Q3 2020 Jfrog Ltd Earnings Call

November 4, 2020

[music].

Operator: Ladies and gentlemen, thank you for joining us and welcome to the JFrog Q3 2020 Earnings Conference Call. I'll hand the conference over today to JoAnn Horne of the JFrog Investor Relations team. Joanne, please go ahead.

Ladies and gentlemen, thank you for joining us and welcome to <unk> third quarter 2020 earnings Conference call.

I'll hand, the conference over today to Joann Horne of the tree frog Investor Relations team join please go ahead.

JoAnn Horne: Good afternoon, and thank you for joining us as we review JFrog's Q3 financial results, which were announced following the market close via press release earlier today. Joining us will be JFrog's CEO and Co-founder, Shlomi Ben Haim, and Jacob Shulman, JFrog's CFO. 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 Q4 and for the full year of 2020. 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.

Good afternoon, and thank you for joining us I just reviewed Jay frogs third quarter financial results, which were announced following the market close via press release earlier today, joining us will be cheaper on the CEO and co founder some even home.

And Jacob Shulman, Chief Frogs CFO.

During this call who they make statements related to our business that are forward looking under federal Securities laws and are made pursuant to the safe Harbor provision of the private Securities Litigation Reform Act of 1995, including statements related to our future financial performance, including our outlook for the fourth quarter and for the full year 2020.

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 an end he said.

JoAnn Horne: 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 prospectus filed with the SEC dated 15 September 2020, which is available in the investor relations section of our website and the earnings press release issued earlier today.

Good day.

Just keep in mind that we're not of 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.

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 prospectus filed with the FCC dated September 15, 2020, which is available in the Investor Relations section of our web site and the earnings press release issued earlier today.

JoAnn Horne: Additional information was made available in our quarterly report on Form 10-Q for the quarter ended 30 September 2020, and other filings or 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 there for a limited time. With that, I'd like to turn the call over to JFrog CEO Shlomi Ben Haim. Shlomi.

Additional information was made available in our quarterly report on form 10-Q for the quarter ended September 32020, and other filings 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 J Fox performance should be considered in addition to not as a substitute for or not in 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 there for a limited time.

With that I'd like to turn the call over to J Fox CEO somebody manheim from.

Shlomi Ben Haim: Thank you, JoAnn. Good afternoon, and thanks for joining us for JFrog's Q3 Earnings Call, which is our very first as a publicly traded company. We're proud and excited to have become a public company listed on Nasdaq under the symbol FROG in mid-September. Before we get started, I would like to wish you and your loved ones the best of health as we all face a new reality in how we learn, work, communicate, and more. We are all affected by the current environment, and we look forward to better days ahead. This is JFrog's first quarterly report. Therefore, I would like to take a moment and thank JFrog employees for what we have built together. These employees we call the Frogs are the reason for the company's success and what makes us leap forward.

Thank you joining me good afternoon, and thanks for joining us for Jay broke 2023rd quarter earnings call, which was our very first as a publicly traded company.

We're proud and excited to have become a public company listed on NASDAQ under the symbol frog in mid September.

Before we get started I would like to wish you and your loved ones. The best uphill as we all face the new reality in how we learn walk communicate animal.

We all affected by the current environment and we look forward to better days ahead.

This is Jay broke first quarterly both therefore, I would like to take a moment and thanks Jay program. Please.

Well, what we had been together these employees, we called the frogs Oh, the reason for the company's success and what makes the flip forward.

Shlomi Ben Haim: Let me begin by explaining both our business and vision to put JFrog's Q3 results into context. As a start, I'd like you to ask yourselves a couple of simple questions. What version of video or audio conference software are you using right now to attend this call? On your LinkedIn or Facebook application, what is the current software version you're using? When you watch Netflix at home, what version do you use? Of course, you don't know. No one knows. I don't know. Frankly, as a user, you don't care. You just want up-to-date, reliable, secure software without any hassle. Imagine there are no versions. This is JFrog's Liquid Software vision, a world without software versions, where the world's software is updated seamlessly and securely without the hassle of update processes and downtime.

Let me begin by explaining both our business and vision to put Jay books Q3 results into context.

Thought I'd like you to ask yourself a couple of simple question.

What version of video audio conference software are you using right now to attend to school.

On the old linked in Facebook application what is the current softer version you are using.

When you watch Netflix at home what version to use of.

Of course, you don't know no one knows I don't know and frankly as the user you don't care you just want to up to date reliable secure soft through without any hassle.

Imagine they'll know versions.

This is Jay Brooks liquid softer vision award without software versions, where the ward software is updated seamlessly and securely without the hassle of update processes and downtime.

Shlomi Ben Haim: My co-founders, Fred Simon, Yoav Landman, and I, launched JFrog in 2008 with a mission to make software development and delivery easier to manage through a process of what is known today as DevOps. As developers ourselves, we predicted the change in the way software is being built, released, and deployed, not only by developers, but also by machines. Since that time, JFrog has pioneered a complete end-to-end platform for continuous software release management, also known as CSRM. We are honored that more than 75% of Fortune 100 companies use JFrog to build and deliver software rapidly and securely daily. As a brief overview of the business and financials, I'm pleased to report that for the quarter ending 30 September 2020, JFrog revenue was $38.9 million. A growth of 40% year-over-year for the same period.

My co founder Fred Simon you all on Monday night landscape Oak in 2008, with a mission to make software development and delivery easier to manage through a process of what is known to Dave as Devops.

As developers, though so we predicted the change in the way softer is being be released and deployed not only by developers, but also by machines.

Since that time, Jay profit has pioneered the complete end to end platform for continuous software release management also known as see SRM.

We are honored that more than 75% of fortune 100 companies use J product to build and deliver a soft through rapidly and securely daily.

As a brief overview of the business and financials I'm pleased to report that for the quarter ending September Thirtyth 2020, Jay Poker revenue was $38.9 million.

Growth of 40% year over year for the same period.

Shlomi Ben Haim: non-GAAP operating income was $5.1 million, more than double the prior year level. Also, in Q3, we achieved a record level of quarterly free cash flow of $9.7 million. We continued to have a broad customer diversification, and no single customer represented more than 2% of the company's revenues. Our products continue to be mission-critical to our customers, regardless of COVID headwinds, and our growth retention remained in line with historical trends demonstrating this criticality. In Q3, approximately 87% of revenue came from customers subscribed to our multi-product offers. 19% of revenue came from our platform Enterprise Plus subscription, which gives customers access to all JFrog's products as an end-to-end solution.

Non-GAAP operating income was $5.1 million more than doubled the prior year level also in Q3, we achieved a record level of quarterly free cash flow of $9.7 million.

We continue to have a broad customer diversification and no single customer represented more than 2% of the company's revenue.

Our products continues to be a mission critical to our customers regardless of coal with headwinds and our growth retention remained in line with historical trends demonstrating this criticality.

In Q3, approximately 87% of revenue came from customers subscribe to our multi product offers 19% of revenue came from our platform enterprise plus subscription, which give customers access to all J Fox products as an end to end solution.

Shlomi Ben Haim: We are proud and humbled by this growth to date, and we believe these results demonstrate JFrog's increased adoption in the marketplace as organizations continue to embrace modern software infrastructures and transform into a digital world. Saying that every company has become a software company or software is eating the world almost sounds like a cliché. However, we realize that conversation in companies' boardrooms are now focused on delivering digital experience and gaining competitive advantage through software, especially during today's challenges. It is not a question of should we do it, but more when and how. How can we improve our user experiences and engagement with software? How can we be faster than our competitors, yet be secure? What change is required so rapid software releases will run on a smooth yet resilient platform and increase go-to-market speed?

We are proud and humbled by this growth to date and we believe this results demonstrate Jay Prague's increased adoption in the marketplace as organizations continue to embrace modern software infrastructures and transform into a digital world.

But saying that every company has become a software company all software is eating the world almost sounds like a cliche. However, we realized that conversation in company's bold homes are now focused on delivering digital experience and gaining competitive advantage to software, especially during today's challenges.

It is not the question off should we do it but more when and how.

How can we improve our user experiences and engagement with software how can we be faster than our competitors yet be secure.

What changes are required so rapid software releases will run on smooth, yet resilient platform and increased go to market speed.

Shlomi Ben Haim: JFrog is leading the charge in these areas since the only way to implement software fast, securely, and efficiently with no downtime is through automation of the CSRM processes, and for that reason exactly, DevOps shines. As the world experiences this exploding amount of software as a result of digital transformation, everyone is looking to be part of the software gold rush, and JFrog is the provider of the picks and shovels to millions of software developers around the world. We introduced the world with the first binary repository manager in 2008 and claimed that binaries, also known as software packages, will become the primary asset in the new software life cycle. Today, JFrog offers an end-to-end hybrid multi-cloud universal DevOps platform to empower organizations, developers, and DevOps engineers to meet increased delivery requirements.

Jay probably is leading the charge in this area.

The only way to implement software fast securely and efficiently with no downtime is through automation offices of the CSR and processes and for that reason exactly Dev ops shines.

As the world experiences this exploding amounts of software as a result of digital transformation, everyone is looking to be part of the softer Goldrush and Jay Prague is a provider of the picks and shovels to millions of software developers around the world.

We introduced award with the first binary repository manager in 2008 and claimed that binary also known as software packages will become the primary acid in the new softer lifecycle.

Today, Jay for offers an end to end hybrid multi cloud Universal Dev ops platform to empower organizations developers and Dev ops engineers to meet increased delivery requirements of course Dev ops isn't a single process, but many connected to us than tools across teams and.

Shlomi Ben Haim: Of course, DevOps isn't a single process, but many connected tasks and tools across teams. With the explosion of cloud-native technologies across open source, containers, Kubernetes, and others, these teams face an even bigger challenge for organizations, such as how to manage the different technology types that each have their own requirements. This is why JFrog's strategy of universal package management is so important. Modern development organizations use more than five different software package types regularly, and our customers routinely utilize more than twenty of them. If you cannot centralize your package repository manager or you isolate management to a single technology, your development life cycle will be slow and messy, and no software automation, no integration process will meet the needs of the organization. Our product philosophy is based on the user's freedom of choice.

With the explosion of cloud native technologies across open source containers kubernetes and others. These teams face an even bigger challenge for organizations such as how to manage the different technology type that each have their own requirements.

This is why J Fox strategy of Universal package management is so important mountain development organizations use more than five different software package types regularly.

And our customers routinely utilized more than 20 of them.

If you cannot centralized your package repository manager or you isolate management to a single technology Yole development lifecycle will be slow and messy and no software automation no integration process will meet the needs of the organization.

Our product philosophy is based on the use of freedom of choice will provide you with a universal solution that integrates with every developer ecosystem and can be deployed in every environment.

