Q3 2022 Jfrog Ltd Earnings Call
We provide security with a unique perspective, the concept of better software supply chain security as simple if you don't control and own the binaries you can secure them.
With features like leak secured detection confection analysis and malicious package scanning just to name a few included in <unk> advanced security. We are branching out of the software composition analysis area to secure the left and right. The 40 factory.
The market acknowledged developers became the targets of hackers in the world already suffered from incidents like lock for J REIT shares or other vulnerable binaries that exposed the organization through a risk. This combination of holistic security with the power of the <unk> platform controlling <unk>.
Check the binaries lifecycle will address the need for a new era of software supply chain security threats.
We are happy to see industry leaders like Google cloud looking at binary authentication as a critical aspect for software supply chain security. We are positive that more security solutions will follow Jay Forbes and acknowledged binaries as the primary asset to secure and a modern software delivery flow.
Third cloud gold migration and standardization.
<unk>, the philosophy of hybrid and multi cloud Dev ops strategy and our customers tell us that it is here to stay.
For most enterprises. This essential infrastructure migration is a multiyear effort that involves a gradual strategic change over time.
<unk> hybrid approach enables them to move workloads on their own pace, while adhering to the standards and regulations.
In Q3, one of the world's top three largest automobile manufacturers joined <unk> as our new customers. This multimillion dollar deal that was completed in partnership with cloud marketplace included a full adoption of the <unk> platform and notably originated through community efforts around Conan.
Jay Forbes open for Sip C plus plus package manager preferred by many automotive and Iot groups.
These customers look at Dev ops in depth hiccups, a solution that can scale and centralized global development.
Emphasized the need for binary management's universality security and distribution, which was perfectly aligned with the <unk> solution.
They migrated from Sinopec Nexus to the <unk> platform looking to standardize on the cloud and evolve during the era of electric vehicles.
Another example of shifting Dev ops to the cloud with <unk> came from existing customers one of the most recognizable heavy equipment manufacturer in the U S signing a deal with over $500000.
In addition to migration. This company was also looking to standardize their software distribution process and remove manual time consuming tasks.
All of the software delivery pipelines.
And now to the early emergence of Dev ops for Iot in Q2, we announced the availability of Jay for connect now in Q3, we sold the first large deal generated by Jay for connect in tandem with the <unk> platform.
And the International Defense Electronics company chose <unk> to manage one of Western Europe technology advanced Armed forces full Dev ops flow to enable over the air software updates to the edge.
In this case the edges heavy military equipment, such a combat vehicles.
And the software driven era modern defensive equipment cant operate without updated software. However, today, a soldier is required to update each edge with a flash drive manually.
In a real world implementation of our liquid software vision. This process will be automated and will bridge Dev ops practices with over the air solutions, allowing continuous updates to the field.
I now want to address the ongoing macroeconomic challenges and geopolitical impact many of our customers and communities are facing.
Customers around the globe are looking at ways to increase efficiency and to improve their cash flow and operation through vendor consolidation and more focused strategic areas of investment.
With our business efficiency and growing market demand for Dev ops and security holistic offerings, we are positioned well to face macroeconomic headwinds we.
We see the opportunity that customers will use an essential infrastructure like J fraud platform to consolidate across Dev ops and depths hiccups and replace legacy processes All point solutions.
However, <unk> is not immune to these macro driven headwinds and we continue to see longer sales cycle additional budget approval requirements and project delays.
As we step into the last quarter of 2022 I would also like to note that we stayed committed to our plan to finish the year breakeven as we operate and run a solid business that not only build value for our shareholders innovate and pioneer the developed markets served thousands.
Of customers, but also being at home to over 1000 worldwide.
We take pride in not only in our technology and business success, but also its resiliency during troubled times.
Before I hand, the call to Jacob I want to extend a warm welcome to the newest member of <unk> Board Yvonne Wassenaar.
With over 30 years of experience in enterprise software cyber security and cloud <unk>.
