Ladies and gentlemen, thank you for joining us and welcome to JFrog's First Quarter 2022 Earnings Conference Call. I'll hand the conference over today to JoAnn Horne of JFrog Investor's Relations team. JoAnn, please go ahead.

Good afternoon and thank you for joining us as we review JFrog's first quarter financial results, which were announced following market close today via a press release. Leading the call today will be JFrog's CEO and Co-Founder, Shlomi Ben Haim; and Jacob Shulman, JFrog's CFO. Before we get started, let me review the safe harbor 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 second 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 obligated 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, 2021, filed with the SEC on February 11, 2022, which is available on the Investor Relations section of our website and the earnings press release issued earlier today. Additional information will be made available in our Form 10-Q for the quarter ended March 31, 2022, 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. And with that, I'd like to turn the call over to JFrog's CEO, Shlomi Ben Haim. Shlomi?

Thank you, JoAnn, and greetings from the swamp. Before we begin today's conference call, I want to say that our thoughts and well wishes continue to be with the millions of victims due to the humanitarian crises in Ukraine. We hope and pray for more peaceful days ahead. Welcome again everyone to JFrog's first quarter earnings call. 2022 got off as strong start for JFrog, with the highest revenue growth in the past six quarters. These results are a clear reflection of several key strategies we implemented, joined with our cloud-first security focus end-to-end platform approach and impressive sales execution. As we will share today Q1's numbers across all key metrics, show how product-led mindset market demand and strategic investments are all aligned with our goals, leading to a sustainable fast-growing company consistently generating positive free cash flow. Our first quarter revenue was $63.7 million, reflecting 41% growth year-over-year compared to 39% reported in the previous quarter. This growth exceeded the midpoint of our guidance by 4%. Our cloud revenue in the first quarter grew by 63% year-over-year, compared to 52% reported in the previous quarter, driven primarily by increased usage of our security capabilities and growing adoption of our platform subscription through our cloud marketplace channels. As a result of this demand, the number of customers with ARR over $100,000 also grew significantly to $5.99 compared to $5.37 in the previous quarter and our trailing four-quarter net dollar retention expanded to 131% compared to 130% in the previous quarter. During the first quarter we saw a trend of more companies moving forward adopting one-stop solution, going from binary storage then to security, distribution capabilities, all provided in our integrated platform. These end-to-end adoption is driving higher consumption by our customers. Now, allow me to elaborate more about the following…

Thank you, Shlomi and good afternoon everyone. Let me add to Shlomi's comments that we are very pleased to have started the year with such a strong quarter, continuing the momentum we saw in the second half of 2021. As a reminder, 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. Now let's turn to our financial results. Total revenues for the three months ended March 31, 2022 were $63.7 million, up 41% year-over-year. This is our strongest growth rate in six quarters and our third consecutive quarterly increase. Self-managed revenues also often called on-prem were $46.9 million, up 35%. We had a particularly strong quarter in cloud revenue growth, up 63% to $16.8 million. As a reminder, we indicated in the second quarter of 2021, we believe cloud growth has bottomed and we would see a reacceleration of growth. While we are pleased to see the continued momentum in our cloud business, driven by increased adoption of security solutions and the full platform, we would like to remind you that our cloud business is subject to variability due to usage-based revenue recognition. We believe the baseline growth rate for our cloud business is in the mid-50% range with potential upside from increased customer usage. Net dollar retention for the four trailing quarters was 131% in line with our prior commentary. As of the quarter end, we had 599 customers with ARR of over $100,000, up from 537 customers as of December 31, 2021 and up 52% from 395 customers at the end of Q1 of 2021. In addition, we grew the number of…

Thank you, Jacob. 2022 has seen a strong start for JFrog, and we are committed to building on this success across products, processes and execution as we leap forward throughout the year. My team, JFrog employees, your dedication to always listening to the community and addressing the real pains in the market continues to bear fruit. These strong quarterly results are a testament and thanks to you. Looking forward to Q2, we are happy to finally meet our customers, partners and the community in-person again for the kickoff of our annual swampUP user conference. This year, we are taking swampUP on the road, visiting multiple cities, interacting with the global developer and security communities and customers. We invite you all to attend. Finally, we believe JFrog is well positioned to drive further revenue growth in 2022 as we aim to deliver for JFrog users, customers and shareholders. I'd like to thank you all for your attendance today, may JFrog be with you. And now, we'll take your questions. Operator?

