Good day, and thank you for standing by. Welcome to the JFrog's Fourth Quarter Fiscal 2021 Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] I'd now like to hand the conference over to JoAnn Horne with Investor Relations. Please go ahead.

Thank you, Norma. Good afternoon, and thank you for joining us as we review JFrog's fourth quarter and full year 2021 financial results, which were announced following market closed via press release. Beginning the call today will be JFrog's CEO and Co-Founder, Shlomi Ben Haim; and Jacob Shulman, JFrog's CFO. Before management share some remarks, let me review the safe harbour statement. During this call, we may 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 and full year of 2022. 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 and 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 Form 10-K for the year ended December 31, 2020, filed with the SEC on February 12, 2021, and our Form 10-Q for the quarter ended September 30, 2021, filed with the SEC on November 05, 2021, all of which are available on the Investor Relations section of our website along with the earnings press release issued earlier today. Additional information will be made available in our Form 10-Q for the year ended December 31, 2021, 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 and isolation from GAAP measures. Please refer to the tables in our earnings release for a reconciliation of those measures to the most directly comparable GAAP financial measures. A replay of this call will be available on the JFrog Investor Relations site 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 and greetings to all of you from the swamp. I am excited to welcome you to our fourth quarter and fiscal 2021 earnings call. Every interfere, urges us to pose, look back and observe the leaps the company has taken from all perspectives. I'm grateful for our customers and community, their faith in JFrog and their determination to innovate and digitalize the world inspires us to bring our best to walk every day, 2021 ended on a strong note. Our multiple strategies across technology, business and culture continue to bare food that I'm happy to share with you today. I'm pleased to report that we delivered another strong quarter and that in Q4, all of JFrog's key metrics continued to trend upwards, reflecting the continuous demand for our platform in an expanding market. Q4 revenue was $59.2 million, a growth of 39% over the same period last year, and compared to 38% year-over-year growth reported in the previous quarter. Our cloud revenue in Q4 grew by 52% year-over-year and increased from 50% reported in the previous quarter. This reflects our ongoing strategy of accelerating our multi-cloud and hybrid growth. Growth in customers with over $100,000 in ARR accelerated to 53% year-over-year, reflecting a compelling market need for complete JFrog platform solution with our enterprise plus subscription. I'm also happy to report that our full trading quarters net dollar retention climbed to 130% as predicted compared to 129% reported in the previous quarter. This was driven by customer's increased usage of our product as a unified platform with binary management, security and software distribution as key drivers. This year, hundreds of new customers adopted our solutions and I'm pleased to report that we closed the year with approximately 6,650 customers across industries, which represents 10% year-over-year net growth.…

Thank you Shlomi and good afternoon, everyone. We are very pleased to have ended the year with a strong quarter in line with the commitment we made back in Q1 of this year, that the second half of the year would show acceleration across the business. I will start with a brief overview of our fourth quarter and fiscal year 2021 financial results and provide our outlook for Q1 and the full year of 2022. As a reminder, 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 into today's earnings release, which is available on our website and as an exhibit to the Form 8-K furnished to the SEC. Now let's turn to our financial results, total revenues for the three months ended December 31, 2021 were $59.2 million up 39% year-over-year. This is our strongest growth rate in fourth quarter and we continue to see a better business environment. Self-managed revenues also often called OnPrem where $44.4 million up 35%. Cloud revenues again grew faster up 52% to $14.8 million or 25% of total revenues. For the full fiscal year, total revenues were $206.7 million up 37% year-over-year. Self-managed revenues were $157 million up 33%. Cloud revenues for the year were up 52% to $49.7 million or 24% of total revenues compared to 22% in 2020. Net dollar retention for the four trailing quarters was 130%. We expect net dollar retention for the trailing four quarters to remain around approximately 130% for the foreseeable future. We ended the year with approximately 6,650 customers, a 10 increase over 6,050 customers at the end of 2020. As noted by Shlomi, we [indiscernible] product while the vast majority of customers adopted our other distribution solutions, we…

