Q4 2022 Jfrog Ltd Earnings Call
Ladies and gentlemen, thank you for joining us and welcome to J frauds fourth quarter and physical 20 twenty-two results.
Oh and the conference over today to Jeff Shriner V P of Investor Relations Jeff.
Yes. Please go ahead.
Good afternoon, and thank you for joining that says we review J fraud fourth quarter and full year fiscal 2022 financial results.
Announced falling market closed today via a press release.
Reading the call today will be J frog C O when cofounder slummy been hot.
Sherman J fraud CFO during.
During this call we may make statements related to our business that are forward looking under the federal Securities laws are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
We didn't statements related to our future financial performance, including your outlook for Q1, and a four year of 2023.
Anticipate aleve continue estimate expect.
Will and similar expressions are intended to identify forward looking statements or similar indications of future expectations.
Caution not to place undue reliance on these forward looking statements, which reflect our views only as of today and not as of any subsequent date. Please keep in mind that we are not obligated ourselves to revise for public release. The results of any revision to these forward looking statements in light of new information for 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 31st 2021 filed with the F. D. C on February 11th.
Thousand 22.
Most recent report on Form 10-Q, which is available on the Investor Relations section of our website and the earnings press release issued earlier today.
No information will be made available in our Form 10-K for the year ended December 31st 2022, and other filings their reports that we may file from time to time with the S. P. C. A.
non-GAAP financial measures will be discussed on this conference call.
non-GAAP financial measures, which are used as a measure of J frogs performance should be considered in addition to not as a substitute for or in isolation from GAAP measures.
Please refer to the tables at our earnings release for a reconciliation of those measures to their most directly comparable GAAP financial measures.
This call will be available on the J frog Investor Relations website for a limited time with that I'd like to turn the call over to J frog CEO Shlomi Blenheim Shlomi.
Thank you Jeff Good afternoon to you all and thank you for joining the call.
I'm happy to report that we ended physically of 2022, we dynamos results in line with our guidance range. Despite the 2022 or the challenging gear from a macro economic and geopolitical perspective with moderate to the Gulf and D. I T market.
The last day of all security software and cloud computing remains among the most of the dance icy projects.
I'm happy to see the <unk> performed well with revenue growth of 35% it'll be a year in line with our guidance range, but also exceeded our commitments to breakeven wrapping up your fault with non got E. B S. A false sense more than double the range, we communicated and <unk>.
Three.
2022 included Hypergrowth in our cloud business.
If you can go and the number of customers that subscribed to our full stop just supply chain platform, followed by advanced Devops in depth pickups, and two and solutions and the higher landing ASB with customers, who invested mall and digital transformation.
The fiscal year 2022 revenue was $280 million up 35% it'll be it's J Fox finished with over 7200 customers compared to 6650 <unk>.
She doesn't get us as the <unk> and that's the golf partner of choice.
Allow me now to elaborate more on our fourth quarter results.
2022 fourth quarter revenue, what 76.5 million dollar, reflecting 29% it'll be ready to golf. Our cloud revenues delivered continued momentum equaling 22.6 million dollar and increasing 53% it'll be our golf.
Quarter was driven by continued increases and end to end Jacob platinum subscription as well as ongoing customers migration do multi cloud and hybrid environments.
Customers with over $100000 go to 736 compared to 696 in the previous quarter.
Increasing 37%.
Customers with a all over 1 million dollar increase 219 up from 18 in the previous quarter and up 27% it'll be real.
We are pleased with this result, especially in light of the market dynamics, we witness in the last few weeks of the quarter.
Today's calls when Sharon update on how the latest microeconomic changes are impacting our business. How we are adjusting poets and how we continue to drive golf alongside cost efficiency to capture the massive devops insecurity market opportunity that.
He stopped by expanding on the top three teams that drove customers acquisition and expansion throughout the year and specifically in queue for first.
Overall adoption of our entrance up to supply chain platform, showing increasing maturity and tooling consolidation by the enterprise second growing demand for security solutions that are fully integrated into the devops work flow and available as part of a full platform third cloud in multi cloud.