[Operator Instructions] Our first question comes from Mike Cikos with Needham and Company.

Hey, guys. Thanks for taking the question here and good to see the revenue outperformance as well as far as the acceleration in revenue that you guys were able to report. I did have a question -- and I guess, first if you come back to that revenue acceleration we were talking to, could you help us think about what went right for you guys? Like what came in the quarter that maybe you hadn't anticipated which drove these stronger results that we're seeing today?

Yes Mike, thank you for joining the call and thanks for the question. We actually look very well into the growth that we observed this quarter. And as we detailed, there were three main reasons for this goal: a, is the growing adoption of our SaaS services in the cloud, mainly because of security and probably after the Log4j episode when people understand that they need a holistic solution for the security. The second thing is the adoption of our end-to-end platform. It's not anymore just covering your repository or your security demand. You need an end-to-end DevOps platform to manage the full binary life cycle all the way to deployment. And third is our consistent investment in our strategic testing that drove not only to more and more customers that are adopting the platform but also higher entry point and lending within our customer portfolio plus the improvements of the strategic team working with the partners mainly the cloud partners. Those are the main three reasons for the growth you saw in Q1.

Thank you for outlining that. And if I could squeeze one more in. This would be more for Jacob I think. Good to see the revenue raise for the full year in excess of the Q1 beat. I know that we're maintaining the full year operating profit outlook. And I know that we're talking about this cadence being the same as what you guys had spoken about last quarter where Q2 is going to be the low point before profitability improves. Just curious, can you provide an update why not take up the full year profitability? I just wanted to get a better sense of, I guess, some of the assumptions that you guys have in that profit guide? And then, if you could also talk in any way to the potential FX movements that you guys are seeing in conjunction with that that would be terrific?

Yeah. So let me first address the potential FX. As we noted in the previous quarter the negative trend in FX input is about two points. Please note that for 2022, we hedged at a very sufficient level. So this volatility that, we're seeing right now does not actually impact us. And the improvements in dollar rates versus Israeli shekel actually will be result in a better environment towards end of the year more 2023 just because we're very well hedged for this year. With regards to overall profitability as noted, previously, we continue to grow as very efficient and continue to generate free cash flow. There are a lot of opportunity in front of us, specifically in additional offerings and security and Connect products we're also building our people to market channels and partnership alliances. So we have a lot of areas of investments with very attractive ROI. And that's why we continue to be – please understand that for the year we're going to be at the breakeven levels.

Understood. Understood. Thank you very much for both of you. I really appreciate. I’ll jump in the queue now.

Our next question comes from Brad Reback with Stifel.

Great. Thanks very much. Shlomi you talked a bunch about various initiatives on the sales and marketing side top-down sales partners AWS especially on the cloud. Is there an opportunity for these efforts to lead to an acceleration of customer growth or customer count last year was up 10% could we see that accelerate here this year?

Yes, absolutely, and thank you for emphasizing this subject. As you know, and as we guided the market we are building our sales force totally from a completely bottom-up inside sales, machine we built in the past 18 months a very strong strategic team that also come from the top-down. And it's now the time as we shared in our Investor Day last February in New York. It's now the time to double down on partnerships and strategic alliances working with the ecosystem not just to accelerate the growth but to also expose JFrog to other solutions to new prospects – to prospects and new customers. So my answer is yes. It will happen in three different directions. Obviously the immediate suspects are the major cloud players and these guys are already working very closely with us. The second thing that, we are developing with all the system integrators relationship, and last all the professional service on companies that are in the domain of DevOps and security. So yes we should see growth not just in ARR but also in new customers coming from partners in China.

Excellent. Thanks very much.

