Q3 2021 Jfrog Ltd Earnings Call
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 fourth quarter and full year 2021.
Words anticipate believe continue estimate expect intend will and similar expressions are intended to identify forward looking statements or similar indications of future expectations.
And not to place undue reliance on these forward looking statements, which reflect our views only as of today none of that.
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 <unk>.
Certainties 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, 2021, and our Form 10-Q for the quarter ended June 32021 filed with the SEC on August six 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 September 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 an 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.
Which exceeded our commitment to the market. This success belongs to you.
The Dev ops market is growing fast.
<unk> films, such as IDC believed that only a quarter of companies have actually begun to build roadmaps for complex digital transformation initiatives.
As companies scaling cloud and on Prem environment. We believe this is the beginning of an even larger adoption pattern.
As we continue to see in order to scale company need to unify Dev ops solutions integrating across the ecosystem, while securely distributing software packages into production <unk>.
<unk> is the only end to end binary solution that bridges the gap between the world of database tools fall source code and the secure delivery of software packages in the world are fast and secure software big to release lifecycle as category leaders must coexist and together help organization for <unk>.
The future digital needs.
Now onto some product and business highlights.
First for Q3.
I would like to tell you about our acquisition of Oxford.
Iot connected device management company that we believe will significantly expand our market.
The <unk> team is tasked with extending our Dev ops platform reach all the way to the device, allowing for software updates security and device management from anywhere in the world.
This technology innovation will extend our portfolio offering support new persona and expand our Tam to serve the Dev ops needs to the multi billion dollar Iot market. In fact, the second largest automobile manufacturing in Europe is already partnering with up Swift and Jay Forbes.
<unk> and I quote.
We are using up swift for our pilot product and looking forward to using upswing in the future more and more to monitor our fleet of Iot devices in Europe and all over the world. We appreciate the joint venture of absolute <unk> and hopefully we are able to use other solutions from <unk> and <unk>.
Combination of adapt Swift to get at 360 degree view of our fleet and quote.
It was created by 23 and me a leading provider of DNA and biotechnology services.
There are tools are utilized in an estimated 200 public software repositories affecting potentially thousands of applications and company.
Highly publicized finding such as this one are only the beginning and we look forward to proactively keeping the developer community made aware of security vulnerability that affect their supply chains.
This protection of the community and customers is foundational to J folk security solution goals.
In Q3, we started to incorporate the security intelligence derived from <unk> into J folk X Ray product. This allows data around 100 of open source of nobility discovered by the scanning technology and research team to enriched embolden J Fox security solution.
Not only in technology, but we also already see synergies between J Fox solution and video technologies on the cellphone.
Whilst acquisition security driven deals are already taking place, including a video technology driven deal we want in Q3 with one of North America's top industrial automation company.
In addition, just after quarter ended J fog was announced as an authorized common vulnerabilities and exposure also known as CVV numbering authority J frog joins an elite group of public and private sector organizations authorized to assigned identification numbers two newly.
Discovered security vulnerabilities and publish relate the details in associated vehicles for public consumption.
Now I would like to talk about small develops innovation J for <unk> to the market in Q3, a recent release included a capability. We anticipate all companies escape, we look at J four calls artifact storage.
This solution available this quarter and the <unk> platform allows organizations Theresa digital manage and retain software artifacts for long periods of time.
Fueling and deployment to production environments.
During the process of adopting <unk> platform. This customer's <unk> value to <unk> grew over 200% in 2021, including the latest significant expansion in Q3.
The third quarter also included investments in new growth avenues, such as the federal sector.
I'm excited to say that in Q3, <unk> has achieved Ireland bank certification authorizing <unk> factory in extra inclusion in the federal platform one initiatives.
With this achievement J, Paul Green forces its commitment to providing Dev ops and <unk> solution for its public sector customers and dosing highly regulated industries, such as finance healthcare energy and transportation.
This certification has the potential to open up a very large market of governmental services contractors and public sector segments that rely on the island banks certification to adopt how them tools.
We look forward to continuing success as we pursue other certification in the government space such as peds ramp in the near future.
As another exciting milestone, we recently announced the partnership with SB CNS as Softbank company to drive Dev ops and Jay for growth across Japan.
SB CNS is one of the most trusted software resellers in Japan, and will drive <unk> adoption across one of the world's leading economies. They are joining other <unk> partners in APAC as part of our channel program.
Pension to drive the regions Dev ops transformation.
Japan based customers like Hitachi are already powering Darryl Dev App and desktop slow using J Paul.