Shlomi Ben Haim: We'll provide you with a universal solution that integrates with every developer's ecosystem and can be deployed in every environment. Our fellow developers call it the Switzerland of DevOps, while our enterprise customers call it an anti-vendor lock-in solution. Starting with our flagship product and the heart of the JFrog Platform is JFrog Artifactory. Not only is it the industry standout and the mother of all repositories, but also the only universal tool that supports over 25 technology types, comes in high availability version, and scales to infinity. JFrog Xray, our security tool that natively integrates with Artifactory and provides a full vulnerability and license compliance solution that integrates with the developer's ecosystem. Xray helps the CISO of the world shift left and avoid security bottlenecks. JFrog Distribution is how you take a blessed software package release bundle and deploy it into the edge securely.

Our federal developers call it the Switzerland of Dev ops, while our enterprise customers call. It an anti vendor lock in solution.

So I think with our flagship product and the heart of the J Pro platform is Jay Forgotten factory not only is it the industry stands out and the mother of all repositories, but also the only universal tool that supports over 25 technology type comes in high visibility version and scale to infill.

Okay.

Then Jay for victory, our security tool that natively integrated without the factory and provides a full brunner ability in license compliance solution that integrates with the developers' ecosystem extra.

X Ray sales the C.. So afterwards, she slept and avoid security bottlenecks.

Different distribution is how you take a blessed software package released bundle and deployed into the edge security.

Shlomi Ben Haim: This tool chain creates the circle of trust in the CSRM workflow. JFrog Pipelines, our CI/CD solution, and a result of an acquisition we made in 2018, integrates and automates the flow of binaries through the DevOps pipes. We build JFrog Mission Control and JFrog Insight, the admin user dashboard, to provide a holistic view of the platform and simplify the configuration and resources management in a multi-zone, multi-server environment. These tools together form our complete end-to-end platform, and this is what sets us apart from the competition who are years behind in their approach. JFrog's market is very large and growing at a fast pace. Looking at the landscape, we see several additional tiers of opportunity for our business. Many potential customers still rely on homegrown solutions that were built only 5 or 10 years ago.

These two chain create the circle of trust in the theater and more flow.

Jay for pipelines, our see I see this solution and the result of an acquisition. We made in 2019 integrates and automate the flow of binary through the Dev ops bikes.

We BJ book mission control and shape of insight the admin use a dashboard to provide a holistic view of the platform and simplified the configuration and resources management in a more days on Wednesday server environment.

These tools together foam our complete end to end platform and this is what sets us apart from the competition, who all those years behind in the approach.

Jay pubs market is very large and growing at fast pace looking at the landscape, we see several additional tiers of opportunity for our business.

Many potential customers still rely on homegrown solutions. This was built on the five or 10 years ago.

Shlomi Ben Haim: These solutions are often incomplete and will be replaced with robust but simple solution like JFrog that support modern cloud-native technology and scale. The market also attracts competitors who attempt to solve certain aspects of the software development cycle. These point solutions fall short by not focusing their solution around software packages, not being fanatically universal, not offering security tools as part of a platform, not being hybrid, nor multi-cloud, focusing on legacy technologies their business has relied on for years instead of adopting DevOps innovation to solve this pain. In Q3, we were proud to deliver updates requested by our customers and community. Our R&D core teams focused on solid roadmap execution that prioritized feature releases that specifically answered work-from-home challenges. This includes improvements in security tools, distribution, and team collaboration around DevOps. For example, we released peer-to-peer download functionality for automated software package distribution.

These solutions are often incomplete and will be replaced with robust, but simple solution like j., Paul that support modern cloud native technology and scale.

The market also attracts competitors, who attempt to sell certain aspect of the software development cycle.

This point solutions fall short by not focusing ddos solution around software packages not.

Not being fanatically universal not offering security tools as part of the platform not being hybrid no multi cloud focusing on legacy technologies. The business has relied on for years instead of adopting Dev ops innovation to solve this bank.

In Q3, we.

We were proud to deliver updates requested by our customers and community.

Our R&D coal teams focused on solid roadmap execution, but probably only type feature releases that specifically answered walk from home challenges.

This includes improvements in security tools distribution and team collaboration around Devops.

For example, we really feel to build download functionality for automated software package distribution.

Shlomi Ben Haim: This capability not only accelerates the distribution flow but also eases the strain on network resources. We also greatly enhanced our customers' ability to operate in highly regulated air-gap secured environment, helping users find and validate release bundles with JFrog Distribution. New security scanning, scan reporting, and license compliance capabilities were added to JFrog Xray to serve companies with multiple security stakeholders. JFrog Pipelines extended its reach into the community by releasing the ability for users to define their own reusable pipeline steps to centralize and simplify automation. Alongside a self-managed offering, our hybrid platform continues to be a growth engine for JFrog and drive speed, security, and efficiency for our customers. The adoption of the cloud was accelerated by COVID-19, which created the need for more data transfer and software delivery for our customers.

This capability not only accelerates the distribution flow, but also eases the strain on network resources.

We also greatly enhance our customers' ability to operate in highly regulated or gap secured environment, helping users signed and validate released bundles with Jay for with distribution.

New security scanning scan reporting and license compliance capabilities were added to JP X ray to serve companies with multiple security stakeholders J.

Jay for pipeline extended its reach into the community by releasing the ability for users to define the on reusable pipeline steps to centralize and simplify automation.

Alongside a self manage offering our hybrid platform continues to be a growth engine for Jay fog and drive speed security and efficiency for our customers.

The adoption of the cloud was accelerated by Cobot, 19, which created the need for more data transfer and softer delivery for our customers.

Shlomi Ben Haim: The remote working world driven by COVID makes customers appreciate the ease of setup while addressing the remote access required. Our cloud format and SaaS revenue growth has significantly exceeded self-managed solution growth for the past two quarters. In fact, JFrog was recently named number 14 on the Forbes Cloud 100, listing the world's most influential and successful cloud companies. This is our third year in a row selected to this list. To continue this cloud momentum, in Q3, we launched the JFrog free community offering in the cloud, responding to the demand of the community and giving developers easy access to our platform. This offering includes JFrog Artifactory, as well as security scanning and software development pipelines orchestration tools, which are now available to the community on all major cloud providers, AWS, Microsoft Azure, and Google Cloud in multiple regions.

The remote walking board driven by coded makes customers appreciate the ease of setup, while addressing the remote access required our cloud format and SaaS revenue growth has significantly exceeded sales manager solution growth for the past two quarters.

In fact, Jay book was recently named number 14 on defaults cloud 100 listing the world's most influential and successful cloud companies. This is our third year in a row selected to this list.

To continue this cloud momentum.

In the third quarter, we allowed the jape of free community offering in the cloud responding to the demands of the community and giving developers easy access to our platform.

This offering includes Jay broke repository RP factory as well as security scanning and software development pipelines orchestration tools, which are now available to the community on all major cloud providers ADW as Microsoft Azure and Google cloud in multiple regions.

Shlomi Ben Haim: We already see this offering increasing the number of JFrog's cloud users by the thousands, as well as increasing traffic to other digital and educational resources we provide. From a cloud partnership perspective, in Q4, we are hosting a dedicated DevOps Cloud Days conference alongside our partners, AWS, Microsoft, and Google. This event is co-marketed, co-hosted, addressing the needs of each cloud community's developers in a dedicated day for each cloud. JFrog always balances between the needs of the business and the needs of the developer since software packages are being produced and consumed by millions every day. These packages are the lifeblood of Liquid Software that starts in developers' communities that create them for all organizations. A key component of addressing developer community needs is providing tools that support their ecosystem tool chain with minimum sales and marketing integration.

We already see this offering increasing the number of J Fox cloud users by the thousands as well as increasing traffic to other digital and educational resources, we provide.

From a cloud partnership perspective in Q4, we are harvesting.

At dedicated Dev Ops cloud based conference alongside our partners AWB, Microsoft and Google.

This event is co marketed co hosted addressing the needs of each cloud communities developers in a dedicated day for each cloud.

Jay folk always balances between the needs of the business and the needs of the developer since software packages are being produced and consumed by millions every day.

These packages are the lifeblood of liquid software that starts in developers communities that create them for all organizations.

A key component of addressing developer community needs is providing tools that support their ecosystem to change with minimum sales and marketing integration. For example in Q3, our teams improved the J for command line interface to enable easier ecosystem integrations with J pro products.

Shlomi Ben Haim: For example, in Q3, our teams improved the JFrog command line interface to enable easier ecosystem integrations with JFrog products. We released more open-source plugins to serve the community better, including CI/CD and observability tools integrations. We released ChartCenter as a community hub for cloud-native developers' assets. We led the C and C++ community with JFrog's Conan package manager to further enhance these technologies and support the evolving IoT world. Over 70 companies have already shown interest in joining this effort. JFrog held the first Automotive DevOps Summit with users from companies like Toyota, Volvo, Daimler, and more. The demand from the market and our community involvement is at an all-time record.

The release more open source plug ins to serve the community better.

Including C.I.C.D. and observe ability to integration.

Released chart center as the community hub for cloud native developers assets.

Led the Si and C plus plus community with J. Prox Covenant package manager to further enhance these technologies and support the evolving iOS evolve overtime.

Overall 70 companies have already shown interest in joining the sample.

Jay folk held the first automotive Dev ops summit reduces from companies like Toyota Volvo Daimler and more.

The demand from the market and our community involvement is at an all time record.

Shlomi Ben Haim: This is also a great opportunity for me to welcome Micheline Nijmeh, our new Chief Marketing Officer. Micheline is a veteran marketer who brings vast experience in building high-growth organizations from leading companies where she served, such as Zscaler, Xactly, Salesforce, and Sun Microsystems. Turning to sales. JFrog is driven by inbound inside sales motion only, allowing us to keep the mantra of delivering products built by developers and not sold. Our land and expand revenue growth is driven by upsell to current customers alongside initial entry point sales to new customers. In fact, as of 30 September, we had 313 customers with ARR greater than $100,000, of which nine customers were over $1 million. We are focusing on our sales and marketing growth and will keep investing while scaling.

This is also a great opportunity for me to welcome we seen each met our new Chief Marketing Officer. We've seen is a better end market here, who brings vast experience in building high growth organizations from leading companies, where she served such as this scalar exactly salesforce and Sun Microsystems.

System.

Turning to sales Jay Ferguson, driven by inbound inside sales motion only allowing us to keep the mantra of delivering products, both by developers and not sold our land and expand revenue growth is driven by upsell to current customers alongside initial.

Entry point sales to new customers in fact as of September Thirtyth, We had 313 customers with air are greater than $100000 of which nine customers well over $1 million.

We are focusing on our sales and marketing growth and we'll keep invest while scaling alongside our inside sales team. We started to BJ books strategic sales team by region.

Shlomi Ben Haim: Alongside our inside sales teams, we started to build JFrog's strategic sales team by region. This team is already expanding our footprint among our top 100 accounts and ensuring a smooth adoption of our platform. As such, our cohort growth is solid. Our net dollar retention for the trailing Q4 was 136%. This is an important metric to judge our progress. In terms of our overall sales performance and funnel conversion, we saw a trend of time to sell increasing slightly during COVID-19. These are increasingly getting escalated higher in the organization due to budget cuts or defaults to executive approvals for expenses. Distributed workforce are making customers' internal processes more complex. We saw a brief dip in demand at the beginning of the pandemic, as well as a longer conversion time from trial or paying customers to paying customers.