Our next question comes from Ittai Kidron with Oppenheimer.

Thanks guys for the numbers. Shlomi, I want to start with you first on the growth or the cloud growth the acceleration. They're great to see that. Can you talk about the maturity of your cloud platform? And more specifically when you look at customers and how they're using that cloud platform here and now, how is it different? Do you think then how they used it a year ago? Would it be types of applications and use cases or how broadly or pervasively they're using it in their own organizations?

Yes. Hi, Ittai and thank you for the question. The answer is actually split into two. Things that we did and invested in the cloud that drove to the growth that we see the consistent growth that we see this quarter was amazing, but we grew in the previous quarter and the quarter before as well. And the second thing is what happened in the market and we got our solution ready for it. So I'll start with the first one. In order to be a sustainable growing business in the cloud you have to understand the dynamics in the market. There is no enterprise customer that we know in our portfolio that will move now just to a single cloud. The fact that we are providing not just the multi-cloud solution, but also a hybrid environment that allows you to migrate to the cloud according to your organizational needs this is a platform JFrog. And it's not only cloud versus FastAF also the fact that you can actually run both of them in parallel. Alongside the holistic end-to-end solution the -- what we call the enterprise class subscription that gives you capabilities not just as a repository in the cloud in a universal way, but also a security solution that runs on the repository scale and make sure that you have no vulnerable in your single source of cloud which is the repository. And then obviously the distribution -- distribution to different clouds, distribution to different destinations and everything that we now see that the market is at for. The second thing is how JFrog prepared its sales for more than 18 months to what is now explodes. We keep saying organizations are being vulnerable because of the binaries. There is no hacker in the world that will attack any other assets in your binaries. Log4j is one reminder. After Log4j and Spring Shell a lot of others and now when you have a strong security solution that is well natively scanning your repository of binary. I think that these grow more attention to the JFrog cloud solution this grows the -- when the headline shouted Log4j and Spring Shell and other things that kind of attention not only of the developers but also the CECL and the security take over.

Got it. Excellent. And then Jacob for you and maybe I'm kind of following up on Brad's question before. Clearly, you're doing extremely well in upselling to customers as we can see that in your 100,000 customers and your $1 million customers and your dollar expansion. So clearly the end-to-end motion is resonating with customers and they're upgrading. Is there a way thought to think about the contribution to your growth of volume versus price? I was just trying to think about how much of your growth again is driven by this shift up here if you like to call it plus the price adjustments you've made versus just a pure growth in the customer count. If there's a way for you to pie it for us that will be great? I think investors -- the calls I've been getting from investors that there's just a concern that your base isn't growing enough and you're kind of squeezing the orange, I mean, you're getting a lot of value from your existing customers. But the question is how much more new field are you kind of selling right here that you can leverage down the road?

I think Ittai there are a few aspects to that. If -- we're talking again for pricing increases and contribution of pricing increases. As I noted in my prepared remarks about up of $50 million. So which means $7.5 million came in the past 12 months was the revenue recognized from associated with price increases. Now, with regards to contribution of existing customers versus new ones, we continue to see that average lens remained approximately $10,000. So, our -- historically, contribution to our revenue growth was from expansion of existing customers rather than land the new. We continue to land new customers and we added about 10% of new customer count last year. And we expanded -- as Shlomi noted, we expanded more in this year. So, going forward, our growth will primarily come from expansion of existing customers because this is what the land and expand model is about.

And if I may add to this Ittai to remind the public that the price changes we've done only on the self-hosted solution and mainly enterprise and ForEx. So, the platform subscriptions you see growing and the super fast-growing cloud were not subject to the price changes. So, this is pure gold within our customers and new customers.

Yes, maybe just to wrap that guys. When you think about the lands Jacob you talked about your lending hasn't changed from a dollar standpoint. But do they start different plans. Is the landing from a product standpoint any different today than it was a year ago?

We see first of all, some of the customers landing in Thailand and sometime even on enterprise or even Enterprise+. On the other hand many more customers land on cloud which is a smaller land. So, therefore on average ASPs there are new customers about -- remain relatively unchanged from prior periods.