One lift into our board and she brings a wealth of industry expertise and go to market acceleration strategies that will help drive the company's advancement in Dev ops security and Iot markets.
With that I'll turn the call over to our CFO Jacob Shulman, who will provide an in depth recap of Q3 results and update you on our outlook for both Q4 and physical year 2022, Jacob Thank you Shlomi and good afternoon, everyone. During the third quarter total revenues were.
$72 million.
Up 34% year over year expansion in our cloud business continued with revenues of $21 million up 60% year over year, representing 29% of total revenues driven by new customer wins and increased usage within security and develop solutions.
We're pleased with continued growth momentum in our SaaS business. Despite some optimization of usage by our customers.
We experienced during the quarter, we saw customers adjusting their usage patterns to get some cost savings as well as utilize better pricing by moving from basic or subscription to minimum annual commitments. Nevertheless, we believe our SaaS business. We will continue to grow rapidly by expansion of their apps and security solutions as well as new gas.
And our lands on the cloud, we reiterate our belief that the baseline growth rate for our cloud business remains in the mid 50% range with potential upside from customer usage as we have seen so far in 2022.
Self managed revenues or on Graham were $51 million up 26% versus the third quarter of 2021.
On a year over year basis growth in our self managed revenues continued to be persistent even as vast majority of our new customers at first landing on the cloud and many large on prem customers are gradually migrating towards hybrid deployments.
We believe <unk> skybridge solution allows freedom of choice, providing more control over how and when customers transition to the cloud.
Our support for hybrid coupled with continued growth in self managed deployment as future drivers of solid growth in our on Prem business.
Net dollar retention for the four trailing quarters was 130% in line with our prior commentary.
As of the quarter, and we'll have 696 customers with <unk> over $100000.
From 647 customers as of June 32022, and up 49% from 466 at the end of Q3 of 2021. We also grew the number of over 1 million <unk> customers to <unk> 18 up 29% year over year.
As we've discussed in the past adoption of the full platform is a key factor and the increasing size of our customers in Q3 of 2022, 39% of our revenue came from enterprise class customers up from 34% in Q3 of 2021.
Now, let me discuss the income statement in more detail.
Gross profit in the quarter was $66 million representing.
Representing a gross margin of 84, 2% compared to 84, 5% in the year ago period, We expect gross margins will remain between 83%, 84% in the near future and then trend towards the low <unk> over the long term as cloud revenues become a greater portion of our total revenue.
Yes.
Operating expenses for the third quarter were $59 4 million or 82% of revenues up from $44 1 million or 82% of revenues in the year ago period. Our operating expenses grew approximately 600000 sequentially as we initiated previously announced.
Operational efficiencies.
While we continue to invest strategically within R&D and build out our enterprise sales in general the relationship for the long term. We also have continued to look for ways to enhance productivity and reduce costs.
non-GAAP operating profit in Q3 was $1 2 million.
Or one 7% operating margin compared to an operating profit of $1 $3 million or a two 5% operating margin in the year ago period.
We turned back to profitability this quarter as non-GAAP net income in the quarter was $1 $8 million.
With earnings per share of <unk> <unk>.
Based on approximately 105 million weighted average diluted shares outstanding compared to a loss per share of <unk> in the previous quarter.
Turning to the balance sheet and cash flow, we ended the quarter with $434 million in cash and short term investments.
Up from $432 million as of June 32022.
Cash flow from operations was $5 1 million in the quarter.
After taking into consideration capex free cash flow was $3 $8 million, we remain committed to accelerating our free cash flow margin toward our long term target of 30% over the coming years.
As of September 32022, our remaining performance obligations totaled $189 8 million.
As Shlomi noted the overall global macro environment remains challenging however, I am proud to say that our renewal rates remain high usage remains high and some of the world's biggest companies are turning to <unk> to make them more efficient more secure and more scalable we have already implemented some cost savings.
Initiatives and we will continue to do so as we navigate these uncertain times.
We remain consistent with our forward guidance with technology working to balance the macro challenges faced by the global economy and the opportunities we see to expand <unk> role in the software supply chain.