This team is already expanding our footprint among our top 100 accounts and ensuring a smooth adoption of our platform.

As such our cohort growth is solid.

Net dollar retention for the trailing four quarter was 136%.

This is an important metric to judge our progress.

In terms of our overall sales performance and funnel conversion, we so at trends have time to sell increasing slightly during COVID-19.

These are increasingly getting escalated higher in the organization's due to budget cuts or people to executive approvals for expenses.

And distributed workforce are making customers internal processes more complex.

We sell a brief deep in demand at the beginning of the pandemic as well as a longer conversion time from trial or paying cuts to paying customers sales.

Shlomi Ben Haim: Since then, we've seen demand growth improve, and we are confident that the ongoing free trials and new community cloud offerings will be converted in the future. This momentum demonstrates the adoption of our multi-product offerings by the enterprise despite COVID-19 and expressed budget concerns. Our expansion model in the self-hosted offering grows not only by adding additional servers, but also through demand for other products on top of Artifactory, such as Xray and Distribution. To illustrate this, in Q3, we landed one of the world's largest retail brands, utilizing JFrog across both self-managed and SaaS services and hosted on Microsoft Azure. The deal drivers included the need to diversify their deployment across self-managed, SaaS, and multi-region offerings in order to allow easy and smooth access for their team.

Since then weve seen demand growth improve and we are confident that the ongoing free trials and new community cloud offerings will be converted into future.

This momentum demonstrate the adoption of our move their product offerings by the enterprise, Despite cobiz and express budget concerns.

Our expansions model in the self hosted offering growth not only by adding additional service, but also through demand for other products on top of the factories, such as X Ray and distribution.

To illustrate this in Q3, we landed one of the world's largest retail brands utilizing Jay product across both self managed and SaaS services and hosted on Microsoft Azure.

The deal drivers included the need today diversified their deployment across sales managed SaaS and multi region offering in order to allow easy and smoothed axis folder team.

Shlomi Ben Haim: In addition, in Q3, our customer, a market leading company in cloud software for customers engagement and operational excellence, expanded its SaaS agreement to over $1.2 million in ARR while upgrading to the complete JFrog platform to support distributed development teams around the globe. This is a small sampling of successes, and we're excited about where we're going next in Q4. As we wrap up 2020, we plan to invest our resources in supporting new package types and technology enhancements that helps our customers build and deliver even more rapidly and securely. These investments will support our growth in 2021, allowing us to scale even further when the market recovers. With that, I'd like to turn it over to our CFO, Jacob Shulman, for more detailed financial results.

In addition in Q3, our customer a market leading company in cloud software for customers engagement and operational excellence expanded its SaaS agreement to over $1.2 million in Aero, while upgrading to the complete shape of platform to support distributed the.

Element teams around the globe.

This is a small sampling of successes and we are excited about where we're going next in Q4 as we wrapped up 2020, we plan to invest our resources and supporting new package types and technology enhancements that helps our customers build and deliver even more rapidly and securely.

These investments will support our growth in 2021, allowing us to scale, even further when the market recovers.

With that I'd like to turn it over to our CFO Jacob Shulman for more detailed financial results.

Jacob Shulman: Thank you, Shlomi, and thanks for joining us for our first earnings call. It's been an exciting time, and I want to thank my team and everyone who helped get us to this point. We are very pleased to have started our public company life with such a strong quarter. Before we look at the results, I wanted to quickly review our revenue model. JFrog generates revenue from subscriptions. We categorize our customers into two segments: self-managed and cloud SaaS, both of which pay a subscription fee. Self-managed customers pay based upon the number of servers tied to a multi-tier subscription price. Self-managed customers can operate on-prem or in a private or public cloud. Our cloud SaaS customers pay a subscription fee based upon consumption of storage and data transfer. We report two revenue lines.

Thank you stormy and thanks for joining us for our first earnings call. It's been an exciting time and I want to thank my team and everyone, who helped get us to this point.

We are very pleased to have starts are a public company life with such a strong quarter.

Before we look at the results I wanted to quickly review our revenue model.

Gross profit generates revenue from subscriptions, we categorize our customers into two segments self managed and cloud service.

Both of which pay a subscription fees sales.

Sales managed customers pay based upon the number of servers tied to a multi tier subscription price sales.

Self managed customers can upgrade on prem or in the private or public cloud.

Our cloud SaaS customers pay a subscription fee based upon consumption of storage and data transfer.

We report two revenue lines. The license line is related to a small percentage of the revenue from the self managed customers, which must be recorded as license and the remainder as a subscription revenues.

Jacob Shulman: The license line is related to a small percentage of the revenue from the self-managed customers, which must be recorded as license, and the remainder as a subscription revenues. Let us turn to the Q3 results. Please note that all numbers referenced in my remarks are on a non-GAAP basis, unless otherwise stated. A reconciliation to comparable GAAP metrics 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. Total revenues for the three months ended September 30, 2020 was $38.9 million, up 40% year over year. Self-managed revenues, also often called on-prem, were $30.1 million, up 32%.

So let us turn to the third quarter results. Please note that all numbers referenced in my remarks.

On a on a non-GAAP basis, unless otherwise stated.

A reconciliation to comparable GAAP metrics can be found in todays earnings release, which is available on our website and as an exhibit to the form 8-K furnished to the FCC.

Total revenues for the three months ended September 32020 was $38.9 million up 40% year over year self.

Self managed revenues also often called on Prem were $30.1 million up 32% cloud.

Jacob Shulman: Cloud revenues grew faster, up 74% to $8.8 million. Or 22% of total revenues compared to 18% of total revenues last year. Our installed base continued to expand, driving 136% net dollar retention for the trailing four quarters. During COVID, we saw lower upsells from some customers, which reduced our net dollar retention in Q2. Net dollar retention in Q3 was largely flat with the rate in Q2 on a standalone basis, and we are seeing the same trend quarter to date. As such, we expect our trailing four-quarter net dollar retention will remain above 130% for the next several quarters. As of the quarter end, we had 313 customers with ARR of over $100,000, up from 286 customers as of June 30.

Cloud revenues grew faster up 74% to $8.8 million or 22% of total revenues compared to 18% of total revenues last year.

Our installed base continued to expand driving 136% net dollar retention for the trailing four quarters.

During cobbett with a lower up sales from some customers, which reduced our net dollar retention in Q2 net.

Net dollar retention in Q3 was largely flat with the rate in Q2 on a standalone basis, and we are seeing the same trend quarter to date.

As such we expect our trailing four quarter and net dollar retention will remain above 130% for the next several quarters.

As of the quarter end, we had 313 customers with air our of over $100000.

Up from 286 customers as of June 30.

Jacob Shulman: Of the 313 customers, 9 had an ARR greater than $1 million as compared to 8 customers in the previous quarter. Now, let's review the income statement in more details. Gross profit in the quarter was $32.2 million, representing a gross margin of 82.7% compared to 82.5% in the year ago period. We continue to improve the costing structure of our cloud infrastructure and gain better margins on our cloud deployments. R&D expense was $8.9 million or 23% of revenue, in line with the same ratio in the year ago quarter. We have continued to invest significantly in R&D, including the rollout of our free tier in Q3, along with expanding the capabilities of Xray and Distribution.

Of the 313 customers nine had the air are greater than $1 million as compared to eight customers in the previous quarter.

Now, let's review the income statement in more details.

Gross profit in the quarter was $32.2 million, representing a gross margin of 82.7% compared to 82.5% in the year ago period Lucas.

We will continue to improve the cost structure of our cloud infrastructure and gain better margins on our cloud deployments.

R&D expense was $8.9 million or 23% of revenue in line with the same ratio in the year ago quarter.

We have continued to invest significantly in R&D, including the rollout of our free tier in Q3, along with expanding the capabilities of Esa and distribution.

Jacob Shulman: Sales and marketing expenses were $13.3 million or 34% of revenue compared to 36% in the year-ago period. We benefited from a number of cost-saving measures this quarter as a result of COVID, including reduced travel and converting marketing programs to an online mode. Note that approximately half of our sales and marketing costs are spent on community-related functions, which are key to our developer-driven model. G&A expense was $4.8 million, or 12% of revenue, compared to 14% in the year-ago period. G&A reflects an increase in our public company costs, including our D&O insurance policy costs only for a portion of the quarter since the IPO.

Sales and marketing expenses were $13.3 million or 34% of revenue compared to 36% in the year ago period.

We benefited from a number of cost saving measures this quarter as a result of covered including reduced travel and convert and marketing programs through an online mode.

Note that approximately half of our sales and marketing costs spends on community related functions, which are key to our developer driven model.

Jay Benet expense was $4.8 million or 12% of revenue compared to 14%.

In the year ago period.

Gee and they reflect an increase in our public company costs, including R&D No insurance policy costs only for a portion of the quarter since the IPO.

Jacob Shulman: Non-GAAP operating income was $5.1 million or a 13% operating margin, increasing from $2.5 million or a 9% margin in the year ago period. Non-GAAP net income in the quarter was $5.3 million or $0.05 per diluted share based on approximately 101.8 million weighted average diluted shares outstanding. Turning to the balance sheet and cash flow. We ended the quarter with $578 million in cash and short-term investments, including $393 million in IPO proceeds. Cash flow from operations was $10.8 million in the quarter. After taking into consideration CapEx, free cash flow was a record $9.7 million.

Non-GAAP operating income was $5.1 million or 13% operating margin, increasing from $2.5 million or 9% margin in the year ago period.

Non-GAAP net income in the quarter was $5.3 million or five cents per diluted share based on approximately 101.8 million weighted average diluted shares outstanding.

Turning to the balance sheet and cash flow, we ended the quarter with $578 million in cash and short term investments, including $393 million in IPO proceeds cash.

Cash flow from operations was $10.8 million in the quarter.

After taking into consideration capex free cash flow was a record $9.7 million.

Jacob Shulman: We are pleased to have been cash flow positive for more than 5 years, though we continue to review the balance between growth and cash generation every quarter. I would now like to turn to our outlook for Q4 and the full year 2020. Revenue for Q4 will be $40.9 million to $41.9 million, with non-GAAP operating income of $1.2 million to $2.2 million and EPS of $0.00 to $0.02, assuming share count of approximately 104 million shares.

We are pleased to have been cash flow positive for them for more than five years, though we continue to review the balance between growth and cash generation every quarter.

I would now like to turn to our outlook for the fourth quarter and the full year 2020.

Revenue for Q4 will be a $40.9 million to $41.9 million with non-GAAP operating income of $1.2 million to $2.2 million and EPS of zero to two cents, assuming a share count of approximately 104 million shares while we.