Expanding our footprint in Japan with partners like SB, CNS will not only generate new business, but also improve the expansion and adoption among existing customers.
Finally, a note on enterprise adoption, we continue to see our software distribution and edge nodes solution as a key driver for the full platform subscription.
These capabilities are unique in the marketplace and solve an authentic software delivery painful enterprises by securely getting software the last mile to where its consumed.
We anticipate this to continue being a strong hybrid differentiator for us moving forward.
One of these quarters, most exciting platform by came from one of the worlds largest business consulting, which recently chose <unk> as a displacement of two vendors consolidated both existing software package repository and security solutions.
<unk> ability to universally and continuously managed a binary lifecycle was key to adoption across the entire platform.
Cloud revenues again grew faster, 50% to $13.1 million or 24% of total revenues net.
<unk> passion for the fourth trailing quarters was 129%.
We will continue to see the sequential growth and expansion of our customers in the past three quarters and remain confident that our net fashion will stabilize around 130%.
As of the quarter and that will have 466 customers with era of over $100000 up from 415 customers as of June 30th 2021.
This was the largest increase in the quarterly over 100 K are our customers to date.
In addition, we grew the number of over 1 million dollar air our customers to 14.
Up to from the previous quarter.
This increase in customer size is driven primarily by adoption of our full platform under the enterprise plus subscription.
In Q3, 34% of total revenue came from enterprise plus customers up from 19% in Q3 of 2020.
Now, let's review the income statement in more detail.
Gross profit indirect water was $45.4 million, representing the gross margin of $84, 5% compared to 82.7% in the year ago period, we continue to see ourselves gross margins expand.
The result of the steps that we took early in the year to improve our cost structure.
R&D expense for the quarter was $16.3 million or 30% of revenue compared to 23% of revenue in the year ago period.
We will continue to invest significantly in enhancing our product offerings, along with integrating visa and upsweep technologies into the platform.
South of marketing expenses for the quarter were $19.4 million or 36% of revenue compared to 34% of revenue in the year ago period, G&A Express for the quarter was $8.4 million or 16% of revenue compared to 12% of revenue in the year ago period.
$100000 to $1 million and non-GAAP earnings per share of zero to one.
Assuming a share count of approximately 104 million shares.
For the full year, we now expect revenue of $205 million to $206 million.
From $202 million to $205 million, we guided to previously.
Non-GAAP operating income is expected to be between $4 2 million and $5 2 million.
And non-GAAP earnings per share of four to five.
Assuming the share count of approximately 104 million shares.
Now, let me turn the call back to Shlomi for some closing remarks before we take your questions.
Thank you Jacob.
A year ago, we celebrated our IPO virtually under the influence of the pandemic.
In the 12 months since we have added over 300 employees, who are all now joining us back to the office across the globe as a company that values close relationships with our community and each other we are gradually and safely welcome to frogs and the developer community back in person.
It was here.
A very successful Ipos and then a lot of talk in the industry about kind of end to end platforms.
No you guys are trying to build your own but can you just talk about.
The customer feedback and the customer perspective, right now do customers want end to end platforms from what you've seen.
If not what do they want.
Yes, hi, Jason Great to hear from you.
Yes, obviously.
We are very excited to see it.
The market is growing the addressable market is.
It's growing with the with the amount of solution that joined in.
Supports the acceleration of digital transformation, we will see more and more of these vendors joining one thing that we were very excited to see is that these tools coexist one next to the other.
Support our customers.
Dev ops journey, when we look at the customer's specific names so customers that were using <unk> enterprise platform together with other tools in order to fulfill.
They're there.
Full Dev ops pipeline, so things like public.
It's just some lift out of the factory. So we are very pleased about.
Great. Thank you.
Your next question comes from the line of Jack Andrews with Needham Your line is open.
Good afternoon, Thanks for taking my question.
I apologize I joined the call little bit late but I wanted to ask if you could update us in terms of the BD integration essentially what has been done and what still needs to be done and how do we think about BD heading into next year.
Yes. Thank you for this question actually P do or what we call now the <unk> security solution.
Combined forces with our precision analysis tool.
Which of which goes to X ray.
We invested in this quarter is to boost our security solution alongside.
Our reported only solution when do you think about the landscape of Dev ops being faster is not good enough. You also have to be secure and as we reported in this earnings.
Most of our customers are looking for a solution that not only accelerate the beat to deploy process. It's not only the ICD and our best of breed them released software, but also how they execute and when we look at security they naive traditional security solution that's kind of.