Thank you, Jacob. JFrog successfully marked its first complete fiscal year as a public company, exceeding revenue commitment in every single quarter of 2021. We met our product delivery goals while continuing to build an efficient and healthy business. JFrog fourth quarter performance is a great foundation to build upon as we leap into 2022 providing further evidence that we have the right strategy and portfolio for growth in 2022 and beyond. During 2021, under the pandemic reality, we also nearly doubled the size of the company in terms of employee headcounts and recently crossed the 1,000 employee bar. This growth is reflective of the strong uncompromising culture we have built that cuts through a challenging label market. In the last year, greater than ever before, we saw more and more companies identifying software binaries as the primary asset to allow fast and secure digital transformation. We believe JFrog is well positioned to drive strong results in 2022. We look forward to delivering for developers, companies, customers and shareholders throughout the year. Next week on February 15, we'll hold our first Investors Day. We look forward to virtually hosting you as we share more in depth details about JFrog's technology and business. I'd like to thank you all for your attendance may the JFrog with you. And now we are happy to take your questions.

[Operator instructions] Our first question will come from Mike Cikos with Needham and Co. Please go ahead.

Hi guys. Thanks for taking the questions here. I appreciate it. The first question that I wanted to ask about, I know that you guys had mentioned an impact of 4Q profitability as it relates to the Upswift acquisition. Could you help us fine tune what that impact was and then maybe parse out what kind of impact we should be thinking about from the Upswift acquisition as we look at the guidance that you guys provided us for fiscal year '22?

Yes. Hi Mike, this is Jacob. As you know, we acquired two companies in Q3 Vdoo and Upswift, actually Vdoo was a large company that required and had more material impact than Upswift acquisition. Both of them, are currently been integrated technologies and making a very nice progress with that. So specifically with your question, Upswift did not have any material impact on our profitability. It just was a very small team. It was the Vdoo acquisition had bigger impact because it's a much bigger team. Overall our security division today is around 100 people. Significant portion of that is coming from Vdoo.

Understood. Thank you for that. And then the other question I wanted to add is if I'm thinking about Q4 and the revenue upside that you guys delivered, can you help us think about the outperformance? What, went better for you guys this quarter that helped deliver that upside versus your patients coming into the quarter?

Yes. We're absolutely right that we were very pleased with adoption of proper platform. What we've seen is better than expected adoption of platform and Shlomi talked about different drivers behind that distribution capabilities and enhanced security capabilities were the primary drivers for the adoption of the platform. And that is also indicated in the acceleration for the growth of large customers, specifically over 100 K customers grew 53% year over year. And a substantial point to the platform is $115,000, that kind of gives you approximate number of new customers that adopted the platform.

Great. Thank you. I'll turn it over to my colleagues. Appreciate it.

Thank you. Our next question will come from Sterling Auty with JPMorgan. Please go ahead.

Hey, this is Doug on for Sterling. Thank you for taking my question. Can you talk about what you're seeing in terms of the adoption of x-ray now that it's included in the enterprise price?

Yes. Hi, and thanks for the question. This is Shlomi. X-ray or if I may say the security solution is lending on a very strong demand around software supply chain and binary security request and requirement from our customers. Basically what we have seen lately, especially in 2021, is that most of the vulnerable pieces of your software supply chain are coming from binary, third party or first party. X-ray fits natively on top of arti factory. It's part of three subscriptions in the third hosted offering and offered to all of the cloud customers. So obviously we see a growing number of customers that are adopting x-ray. Speaking of look for J specifically, that was, at the end of the year, but it echoed everything that we are saying about what type of security, the world of DevOps and DevSecOps demand the need and obviously they’ve generated a much greater demand by the market. So you see more adoption of our platform. You see more adoption of x-ray and the integration of x-ray and video technology have also a very promising roadmap ahead.

Thank you. Our next question will come from Kingsley Crane with Berenberg. Please go ahead.

