Q2 2021 Jfrog Ltd Earnings Call

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Thank you for waiting for your conference will begin momentarily. Thank you for your patience. Once again. Thank you for waiting on your conference will begin momentarily. Thank you for your patience.

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Good afternoon, and thank you for joining us as a review J from fiscal 'twenty, 1 second quarter financial results, which were announced following the market close via a press release earlier today, joining us will be J for our CEO and co founder Shlomi Blenheim and Jacobs Chairman Jay.

CFO.

Before we begin let me review the Safe Harbor statements.

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 provision of the private Securities Litigation Reform Act of 1095.

Including statements related to our future financial performance, including our outlook for the third quarter and full year of 2021.

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 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 form 10-K for the year ended December 31, 2020 filed with the SEC on February 12.2010.

1 in our form 10-Q for the quarter ended March 31, 2021 filed with the SEC on May 7.2021, which are available on the Investor Relations section of our website and the earnings press release issued earlier today.

Additional information will be made available in our quarterly report on form 10-Q for the quarter ended June 32021, and other filings and reports that we may file from time to time with the SEC.

Additionally, non-GAAP financial measures will be discussed on this conference call. These non-GAAP financial measures, which are used as measures of <unk> performance should be considered in addition to not as a substitute for or in isolation from GAAP measures. Please.

Please refer to the tables in our earnings release for a reconciliation of these measures to their most directly comparable GAAP financial measures.

A replay of this call will be available on the <unk> Investor Relations website for a limited time.

And with that I'd like to turn the call over to Jay for our CEO Shlomi Blenheim Shlomi.

Thank you Joanne bridging from the swamp and thanks for joining us for <unk> 2021 second quarter earnings call.

Last quarter was very productive for us and before we start I want to express my special Thanks, Jay for for employees.

Strong deliveries on our phones.

In todays call I would like to cover multiple free items that will help to set the future for opportunity for the world of dental.

First I want to address the overall performance of the business from Q2.

Then I want to highlight some recent customer wins, including some from our extended strategic sales team.

I will also talk about on our recent acquisition of <unk>, a leading security platform critical.

I want to inform you about innovative product releases, we announced the swamp our annual user conference I will also address the recent hiring of our new executive Vice president of product and engineering.

And I'll, let Michelle our 2021 second quarter results with you I'm pleased to report that <unk> revenue climbed to $48.7 million below the growth of 34%, although the same period last year.

While our delivery is aligned with our commitment to the market. We continue to invest in the companies for all of these growth and will soon classic key milestone crossing $50 million revenue per quarter.

Sales revenue continues to grow in Q2, with a 47% increase year over year and now represents 24%.

Our total revenue compared to 21% in the previous year.

Also in Q2, we achieved a record quarterly free cash flow of $18 million.

Our expanding strategic sales team, which is now more than doubled as a result of the acquisition of Btu.

To be successful in growing the business across our top tier accounts with large customers moving to our multi product end to end platform subscriptions.

Distribution solutions continues to be the primary reason that our customers upgrade to enterprise class our highest subscription level for.

For example, 1 of the world's leading telecommunications providers recently used J for distributions to complete its nationwide <unk> rollout for millions of customers by pushing software to the 5 G edge locations.

In addition, a leading video game developer with multiple global data centers chose to upgrade to J P. On for enterprise plus subscription to overcome bandwidth and network lagged by using our distribution capabilities.

With millions of customers.

These are just 2 of many more use cases debt.

We are seeing that showcase customers' needs to have security capabilities fully integrated into the software lifecycle and runtime environment.

Did that end, we recently announced that we completed the acquisition of visa product for acuity company. We believe the joint team of X Ray N V do along with the integrated technology solutions will drive <unk> next big leap forward in cycle.

We didnt approach debt.

It looks at not just stopped our composition, but also software configuration and environmental factors.

This solution will also discover zero day, even abilities and we secured the binaries beyond the Dev ops pipeline all the way to the device.

Ray has long provided security scanning for developers and the joint solutions will build on this strong foundation to expand <unk> reach into operation and security Engineers.

Just a few days ago, Jay from security researchers identified.

Analyzed several malicious fight on packages they have discovered on Wi Fi public credit spread.

These software packages contained from their abilities aimed.

Aimed at stealing users credit card numbers this call talking and granting code execution capabilities to attackers.

Public fight on software package registry has removed several packages this week as a result the.

On the follow <unk> scanning technology and people for expert researchers as part of Jay for is already amplifying the value of this merger showing how software developers and users all of other world can be protected by a really end to end binary for a security solution.

As another example of how videos advanced security technology, and <unk> end to end Dev ops platform could deliver value for our customers, we only need to look at the recent because their supply chain attack.

This attack was similar to the solar wind hacked.

And their ability was exploiting the softer of service provider, which has been utilized by the provides us customers.

This the fact that thousands of customers in the ransomware attack.

This again on the emphasize the need to scan debt unsecured third party software binaries before any download all deployment costs.

With J P. Morgan <unk> unique technology J for about the factory will spill into manage the binaries being released and Jay for X Ray fortified with <unk> technology will enable the detection of unknown visibility.

This allows stock for consumers as well as their customers to fully understand any risk and ensure the security hygiene of the products and the devices they rely on.

I am excited by the progress that Jay Prague, and free to teams are already making we have added nearly 80 security expert globally across engineering sales marketing and other functions for the <unk> team.

Redo CEO not the DVD and that's what's got US redo the CTO I will now call members of our leadership team and will be leading the combined security R&D group.

The 2 teams regional N J from.

It started to work on emerging products and expect the rollout of the first set of solutions as part of the Jay for platform in 2022.

Now onto our cloud business cloud.

Cloud growth was slightly slower as we sold some of our highest users customers take steps to consolidate their accounts implementing a more strategic approach to the cloud usage. We are currently reaching new agreements.

With many of these customers, which includes use it scaling and expect to see a return to a higher cloud growth in the future growth.

We are confident there is a path to gaining even more momentum in the second half of the year through our partnership with the major cloud providers AWS, Microsoft Azure, and Google cloud with new offerings in their marketplaces, and extending into strategic co selling and co marketing opportunities.

This past quarter, we already won several big deals through these partnerships, including the leading point of sales software provider for weekend, and they're leaving American cloud data services company.

We have also made new cloud marketplace offerings available in support of our strategy to meet customers where are they all walking for example, Google cloud marketplace customers can now quickly and easily provision for Jacob platform with full enterprise class subscription capabilities in just a few clicks on.

AWS where for.

<unk>, a 30 day free trial for cloud enterprise subscription on their marketplace, allowing users to try out our enterprise offerings for <unk>.

For us to making a purchase.

This is an added option to drive top of funnel.

Activities.

Now a little about the competition in Q2, we continued to see J, Paul displacing legacy competitors with a unified scalable platform..1 example of moving to Jay for inclusion in Indiana multinational information technology leader that provides business consulting information technology.

And outsourcing services.

This is due to the need for scale and they need to manage binaries across multi site topologies and keep artifact in sync between remote for development sites.

Their existing solution is not allowed them to build and deploy in multiple regions and support a hybrid model of both on Prem and cloud.

Another example is a European car manufacturer, which adopted Jay for centralized the binary management and security as their existing competitive solution could not meet our growth requirements and unified platform license compliance and the Universal technology simple this.

Discussing those examples highlight how an integrated hybrid universal end to end platform can drive businesses outcomes.

There is critical competitive differentiator.

Now for some Dev ops community events highlights.

As they progress from creation to deployment.

Finally, we announced called artifacts total age counting data.

This solution enables organizations to save costs and improve performance by archiving architect it needs to be easily sold and rapidly rehydrate them to meet regulatory requirements on corporate policy.

Overall.

This is the most significant set of product enhancement and innovation believers since the introduction of our unified platform, all driving us closer towards our liquid stopped for a vision of.

Powering all software updates.

To help drive this vision forward, we have made an important addition to the leadership team with the hiring of our new executive Vice President of product and engineering so easily.

25 years of global experience in managing technology and product development. So he joins Jay for after 9 successful years as the CTO of vantage.

Where he led global Tech force of the company spearheaded the movement to cloud product and supported over $1 billion on in revenue.

We look forward to leveling up Jay from product and engineering as we expand globally.

With this recent organizational changes.

The streamlined subscription to leave it in the first half of 2021 day product innovation.

Downtick accelerate growth and the growth, we see with our strategic theme, we anticipate acceleration in the business in the second half of 2021.

With that I will.

