Q1 2022 Jfrog Ltd Earnings Call

Ladies and gentlemen, thank you for joining us and welcome to <unk> first quarter 2022 earnings Conference call.

I'll hand, the conference over today to Joann Horne of Jane <unk> Investor Relations team Joanne. Please go ahead.

Good afternoon, and thank you for joining us as we review <unk> first quarter financial results, which are now following market close today via press release.

Leading the call today will be Jay <unk>, CEO and co founder Shlomi, Bernheim, and Jacobs Chairman <unk> CFO .

Before we get started 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 995, including statements related to our future financial performance, including our outlook for the second quarter and full year of 2022.

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.

And 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 obligated 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, 2021 filed with the SEC on February 11, 2022, which is available on Investor Relations section of our website.

In the earnings press release issued earlier today.

Additional information will be made available in our Form 10-Q for the quarter ended March 31, 2022, 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 those measures to their most directly comparable.

GAAP financial measures.

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

And with that I'd like to turn the call over to <unk> CEO Shlomi Blenheim Shlomi.

Thank you Joanne and greetings from this one.

Before we begin today's conference call I want to say that our thoughts and well wishes continues to be with the millions of victims due to <unk> prices in Ukraine, we.

We hope and pray for a more peaceful days ahead.

Welcome again, everyone to <unk> first quarter earnings call.

2022 got off a strong start Paul J, Paul with the highest revenue growth in the past six quarters.

These results are a clear reflection of several key strategies, we implemented joined with our cloud first security focus.

Our platform approach and impressive execution.

As we will share today Q1 numbers across all key metrics show how product led mindset.

Market demand and strategic investments are all aligned with our goals leading to a sustainable fast growing company consistently generating positive free cash flow.

Our first quarter revenue was $63 7 million.

Reflecting 41% growth it will be a year compared to 39% reported in the previous quarter.

This growth exceeded the midpoint of our guidance by 4%.

Our cloud revenue in the first quarter grew by 63%.

Compared to 52%.

Bolted in the previous quarter, driven primarily by increased usage of our security capability and growing adoption of our platform subscription to our cloud marketplace channels.

As a result of this demand the number of customers with over $100000.

<unk> also grew significantly to $5 99, compared to $5 37 in the previous quarter and our trailing four quarter net dollar retention expanded to 131% compared to 130% in the previous quarter.

During the first quarter, we saw a trend of small companies moving forward adopting one stop solution.

Going from binary storage than to security distribution capabilities.

All provided in our integrated platform.

This end to end adoption is driving higher consumption by our customers.

Now allow me to elaborate more about the following strategies and changes we applied the drove the company's goals and this quarter.

First investment in our cloud hybrid and multi cloud offerings.

<unk> strategy of enabling a hybrid environment is being validated daily by our customers who are considering already moving between cloud and on Prem with the Dev ops and security tool set.

Second the security our security solution is setting a new standard in the market.

Modern organizations already understand the security scanning isn't enough and need a holistic solution to secure those software supply chain.

Third our end to end platform approach delivers full binary lifestyle lifecycle consoles, allowing companies to build faster secure regionally and distribute in a fully automated flow our investment in a unified enterprise grade platform is key to that.

The growth we see.

For our 360 panel management and investments not only <unk> bottom up but also selling top down.

Sales are not only direct and through our insight and strategic sales teams, but now we will also be expanded through partners and channels.

Today I will share with you how these focus areas are fulfilling our gold strategy.

In Q1, we continued to see the binaries all software packages.

The cross sell of the modern software supply chain.

As our customers when knowns binaries are both into the organization from third parties hub.

And binaries, what you build secure automate and deployed.

There is no way to manage and automate just software all the way to one time without managing Youll binaries.

Increasingly.

As our customers demonstrated the runtime of choice is trending towards cloud I'm pleased to announce that during the first quarter. We recorded the largest ever single company cloud contract in <unk> history.

Manufacturer of semiconductor and industrial software is undergoing a massive digital transformation and promoting a strategic transition to the cloud.

They started with <unk> about the factory grew into adoption of the entire jape of platform and are now completing the end to end cloud standardization across all business units.

While this deal is an amazing achievement. It is also validates our long held strategy to provide customers with hybrid and multi cloud solutions that will serve them across deployment environment as they migrate to the cloud.

As another example, within this quarter a full platform subscription and the cloud one of the largest American based manufacturers of automotive software so in need to standardize its dev ops processes and incorporate security.

After already utilizing J, Paul about the factory as a single source of truth, Paul Dev ops, the customers reach out to us to normalize software distribution across its global team and.

In partnership with our strategic sales team the manufacturing customer move to Jacob platform Enterprise plus subscription in the cloud, which led to a net new <unk>.

$500000.

Moving to security, we will all reminded in Q1, the global software supply chain is under constant attack.

As we mentioned in our Investor day in February there was undoubtedly a new lawful J incident coming around the corner.

Regrettably, a new critical vulnerabilities Springfield came just weeks after la <unk> affected the entire industry.

This only made it more apparent that we need a new approach to setup the couples automatic identification and rapid remediation across an entire company the.

The combined power of JP relative factoring Nx rate continues to protect customers from these types of incidents turning what could be days and weeks of finding fixing replacing and testing roll down to just a few hours.

We see net new and existing customers upsell pipeline being generated for <unk> solutions based on both industry, leading tools and our outstanding and trained security research team.

This dedicated team is already demonstrating industry, leading zero deepen their ability detection capabilities with more discoveries and other security companies in the domain.

The security research team is also working closely with our product groups to integrate an in depth analysis of vanilla ability directly into the <unk> X Ray database to protect customers more quickly.

We were also excited to continue to extend the security capabilities in Q1 announcing contextual analysis feature.

<unk> right now allows customers to more precisely determine.

Relevance of security vulnerabilities by looking at not just the binary itself, but also the environment eclipsing or how it's configured.

The unique functionality powered by Jay about the factory and X Ray.

It's already Overstretched epic upstream and allowing them to quickly address the most critical security gaps.

In this regard irrelevant ones.

Okay.

To illustrate the value of our security offerings, one of Europes, leading automobile manufacturers has turned to the <unk> platform to securely software supply chain as the manufacturers develop self driving car technologies.

They have heavy dependencies on third party software and the holistic security cover <unk> delivers combining of the factory X Ray and distribution led to an approximately $400000 in Q1.

The integrated team and technologies of <unk>, and we are already making an impact on the market and we look forward to further expanding our security solution in 2022.

Let's move next to our end to end platform approach.

One of <unk> key Differentiators is our focus not just on building better software, but getting it intelligently to where it is running and consumed across customers distributed environments.

Allow me to elaborate on the pain that organizations have with distributing software.

Take a small globally distributed company, which is developing one application. This singular application must run in 20 different locations in the world.

Each of those locations require different versions of the software to address the various export controls and compliance regulations with each country.

The organization has to manage this process across all 20 locations each time, releasing a new software version.

Now, let's take a large enterprise and multiplied that therefore exponentially as its manages hundreds and thousands of applications.

<unk> continues to onboard customers and grow with more and more organizations choosing to meet these challenges with <unk> distribution as part of the unified <unk> platform.

For example, one of the world's most deals collaboration and meeting tools with nearly 300 million daily users is driven by a large development team in China with exactly this challenges.

This company faces complications around the Chinese firewall wildly varying deployment environment and consumers around the globe quickly recognizing that the only Jacob distribution could meet its needs. This contract was the net new wins for the entire <unk> platform.

Going even further software delivery doesn't end at the data center all the cloud anymore increasingly companies are becoming connected device companies.

This is why our strategic acquisition of absolute now Jay for connect is a key part of our liquid software vision.

Jay for connect aims to bring together the world of Iot devices and award of Dev ops to create a unified flow across the entire organization from developers to devices.

In addition to having tens of customers already using <unk> connect we are seeing additional demand for managing large fleets of devices remotely, including over the air updates monitoring controlling and more.

At the heart of our platform is our core flagship product JP Valkyrie factory, where we continue to innovate and support the developer and Dev ops community with our universal approach.

We recently expanded our offering by releasing supporting out the factory for the adapt programming languages and emerging technology driven by Google.

This is a top 20, most popular technology of 2021 and support for its public repository, Bob was a key request from the community, which we will happy to deliver.

We are committed to the developer community by continuing to support all software packages and welcome Das developers to <unk> out the factory.

Finally regarding our 360 panel management and investment last year, we focused on building a top down sales motion with our strategic sales team who are already showing results on growing the business across our top tier accounts.

This year, we are doubling down on partners and interactive during Q1, we partnered with AWS for the support of their game initiative and we were chosen as the key gearbox partner.

<unk> already supports some of the most respected and when non gaming platforms across the globe, including companies like <unk>, who will see the partnership between <unk> and AWS is strategic to their business and their onwards, and I quote we rely on Jay forgot the factory to provide a quick and easy.

Wait for each team to access the Beatles, while the AWS cloud enables cost team collaboration. So we can create the best video games on the market and quote.

These types of partnerships are just the beginning of a broader set of possibilities the GFR can tap into.