Migration and adoption.
Let's begin with the <unk>.
The growing adoption of our complete platform by new and existing customers showcases the broad needful scalable and two and fully integrated hybrid solutions.
They stick platform approach dog continued says momentum in queue for for example, one of the world's most recognizable payment processing companies completed standardization on the <unk> platform at their system before I called.
They chose Jacob over the pile solutions cyanotype necklace as they needed a highly available solution that scale efficiently and supports hybrid environments to meet the needs of thousands of developers.
In another example, leading commercial bank anemia chose J Prague is the enterprise Devops system of records due to the high level of complexity. They presented the requirements for universality full binary lifecycle management integrated security large scale and efficiency application and distribution.
Twain development site.
[noise] utilizing <unk> false false good management. This bank center J frog to complete the software supply chain coverage with an advanced solution for binary management and software supply chain security.
We felt the strength throughout 20 twenty-two as customers are telling us that both form of technology and business perspective platform consolidation and standardization will be a key theme in 2023, not only Paul Devops all their pickups, but for complete software supply chain management.
Second.
<unk>.
And made a folder, we launched an industry destructive setup advanced tools, introducing J Prague advanced security is the first step up centric security solution.
Why do we continue to build and expand this offering we were excited to see initial customers, who purchase J forget about security subscriptions quickly taking advantage of these capabilities J prompt meaningful investment insecurity over the past few years is beginning to bear fruit, we strongly believe that the only.
<expletive> J for platform Auerbach, J Probiotic factory, the database of Devops and the detractors found out in the software package management combined with our best of breed security solution into a single platform would drive adoption among our installed base and attract new users.
This is reflective of the sea change we so in 2022 of security being embedded across the starter supply chain and companies discovering that they they don't control execute binaries and their organization. They are finding it nearly impossible to secure the software acids and remediate.
Security issues.
Modern security technology is automated requires less human intervention manages software package dependencies, and set policy that protect and remediate and organizations software supply chain.
We've been J folk advanced security with this understanding and we believe it will displace legacy security solutions, attracting new customers to J frog as this market continues to mature.
And just over a year since our acquisition of redo J, probably has really a half dozen capabilities that can consolidate security point solutions currently in the market and some competitors cobbled together open source drooling to appeal to the market demands J folk delivers a comprehensive devops and depths of cups salute.
<unk> fall enterprises, who are looking to consolidate the two stock into a single platform.
Let me share with you how we differentiate insecurity.
Development teams are using security point solutions that generates too many results requiring them to inefficiently fix all the nobility is not allowing them to prioritise remediation based on context. This is why our contextual analysis capability was released.
Which a pug advanced security, we allow teams to prioritize safe development hours and focus on what matters also companies want to ensure that no software is shipped within accidentally included secrets. All access keys. This is why secrets detection in our advanced security solution is so.
Important as it discovers inadvertently revealing of secrets and where they lead in both cold and hard coded into binaries.
J for helping companies and development teams focus this holistic security airports with our solutions alleviating teams work loads decreasing Greek and covering the entire softer supply chain, which is impossible by scanning source code alone.
We believe this approach will help drive golf an existing customers in 2023.
Grading many into higher J folks subscription types that incorporate security solutions alongside call artifact management.
The budgets remain one of the most defensible areas of technology spent as enterprises prioritizing first thing in the end to end solutions to secure their growing digital attack surface.
Sample and kill for one of the Nordic Regents, most permanent banks turned to J Fox to incorporate security across the softer supply chain.
Looking for a multi cloud based solution to streamline the operation they partner with J fog and Google clouds via their marketplace to enhance the bank security posture and displace legacy on premise solutions.
In another few for example, one of France's most recognizable luxury brands turned to J Prague for complete disability and security across the softer supply chain thing they could now build once and run the everywhere securely across multiple cloud providers.
Looking to consolidate and standardize the depth pickups tools longterm. This company's illustrative of what we are hearing from thousands of J for customers.