I'd like to turn the call over to Jacobs Schumann J Prague, CFO, who is also celebrating his birthday today muscle from Jacob Please take it from here.

Look more deeply at the Q2 financials.

Thank you Shlomi and good afternoon, everyone I will start with a brief overview of our second quarter financial results and provide our outlook for Q3 and the full year of 2021 assets.

As a reminder, please note that all numbers referenced in my remarks.

On a non-GAAP basis, unless otherwise stated.

A reconciliation to comparable GAAP measures can be found in today's earnings release, which is available on our website and as an exhibit to the form 8-K furnished to the SEC.

Now, let's turn to our financial results.

Expected Q2 to be the most difficult quarter of the year and we're encouraged it came in line with our expectations total revenues for the 3 months ended June 32021 for $48.7 million.

<unk> up 34% year over year sales managed revenues also often called on Prem we're at $37.2 million.

30% cloud revenues again grew faster up 47% to $11.5 million.

Or 24% of total revenue compared to 21% of total revenues in Q2 of last year.

It's letting the pull forward I noted above.

Our second quarter results are particularly encouraging as we entered the quarter with lower than typical pipeline due to the accelerated conversion pre price increase the team not only rebuild the pipeline and executed on numerous transactions in the second quarter, but will also enter the third quarter with a very healthy pipeline.

In general the business environment continues to improve which is reflected in our expectations of accelerated growth in the second half of the year.

We again saw a solid growth in customers moving up the subscription stack to gain full access to the <unk> platform with the enterprise plus plan.

In Q2, 32% of total revenue came from enterprise class customers up from 17% in Q2 of 2020.

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

Gross profit in the quarter was $46 million.

We are presenting and gross margin of 83, 4% compared to 82, 8% in the year ago period, we continue to see our SaaS gross margins improving.

R&D expense for the quarter was $13.7 million.

Or 28% of revenue compared to 23 percentage of revenue in the year ago period, we will continue to invest significantly in enhancing our product offerings.

Sales and marketing expenses for the quarter were $18.3 million.

Or 38% of revenue compared to 34% of revenue in the year ago period.

We continue to invest in ourselves teams and our free tier and tile offerings, specifically, expanding our strategic team and investments into the APAC region.

G&A expense for the quarter was $7.7 million.

Or 16% of revenue compared to 11% of revenue in the year ago period.

Non-GAAP operating income for Q2 was $1 million or 2% operating margin compared to $5 million or for <unk>.

7% operating margin in the year ago period.

We will continue to balance investments in growing the business and leveraging the opportunity in front of <unk> with profitability.

Non-GAAP net income in the quarter was <unk> <unk>.

$900000 or <unk> <unk> per diluted share based on approximately $102.8 million weighted average diluted shares outstanding.

Turning to the balance sheet on cash flow, we ended the quarter with $615 million on cash and short term investments note. The cash balance does not reflect the acquisition of <unk> as the deal closed after the quarter ends.

Cash flow from operations was a record $19.2 million in the quarter after taking into consideration Capex free cash flow was also a record $80 million. We are pleased that despite the significant investments in growing the business and planning for the future. We will continue to generate significant free cash.

Cash flow.

Before we discuss guidance.

Let me take a minute to review the terms of the <unk> acquisition and the impact on the balance of the year debt.

Total consideration was approximately $287 million cash.

Pricing of approximately $200 million on cash net of cash acquired and 1.9 million shares of the company's ordinary shares.

As discussed video does not generate material revenues as they just had begun building go.

Go to market strategy prior to the acquisition.

We expect an increase in opex, primarily in R&D MSM as we integrate that business and expand our security product pipeline with a lesser impact on G&A for Q3, we expect <unk> to contribute approximately $4.3 million on Opex and approximately a $5 million on opex in Q4.

These changes are reflected in our guidance.

For Q3, we expect revenue of $52 million to $53 million with non-GAAP operating loss of $2.6 million.

$3.6 million.

And non-GAAP loss per share of 3.2 for <unk>.

Assuming the share count of approximately 96 million shares a.

At the midpoint of the guidance, we expect growth of approximately 35%.

For the full year, we are raising the low end of guidance and an increase on the high end. We now expect revenue of $202 million to $205 million up from $198 million for $204 million non-GAAP operating loss is expected to be between 4 million.

And $5 million.

And non-GAAP loss per share of for SaaS to 5.

Assuming a share count of approximately 95 million shares at the midpoint revenue growth is approximately 35%.

Now, let me turn the call back to Shlomi for some closing remarks before we take your questions.

Thank you Jacob.

We invested a lot in the past few quarters and I'm happy to see the fruits of our labor coming in.

We believe JP on the offer superior Dev Ops index Picop technology to the world.

And our team stands ready to step into the second half stronger on also on peers to meet our goals.

I would like to stay on the special welcome to the <unk> team. We look forward to continued success together. Thanks.

Thanks for your attendance and made the Crosby with asphalt.

Now we are happy to take your questions.

Thank you and we have a question. Please press Star then 1 on your Touchtone phone if you wish to be removed from the queue. Please press. The pound line are the hash key if youre using a speakerphone you may need to pick up the handset first before pressing the numbers.

Again, if you have a question. Please press Star then 1 on your Touchtone phone.

And our first question comes from Sterling Auty from Jpmorgan. Please go ahead.

Yeah.

Yeah. Thanks, Hi, guys first of all happy birthday, Jacob Thanks for sharing your special day with Us all.

And on for questions I'd like to know a little bit more.

About you had mentioned kind of the go to market with the cloud platforms, AWS et cetera, what specifically are they doing on their side to get you in front of prospective customers and how do you think thats going to contribute to the acceleration in the back half.

Yeah.

Yes, Hi, Sterling great to hear back from you.

Ill start and Jacob for free to chime in obviously.

We started to build the relationship with all other cloud providers in Poland as we provide them move day multi cloud solution.

What we are doing it.

Just to make sure that Jane fog solution its presence on the marketplace, but also collaborating on the cross selling and co marketing and even with the with the <unk>.

Enterprise team.

AWS, Google cloud and Microsoft Azure the way it addresses our customers our joint customers or prospects is that with the cloud contracts with all of them have.

The current provides for the cloud enterprise sales team income with other benefits to the customers, which makes the joint solution and the holistic solution.

Meaning not just from cost point of view, but also different benefit point of view, including premium support and other and other benefits that they can offer is the cloud provider. Obviously this is a win win situation.

Because they generate small traffic on the cloud, we provide more dev ops and debt value and the customers enjoy.

At this point.

The terms and conditions of the usage.

Yes.

Add to that that obviously is also.

Streamlines the purchasing process.

<unk> maintained for training and handles on the price.

Yes.

Got it makes sense and then 1 follow up you had talked about customers looking to consolidate.

In terms of some of their cloud usage and net you were looking to.

Negotiate new deals can you help us understand.

What part of the business, how big of an impact is that and what is the pricing structure that they are looking to move towards.

Yes, well.

That's a good question because what we see now.

And of the 4 quarters into the pandemic is that customers are looking to optimize subscriptions by the way not on the cloud they are looking to optimize subscription and especially hosting costs so of what.

I'm looking at is obviously usage into cloud based.

Data transfer and data storage and they are trying to understand what it means to scan with a full platform not just a registry or just the security solution. So currently we have been 5 some big opportunities joint opportunity some of them on joint opportunities together with the cloud providers.

And some of them started.

On the J, Paul free deal solution.

What do we expect to see is that these deals on coming into future quarters.

Understood. Thank you.

And our next question comes from Jack Andrews from Needham. Please go ahead.

Hi, good afternoon, Thanks for taking my question.

For Shlomi.

I appreciate your context by which you walked through all the innovations that you talked about a swamp up could you maybe frame for us just how we should think about the monetization that potential uplift.

From from some of these features.

Yes.

Well Jack.

The idea of adding more and more innovation into the platform is very much aligned with our vision. What we are trying to compete we are trying to make sure that the binary lifecycle. The full binary orchestration discovered by Jay for platform. Therefore, when you look at.

At the pace that the market.

Kind of showing all the demand that we have for the market is about global theme distributed team remote work and how do I get the binaries fast and secure to the edge. Therefore, the first thing that we have released is the Federated repository, that's an enhancement to 40 factory.

Which will help teams all over the world to look at the same repository no matter, whether you are in China, or Europe, or North America, you would wake up on Monday morning, and he will develop it against the same repository.

Second thing is once it's ready how do you get it distributed and Thats beyond Youll, just Dev ops lifecycle, how do you get it distributed to the edge and that that means that Jacob distribution can cover this aspect distributing release bundle from from 1 to many edges.