With increasing emphasis on resellers partners and alliances relationship within the software development ecosystem, we see attractive growth opportunities for <unk> as the global Dev ops and security market expand.

Speaking of relationships, we were honored to hear about the impact of <unk> platform from some of our most trusted customers doing our recent event our customers fidelity spoke about the transition to the cloud and how <unk> supported the massive scale at approximately 16.

<unk> thousand developers migrating thousands of application in the hybrid and multi cloud strategy, all having to keep the products and services running.

Fidelity showcased how J book continues to be mission critical not just for their development team, but for the entire business.

We were also very excited to see the use case of Broadcom supporting 23, plus business units, such as CA technologies, and symantec's covering not only thousands of developers, but also extensive M&A activities.

Standardization supporting about 6800 deployments per day.

They said if you ever look at Dev ops tools.

Right.

This table of hundreds and hundreds of applications and integrations.

Factory Xa, and we do and a number of other jape of pieces.

Part of our standard sets.

We are proud to have customers, who put trust in us as they build out their Dev ops and security journey.

As we now turning to financials I want to reiterate our commitment to building solid growth alongside an efficient business with positive free cash flow in 2022, as we have in the past and continue to operate this year and beyond.

With that I.

I would like to turn the call over to our CFO Jacob few months, who will provide an in depth recap of our quarterly results and update you on our outlook for both the second quarter and full year 2022 Jacob.

Thank you Shlomi and good afternoon, everyone. Let me Echo Shlomi comments that we're very pleased to have started the year with such a strong quarter continuing the momentum we saw in the second half of 2021.

As a reminder, all numbers referenced in my remarks are 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.

Total revenues for the three months ended March 31st 2022 were at $63 $7 million up 41% year over year.

This is our strongest growth rate in six quarters and our.

Our third consecutive quarterly increase.

<unk> managed revenues also often called on Prem, we're at $46 9 million.

Up 35%.

Had a particularly strong quarter in cloud revenue growth up 63% to $16 $8 million.

As a reminder, we indicated in the second quarter of 2021, we believe cloud growth has bottomed and we would see Eric Reacceleration of growth.

While we are pleased to see the continued momentum in our cloud business driven by increased adoption of security solutions and the full platform. We would like to remind you that our cloud business is subject to variability due to usage based revenue recognition.

We believe the baseline growth rate for our cloud business is in the mid fifties for.

For sands range with potential upside from increased customer usage.

Net dollar retention for the quarter ending quarters was 131% in line with our prior commentary.

As of quarter end, we had 599 customers with IRR of over $100000 up from 537 customers as of December 31, 2021, and up 52% from 395 customers at the edge.

End of Q1 of 2021.

In addition, we grew the number of over 1 million <unk> customers to <unk>.

Adding one from Q4 and increased by 60% year over year.

As we discussed in the past adoption of the full platform is a key factor in the increase in size of our customers in.

In Q1, 2020% to 35% of total revenue came from enterprise class customers up from 29% in Q1 of 2021.

Before moving to the income statement I wanted to provide an update regarding the pricing changes we made to some of our on Prem offerings, one year ago, which as a reminder, excluded all cloud subscriptions.

And the on Prem enterprise cloud subscription.

First I am happy to report that customer churn has remained minimal consistent with historical trends.

In the first quarter, we saw customers, who previously took advantage of early renewals a year ago now renewing at the current pricing structure.

When we announced the price increase last year. We noted it was equal to roughly 10% of FY 'twenty revenues or approximately $15 million.

Issued and the price change on April 1st of last year, we have recognized almost half of this contribution and the reported revenues and Munich and would expect to see the remaining imbalance roll off over the next four quarters.

We believe adoption of the price changes by our customers reflect the increasing importance the <unk> platform solution to deliver.

We continue to explore additional opportunities to further monetize the value, we provide our customers or our commitment to 30% plus revenue growth for the foreseeable future remains intact, even excluding the benefit we have seen from our own DRAM pricing increase.

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

Gross profit in the quarter was $53 8 million.

Representing a gross margin of 84, 4% compared to 83, 4% in the year ago period.

We continue to see our SaaS gross margins expand as a result of the steps we took in 2021 to improve our cost structure.

We expect gross margins to remain between 83% to 84% for the balance of the year and moderated toward the low <unk> over the long term as cloud revenues become a greater portion of total revenue.

Operating expenses for the first quarter were $53 2 million or 83% of revenues up from $35 8 million or 7% to 9% of revenues in the year ago period, we continue to invest in our product offerings and building out our strategic sales and partner channels.

non-GAAP operating income for Q1 was $543000 or <unk> nine.

9% operating margin.

Compared to an operating income of $1 9 million or four 1% operating margin in the year ago period.

non-GAAP net income in the quarter was $158000 or zero cents per diluted share based approximately.

$103 9 million weighted average diluted shares outstanding.

Turning to the balance sheet and cash flow, we ended the quarter with $428 million in cash and short term investments up from $421 million as of December 31, 2021.

Cash flow from operations was $5 million in the quarter.

After taking into consideration capex free cash flow was $3 $9 million.

We turn to the guidance I want to remind you of the detail we provided last quarter around the cadence of the financial model for the year. There is no change to our expectation that the second quarter will be the low point for profitability as beginning in the second quarter, we implemented merit increases.

To align with labor market benchmarks.

Profitability is expected to improve in the second half of the year.

For Q2, we expect revenue to be between $65 million to $66 million with non-GAAP operating loss between $2 5 million to $3 5 million and non-GAAP loss per share of <unk> to <unk> <unk>.

Assuming a share count of approximately 19 9 million shares.

For the full year of 2022, we are increasing our revenue guidance to the range between $276 $5 million and $278 $5 million non-GAAP operating income is expected to be breakeven between one negative $1 million to positive.

$1 million and non-GAAP earnings per share of negative <unk> <unk> to positive <unk>, assuming a share count of approximately 107 million shares.

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

Thank you Jacob 2022, and seen a strong start for <unk> and we are committed to building on this success across products processes and execution as we look forward throughout the year.

My team <unk> employees.

Occasion to always listening to the community and addressing the real pains and the market continues to bear fruit.

<unk> strong quarterly results are a testament and thanks, Steve.

Looking forward to Q2, we are happy to finally meet our customers partners and the community in person again for the kickoff of our annual Swamp user conference. This year, we're taking swamp upon the road visiting multiple cities interacting with a global developer and security <unk>.

<unk> and customers.

We invite you all to attend.

Finally, we believe <unk> is well positioned to drive further revenue growth in 2022, as we aim to deliver four <unk> users customers and shareholders I'd.

I'd like to thank you all for your attendance today made the frog be with you and now we'll take your questions operator.

If you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.

All your question press the pound key.

Our first question comes from Mike <unk> with Needham <unk> company.

Hey, guys. Thanks for taking the question here and good to see the revenue outperformance as well as far as the acceleration in revenue that you guys were able to report.

I did have a question I guess first if we could come back to that revenue acceleration, we were talking to.

Could you help us think about when.

For you guys like what what came in the quarter that maybe you hadn't anticipated, which drove the stronger results that we're seeing today.

Thanks, Mike.

Joining the call and thanks for the question.

Can.

We actually are very willing to do.

Both that we observed this quarter and as we detailed.

Three.

Reasons for this goal.

Is the.

Growing adoption.

Our SaaS services in the cloud.

Because security is probably after the local J episodes when people understand that they need a holistic analytic.

Solution, although securities.

The second thing is the adoption of our end to end platform.

It's not anymore, just covering your repository Oems security domain do you need an end to end platform to manage the full binary lifecycle, all the way to deployment and third.

Consistent investing in investments in our strategic sales team.

Not only to <unk>.

More and more customers adopting the full platform.

Also higher.

Entry points and lending.

Lindsay.

Within our customer portfolio plus.

Improvements of the strategic team working with the partners mainly.

Mainly the cloud partners those are the main three regions for the Gulf you saw in Q1.

Thank you for outlining that and if I could squeeze one more and this would be more for Jacob I think.

Good to see the revenue raise for the full year in excess of the of the Q1 beat.

I know that we're maintaining the full year operating profit outlook and I know, we're talking about this cadence.

Being the same as what you guys had spoken about last quarter, where Q2 is going to be the low point before profitability improves.

Just curious can you provide an update.

Why not pick up the full year profitability I, just wanted to get a better sense of that.

I guess some of the assumptions that you guys have.

In that profit guide and then if you could also talk in any way to the.

Potential FX movements that you guys are seeing in conjunction with that that would be terrific.

Yes, So let me first.

The potential FX and we noticed that the previous quarter the negative.

Trends in FX.

It's about two points.

Please note that for 2022.

Hedge that Dennis sufficient level. So this volatility that we're seeing right now does not.

Really impact us in the.

The improvements in the dollar range versus Israeli shekel eventually will be.

Resulting in better environment towards the end of the year more 2023, just because it does.

Well hedged for this year.

With regards to overall profitability.

No that previously.

Previously we.

Continued to grow.

It's very efficient business and continue to generate free cash flow there are a lot of opportunity in front of us.