They want to get control of those security tools fall and associate costs.
We'll keep investing in J Fox security solutions as one of our armed the cards and look forward to more advancement and innovation in software supply chain security in 2023.
We believe proven powerful holistic security solution, coupled with the end too and binary management is antidote to modern softer supply chain security threat.
Now I want to address our cloud business clouds, multi cloud and hybrid infrastructures continues to be the desired end state of many companies are.
[noise] enterprise customers tell us that cloud migrations are off.
And Ah multi ear at fault and that the hybrid capabilities of Jacob allow them to move over time at their own pace with limited disruption to the business.
We've been placed throughout the years to see growth Saint cloud brings us across all subscription types in.
Q for a fortune 100, pharmacy Bran chose J Prague software supply chain platform utility immediately to consolidate Devops Andexxa Cups solutions J properly place multiple existing on premise and cloud offerings, including container registry tools from AWS and Google cloud to manage the.
Full software supply chain on one platform.
500000 dollar enterprise plus bill was driven by the need for universality scalability consolidation of tools and J folks out of the box integrations across the ecosystem.
Recent CIL surveys validated by analysts and our customers tell us that while from short term budget, maybe tightening annual investment in Devops and security platforms. In 2023, specifically in Multicloud form are expected to go over 2022.
Next I want to address the ongoing macroeconomic challenges.
Yeah frogs are all wind right and customers reservation remains robust consistent with the historical trends and we haven't been able to close substantial amount of enterprise plus deals that show us the enterprise demand for <unk> solutions. However.
However, the macroeconomic headwinds such as elongated sales cycles and customers pushups increased significantly in the fourth quarter impacting the overall growth of our business. During the amount of December we witness a further slowdown in Dale closing and increased customers optimization airports in cloud.
Usage.
As we closed the quarter, we saw customers exercise caution in this uncertain environment. This is evident in the number of deals that pushed from Q, Paul into 2023, and now require a sea level budget signed us.
These impacted our golf and that retention rate in the fourth quarter.
It is further evidence that sir fostered customers, who considering migration to the cloud are expanding their on prime system at the slower pace in favor of the cloud migration strategies that are pending further budget proposals.
We would expect this pattern to continue in 2023 and have included them and I will forward the outlook.
Despite these challenges we see growing needful, Devops security and edge solutions are caused a sop to supply chain in 2023 and beyond continuing to believe J Fox after supply can classroom sets industry standouts and delivers unmatched value to the market.
As we step into 2023, we see opportunities to leverage investments, we have made within our solutions and fiery is allowing us to expand our profitability, while still delivering topline Gulf as we will share in our guidance.
J program was founded in a recession has been the solid business across the decade, and we believe remains well position and well equipped to deliver in uncertain times.
With that I'll turn the call over to our CFO Jacobs human who will provide an in depth recap of Pufahl financial results and update you on our outlook for both Q1 and fiscal year 2023 Jacob.
Thank you Shlomi and good afternoon, everyone. During the fourth quarter total revenues, where $76.5 million up 29% year over year.
For fiscal year, 2022 revenues were $280 million up 35% year over year. We ended the year with 7200 customers an increase of 8% over the 6650 customers at the end of 2021.
Expression in our abroad business continued during the fourth quarter with revenues of $22.6 million up 53% year over year, representing 80% of total revenues.
For fiscal year, 2022 are clogged revenues equaled $80 million up 60% year over year and equal 28% of total revenue. We are pleased with a growth in the record business during the quarter in fiscal year 2022. However, we have seen an expansion of headwinds from both <unk>.
<unk> stimulation and macroeconomic impact relative to our expectations, which impacted fourth quarter results in the fourth quarter, a cloud usage was impacted by the unexpected transition of our.
Customers to minimum annual commitments the transition to Daniel commitment is beneficial to our business reduces volatility and provide more visibility over the long term.
However, in the short term it negatively impacted our revenue growth in the quarter volume discounts based on commitments site.