Jacob pipelines with assigned pipeline is actually answering the holistic security debt, we are talking about across the platform what comes into the pipeline gets out on the deployment.

Deployment site now onto the ALR question you've mentioned.

This all is part of our platform some of the features.

Advancing our 2 factories solution other security solution and some free ICD when we look at the distribution. Obviously this will be by consumption as you distribute more.

<unk>.

Our growth will be impacted.

Federated repository is about the in large.

The team of the topology multifactor apology and then we.

We will go by team by project and by location and when you look at the security enhancements. This will upgrade to subscription that includes the Jay for security from deploy and above.

<unk> solution and obviously more usage when it comes to the cloud.

Really appreciate that color, thanks, Shlomi and just as a quick follow up.

Can I ask about just any color you could share in terms of you know.

New leads and new logos coming from your your feet for each year are there any characteristics in terms of just debt metrics that you're able to share with us in terms of the traction you're getting there.

Absolutely the free tier is an amazing journey for <unk>, because aside from the fact that its top of funnel too. It's also an amazing tools to communicate with the with the community.

We will build by the community and for the community and Bill for all the feedback that we're getting are immediately injected into what we call. The optimization of the free tier now when you look at the free tier and not just J for any kind of free deal into cloud.

Will you will divided to 3.3 different blocks block number 1 how many new users are coming visiting these software block number 2 how many of them will activate not just visit and learn about it but also really activate and use it for free for now and then block number 3.

Is how many of them will use more above the quarter and will be converted to paying users. What we see now with we conclude the 3 quarters. We depleted out is that the top of funnel, we see more and more traction coming through the free tier.

By the way on all clouds on Google Cloud AWS, and Microsoft Azure, we see more activation as we optimize the on boarding process and activation means not just RT factory, we start to see users using more than just 1 single product and we're also seeing improvements in the number of convert.

Obviously, we will work hard in the next future and this is an ongoing never ended investment that we would do to have a joyful experience to all of the community.

Wonderful. Thank you if I may add to Ed if I may add to add 1 for the last sentence.

The idea of a free tier is also super powerful because even if a prospect is not yet paying but using youll. Therefore platform. It means that they are not using the competitors 1.

And for that we are also grateful and looking forward to convert them to become paying enterprise users.

So thank you really appreciate the commentary on that.

And our next question comes from Kinsley Crane for from Bahrenburg. Please go ahead.

Hi, and thanks for taking my question. So first it seems like cloud revenue. Despite the headwinds we're talking about it pretty well growing at 47% but.

Just wanted to kind of dig into it more so on and you talk about the dynamics customers consolidating is that the case for their paring back their underlying usage of a public cloud or is it.

Direct lead reducing the usage of true product itself.

Yes, so what we see in the market is that the cloud adoption at the beginning of the pandemic was was impressive let's call. It impressive we still numbers. If we were very happy about people started to demand more and to have to add more.

Regions, not just usage, but more regions.

On more deployments environment provision <unk> solution in different places on different clouds. Currently what we see is that the majority of the enterprise is looking on a multi site topology. So a multi cloud topology and they would like to optimize the subscription not just with <unk>, but also with the AWS Microsoft.

And Google Cloud currently as we are thinking about other cloud to expand maybe.

Even more in APAC.

Things that we see is that usage is being reviewed hosting expenses, especially if you offer a hybrid solution.

Our being.

Observed and reviewed and agreements are being renewed.

Renewed we see a very high retention rate on the other hand every time that we have a renewal point. It comes with an upgrade in terms of usage and the organizations that are renewing the subscriptions are looking for more value come.

Coming from Jay for.

We didn't see a lot of churn from from <unk> into the public cloud mainly because of the fact that we are also collaborating with them as I mentioned before on a counseling and co marketing level.

But sometimes if you just need to simple repository and you don't need the full platform or you just need.

1 thing too easy on bolt on the registry it might be a good solution for you that's not what Jay for is aiming for.

Okay that makes perfect sense and then for the follow up there would be you know, sometimes we see paybacks and consumption on a quarter by quarter basis.

So do you think this is a recurring structural trend that youre seeing or is this sort of just something in Q2.

Well Q2 as expected and as we reported was was a different quarter for us. So if you remember in Q1, we reported.

The change that we've done on the on Prem self hosted the pricing we changed it to subscription we invested a lot in Q2, we also invest a lot in R&D and released.

All type of innovations that we discussed on the peso Q2 is not surprising for us, but we know that in order to set the stage for the second half of the year, we had to do these changes and we had to do.

Those modifications not only in the product, but on the also in the subscription. So we believe that in the next 2 quarters. The second half a day, we will see it come back again.

Okay, perfect and yeah, I mean, I thought the number was good for sole anyway, so and for your time.

Thanks again.

Thank you.

Our next question comes from Sandy Zhang from Morgan Stanley. Please go ahead.

Hi, everyone. This is calvin on for Sanjay. Thank you for taking my questions.

So it sounds like.

We do won't be contributing to 2 <unk> and FY 'twenty 1 revenue guide.

How should we start thinking about kind of the timeline for sales integration joint selling between the sales orbs.

And some sort of kind of revenue contribution on ramp either later this year or next year and then when should we kind of.

Kind of see those revenue start turning on.

Yes, well, obviously I am Super excited to take this this question. We are all all folks are excited about.

<unk>.

Joining the swamp.

As we reported we do comes with an amazing Amazing technology.

On a great team of security expert that joined the swamp and that globally not just on.

On the R&D team are just in Asia.

But he didn't they didn't bring.

<unk> a non.

<unk>.

Just started to ramp up the sales and marketing processes, but what's happened since we joined them we just.

Announced the deal close on July 19, what happened. Since then is the ground shaking news in the World of security. These guys already started to scanned as I reported the public repositories of all binaries for example in the tight on public repository they've found vanilla 1.

<unk>.

This can expose your credit card numbers are it's not just anymore about developers.

For all software consumers for all people in the world that are impacted by it. So if you ask me if we will have an immediate impact the answer is yes, because our security tools I'll now.

Enhanced enforced by a very professional team with a very strong technology that slowly will start to be embedded into our solution and the J for platform and the second thing is debt. We are now addressing not just the depth of op market, but also product security security engineered T cells.

The World people that are speaking security Paul for breakfast and this is something debt.

Kind of developed in other muscle in J, Paul So in terms of technology milestone, 1 will probably be somewhere at the end of the year and will be added to our capabilities in the platform and we are expecting to see a full integration with the video technologies into the <unk> platform.

During 2022 debt.

Pipeline is already.

<unk> biodiesel knowledge and by debt expertise and strategic team, which is a different aspect joins our strategic team and in larger significantly worldwide. So we expect to see an impact of Venezuela.

Yeah.

Got it thank you for for all the added color.

Can you also tell us a little bit more about.

<unk>.

The accounts sales team I know you guys pause debt.

Previously.

Have you guys started to build that back out.

And if so how has hiring debt.

You mean, the strategic thing.

Yes.

Yes. So we started to build this team I think somewhere at quarter prior to the pandemic and we invested in building a hybrid panel not just a bottom up inside inbound says as we used to do as we beat <unk> from but also to have.

A top down model coming from the CIO CSO CTO VP R&D down in order to adopt a platform now this goes hand in hand with the technology. We offer right you cannot come to a CSO and also positively you all for a full solution and we needed to make sure that what we.

<unk> is big enough in order to go from the top down so we've built the team alongside the technology and the team grew up to be a very.

Efficient theme as you can see in the Q2 numbers on some of the deals that we reported over $1 million with.

<unk> generated by the strategic theme with the acquisition of day do we more than doubled this team and when I'm, saying double its not just sales reps. It's also about.

This solution engineers, it's also about the field marketing, it's also including the premium support and obviously expertise in the domain.

Security. So this team is growing significantly.

Model.

Top down with a bottom up a hybrid panel also work great and we see it already in the pipeline numbers for the.

For the Q3 and Q4.

Got it thank you very much.

Yeah.

And our next question comes from Koji Ikeda from Bank of America. Please go ahead.

Hey, Shlomi, Hey, Jacob Thanks for taking my questions. Just another question here on the day.

The cloud the cloud contracts during the quarter I was wondering if could revisit that for a second here.

What was the effect quantitatively to Q2, if there was any and how much of a consideration.

Revised cloud contracts are playing into the full year guidance.

Yes, I'll take that.

<unk>.

Net impact of <unk>.