Specifically in.

Additional offerings in security and apps.

Connect product while also building.

Equal to market channels and partnerships and alliances.

A lot of areas.

<unk> with very attractive ROI, that's why.

We continue to be.

Taking the stand up for the year, we're going to get to breakeven levels.

Yeah.

Understood understood. Thank you very much to both of you I really appreciate it I'll jump back in the queue now.

Our next question comes from Brad Reback with Stifel.

Great. Thanks, very much Shlomi, you talked a bunch about various initiatives on the sales and marketing side top down sales partners AWS.

AWS, especially on the cloud is there an opportunity.

For these efforts to lead to an acceleration of customer growth customer count last year was up 10% could we see that accelerate here this year.

Yes, absolutely and thank you Paul.

Emphasizing this subject.

As you know and as we guided the market we are building our assist holes still to do.

From a bottom are completely bottom up inside sales.

Machine, we built in the past 18 months has very strong strategic themes that also come from the top down.

And it's now the time as we shared in our Investor Day last February in New York, It's now the time to double down on partnerships and strategic alliances walking with the ecosystem not just too.

Accelerate the growth, but also export <unk> water solutions to new prospect to prospect for new customers.

My answer is yes, it will happen in three different directions.

Obviously the immediate suspects.

The major cloud players and these guys are already working very closely with us. The second things that we are developing the system integrators relationship and last all the professional service strong companies that are in the domain of Dev ops and securely.

Yes.

Should see growth not just in <unk>.

Also in the new customers coming from our partners in China.

Excellent thanks very much.

Our next question comes from <unk> Kidron with Oppenheimer.

Thanks, Hey, guys solid numbers Shlomi I want to start with you for some on the grille for the cloud growth the acceleration of their great to see that.

Can you talk about.

The maturity of your cloud platform and more specifically when you look at customers and how they are using our cloud platform a here and now how is it different do you think then how they used it a year ago.

Would it be types of applications and use cases or.

How broadly.

Progressively theyre using it in their own organizations.

Yes, hi, thank.

Thank you Paul the question.

This the answer is actually split into two things that we did and invested into cloud.

That drove to the growth that we see the consistent growth that we see this as what it was amazing, but we grew in the previous quarter in the quarter before as well.

And the second thing is what's happened in the market and we've got our solution ready fully I'll start with the first one in order to be a sustainable growing business in the cloud you have done.

And the dynamics in the market.

There is no enterprise.

Customer that we know in our portfolio that will move now to a single cloud. The fact that we are providing not just the multi cloud solution.

It's also a hybrid environment that allows you to migrate to the cloud the Goldman to your organizational needs.

A platform capable and it's not only.

Cloud versus the past and also the fact that you can actually run both of them in pilot.

Alongside the holistic end to end solution, what we call the enterprise cloud and subscription it gives your capabilities not just the deposited in the cloud in a universal way, but also in security.

Solution.

The funds from the repository scan and make sure that you have nowhere to go and Youll single source of vehicles, which is a repository and then obviously the distribution distribution to different cloud distribution to different destinations and everything that we now see that the market is ethical.

The second thing is how J Paul's prepared itself for more than 18 months.

What is now explodes, we keep saying.

Patients are being vulnerable because of the binaries. So theres no telling the world that will affect any other asset.

<unk> One reminder, after local fiction and then off the powder.

And now when you have a strong security solution.

Well natively scanning.

Okay.

Binary.

I think that this more.

Pension to the <unk> cloud solution this quarter the inevitable when the headline shouted look for Jay and Springfield and other things.

Kind of.

Buffy attention not only of the developers, but also the T cell.

Okay.

Got it excellent.

And then Jacob for you and maybe I'm kind of following up on Brad's question before.

Clearly youre doing extremely well and up selling to customers as we can see that in your 100 K customers in your million dollar customers.

The dollar expansion so clearly the end to end.

Motion is resonating with customers and they are upgrading instead.

So to think about the contribution to your growth.

Volume versus price I'm, just trying to think about.

How much of your growth again is driven by this shift up tier if you'd like to call. It plus the price adjustments you've made versus just a pure growth in the customer care.

If there is a way for you to.

For us that'd be great I think conventionals recall I've been getting from vessels that Theres, just a concern that your base isn't growing enough in.

You are kind of squeezing the orange I mean, you're getting a lot of value from your existing customers but.

The question is how much more new fields or you're kind of starting right here that you can leverage down the road.

I think.

There are a few.

So that if we're talking again.

Price increases in contribution of price increases.

In my prepared remarks about.

About $50 million.

Seven $5 million came in in the past 12 months was the revenue recognized from associated with price increases.

Now with regards to.

And distribution of existing customers.

New ones.

We continue to see that average length remained approximately $10000.

So.

Barkley and revision to our revenue growth from expansion of existing customers.

Then I'll end of new will continue to land new customers and we added about 10% of new customer accounts.

And we expect this timing, we expect to grow that more this year. So.

Going forward.

Growth will primarily come from expansion of existing customers.

Land and expand model.

Okay.

Yes.

If I may add to.

To remind the public debt.

Brian changes we.

We have done with only.

On the self hosted solution and mainly.

<unk>.

Enterprise and <unk>, so the platform subscription.

And the Super Bowl.

That's growing cloud.

Subject to the pricing. So this is all.

Within our customers and new customers.

Yes, maybe just to wrap it up.

Guys. When you think about the lands Jacob talked about Youre lending.

Hasnt changed from a dollar standpoint, but did they start.

A different plant.

The landing from a product standpoint, any different today than it was a year ago.

We see first of all some of the customers.

Lending in Ireland, and some time, even on the enterprise or even enterprise plus on the other hand, many more customers.

And on cloud, which is a smaller landfill therefore on average ASP, if they're new customers about ethanol.

It's been changed from prior.

Got it.

Excellent good stuff. Thank you.

Our next question comes from Sanjay <unk> with Morgan Stanley .

Thank you for taking the question. So let me I Wonder if you can update on the.

Security progress on the integration with upswing energy connect has been.

Out there with your customers in terms of driving.

New deals or new expansion deals with your customers where are we in that case I'm sure. We're early but just in terms of.

If you could highlight some of the progress that you've seen.

With the ups with integration in that broader.

In security positioning what's been the early feedback from our.

From customers.

Hi, Sanjay.

Obviously the foods.

We stopped.

Partners.

A part of the investment of the inorganic.

Additions to <unk>.

Specifically regarding security.

Two elements here.

Important to mention is that we have a very strong security well trained team that is building a better X Ray is stage one to serve our customers and especially with what we see now happening in the world of <unk>.

A great addition.

To existing customers and also we start to see more and more demand coming to us not form on the factory side, but from the exercise the <unk>.

<unk> side of the security investment as the security research team.

This is a team that is well trained and find vulnerabilities before anyone else in the world knows about and.

And to find that zero day ability and injected into exit database I've mentioned the interest rate.

<unk> is a platform for jabil customers because they are better.

Better protected and faster and remediation processes.

Security that Jeff will now give them.

Copper is not only.

Yes.

Each of them scanning and everything that technology Cabo.

Also very strong research team.

It will more and more zero days actually more than any other company in the domain.

Regarding up Swift very good question.

Long ago, we said binary in binary repository would be at the outlook of the supply chain.

The factory became disanto furious after we said.

Composition analysis security and security.

It relies on Dev ops will be at the mainstream this is happening now.

Saying now in my walls.

<unk> will have to take responsibility all the way to the binary deployment that the device and this is why the demand that we start to see just by announcing jetblue connect.

Even having it.

In production in our biggest customers just the demand and the interest that we get from the market now.

<unk> and future pain, and the future needs of taking the binaries, all the way secure and fast the devices.

If a connect.

As a result of the absolute acquisition already made an impact on the market and we start to also see.

Some partners that are also reaching out to us in order to integrate those solutions with Jay for connect so I guess that security is a low hanging fruit and Jay for connect would be the next the next reason for our growth.

Understood. Thank you for us for the color there and then Jacob I wanted to sort of revisit the.

The very popular macro guidance question.

We've been asking all earnings season.

From the lens of what you see out there in the market with your customers your international customers in Europe .

And then it works.

Any sort of vertical concentration that you may or may not have.

Could you describe the environment that you've seen thus far not only for the quarter, but sort of coming out of the quarter and then in terms of the assumptions on your guidance.

How is your assumptions changed or not changed relative to last quarter with respect to deal closure rates deal sizes sales cycles et cetera.

So first of all.

Part of it.

Very well represented.

Various industries.

The diversified portfolio, we are not dependent on any industry.

Our customer so that diversification is key.

Yes.

Obviously the.

Macro changes in the market, but what we presented today in the guidance today and so obviously, we did not change in our methodology, we continue to be prudent and cautious today with potential upside in the future.

We will consistently in our methodology and we don't we have not changed anything.

Got it understood. Thank you Jacob.

Okay.

Our next question comes from Koji Ikeda with Bank of America.

Hey, guys. Thanks for taking my questions just one for me.