For Q4, we expect revenue to be $76 5 million to $77 5 million.
With non-GAAP operating profit between one and $2 million.
And non-GAAP earnings per diluted share of one to two.
Assuming the share count of approximately 106 million shares for.
For the full year of 2022, we anticipate a range between $280 million and $281 million non-GAAP operating income is expected to be between $1 million 2 million.
And non-GAAP earnings per diluted share of 122.
Assuming a share count of approximately 106 million shares.
We are guiding to breakeven levels for fiscal 2022, and even with the headwinds created by the current environment. We will continue to execute on this commitment.
Now, let me turn the call back to Shlomi for some closing remarks before we take your questions Shlomi.
Thank you Jacob.
I'm wrapping up I'd like to thank my team I am proud and honored to work alongside the team driving these ground checking innovations, we look forward to partnering with our customers to drive their digital transformation and adopt a modern desktop security and Iot solution with our platform.
You all for your attendance today and made the frog be with you and now we'll be happy to take your questions operator.
Thank you, Sir ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad. Once again that is star one if you would like to ask a question.
We're going to take our first question from Mike Needham <unk> Company.
Hey, guys. Thanks for taking my questions here.
Wanted to circle up on some of the commentary regarding the macroeconomic environment and I know that you guys are saying, hey, you're not immune.
We are still seeing longer sales cycles additional process approvals and budget beliefs, I know that we had called out.
Some of these factors last quarter, when we last caught up.
Can you help us think about heads.
Sales cycles.
Tensions are they getting worse versus where we were three months ago or.
Is it spreading to different geographies versus what we were calling out last quarter any color there would be helpful.
Hi, Mike This is say Jacob I will take this.
Question, So overall, we see pretty comparable.
All sides comparable to last quarter, we did see slightly more weakness in Europe . This time.
Partially driven also by a stronger currency.
Which are in our customers in U S dollars and we've seen that.
Strong dollar.
Main term customers in Europe .
Or is it longer before they commit to the project.
Overall, we don't see any significant changes in sales cycles.
Thank you for that and if I could just squeeze in maybe.
Two parter here, but I know in the prepared remarks, you guys had called out I believe it was a competitive displacement versus solar type Nexus and just curious can you help us think about.
When you are seeing.
Sure. It's out there who are the most common competitors that you are bumping up against says has there been any change on the competitive front.
Yeah.
Yes, Hi, Max this is swamy.
Question.
So, yes, we mentioned.
The largest.
Also in this quarter and displaced some of that Texas.
In terms of the.
Full holiday peak.
First phone that is focused on binaries I think Jay pork.
And we.
See less competition, there, but if you break the platform two different.
And capability.
Lee in the World of security.
See some point solution.
<unk> competes on.
Starting on the analysis area and developers security.
The package management.
We see there are some.
Solutions that are very limited in terms of the universality of the package and the binaries they support.
We don't see any.
Any vendor provide a phone platform that is focusing on the binaries and secure software supply chain manager binary and also the distribution to the edge.
What we see as the.
At the front.
Hong Kong solution that we are replacing and some emerging.
Apologies to Dodd Frank to get into this market.
Great. Thank you for the color guys I'll turn it over to my peers I appreciate it.
Next up we'll hear from Brad Reback Stifel.
Great. Thanks, very much Jacob on your optimum optimization commentary on the SaaS product.
Linger here in <unk> or was that pretty much confined from your standpoint to the September quarter.
Yes.
Really defense when customers initiated those changes we've seen customers kind of gradually introducing those.
We still believe that Arca.
The <unk> business will continue to grow rapidly.
To reiterate it.
Baseline for our sales growth.
With potential upside from.
<unk>.
All brands will continue to intra.
We introduced new capabilities in cloud.
And to present, the additional expansion opportunities Vanessa.
Continent.
While we will continue to grow rapidly.
That's great and then just wondering do you still feel pretty good about your ability to sustain 30% organic growth as you've talked about historically.
