Jfrog Ltd Q4 2024 Earnings Call Transcript

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

Question: Pinjalim Bora - JPMorgan Chase - Analyst : Congrats on a great close to the year. Shlomi, obviously, you were seeing really strong security traction now 12% of RPO, 5% of ARR. Given these successes, would you say you are seeing kind of a tangible change in prospective customer conversations especially in those organizations where security is kind of a completely different silo rather than software development or engineering? Basically, I'm trying to understand if the recent successes around security is opening up more doors and if there are more kind of large heat figure kind of deals in the pipeline. Shlomi Ben-Haim - Jfrog Ltd - Chairman of the Board, Chief Executive Officer, Co-Founder Yes. Thank you, Pinjalim, and Happy Valentine's, everyone. Specifically regarding security, we hear more and more of the CIOs and the CISOs of the world looking at consolidating point solution tools. It's across the board. It's mainly around the coverage of the software supply chain aligned with the new threats and integration with other players. So the basic assumption is that our users would like to see an outcome, which is kind of all the findings are presented on a single plant. Therefore, we are encouraged by what we hear. We are encouraged by what we see in the pipeline of our customers and prospects keep pushing through consolidation one one holistic security solution coming together with DevOps.

Question: Pinjalim Bora - JPMorgan Chase - Analyst : Anything on pricing, 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. FEBRUARY 13, 2025 / 10:00PM, FROG.OQ - Q4 2024 Jfrog Ltd Earnings Call

Question: Michael Cikos - Needham - Analyst : And congrats on a strong finish to the quarter and for the year as well. I wanted to start off just to get some more color on the cloud growth that we saw in Q4, and I guess the expectation is great to hear on that 30% to 32% you're looking for next year. Can we just dive into the database comment? I think that might be new for me, and apologies if I missed it, but that $1.3 million in revenue that we generated in Q4, was that anticipated? And how should we think about that scaling as we look out over the upcoming year? Shlomi Ben-Haim - Jfrog Ltd - Chairman of the Board, Chief Executive Officer, Co-Founder Yes, Mike, hi. This is Shlomi. I'll start, and Ed, feel free to chime in. Our research team during 2024 was busy building cloud service, which is the JFrog Catalog that serves as the database of all of our security suites. JFrog Xray, JFrog Advance Security, JFrog Curation, and Runtime. This is now being a cloud service provided to all of our customers, so faster than cloud. And therefore, we recognize that as part of our new security suite and part of our cloud services.

Question: Michael Cikos - Needham - Analyst : Got it. Got it. And then the second question I have for you, again, just hitting on the cloud migrations, and I think Pinjalim was teasing at this a little bit before me. But to drive that 30% to 32%, again, it sounds like you guys are assuming relatively consistent pace of cloud migrations? But just wanted to make sure I was hearing that properly. Shlomi Ben-Haim - Jfrog Ltd - Chairman of the Board, Chief Executive Officer, Co-Founder Yes, Mike, as we guided before, we are being conservative looking at our pipeline and derisking it, looking at migration as step one as we saw mainly in the second half of the year and consumption increasing as an upside as step two. We are looking at the pipeline. We are looking at the portfolio. We are looking at the trend in the market, and this is how we based our guidance on.

Question: Sanjit Singh - Morgan Stanley - Analyst : Congrats on a strong Q4. To that point, we rewind about a year ago, you guys also had a strong quarter, particularly in cloud. And then I think the expectations got a little bit muddled to start the year. So I was wondering if you could sort of again go through the assumptions, is there sort of a natural cadence in terms of the customer base in terms of how they think about optimization and then investment following optimization in terms of like a Q1 first half versus second half dynamic? It seemed like that was kind of a theme in 2023 and 2024. Is that the sort of the right storyline as we think about 2025, potentially another optimization cycle to start to the year followed by projects coming online and the incremental investment in cloud?