Hi, I'm wondering on Log4j. So how much did helping customers with this open up a broader conversation on other platform products?

Another platform product Kingley regarding log four J specifically?

Well, yeah, if you help them with Log4j you can be kind trusted partner and maybe they'll expand into other products.

Yeah. So let's take a step back for a moment and see how the sole tool chain kind of supported this software pandemic as was going by the community. First of all, you have to identify the vulnerable binary. And this obviously happened in a matter of minutes by using Artifactory, the database of DevOps. Point A, Artifactory is the core product of our platform. Then you have to establish and to place all type of security policy on top of your repository to protect it. So no developer will try to get a vulnerable piece again, and this is where you use x-ray and now you have to ask all of your deployment environment and development environment to build against the new patch of the Log4j. and this is where JFrog distribution comes in in place. So obviously the different size of the platform playing together emphasize amplified by the Log4j episode was a great driver to tell the story not only of the JFrog platform, but overall DevOps with the binary centric approach.

Okay. That's really helpful. That's it for me now. Thank you.

Thank you. Our next question will come from Sandeep Singh with Morgan Stanley. Please go ahead.

Thank you so much for taking the question and congrats on the strong Q4 and the guidance was very healthy too. So, glad to see on both accounts. One of the things in the metrics you sort of disclosed was the customer base growth. And I was really happy to see that grow, get back into the double digits. Shlomi, I was wondering if you could talk about how that sort of progressed through the year. I know we had -- you took a deliberate focus on focusing on the existing customers in 2020, and now it seems like we're starting to see growth again. How durable is that going into 2022 and are there any sort of incentives that you guys using to drive that free to pay conversion? Any sort of commentary on the customer base would be helpful?

Yeah. Hey, Sandeep thankful for the question. Obviously we were very excited about all the metrics of 2021 and also the growth in new logos, new customers, new onboarding users that are using the JFrog platform. We committed in 2021 to perform in a higher pace and add more new logos in 2020 and we delivered and that although we had to remove friction and remove bin rate from our portfolio and by that even as Jacob mentioned in the script we lost 200 customers and still we grow as expected. So we were very pleased to see this grow happening again, this trend of adopting the JFrog products again. And what I see moving forward is that our investments will bear fruit, it happen in 2021, it will happen even further in 2022. The security investment is very much appealing to the market. This is a booming market. Everyone, everyone that we speak with speak about the pain of securing the full software supply chain, x-rays the perfect fit for it. The enforcements of Vdoo technology and the team is in a very, very well aligned with the market needs. The enhancements added to Artifactory to manage binary from pack would be also very appealing to it. And also our strategic move to the cloud with the free tier that you remember also start to show higher adoption in terms of active users that are lending on JFrog solution rather than taking any other solution in the market. So I'm very optimistic regarding the growth of additional customers in the next year. And if I may also say, although it's the very early beginning of JFrog Connect, this is also a very unique solution to the market. There is no other distribution solution from the DevOps environment that is secured going all the way to devices. This will open a new field for JFrog when any introduces to new users that currently not necessarily using any kind of DevOps practices. So bottom line, I'm very pleased and I'm very positive regarding the future.

If I may just add to that Sandeep, majority of our customers now join in on cloud and that's a big distribution of that is three tier that was launched late last year. Actually of the new customers about 60% now joining on cloud and that portion of new customers on cloud continues, continues to grow.

That's very encouraging to hear and then sort of dovetail off, off the previous question, if we look back of last year, the other part of last year, there was a new pricing sort of rolled out for server customers and I think in Q1, you saw a sizable cohort sort of take advantage of the opportunity to upgrade their subscription tiers to sort of bypass that price increase. What is sort of the team's sort of base case view on what those customer cohorts will do when they sort of come up for renewal this spring? Do you expect them to -- should we expect those price increases to flow through it started starting in the spring or do we expect some customer behavior to minimize the impact there? Any, base case for you would be helpful?