So looking at the metrics of the business. It sure seems like everything is pretty good just a question here on the billings.

Based on our model, it's about 9% definitely off the tough comp I understand is pricing in there.

But may be affected a little bit by the cloud adoption too. So just is there anything to call out in the billings other than the pricing or maybe the cloud adoption that we should be aware of.

Should we be thinking about billings going forward or.

I guess is this even a really a metric that we should be looking at any more is there something else that we should be looking out from here. Thanks guys.

Yes.

Thanks.

A question, we've been saying that for quite a long.

Long time.

Not very representative metric here.

Provide you more context.

Last year, we had.

Huge pull forward into <unk>.

Buildings.

Brian .

All in advance of the price change that was became.

On April 1st So that's why we saw the significant.

Hulu renewals into Q1, and we quantified that to be about $24 million.

So those customers, calling US back then we will continue to be new on lift during the year. So they will continue to renew in Q1. So that's why you saw probably the 9% growth in billings, just because of the significant pooling of last year.

Terrible.

Adoptions to the cloud also represents.

Some kind of.

Headwinds into the billings because typically.

Annual contract on cloud with two types of brain annual contract and P&C Global monthly contracts.

So it's a multiyear on prem customers transitions to cloud that will be headwinds with appealing because of their annual nature of shorter term duration contracts.

That again is really not there.

Present metrics and.

In our business.

Thanks, Jacob Thanks for taking my question guys really really appreciate it.

Our next question comes from Jason Ader with William Blair.

Yeah. Thank you hey, guys.

First question, maybe for you Shlomi can you give us an update on the competitive landscape.

Any changes since the last.

Time, we talk to in particular I guess.

How are customers thinking about end to end platforms and.

Any kind of commentary on.

In particular get lab get hub trying to move into your.

Territory as far as factory.

Yes, Hi, Jason.

<unk>.

There's nothing in the landscape.

As you remember we put it in.

<unk>.

Still the majority of.

The big changes, we've seen we have seen.

Coming from.

Facing homegrown solution some of it.

It's migrated to the cloud some of it is.

Being offset but still.

Companies are adopting once we can now mature Dev ops and satcom solution regarding the source code.

Sure.

Particularly the two that you mentioned Peter and Gisela.

Our solution coexist with subsequent minutes.

So there is no development organization.

We will.

We will not start I'll use the source code management and there is no.

Organizations that will scale without managing the full binary lifecycle.

Regarding the roadmap.

Keep hearing that they are planning to do what we're doing.

Still none of the pesos.

We are hearing that.

People are migrating.

These solutions.

Factory is solid.

Hannibal.

I think central standup into market to managing binaries.

Our security is far more advanced in material.

And protecting your binaries and a level that.

Both.

By today.

And.

Ed.

At the bottom line, if you look at the holistic solution platform based the platform play.

Is a game changer, especially when you think do you feel all of that and you take everything together, including the hybrid solution, including the deployment, including distributions, including remediation. So its not just putting a nice.

Over your deposits always you have to think about the 360 <unk> platform and the last is.

Obviously.

The clouds.

The cloud what we actually see our partnership is stronger than our competition.

And we work together side by side there are some mobile apps.

All of that and we trust our customers to choose what makes sense to them at the enterprise multi cloud is a kilo.

The smaller business.

The majority of the product.

The holistic solution and the amount of features that we provide in the keno. So I think that what we will see more and more.

Competition in a very big market like Dev ops, and security coexisting rather than competing.

Great and then.

Jacob.

<unk>.

Did you disclose or I might have missed it.

No.

Growth.

It's disclosed on the quarterly basis in our acute filings but.

Q1 was that approximately $172 million in our fields.

The reason I'm asking is because you are trying to steer us away from billings.

Some software companies use <unk> as kind of a proxy for bookings and kind of a leading indicator metric is that the case with <unk> should we be looking at RPM growth as kind of a leading indicator.

<unk> is a better indicator than billings.

Bill again.

With the adoption of more cloud, we will see shorter duration of about.

Yeah.

Agreements so be.

<unk> headwinds, so our view as well.

Gotcha and then.

Any thought on buyback.

Buybacks, just given that you have a decent amount of cash and the stock is somewhat depressed.

Have you guys given any thought to that.

We see a lot of opportunity in front of us in the market.

Obviously investors better ROI to our shareholders.

Alright good.

Guys. Thank you.

Thank you.

Our next question comes from Michael <unk> with Keybanc.

Hi, Shlomi.

Glad to be on the call.

Welcome back to Stan just a macro question.

Just ask what you're seeing in terms of the reaction of let's call. It.

Smbs as well as enterprises to the backlog situation in terms of the development projects are you seeing slowing and those seem to be more selective and also.

They do have some in house alternatives yourself pill.

<unk> is there any increased hesitancy kind of tougher in an inflationary environment to hold off on moving to a dedicated product.

Okay.

Yes, I hope I heard the question SMB versus enterprise.

Good.

Way to distinguish the market.

The enterprise.

All understand.

Adopting Dev ops.

Got a question anymore. It's just a question of when it will happen not if it will happen and.

Even add.

Having some assets into cloud and to adopt kubernetes, So cloud native App Dev ops and security goes together in the enterprise.

This is why we see that mature products like <unk> and the full end to end platform uncertainty enterprise demand.

What we hear from the enterprise.

Mainly.

Is that.

You have to get the confidence that they can rely on <unk> to scale with them.

Because the number of containers.

And bulker registries and images that they have to manage and secure and deployed.

Bye.

At Investor Day to have this enterprise utility and Broadcom mention.

<unk> mentioned the scale.

<unk>.

To digest.

Mentioned.

On the SMB.

We start to see more and more small and medium business not just looking for.

A single point solution Dev ops.

Also combined with the securities and what happens is the developer of the world starts to take responsibility over security engineering.

Parts and therefore, when they when they need to immediate format episode Lifelock project, they needed tools that not only <unk>, but also <unk> and help them to remediate spat. So.

Although the growth in the enterprise is more towards the end to end solution.

As fast as they can.

S&P. We also see that there is more demand for more than just a single product that is integrated together.

So that's regarding the SMB versus enterprise.

The other part of the question.

Just whether or not given the current macro what are you seeing any slowdown in development projects.

No no actually the.

Yeah.

It's not just the number of developers the number of developers is growing bye bye.

Over 50% of where this is not what we see is that there is more demand.

For developers to take more responsibility who are those full software supply chain. So what started.

As.

Our movement is now the standup and we see a growing demand in the market and by the way to be honest not just for <unk> solutions, but also opposite mobility solution and also other solutions is complete the full software supply chain.

Mechanism. So my answer is.

No on the contrary, we see we see a growing demand and I think.

The next up will be.

Your software to the edge.

Thank you Scott.

Our next question comes from Rob Owens with Piper Sandler.

Good afternoon. Thanks for taking my question you touched on it earlier in the call, but I was hoping to elaborate a little bit more on your channel strategy relative to how much of your revenue currently comes from the channel.

As you look at the appointment of Kelly's assortment to a new head of channels will what should we expect longer term is this to drive larger strategic types of opportunities or is this to drive more of the velocity velocity related opportunities youre seeing now.

So I'll address that.

Yes.

Shlomi.

Yes.

Alright.

Today, our general.

Sorry.

Minimal relatively to the entire overall business.

Revenues is coming from.

Marketplaces approximately.

10% to 15% of our bulk business is growing very fast excellent very fast growing channel for us, but still a smaller portion.

Borrowings.

<unk>.

We also have some.

Our sellers, who act more and the procurement agents.

Rather than volume retailer Association rent. So it is really greenfield for us to expand this program and this go to market.

Regarding the strategy.

As I mentioned before.

The next logical step for us.

The very strong.

Mechanisms that work with partners.

With the top five.

<unk> of the world in different region in places and organization that we didn't get into and this is not just government a highly regulated environment.

Deepwater projects.

We moved our all.

Partners and channels.

Activity under our CLO organization and hired a very senior savvy partner leader.

To manage it all it will be split as everything else between the cloud and the on Prem.

<unk>.

While in the cloud it's more mature because we've built the partnership with AWS with <unk> with Azure.

We are now.

Paving the way for.

Sure.

More.

Our collaboration with.

Our system integrator.

With the professional service company and not just.

And lose that.

We see now coming from the market the big the Big thing the Big change that we expect to see is that currently most of those partners are reaching out to US also on the full inbound way because the customers send them to walk through April and what we want to see is that this customer.

This partner.

Also working with us in order to reach out to the market that we are still not.

Exploring the different geographies and in different domains.

Alright, thank you.

I'm showing no further questions in queue at this time I'd like to turn the call back to Shlomi Blenheim for closing remarks.

I would like to thank you all for joining us today.

In today's market, it's very important that the company will be focused on the strategy and allocation not only the resources, but also the capital in a lightweight <unk> savings its way to a very successful 2022 and made good progress with all of you. Thank you very much.

This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

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Yes.

Ladies and gentlemen, thank you for joining us and welcome to <unk> first quarter 2022 earnings Conference call.