Yes.
Perfect. Thanks very much.
Okay.
Our next question today comes from Keith Lee Crane Canaccord.
Hi, Thanks for taking my question. So overall your business appears to have held up quite nicely.
Just wanted to take a step back how sensitive do you think your platform has to cost rationalization in general and do you think the nature of your platform makes it more defensible.
Can you please repeat the question.
Yes, So do you think or how sensitive do you think your platform too.
Cost rationalization.
Do you think the nature of your platform makes it more defensible.
Versus something like a monitoring platform for example.
Yeah, I'll take I'll take that one.
The installment please feel free to chime in first of all.
We provide lots of value to our customers.
Our platform helps to significantly improve the efficiencies of the software delivery process and it is mission critical tool for many of our customers. Therefore, we believe that despite the fact that customers may be trying to utilize some optimization effort.
On <unk>, there is still a significant need for them to expand.
Our platform usage, because they generate significant volume from.
From streamlining the subsidy deliberative process.
Yes, so regarding.
The platform I think that what we hear from our customers is that they are looking to consolidate point solutions into one solution that is centralized.
The software supply chain software supply chain is being managed towards the binaries. This is what you often have to promote you distribute and this is what you secured.
With the latest release of chief of advance acuity with at least a general connect we actually provide our customers with full ability for the ability to take the binaries from the development phase all the way to the deployment at the edge.
Customers find that very appealing plus the fact that it's available.
And on Prem solution and cloud solution on every cloud almost in every region. So that's becoming an essential part of the decision, making when you speak about the essential infrastructure migration and our customer effects.
Great. Thank you that's really helpful and just one follow up would be.
Want to talk more about your large connect deal what did you learned in the process that can help with other deals going forward.
You gauge overall customer demand.
Yes, well.
<unk> connect.
As you know.
Something that we announced in Q2.
In addition to our platform and we were very very excited to see the large project.
Defense project and whatnot.
European Militaries decided to take the lead after using up the factory and X ray up effectively towards the binaries X ray to secure them to take the binaries all the way to the edge software updates over the edge is the future and as we said in the past secure.
He became.
Part of the developers task, we know that in the future deployment to the edge over the air updates will be part of the developers tasks. So building that part of our platform being able to deploy these updates over the year as the combat vehicle. This is running is a big deal.
<unk> changed and currently in the market <unk> is the only platform that provides these capabilities.
Okay.
Okay very helpful. Thank you.
Our next question today comes from Bob <unk> Morgan Stanley .
Hi, This is Bob filling in for Sanjay just for starters just to think about your secure.
Security product strategy.
Do you have to change your go to market motion or do you have to invest in.
Additional specialist sales team for security teams to real.
To really have your products adopt data or is that the way to think about it.
Yes.
Good question. Thank you, Bob James <unk> Advanced security.
Was released.
Just a few weeks ago.
And what we see.
The market is that the excitement and interest around it is really shows.
The high demand for what we've released but we have to think about why it's unique.
Unique because of the technology that is focused on the binary which is the only way to control and manage yourself to supply chain and it is also unique because it comes with the platform. So not the point solutions that focus on one capability that you need to in software delivery process, but the full holistic end to end <unk>.
Together with the registry with a depository distribution and so on in terms of the go to market.
We introduced an hour.
<unk> pricing page to our two new packages that includes James.
<unk> advanced security on top of the Dev ops capabilities and on top of Opex range. That's a new product line that we will keep investing in and you would see more and more evolution of our security and Nicole.
Regarding the question of the Salesforce, obviously, we have experts in the domain.
Not only on the sales side, but also the solution engineers and the architect side.
And the idea of having a full solution requires people to understand not only security and what is the pain that we're solving for our customers, but all.
This is embedded into a full platform place. So the answer is yes on the three aspects the technology the full platform and.
The go to market.
Thanks Mark.
Okay. Thank you that's very helpful. Just a follow up question on the advanced security pricing.