This on on.

Q2 cloud revenue was.

And on slightly below.

Million dollar.

In.

800000.

In terms of.

Outlook for net we provided for the rest of the year.

Really.

We believe that even with current cloud growth range.

Who knows.

A few of those numbers.

Yes.

The acceleration in the cloud will be on bonus for that.

Got it got it and then just just 1 follow up here another question on <unk>.

I know you've mentioned multiple times, it's not supposed to have a material impact to growth for 2021.

Just want to be absolutely clear here is there any contribution at all from video into 2021 guidance and I just want to be really really clear on that.

Very very small is probably.

Just the low hundreds of thousands of dollars.

Got it got it Okay and then just last 1 for me.

So and on our data point, but in the prepared remarks, you said you were feeling pretty good about it from reaching a stabilization point.

Is there anything or what would be a potential driver here thinking about the next few quarters that could actually cause the NR trend to go lower from here just thinking about the cloud contracts or anything like that what could cause that NR to go down further from here.

Yes so.

To remind you we reported on our net order to cash in on trailing 4 quarter someone from Siemens.

On a standalone basis, Q2 was actually better than Q1 better than Q4. So we see positive trends, obviously, we still gain some numbers from on.

On damage, which were lower.

What could go wrong there.

We believe we will continue to improve our stand alone.

Net low retention rates on a quarter on.

On a basis and Thats why we believe that's what we came back to 1 day.

Got it got it thanks, guys. Thanks for taking my questions really appreciate it thank you and happy birthday Jacob Thank you.

And our next question comes from Jason Ader from William Blair. Please go ahead.

Hey, Thank you Hey, guys.

1 quick 1 for Jacob.

Jacob what does the head count now after we do on how many hedges you add with video.

And whether their own baby people wouldn't be too and our overall debt.

With the Vietnamese around 900.

<unk> hundred.

Okay, great and Shlomi.

My question for you is what do you see as the biggest challenges over the next 12 months or so for the company at this point you've done you've made some big investments.

Your first let's call it a pretty sizable acquisition.

You're building out your strategic sales teams and your partnerships what do you see kind of as you look at the landscape what are the biggest challenges for the companies for the company.

Yes, Jason Thank you for this question.

Well, obviously, we are after a very big market, what we see as the mall, it's beyond the being the best Dev Ops company on being the.

The best binary.

Manager solution.

We're looking at.

The software updates for Foldable now, we all agree that there would be more software and software needs to be updated updates can only happen with binaries, but in order to complete the full full.

On lifecycle.

Binary as management, we need to invest more in the deployment in the distribution.

Indeed device management and everything that has to do with Dev ops for Iot. So you should expect to see more investment towards this direction as well what it means is that we are replacing again homegrown solution in house development something that the company built 2025 years ago.

The CDN and that requires education and patient and that would be probably a challenge that we will have to overcome we invest also a lot in developers advocate with Verticalizing marketing UC J P everywhere, where you see the excitement around the innovation that we released but the market is still being <unk>.

<unk> with what we released we saw it without the factory when we introduced the world with a binary repository concept then with X Ray when we introduced the world with the composition analysis security and now with distribution and a full binary management level, that's very new to the market and mainly repair.

<unk> is something that you believe you're on.

Over other tools that you integrated into real solution. So I think that the education and the adoption.

We will take time, but once it will happen it will explode.

Alright very helpful. Thank you.

Our next question comes from Brad Reback from Stifel. Please go ahead.

Great. Thanks very much.

I'm not sure if it's for Shlomi you Jacob for as you think about the back half pipeline that you've talked about.

Is up meaningfully after this low on to Q is the composition of the pipeline difference so heavily more heavily slanted towards SaaS.

And if it is does that have any impact to the P&L going forward.

Yeah, I'll start and Jacob obviously can add more colors of interest.

What we see in the pipeline is is a bit different than what we saw in the price obviously.

If we compare it to.

Past quarters, it's a bigger size of the pipeline <unk> is growing we just mentioned that we are about to call. Some milestones for $50 million on revenues in the next quarter and we are very excited about it but it is also supported in the pipeline numbers now the composition of the pipeline is also very interesting because for the first time.

We start to see.

The fruit of the strategic team label, we start to see accounts debt of those taking longer are aiming.

<unk> to a much higher adoption of the <unk> solution, we start to see more and more co selling with the enterprise cloud providers.

And we are talking about 6 digit contract with with this customers sometimes prospects.

We see adoption of new products, we just reported debt this quarter, which we won the biggest X ray.

However, with the big financial Institutes.

This is something that we didn't see in the past as you remember most of our.

Flipping the Doe moves where throughout the factory now actually became a significant player.

We also see the excitement around the <unk> that we announced in Q2.

Because it's a real thing everybody every debt put aside Jay for everybody will need.

Distribution for binaries and the market start to adopt it. So the competition is not just about technology and different tools and it's also about the stock showed that our CLO.

With the strategic team.

<unk> different type of <unk>.

<unk>.

I think that it took us longer to build despite because of the type of deals, but we are very.

Excited and stands ready to.

For converting to fulfill it.

That's great. Thank you very much.

And our next question comes from Rob Owens from Piper Sandler. Please go ahead.

Hi, This is Ben Schmidt on for Rob Thanks for taking my questions.

On.

On the.

On the <unk> acquisition, just wondering if you guys can shed some light on how much we should expect the tam to be expanded.

By this acquisition once the functionality is integrated.

Yes, so it's really deep.

It depends what you call the Tam because if for you just look at the Dev ops market. Obviously, it's included in the Dev ops and depth of cops, some would say above 20 billion in <unk>.

1 of the analysts on this call said above 50 billion in the latest simple, but this is part of the deaths hiccups. This is exciting but not exciting enough for us when we are looking at securities for binary we're looking about the market.

Devices device management, how can I secure the binary that you actually deploy on your iPhone or any other Tesla and this is a much larger market. We are looking at billions of devices that can be secured.

Software is being updated overview, we spoke about it at the very early beginning in the Roadshow before we even went public that's part of our vision and this market is by order of magnitude bigger than to just Dev ops and debt cycle.

And we do by the way just to.

To connect the dots redo developed 1 product that support the Dev ops and the developers and then other products to support the device on the security on the devices.

Okay got it that's helpful and given the puts and takes on the SaaS the SaaS growth this quarter.

Has this changed your guys outlook for SaaS growth.

For the medium to longer term.

No it does not change.

Outlook for hospital.

<unk>.

Okay got it thank you.

Okay.

And we have no further questions at this time I will now turn it over to Shlomi Manhattan.

Well. Thank you everyone for joining the call today, we are very excited about Q2, we are excited about the inorganic growth above the organic growth about the innovation and we are very determined to fulfill our vision of becoming the company behind on software updates I. Thank you for this call and made a profit.

With you. Thank you very much.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.

Yes.

[music].

Yeah.

[music].

[music].

[music].

Welcome to <unk> second quarter fiscal 2021 financial results Conference call. My name is Johnny I'll be your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer session. If you have a question. Please press Star then 1.

1 on you touched on my phone I will now turn the call over to dry on Horn from Investor Relations you may begin.

Good afternoon, and thank you for joining us as we review J from this.

21 second quarter financial results, which were announced following the market close via a press release earlier today, joining us will be J for our CEO and cofounder, Tony behind and Jacobs Chairman Jay <unk> CFO.

Before we begin let me review the Safe Harbor statement.

During this call we may make statements related to our business that are forward looking under federal Securities laws and are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095.

Including statements related to our future financial performance, including our outlook for the third quarter and full year of 2021.

The words anticipate believe continue estimate expect intend will.

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 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 for you refer to our form 10-K for the year ended December 31, 2020 filed with the SEC on February 12.2002.

1 in our form 10-Q for the quarter ended March 31, 2021 filed with the SEC on May 7.2021, which are available on the Investor Relations section of our website and the earnings press release issued earlier today.

Additional information will be made available in our quarterly report on form 10-Q for the quarter ended June 32021, and other filings and reports that we may file from time to time with the SEC.

Additionally, non-GAAP financial measures will be discussed on this conference call. These non-GAAP financial measures, which are used as measures of <unk> 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 these measures to their most directly comparable GAAP financial measures.

A replay of this call will be available on the <unk> Investor Relations website for a limited time.

And with that I'd like to turn the call over to Jay for our CEO Shlomi behind Shlomi.

Thank you Joanne readings from the swamp and thanks for joining us for <unk> 2021 second quarter earnings call.