Does manage revenues on pram, where $54 million up 21% year over year during the fourth quarter for full year, 2022, 12 minutes revenues and 28% compared to the Brian year net.
<unk> passion for the portrayal in quarters was 128% a decline of two point you to microcredit winds grocer.
We're also congestion continues to be at 97%.
Two four of 2022, 43% of total revenue came from enterprise plus subscription upfront, 35% in Q4 of 2021.
Now let me just got the income statement in more detail gross profit and the water was $64 million represent and gross margin of 83.7% compared to 84.8% in the year ago period.
Decrease in gross margin reality through the year ago period is it related to acquire portions of cloud revenues as a percentage of total.
We extend gross margins will remain between 83 and 84% in the near future and then turned toward the low areas over the long term escalade revenues become a greater portion of our total area.
The original expenses for the fourth quarter was $62.5 million or 82% of revenues upfront $50.2 million or 85% of revenues in the year ago period.
Are a great deal expensive the grocery gradually by our.
$3 million as we continue to build out our enterprise sales in general the relationships for the long term.
non-GAAP operating profit into four was $1.6 million or 2.1% a margin.
Margin compared to an operating profit of $50000.
1% operating margin and the year ago period.
We turned back to profitability of this quarter non-GAAP net income in the quarter was $4 million with earnings per share of <unk> based on the proximately 106 million weighted average diluted shares outstanding compared to a loss of one cents per share in the prior year quarter.
During the the balance sheets on cash flow, we ended the year with $443 million in cash and short term investments.
$434 million as of September 30th 2022.
Cash flow from a gracious was $7.3 million in the water at the taken into consideration Capex free cash flow was $6.4 million or 8% free castle margin.
Remain committed to accelerate in our free cash flow margins towards our long term targets are 30% or the guy many years.
As of December 31st 2022, Ah remained in performance obligations.
$204.7 million.
And I would like to speak about our outlook for 2023 and guidance for the first quarter and full year.
Our expectations for 2403 imply strong growth in our business.
But he used and continues headwinds relate to customer optimization efforts and ongoing macroeconomic impact will see based on growth levels moving toward the mid forties down from prior levels of mid fifties.
We expect to turn the slow expansion within ourselves close of business to continue through 2023 is more new customers land and expand with our cloud torches.
We're continuing to see an increase in use <unk> solutions by sales posted customers and therefore during the current fiscal year, we will implement the pricing change together rely on that value and deliver.
This Brian Griese will contribute draft with $6 million to our forecast that 223 revenue Bravo.
In addition, we will soon be related in that version of <unk> advanced security supporting ourselves posted customers. We're happy to see strong customer engagement since launch with our cloud based offering and citizens reduction as an opportunity to be an additional driver of expansion within ourselves posted customers.
Our outlook does not anticipate any injuries and got in return as we are not seeing the loss of weirdness.
We are seeing an allegation of customers migration process to the cloud, which will impact our neathery fashion levels in the short term.
Our expansion in our God business continues to be a catalyst for longer term growth.
Given the dynamics of ourself cotton glove businesses in 2023 will now expect are unable or a dash in the ratio to being low once one is for fiscal year 2023.
Estimated.
He returned to broke the ability in 2022 and now see opportunities to expand further in 2023 and beyond as will begin to leverage investments. We have made within R&D in sales and marketing or the past few years.
Following Brian cost optimization efforts will reference in the second half of 2022 will will continue with our cost management efforts shifted the resources to high growth opportunities and being disciplined about headcount growth.
Four Q1, we expect everything to be between 78 and $79 million with non-GAAP operating profit between 1.5 and $2.5 million non-GAAP earnings per diluted share of three to five cents.
Sure It counts of approximately 107 million shares for the full year of 2023, we anticipate the range between $340 million to $344 million non-GAAP operating income is expected to be between $17 million and $19 million and non-GAAP earnings per diluted share.
Of 18% to 20% is swimming to share count of approximately 110 million shares.
Now, let me turn to go back there. So let me for some closing remarks before we take your questions.
