Jfrog Ltd Q1 2025 Earnings Call Transcript

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

Question: Pinjalim Bora - JPMorgan - Analyst : Oh, great. Thanks for taking the questions and congrats on a very solid quarter. I just want to go back to some of your comments on the cloud numbers, Ed. Just want to make sure I understand this correctly. Was the consumption above commitment, was that broad-based across your customer base or was that a narrow set of customers and what have you seen in terms of consumption so far in April? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 08, 2025 / 9:00PM, FROG.OQ - Q1 2025 Jfrog Ltd Earnings Call And lastly, when you talk about the longer sales cycles and delayed decisions, is that something incremental that you have seen in Q1 or are you saying kind of that's been the environment so far in the last several quarters?

Question: Pinjalim Bora - JPMorgan - Analyst : Understood. And Shlomi, I think you talked about a Q1 deal, most recognizable AI technology leader. I want to just understand, maybe help us understand a little bit more on that particular deal. Are we talking about a LLM provider? What kind of competitive dynamics did you see in the deal? Why did they make that choice? And is that basically end-to-end from artifactory to advanced security to everything? Shlomi Ben-Haim - Jfrog Ltd - Chairman of the Board, Chief Executive Officer, Co-Founder Hi, Pinjalim. Wow. This is an amazing deal that we won a new logo, a company that we all know. And the first use case that they are now committed to is having JFrog platform as their system of records for all models and to provide services and agent services to their customers. Next, they will consider, according to their roadmap, JFrog security to secure the models before they leave their data centers. And last, they will also look at the ML models solution that we provide with the platform. So this is just the first quarter. We won it in Q1. We are very excited about it. But the potential is amazing. And this logo demonstrates exactly what we built the platform to.

Question: Sanjit Singh - Morgan Stanley - Analyst : Yes, thank you for taking my question. And congrats on the really strong start to the year. Shlomi, I can remember the last time you spent so much time talking about the ML opportunity in your script. And so I wanted to dive into why and why now you're emphasizing this so much as part of your messaging. I mean, is there a theory there around models being the new binaries and JFrog not making that shift from compiled code binaries to securing models and how important that is to the business? I'd love to if you could just expand on the ML opportunity as you guys see it today? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 08, 2025 / 9:00PM, FROG.OQ - Q1 2025 Jfrog Ltd Earnings Call Shlomi Ben-Haim - Jfrog Ltd - Chairman of the Board, Chief Executive Officer, Co-Founder Yes. Well, this is one of the most exciting things that we've released ever. Following the acquisition of Qwak AI, we worked very hard to implement their platform into the JFrog platform. And currently, JFrog is the only platform that provides DevOps, DevSecOps, and MLOps practices under the same solution. We are excited about it mainly because of the fact that it opens so many doors, including the Hugging Face integration, the integration with NVIDIA that we discussed in the past. Our customers that are telling us that they start to use JFrog Artifactory as their model registry and JFrog X-Ray as their scanner. Listen, we stand ready to what this models revolution brings to the universe. And I'm happy that we expanded the platform. We are looking forward to see how it will be translated into the pipeline.

Question: Sanjit Singh - Morgan Stanley - Analyst : Understood. Thanks so much, Ed, for the insights.

Question: Brad Reback - Stifel Nicolaus and Company, Incorporated - Analyst : Great. Thanks very much. Ed, just following up on Sanjit's question. If a customer goes -- if they use up their full commit, do they then go to the rack rate or do they continue to be able to consume at the price they had under the contract? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 08, 2025 / 9:00PM, FROG.OQ - Q1 2025 Jfrog Ltd Earnings Call

Question: Brad Reback - Stifel Nicolaus and Company, Incorporated - Analyst : Great. And the RPO growth was as strong as it's been since the first quarter of '21 sequentially. Was that concentrated in a few large deals or was that broad-based?

Question: Brad Reback - Stifel Nicolaus and Company, Incorporated - Analyst : Great. Thanks very much.

Question: Kingsley Crane - Canaccord Genuity - Analyst : Hey, thank you. So for Shlomi, over a million new models and data sets were out of the Hugging Face in 2024, tripled from the year prior. It's approaching Docker and NPM. We also saw a 6.5% increase in malicious models. So what inning are we in in terms of maturation of this ecosystem? And then with malicious models increasing at a faster pace, how aware are builders in the space of the potential risks out there? Shlomi Ben-Haim - Jfrog Ltd - Chairman of the Board, Chief Executive Officer, Co-Founder So Kingsley, thanks for the question. We are in the very early stage of implementing MLOps. Actually, to be honest with you, what we hear from our customers, specifically the enterprise customers, that there are two big question marks floating around the ML adoption. The first one is the security of the models and where models will go and how it would be governed and secured. And the second one, how much it's going to cost me when it will go up to production. So together with our customers, we are building the roadmap. We are working with them on QBRs to prepare to the strategy, to answer their bold questions. And I think that though we are at the early beginning of ML adoption, it's unstoppable. Developers are already using it. They are not waiting. So I think that what you will see next is that the enterprise start to align themselves with the demand coming from the bottom up. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 08, 2025 / 9:00PM, FROG.OQ - Q1 2025 Jfrog Ltd Earnings Call

Question: Kingsley Crane - Canaccord Genuity - Analyst : Really helpful. Impressive results. Thanks, Ed.