Jacob Shulman: While we don't provide guidance on operating expenses, we do expect an increase as a percentage of revenue in Q4 due to a number of items, including increased R&D, public company costs, the bounce back from some of the reduced spend due to the COVID-19 shutdown, along with sales and marketing costs related to the new cloud community offering. For the full year, we expect revenue of $149 million to $150 million, non-GAAP operating income of $12 million to $13 million, non-GAAP EPS of $0.11 to $0.13 based on a share count of approximately 101 million diluted shares. Now, let me turn the call back to Shlomi for some closing remarks before we take your questions.

We don't provide guidance on operating expenses, we do expect an increase as a percentage of revenue in Q4 due to a number of items, including increased R&D public company cost as a bounce back from the some of the reduced spend due to the garbage shutdown, along with sales and marketing costs related to the new cloud communities.

Offering.

For the full year, we expect revenue of $149 million to $150 million non-GAAP operating income of $12 million dollars to $13 million non-GAAP EPS of 11 cents to 13 cents based on a share count of approximately 101 mill.

Diluted shares now let me turn the call back to Shlomi for some closing remarks before we take your questions.

Shlomi Ben Haim: Thank you, Jacob. We believe JFrog continues to be positioned well in the market to address the needs of business going through rapid digital transformation. As a core DevOps vendor, we see it as our responsibility to lead the market through the must-happen changes in the software update landscape. It is our mission to make DevOps a bridge not only between developers and IT operators, but to an era of Liquid Software. Thanks for your attention, and may the frog be with us.

Thank you Jacob we.

We believe Jay for continues to be positioned well in the market to address the needs of business going through rapid digital transformation.

As the call Dev ops, even though we see it as our responsibility to lead the market through the must happen changes in the software update landscape. It is our mission to make Dev ops, a breach not only between developers and IP operators, but to an era of liquid software.

Thanks for your attention and made a profit be with us.

Operator: Ladies and gentlemen, if you'd like to ask a question at this time, please press the star, then the number one key on your touchtone telephone. To withdraw your question, press the pound key. Again, that's star, and then one if you'd like to ask a question at this time. Our first question comes from the line of Sterling Auty with J.P. Morgan. Your line is now open.

Ladies and gentlemen, if youd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone to.

To withdraw your question press the pound key.

Again, that's star then one if you'd like to ask a question at this time.

Our first question comes from the line of Sterling Auty with JP Morgan. Your line is now open.

Sterling Auty: Yeah, thanks. Hi, guys. In your prepared remarks, you talked about the health of the free trials and the community and expressed confidence in being able to convert that into new customers. I'm just curious, what is it that's giving you the confidence that you should see healthy customer conversion as you finish off 2020 and head into 2021?

Yes, Thanks, Hi, guys in your prepared remarks, you talked about the health of the free trials and the community in express confidence in being able to convert that into two new customers I'm. Just curious what is it that's giving you the confidence that you should see healthy customer conversion as you finish up 2020 and head into 2021.

Shlomi Ben Haim: Yes. Good afternoon. This is Shlomi. I'll take this question. Actually, a great one, and I'll start by saying that we are very excited to have our first earnings call. With regard to the demand, what we are looking at is a world that, you know, food is being delivered by software. Our kids are learning from home enabled by software. Even COVID is being monitored by software. So the demand is there because software need to be updated and organizations already get that. The transformation that organizations are now facing is not just transformation of making your business digital, but also making sure that you build, you secure, and you deploy software faster.

Yes. Good afternoon. This is slowing me I'll take this this question actually a great one and ill start by saying that we are very excited to have our first earnings call.

With regard to the demand or what we what we are looking at is awarded you know food is being delivered by software. Our kids are learning from home enabled by software even called it is being monitored by software so the demand.

Is there because softer it needs to be updated and organizations already got that and the transformation that organizations are now facing is not just the transformation of making your business digital but also making sure that you build the secure when you deploy software faster.

Shlomi Ben Haim: Now, COVID-19 started with what I think a market shock, and then what we have seen is that more and more demand for solutions like JFrog came from cloud users and cloud-native technologies. Therefore, we saw a growth in the demand in our cloud, and therefore we established this three-tier in the cloud on a multi-cloud deployment environment to enable this demand for our JFrog solution. It is not just a demand of one tool, but a demand of an end-to-end solution that is expressed by all companies from all sectors. We are positive that as the market continue to digitalize businesses, we are positive that the demand will be converted into a customer funnel.

How could we started with what I think the market chalk and then what we have seen is that more and more demand to solutions like GE folk came from cloud users and cloud native technology.

Therefore, we so a goal Cindy demand in our cloud and therefore, we established three tier in the cloud on the multi cloud deployment environment to enable this demand fall on on J Fox solution. It is not just the demand of one tool, but the demands of an end to end.

And that is expressed by all companies from all sectors. We.

We are positive that up as the markets continue to.

To digitalize businesses we.

We are positive that the demand will be converted into a into a customer funnel.

Sterling Auty: Got it. One follow-up. You mentioned, you know, the strength of R&D and some of the investment areas, including support for additional package types, that you're working on towards the end of this year. Can you give us a sense of maybe what some of those package types are that you don't currently support and what the opportunity there might look like?

Got it and then one follow up you mentioned the strength of R&D and some of the investment areas, including support for additional package types.

That you're working on towards the end of this year can you give us a sense of maybe what some of those package types are that you don't currently support and what the opportunity there might look like.

Shlomi Ben Haim: Yeah, what a great question. Yes, we will continue the investment in R&D and innovation around DevOps. When you sell to developers, we have to remember that developers might be the community that enables this change, but all of us are enjoying this change by consuming better and more secure software. This is a result of millions of software packages that are being distributed and consumed daily. These software packages comes in different types, and developers today are overwhelmed with the amount of technology that they have to face. When you provide the community with a fantastic universal solution that support all package type, and you can actually consolidate it all under one platform, that makes their life easier and smoother as they build, secure, and release software.

Yes, it wasn't what a great question.

And yes, we will continue to investment in R&D and innovation around Dev ops, when when you sell to developers and we have to remember the developers might be that the community that enables this change but all of US are are enjoying this change by consuming better and more secure software. This is.

So off of millions of software packages that are being distributed and consumed daily.

This software packages comes in different types and developers today are also win with the amount of technology did they have to face when you provide the community with a fanatic universal solutions that support all packaged type and you can actually consolidated all under one platform that makes the life easier and smoother.

As they build the Cuban really software.

Shlomi Ben Haim: Just recently, we released another support in a new package type called Alpine, which supports containers and cloud native technologies. We are looking at the new package type that the community is asking for, and the community communicates with us on a daily basis through different systems in order to let us know what is the next challenge that they see and what is the most popular software package that they will have to support. On a daily basis, every enterprise that uses JFrog uses more than 20 different package types. When you give them a universal support or what they call the Switzerland of DevOps, that obviously eases their pain and lowers all kinds of management resources.

Just recently, we released the another supporting a new package type called Alpine, which support containers and cloud Native technologies. We are looking at the at the new package types that the communities asking for and the community communicate with us on a daily basis two different systems in order.

To let us know what is the next challenge the DC and what is the most popular.

Software package that they will have to support on a daily basis every an enterprise that uses j. Paul This is more than 20 different package types and when you give them a universal for support or what they call. The Switzerland of Theyve up. That's obviously is the pain and lower all kind of management results.

Sterling Auty: That makes perfect sense. Thank you.

That makes perfect sense. Thank you.

Shlomi Ben Haim: Thank you.

Hi, Carolyn.

Operator: Our next question comes from Sanjit Singh with Morgan Stanley. Your line is now open.

Our next question comes from Sanjit Singh with Morgan Stanley. Your line is now open.

Sanjit Singh: Hi, Shlomi. Hi, Jacob. Thank you for taking questions, and congrats on your first call as a public company, and congrats on the IPO, and really solid results coming out of the gate.

Hi, Shlomi Hi, Jason Thank you for taking questions. Congrats on the on your first call as a as a public company congrats on the IPO.

It really solid results coming out I think it is mark.

Shlomi Ben Haim: Thank you, Sanjit.

Thank you and so my question, maybe just start with you. Shortly is just to get talked about the CS our vision and what we can sort of how to sort of track progress I think you sort of mentioned in your script that enterprise plus was 19% of revenue.

Sanjit Singh: Thank you. My question, maybe to start with you, Shlomi, is just to talk about the CSRM vision, and what we can sort of how to sort of track progress. I think you sort of mentioned in your script that Enterprise+ was 19% of revenue, which seems like an improvement over last quarter. Can you give us a sense, Shlomi, of, like, what are some of the trigger points or the inflection points in terms of as customers go from, let's say, a Pro X subscription to an Enterprise to Enterprise+? Is it getting to a certain number of Artifactory? Is it bringing on Xray? What are sort of the, like, patterns that sort of give you guys the signal that this is going to be more of an end-to-end platform customer?

Digital seems like its improvement over last quarter can you give us essentially is like what are some of the trigger points, where the inflection points in terms of our customers go from let's say a pro X subscription children enterprise enterprise plus without getting too. So there are certain number of service run the factory is bringing on X Ray what are certainly Mike.

Patterns is that sort of gives you guys. The signal that this is going to be more of an end to end platform.

For customer.

Shlomi Ben Haim: Yes, absolutely, and thank you for joining this call. Great to hear from you again, Sanjit. This question is something that we look at when we put together the strategy of the company moving forward. First, coming from the community demand, what is it that you really need? What do you need? Do you just need the best-of-breed solution or you want to have a holistic end-to-end solution that kind of pinpoints each of your pain points? One thing that we've seen is that every company now that builds software will identify software packages as the first-class citizen, as the primary asset, and therefore they will need a DevOps database. They will need a repository.

Yes, absolutely and thank you for joining skol, great to hear from you again funded and they.

This this question is something that we look at when when we put together the strategy of the company moving forward first coming from the community demand what is it that you really need what do you need. These just need a best of breed solution or you want to have a holistic end to end solution that kind of point.

Each of your pain. So one thing that we've seen is that every company now that that build software will will identify software packages as the first level citizen as the primary assets and therefore, they will need the database of Dev ops, they will need the repository on top of that if you build mall Ben.

Shlomi Ben Haim: On top of that, if you build more benefit to the community and to the enterprise, such as security and distribution and CI/CD enablement and dashboards and easy configuration on a multi-site, multi-server environment, you bring enterprise value to the developer's hand and help them adopt DevOps much faster. With our different subscription and the full alignment with our product portfolio, what we are seeing, to your question, is that more and more customers are looking for a secured repository. This is why Xray is being adopted quite rapidly. Something that happened just recently in the past two years is that every organization, especially under COVID, needs to distribute software packages securely and rapidly, and therefore, JFrog Distribution became a main trigger for companies to upgrade to the enterprise class.

If it to the community and to the enterprise such as security and distribution and see I see the enablement and baseball and easy configuration on the multi site move based server environment you bring.

