Jfrog Ltd at Morgan Stanley Technology, Media & Telecom Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Sanjit Singh - Morgan Stanley - Analyst : With that, let's go ahead and start the conversation from a high level. In 2024, the business grew 22.5% from about 25% in 2023 while operating margins could spend about 400 basis points to just under 15%. Ed, looking back, where did you feel the team executed well and what were some of the challenges that 2024 presented?

Question: Sanjit Singh - Morgan Stanley - Analyst : Those are very important callouts. And so let's talk a little bit about the outlook before we get into the meat of the business. For the full year, you guided a 17% revenue growth, a similar growth rate for Q1 as well, which implies a similar level of growth throughout the year. So can you sort of outline the key assumptions with respect to the outlook in terms of what you're baking in for those large deals, migrations, the security uptake, and maybe the size of the [renal] base? How should we think about the assumptions that underpin this year's outlook for growth of 17%?

Question: Sanjit Singh - Morgan Stanley - Analyst : Yeah, it makes perfect sense. I want to spend a decent amount of time talking about security, but I did have a follow-up on those three of the largest deals in JFrog's history, conceptually, does that become like a referenceable customer base? If you're finding like really large customers, their peers find out that they're using JFrog, is that turning into a sort of those guys sort of vouch for JFrog, maybe unlock larger deals or build that large deal pipeline, if you will?

Question: Sanjit Singh - Morgan Stanley - Analyst : Yeah, that's a great point, Jeff. So let's talk about security. I remember when we were doing the IPO back in 2020, we had this like offering around X-ray and sort of like, hey, this is a security capability. I had no idea the scale of the ambition that was to come on the security side, and now we're starting to see some traction. So the big reveal in Q4 is there was new disclosures around the security business in which the team unveiled that security represents about 3% of revenue, 5% of ARR, 12% of RPO. To sort of level set, what offerings are included in the security revenue disclosure and how often do you plan to update this metric?

Question: Sanjit Singh - Morgan Stanley - Analyst : Great, continue please.

Question: Sanjit Singh - Morgan Stanley - Analyst : Yeah, that was going to be my follow-up question. Can you give us a sense of the types of profile of customers that are taking on the security offerings, advanced security curation, and who, if anybody, are you displacing?

Question: Sanjit Singh - Morgan Stanley - Analyst : In terms of the scale of the ambition, how much do you think -- how much of ARR do you think the security portfolio can represent on a sort of

Question: Sanjit Singh - Morgan Stanley - Analyst : Yeah, it's a great way to frame it. Let's talk about the go-to-market motion behind the security sale, which is always sort of complex. What is the process that the sales team is executing on to drive more of that security sales attached? It's probably linked to the sales cycle because the deals are becoming more strategic. On the other side of that, what kind of uplift on deal sizes are you seeing when security is included?

Question: Sanjit Singh - Morgan Stanley - Analyst : That's a great point. I think that you're right. It's always the concern is that if you're going into security, different buyer, different decision maker, how do you get the right skill sets in the sales force, and if you see a merging of the CIO and the CISO, it makes that ability. That's a great point. Let's talk a little bit about runtime security. That's the newest addition to the security lineup. Why does it make sense for JFrog to enter the real-time vulnerability detection market coming from the DevOps world and what's the strategy to drive adoption for JFrog at runtime?

Question: Sanjit Singh - Morgan Stanley - Analyst : You definitely look at the advanced security part of the portfolio, I mean that's definitely a more mature established set of capabilities that buyers are well aware. It makes sense for the classic Jrrog user community. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 06, 2025 / 5:15PM, FROG.OQ - Jfrog Ltd at Morgan Stanley Technology, Media & Telecom Conference Jeff, you mentioned you called out the GitHub partnership, so let's talk about that a little bit. What exactly does the GitHub partnership entail and how has it impacted the business thus far and what lies ahead in terms of the partnership going into 2025?

Question: Sanjit Singh - Morgan Stanley - Analyst : That's exciting. Let's stay on the thread of partnerships for a couple of minutes. Let's talk about AWS. You signed a strategic collaboration agreement with AWS, promises to help customers migrate workload to the cloud and leverage its marketplace for seamless procurement. Can you elaborate on the ways that you think this partnership can translate to even better growth for JFrog? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 06, 2025 / 5:15PM, FROG.OQ - Jfrog Ltd at Morgan Stanley Technology, Media & Telecom Conference

Question: Sanjit Singh - Morgan Stanley - Analyst : Let's continue to stay on the partnership theme. I want to talk about JFrog ML because you guys made a recent announcement with Hugging Face, but before we get there, kind of a similar question on runtime security, why was it important for JFrog to enter the ML ops market where you're providing like model evaluation, model serving, experiment tracking capabilities? Why enter this part of the market and maybe you can give your perspective on releasing that partnership with Hugging Face?

Question: Sanjit Singh - Morgan Stanley - Analyst : It seems like wherever binaries are being created, that's where JFrog wants to be and have a voice in the market. Really interesting. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 06, 2025 / 5:15PM, FROG.OQ - Jfrog Ltd at Morgan Stanley Technology, Media & Telecom Conference

Question: Sanjit Singh - Morgan Stanley - Analyst : Understood, yeah, making machine learning and AI kind of a software delivery type process, that makes a ton of sense. Let's spend a couple of minutes about the cloud business. And just sort of mark to market on the state of the cloud business, cloud revenue reached $168 million, accounting for 39% of total revenue, as you mentioned that it grew 41% every year. Decompose the growth that you saw last year from migrations, the month-to-month customer base, new logos, and organic expansions, what were the trend lines if we kind of decompose that growth that we've seen in recent quarters?

Question: Sanjit Singh - Morgan Stanley - Analyst : Great. And just as a follow-up to the point that you just made around the 20% to 80% uplift, what drives that 20% to 80%? What are some of the factors that are allowing customers to spend more with JFrog?

Question: Sanjit Singh - Morgan Stanley - Analyst : Yeah, that's a great point, and then probably a key factor when we think about growth going forward. Let's talk about the theme about moving upmarket. I would say the vast majority of my coverage in the last two years has talked about this. They see the enterprise opportunity frankly because that's where the enterprise is still under penetrated in cloud. I want to talk a little about JFrog's journey there. How do you balance the increasing focus on large enterprise customers while maintaining a healthy mix of these smaller tech startup customers? In a sense, you want to have exposure to them because they tell you where the puck is going, so that gives you that signal back into your product engineer group. The move up market and then while trying to keep a pulse on where the puck is going, how does the team think through that?

Question: Sanjit Singh - Morgan Stanley - Analyst : Makes sense. It actually leads into my next question around investments and margins, actual CFO questions now. So there's a significant amount of operating margin expansion in calendar '23, over 1,000 basis points, more modest expansion in 2024. And the initial outlook calls for generally flat margin margins in 2025 as you drive investments and you going to market organization. Can you talk to the early success you're seeing from these investments and the confidence that it gives you in continuing along this investment?

Question: Sanjit Singh - Morgan Stanley - Analyst : Let's wrap up on kind of the long-term model. Analysts say more than I think it was 2023, where you laid out some initial targets around $800 million in the revenue, 80% gross margins, 21% to 23% operating margins, 26% to 29% free cash flow margins. If you look at where we stand today, on a lot of these metrics you're kind of kind of right there. How relevant is the long-term model as you stand today, both on the revenue side as well as the sort of profitabilities and free cash flow side of the equation?

Question: Sanjit Singh - Morgan Stanley - Analyst : Great, but we're out of time. Thank you so much, Jeff and Ed, for giving an update on the JFrog story. We really appreciate it.