Yes, let's say a current Dev op customer spending about $100 today.
How much of that would go to the.
Advanced security like if they were to adopt advanced security how much of that $100 would go towards that.
So our.
And frankly in the introductory phase.
Advanced security subscription and obviously you saw the pricing.
Monthly customers increased to $3400 per month.
<unk> platform players.
Customized price and is dependent on the volume.
Mythology that customers use to scan, thereby and therefore.
And just keep in mind that this is more usage based.
Our business model and we're still learning.
Customer how customers would use them.
Patterns, we just launched it about two weeks ago. So it's too soon to tell exactly what would be the immediate impact on customers' confusion.
We definitely believe that the.
The advanced security and overtime will be a significant driver to our revenues I'll follow up on what Jacob mentioned and maybe emphasize two things regarding the way we do.
The go to market for advanced security.
We are aligning the value of our technology with the needs of the customers. So we are charging only fail artifact scans.
Binary thing as Jacob mentioned, its a consumption model.
In the advanced security, whether it would be an on prem installation of cloud installation and be and this is very important <unk> advanced security capabilities and some of the features that we mentioned in the earnings call replay.
Place several point solutions. So if you think about the.
Developers dollar spend you can think about displacements of not just one security tool, but many are cost of software supply chain.
Hello.
Thank you very much and congratulations on a quarter.
Thank you.
Just to reminder, everyone. It is star one on your telephone keypad, if you would like to ask a question.
We'll go now to pendulum bar at J P. Morgan.
Oh, great Hey.
That's on the call and thanks for taking the questions.
One question on advanced security staying on the pricing.
Question, we noticed that your kind of full adoption of X Ray price they believe with enterprise ex <unk>.
Previously it used to be optional now seems like it's not.
A change for new customers.
How would that impact existing customers that they have to choose the higher pricing when the comforting or maybe some color there would be helpful.
Yes, so pendulum I'll take this question if you recall for self managed customers.
<unk> made excellent mandatory.
Already some time ago.
Effective.
Second quarter of 2021, we eliminated.
Enterprise subscription and enterprise ex subscription mandatory so pretty much every.
<unk> managed customer.
Today as <unk> monitoring portion of the enterprise subscription and obviously X Ray is also included in enterprise class.
Now.
Advanced security required X Ray.
And therefore, only customers, who have X rate and the ability to utilize advanced security capabilities.
Therefore.
We see these customers enterprise <unk> enterprise cloud customers, those who would be utilizing advanced advanced security capabilities on.
On cloud.
On our side of the business, we also made slightly judgment.
John subscription structure to make extra mandatory point on price customers for the base <unk> typically we see that there are customers.
Use.
At volumes that exceed <unk> package, and therefore, it doesn't have any significant impact.
On our business.
I see understood okay.
Is it.
Possible to quantify the cloud optimization adjustments that you talked about customers, maybe any way to quantify that what was that impact in.
Q3.
Again, it's primarily happening to customers who.
On the go business model.
As you know our annual customers have a minimum commitment overall, we see that.
Both groups pay as you go and annual commitment usage continues to grow.
Now.
Each of the pay as you go customers could be volatile from from from.
Due to period.
And we did see some volatility during Q3.
It's hard to exactly quantify that because this volatility sometime comes also as a result of timing of different projects and initiatives.
The reason, we noted that and we know that some of the customer doing optimization, because we talk to the customers to better understand their future plans and how we can.
Can extend them, but it's really hard to quantify that.
Got it understood I will get back in the queue. Thank you.
Okay.
Our next question, Jason Ader William Blair.
Yes, Thank you hey, guys.
Jacob did you guys provided an initial view on 2023 or is that something you're willing to talk about.
We are currently not providing any guidance for 2023.
So let me note that we see a lot of opportunities for us.
To continue and grow within existing customers.
We are introducing new capabilities from cloud and.
And on Prem, but still.
We said that we're not immune.
Macro economic environment, and we feel learning. So therefore, we're not ready to guide for 2020.