Enterprise value to the developer can then help them adopt dev ops much faster, so with our different subscription and the full alignment with our product portfolio. What we are seeing to your question is that more and more customers are looking for a secured repository.

This is why X rays being adopted quite rapidly.

And something that happened just recently in the past two years is that every organization, especially on the cobi need to distribute software packages securely and rapidly and therefore jape of distribution became a main trigger for companies to upgrade to the enterprise class.

Shlomi Ben Haim: What we reported in Q3, which was a wonderful quarter for us, is not just a growth in ARR, not just a growth in revenues, but also more and more customers that are upgrading to a multi-product solution and consolidating their DevOps practices around JFrog Platform.

What we reported in Q3, which was a wonderful quarter for US is not just a growth in they are not just the growth in revenues, but also more and more customers that are upgrading to a multi product solution and consolidating the dev ops practices around Jay for class.

Sanjit Singh: Understood. That was great details, Shlomi. My follow-up question is sort of around the cloud. It looks like the SaaS mix of the business improved again this quarter. It looks like it was about 22% of revenue. You see other companies in the DevOps space, like an Atlassian, sort of aggressively pushing their customers to cloud. I guess my question, Shlomi, is where's the sort of DevOps market in the overall cloud transition? Where is sort of the JFrog customer base? Is that something that you guys are trying to incent them towards, or are they sort of pushing you guys along that, Hey, we wanna go to the cloud faster. Thank you.

I wish it was a great detail shown me my follow up question is sort of around the cloud and it looks like a SaaS mix in the business improved again this quarter. It looks like about 22% of revenue you see other companies in the Gulf States like in Atlanta in sort of aggressively pushing their customers to close.

Well I guess my question, Tony is where are we in some sort of step ups market and the overall.

Cloud transition and then where is sort of the change of our customer base is that something that you guys are trying to incessant towards are they are they sort of pushing you guys a longer hey, we want to go to the cloud sascar. Thank you.

Shlomi Ben Haim: Yeah. Well, you look at DevOps as one part of the software life cycle, but let's look at the overall world. Everyone is now looking at a distributed team and distributed deployment environment and trying to avoid any kind of vendor lock-in. What is the solution? The solution is the freedom to choose what you want to use inside your organization to not only support your software lifecycle or CSRM, Continuous Software Release Management, but also to make sure that you bet right in the next year. Now, it's not enough to say that there is a cloud momentum. Of course, there is a cloud momentum. JFrog started nine years ago to support both the cloud and the on-prem request.

Yeah, well you look at Dev ops as as a as one.

Part of the software lifecycle, but let's look at the overall ward everyone now looking at the distributed teams and distributed or.

Deployment environment and trying to avoid any kind of been door locking. So what is the solution. This solution is the freedom to choose.

What what you want to use inside your organization to not only support your software lifecycle or CSR him continue software release management, but also to make sure that you bet right in the next year.

Now it's not enough to say there is a cloud momentum of course, there is the cloud momentum Jay book started nine years ago to support both the cloud and the on Prem request, but the freedom of choice and the hybrid World is what the world is really demanding what we're seeing is that none of our top 100 customers.

Shlomi Ben Haim: The freedom of choice and the hybrid world is what the world is really demanding. What we are seeing is that none of our top 100 customers will bet only on cloud or only on on-prem, and you can call it private cloud, public cloud, whatever. This is number one. They want to have a hybrid solution that plays the same, whether it's cloud or on-prem. The second thing that we see is that we live in a transition period. Nobody just moved from 20, 30 years of building and releasing software to a different development and deployment environment in 1 day or 1 year. We will continue to see the growth of the cloud alongside establishment of private cloud and self-hosted solution. The third thing that we see is the request for multi-cloud environment.

I will bet on the on cloud only on on Prem and you can call. It private cloud public cloud whatever this is number one they want to have a hybrid solution that plays the same whether it's cloud or on Prem. The second thing that we see is that we live in a transition period.

Nobody just moved from 2030 years of building and releasing software to a different developments than deployment environment in one day or one here. So we will continue to see the growth of the cloud alongside establishment of private cloud and set profit solution and the third thing that we see is the request from.

Multi cloud environments, we are collaborating and partnering with all the major cloud providers, but what we see coming from the enterprise is the solution of the multi cloud environment I just don't want to have a WSS my only deployment environment I want to have other cloud.

Shlomi Ben Haim: We are collaborating and partnering with all the major cloud providers. What we see coming from the enterprise is the solution of a multi-cloud environment. I just don't want to have AWS as my only deployment environment. I want to have other clouds and avoid any kind of vendor lock-in or region lock-in as in my solution moving forward. Now, more and more assets are moving to the cloud and being duplicated in both environments from different reasons, like security, disaster recovery, and deployment in different geographies. I think the JFrog solution, having this hybrid philosophy and multi-cloud philosophy and identical software, both self-hosted and on-prem, kind of serve the community very well. Therefore, we see the acceleration in our cloud adoption alongside the other solutions.

And avoid any kind of vendor lock in all our regions lock in as in my solution moving forward now more and more assets are moving to the cloud and being duplicated in both environments from different reasons like security and disaster recovery and deployment in different.

Geography, and a and I think the J Fox solution, having this hybrid philosophy and multi cloud philosophy and identical software both sales posted an on prem kind of serve the community very well and therefore, we see a de acceleration in our cloud adoption alongside.

The other solution.

Sanjit Singh: Appreciate it, Shlomi. Congrats on Q3.

Appreciate it slightly congrats in Q3.

Shlomi Ben Haim: Thank you.

Thank you.

Operator: Our next question comes from the line of Alex Kurtz with KeyBanc Capital Markets. Your line is now open.

Our next question comes from the line of Alex Kurtz with Keybanc capital markets. Your line is now open.

Alex Kurtz: Thanks for taking the question, and congrats everyone on your first quarter as a public company. Maybe you could just touch on customer growth. I know we're not gonna see it, maybe until the end of the year, but what trends you saw as far as new logo, new customer growth, this quarter versus last quarter. Shlomi, one axis of growth is, you know, additional servers going into large enterprises. I don't know if there was an update in the quarter to come to a conclusion about how that tracked, but just wanted to see if there was an update on sort of the densification of server licenses in your larger accounts.

Hi, Thanks for taking the question and congrats everyone on the first quarter as a public company.

Maybe you could just touch on.

Customer growth I know, where we're not going to see it in maybe until the end of the year, but.

What what trends you saw as far as new logo, new customer growth this quarter versus last quarter.

Ben Swomley.

One.

One axis of growth is you know additional servers going into to large enterprises and.

I don't know if there's an update in the quarter to come to a conclusion about how that tracked but I'm just wanted to see if there is an update on when should the densification of server licenses in your larger accounts.

Shlomi Ben Haim: Yeah. It's a great question, Alex, and thank you. In terms of the customer growth, obviously we look at it on an annual basis and we see the growth, and we see more and more customers adopting. What we are really excited about is the demand is at all-time record. We see more and more customer prospects and community members joining our free tier in the cloud, on all clouds, and also more and more trials that are being downloaded for all products. With regard to the growth as we reported this quarter, we saw 300, and we reported 313 customers with over $100,000 in ARR, which also grew from the last time we spoke.

Yes, so it's a great question, Alex and thank you.

In terms of the customer growth, obviously, when you look at it on an annual basis, and we see the growth and you see more and more customers adopting what we are really excited about is that demand is that all time record or we see more and more customer prospects and community member joining our free tier in the cloud.

On our cloud and also more and more trials that are being downloaded for all product.

With regard to the growth as we reported this year, we this quarter, we so three.

300, and we reported 313 customers with over $100000 in AOL, which also growth from from the last time. We spoke we saw growth in companies that are in the $1 million club now and and joining while adopting our platform.

Shlomi Ben Haim: We saw growth in companies that are in the $1 million club now and joining while adopting our platform. We see this growth, we monitor it very closely. The other thing that's worth mentioning is that it's cross industries, it's cross sizes, people and companies are adopting DevOps rapidly. We are also happy to report that the overall number of customers is growing and not just by logo, but also more accounts and more regions of the same customer. More and more adoption of our tools, not just Artifactory as the flagship product and the base of all subscription, but also Xray and other services like distribution and hybrid solutions that are being adopted by our customers.

We see these goals we monitor it very very.

Closely.

And the other thing that's worth mentioning is that these costs industries. Its core sizes people and companies are adopting Dev ops rapidly.

We also we also happy to report that the overall number of customer is growing and and not just by logo, but also more accounts in more regions of the same customer and more and more adoption of our tools not just at the factory as the flagship product and the based upon.

Subscription, but also X ray and other services like distribution and.

And hybrid solutions that are being adopted by our customers. So overall, we see this goal in logos than account numbers. We also see the growth of the move their product adoption and on an annual basis.

Shlomi Ben Haim: Overall, we see this growth in logos and account numbers. We also see the growth of the multi-product adoption. On an annual basis, we will share this details with you. We will obviously keep on tracking it.

We will share the is this the details with you we will obviously keep on tracking.

Alex Kurtz: Great. Just on server growth, you know, per customer, maybe that's, you know, embedded in the net retention rate, but is there anything worth noting or, you know, revisit at another time?

Great and just on server growth per customer, maybe that's embedded in the net retention rate, but is there anything worth noting or revisit that at another time.

Shlomi Ben Haim: No, it's worth noting because as you all know, our subscription model is in full alignment with our offering. If you start with the lowest entry point on JFrog subscription model, you get one server. If you go all the way up to the platform and do end-to-end solution, then you start with six servers. Obviously, the growth in customers over $100,000 or $1 million also points to the growth in the number of servers. You will see more and more servers of JFrog being adopted, not just by one product, but also by the adoption of the end-to-end solution.

No, but its a small small things because as you all know the our subscription model is in full alignment with our offering. So if you start with the with the lowest entry point on on Jay from subscription more.

Well you get one server if you go all the way up to the platform and new entrants solution. Then you start with six servers. So obviously the growth in customers over $100000 or a million dollar.

Also point the growth in the number of service. So you will see more and more servers objective of being adopted not just by just buy one product by but also by the adoption of the end to end solution. The second thing is that.

Shlomi Ben Haim: The second thing is that, in the cloud, unlike the self-hosted solution, we are seeing growth in terms of usage because in the cloud, our model is not by server, but by consumption. The amount, the overwhelming data transfer that we see, especially during COVID, accelerate our growth in the cloud, not just by server, but by usage per customer.

In the cloud unlike the surpassed the solution we are seeing goals in terms of usage because into cloud our model is not by server, but by consumption.

And the amount the overwhelming data transfer that we see especially during cobi accelerate our growth in the cloud not just by server, but by usage per customer.

Alex Kurtz: Thank you.

Thank you.

Shlomi Ben Haim: Thank you.

Thank you.

Operator: Our next question comes from Rob Owens with Piper Sandler. Your line is now open.