Got it, excellent. Good stuff. Thank you.

Our next question comes from Sanjit Singh with Morgan Stanley.

Thank you for taking the questions. Shlomi wondering if you can update on the security progress on the integration with Upswift. I know JFrog Connect has been out there with your customers. In terms of driving new deals or new expansion deals with your customers, where are we in that phase? I'm sure we're early but just in terms of -- if you could highlight some of the progress that you've seen with the Upswift integration in that broader end-to-end security positioning. What's been the early feedback like from customers?

Yes, hi Sanjit. Obviously, the fruits that we start to harvest a part of the investment of the inorganic additions to JFrog. Specifically, regarding security, there are two elements here that are important to mention. A is that we have a very strong security well-trained team that is building a better x-ray at Stage 1 to serve our customers. And especially with what we see now happening in the world of SecOps, that's a great addition to existing customers and also we start to see more and more demand coming to us not from Artifactory side, but from the x-ray side. The second side of the security investment is the security research team. Now, this is a team that is well trained to find vulnerabilities before anyone else in the world knows about it. And to find a zero-day vulnerability and injected into x-ray database as mentioned during the script is a platform for JFrog customers because they are better protected and faster in remediation processes, the security that JFrog x-ray now gives them covers not only the features and the scanning and everything the technology covered, but also a very strong research team that reveal more and more zero days actually more than any other company in the domain. Regarding Upswift, very good question. A long ago we said binary and binary repository will be at the heart of your software supply chain. And our Artifactory became the standard. Few years after we said, our composition analysis security and security that relies on DevOps will be at the mainstream. This is happening now. What I'm saying now and mark my words, developers will have to take responsibility all the way to the binary deployment of the device. And this is why the demand that we start to see just by announcing JFrog Connect, not even having it in production in our biggest customers just the demand and the interest that we get from the market now represents a future pain and the future need of taking the binaries all the way secured and fast to the devices. JFrog Connect as a result of the Upswift acquisition already made an impact on the market and we start to also see some partners that are also reaching out to us in order to integrate their solution with JFrog Connect. So I guess that security is a low-hanging fruit and JFrog Connect will be the next reason for our goal.

Understood. Thank you so much for the color there, Shlomi. And then Jacob, I wanted to sort of revisit the very popular macro guidance question that we've been asking all earnings season. From the lens of what you see out there in the market with your customers, your international customers in Europe, any sort of vertical concentration that you may or may not have. Could you describe the environment that you've seen thus far, not only for the quarter, but sort of coming out of the quarter? And then in terms of the assumption on your guidance what are the -- what -- how is your assumptions changed or not changed relative to last quarter with respect to deal closure rates, deal sizes, sales cycles et cetera?

Yeah. So first of all to the first part of your question, Sanjit. We're very well represented in various industries. A very diversified portfolio we'll not depend on any industry or any particular customer. So the diversification is the key. On the second side, yes obviously there are macro changes in the market. But what we've presented today and they guide us today, it's obviously we did not change our methodology, we continue to be prudent and cautious. So today with potential upsides in the future. So we're consistent in our methodology and we don't -- we have not changed anything.

Got it. Understood. Thank you, Jacob.

Our next question comes from Koji Ikeda with Bank of America.

Hey, guys. Thanks for taking my question. Just one for me. So looking at the metrics of the business, it sure seems like everything is pretty good. Just a question here on the billings. I mean based on our model looks about 9%, definitely off a tough comp. I understand there's pricing in there. But maybe affected a little bit by the cloud adoption too. So just is there anything to call out in the billings other than the pricing or maybe the cloud adoption that we should be aware of? How should we be thinking about billings going forward, or I guess is this even really a metric that we should be looking at anymore? Is there something else that we should be looking at from here? Thanks guys.