Thank you Jacob we believe we are well positioned to face macroeconomic headwinds as we have built a diversified customer base across multiple geographies and industry verticals we.
We believe our software supply chain platform is mission critical in the digital transformation of enterprise customers and our security capabilities complement our leading position in devops.
As we are turning the page on 2022 and leaping into twining twenty-three I'd like to take this opportunity and thank my team.
Over a 1300 fogs are working days and nights to make sure. We are not only innovating, but also turning our customers into a digital transformation catalysts we.
<unk> in the future and navigate through the macro challenges in 2023, we're committed to working with a community our customers partners and industry innovative to transform the software supply chain across our three cost thereof security and Iot.
Thank you all for your attendance today and made the property with you and now will be happy to take your questions operator.
Thank you.
If you would like to ask a question today Press star followed by the number one on your telephone keypad.
We asked today that you limit yourself to one question and one follow up thank you.
Your first question comes from the line as pendulum Bora, which J P. Morgan Your line is now open.
Okay. Thank you so much for taking the questions.
Maybe can start with the advance security side, it seems like you're seeing some.
Sure.
Traction there maybe help us understand kind of the attached.
Two existing customers at this point.
Kind of it's.
More of an expansion motion Donna.
Motion and.
In general what you are saying.
Pendulum. This is Jacob pendulum, it's if you could improve the quality of your line. Please it was really hard to hear the question.
Oh, sorry is this better.
Much better.
Yeah, I wanted to ask about advanced security in the India, Patridge that you're seeing with existing customers and if you're seeing any labs or maybe it is not a lab motion.
Yeah, it's been Julian Hi, This is shlomi I'll I'll start then Jacob feel free to try I mean, so advanced security as you know was launched on October of last year from the early beginning with so demand from our existing customers that require.
<unk> Ah platform solution that comes not only with the outer factory, an X ray, but the full comprehensive.
Advanced security capabilities. So we added some features that aligned with the software supply chain for a security and makes sense to the enterprise some of what we have heard from our customers and as we reported.
Some already purchased is that they need to consolidate solutions that are now spread between different point solution. They need the solution that can run in the cloud and on Prim and this is a plan and they need a solution that protect the software supply chain left to our tech.
Factory and right to alter factory and this is where J for concern security come Hussein.
Yeah, So Benjamin.
When security would be add on and requires extra capability. That's why in terms of attach right to the customers of ours Cup of our customers have access to X Ray So those would be the group of customers desk and today purchase advanced security again this just.
First weeks of this product will have we're happy to see if there are customers buying it and we have great expectations from this Broadway say, it's just the first the first weeks of this product in the market.
Yep I understood on the macro side, maybe help us understand the the pipeline that you're in.
Entering this year with at this point at this point in time and what have you seen so far in January is that more so what you see in in December or is it taking.
Step down I'm, just trying to understand that the guidance and you know how much how much room is there is it is it <unk>.
Yeah, So we did see.
Margaret economic headwinds accelerate they'd in in the last few weeks of December specifically, we did see increased activity in in cloud usage optimization would do see that customers trying to meet their budgets that don't have.
And you're more kind of.
Room to exceed the initial Alec budget delegations. We also saw some deals pushout because requires additional approvals, which was not required previously.
So that those dynamics, we believe will will continue to see in 2023, and that's what we took into account in our guidance for the full year in the first quarter.
Understood I'll get back in the <unk>.
Your next question comes from the line of San G Sing with Morgan Stanley . Your line is now open.
Thank you for taking the questions I wanted to follow up a little bit more on the Ah Jacob.
Jacob.
In terms of the diet industry C well understood on the location of sales cycles, but was wondering you know thus far to early January have you been able to close a D. A those pushed out deals and in terms of the dynamics of customers visiting from pay as you go monthly two annual you had mentioned this dynamic you know the <unk>.
For you know you know earlier earlier this fiscal year. So it was just the magnitude of the shift is just sort of more pronounced and as you think about.