Our next question comes from Rob Owens with Piper Sandler Your line is now open.

Rob Owens: Great, thanks for taking my question. You mentioned during Q3 that there was a large win and my phone broke up, but I think it was within the retail vertical. Curious, when you go into an account that is a new customer for you, who are you displacing typically? If there's any bake-off, who you're typically going up against at this point?

Great. Thanks for taking my question you mentioned during the third quarter that there was a large win in I phone broke up I think it was within the retail vertical curious when you go into an accountant.

That is a new customer for you who are you displacing typically and if there's any bakeoff or you're typically going up against at this point.

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Shlomi Ben Haim: Well, as I mentioned, Rob, the DevOps adoption happens across verticals. It's happening everywhere in the world. It's not a matter of size. It's not even a matter of where you are in the adoption of CSRM. What we have noticed in the earlier years of DevOps is that it happened by sectors, because obviously, CIOs are speaking with CIOs and share best practices. What we see today is a race to adopt modern technology. The industry, the modern industry requires that because they all understand that everything is powered by software. We see it coming from all industries.

Yeah, well as I mentioned, Rob the Dev ops adoption happens cost verticals. Its say, it's happening everywhere in the world. It's not a matter of size, it's not even a matter of where you are in the end.

The adoption.

Adoption of CSR him.

And what we what we have noticed in the earlier years of of Dev ops is that it happens by by sector. Because obviously FIA sales are speaking with sales and share best practices. What we see today is a race to adopt modern technology the industry.

The modern industry requires that because they all understand that everything is powered by software. So we see it coming from all from all industries.

Shlomi Ben Haim: Specifically around the adoption that we currently see, it comes from organizations that fall behind and COVID got them by surprise, so they have to accelerate the process. They have to move to cloud native. They have to change what they built 5 or 10 years ago. What served them until now will not serve them, and they will be overwhelmed with the amount of software that need to be built, produced, and distributed. Therefore, we see a huge demand, request for being educated, request for more material about what this means. Therefore, we're also positive that this will be converted to customers and paying customers that will use our platform.

Specifically around the the adoption that we currently see it.

It comes from organization that fall behind and and coal Weve got them by surprise. So they have to accelerate the process. They have to move to cloud native they have to change what they build five or 10 years ago and what they what serve them until now will not serve them and they will be overwhelmed with the amount of stock.

For that need to be built produced and distributed and therefore, we see a huge demand request for being educated requests for more material about what this means and therefore, we also positive that this will be converted to a.

Customers and paying customers that will use our platform.

Rob Owens: Great. Second, I know you guys embarked on a small number of direct sales folks right as COVID was effectively hitting. Any updates you can give on that front and what kind of customer success metrics maybe they have driven since you've had them on board over the last six months?

Great and then second I know you guys embarked on a small number of direct sales folks.

I understand his comment was actually heading.

Updates you can give on that front, what kind of customer success metrics, maybe they got.

And driven since you had them on board over the last six months.

Shlomi Ben Haim: Yeah. As I mentioned, our sales team is driven by enterprise inside sales and by a funnel that provides everything. In JFrog so far was built on inbound inside sales. Obviously, we scale to the enterprise and to procurement process that generates more than $1 million-dollar POs in ARR. What we are currently focusing on is building the strategic team that goes after the top 100 customers and accelerate the adoption of our end-to-end solution, not just by products, but also by deployment environment. It's a hybrid strategic elite team that identify the top customers and will be working on expanding our solution among these accounts. Every year, these customers will be identified, and it's part of our strategic moving forward in terms of go-to-market.

Yes, so as I mentioned, our sales team is driven by enterprise insight sales and by by a panel that provides a.

Everything in J Fox, So far was built on inbound inside sales, obviously, we scale to the enterprise then to procurement process that generates more than a million dollar deals in April but.

But what we are currently focusing on is building the strategic team that goes after the top 100 club customers.

And accelerate the adoption of our end to end solution not just by by products, but also by deployment environment. So it's a hybrid strategic and lead team that identify the top customers and we'll be working on expanding our solution. Among among this account every year.

These customers will be identified and it's part of our strategic moving forward in terms of go to market and our sales and marketing teams are aligned in how to build them the enable that.

Shlomi Ben Haim: Our sales and marketing team are aligned in how to build and enable that.

Rob Owens: Great. Thank you for the color.

Great. Thank you for the color.

Operator: Our next question comes from the line of Brad Reback with Stifel. Your line is now open.

Our next question comes from the line of Brad Reback with Stifel. Your line is now open.

Brad Reback: Great. Thanks very much. If you guys think about the 130% dollar expansion rate you mentioned earlier on a go-forward basis, how should we think about that breaking out between server unit growth versus pricing gains as customers move to higher SKUs? Thanks.

Great. Thanks, very much if you guys think about the 130% dollar expansion like you mentioned earlier on a go forward basis, how should we think about that breaking out between server unit growth versus pricing gains as customers move to higher skis. Thanks.

Shlomi Ben Haim: Thank you for this question. Obviously, NDR is one of the key KPIs for JFrog to measure our success and to make sure that we are aligned with our goals. What we've seen in the market is that the net dollar retention, especially around subscription, is very important. What we are looking at, what we are focusing on, is a full quarter measurement of the net dollar retention. I will start by saying that we are accelerating our upsell mechanism, not just by more servers or more consumption in the cloud, but by providing the community with more benefit. We are very focusing on fanatical happiness for our customers and developers, and to see them get more benefit and to upgrade with more products and not just more of what they already have.

Yes. Thank you for this question obviously, a NDR is one of the key K.P.I. Fuji frogs to measure our success and to make sure that we are aligned with our goals.

What we've seen in the market is that.

The net dollar retention, especially around subscription is very important then what we are looking at what we're focusing on is a full quarter.

Measurement of the net dollar retention I will start by saying that we are accelerating.

Our up sell.

Mechanism not just by more servers or more consumption in the cloud, but by providing the community with more benefit we are very focusing on on fanatical.

Happiness power customers and developers and to see them get more benefit and to upgrade with more product and not just more of what they already have.

Shlomi Ben Haim: In terms of the numbers and the quarterly NDR, I will turn it over to Jacob Shulman, our CFO.

In terms of the numbers and the quarterly NDR I will turn it over to Jacob Shulman, our CFO So Brad.

Jacob Shulman: Brad, our Q3 trailing full quarter net dollar retention rate was 136%. If I look forward and with the net dollar retention of over 130%, 130% of the next few quarters, typically what we see is that in early stages of customer journey in DevOps, they grow through adoption of new capabilities and kind of upgrade into subscriptions. Once they achieve Enterprise or Enterprise+ subscriptions, then they grow through number of servers. That's for self-hosted on-prem customers. In cloud, it's all based on consumption. The more they adopt the different capabilities, not just repository manager, but also Xray and Distribution, the more traffic they generate, and that's how they grow, and that's why the net dollar retention rate expands as well.

Q3, trailing four quarter net dollar retention rate was 136, if I look forward and though on a button.

The retention of over 130%, 130% at the next few quarters typically what we see is that in early stages of customer journey in Dev ops. They grow through adoption of new capabilities, and then upgrade into subscriptions and will stay cheap enterprise or enterprise plus subscriptions Ben.

Growth to number of sales thus for for a cell cost with on Prem customers in part with the it's all based on consumption. So the more they adopt a different capabilities not just not just reported a manager, but also X ray and distribution the more traffic they generate and that's why they does how they grow and thats why they are now.

Our retention rate expense as well.

Brad Reback: Great. Thank you very much.

Great. Thank you very much.

Operator: Our next question comes from Jason Ader with William Blair. Your line is now open.

Our next question comes from Jason Ader with William Blair. Your line is now open.

Jason Ader: Thank you. Good to talk to you guys. Hope everyone's well. On the new customer count, actually, total customer count.

Thank you good to talk to you guys hope everyone's well.

On the.

On the new customer count.

Total actually total customer thank you Heidi.

Shlomi Ben Haim: Thank you. Hi, Jason.

Jason Ader: Hi. Can you give us the total customer count or new customers so we can just track that?

Hi.

Can you give us the total customer count or new customers, we can just track Scott.

Jacob Shulman: Yeah. Jason, our customer count continued to grow in Q3. However, the primary driver behind our revenue growth is expansion of existing customers. At the end of Q2, we had more than 5,800 customers, and the revenue growth in Q3 is driven primarily by those customers. Contribution of new customers to our revenue growth is typically very minimal at the beginning, and therefore, we will be reporting our total customer count on an annual basis.

Yes, so Jason.

Well, our customer count continues to grow from ER in in Q3. However.

The primary driver behind our revenue growth is the expansion of existing customers as a band of the quarter in Q2 has more than 5800 customers and revenue growth in Q3, driven primarily by those customers contribution of new customers. So revenue growth typically very minimal at the beginning and therefore.

We will be reporting our customary total customer accounts on annual basis.

Shlomi Ben Haim: I will jump in and add to it, that what we are seeing now, Jason, is also a different adoption of JFrog tool. We were used to see customers, new customers joining, our portfolio due to the need of the repository. With the JFrog Xray, our security tool, SecOps tool, and with JFrog Distribution, that help you deploy software faster with a circle of trust mechanism, we see customers coming from a different corners of organizations and join our portfolio. The huge demand that we see in the free tier and the free trial represents the future, as I see it, in terms of number of customers that will join the JFrog family, not just because of the repository solution, but the holistic end-to-end solution. You should expect to see that in the future as well.

I will jump in and add to it or that what we are seeing now Jason is also a different adoption uptake for two we were used to see customers new customers joining our portfolio due to the need of the report.

Was it always and with the Triple X Ray our security to SEC obstacle and we gave of distribution that help you deploy software faster with the circle of trust mechanism, we see customers coming from from a different corners of organizations and the and join our portfolio there.

Would you demand that we see in the free tier and the free trial represents the future as I see it in terms of number of customers that will join the shape of family not just because of the repository solution, but the holistic end to end solution. So you should expect to see that into future growth.

Jason Ader: Understood. Okay. I forgot that you guys had said that about annual versus quarterly. I'm getting all confused with everything. Shlomi, what are your biggest priorities for 2021 as you sit here in November? What are the top two or three priorities as you move into 2021 for the company?

Understood. Okay, I forgot that you guys had said that about annual versus quarterly I'm getting all confused with everything.

What internally, what where are your biggest priorities for 2021 as you sit here in November.

What are the top two or three priorities as you move into 2021 for the for the company.

Yeah.

Shlomi Ben Haim: A wonderful question. Thank you. Well, first of all, as we all experience, we are living in an unknown reality. I'm also tracking the news regarding the election, trying to understand how our reality will look tomorrow. We are stepping into a year that the pandemic is still around us and the demand is different, and developers are not just serving the organization but also serving the business. Obviously we will be focused on different investment. The first and probably the most important driver for JFrog success is our R&D and our ecosystem development. Not just the core product that we will invest in, not just a better stable, scalable, reliable software that come from JFrog, but also the ecosystem support.

