believe that the best metric to assess our performance is trailing 4 quarters' net dollar retention rate. We disclosed stand-alone back in Q2 only as a onetime disclosure because of -- to illustrate the COVID impact. And from now on, we'll be focusing only on trailing 4 quarter net dollar retention.

And I'm not showing any further questions. I'd like to turn the call back over to Shlomi for any closing remarks.

Guys, first of all, thank you so much for your attention and for taking the time to join us today. We are very happy and very pleased with the strong quarter that we shared the results with you. We wish you a great rest of the day, and may the frog be with you. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.