Last quarter was very productive for us and before we start I want to express my special Thanks to Jay for its employees.

Strong deliveries on the on phones.

In todays call I would like to call the multiple free items.

Help to set the future for Akshay for and the world of dental care.

I want to address the overall performance of the business from Q2.

Then I want to highlight some recent customer wins, including some from our expanding strategic sales team.

We'll also talk about our recent acquisition of redo and leading security platform credit though.

I wanted to inform you about innovative product releases, we announced that bump up our annual user conference I will also address the recent hiring of our new executive Vice president of product and engineering.

These are all indicators.

All of these future for Jay for beginning with the second half of the year and investment we are making on all fronts in order to fulfill our vision of becoming the company behind all software updates the company that makes up for liquid.

Let's stop.

We bought the world groundbreaking innovation in Q2, we delivered on unique product investment and we expanded our partner ecosystem.

Successful virtual annual Dev ops community event for thousands of attendees and held the folds out in person event in Tel Aviv, and therefore for the industry spirits.

It's different than it can be done.

These events.

And milestone as a single mission to make every software create a successful by providing the best solution to really fast and secure software continuously.

The future is clear they will.

Be more software.

So I'll fill it needs to be updated.

Updates can be on the achieved with binary management deployment and automation for.

Peerless fast flow lead by Lee Jay for making this vision a reality.

Now, let me show our F..2021 second quarter results with you I'm pleased to report that <unk> revenue climbed to $48.7 million below the growth of 34% over the same period last year why.

While our delivery is aligned with our commitment to the market. We continue to invest in the companies for all of these goals and will soon pass a key milestone crossing $50 million revenue per quarter.

Cloud revenue continued to grow in Q2, we did 47% increase year over year and now represent 24% of our total revenue compared to 21% in the previous year.

Also in Q2, we achieved a record quarterly free cash flow of $18 million.

Our expanding strategic sales team.

Now more than doubled as a result of the acquisition of <unk>.

Continues to be successful in growing the business across our top tier accounts with large customers moving to our multi product end to end platform subscriptions.

Jay from distribution solution continues to be the primary reason that our customers upgrade to enterprise plus our highest subscription level.

For example, 1.

1 of the world's leading telecommunication providers recently used J for distributions to complete its nationwide <unk> rollout for millions of customers pushing software to the 5 G edge locations.

In addition, a leading video game developer with multiple global data centers chose to upgrade to J P. On for enterprise plus subscription to overcome bandwidth and network like by using our distribution capabilities.

<unk> been an architect on the customers in the past. This company also now use this X range.

Scan insecure software packages before day all delivered into production. These examples are on.

Only the tip of the iceberg and I look forward to more success on the strategic sense for them.

On that note.

I'd like to turn to security with day.

Data breaches and supply chain attacks on the rise security remains a top priority for organizations of all sizes.

To deliver maximum value for our customers. We now include <unk> security solutions, Jacob X rate in all subscriptions starting from for it.

We are also pleased to see extra use cases coming from many different industries. For example, a global cloud storage service company with over 500 million users added Xa domanico and enforce security policies on third party and open source license compliance.

But security isn't just about ability it's about protecting the entire Dev ops lifecycle, and example is multinational financial services company.

Which is now the largest X ray customer at.

This customer is now using the combined power of our free factory index H 2 controls for Q and validates all of their third policies binaries that entered the organization.

After they announced the factory and ultimately get the production environment that supports the tens of millions of customers.

These are just 2 of many more use cases that we are seeing that showcase customers' needs to have security capabilities fully integrated into the software lifecycle and runtime environment.

Did that end, we recently announced that we completed the acquisition of visa products for acuity company. We believe the joint team of X Ray N V do along with the integrated technology solutions will drive J problems next big leap forward in cycle.

We didnt approach that looks at not just stop them from position, but also software configuration and environmental taxes.

This solution will also discover zero day, even abilities and will secure the binaries beyond the Dev ops pipeline all the way to the device.

X Ray has long provided security scanning for developers and the joint solutions will build on this strong foundation to expand <unk> reach into operation and security engineering team.

Just a few days ago.

From security researchers identified.

Annualized 7 malicious bite on packages they have discovered on the pipe by publicly.

These software packages campaigns on their abilities.

Aimed at stealing users credit card numbers this call talking and granting code execution capabilities to attack that.

Public Spike on self to a package registry has removed several packages. This week as a result the fall.

Hello, <unk> scanning technology and people for expert researchers as part of Jay for is already amplifying the value of this merger showing how software developers and users all of other world can be protected by a really end to end binary for security solutions.

It's another example of how videos advanced security technology, and Jay folks and to and Dev ops platform could deliver value to our customers, we only need to look at the recent because their supply chain attack.

This attack was stimulus to the solar wind hacked.

We haven't been that ability was exploiting the softer of service provider, which has been utilized by the providers customers.

This is the fact that thousands of customers in the ransomware attack.

This again on the emphasize the need to scan debt unsecured third party stopped for a binary before any download all deployment costs.

With J P. Morgan videos unique technology J for about the factory will spill into manage the binaries being released and Jay for X Ray falsified, we'd be doing technology will enable the detection of unknown visibility.

This allows stocked for consumers.

Consumers as well as the customers to fully understand any risk and ensure the security hygiene of the products and the devices they rely on.

I am excited by the progress the Jay project and for you to teams are already making we have added nearly 80 security experts globally across engineering sales marketing and other functions the Jacob team.

We do CEO not either V D and that's what's got US video CTO I'll now call members of our leadership team and we'll be using the combined security R&D group.

For the 2 teams regional N J problems have started to work on emerging products and expect the rollout of the first set of solutions. That's part of the <unk> platform from 'twenty 'twenty 2.

Now onto our cloud business cloud.

Cloud growth was slightly slower as we sold some of our highest use discussed them and take steps to consolidate their accounts implementing a more strategic approach to the cloud usage we are.

Currently reaching new agreements with many of these customers, which includes use it scaling and expect to see return to a higher cloud growth in the future growth.

We are confident there is a path to gaining even more momentum in the second half of the year through our partnership with the major cloud providers AWS, Microsoft Azure, and Google cloud with new offerings in their marketplaces, and extending into strategic co selling and co marketing opportunities.

This past quarter, we already won several big deals it would be.

Partnerships, including the leading point of sales software provider for a weekend and they're leaving American cloud data services company.

We have also made new cloud marketplace offerings available in support of our strategy to meet customers. What are they all walking for example, Google cloud marketplace customers can now quickly and easily provision, but Jay for platform with full enterprise class subscription capabilities in just a few clicks on.

And AWS where for.

Providing a 30 day free trial for cloud enterprise subscription on their marketplace, allowing users to try out our enterprise offering price.

I used to making a purchase.

This is an added option to drive top of funnel.

Activities.

Now a little about the competition in Q2, we continued to see Jacob displacing legacy competitors with a unified scalable platform..1 example of moving to Jay for inclusion in Indiana, moving National Information Technology leader that provides business consulting information technology.

And outsourcing services.

This is due to the need for scale and they need to manage binaries across multi site topologies and keep at it back then sneak.

Between the remote development site.

Their existing solution is not allowed them to build and deploy in multiple regions and support a hybrid model of both on Prem and cloud.

Another example is the European car manufacturers, which adopted Jay for centralized the binary management and security as their existing competitive solution could not meet growth requirements and unified platform license compliance and the Universal technology simple discussed.

Discussing those examples highlight how an integrated hybrid universal end to end platform can drive businesses outcomes.

As a critical competitive differentiator.

Now for some Dev ops community events highlights.

At the end of May we had regionally profit was 3 days virtue on annual user conference.

And Dev ops community event, Oh, Jacob Swamp up 'twenty 'twenty 1.

Revealed 2 thousands of attendees and millions of global developers several significant set of groundbreaking technology and new capabilities to support enterprise scalability binary management security software distribution projects management and developer ecosystem integration.

This includes the all new private distribution network, a groundbreaking innovation that's accelerated software package distributions by multiple all those of magnitude to speed up the deployment and concurrent downloads across large scale environments spanning hybrid infrastructure edges.

And Iot devices.

We also announced Federated repositories, and new capability of Jay for about the factory, which addresses the challenge of managing binaries across multi site topologies.

And keeping to architect and think between remote development site.

<unk> for global team.

We also reviewed current pipelines and new industry first innovation of Jay for pipelines, which Leverages block chain like technology to enable organizations to ensure the integrity and security I'll follow up information flows and artifact as they progress from creation to deployment.

Finally, we announced called architects total each country data.