Question: Miller Jump - Truist Securities - Analyst : Hi, can you hear me now? Shlomi Ben-Haim - Jfrog Ltd - Chairman of the Board, Chief Executive Officer, Co-Founder Yes.

Question: Miller Jump - Truist Securities - Analyst : Thanks. And then maybe for Ed, you know, you talked about de-risking on the revenue side. We have the guide for the bottom line as well. But just any color on, are you changing the way that you're thinking about investments going forward, given the macro uncertainty you called out, you know, either in the type of investments or the volume?

Question: Miller Jump - Truist Securities - Analyst : Understood. Thank you.

Question: Eamon Coughlin - Barclays - Analyst : Hey, guys. This is Eamon Coughlin on for Raimo Lenschow. Thanks for the question. Great to hear your traction with the GitHub partnership. Are you seeing any impact to landing net new deals or expanding usage with your existing base from this partnership? Or is it too early to tell? Shlomi Ben-Haim - Jfrog Ltd - Chairman of the Board, Chief Executive Officer, Co-Founder Remo, we are completely astonished about the reaction of our customers to this partnership. It was so clear to everyone that these two best-of-breed platforms should play together as one. As I mentioned in the call, we traveled together with the GitHub CEO, with Thomas, in Europe and in the U.S. We met our top customers. Hundreds of them are already adopting the solution. Now, regarding new logos and new opportunities, obviously, it makes it much more stronger as a message to the state who is doing source code and who is doing binaries, and how the security plays together and how co-pilot and our AI capabilities are playing together. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 08, 2025 / 9:00PM, FROG.OQ - Q1 2025 Jfrog Ltd Earnings Call But it's across the board. It's coming from developers' usage. It's coming from security adoption. I'm not sure that we can put the finger on what's specifically growing, but we see the growth, and we also see the growth in the pipeline.

Question: Eamon Coughlin - Barclays - Analyst : Got it. Thanks, guys.

Question: Mark Cash - Raymond James - Analyst : Thank you. Yes, so Shlomi, maybe going back to that last question, and realizing it was just last week, but JFrog's presence at RSA has really grown over the years. So just really curious as to any takeaways coming out of RSA for JFrog. Any areas that stood out as advantages to capitalize on from a product or channel partner perspective to you? Shlomi Ben-Haim - Jfrog Ltd - Chairman of the Board, Chief Executive Officer, Co-Founder You mean overall or specifically on security?

Question: Mark Cash - Raymond James - Analyst : Great. And for Ed, you know, I think last year you guys had a focus on making sure you had quality accounts that would expand, you know, now we're a quarter into '25. I guess, how's your confidence in growing the base? Obviously, like the bigger customers are doing well, but just kind of growing the funnel and the base, and then what would be the key drivers of getting momentum there? Thank you.

Question: Koji Ikeda - BofA Global Research - Analyst : Yes, hey, guys, thanks so much for taking the questions. When I look at the investor deck, I love how you guys are sticking with this 2027 revenue target. I really like the confidence there, but it does seem like growth kind of accelerates from here out of 2025, and so just curious on why are you so confident with that 2027 target still?

Question: Koji Ikeda - BofA Global Research - Analyst : Got it. Thank you. And one thing I'm really liking about JFrog, maybe even more than the growth, is the cash flow generation, and so you did 23% free cash flow margin this quarter. I think this is the best ever for a Q1, and when you look historically, free cash flow margin generally builds REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 08, 2025 / 9:00PM, FROG.OQ - Q1 2025 Jfrog Ltd Earnings Call throughout the year, so I'm trying not to get ahead of my skis here, so maybe help me understand the free cash flow dynamics in the first quarter. It does sound like cloud overage maybe helped out a little bit, but just really thinking about it against the 20% margin guide for 2025.

Question: Koji Ikeda - BofA Global Research - Analyst : Thank you.