A wonderful question. Thank you.

Well first of all as as we all experience. We are we are living in an unknown reality.

I'm also tracking the news regarding the elections trying to understand how our reality will look tomorrow, but ER, we are stepping into a year that the the pandemic is still around us and the demand is different and developers are not just a serving the organization but also.

Serving the business. So obviously, we will be focused on on different investment the first and probably the most important driver for J Fox success is our R&D and our ecosystem development not just the core product that we will invest in not just the UBS.

What a stable.

Scalable reliable software does come comes from J., Paul but also the ecosystem support how can we provide more play games and more community tools that will help you to adopt Dev ops and will help you in support you to adopt the hour to this is that what we call the.

Shlomi Ben Haim: How can we provide more plugins and more community tools that will help you to adopt DevOps and will help you and support you to adopt our tools? This is what we call the too integrated to fail solution. R&D investment is at my top priority for 2021. Alongside the R&D investment, we are also looking at the sales and marketing mechanism that scales with the business. We introduce the world with new software solution, with new capabilities, and therefore our top of the funnel all the way to the conversion of the leads to paying customer is focusing on enablement and focusing on reaching out to the enterprise in all different levels.

Two integrated to fail solution. So R&D investment is that my top priority for 2021 and alongside the R&D investment. We're also looking at the sales and marketing mechanism that scales with the business, we introduced the world with new software solution.

With new capabilities and therefore, our top of the funnel all the way to do the.

Conversion of our of the leads to a paying customer is focusing on enablement and focusing on on reaching out to the enterprise in all different level.

Shlomi Ben Haim: You probably assume that a conversation with developers sounds A, and a conversation with a SecOps or security expert sound B, and therefore, our capability is not just in the R&D level, but also sales and marketing, and especially with the focus on the strategic team, will be my main priority. If I may, one last thing, and maybe the most important, JFrog is in a transition as well as a company. We just a month ago were a private company. We are now a public company, active in 10 different countries. Our team is amazing. This team needs to grow, and it needs to grow everywhere in the world, so we will be able to support you guys better as the company scales.

You probably assume that.

A consultation with developers found a and a consultation with the SEC opsahl security experts sound be and therefore, our capabilities not just in the R&D level, but also sales and marketing and especially with a focus on the strategic team will be my main priority and if I may.

One last thing and maybe the most important Jay Prague.

Isn't in its transition as well as a company. We just a month ago. We were a private company. We are now a public company active in 10 different countries and and our team is amazing, but this team needs to grow and it needs to go everywhere in the world. So we will be able to support you guys.

Better as the Companys scale.

Jason Ader: Very good. Thank you.

Very good thank you.

Operator: Our next question comes from Ittai Kidron with Oppenheimer. Your line is now open.

Our next question comes from you take each one with Oppenheimer. Your line is now open sales.

Ittai Kidron: Thanks. Hey, guys, and again, congrats on your first call as a public company. Good start. I have questions. I'll start with you, Shlomi. This is... I'm trying to kind of perhaps tie your Enterprise+, plus the Xray product. If you could talk about, first of all, Xray, how much of the focus over there is on proprietary code versus open source? How do you feel about the maturity level of Xray? I'm just trying to think how much of a key factor is that in Enterprise+ adoption or some of the other pieces like Distribution inside the Pipelines are the main drivers for upgrades.

Thanks, Hey, guys and again congrats on your first call as a public company a good start.

I have questions I'll start with you Shlomi and this is I'm trying to kind of perhaps tie your enterprise plus plus the X ray.

Product if you could talk about first of all X Ray how much of the focus over there is on proprietary of course. This is open source.

And how do you feel about the maturity level of X Ray I'm, just trying to think how much of a.

A key factor used to add in enterprise plush adoption or some of the other pieces like distribution inside the pipeline are the main drivers for upgrades.

Shlomi Ben Haim: Hey, Itay, and good evening to you in Israel. I think that this question is to the point because of what the community require. It's not about how can we scan and secure open source component. This is old technology. Organization adopted open source ten years ago and fifteen years ago, and different companies provided different scanners. I think that what Xray is really unique in is the fact that Xray is natively sitting on top of Artifactory and securing your number one hub for all software packages from all types.

Hey, die and good evening to you in Israel.

I think that.

This question is to the point because because of of what the community is required and its not about how can we scan and secure open source components. They this this is a old technology organization adopted opens so 10 years ago in 15 years ago and.

Different companies provides a different scanners I think that what X rays really unique it in is the fact that X rays natively sitting on top of the factory and securing your number one hub for all software packages from all time. So when you look at the X Ray and you look at the database that extra it comes with an older.

Shlomi Ben Haim: When you look at Xray and you look at the database that Xray comes with in order to compare and to reference open source license compliance and security vulnerability, Xray gives you a different solution with a completely new vision of securing your software packages and not necessarily your source code repository. Now, why this is important? Because Artifactory is also your proxy. Artifactory is also your bridge to the outside world, bringing open source components, and you need Xray to support that. The second thing, which is even more important, you want to power your organization with automation because you want to be fast, not just secure. Xray integrates with your CI/CD environment, and Xray can automatically break your build if something was identified.

Two two compared to reference style open source license compliance and security been ability actually give you a different solution a different solution with a completely new vision of securing your software packages and not necessarily your so-called repository now why this is important because.

The factories also your proxy of the factories also your bridge to the outside World, bringing open source components and you need to actually to support that and the second thing, which is even more important you want to power the organization with automation because you want to be fast not just the Q an extra integrates with you'll see I study.

The environment and electric and automatically break you'll be it's something I was identified so X ray is a three year product and becoming more and more mature adopting adopted by the biggest organizations in the world and we will keep on investing in X Ray because the award.

Shlomi Ben Haim: Xray is a 3-year product and becoming more and more mature, adopted by the biggest organizations in the world, and we will keep on investing in Xray because the world of CSRM is incomplete if you just have a binary management without the security or distribution alongside it. Now, other security solutions, according to my understanding, will fall behind, not just because of the fact that they are not good enough at securing your package management, your software package solution, but also because of the fact that more and more of our customers are looking for an end-to-end solution. They don't want to have a security solution for the containers from one company, a security solution for the Git repository from another, and a security solution for Artifactory from a third company.

CSRA EM is incomplete if you just have a binary management without the security all distribution alongside it now other security solution a.

According to my understanding will fall behind not just because of the fact that they are not good enough or securing your package a management your software package solution.

But also because of the fact that more and more of our customers are looking for an end to end solution.

They don't want to have security solution for the container. So one company a security solution for the deep repository from another and a security solution for artifact reformer third company heavy.

Shlomi Ben Haim: Having Xray embedded into your DevOps platform is a big plus, and we see more and more customers upgrading to what we call the enterprise class, which is the platform that includes Xray, and more and more customers upgrading to Pro X, which is the secured Artifactory.

Having X rate embedded into your Dev ops platform is a big class and we see more and more customers.

Upgrading to what we called the enterprise class, which is the platform that includes X ray and more and more customers upgrading two points, which is the secured at the factory.

Ittai Kidron: Got it. Excellent. Very good. For you, Jacob, you mentioned, if I got the comments right, 19% of revenue was from Enterprise+ in the quarter. Can you just refresh our minds, what was it there, perhaps in the last couple of quarters, so we can understand progress? I know you didn't guide anything on next year. You know, in this world, a couple of months is a long time. Is there a general framework you'd like us to keep in mind as we think about the potential range of outcomes for next year?

Got it excellent very good and then for your Jacob you mentioned, if I if I got the comments right, 90% of revenue was from enterprise plus in the quarter can you just refresh our minds what was it perhaps in the last couple of course, so we can understand progress on them.

No you didn't guide anything on next year.

You know in this world a couple months is a long time, but is there a general framework you like us to keep in mind as we think about the potential range of outcomes for next year.

Okay.

Jacob Shulman: Yeah. First of all, in terms of some stats about Enterprise+ adoption, our revenues from Enterprise+ in Q2 was 17%. If I remember correctly, our revenues in Q2 2019 from Enterprise+ were 10%. We've seen very nice growth in Enterprise+ adoption. As we expand our capability with Enterprise+ and customers adopt this end-to-end solution, we will see this revenues contributing even bigger portion in the future.

Yeah. So first of all in terms of Ah Some staff about enterprise class adoption, our revenue from enterprise class in the second quarter was 17% and if I remember correctly revenues in a this is 29 came from enterprise class was 19%, 10%. So we'll see.

Very nice growth in enterprise, plus adoption and the customary expand their their capex as we expand our capability with enterprise class and customers adopt this end to end solution. We will see this this revenue contributed an even bigger portion in the future.

Ittai Kidron: Very good. Now next year?

Very good I know next year.

Jacob Shulman: Can you repeat the question about the next year?

Can you repeat the question about the next year, yes.

Ittai Kidron: Yeah. Is there a general framework you'd like us to keep in mind as we think about how we model next year, you know, either growth or profitability measures?

General framework, you like us to keep in mind as we think about.

How we model next year are you know you're not good or grow for profitability measures.

Jacob Shulman: Yeah. As we see our net dollar retention rate staying above 130, that should give you an idea about our expected revenue growth. To remind that our revenues primarily contributed by expansion of existing customers rather than new customers. In terms of profitability, we intend to invest back into the business. Shlomi talked about different areas of investment and the focus areas. In the near future, we expect our profitability to be low to mid-single digits in terms of percent of revenue.

Yeah, so as we as we see our net dollar retention rate.

Anything above 130 that will give you an idea about our expected revenue growth through mine are they up to our revenues primarily contributed by expansion of existing customers rather than a a new customer.

So for us the ability, we intend to invest back into the business as long as talked about different areas of investment and focus area.

In the near future, we expect our ability to be low to mid single digits.

In terms of percent of revenue.

Ittai Kidron: Very good. Good luck, guys. Thank you.

Very good good luck guys. Thank you.

[laughter].

Operator: Our next question comes from Nikolay Beliov with Bank of America. Your line is now open.

Our next question comes from Nikolay Beliov with Bank of America. Your line is now open.

Nikolay Beliov: Hi. Thank you.

Nikolay Beliov: Thank you.

Nikolay Beliov: Thank you for your question. As you guys try to push deeper into the Fortune 100 accounts, can you please talk about how you think your go-to-market strategy is going to evolve and where in the process of building an overlay direct sales force?

Hi, Thanks for taking my question.

And you guys tried to push deeper into the Fortune 100 accounts can you. Please talk about how you think your go to market strategy is going to evolve and were in the process of building a novel a direct sales force.

Shlomi Ben Haim: Yes. Thank you, Nikolay. Going with JFrog is actually agnostic to the size of the company when it comes to technology. We build a pain solver for developers and DevOps companies, and therefore the product portfolio evolution starting from 2008 all the way until 2020 is being improved based on what we hear. It's not just the product, but also the package types that we support and the integration with the ecosystem. However, when it comes to the enterprise, you hear all kind of other requirements. Let me share some examples. Our package for data analyst is not something that you see in a 100, 200, 500 people company. You see it in the enterprise, you see it in the financial sector.