I'll address that. Thanks, Koji for the question. We've been saying that for quite a long time that the billing is not very representative metric here. To provide you more context, last year we had a huge pull-forward in the billings in front of the all-in advance of the price change that was became effective on April 1. So that's why we saw the significant pull-ins of renewals into Q1 and we quantified it to be about $24 million. So those customers who renewed back then will continue to renew unless they term during the year. So they will continue to renew in Q1. So that's why you saw probably the 9% growth in billings just because of the significant pull-ins in last year and tough comparables. Adoption to the cloud also represents some kind of headwinds into the billings because typically agile contracts on cloud we have two types of arrangements. Annual contracts and pay-as-you-go monthly contracts. So if a multiyear on-prem customer transitions to cloud that will be headwind to the billing because of the annual nature or shorter-term duration of contracts. Other than that, again billings stays really not a very representative metric in our business.

Thanks, Jacob. Thanks for taking my question guys. Really, really appreciate it.

Our next question comes from Jason Ader with William Blair.

Yeah, thank you. Hey, guys. First question maybe for you Shlomi. Can you give us an update on the competitive landscape? Any changes since the last time we talked, in particular, I guess how are customers thinking about end-to-end platforms and any kind of commentary on in particular, GitLab GitHub, trying to move into your territory of Artifactory?

So, nothing in the landscape. As you remember, we put it in kind of a four-tier model. Still the majority of the big changes we have seeing, is coming from replacing homegrown solutions. Some of it is migrated to the cloud. Some of it is being self-hosted. But still companies are adopting what we call now mature DevOps and SecOps solution. Regarding the source code or specifically, the two that you mentioned, GitHub and GitLab, our solution coexists with source code management. There is no development organization that will not start or use source code management and there is no organization that will scale without managing the full binary life cycle. Regarding the road map, I keep hearing that they are planning to do what we are doing. But still in none of the pre-sales, we are hearing that people are migrating to these solutions. Artifactory is solid rock scalable. I think set the standard in the market of managing binaries. Our security is far more advanced and mature and protecting your binaries in a level that both cannot provide today. And at -- at the bottom line if you look at the holistic solution, platform based the platform play. This is a game changer, especially, when you think two years three years four years ahead and you take everything together including the hybrid solution, including the deployment, including distribution, including remediation. So, it's not just putting a nice scanner over your repository. You have to think about the 360 of your DevOps platform. And the last is obviously the cloud -- with the cloud what we actually see is that our partnership is stronger than our competition. And we walk together side-by-side. There are some overlaps. We are aware of that. And we trust our customers to choose what makes sense to them at the enterprise, they the multi-cloud is a killer and the smaller business the maturity of the product and the holistic solution and the amount of features that we provide is a killer. So, I think that what we will see more and more that this competition in a very big market like DevOps and security is coexisting rather than competing.

Great. And then Jacob, did you disclose RPO? I might have missed it.

No. Deposit costs, we obviously disclosed in -- disclosed on quarterly basis in our Q filings but as of the end of Q1 we got approximately $172 million in RPOs.

Yeah. The reason I'm asking is because we don't -- you're trying to steer us away from billings but some software companies use RPO as kind of a proxy for bookings and kind of a leading indicator metric. Is that the case with JFrog? Should we be looking at RPO growth as kind of a leading indicator?

Our view is a better indicator than billings, but still again with the adoption of more cloud, we will see shorter duration of about agreement, so there won't be headwinds as well.

Got you. And then, any thought on buybacks just given that you have a decent amount of cash and the stock is somewhat depressed. Have you guys given any thought to that?

We see a lot of opportunity in front of us in the market and we'll obviously invest in what share is better to our shareholders.

All right. Good luck, guys. Thank you.

Thank you.

Our next question comes from Michael Turits with KeyBanc.

Hi. I just wanted Jacob and everyone -- I will come back to Sanjit's macro question. And just to ask what you're seeing in terms of, the reaction of both let's call it SMBs as well as enterprises to the backlog situation in terms of their development projects. Are you seeing, any slowing in those? Are you seem to be more selective? And also since they have -- they do have some in-house alternatives their self-built or DIY? Is there any increased hesitancy, in a tougher and inflationary environment to hold off on moving to a dedicated package?