Question: Sanjit Singh - Morgan Stanley - Analyst : Understood. That's great. And then Shlomi, on the security side, with the business at 5% of ARR, is there going to be any additional sort of change in sales motion? I imagine that you're seeing traction with some of these really large customers, some of these large deals that you signed, particularly in the second half, buying onto the security vision. As you kind of try and push down into the mainstream of the enterprise base within the JFrog customer base, are you contemplating any changes, incentives to drive -- to broaden the breadth of that adoption of the security solutions or the core security solutions? Shlomi Ben-Haim - Jfrog Ltd - Chairman of the Board, Chief Executive Officer, Co-Founder Yes, Sanjit, our strategic team and the entire sales force is on with what it takes in order to scale with our security offering now matured and 2024 demonstrates that we were very pleased by these very big contracts that were -- that triggered a much larger deal because of the security addition. And it's now not only JFrog Advanced Security and JFrog Curation. We launched JFrog Runtime recently, as you know. And the MLSecOps is stepping in. Customers are starting to inquire more and more about how they can secure AI models with the JFrog suite. We reported today 250 customers that embrace our security solution. That means that we have a mission with additional 7,000 and the rest of the industry. So we are very optimistic about it, and we will take it leap by leap. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 13, 2025 / 10:00PM, FROG.OQ - Q4 2024 Jfrog Ltd Earnings Call

Question: Kingsley Crane - Canaccord Genuity - Analyst : And congrats on a strong year to fiscal '24. On the strategic collaboration agreement, SCA, that's also a software competition analysis, it's great to see. But just curious like what what's truly incremental about the agreement? And then wondering what sort of increased resources might be allocated for procurement on AWS's side? Shlomi Ben-Haim - Jfrog Ltd - Chairman of the Board, Chief Executive Officer, Co-Founder Yes, Kingsley, as you know and as we described in the past, we are not just building our cloud solution, we are also building the relationship with the cloud providers. And with each of them, it's a different effort that we are pushing, not only on the technology integration and improvement of the user experience in different regions, but also the commercial part of it. What we've managed to do with the AWS together with our partner team is that we got to an agreement that will have more cost-effective scale to our customers. So basically, with the better conditions with AWS, we can be more attractive with our customers. And this is a very important agreement as we keep scaling with the cloud overall and AWS specifically.

Question: Kingsley Crane - Canaccord Genuity - Analyst : Makes perfect sense. Looking forward to this year.

Question: Ryan MacWilliams - Barclays - Analyst : For Shlomi, how has macro been since the start of the fourth quarter? And did you notice any changes or improvement in your conversations with customers since the US presidential election? Shlomi Ben-Haim - Jfrog Ltd - Chairman of the Board, Chief Executive Officer, Co-Founder Well, thank you for the question. We don't see a big change in the macro. We still see very conservative usage of the cloud solution. We still see very conservative bets on the commitment, even if it's multiyear contracts. Projects that are in the pipeline are still being discussed. There is a lot of discussions about AI and MLOps in production, but still customers are being very hesitating. And more specifically about the new administration, now that the executive order will change, they are taking a bit more time to wait and see, what will the new administration bring in terms of regulation of AI adoption in production. But no specific change that I can report on.

Question: Andrew Sherman - TD Cowen - Analyst : Great. Can you hear me?

Question: Andrew Sherman - TD Cowen - Analyst : Congrats on the quarter. Just a quick one for you. Could you confirm there were no true-ups or overages in the cloud number for Q4? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 13, 2025 / 10:00PM, FROG.OQ - Q4 2024 Jfrog Ltd Earnings Call Shlomi Ben-Haim - Jfrog Ltd - Chairman of the Board, Chief Executive Officer, Co-Founder There's no true-ups. As we stated before, most of our customers have moved to a monthly use it or lose it mechanism for the cloud. So we don't have the true-up that you saw previously. And so there was nothing that was significant or large true-ups like we did in 2023.