Okay, So youre going to wait till next quarter basically alright.
Okay.
And then for you Shlomi can you give us an update on your go to market motions and how these have evolved.
Since the IPO.
Maybe are there any areas that have surprised you to the upside or the downside.
Yes, Hi, Jason.
In terms of the go to market and as the market follows.
Been very consistent.
<unk> capabilities and reinforce our platform.
Today Jay for support.
<unk> biggest enterprises and then we have to scale to the level of expectation. So what you see us adding.
Not only on the Dev ops, but also on the security front together with the <unk> acquisition on the Iot front together with the Oxford acquisition, all the services around that with special support and special for question on services if needed.
The hybrid methodology that allow enterprises to migrate some workloads to the cloud and on Prem instant.
Instances.
This is very much aligned with what we see in the market.
Obviously most of the value we bring comes at the enterprise level.
And you also see that in the numbers.
Number of customers over $100000 number of.
<unk> over 1 million.
Platform adoption clearly.
Hi, Josh.
We are taking the right decision that the go to market engine technology.
Yes.
And you talked about cloud marketplaces does that become a.
A more significant channel for you.
Yes, so we invest a lot in the.
Co marketing and co sell together with the all clouds, we have great relationship with the major clouds, and we expand that philosophy of multi cloud also.
Fine.
<unk>.
High demand from big organizations that need to borrow some regulation and strategy decisions. So having this.
Avatar for co selling the marketplace, having this collaboration with the cloud, obviously increase our ability to grow with our customers and to land on the higher volume and new customers.
Just maybe to answer the.
Jason.
When the customer commitment to large cloud providers.
Easier for us to work on.
Marketplace.
Therefore, our Georgia, our largest deals in the cloud became our marketplace and we work together with this cloud to both.
Are those deals.
Gotcha and then the unit economics are better for you when they go through the cloud marketplaces versus selling direct.
Unit economics is better yes.
Alright. Thank you guys. Good luck.
Thank you.
We will now hear from Michael <unk> Keybanc capital markets.
Hi, guys. This is Billy on for Michael.
Just wanted to ask you so last quarter, you called out kind of similar macro headwinds like these longer deal cycles and increased approval layers. Just wanted to see if you've made any changes youre selling more promotion or how your sales team approaches deals now to kind of count or do you think this increased scrutiny.
Yes.
Yes, we obviously becoming more proactive.
Knowing that it may take longer for our customers to close the deal we contact them earlier, we work closely with them to better understand.
<unk> plans.
And.
In some time.
Work with our partners.
Cloud alliances to help the customers to maybe accelerate some of the projects.
From migration to cloud.
And Michael if I may add to it.
The other side of it is that when you come with a platform at full platform or bus scalable platform that also.
It comes with the hybrid solely.
These are very.
Good chance.
J, Paul would displace a few.
<unk>, what we've seen the enterprise market.
Part of preparing themselves to recession is also consolidating different solution into one.
So we are planning as Jacob mentioned, we are going for active with that I think that we have a great story could then not just from the technology side, but also from the end to end solutions.
Great. Thank you.
Well now go to Rob Owens Piper Sandler.
Hey, Thanks for taking my question. This is <unk> on for Rob Owens I wanted to ask about the enterprise mix as a percent of revenue.
Like it was really strong this quarter up to 39% on the big quarter over quarter increase compared to what we've seen in the past couple of quarters.
Just curious if you guys are seeing some broader consolidation tailwind just tennessee or if some of these more advanced security capabilities, our customers move up curious quicker.
Compared to historic levels. Thanks.
I will take that question.
The reason for.
Growth.
We're very encouraged by this growth and <unk> growth in our enterprise possible John .
Is continued adoption of our Amgen platform capabilities.
Typically many customers realize that.
It's not enough for them just to be efficient on the developer side development sites on the software they need to take software to the market.
And our distribution capabilities helped them to achieve that therefore, we see more and more customers adopting the platform. Due July this full sample flow all the way from developer to to the market.