Yes, I'll take that question. So as you know, the price increase went in effect on April 1 and since then, actually to different portion, actually, majority of our customers have all renewed new prices. So we continue to see same retention levels, growth retention levels as previously. So our customers understand why we did that and they sent new pricing and move forward. Actually, specifically to your question on Q1, our renewal base of customers in Q4 was bigger than in Q1. So really I think that the market and the customers understand the values we provide. They accept it and move forward. So we don't expect any changes in this pattern in Q1. And just to remind everyone, this is only the relevant to the self offset solution. So the growth in the cloud was not impacted by the price changes, and it was not just price changes, but also a huge amount of technology added to our platform during this year. So, as Jacob mentioned, the churn is very low, retention very high, and also the net dollar retention is committed climbed up. So we are very pleased with the results.

Appreciate all the color. Thank you, guys.

Thank you. Our next question will come from Jason Ader with William Blair. Please go ahead.

Hey, this is Sebastian [ph] on for Jason. Thanks for taking the question. I wanted to double click a little bit on this DevOps for connected devices, market where connect and distribution products play. Can you maybe help us, define what this market is and how it might be a little different from sort of the traditional DevOps market and any type of, a metrics or market opportunity metrics you could provide?

Yes. Thank you, Sebastian. We are very excited about this opportunity and JFrog was established 12 years ago. We pioneered the, the DevOps market by introducing the binary solution, but we had the end in mind already from the start. Like, what is it that we really ask for? We ask for software update to happen at the edge. We want our devices to be connected and therefore, any kind of efforts that you invest only on the developer side or secure, only part of your organization is linked, is half big. And when we looked at the liquid software vision, our end in mind was getting the binary all the way to the devices. When we started to build JFrog distribution a bit more than three years ago, we list two years ago. We knew that there is a missing part. What had happen after the data center, what happened after the cloud? What happened after your Kubernetes environment? And this missing path was connecting the, the devices to the CI/CD world. So from the developer's machine, from the developer's keyboard, you will be able to push it all the way to the devices. Now, what we see in the future Sebastian, it's not just millions and tens of millions of developers building 10 times, 20 times a day. We see billions of devices that need to be updated. And since binary is the only digital asset that moves from the developer hand to the device, to your iPhone, to your Coffee maker, to any device that we use, we see a huge avenue of growth. We started with distribution. We then extended with PDN. We now acquired up suite and build JFrog connect. And I'm sure that the market would follow, but this is the real demand, the real change of digital transformation.

Got it. That's very helpful. And then if I could just follow up, could you maybe talk a little bit about the go to market investments that you've made that could help accelerate the, the new customer acquisitions, the new logo lands, and then are you, are you landing at higher ARR's as customers demand sort of a, a broader platform or because a lot of these new customers are, are adding the cloud version. Are they actually lower ARR lands?

So when you adopt the, the platform on-prem all cloud, you already pay more than a hundred thousand dollars. And this is the highest subscription of what we call the enterprise plus in the cloud. Obviously you also go by consumption, but the base price is in both, both cases is over a hundred thousand dollars in terms of the go to market, what we have built on the self-hosted and in the cloud is the combination of the freedom of choice to the user to the developer comes with more value and capabilities of the platform. So when you upgrade, you get security, when you upgrade again, you get highly available solution, DR and so on. When you upgrade to the platform, you get distribution capabilities and so on and so forth in terms of the cloud, obviously when you use more, you pay more, that's the simple go to market philosophy that we have in JFrog. On top of that, we provide you with the multi-cloud solution. So it's not just one cloud that you can run on. And this is also very appealing. And one thing that we hear from all enterprise, and remember currently we have approximately 7,000 customers. This is something that we hear from all fortune 100 or global 2000, cloud is happening, but we need a hybrid environment. And JFrog is also very unique with providing that giving you a hybrid environment for for the same tool, whether it's in the cloud, also posted by you. So the overall go to market is evolving together with the evolution and the adoption of DevOps and DevSecOPs in the market and the very focus on this binary piece that the number of binaries in your organization is just growing. And if I might just add that you, you also derived that majority of new customers land on cloud, and typically the landing point on cloud is, is lower ASP, having said that, given the, a fact that many of our customers have an opportunity to try the products on pre tier and also the platform resonate with a lot of value to the customers. We started seeing some of the customers landed on the platform. It doesn't happen a lot, but every quarter we might have few cases where they new customers land on the platform. So on average, a speed did not change much increased slightly for, for new land, but on average it did not change much.