Question: Shrenik Kothari - Baird - Analyst : Congrats, guys. So Shlomi, of course, you highlighted the 250 customers adopting the Advanced Security and Curation, so it's a real great job. I was just curious, beyond the big deal pipeline, again, I mean, that's it's a great execution that we have shown so far. But seeing any signs of potential kind of correlation between kind of now having an integrated platform approach and also seeing some traction sort of faster expansion or just in terms of visibility, upsell, cross-sell since you mentioned about Runtime seeing traction? So just curious in terms of incremental adoption of these advanced security modules or features? And then I have a follow-up for Ed. Shlomi Ben-Haim - Jfrog Ltd - Chairman of the Board, Chief Executive Officer, Co-Founder Yes. Thank you, Shrenik, for the question. Obviously, out of 250 customers we reported today that are using the new security suite of JFrog as part of the platform, there are several that are really multiyear, multimillion-dollar deals. The rest are supposed to grow with the by seat model, and we hope to see this growth coming in 2025 and after. Regarding the rest of the portfolio, the practices are there, the price plan is there. The team is mature, and we are ready to go after the opportunity. I think JFrog offer not only the best holistic security in the market but also aiming to future opportunities like MLSecOps threats and also better integration. One of them is with GitHub another one with Hugging Faces, as we mentioned. So I'm really excited about what the future brings.

Question: Koji Ikeda - Bank of America - Analyst : Only one from me here. Nice performance on the free cash flow margin to end 2024 at 25.2%, which is really close to your 2027 target model here but when I look at the guide for 2025, 19%. So really just trying to understand the 6 points of margin degradation there in the free cash flow. Anything we should think about there and from 2025 and the progression to 2027? Or is this just kind of an effect of guidance conservatism on the revenue flowing down to the cash flow side?

Question: Ethan Weeks - Piper Sandler - Analyst : This is Ethan on for Rob today. So I just want to ask with the AI conversation shifting more and more towards genetic solutions. How does this kind of change the opportunity -- the AI opportunity for JFrog, if at all, especially as we consider kind of the new capabilities brought by block? Shlomi Ben-Haim - Jfrog Ltd - Chairman of the Board, Chief Executive Officer, Co-Founder Well, Rob, putting all the AI class side, I will say that majority of our enterprise customers are already inquiring about having Artifactory as the model of registry and making JFrog the single source of record for AI models as well. That by itself is a huge opportunity for JFrog and our R&D and product team are focusing on foster this opportunity. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 13, 2025 / 10:00PM, FROG.OQ - Q4 2024 Jfrog Ltd Earnings Call On the security side, there is a lot of kind of big future about how you secure AI, how you secure your IP and what the administration will set as the regulation. And we are setting our security tools with future demand. We just released our first JFrog ML as a result of the Qwak acquisition as part of our platform, and we are learning more about our customers' demand. We said that we are conservative about the pipeline. Therefore, we didn't include any MLOps guidance in 2025. And we will learn as we go, focusing on the value for the customers.

Question: Billy Mandl - KeyBanc Capital Markets - Analyst : Can you guys hear me all right?

Question: Billy Mandl - KeyBanc Capital Markets - Analyst : Congratulations on a strong 4Q. Just wanted to ask about the GitHub partnership, which was, of course, a hot topic in 2024. curious to hear how you're seeing that drive pipeline? And maybe as we look out to the balance of 2025, what's the evolution of that partnership might look like? Shlomi Ben-Haim - Jfrog Ltd - Chairman of the Board, Chief Executive Officer, Co-Founder Yes. Well, we are getting wonderful feedback from the field about the GitHub integration. Customers who chose GitHub and JFrog together are now enjoying a one platform experience. We deliver that on the DevOps level, security level, and Copilot with AI. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 13, 2025 / 10:00PM, FROG.OQ - Q4 2024 Jfrog Ltd Earnings Call I think that what we currently hear is that customers are more interested in having a solution of Copilot with the JFrog platform. So working with Copilot and enhancing the software supply chain management through this integration is mainly what they are focusing about because they are immediately pointing the ROI of their development team using both of us together. So that would probably be our main focus.