We continue to see that the primary reason for adoption of the platform distribution capabilities advanced security will also be available.
For enterprise class customers.
Again, so far we launched it on cloud only and it will become available for self hosted customers early in 2023.
So far.
The numbers you see they're not impacted by advanced security because of the just launched early in Q4, it just continuous adoption of.
Of Dev ops practices.
<unk> solutions offered by J J Park is only only company today that offer these capabilities.
Yeah.
Got it that makes a lot of sense and then just as a follow up I was curious.
The performance of the U S federal in the quarter, what did you see.
How did it trend compared to your expectations going into the quarter.
Our U S federal business is a relatively material.
And haven't seen any significant changes just because it's.
Yes.
And once again, everyone that is star one if you have a question.
We'll go next to Mike <unk>.
For a follow up.
Hey, guys. Thanks for letting me back on here I did just want to try and take another stab at it.
Maybe some of this macro volatility.
Customer behavior, when we're thinking about the pay as you go.
Customers versus those utilizing those those minimum annual commitments.
Maybe it would be helpful. Just to have a broad brush strokes here, but can you help us think about the percentage of your revenue or the percentage of your customer base that currently users pay as you go I think that that might help people start to.
Get a better feel for.
How.
These customers are trying to adjust their spend in the current environment any color there would really be helpful.
Yeah.
<unk> is about.
Third of our SaaS business, so majority of horizontal businesses annual.
Typical customer journey would be when the smaller customer London <unk>. They continue to use the <unk>.
What form and capabilities when they reach a certain level of usage that would typically transition to annual minimum commitment.
Because they already understand the capabilities and see the value and b because they can get some.
Price discounts because of their annual commitment and that's what they use.
So we see more and more customers.
Joining on cloud to pay as you go we continue this group continued to grow each of the customers could be volatile again, it could be as a result of.
Adopting new capabilities optimizing our advanced spend.
Timing of the project et cetera, but overall trend of this customer group is up a wind cars to see that as a group. These customers continued to grow despite the fact that some of them transition during the quarter to the minimum annual.
Thus the fact, Mike.
And what Jacob mentioned is the.
Natural cloud flow, we also see a trend of migrating to the cloud and these are customers that are using our on Prem solution.
And already familiar with the platform already familiar with the technology into services and migrating to the cloud while they are doing thats, usually they will land.
See on an annual contract did not start all the way from the beginning.
Understood. Thank you. Thank you very much for the incremental color there I do appreciate it.
Okay.
Next up we'll hear from <unk> Kidron Oppenheimer.
Thanks couple of questions for me first on the on the gross margin did tick up quarter over quarter. They familiar cloud mix is higher so.
Okay, So maybe kind of walk us.
Through that a little bit whats behind that.
Yes, Thats continued effort to improve reduces our clubs somewhat duration.
Cost saving initiatives.
Evolving our process will continue to do that.
So the reason for our cloud to be.
Overall margins to be better because our margins on our SaaS business improved during the quarter.
So we should not consuming any gross margin deterioration in the futures cloud goes up and mix.
<unk> gross margins.
Our science business lower than corporate.
Margins, therefore, the bigger portion of our SaaS business.
We will see this trend to go to low <unk> over over uncertainty of a long time.
Wow.
As we said in prepared remarks, we expect the gross margins to stay between 83, 4% in immediate future.
Okay.
And second question regarding 23, I know, Jason try to get some color on fiscal 'twenty three.
Are there any cut on.
Puts and takes though you wanted us to keep in mind as we think about 'twenty.
<unk> 23, and maybe you could talk about how big your renewal base is going to be in that year or is it going to be.
Average or so essentially lower or higher I don't know like from a cohort standpoint, what comes up maybe you could talk about what comes up for renewal and how do we think about that.
Yes.
Vast majority of our SaaS business.
Is <unk> annual to annual contracts.
A third of the business on sauces monthly.
Two thirds.
Above that is annual.
About 80% of our itself.
This annual and multi year. So we do continue to see significant renewal base.