The conference for today to Joann Horne of Jennifer <unk> Investor Relations team Joanne. Please go ahead.

Good afternoon, and thank you for joining us Andrew PHA <unk> first quarter financial results, which are now following market close today a press release.

The call today will be <unk>, CEO and co founder suddenly Blenheim and Jacobs Chairman <unk> CFO .

Before we get started 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 1995, including statements related to our future financial performance, including our outlook for the second quarter and full year of 2020.

The words anticipate believe continue estimate expect intend will and similar expressions are intended to identify forward looking statements or similar indications of future expectations.

You are cautioned not to place undue reliance on a solar.

Looking statements, which reflect our views only as of today and not as at any subsequent date.

Please keep in mind that we are not obligated 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, 2021 filed with the SEC on February 11, 2022, which is available on Investor Relations section of our website.

In the earnings press release issued earlier today.

Additional information will be made available in our Form 10-Q for the quarter ended March 31, 2022, 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 those measures to the most directly comparable.

GAAP financial measures.

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

And with that I'd like to turn the call over to <unk> CEO Shlomi Shlomi.

Tony.

Thank you Joanne and greetings from this one.

Before we begin today's conference call.

I want to say that our thoughts and well wishes continues to be with the millions of victims due to the humanitarian crisis in Ukraine, We hope and pray for more peaceful days ahead.

Welcome again, everyone to <unk> first quarter earnings call.

2022 got off a strong start for <unk>.

With the highest revenue growth in the past six quarters.

These results are a clear reflection of several key strategies, we implemented joined with our cloud first security focused end to end platform approach and impressive sales execution.

As we will share today Q1 numbers across all key metrics show how product led mindset.

Market demand and strategic investments are all aligned with our goals leading to a sustainable fast growing company consistently generating positive free cash flow.

Our first quarter revenue was $63 7 million.

Reflecting 41% growth it will be a year compared to 39% reported in the previous quarter.

This growth exceeded the midpoint of our guidance by 4%.

Our cloud revenue in the first quarter grew by 63% year over year.

Compared to 52% reported in the previous quarter, driven primarily by increased usage of our security capability and growing adoption of our platform subscription to our cloud marketplace channels.

As a result of this demand the number of customers with over $100000.

<unk> also grew significantly to $5 99, compared to $5 37 in the previous quarter and our trailing four quarter net dollar retention expanded to 131% compared to 130% in the previous quarter.

During the first quarter, we saw a trend of more companies moving forward adopting one stop solution.

Going from binary storage than to security distribution capabilities.

All provided in our integrated platform.

This end to end adoption is driving higher consumption by our customers.

Now allow me to elaborate more about the following strategies and changes we applied the drove the company's growth in this quarter.

First investment in our cloud hybrid and multi cloud offerings.

<unk> strategy of enabling a hybrid environment is being validated daily by our customers, who are considering already moving between cloud and on Prem with their Dev ops and security tools.

Second to security our security solution is setting a new standard in the market.

Modern organizations already understand the security scanning isn't enough and need a holistic solution to secure those software supply chain.

Third our end to end platform approach delivers full binary lifestyle lifecycle control, allowing companies to build faster secure easily and distribute in a fully automated flow our investment in a unified enterprise grade platform is key to that.

The growth we see.

For our 360 panel management and investments not only <unk> four bottom up but also selling top down.

Sales are not only direct and through our insight and strategic sales teams, but now we will also be expanded through partners and channels.

Today I will share with you how these focused areas are fulfilling our growth strategy.

In Q1, we continued to see the binaries all software packages.

The cross sell of the modern software supply chain.

As our customers when knowns binaries are both into the organization from third parties hub and binaries are what you build secure automate and deployed.

There is no way to manage and automate Youll software all the way to one time without managing Youll binaries.

Increasingly.

As our customers demonstrated the run time of choice is trending towards cloud I'm pleased to announce that during the first quarter. We recorded the largest ever single company cloud contract in <unk> history.

Manufacturer of semiconductor and industrial software is undergoing a massive digital transformation and promoting our strategic transition to the cloud they.

They started with J proactive factory grew into adoption of the entire Jay for platform and are now completing the end to end cloud standardization across all business units.

While this deal is an amazing achievement. It is also validates our long held strategy to provide customers with hybrid and multi cloud solutions that will serve them across deployment environment as they migrate to the cloud.

As another example, within this quarter a full platform subscription and the cloud one of the largest American based manufacturers of automotive software so in need to standardize its dev ops processes and incorporate security.

After already utilizing <unk> out the factory as a single source of truth, Paul Dev ops, the customers reach out to us to normalize software distribution across its global team and.

In partnership with our strategic sales team the manufacturing customer move to Jacob platform Enterprise plus subscription in the cloud, which led to a net new <unk>.

$500000.

Moving to security, we will all reminded in Q1, the global software supply chain is under constant attack.

As we mentioned in our Investor day in February there was undoubtedly a new local J incident coming around the corner.

Regrettably, a new critical vulnerability Springfield came just weeks after la <unk> affected the entire industry.

This only made it more apparent that we need a new approach to setup that couples automatic identification and rapid remediation across an entire company the.

The combined power of JP relative factory Nx rate continues to protect customers from these types of incidents turning what could be days and weeks of finding fixing replacing and testing roll down to just a few hours.

We're seeing net new and existing customers upsell pipeline being generated for <unk> solutions based on both industry, leading tools and our outstanding and trained security research team.

This dedicated team is already demonstrating industry, leading zero deepen their ability detection capabilities with more discoveries and other security companies in the domain.

The security research team is also working closely with our product groups to integrate an in depth analysis have been an ability directly into the <unk> X Ray database to protect customers more quickly.

We were also excited to continue to extend the security capabilities in Q1 and announcing contextual analysis feature.

<unk> now allows customers to more precisely determine the relevance of security vulnerabilities by looking at not just the binary itself, but also the environment eclipsing or how it's configured.

The unique functionality powered by Jeff about the factory Nx right.

It's already Overstretched epic upstream and allowing them to quickly address the most critical security gaps.

In this regard irrelevant at once.

Okay.

To illustrate the value of our security offerings, one of Europes, leading automobile manufacturers has turned to the GE product platform to secure its software supply chain as the manufacturers develop self driving car technologies.

They have heavy dependencies on third party software and the holistic security coverage <unk> delivers combining of the factory X Ray and distribution led to an approximately $400000 in Q1.

The integrated team and technologies of <unk>, and <unk> are already making an impact on the market and we look forward to further expanding our security solution in 2022.

Let's move next to our end to end platform approach.

One of <unk> key Differentiators is our focus not just on building better software, but getting it intelligently to where it is running and consumed across customers distributed environments.

Allow me to elaborate on the pain that organizations have with distributing software.

Take a small globally distributed company, which is developing one application. This singular application must run in 20 different locations in the world.

Each of those locations require different versions of the software to address the various export controls and compliance regulations with each country.

The organization has to manage this process across all 20 locations each time, releasing a new software version.

Now, let's take a large enterprise and multiply that therefore exponentially as it manages hundreds and thousands of applications.

<unk> continues to onboard customers and grow with more and more organizations choosing to meet these challenges with J P distribution as part of the unified <unk> platform.

For example, one of the world's most skills collaboration and meeting tools with nearly 300 million daily users is driven by a large development teams in China with exactly this challenges.

This company faces complications around the Chinese firewall wildly varying deployment environment and consumers around the globe quickly recognizing that only Jacob distribution could meet its needs. This contract was a net new wins for the entire <unk> platform.

Going even further software delivery doesn't end at the data center all the cloud anymore increasingly companies are becoming connected device companies.

This is why our strategic acquisition of absolute lift now Jay for connect is a key part of our liquid software vision.

Jay for connect aims to bring together the world of Iot devices, and the world of Dev ops to create a unified flow across the entire organization from developers to devices.

In addition to having tens of customers already using <unk> connect we are seeing additional demand for managing large fleets of devices remotely, including over the air updates monitoring controlling and more.

At the heart of our platform is our core flagship product <unk> Valkyrie factory, where we continue to innovate and support the developer and Dev ops community with our Universal approach, we recently expanded our offering by releasing support in our factory for the doubtful.

<unk> language and emerging technology driven by Google.

This is a top 20, most popular technology of 2021 and support for its public repository, Bob was a key request from the community, which we will happy to deliver we are committed to the developer community by continuing to support all software packages and welcome.

Developers to <unk> at the factory.

Finally regarding our 360 panel management and investment last year, we focused on building a top down sales motion with our strategic sales team who are already showing results on growing the business across our top tier accounts.

This year, we are doubling down on partners and indirect sales during Q1, we partnered with AWS for the support of their game initiative and we were chosen as the key gearbox partner.

<unk> already supports some of the most respected and well known gaming platforms across the globe, including companies like <unk>, who will see the partnership between <unk> and AWS is strategic to their business and their onwards, and I quote we rely on Jay forgot the factory to provide a quick and easy way.

For each team to access the Beatles, while the AWS cloud enables cost team collaboration. So we can create the best video games on the market and growth.

These types of partnerships are just the beginning of a global set of possibilities the GFR can tap into.