Yes, Thank you Nikolai.

Going with with J. Prague is actually agnostic to the size of the company when it come to technology, we build a painful over four but for developers and devops companies and therefore their product portfolio evolution, starting from 2000 and.

All the way until until 2020 is being improved based on what we hear it's not just the product, but also the package types that we support and the.

And the integration with the ecosystem. However, when it comes to the enterprise you hear all kinds of other requirements, let me share some examples.

And our package full data analyst is not something that you see in the 100 to 100 500 people company you see it in the enterprise you see it in the financial sector.

Fecteau, they need support for a certain package that give thousands of developers a solution under J Prague.

Shlomi Ben Haim: They need support for a certain package that gives thousands of developers a solution under JFrog repository. A second thing that you would see in the enterprise is scalability. Scalability and where they can push, because when we are looking at the biggest bank of the world, when we are looking at the huge retail company of the world, they have tens of thousands of developers, and they need to make sure that our product scales to infinity and not breaks when they start to consume and distribute software. The last thing that I would say is that in big organization and in the enterprise, it's basically a world with all technologies. They have all the products. They have a variety of technologies.

Repository and second thing that you will see in the enterprise is scalability scalability and where they can push because when we are looking at the biggest bank of the war. When we are looking at the huge retail company of the water. They have tens of thousands of developers and they need to make sure that our product scales to infinity.

And not a bricks when when they start to consume all to distribute software.

The last thing that I would say is that then big organization and in the enterprise.

It's it's basically award with all technologies. They have all the product they have verity of our technologies. They are adopting in one side of the world faster than the other side of the world and they also want to make sure that they can consolidate it all under one one platform. So we learned a lot from the enterprise.

Shlomi Ben Haim: They are adopting in one side of the world faster than the other side of the world. They also want to make sure that they can consolidate it all under one platform. We learn a lot from the enterprise, but the innovation starts from the community, millions and tens of millions of developers that communicate with us on a daily basis and tell us what the pain is. On the business side, enterprise sales and SMB sales obviously look different, and our sales team is based on those different tiers. Although the majority of our sales team is inside inbound and the strategic team is at the top of the pyramid, it's still built on these tiers of SMB, enterprise, and strategic.

Right, but innovation starts from from the community millions and tens of millions of developers that communicate with us on a daily basis and tell us what the pain is.

On the business side enterprise sales and the SMB sales, obviously look different than our sales team is is based on those different peers.

Although the.

The majority of our sales team is there is inside inbound and the strategic team is that the topic of the Permian. It's still build on these deals the SMB enterprise and strategic moving forward. What we're seeing now is that the enterprise while adopting the platform requires some wanted understand.

Shlomi Ben Haim: Moving forward, what we are seeing now is that the enterprise, while adopting the platform, requires someone that understands the organization and not just the technology solution. Let me give you an example. One organization can introduce us to the DevOps team and the day after to the security team and the day after to the product team, because one will need security, the other will need distribution, and the third will need to build software. Our evolution happens alongside the enterprise adoption. Obviously, we are learning fast what are these needs, and our strategic team is being very aligned with the market change and the adoption of DevOps in the enterprise.

The organization and not just the technology solution. Let me give you. An example, one organization can introduce us to the Dev ops team and the day after to the security team and the day after to the product team because one will need security. The other will need distribution and the third will need to be software so our balloon.

Question happens alongside the enterprise adoption, obviously, we're learning fast what the what I'll just needs and our strategic team is being very aligned with the way the market change and the adoption of Dev ops in the enterprise.

Nikolay Beliov: My second question is around CI/CD. What is the state of the land? Looks like everybody's using Jenkins at this point. What is the level of innovation at the Jenkins ecosystem, and how can you convince customers to begin to use your CI/CD, and what's your edge on that front of the platform?

And my second question is around see ITD walk is the state of most of the land everybody looks like everybody is using Jenkins at this point what is the level of innovation at the Jenkins ecosystem and Carl can you convince customers to begin to use your T.I. TV.

And what your edge on on that front of the of the platform.

Shlomi Ben Haim: That's a great question, Nikolai, and obviously you see and I see the same reality. Jenkins is a great CI server, supporting the largest community for the past 10 years. It's an open source solution that's spread around the world and has been very successful. What's happening now is that cloud native stepped into our world and containers and microservices are exploding the market. Therefore, you need your developers to be faster. They need to be faster, not just in terms of how they build and how they automate, but also by the fact that they need concurrent pipelines. In terms of concurrent pipelines, JFrog Pipelines is the most advanced innovative technology that the market now has to offer.

That's a great question, Nikolai and obviously, you see and I see the same reality Jenkins is a great Sea ice server.

Supporting the largest community for the past 10 years, it's a it's an open source solution that ER that spread around the world and have been very successful what's happening now is that cloud native stepped into our board and containers and micro services Alex.

Floating in the market and therefore, you need your developers to be faster they need to be faster not just in terms of how they build and how they automate but also by the fact that they need concurrent pipeline.

And in terms of concurrent pipeline jape of pipeline is the most advanced innovate.

Technology that the market now have to offer the second thing that they will need is the freedom of choice not just by building with with the C.I. server, but looking at the CIA and to see the continued integration and the continuous deployment and when you look at that you also want to allow them to to get the source not.

Shlomi Ben Haim: The second thing that they will need is the freedom of choice, not just by building with a CI server, but looking at the CI and the CD, the continuous integration and the continuous deployment. When you look at that, you also want to allow them to get their source not just from one Git repository, but from multiple vendors. JFrog Pipelines is the only tool in the world that will get it from any source to any destination. The third thing, which is also very unique to JFrog, is that JFrog Pipelines is embedded into the platform. One UI, one unified solution that not just build your software and deploy your software, but also integrates with Xray, integrates with Artifactory, and pushes to the runtime.

Sales from one deep repository, but from multiple vendors and general Fivenine is the only tool in the world that we'll get it from any source to any destination and the third thing which is also very unique to Jay Park is the jape of pipeline is embedded into the platform. One you I will.

One unified solution that is not just a build your software and deploy our software, but also integrate with X ray integrates without the factory and pushes to the one time I think that Jenkins.

Shlomi Ben Haim: I think that Jenkins is a wonderful tool, but as companies are looking at cloud native, they will have to look at solutions like JFrog Pipelines.

Is a wonderful tool, but as companies are looking at cloud native they will have to look at solutions like Jay for pipeline.

Nikolay Beliov: Thanks so much.

Thanks, so much.

Operator: Our next question comes from Jack Andrews with Needham. Your line is now open.

Our next question comes from Jack Andrews with Needham. Your line is now open.

Jack Andrews: Good afternoon, and congratulations on the results, and thanks for fitting me into the call here. I just want to ask one high-level question, if I could, for Shlomi. I'm just wondering, you know, how much evangelizing do you think that you still need to do just regarding the overall importance of software binary management and moving towards your vision of continuous software delivery versus. I mean, how much does this become a true mainstream concept that's widely understood in the market these days?

Well good afternoon, congratulations on the results and thanks for fitting me into the call here I just wanted to ask a one high level question, if I could for Shlomi I was just wondering you know.

How much evangelize and do you think that you still need to do just regarding the overall importance of suffer binary management and moving towards your vision of continuous software delivery versus I mean, how much does this become a true main stream concept, it's widely understood in the market. These days.

Shlomi Ben Haim: Yeah, Jack, thank you for this question. Actually, we get this question a lot because JFrog was the first company in the world that introduced the community and developers to the need of managing software on the software package or what we call the binaries level. For the first five years, we were struggling to explain why this is the most important asset, why this is the primary piece of software that you have to be focused on. Now, when you need to deliver software several times a day, you just have to look at your pipeline. What you see is, yes, source code is very important for developers. What happens from the moment that you create your software package?

Yeah. Thank you for this question actually we get this question a lot because ER capable was the first company in the world that introduce the community.

And developers to the need of managing software on the software package or what we call the binaries level.

And for.

For the first five years, we we were struggling to explain why this is the most important assets. Why this is the primary piece of software that you have to be focused on but now when you need to the legal software several times a day you just have to look at your pipeline and what you see is yes.

Source code is very important for developers that's what's happened from the moment that you created software package. What happened is that you secure software packages you distribute software packages you enable software packages on the edges and you can also have incremental software updates with the chip process of just.

Shlomi Ben Haim: What happens is that you secure software packages, you distribute software packages, you enable software packages on the edges, and you can also have incremental software updates with a cheap process of just updating the software package. What we now see is that the rapid releases and the CSRM mechanism that organizations are adopting is focusing on software packages as first-level citizen, and everybody understand that. Now, another fact is that if you look at the landscape and other solutions in the market, and if you look at the roadmap, just ask yourself, what is it that they invest in? They invest in package management solution, package management security, package management distribution. In a way, it's kind of, you know, being accepted by all vendors and all organizations.

Updating the software package. So what we now see is that the rapid the releases and the theater I'm mechanism. This organization are adopting is focusing on softer packages as sales level citizen and everybody understand that now. Another fact is that if you look at the landscape and other other.

Our solutions in the market and if you look at the old map just ask yourself what is it that they investing they invest in packaged management solution package management security package management distribution. So in a way its kind of you know.

Being being accepted by all Vandals and all organizations and the last thing that if I may add in the award of containers and micro services and the war the fast fast shipping software. That's the only thing the only thing that the world consume and produce.

Shlomi Ben Haim: The last thing that, if I may add, in the world of containers and microservices and the world of fast shipping of software. That's the only thing that the world consume and produce. This is what makes the organization fast, whether they are in the cloud or on-prem, and this is what also make them engage faster and more secure with their customers. I think that we will see more and more of this. I'm very honored to be the first core DevOps company in the public sector, and it also says something about our vision and what Liquid Software represents in the world of our users.

And this is what makes the organization fast whether they are in the cloud on Prem and this is what also make them engage faster and more secure with their customers. So I think that we will see more and more of this I'm very honored to be the first call Dev ops company in the public sector.

And it's also said something about our vision and what liquid software represent in the water power users.

Jack Andrews: Great. I appreciate your perspective. Thank you.

Great I appreciate your perspective, thank you.

Operator: That's all the time we have. I will now turn the call back to Shlomi.

And that's all the time, we have I will now turn the call back to Shlomi.

Shlomi Ben Haim: Thank you. All, thank you very much for your attention. The frogs and I are very excited about what we see looking forward, the adoption of our tool, the adoption of DevOps. I appreciate your time. I wish us all better days and secure days, and may the frog be with us all. Thank you very much.

Thank you.

Oh, Thank you very much for your attention the frogs and I are very excited about what the what we see looking forward the adoption of our tool the adoption of Dev ops I. Appreciate your time I wish us all better days and.

Secure days and made the problem with that so thank you very much.

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

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

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