Guidance for next year, where specifically are you <unk> conservative so they get a sense of how we how you arrive to your to guidance for 2023.
Yeah. So from the deals that were pushed out some of them were closed in 212 and three a lot of them haven't yet been clause because they require additional approvals and they're going through approvals and as we see customers look in their budgets and.
By the end of the year typically they working on the budget plans that was yet another reason for customers waiting with a a bird sin decisions before the budgets are finalized now with regards to the.
Pay as you go to annual commitments transition first of all the portion of our a pay as you go customers.
Per cent of our overall cloud business.
Today represents much smaller portion we entered the year with about two thirds of the business cloud business being players ago.
The year with but years ago to be about a quarter of the cloud business. So the transition to annual provides us better visibility.
Forecasted and capabilities and that helps us to create Vera even engagement with regards to him because his typically I'm kind of longer term a longer term engagements with customers with a roadmap.
We expect that the pay as you go to Daniel commitment transition will continue we've seen that obviously as you know they're all optimization from customers is coming from two angles. One is the storage optimization. The other one data.
Transfer optimization customers have more flexibility to do storage optimization, then data transfer optimization and we will have many of them have already done that but we still try to be cautious in terms of you know we just the.
Level of this optimization therefore, it increased in the last few quarter. The last few weeks of the quarter.
The.
Trying to be conservative in how we approach the full guidance for the year.
Understood.
<unk> I guess a question for you.
Yeah, Microsoft announcing gigs like.
Co pilot forget hub, which please have the potential to rapidly accelerate the development and production of code.
I imagine like you know the the Microsoft sort of competitors, Google Amazon, maybe others will respond in some sort of fashion and so what we think of this sort of <unk> on that sort of left hand side of the suffer release cycle. How do you think this packs of this trend where.
To continue with adoption of things like get a co pilot you know accelerates be dangerously what do you think the impact is on the.
The software really cycle sort of overall, how it impacts J frog at the Devops platform within that stop early cycle and maybe even a artifact with you can sort of peel the onion for us in terms of how the market maybe a faulty with respect to somebody's new AI based technologies.
Yeah. Thank you <unk> for the question, obviously, a I embedded into source code management, something that is led by Gator and and I think that they did a good job with the co pilot. However, this is Paul source called management most of what you do once you walk.
On your source code, you'll start to automate everything and this is the power binaries.
And when you automate AI is required the whole automation.
Uhm.
Artificial intelligence is required in order to do it.
Better management of binaries are better management of binary distribution in a better management of binary security some of these capabilities.
Ready included in how we build our next generation distribution next generation security some of the capabilities that we released in <unk> advanced security, replacing point solution legacy security solution with tools that are far more automated the power that we have.
Without the factory is that it's easy to automate binaries and it's almost I don't want to say impossible, but challenging to automate source code binaries are machine language. So I think that you will see more and more.
Embedded into J for security and to your question.
It will go perfectly with a I embedded into source code management.
Understood. Thank you Shirley.
Your next question comes from the line of Kingsley Crane with Canaccord Genuity. Your line is now open.
Hi, Thanks for taking the question. So I believe you're dieting physical twenty-three revenue growing around 22 per cent and then Q1 growing around 23 per cent and then exiting queue for around 128 per cent enter are so just kind of curious I know you said a little bit lower but what are the underlying.
The the guidance for next year.
Yeah. So weeks, so we entered the year with 128% Nether redemption, and we expect it gradually converge towards hundred 20 over the course of the year.
Okay. Thank you and then just wanted to touch also on the pricing changes so.
It sounds like it could provide a 6 million dollar tailwind.
Just any more color on the set of customers. This would effect and then the nature of this change.
So it's only but in fact in our self posted customers.
Clouds monetization model is based on usage.
Self posted business monetization is based on number of servers, we do see that our customers utilize our solutions more and more on the cell photo size, but it does not necessarily relate.
<unk> the server purchases.
And therefore, we decided to make this price change in order to better align the value that our customers getting with the with the price that they pay it's a small percent three to five per cent increase in across all subscription types on self hosted solutions.