With increasing emphasis on resellers partners and alliances relationship within the software development ecosystem, we see attractive growth opportunities for <unk> as the global Dev ops and security market expense.

Speaking of relationships, we were honored to hear about the impact of <unk> platform from some of our most trusted customers. During our recent event our customers fidelity spoke about the transition to the cloud and how <unk> supported the massive scale at approximately 16.

<unk> thousand developers migrating thousands of application in the hybrid and multi cloud strategy, all having to keep the products and services running.

Fidelity showcased how jabil continues to be mission critical not just further development team, but for the entire business.

We were also very excited to see the use case of Broadcom supporting 23, plus business units, such as CA technologies, and symantec's covering not only thousands of developers, but also extensive M&A activities.

Standardization supporting about 6800 deployments per day.

They said if you ever look at Dev ops tools.

Our periodic table of hundreds and hundreds of applications and integrations.

Factory Xa, and we do and a number of other jape of pieces.

Bulk of our standup sets.

We are proud to have customers, who put trusting us as they build out their dev ops and security journey.

As we now turning to financials I want to reiterate our commitment to building solid growth alongside an efficient business with positive free cash flow in 2022, as we have in the past and continue to operate this year and beyond.

With that I.

I would like to turn the call over to our CFO Jacob few months, who will provide an in depth recap of our quarterly results and update you on our outlook for both the second quarter and full year 2022 Jackup.

Thank you Shlomi and good afternoon, everyone. Let me Echo <unk> comments that we're very pleased to have started the year with a such a strong quarter.

<unk> and the momentum we saw in the second half of 2021.

As a reminder, all numbers referenced in my remarks are on a non-GAAP basis, unless otherwise stated a.

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.

Total revenues for the three months ended March 31st 2022 were at $63 $7 million up 41% year over year.

This is our strongest growth rate in six quarters, and our third consecutive quarterly increase.

Self managed revenues also often called on Prem.

$46 9 million up 35%.

Had a particularly strong quarter in cloud revenue growth up 63% to $16 $8 million.

As a reminder, we indicated in the second quarter of 2021, we believe cloud growth had bottomed and we would see Eric Reacceleration of growth.

While we are pleased to see the continued momentum in our cloud business driven by increased adoption of security solutions and a full platform. We would like to remind you that our cloud business is subject to variability due to usage based revenue recognition.

We believe the baseline growth rate for our cloud business is in the mid 50% range with potential upside from increased customer usage.

Net dollar retention for the four trailing quarters was 131% in line with our prior commentary.

As of quarter end, we had 599 customers with IRR of over $100000 up from 537 customers as of December 31, 2021, and up 52% from 395 customers at the edge.

End of Q1 of 2021.

In addition, we grew the number of over 1 million <unk> customers to <unk>.

Adding one from Q4 and increasing by 60% year over year.

As we discussed in the past adoption of the full platform is a key factor in the increase in size of our customers in.

In Q1, 2020% to 35% of total revenue came from enterprise class customers up from 29% in Q1 of 2021.

Before moving to the income statement I wanted to provide an update regarding the pricing changes we made to some of our on Prem offerings, one year ago, which as a reminder, excluded all cloud subscriptions.

And the on Prem enterprise cloud subscription.

First I am happy to report that customer churn has remained minimal consistent with historical trends.

In the first quarter, we saw customers, who previously took advantage of early renewals a year ago now renewing at the current pricing structure.

When we announced the price increase last year. We noted it was equal to roughly 10% of FY 'twenty revenues or approximately $15 million.

Issued and the price change on April 1st of last year, we have recognized almost half of this contribution and reported revenues and Munich and would expect to see the Romanian balance roll off over the next four quarters.

We believe adoption of the price changes by our customers reflect the increasing importance the <unk> platform solution to deliver.

We continue to explore additional opportunities to further monetize the value, we provide our customers or our commitment to a 30% plus revenue growth for the foreseeable future remains intact, even excluding the benefit we have seen from our own brand pricing increase.

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

Gross profit in the quarter was $53 8 million.

Representing a gross margin of 84, 4% compared to 83, 4% in the year ago period.

We continue to see our SaaS gross margins expand as a result of the steps we took in 2021 to improve our cost structure.

We expect gross margins to remain between 83% to 84% for the balance of the year and moderated toward the low <unk> over the long term as cloud revenues become a greater portion of total revenue.

Operating expenses for the first quarter were $53 2 million or 83% of revenues up from $35 8 million or 7% to 9% of revenues in the year ago period, we continue to invest in our product offerings and building out our strategic sales and partner channels.

non-GAAP operating income for Q1 was $543000 or <unk>.

9% operating margin.

Compared to an operating income of $1 9 million or four 1% operating margin in the year ago period.

non-GAAP net income in the quarter was $158000 or zero cents per diluted share based approximately.

$103 9 million weighted average diluted shares outstanding.

Turning to the balance sheet and cash flow, we ended the quarter with $428 million in cash and short term investments up from $421 million as of December 31, 2021.

Cash flow from operations was $5 million in the quarter.

After taking into consideration capex free cash flow was $3 $9 million.

Before we turn to the guidance I want to remind you of the detail we provided last quarter around the cadence of the financial model for the year. There is no change to our expectation that the second quarter will be the low point for profitability as beginning in the second quarter, we implemented medicine.

Creators to align with labor market benchmarks, our profitability is expected to improve in the second half of the year.

For Q2, we expect revenue to be between $65 million to $66 million with non-GAAP operating loss between $2 5 million to $3 5 million and non-GAAP loss per share of three to four.

Assuming a share count of approximately 19 9 million shares.

For the full year of 2022, we are increasing our revenue guidance to the range between $276 5 million and $278 $5 million non-GAAP operating income is expected to be breakeven between one negative $1 million to positive one.

<unk>.

And non-GAAP earnings per share of negative one to positive one.

Assuming a share count of approximately 107 million shares.

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

Thank you Jacob 2022 has seen a strong start for <unk> and we are committed to building on this success across products processes and execution as we look forward throughout the year.

My team <unk> employees.

Dedication to always listening to the community and addressing the real pains and the market continues to bear fruit.

These strong quarterly results are a testament and thanks, Steve.

Looking forward to Q2, we are happy to finally meet our customers partners and the community in person again for the kickoff of our annual Swamp user conference. This year, we're taking swamp upon the road visiting multiple cities interacting with a global developer and security.

Communities and customers, we invite you all to attend.

Finally, we believe <unk> is well positioned to drive further revenue growth in 2022, as we aim to deliver for Jacob users customers and shareholders.

I'd like to thank you all for your attendance today made the frog be with you and now we'll take your questions operator.

If you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.

So your question press the pound key.

Our first question comes from Mike <unk> with Needham <unk> company.

Hey, guys. Thanks for taking the question here.

And good to see the revenue outperformance as well as far as the acceleration in revenue that you guys were able to report.

I did have a question.

I guess first if we could come back to that revenue acceleration, we were talking to.

Could you help us think about what <unk>.

<unk> for you guys like what what came in the quarter that maybe you hadn't anticipated, which drove the stronger results that we're seeing today.

It's Mike.

Thank you for joining the call and thanks for the question.

We actually look very well into the <unk>.

Both that we observed this quarter and as we detailed.

L. Three.

The increase in <unk> of this goal.

Eight.

Is the.

Growing adoption.

Our SaaS services in the cloud.

Because of security and probably after the local JMP when people understand that they need a holistic solution.

The holistic solution although security.

The second thing is the adoption of our end to end platform.

It's not anymore, just covering your repository Oems security demand do you need an end to end <unk> platform to manage the full binary lifecycle, all the way to deployment and third is our.

Consistent investing in investments in our strategic sales team.

Drove not only to <unk>.

More and more customers that are adopting the platform.

Also higher.

Entry point and lending.

Lindsay.

Within our customer portfolio plus.

Improvements of the strategic team working with our partners mainly.

Mainly the cloud partners those are the main three reasons for the growth you saw in Q1.

Thank you for outlining that and if I could squeeze one more and this would be more for Jacob I think.

Good to see the revenue raise for the full year in excess of the of the Q1 beat.

I know that we're maintaining the full year operating profit outlook and I know that we're talking about this cadence.

Being the same as what you guys had spoken about last quarter, where Q2 is going to be the low point before profitability improves.

Just curious can you can you provide an update.

Why not pick up the full year profitability I, just wanted to get a better sense of.

I guess some of the assumptions that you guys have.

In that profit guide and then if you could also talk in any way to the potential FX movements that you guys are seeing in conjunction with that that would be terrific.

Yes, So let me first.

Yes.

I'll FX as we noted in the previous quarter the negative.

Trends in FX.

It's about two points.

Please note that for 2022.

Hedge that theyre very sufficient level. So this volatility that we're seeing right now does not.

Really impact us.

The improvements in the dollar rates versus Israeli shekel actually will be.

And result in a better environment towards the end of the year more 2023, just because it does very well hedged for this year.

With regards to overall profitability as noted in.

Previously we.

Continued to grow.