Got it. Thank you. Very helpful.

Thank you. Our next question will come from Koji Ikeda from Bank of America. Please go ahead.

Hey, Shlomi and Jacob, apologies if these questions were asked, have been bouncing around for a couple calls here. Wanted to ask you on billings taking a look at the billings in the quarter, it growth 34%, according to our model, I guess the top comp, do lot of mechanics this year with billings, especially around the pricing change. But, but should we be, should we be heading into a period of normalization for billings over the next year? And, and I guess thinking about with cloud usage, should we be looking at billings at all? Or is there something else that you suggest as a better forward looking growth metric?

Yes. Koji, thank you for this question. And just to remind you that these two various dynamics billings is not a very good predictor of future revenue growth because of, and few other billing dynamics that that we see from time to time. Now you also arrived that during this year, the billings features kind of skew toward Q1, where we did have significant pulling, but Q4 came out very strong in, in billings. We don't see any one time items there. We don't see any significant changes in duration, every duration of our contract. So it's a kind of normalized score. Going forward again, cloud is primarily annual term for on-prem, for self-costed solutions. We have sometime multi-year deals, but we don't see any changes right now, in every duration in average contract duration. So billings should be probably normalized again, to remind you, billings is not a very good predictor of revenue growth because of this quarter term dynamics that we experience from time to time.

Got it, got it. And then I think I overheard in the prepared remarks, I was just talking about net revenue retention and Jacob, I, I think you made the, that should kind of hang around 130 percent level. But just thinking about cloud usage, the cloud growth acceleration here in the fourth quarter, I mean, is there a potential for net revenue retention to actually end up a hundred over 130% in the future?

Yes. Our cloud customers extend more than 20%, 30%. They, as, as the cloud continues to become bigger per portion of our revenues, that's definitely potential right now, we, in our model, in our guidance, we assume to be around 130%.

Got it, got it. All right. Thanks guys. Thanks for taking my questions.

Thank you. Our next question will come from Ittai Kidron from Oppenheimer. Please. Go ahead.

Thanks. Hey guys. And nice to see the acceleration and growth and in the cloud. Jacob, I had a couple of questions for you first. I just want to make sure I understand the enterprise plus, in the last couple of quarters you've been growing that business 150% year-over-year. We're now down to under 90. I'm don't get me wrong still. Very impressive number. I'm just wondering if there's anything going on there in the adoption of enterprise plus?

No, we continue to see very strong adoption of enterprise plus subscription, the, the revenue continue to grow today, present 35% of the revenue. The number of customers adopting enterprise plus actually grew nicely in Q4. We don't see any, any, any unique trends.

Okay. Very good. And then as a follow-up on the optics a lot of companies that have bases in Israel have been calling out a lot of FX headwinds. Can you kind of elaborate a little bit I know you've been hedging somewhat, but I don't know how far out you do. But as I think about your guidance for the year, what kind of a headwind are you seeing from FX and how should I think about that going forward?

Yes, Ittai, absolutely right that we have significant portion of our operating expenses, denominated in Israeli shekel, and in over the past year and a half for its complete. We do hedge you cannot catch forever and eventually the, the law less variable rates catch up. So the impact on overall profitability, as we see right now is about 2% points in in 2022. And if the, the, the situation changes and, and we see opposite trend and it it will help us, but this is what we're going to see.

Very good. Good luck guys. Thanks.

Thank you.

Thank you. Our next question will come from Rob Owens with Piper Sandler, please go ahead.