Yes. I hope I heard the deal question. SMB versus enterprise, very good way to distinguish the market. The enterprise, all understand that adopting DevOps, is not a question anymore. It's just a question of when it will happen, not if it will happen. And may I even add, having some assets in the cloud and to adopt Kubernetes. So cloud native, DevOps and security goes together in the enterprise. This is why we see, that mature products like JFrog and the full end-to-end platform answer the enterprise demand. What we hear from the enterprise mainly, is that they have to get the confidence that they can rely on JFrog, to scale with them because the number of containers and broker registries and images that they have to host, manage, extend, secure and deploy is by million a day. In our Investor Day, two of these enterprise Fidelity and Broadcom, mentioned the scale that I just mentioned. On the SMB, we start to see more and more small and medium business, not just looking for a single-point solution DevOps, but to also combine with the security. And what happened there, is that the developer of the world start to take responsibility over security engineering parts. And therefore, when they need to remediate from an episode like Log4j, they needed tools that's not only hostile Log4j but also secure and help them to remediate that. So although, the growth in the enterprise is more so with the end-to-end solution, as fast as they can. In the SMB, we also see that there is more demand for more than just a single product that is integrated together. So that's regarding the SMB versus enterprise. Did I -- is there other part of the question?

Just whether or not in the current macro, were you seeing any slowdown in development projects.

No, no. Actually the opposite. It's not just the number of developers. The number of developers is growing by over 15% year-over-year. This is nice. What we see, is that there is more demand for developers to take more responsibilities throughout this full software supply chain. So what started as a movement, is now the standup. And we see a growing demand in the market. And by the way to be honest not just for JFrog solution, but also observability solution and also other solutions that complete the full software supply chain mechanism. So my answer is, no. On the contrary, we see a growing demand. And I think that the next stop will be taking your software to the edge.

Thank you, Shlomi.

Our next question comes from Rob Owens with Piper Sandler.

Good afternoon. Thanks for taking my question. You touched on it earlier in the call, but I was hoping you could elaborate a little bit more on your channel strategy, relative to how much of your revenue currently comes from the channel? And as you look at the appointment of Kelly Hartman, to the new Head of Channels role, what should we expect longer term? Is this to drive larger strategic types of opportunities, or is this to drive more of the velocity-related opportunities you're seeing now? Thanks.

So I'll address the first part and then Shlomi, can give some more [Technical Difficulty] strategy. So, today our channel is very, very minimal relatively to the dire overall business. Revenues that's coming from marketplaces, they approximately about 10% to 15% of overall bulk business. It's growing very fast, actually very fast-growing channel for us, but still a smaller portion of our entire revenue. We also have some resellers who act more as a procurement agents rather than value-added resellers or systems integrators. So it's really a greenfield for us to expand this program in this go-to-market. Regarding the strategy, as I mentioned before the next logical step for us is to be in the very strong mechanism that work with partners work with the top five IAS of the world in different regions in places and organizations that we didn't get into and this is not just government or highly regulated environment, but a very big project. We moved our all partners and channels activity under our CRO organization and hired a very senior savvy partner leader to manage it all. This will be split as everything else between the cloud and the on-prem. And while in the cloud, it's more mature, because we built a partnership with AWS with GCP and with Azure. We are now paving the way for more collaboration with system integrator and with the professional service company, and not just feel endless that we see now coming from the market. The big thing the big change that we expect to see is that currently most of those partners are reaching out to us also on a full inbound way, because the customers send them to work with JFrog. And what we want to see is that these customers are also -- these partners sorry are also working with us in order to reach out the market that we are still not exploring in different geographies and in different domains.

All right. Thank you.

We're showing no further questions in queue at this time. I'd like to turn the call back to Shlomi Ben Haim for closing remarks.

Guys, I would like to thank you all for joining us today. In today's market, it's very important that the company will be focused on the strategy and allocate not only the resources, but also the capital in a wise way. JFrog is paving its way to a very successful 2022, and may the Frog be with all of you. Thank you very much.

This concludes today's conference call. Thank you for participating. You may now disconnect.