Okay really helpful. Jacob Thank you <unk>.
Your next question comes from the line as Koji I Qaeda with Bank of America. Your line is now open.
Hey, Jacob patient me, Hey, guys. Thanks for taking the questions I wanted to follow up on that net revenue for attention color, there and I wanted to be kind of frame it more on the upside in perspective, you know.
What what needs to happen, maybe from a demand environment or you know the customers out there or the way that they're consuming the product that could drive net revenue retention higher from the little 120th may be back up to historical levels.
Yeah. So.
As you know our expansion of our customers in the cloud environment is higher than the corporate retention. So if we see that the trends of customer immigration accelerate or the trend of customer usage optimization in class.
Decelerate, that's what could create potential upside on the on the cloud usage also the adoption of our security solution of on brim.
The nurse again, as we noted and prepared remarks, we see we're very happy with the engagement with our cost of our customers for the on the cloud sides with the.
With advanced security capabilities, we expect to launch that for on premise. So the adoption of this capabilities for on <unk> by on Graham customers will also grade certain upside to our expectation with haven't launched yet advanced Securitas Pam that's why it's too soon for us too.
Del.
That's why we kind of potential potentially could create an upside negotiated and if I may add I think that what what we see is that the cloud goes you still performing very high you could see it in the results what we've seen in the last few.
Weeks of 2022 was the on prim customers that we're in the process of migrating to the cloud and improving obviously I will need dollars retention.
Currently on hold pending for budget approvals and and this is part of the pipeline that was boost but on the on the same hand, they are not investing more in on print. So it's kind of an in between periods for on firm customers that already expressed their motivation.
To move to the cloud already completed a successful proof of concept of this work load migration, but still waiting to get the final approval for budget of moving to the cloud and that's obviously on a on a on a bigger volume in our installed base <unk> current customers.
Got it now thank you for that and it just won't follow up here if I may question on.
Kind of a new business assumptions, you know thinking about the net revenue for attention and the guide and I mean, it does imply not not a lot of new business. So how should we be thinking about new business as a contribution to growth in 2023.
So we are we are looking at the at the new business and we are adding capabilities not only capabilities, but also more deployments environment cloud <unk>. Obviously, the majority of new customers are coming through the cloud and we are very happy about that that's a cloud first strategy that we said few years ago and now.
<unk>, well listen J frog provide a solution to the enterprise and small medium companies that already have the material development environment. If you are a start up with few developers, it's not it's not necessarily bring the value that would that you need.
S. K. So we are very pleased with the hundreds of new customers a new logos that we added and we are also very pleased with those that are joined us in previous years and now upgraded to the platform. So what we see coming next is more customers new customers joining us.
Is the scale joining us as they move to the cloud and joining us as they need more security capabilities under one platform.
Thanks, guys. Thank you so much for taking the questions.
Your next question comes from the line at Jonathan recover with Qantar. Your line is now open.
Yeah, Hey, guys.
So the the profitability for fiscal twenty-three much much higher than expected. So that's nice to see.
But given the the <unk> you see tobacco related headboard.
Top line Uhm are you sacrifice.
Too much on the girls side.
Guess, what I'm asking is what is your <unk> your confidence in achieving top line.
<unk> just give me the lower opex span and maybe something more that's occurring to the <unk> I don't know if competition is changing or can see different approaches maybe repository <unk> distribution it might be impacting the opportunity just seems.
Like with <unk>.
The the bullishness you articulated around expansion of artifacts right security <unk>.
That number would be going as low as you talk to.
Yes, so we invest it in the various areas over the course of the last few years and we can start to see first fruits from our investments in an insecurity capabilities artifact. There's obviously is a.
Factor standards in the industry and continued to be very strong brand. We also build significant infrastructure around or go to market and the Orange D capabilities. So we believe that the current level of investments is sufficient for us to achieve this alright.
Targets that we expect and and that's why we can inquiries no bottom bottom line as well because we feel comfortable in the level of <unk> <unk>.