This solution enables organizations to save costs and improve performance by archiving architect that need to be easily sold and rapid re hydrated to meet regulatory requirements on corporate policy.

Overall.

This is the most significant set of product enhancement and innovation delivered since the introduction of our unified platform All day.

So I think us closer towards our liquid topical on vision.

Of powering all software updates.

To help drive this vision forward, we have made an important addition to the leadership team with the hiring for new executive Vice President of product and engineering so easily.

25 years of global experience in managing technology and product development for <unk>.

Joins Jay for up to 9 successful for years as the CTO of vantage.

Where he led global pitfalls of the company spearheaded the movement to cloud product and support over $1 billion on revenue, we look forward to Lebanon, GAAP, Jay from product and engineering as we expand globally.

We did for recent organizational changes.

The streamline subscription to leave it in the first half of 2021day part.

Innovation.

Organic accelerate though and the growth we see with other strategic theme.

The acceleration in the business in the second half of 2021.

With that I.

I would like to turn the call over to Jacobs Schumann, Jay <unk> CFO, who is also celebrating his birthday to date myself from Jacob.

Take it from here.

Look more deeply at the.

Q2 financials.

Thank you Shlomi and good afternoon, everyone I will start with a brief overview of our second quarter financial results and provide our outlook for Q3 and the full year of 2021 as a reminder, please note that all numbers referenced in my remarks are on a non-GAAP basis unless otherwise.

A reconciliation.

Filiation to comparable GAAP measures can be found in today's earnings release, which is available on our website and as an exhibit to the form 8-K furnished to the SEC.

Now, let's turn to our financial results were as expected Q2 to be the most difficult quarter of the year and we're encouraged it came in line with our expectations total revenues for the 3 months ended June 32021 were $48.7 million.

Up 34% year over year sales managed revenues also often called on Prem we're at $37.2 million.

Up 30% cloud revenue again grew faster up 47% to 11.5 million.

Or 24% of total revenue compared to 21% of total revenues in Q2 of last year.

Net dollar retention for the trailing 4 quarters was 1 kind of a 29% note that this metric reflects the full quarters since the onset of the Covid pandemic, which still pressure on customer expansions. We will continue to expect this metric the stabilizer on 130% for the balance of the year.

As a reminder, effective April 1st we implemented some subscription changes and price increases for certain subscriptions.

Let me quickly review the terms again.

The price increase was only for on Prem products, specifically for <unk> and brought <unk> subscriptions. In addition, we made xa mandatory for our enterprise subscription overall, the changes are expected to impact approximately 40% of our revenue customers had the option to renew early on.

All the pricing so we did see approximately 40% of our bookings in Q1 associated with this early renewals.

As of the quarter end, we've had for <unk>.

<unk> customers with <unk> of over $100000 up from 395 customers as of March 31.2021.

This growth 12 customers have <unk> greater than $1 million.

The over 100, K ads were down from the growth in Q1, reflecting the pull forward I noted above.

The second quarter results are particularly encouraging as we entered the quarter with lower than typical pipeline due to the accelerated conversion 3 price increase.

Jim not only rebuild the pipeline and executed on numerous transactions in the second quarter, but will also enter the third quarter with a very healthy pipeline in general the business environment continues to improve which is reflected in our expectations of accelerated growth in the second half of the year.

We again saw a solid growth in customers moving up the subscription stack to gain full access to the Jennifer black from where the enterprise glass plant in.

In Q2, 32% of total revenue came from enterprise class customers up from 17% in Q2 of 2020.

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

Gross profit in the quarter was $46 million.

Presenting on gross margin of 83, 4% compared to 82, 8% in the year ago period, we continue to see our SaaS gross margins improving.

R&D expense for the quarter was $13.7 million or 28% of revenue compared to 23 percentage of revenue in the year ago period, we will continue to invest significantly in enhancing our product offerings.

Sales and marketing expenses for the quarter were $18.3 million for 38% of revenue compared to 34% for revenue in the year ago period, We will continue to invest in ourselves teams and our free tier and tile offerings, specifically expanding on our strategic team and investments in February.

APAC region.

G&A expense for the quarter was $7.7 million.

Or 16% of revenue compared to 11% of revenue in the year ago period.

Non-GAAP operating income for Q2 was $1 million or 2% operating margin compared to $5 million or 13, 7% operating margin in the year ago period, we will continue to balance investments in growing the business and leveraging the opportunity in front of Jay broke with profitability.

Non-GAAP net income in the quarter was.

$900000 or 1 sales per diluted share based on approximately $102.8 million weighted average diluted shares outstanding.

Turning to the balance sheet on cash flow, we ended the quarter with $615 million net cash and short term investments note. The cash balance does not reflect the acquisition of <unk> as the deal closed after the quarter end.

Cash flow from operations was a record $19.2 million in the quarter are taken into consideration as Capex free cash flow was also a record $80 million. We are pleased that despite the significant investments in growing the business and planning for the future. We will continue to generate significant free cash flow.

Yeah.

Before we discuss guidance, let me take a minute to review the terms of the Vida acquisition and the impact on the balance of the year.

Total consideration was approximately $287 million comprising.

Comprising of approximately $200 million on cash net of cash acquired and 1.9 million shares of the company's ordinary shares.

As discussed video does not generate material revenues as it just had begun building go.

Go to market strategy prior to the acquisition.

We expect an increase in opex, primarily in R&D and <unk> as we integrate the business and expand our security product pipeline with a lesser impact on G&A for <unk>.

Q3, we expect <unk> to contribute approximately $4.3 million on Opex and approximately a $5 million on Opex. In Q4. These changes are reflected in our guidance.

For Q3, we expect revenue of $52 million to $53 million with non-GAAP operating loss of $2.6 million.

$3.6 million.

Non-GAAP loss per share of 3.2 for <unk>.

Assuming the share count of approximately 96 million shares.

At the midpoint of the guidance, we expect growth of approximately 35%.

For the full year, we are raising the low end of the guidance and the increase on the high end, we now expect revenue of $202 million to $205 million up from $198 million for $204 million non-GAAP operating loss is expected to be between 4 million.

$5 million.

Non-GAAP loss per share of for SaaS to 5.

Assuming a share count of approximately 95 million shares at the midpoint revenue growth is approximately 35%.

Now, let me turn the call back to Shlomi for some closing remarks before we take your questions.

Thank you Jacob.

We invested a lot in the past few quarters and I'm happy to see the fruits of our labor coming in.

We believe JP on the offer superior Dev often does pick up for technology to the world.

And our team stands ready to step into the second half stronger on also on peers to make our goals.

I would like to stay on the special welcome to the Veeva team. We look forward to continued success together. Thanks.

Thanks for your attendance and made the Crosby with that for all.

Now we are happy to take your questions.

Thank you and we have a question. Please press Star then 1 on your Touchtone phone if you wish to be removed from the queue. Please press the pound line are the hash key.

We're using a speakerphone you may need to pick up the handset first before pressing the numbers.

Once again, if you have a question. Please press Star then 1 on your Touchtone phone.

And our first question comes from Sterling Auty from Jpmorgan. Please go ahead.

Yeah.

Yeah. Thanks, Hi, guys first of all happy birthday, Jacob Thanks for sharing your special day with Us all.

And on to take questions I'd like to know a little bit more.

About you had mentioned kind of the go to market with the cloud platforms, AWS et cetera, what specifically are they doing on their side to get you in front of prospective customers and how do you think thats going to contribute to the acceleration in the back half.

Okay.

Yes, Hi, Sterling great to hear back from you.

I'll start and Jacob for free to chime in obviously.

We started to build the relationship with all the cloud providers are in parallel as we provide them move day multi cloud solution.

What we are doing it.

Just to make sure that <unk> solution as president from the marketplace, but also collaborating on the cross selling and co marketing and even with the with the enterprise theme of AWS.

The AWS, Google cloud and Microsoft Azure.

<unk> addresses our customers, our joint customers or prospects.

Is that with the cloud contracts with all of them have.

On the cloud provider the cloud enterprise sales team income with other benefits to the customers, which makes the joint solution and the holistic solution.

Meaning not just from cost point of view, but also decent benefits point of view, including lithium support and other and other benefits that they can offer is the cloud provider. Obviously this is a win win situation because they generate small traffic on the cloud, we provide small dev ops and debt value.

And the customers enjoy.

On the terms and conditions.

Is it.

In fact to add to that that obviously is also.

On a same lines the purchasing process.

Most of the maintenance and planning can handle on the process.