It's very efficient business and continue to generate free cash flow there are a lot of opportunity in front of us.

Specifically in.

Additional offerings in security and connect X.

Next product while also building our.

These go to market channels and partnerships and alliances.

A lot of areas of investments with very attractive ROI and Thats why.

We continue to be.

Taking the stand up for the.

The year, we're going to get to breakeven levels.

Yes.

Understood understood. Thank you very much to both of you I really appreciate it I'll jump back in the queue now.

Our next question comes from Brad Reback with Stifel.

Great. Thanks, very much Shlomi, you talked a bunch about various initiatives on the sales and marketing side top down sales partners AWS, especially on the cloud is there an opportunity.

These efforts to lead to an acceleration of customer growth customer count last year was up 10% could we see that accelerate here this year.

Yes, absolutely and thank you for emphasizing this subject.

As you know and as we guided the market. We are building our sales force still too.

From a book from a completely bottom up inside sales.

Machine, we built in the past 18 months has very strong strategic themes that also come from the top down.

It's now the time as we shared in our Investor Day last February in New York, It's now the time to double down on partnerships and strategic alliances walking with the ecosystem not just too.

Accelerate the growth, but also export <unk> water solutions to new prospect to prospect for new customers.

My answer is yes, it will happen in three different directions.

Obviously the immediate suspects.

The major cloud players and these guys are already working very closely with us.

The second thing that we are developing both the system integrator relationship and last all the professional service strong companies that are in the domain of Dev ops and securely.

So yes, we should.

Should see growth not just in <unk>.

Also in the new customers coming from our partners in China.

Excellent thanks very much.

Our next question comes from <unk> Kidron with Oppenheimer.

Thanks, Hey, guys solid numbers Shlomi I want to start with you for some on the grille for the cloud growth the acceleration of our great to see that.

Can you talk about.

The maturity of your cloud platform and more specifically when you look at customers and how they are using our cloud platform a here and now how is it different do you think then how they used it a year ago.

Would it be types of applications and use cases or.

How broadly.

Progressively theyre using it in their own organizations.

Okay.

Yes, hi, guys and thank you Paul the question.

This the answer is actually split into two things that we did and invested in the cloud.

That drove to the growth that we see the consistent growth that we see this quarter was amazing, but we grew in the previous quarter and the quarter before as well and.

And the second thing is what's happened in the market and we got our solution ready for it. So I'll start with the first one in order to be a sustainable growing business in the cloud you have to understand the dynamics in the market.

There is no enterprise.

Customer that we know in our portfolio that will move now to a single cloud. The fact that we are providing not just the multi cloud solution.

Also a hybrid environment that allows you to migrate to the cloud. According to your organizational needs. This is a platform capable and it's not only.

Cloud versus the past, but also the fact that you can actually run both of them in pilot.

Alongside the holistic end to end solution, what we called the enterprise cloud subscription. It gives your capabilities not just as a repository and the cloud in a universal way, but also in security.

Solution.

The trends on the repositories came and make sure that you have nowhere to go.

And Youll single source of vehicles, which is a repository and then obviously the distributions distribution to different cloud distribution to different destinations and everything that we now see that the market is ethical.

I can think how J Paul's prepared itself for more than 18 months.

What is now explodes.

Thing.

Innovations are being vulnerable because of the refinery there is no <unk> in the world that will affect any other asset in the refineries <unk>. One reminder, after la project friction and a lot of powder and now when you have a strong security solution.

Well natively scanning.

Italy.

Binary.

I think that this more.

Tension to the <unk> cloud solution this quarter the inevitable when the headline shouted look for Jay and think shell and other things.

Kind of.

Buffy attention not only of the developers, but also the T stop.

Okay.

Got it excellent.

And then Jacob for you and maybe I'm kind of following up on Brad's question before.

Clearly youre doing extremely well and up selling to customers as we can see that in your 100 K customers in your million dollar customers.

Expansion, so clearly the MTO Ann.

Motion is resonating with customers and they are upgrading is there a way to think about the contribution to your growth.

Volume versus price.

Just trying to think about.

How much of your growth again is driven by this shift up tier.

If you'd like to call it plus the price adjustments you've made versus just a pure growth in the customer count because there is a way for you to try it for us that would be great. I think investors recall I've been getting from vessels that theres just a concern that your base isn't growing enough.

You are kind of squeezing the orange I mean, you're getting a lot of value from your existing customers but.

The question is how much more new fields or you're kind of selling right here that you can leverage down the road.

I think it's.

There are a few aspects of that.

Talking again.

Pricing ingredients and distribution of price increases.

As I noted in my prepared remarks about.

Half of $50 million, which mean $7 $5 million came in in the past 12 months was the revenue recognized from associated with price increases.

Now with regards to.

And <unk> of existing customers versus new ones.

We continue to see that the average length remained approximately $10000. So historically contribution of our revenue growth was from expansion of existing customers rather than land of new well continue to land new customers and we added about 10% of new customers.

Last year, and we expect the estimate we expect to grow a bit more this year. So.

Going forward.

Our growth will primarily come from expansion of existing customers.

Land and expand model.

If I may add to it.

If I may add to it.

Remind the public debt.

The price changes we.

We have done with only.

The self hosted solution and mainly at <unk> and.

Enterprise and <unk>, so the platform subscription to <unk>.

Growing and the Super fast growing cloud does.

It is not subject to the pricing this is fueled with.

Our customers are new customers.

Yes, maybe just to wrap it up.

Guys. When you think about the lands Jacob talked about Youre lending.

Has it changed from a dollar standpoint, but did they start.

A different plant.

The landing from a product standpoint, any different today than it was a year ago.

We see first of all some of the customers.

And in Ireland.

Time, even on the enterprise or even enterprise plus on the other hand, many more customers.

On cloud, which is a smaller vessel therefore on average ASP, if they're new customers about the basketball domain well expand changed from prior periods.

Got it excellent good stuff. Thank you.

Our next question comes from Sanjay <unk> with Morgan Stanley .

Thank you for taking the question. So let me I Wonder if you can update on the <unk>.

Security progress on the integration with upswing energy for connectors.

Out there with your customers in terms of driving.

New deals or new expansion deals with your customers where are we as I say some sugar early but just in terms of.

If you could highlight some of the progress that you've seen.

With the ups with integration in that broader.

Security positioning what's been the early feedback from our customers.

Is heightened.

Obviously the fruits.

We start two harbors.

A part of the investment of the inorganic additions to <unk>.

Specifically regarding security.

Two elements here.

Important to mention is that we have a very strong security well trained team that is building a better X Ray is stage one to serve our customers and especially with what we see now happening in the world of <unk>.

A great addition.

<unk> to existing customers and also we start to see more and more demand coming to us not form on the factory side, but from the exercise the second side of the security investment is the security research team.

This is a team that is well trained to find vulnerabilities before anyone else in the world knows about and.

And to find that zero day, <unk> ability and injected into extra database I've mentioned in the script.

<unk> is a platform for Jay for customers, because they are better protected and faster.

Remediation processes.

As a security that Jetblue excellent now give them.

Copper is not only the.

Features in the scanning and everything that technology cargo, but also very strong research team.

Reveal more and more zero days actually more than any other company in the domain.

Regarding up Swift.

Good question.

Long ago, we said binary in binary repository will be at the outlook Youll software supply chain.

Now if you factor it became disanto curious after we set our composition analysis security and security.

IPhone Dev ops will be at the mainstream this is happening now.

I'm, saying now and Mark My words.

Developers will have to take responsibility all the way to the binary deployment that the device and this is why the demand that we start to see just by announcing Jay for connect most even having it.

In production in our biggest customers just the demand and the interest that we get from the market now represent the future of pain and the future needs of taking the binaries overweight secured them fast identified.

If a connect.

As a result of the absolute acquisition already made an impact on the market and we start to also see.

Some partners that are also reaching out to us in order to integrate those solutions with Jay for connect so I guess that security is a low hanging fruit and Jay for connect would be the next the next reason for our growth.

Understood. Thank you so much for the color there Shlomi and then Jacob I wanted to sort of revisit the.

The very popular macro guidance question.

We've been asking all earnings season.

From the lens of what you see out there in the market with your customers your international customers in Europe .

And then.

Any sort of vertical concentration that you may or may not have.

Could you describe the environment that you've seen thus far not only for the quarter, but sort of coming out of the quarter and then in terms of the assumptions in your guidance.

What are the what how is your assumptions changed or not changed relative to last quarter with respect to deal closure rates deal sizes sales cycles et cetera.

So first of all to the <unk>.

Part of it.

We're very well represented.

Various industries.

Diversified portfolio, we are not dependent on any industry.

Our customers. So the diversification is the key on.

On the second side, yes, so obviously the.

Macro changes in the market, but what we presented today in the guidance today and so obviously, we did not change in our methodology, we continue to be prudent and cautious today with potential upside in the future.

We will consistently in our methodology and we don't have not changed anything.

Got it understood. Thank you Jacob.

Okay.

Our next question comes from Koji Ikeda with Bank of America.

Hey, guys. Thanks for taking my questions just one for me.