Gaza developers are not good enough because you all know released seven times eight times, a day and you can find the zero based on our ability as you need to protect the organization and you have to build a solution that sits on top of your primary asset, which we believe is the software packages and secures all the <unk>.
The deployment all the way to the edge.
Provision of video to bring this technology and this team the technology of a digital scanning.
Cause people to the deployment and therefore vigil.
In addition to X Ray will provide that would provide the common ground between between the developer and the securities stakeholders of the organization.
Yeah.
Yeah.
Got it that's helpful. Thank you.
Thank you.
And your next question is from <unk> could run with Oppenheimer. Your line is open.
Thanks, Hey, guys nice to see the acceleration of the business.
Are they maybe shlomi, we could talk about the sales force and.
Productivity, maybe you can help us think about how you're hiring has been on the sell side and how do you think about the priorities productivity gains over the past quarter and how should those in European should shape up with 22.
Yes, hi.
As we committed to the market and we spoke about this in the previous earnings previous quarters without having the process of building.
I joined funnel once we know for the past 12 years, we know how to build it from the bottom up and <unk>.
Inbound and insights as we build the company that we've built the company to get it with the community and what we were invested in.
What we are investing in the past three quarters, specifically is building our strategic themes.
And by that I mean that we are going direct we I'm going to stop them, we are expanding our footprint within our portfolio and this theme comes with a with a decent ballpark. It's our people that know how to reach out to different persona in the organization. They know how to reach out to the field.
They know how to analyze the potential not just by what the organization demand, but also by mapping the competition and the landscape in the future need. This thing is not just quota holders I want to be very clear about that we are building our commander team of solution Engineers professional.
<unk> premium support people field marketing nothing nothing in this combination can be can be made and we are very pleased to see the results I think that.
When you look at a 466 customers.
A little over $100000 at 50% growth year over year, it's clear that we manage to a practice system to have a hybrid finding a bottom up together with the top down.
That's great.
Maybe as a follow up just on this point to talk about the enterprise plus.
Right.
One of the things that we see more and more and we hear it from our customers and we get the feedback and we've built a product roadmap together with this demand is that the market requires more than just that.
Positively more than just the ICD more than just acuity more than just distribution and what do you point to the 34%.
Enterprise class customers compared to 19%.
Last year, just represent the adoption of our full platform and not necessarily represent the growth in subscription as Jacob mentioned.
Right, that's correct awesome good stuff guys keep it up thanks.
Once again to all participants if you have a question. Please press star one now again.
Our one on your telephone keypad.
Your last question is from Koji Ikeda with Bank of America. Your line is open.
Oh, great. Thanks, guys. Thanks for taking my question.
Got a question here for Jacob and thinking about the Q4 revenue guide I think it's very interesting.
Because we see the potential here for.
Our subscription revenue acceleration in the fourth quarter.
But the wildcard is really license. So I guess could you help us understand license revenue in Q4 anything we should be aware of with this segment any sort of seasonality of renewals and things of that nature would be really helpful.
That project.
So just to remind you that license JV news release more portion of the revenue from the on Prem subscription that we recognized upfront.
And typically dependent on the type of subscription and on average approximately 10% of.
The bookings so it really depends on the composition of the of the.
Revenue and of the bookings and the size of the bookings. So this is a business.
We've experienced so far.
As you see our book has continued to grow and we expect our license revenue will continue to grow as well.
Got it got it Okay, and then I was looking at the press release and I noticed the department of Defense Iron Bank sort of bake certification just kind of looking for some additional clarity on what does that mean, I guess I'm really only familiar with fed ramp. So so maybe could you help put into context, what an iron Bank certification is.
Apologies, but we have an additional question from the line Kingsley Crane with burying Bird your line is open.
Sorry, just one quick one for me. So we just like to know when you look at the public cloud products just at the binder repository level like court artifact or as your artifacts what did they most black compared to J fraud.
Just to make sure that I follow the question are you asking about the public cloud artifact management versus Jayhawks technology.
Yes.
Yes, Jacob pipeline as a result of one of the acquisitions. We've done in the past is existing to make your platform experience using software package see ICD a tool.
Much more efficient so when we hear our customers comparing our CIC. These solution to others, it's not about how fast it integrate with my social repository, it's mainly about security with the science pipelines that Chipotle is the only wants to offer that slipped and I think your pipelines.
What you're pushing the beginning will be a will be there.
Released at the end, we also hear about the integration with RP factory.
The talks much a much more seamlessly for users and I think that the non brainer. If that is included in our platform.
And integrate with whatever see ICD, you have and invested in so if you use jenkins like the majority of the market.
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