Got it makes sense and then 1 follow up you had talked about customers looking to consolidate.

In terms of some of their cloud usage and that you were looking to you know.

Negotiate new deals can you help us understand.

What part of the business, how big of an impact is that and what is the pricing structure that they're looking to move towards.

Yes.

That's a good question because what we see now.

At the end of the full quarters into the pandemic is that customers are looking to optimize subscriptions by the way not on the cloud they are looking to optimize subscription and especially hosting costs. So what they're on.

We're looking at is obviously usage into cloud.

Data transfer and data storage and they are trying to understand what it means to scan with a full platform not just a registry or just the security solution. So currently we have been 5 some big opportunities joint opportunity some of them on joint opportunities together with the cloud providers.

And some of them started on.

On the J, Paul free deal solution.

What do we expect to see is that these deals will come in in the future quarters.

Understood. Thank you.

And our next question comes from Jack Andrews from Needham. Please go ahead.

Well good afternoon, thanks for taking my question.

Shlomi.

I appreciate your context by which you walked through all the innovations that you talked about it swamp up could you maybe frame for US just how we should think about the monetization that potential uplift to <unk> from from some of these features.

Yes.

Jack.

<unk> of adding more and more innovation into the platform is very much aligned with our vision. What we are trying to pull free we're trying to make sure that the binary lifecycle. The full binary orchestration, it's covered by J for platform. Therefore, when you look at our.

At the pace that the market.

Kind of showing all the demand that we're here for the market is about global team distributed team remote work and how do I get the binaries fast and secure to the edge. Therefore, the first thing that we released is the Federated repository, that's an enhancement to 40 factory.

Which would have been all over the world to look at the same repository no matter, whether you are in China.

For all North America, you would wake up on Monday morning, and he will develop it against the same repository the fifth.

Second thing is once it's ready how do you get the distributed that's beyond Youll, just Dev ops lifecycle, how do you get it distributed to the edge and that that means that Jacob distribution can cover this aspect distributing relief funding from from 1 to many edges.

Jacob pipeline with assigned pipeline is actually answering the holistic security debt, we are talking about across the platform what comes into the pipeline gets out on the deployment.

Deployment site now onto the question you've mentioned.

This all is part of our platform some of the features.

Advancing out the factory solution other security solution and some for the ICD. When we look at the distribution. Obviously this will be by consumption as you distribute more.

The other.

They are all growth will be impacted.

Federated repository is about the in large.

The team of the topology multi factor apology and then we.

We will go by team by project and by location and when you look at the security enhancements. This will upgrade to subscription that includes the Jay for security from deploy and above in the self hosted solution and obviously more usage when it comes to the cloud.

Really appreciate that color, thanks, Shlomi and just as a quick follow up.

Can I ask about just any color you can share in terms of.

New leads and new logos coming from your your feet for each year are there any characteristics in terms of just debt metrics that you're able to share with us in terms of the traction you're getting there.

Absolutely the free.

<unk> is an amazing journey for J Prague, because aside from the fact that its top of funnel too. It's also an amazing tools to communicate with the with the community.

We will balance by the community and for the community on Zelle for all the feedback that we're getting immediately injected into what we call the optimization of the free tier now when you look at the free tier and not just J for any kind of free do into cloud you will you will divide it to 3.3 different blocks block number 1.

How many new users are coming visiting the sulfur block number 2 how many of them will actually baked not just visit and learn about it but also really activate and use it for free for now and then block number 3 is how many of them will use more above the quarter and will.

We converted to paying users what we see now with we concluded 3 quarters. We depleted out is that the top up on that we see more and more traction coming through the free deal.

By the way on all clouds on Google Cloud AWS and Microsoft Azure.

See more activation as we optimize the on boarding process and activation means not just at the factory, we start to see us using more than just 1 single product and we also see an improvement in the number of conversion obviously, we will work our hub in the next future.

And this is an ongoing never ended investment that we will do to have a joyful experience to all of the community.

Wonderful. Thank you for me as good.

If I may add to it 1 for the last sentence.

The idea of a free tier is also super powerful because even if a prospect is not yet thin, but using youll. Therefore platform. It means that they are not using the competitor was 1 <unk>.

And for that we are also grateful and looking forward to convert them to become paying enterprise users.

Well. Thank you really appreciate the commentary on that.

Yes.

And our next question comes from Kinsley Crane for from Baird. Please go ahead.

Hi, and thanks for taking my question. So first it seems like cloud revenue. Despite the headwinds, we're talking about it pretty well growing 47%, but.

Just wanted to kind of dig into it more so when you talk about the dynamics customers consolidating is that the case for their paring back their underlying usage of a public cloud or is it.

Directly reducing the usage of <unk> product itself.

Yes, so what we see in the market is that the cloud adoption at the beginning of the pandemic was was impressive let's call. It impressive we still numbers. If we were very happy about people starting to demand the mall and to have to add more.

Regions, not just usage, but more regions.

More deployments environment provision Jay for solution in different places on different clouds. Currently what we see is that the majority of the enterprise is looking on a multi site topology. So a multi cloud topology and they would like to optimize the subscription not just with <unk>, but also with the AWS Microsoft.

And Google Cloud currently as we are thinking about other cloud to expand maybe.

Even more in APAC.

Things that we see is that usage is being reviewed hosting expenses, especially if you offer a hybrid solution.

Our being.

Observed and reviewed and agreements are being renewed.

Renewed we see a very high retention rate on the other hand every time that we have a renew on point. It comes with an upgrade in terms of usage and the organizations that are renewing their subscription are looking for more value coming from Jay for.

We didn't see a lot of churn from from <unk> into the public cloud mainly because of the fact that we are also collaborating with them as I mentioned before on the co selling and co marketing level, but sometimes if you just need to simple repository and you don't need the full platform or do you just need.

1 thing too easy on bolt on the registry it might be a good solution for you that's not what <unk> is aiming for.

Okay that makes perfect sense and then for the follow up there would be you know, sometimes we see paybacks and consumption on a quarter by quarter basis.

So do you think this is a recurring structural trend that youre seeing or is this sort of just something in Q2.

Well Q2 as expected and as we reported was.

A different quarter for us. So if you remember in Q1, we reported.

The change that we've done on the on Prem self hosted the pricing we changed a subscription we invested a lot in Q2, we also invest a lot in R&D and released.

All type of innovations that we discussed on the peso Q2 is not surprising for us, but we know that in order to set the stage for the second half of the year, we had to do these changes and we had to do.

Those modifications not only in the product, but on the also in the subscription. So we believe that in the next 2 quarters. The second half a day, we will see it come back again.

Okay perfect.

On the.

The number was good for sole anyway, so Brian for you.

Thanks again.

Thank you.

Our next question comes from Sandy Zhang from Morgan Stanley. Please go ahead.

Hi, everyone. This is calvin on for Sanjay. Thank you for taking my questions.

It sounds like.

We do won't be contributing to 2 <unk> and FY 'twenty 1 revenue guide.

How should we start thinking about kind of the timeline for sales integration joint selling between the sales orbs.

And some sort of kind of revenue contribution on ramp either later this year or next year and then when should we kind of.

Kind of see those revenue start turning on.

Yes, well, obviously super excited to take this this question we are on.

All all folks are excited about the work we do with the joining the swamp.

As we reported we do comes with an amazing Amazing technology and.

And a great team of security expert that joined the swamp and that globally not just on the R&D team or just any other.

But he didn't they didn't bring a material.

The numbers.

Just started to ramp up the sales and marketing processes.

But what's happened since we joined them we just.

Announced the deal close on July 19, what happened since then is.

Is the ground shaking news in the World of Securities. These guys already started to scan as I reported the public repositories of all binaries for example in the tight on public repository. They found vulnerabilities.

Can expose your credit card number.

Not just any more about developers.

For all software consumers for all people in the world that are impacted by it. So if you ask me if we will have an immediate impact the answer is yes, because our security tools.

Now.

Enhanced and enforced by a very professional team with a very strong technology that slowly we will start to be embedded into our solution and the J for platform and the second thing is debt. We are now addressing not just the Dev ops market, but also product security security engineers see sales.

For the World people that are speaking security for breakfast and this is something that.

Kind of developed in other muscle in J, Paul So in terms of technology milestone, 1 will probably be somewhere at the end of the year and will be added to our capabilities in the platform and we are expecting to see a full integration with the video technologies into the <unk> platform.

During 2022 the pipeline is already.

<unk> by the knowledge and by their expertise and their strategic theme, which is a different aspect joins our strategic team and largest significantly worldwide. So we expect to see an impact of Venezuela.