So looking at the metrics of the business sure seems like everything is pretty good just a question here on the billings.

Based on our model, it's about 9% definitely off the tough comp I understand is pricing in there.

But may be affected a little bit by the cloud adoption too. So just is there anything to call out in the billings other than the pricing or maybe the cloud adoption that we should be aware of.

Should we be thinking about billings going forward or.

I guess is this even a really a metric that we should be looking at any more is there something else that we should be looking out from here. Thanks guys.

Yes, I'll address that.

Thanks.

Question, we've been saying that for quite a long time that billings is not very representative metric year.

To provide you more context.

Last year, we had huge pull forward.

The buildings.

Brian .

All in advance of the price change that was became effective on April 1st. So that's why we saw the significant.

Cooling of renewables into Q1, we quantified to be about $24 million.

So those customers, who renewed backband will continue to be new on left Weil porteram during the year. So they will continue to renew in Q1. So that's why you saw probably in the 9% growth in billings, just because of the significant pooling of last year and comparable.

Adoption to the cloud also.

Presents.

Some kind of bad.

Headwinds into the billings because typically.

Annual contract on cloud, we'll have two types of branch annual contract and and plans to grow monthly contracts. So it's a multiyear on prem customer transitions to cloud that will be headwinds of appealing because of their annual nature of shorter term duration Congress other than that.

Again, the length of stay is really not there.

Metrics in.

In our business.

Thanks, Jacob Thanks for taking my question guys really appreciate it.

Our next question comes from Jason Ader with William Blair.

Yeah. Thank you hey, guys.

First question, maybe for you Shlomi can you give us an update on the competitive landscape.

Any changes since the last.

Time, we talk to in particular I guess.

How are customers thinking about end to end platforms and.

Any kind of commentary on.

In particular get lab get hub trying to move into your.

Territory of Florida factory.

Yes, Hi, Jason.

Regarding the landscape.

As you remember we put it in.

<unk>.

Model still the majority of.

The big changes, we've seen we are seeing.

Coming from replacing homegrown solution some of it is.

<unk> migrated to the cloud some of it is.

Being offset but still.

Companies are adopting once we can now mature Dev ops and tech ops solutions regarding the source code.

Specifically, the two that you mentioned Github and good luck.

Our solution coexist with source code management.

So there is no development organization.

We will.

We will not start I'll use source code management and there is no.

Utilization that will scale without managing the full binary lifecycle.

Regarding the roadmap.

Keep hearing that they are planning to do what we're doing but.

And none of the pesos.

We are hearing that.

People are migrating.

Two of these solutions.

Factory is solid.

Available.

I think set a standout in the market that managing binaries.

Our security is far more advanced in material.

And protecting your binaries and a level that both.

By today.

<unk>.

Do you know.

At the bottom line. If you look at the holistic solution platform based the platform play. This is a game changer, especially when you think do you feel that and you take everything together, including the hybrid solution, including the deployment, including distributions, including remediation. So it's not just.

Putting a nice kind of.

Although youll get repository you have to think about the 360 <unk> platform and the last is.

Obviously.

Clouds with the cloud what we actually see.

Our partnership is stronger than our competition.

And we work together side by side there are some mobile apps, we are aware of that.

We trust our customers to choose what makes sense to them at the enterprise multi cloud is a kilo.

The smaller business.

Yes.

Majority of the product.

The holistic solution and the amount of features that we provide in the <unk>.

So I think that what we will see more and more this competition in a very big market like Dev ops and security coexisting rather than competing.

Great and then.

Jacobs.

Did you.

Clothes or I might have missed it.

No plus.

Plus growth.

<unk> disclosed on a quarterly basis in our acute filings but.

Q1 was down approximately $172 million in our fields.

Yes. The reason I'm asking is because you are trying to steer us away from billings, but some software companies use <unk> as kind of a proxy for bookings and kind of a leading indicator metric is that the case with <unk> should we be looking at RPM growth as kind of a leading indicator.

<unk> is a better indicator than billings, but that's still again.

With the adoption of more cloud, we will see shorter duration of about.

Agreements, so don't be headwinds, so our view as well.

Got you and then.

Any thought on buybacks just given that you have a decent amount of cash and the stock is somewhat depressed.

You guys given any thought to that.

Yeah.

We see a lot of opportunity in front of apart in the market. Then we will obviously invest in what is better ROI for our shareholders.

Yeah.

Alright, good luck guys. Thank you.

Thank you.

Our next question comes from Michael <unk> with Keybanc.

Hi, Shlomi silicon.

Glad to be on the call.

Welcome back to Stan just a macro question and just ask what you're seeing in terms of the reaction of course, let's call. It.

<unk> as well as enterprises too.

The <unk> situation in terms of the development projects are you seeing slowing in those are you seem to be more selective and also since they.

They do have some in house alternatives herself pill.

Is there any increased hesitancy and software in an inflationary environment to hold off on moving to a dedicated product package.

Yes, I hope I heard the question SMB versus enterprise.

Good.

Way to distinguish the market.

The enterprise.

All understand.

Adopting Dev ops.

It's not a question anymore. It's just a question of when it will happen not if it will happen and.

Even add.

Having some assets in the cloud and to adopt kubernetes, So cloud native Dev ops and security goes together in the enterprise. This is why we see that mature products like <unk> and the full end to end platform <unk> enterprise demand.

What we hear from the enterprise.

Mainly.

Is that.

They have to get the confidence that they can rely on <unk> to scale with them.

The number of containers.

And bulker registries and images that they have to pass manage and secure and deploy.

Is by million.

In our Investor day, this enterprise fatality and Broadcom.

You mentioned the <unk>.

But I just.

To digest.

Mentioned.

On the SMB, we start to see more and more small and medium business now just looking for.

A single point solution Dev ops.

Also combined with data security and what happens is the developer of the world start to take responsibility over security engineering.

Parts and therefore, when they when they need to remediate format epitope lifelock projects they needed tools that not only <unk>, but also <unk> and have them to remediate past so.

Although the growth in the enterprise is more forward the end to end solution.

As fast as they can and the S&P. We also see that there is more demand for more than just a single product that is integrated together.

So that's regarding the SMB versus enterprise.

Part of the question.

Just whether or not given the current macro what are you seeing any slowdown in development projects.

No no actually the opposite.

It's not just the number of developers the number of developers is growing bye bye.

Over 50% of where this is not what we see is that there is more demand.

For developers to take more responsibility who are those full software supply chain. So what started.

As.

Our movement is now the standup and we see a growing demand in the market and by the way to be honest not just for <unk> solutions, but also opposite mobility solutions and also other solution that complete the poll software supply chain.

And so my answer is.

No on the contrary, we see we see a growing demand and I think that the next stop will be.

Taking your software to the edge.

Thank you Scott.

Our next question comes from Rob Owens with Piper Sandler.

Sure.

Good afternoon. Thanks for taking my question you touched on it earlier in the call, but I was hoping you could elaborate a little bit more on your channel strategy relative to how much of your revenue currently comes from the channel and as you look at the appointment of Kelly's Hartmann to a new head of channels will what should we expect longer term is this to drive larger strategic types of opportunities or is this.

To drive more of the velocity.

<unk> related opportunities Youre seeing now.

Sure.

Okay.

So I'll address the first.

Okay.

Shlomi.

Alright.

Alright.

So today, our channel is very very.

Minimal relatively to the entire overall business.

Revenue is coming from.

Market places.

Monthly.

10% to 15% of our bulk business, that's growing very fast excellent very fast growing channel for us, but still a smaller portion.

Borrowing.

<unk>.

We also have some.

Our sellers, who act more and the procurement agents.

Rather than value retailer Association.

It's really greenfield for us to expand this program and this go to market.

Regarding the strategy.

As I mentioned before.

The next logical step for us.

Build a very strong.

Mechanisms that work with partners.

With the top five Ias.

<unk> of the world in different region in places and organization that we didn't get into and this is not just government a highly regulated environment, but very big projects.

We moved our all.

Partners and channels.

Activity under our CLO organization and hired a very senior savvy partner leader.

To manage it all it will be split as everything else between the cloud and the on Prem.

<unk>.

While in the cloud it's more mature because we've built the partnership with AWS with <unk> with Azure.

We are now.

Ah paving the way.

Sure.

Or more.

Our collaboration with.

Our system integrator.

With the professional service company and not just.

And lose that.

We see now coming from the market the big the Big thing the Big change that we expect to see is that currently most of those partners are reaching out to US also on the full inbound way because the customers send them to walk through April and what we want to see is that this customer.

This partner.

Also working with us in order to reach out to the market that we are still not.

Exploring the different geographies and in different domains.

Alright, thank you.

I'm showing no further questions in queue at this time I would like to turn the call back to Shlomi Blenheim for closing remarks.

I would like to thank you all for joining us today.

Today's market is very important that the company will be focused on the strategy and allocate not only the resources, but also the capital in a lightweight <unk> savings its way to a very successful 2022 and made good progress with all of you. Thank you very much.

This concludes today's conference call. Thank you for participating you may now disconnect.