Yeah. Hi. Thanks for taking my question, guys. Curious on the, the customer count front, realizing you just disclosed it once a year, but there was a few acquisitions during the year itself. Is that an organic 600 customers? Is that a net addition? Because you mentioned the, the 200 that had turned off as well.

Yes. So thank you for the, for the question as we reported the you three when we acquired video and the up suite there was no material revenue coming from this acquisition and also no significant amount of customers. So the answer is yes, this is the organic growth of the JFrog customers on the JFrog platform in mostly.

And given the opportunity post Log4j, how do you think about customer growth as you look at 2022? Should that again, be an accelerating type of metric for you?

Yeah, well obviously I'm not happy about what happened with Log4j in the world. It's not that we operating, but it emphasized the need for solutions like what JFrog provide because there is no other solution in the DevOps public market that gives you such a binary centric approach, not only to security, but the old remediation of [indiscernible], like Log4j. It happened before with MBM. It happened before with Python and be sure we will hear about another binary or software package that come with the vulnerable impact in the near future. It it'll just happen. And what we see is more and more customers starting to understand that the holistic security solution must come with a single source software called solution, like a repository that so control what you bring in and outside of your organization. And then a security solution that go across the old pipeline, give you control over your repository or distribution, build test deployment environment, and obviously to recover fast with the distribution. So Log4j is one example. It got all the way to the white house, but JFrog customers were not just well protected, but also will recovered and saved millions of developers hours around the world by, by using auto. So I believe that we would see a significant deduction of security solution under the different subscription coming from DevOps.

Great. Thank you very much for the color.

Thank you.

Thank you. And we do have time for one more question that will come from Steve Enders with KeyBanc Capital Markets. Please go ahead.

Great. Right. Thanks for, thanks for taking questions here. I just want to follow-up on that last point. There showing me around securing the software supply chain and in Log4j. I mean, is this seeing if increased pipeline activity at this point where, now that people have maybe gotten on the other side of Log4j and spent all of the holidays and, and into January dealing with it, is this leading to increased opportunities for JFrog to go execute against?

Yes. The answer is yes, clearly. And the amazing you know research and engineering security team in JFrog I've posted, I think more than any other company in the market, following the lock project, what will be the best practices to manage it in the future and to protect your company from it? So the answer to the pipeline is yes. We hope that there will be no, no more Log4j but yes, it helps the pipeline out.

Okay. That’s helpful. And just want to touch on the looks like there's good traction within the global 2000 that happened in, in 2021 from, from what you disclosed. I guess, how would you kind of attribute what led to the really good customer growth within the, in the G2K in '21, is this, a function of the increased focus on strategic sales teams that have been built up in the past couple of years. And I guess, how penetrated do you see the opportunity within the, the G2K accounts today?

Yes. So global 2000 customers that are adopting digital transformation practices are not just looking at one solution usually when they look at the old solution, they are looking at cloud strategy versus on-prem. They are looking at security versus DevOps practices, and obviously they play in-house solution that was built 10, 15, 20 years ago. All of the above is addressed by our strategic sales team because they have the capabilities to lend on the customers side, walk with different persona answer, different need, bringing along architects that can help our customers and partner with as they are adopting digital transformation. So global 2000 customers will go in, in different avenues and different deployment environment and if I may just add to that when we went public, we, our penetration to global 2000 was about low twenties. I think it was 22% and today we above 30% in the integration on global 2000. So we continue our adoption of the global 2000 customers continue adoption of our products at a nice space. Yeah.

Perfect. Thanks for taking my questions.

Thank you for participating in today's question and answers. I would now like to turn the call back to Mr.Shlomi behind for any closing remarks.

Well, everyone, thank you for joining us. This was ahead of the year and we are very excited about our performance. We are happy to see the company growing and the community and our customers adopting more and more of our products and technology. I'd like to thank again for the amazing frog team that made this year happen. And I would like to thank you for joining us today next week. We're welcoming you to join us on our first investor day podcast team from now second all. Thank you, everyone. And may the fog be with you

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