Every year.
We encouraged to see that the renewals and June to be strong.
Comparable to historical levels.
Sure and again very minimal.
We have very sticky product.
Our cloud continues to grow much faster than self managed.
<unk> introduced new capabilities to self managed solutions in the 'twenty to 'twenty three in security area.
We entered the year very strong.
Shlomi here all at once.
One one.
When we're looking at.
Essentially infrastructure.
I believe that you know.
Company No matter what company when they built on an infrastructure.
<unk> they take a long term decision.
Is not something that you replaced on the development machine. This is not something that you were placed on the individual.
Walking station therefore, we keep investing in our in our infrastructure as a platform that customers that are betting on <unk>, those who chose <unk> those who renewed this year.
Probably looking at the long run as they set up their security and Dev ops.
Infrastructure cloud or on Prem.
Well, maybe I can expand on this small me a little bit when I think about the current environment.
Does an argument to be made right on the app.
The negative side of it is that in times of financial distress.
It departments are probably trying to do as little as possible and not take risk on your systems.
Just keep what they have for another year and Danny Valueact later on the flip side.
<unk> platform now.
<unk> customers to consolidate multiple points and create savings so.
And this push and pull.
<unk> here, how do you think the deck is stacked up for you over the next couple of quarters.
The macro environment.
A bit more challenging because on the net positive or on the net.
Negative or perhaps neither here, nor there, but would love to get your perspective on this.
Well, that's a very good analysis of what what we see without putting aside for a moment the macro economy.
When you look at the advanced Securities.
<unk> in 2022, and 2021 already suffer too much from <unk> and the software supply chain security, it's not something that I think articulated by Jake Bartlett the Whitehall just speaking about the regulation from the British Parliament is coming.
Within option of how you should all take yourself to supply chain and the world start to understand that there is only one way to fully protect yourself to a supply chain.
Opex thing the binaries, so I don't think that customer's organization enterprise or not.
I actually have a choice they will have to upgrade the legacy security solutions. They will have to look at consolidation of security solutions. They will have to get control over the boundaries and I think that what J book now really.
<unk> all of the three.
So, yes, I'm expecting to see a growth.
Adoption of our platform and the consolidation of having a dev ops solutions coming with a very strong software supply chain security solution and not point solution or what feature here or picture there.
Some small research team that some of the vendors are offering we offer the best database in the world.
<unk> secured dependent ability the most updated one by data, we released more zero days than any other vendor in the world. In 2022. So we are very positive on what we are building not only for security, but security that comes with the repository as well okay.
Maybe if I may then last one so let me just on this and I'm asking just because I don't really know the answer.
Our dare security threats that are specific to binaries will not show up in court, but will only show up in binaries I'm trying to think how.
Specific to thread this to.
Is that level of insight that clearly you have a great transition point too and code repositories don't so what is unique about binaries that there are threats.
Cannot be picked up with some normal code scanning.
I Love. This question I was trying to make it short because it's an earnings call. There is no way there is no development in the world that will tell you that we started the analysis and social security you can protect yourself to supply chain.
It comes with binaries is also to make the data and the dependencies and everything that you need to know about well. This package is flowing to if you take for example, they look for Jay it's not only finding patients CMO local Jay. It's also finding other dependencies that all the developers in all.
Deployments environment filled with it so without the factory as Youll single source of vehicles and with <unk> advanced security on top of it you are not just hanging on the based on the best data that you control you actually control you also have the ability to look at all the dependency.
Is that where the binaries all in all different fields in all different themes in all different deployments environment and that is impossible to be done which also.
Got it okay. So alright, I apologize for the multiple questions I appreciate the color very helpful. Thank you.
Thank you.
At this time there are no further questions I'll hand things back to management for any additional or closing remarks.
Well. Thank you everyone for joining us for our Q3 earnings call. We are very excited about the progress the company has done and we.
The property with you. Thank you everyone.
That does conclude today's conference I would like to thank you all for your participation you may now disconnect.
[music].