Got it thank you for for all the added color.

Can you also tell us a little bit more about about the about the accounts sales team I know you guys paused it.

Previously.

Have you guys started to build that back out.

And if so how has hiring debt.

You mean, the strategic thing.

Yes.

Yes. So we started to build this team I think somewhere at quarter prior to defend them at and we invested in building a hybrid bond on not just a bottom up inside inbound says as we used to do as we built <unk> from but also to have a top down model coming from the <unk>.

CSO CTO VP R&D down in order to adopt a platform now this goes hand in hand with the technology. We offer right you cannot come to a CSO and also the depository you all for a full solution and we needed to make sure that what we have is big enough and all that.

To go from the top down so we've been the team alongside the technology and the team grew up to be a very.

Efficient theme as you can see in the Q2 numbers on some of the deals that we reported over a million dollar weighted.

Generated by the strategic theme with the acquisition of day do we more than doubled this team and when I'm, saying double its not just sales reps. It's also about.

The solution engineers, it's also about the field marketing, it's also including the premium support and obviously expertise in the domain.

Security. So this team is growing significantly the model.

I'll stop down with a bottom up a hybrid funnel also walk said, great and we see it already in the pipeline numbers for the.

For the Q3 and Q4.

Got it thank you very much.

And our next question comes from Koji Ikeda from Bank of America. Please go ahead.

Hey, Shlomi, Hey, Jacob Thanks for taking my questions. Just another question here on the <unk>.

The cloud the cloud contracts during the quarter I was wondering if could revisit that for a second here.

For the effect quantitatively to Q2, if there was any and how much of a consideration where those revised cloud contracts.

Playing into the full year guidance.

Yes, I'll take that.

Sure.

The impact of on.

This on on <unk>.

Q2 cloud revenue was.

And on slightly below on mill.

<unk>.

And the 800000 on.

In terms of.

Outlook for those we provided for the rest of the year.

Really.

We believe that even with current cloud growth range.

Dose.

For the 2 of those numbers.

The real.

On the acceleration in the cloud will be on bonus for that.

Got it got it and then just just 1 follow up here another question on <unk>.

I know you've mentioned multiple times, it's not supposed to have a material impact to growth for 2021.

Just wanted to be absolutely clear here is there any contribution at all from <unk> into 2021 guidance and I just want to be really really clear on that.

Very very small it's probably.

Just the low hundreds of thousands of Mars.

Got it got it Okay and then just last 1 for me.

So and our data point, but in the prepared remarks, you said youre feeling pretty good about it from reaching a stabilization point I mean is there anything or what would be a potential driver here is thinking about the next few quarters that could actually cause the NR trend to go lower from here just thinking about the cloud contracts or.

Anything like that what could cause that to go down further from here.

Yes so.

To remind you we reported on our net or invest in Australia for quarter someone from CMS on.

On a standalone basis, Q2 was actually better than Q1 better than Q4, So we see positive trends, obviously, we still gain some numbers from.

Organic which were lower.

1 more on there.

We believe we will continue to improve our stand alone.

Net lower attachment rates on the growth on a basis and Thats why we believe that we could get back to 1 penny.

Got it got it thanks, guys. Thanks for taking my questions really appreciate it thank you and happy birthday Jacob Thank you.

And our next question comes from Jason Ader from William Blair. Please go ahead.

Hey, Thank you Hey, guys.

1 quick 1 for Jacob Jacob what is the headcount now after we do on how many heads do you add with video.

And whether their own baby depot would be new and our overall at.

With the Vietnamese around 900.

<unk>.

Okay, great and Shlomi.

My question for you is what do you see as the.

The biggest challenges over the next 12 months or so for the company at this point you've done you've made some big investments.

Your first let's call it a pretty sizable acquisition.

You're building out your strategic sales teams and your partnerships what do you see kind of as you look at the landscape what are the biggest challenges for the companies for the company.

Yes, Jason Thank you for this question.

Well, obviously, we are after a very big market, what we see as mall, it's beyond being the best Dev Ops company on being the.

For the best binary.

Manager solution.

We are looking at.

The software updates for Foldable now, we all agree that there will be more software and software needs to be updated updates can only happen with binaries, but in order to complete this full full.

On lifecycle.

Binary as management, we need to invest more in the deployment in the distribution.

Indeed device management and everything that has to do with Dev ops for Iot. So you should expect to see more investment towards this direction as well what it means is that we are replacing again homegrown solution in house development something that the company built 2025 years ago.

The CDN and Thats, It was education and patient and that would be probably a challenge that we will have to overcome we invest also a lot in developers advocate, we invest a lot in marketing you C. J program, where we see the excitement around the innovation that we released but the market is still being <unk>.

<unk> with what we released we saw it without the factory when we introduced the world with the binary repository concept then with X Ray when we introduced the world with the composition analysis security and now with distribution and a full binary management level, that's very new to the market and mainly ripped.

Based on something that you believe you're on.

Over other tools that you integrated into real solution. So I think that the education and the adoption.

It will take time, but once it will happen it will look for Phil.

Alright very helpful. Thank you.

Our next question comes from Brad Reback from Stifel. Please go ahead.

Great. Thanks very much.

I'm not sure if it's for Shlomi, you Jacob but as you think about the back half pipeline that you've talked about.

Is up meaningfully after this low on <unk> is the composition of the pipeline different so heavily more heavily slanted towards SaaS.

And if it is does that have any impact to the P&L going forward.

Yeah, I'll start and Jacob obviously can add more colors on interest.

What we see in the pipeline is a bit different than what we saw in the price obviously.

If we compare it to.

Past quarters, it's a bigger size of the pipeline <unk> is growing we just mentioned that we are about to call some milestones for $50 million on revenues in the next quarter.

We're very excited about it but it is also supported in the pipeline numbers now the composition of the pipeline is also very interesting because for the first time, we start to see the free.

Both of these strategic theme label, we start to see accounts debt, although it's taking longer.

Going to a much higher adoption of the <unk> solution, we start to see.

More and more co selling with the enterprise cloud providers.

And we are talking about 6 digit contract with with this customers sometimes prospects.

We see adoption of new products, we just reported debt this quarter, which we won.

The biggest X ray.

However, with the Big Financial Institute.

This is something that we didn't see in the past as you remember most of our footprint.

Flipping the Doe moves will get back to a now actually became a significant player.

We also see the excitement around the <unk> that we announced in Q2.

Because it's a real thing everybody everybody put aside Jay for everybody we need.

Distribution for binaries and the market start to adopt it. So the competition is not just about technology and different tools and it's also about the stock showed that our CLO.

With the strategic team.

Bring different type of field.

<unk>.

I think that it took us longer to build despite because of the type of deals, but we are very.

Excited and stand ready to.

To convert into fulfilling.

That's great. Thank you very much.

And our next question comes from Rob Owens from Piper Sandler. Please go ahead.

Hi, This is Ben Schmidt on for Rob Thanks for taking my questions.

On the.

On the <unk> acquisition, just wondering if you guys can shed some light on how much we should.

Expect the Tam to be expanded.

By this acquisition most of the functionality is integrated.

Yes, so it really depends what you call the Tam because if you just look at the debt market. Obviously, it's included in the Dev ops in depth Hick ups, some would say above 20 billion in <unk>.

1 of the analysts on this call said above 50 billion in the latest simple, but this is part of the deaths hiccups. This is exciting but not exciting enough for us when we are looking at securities for binary we are looking about the market.

Devices device management, how can I secure the binary that you actually deploy on your iPhone or any other Tesla and this is a much larger market. We are looking at billions of devices that can be secured while software is being updated overview, we spoke about it.

At the very early beginning in the Roadshow before we even went public that's part of our vision and this market is by order of magnitude.

Bigger than just Dev ops and difficult.

And we do by the way.

Just to connect the dots.

<unk> developed 1 product that support the Dev ops and the developers and then other products to support the device and the security on the devices.

Okay got it that's helpful and given the puts and takes on the SaaS the SaaS growth this quarter.

Has this changed your guys outlook for SaaS growth.

The medium to longer term.

No it does not change.

Outlook for hospital.

Yeah.

Okay got it thank you.

And we have no further questions at this time I will now turn it over to Shlomi Manheim.

Well. Thank you everyone for joining the call today, we are very excited about Q2, we are excited about the inorganic growth above the organic growth about the innovation and we are very determined to fulfill our vision of becoming the company behind on software updates I. Thank you for this call and made the progress.

With you. Thank you very much.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.