Question: Andrew Sherman - TD Cowen - Analyst : Oh, great. Thanks. Shlomi would love to hear a little bit more about the pipeline of big deals in large enterprise, if you can, and given what you did last year, which was so strong in the second half, do you see that kind of playing out more Q2 or second half, and how is, like, pipeline coverage versus a year ago levels? Shlomi Ben-Haim - Jfrog Ltd - Chairman of the Board, Chief Executive Officer, Co-Founder Yes, Andy, you probably all understand that if we have a big deal in the pipe, it's already there. No big deal -- no sizable deal of multimillion-dollar deal is coming in a quarter before. So we are working on it, promoting it, building the relationship. And still, while we guide you guys, we de-risk those meaningful, sizable deals. So we have a few of them in the second half of the year currently projected, and we are very excited about it. All of them include not just DevOps but also security, the majority of them coming from the cloud as we plan it strategically. And some of them might even include other elements that we added this year, but it's too early to tell.

Question: Andrew Sherman - TD Cowen - Analyst : Great. Thanks, guys.

Question: Shrenik Kothari - Robert W. Baird & Co., Inc. - Analyst : Yes, congrats on the great quarter. So just to follow up on MLOps, I understand it's early days, and you and Ed have said that they're not baking any MLOPs-related monetization into this fiscal guidance. But I think you said you have rolled out a credit-based monetization model for AI usage. Just as you are kind of test pricing levers across your customers, just if you can comment, Shlomi, on how the adoption telemetry is looking like. Is the AI usage exceeding kind of the commit minimums or any internal thresholds that you had in mind on these early accounts? And just curious, like, how to think about potential contribution here? And then I had a quick follow-up for Ed. Shlomi Ben-Haim - Jfrog Ltd - Chairman of the Board, Chief Executive Officer, Co-Founder Yes, thank you, Shrenik. ML is out as part of the JFrog platform for around two months. So while we are excited and some of our customers are already starting to use it, it's too early for me to judge whether it's going to be part of the pipeline building or it's too early. As I mentioned, there are some governance and budget questions, not necessarily technology questions around it. And this is why we decided that the MLOps capabilities will be part of your Enterprise Plus subscription. And in order to grow with us, in order to scale with us, then you will be able to buy more ML credits. So even if someone started to use it two months ago, it's still part of the package. We don't yet see a significant impact on the pipeline, but we are looking forward to providing you with more information once we will have evidence from the market.

Question: Shrenik Kothari - Robert W. Baird & Co., Inc. - Analyst : Perfect. Thanks a lot. Appreciate it.

Question: Jason Celino - KeyBanc Capital Markets Inc. - Analyst : Yes. Thanks for taking my question. You know, when we look at the sequential growth on the cloud side, it's the biggest Q1 we've seen and, frankly, one of your biggest quarters outside of a Q4 on the cloud side. It sounds like most of this was driven from consumption. Did any of the upside that you saw come from, you know, that enterprise deal that you signed, or was it just signed too late in the quarter that it wouldn't have contributed anyway? Shlomi Ben-Haim - Jfrog Ltd - Chairman of the Board, Chief Executive Officer, Co-Founder Yes. Hey, Jason. Consumption was above the average, especially after '23 and '24. We were excited to see developers coming back and using and consume from our cloud services. But let me be clear. It was across the board. The deals that we submitted in Q1, the contracts that we secured in Q1, the long-term contract, the adoption of our security solution. I think that on all fronts, and if you add to it also the free cash flow, RPO, all fronts, we scored high. And may I also remind you and everyone else, this is the third quarter in a row that we are exceeding our guidance, and we see a momentum here that we want to keep. It's not only because of technology adoption. It's also because of the strategic way we build and execute on the pipeline.

Question: Jason Celino - KeyBanc Capital Markets Inc. - Analyst : Okay, thank you, Ed. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 08, 2025 / 9:00PM, FROG.OQ - Q1 2025 Jfrog Ltd Earnings Call

Question: Jonathan Ruykhaver - Cantor Fitzgerald - Analyst : Yes, hey, guys. So I just have one question. And I realize that code suggestion is not a focus of JFrog, but just looking at the impact of Open AIs proposed acquisition of Windsurf, it just makes one think. There are a lot of dynamics at play. OpenAI seemingly is going to be competing more directly with GitHub Copilot, in addition to Amazon Code Whisperer. But I think that, you know, from my perspective, it seems to point to heightened competition, obviously, between the AI platforms. And, you know, we're seeing those platforms move towards tighter integration of the various solutions across the development tool chain. So I'm just curious, Shlomi, on your perspective on how this potentially impacts the repository opportunity. It doesn't, you know, drive more strategic partnerships. Shlomi Ben-Haim - Jfrog Ltd - Chairman of the Board, Chief Executive Officer, Co-Founder Yes, that's a great question. And as we know, this market evolves very fast. Currently, from what we see, and specifically from the player you mentioned, that we work very closely with them, the more, the merrier. It's not overlapping the model registry we provide. For sure, it's not overlapping the other software packages that you need to use in order to drive AI. It's not covering the security and the model scanning that we provide. So what the future will bring, I don't know. But currently, we are collaborating. And the synergy is actually what our customers are asking for. So currently, my answer is that I see more collaboration than competition.