John and if I may add.
Well you know J for your fellow J for profitability was part of our plan before the recession and and we are very happy I'm very pleased to see that we are not just committed to this K P. I, but also exceeded in the farming there and we will keep on doing that.
But to your your question is very important because you're asking if this is for profitability or we sacrifice something.
And the answer is no we actually invested in three main domains.
A cloud B platform and see security. This is what we have done for the past year and now I think that the company is set to kind of go after the fruits of these investments that are also very much a line with with the market demand.
And what we hear from the market. So we will take the profitability challenge alongside I'm going after the fruits of our investment in 2023.
Okay. That's that's helpful. Thank you.
The following question I have and I would think that this would be a positive but just the trend you might be seen or an artifact size container usage infrastructure as a code how did those trains potentially impacted me <unk>.
For an artifact or in a factory.
Yeah at the factory is Jacob mention I'll get back to his standup maker in the binary and I'll get back to the management and the world and we are very happy to see it.
Growing and especially when you customers in large enterprise adopting this Mr. <unk>, it's kind of showing us that what we invested in is really the center of gravity false off to supply chain management. When you build on top of the database of Devops Artek factory and our Tech factory became the single source of <unk> for all.
Companies than the capabilities that you're adding as part of the platform just completing the customer's ability to control the full softer supply chain left and right. Dorothy factory. So we still think that the primary asset and software supply chain management is artifacts and we also seeing it.
From the customers demand and we also seeing it from other companies that are trying to develop the same capabilities.
Okay.
That's all I had thank you.
Your next question comes from the line of Mike Psychos would need him. Your line is now open.
Hey, guys you have <unk> and thanks for taking the questions to get me on I wanted to cycle back to some of the earlier questions that are trying to get a what level of conservatism. These baked into the guidance or how how much. It had been the risks and really where I'm going with this is is focused a lot I think.
Jacob in your prepared remarks had said that <unk>.
In calendar 23 is expected to be mid forties as we look out over the course of the next year and I'm trying to just get a better feel or sense, but could you help us think about what went into your assumptions to arrive at that mid forties, especially if you look at the the composite you guys were up against.
Given the strong growth rates you guys delivered in calendar 22, but but anything on that on its outgrowth in twenty-three would really be beneficial from my understanding.
Yeah. So the following assumptions so the following assumptions will look that when we came to this conclusion a is the number of customers today and the overall business today on minimum annual commitments versus pay as you go.
Two we looked at the pipeline for migrations from on Bram to cloud.
And we assume some delays as we know that within experienced some delays in the <unk> in the late part of two four and we I assume that the delays we will continue to see some delays in 2023. So we applied some conservatism on the pipeline for conversion.
And we also did not embed the significant upside usage on top of a minimum commitment. So we do expect that customers will continue to optimize the cloud usage and therefore the.
Meanwhile, potential upsides above the annual commitments.
That's great I really do appreciate your walking me through that and then another question for you I guess the follow up here I forget if it was if it was code you, but one of my colleagues today is about what's expected for the calendar twenty-three contribution for new customers.
My question is a little bit different and probably more with respect to the existing customers here, but if I look at the <unk>.
Total customer account I know that we only get that on an annual basis, but encountered a 22 grew 8% year to year versus growing 10% and calendar 21, but calendar 21 would've been 13% if I strip out the customer's insurance because you guys Sunset a couple of products and so the question that I have is.
If the customer base is growing at a slower rate.
How is that impacting.
So whether you are you're you're forecasting here when you were thinking about the ability to continue to grow their existing customers.
It goes customers aren't growing it.
Rapid equipped as they had been in previous years.
Yeah, Mike I'll I'll take this question and thank you well first of all you know in the.
The past few years, we added 2000, new logos to J P portfolio. We are also happy with the fact that our cloud first strategy uhm navigate more and more new customers to to join J frog in the clouds person not migrating later and the third thing we are adding capabilities.
And we see a growing a S. P from the lending point, so I will entry level prices is higher.
There are more adoption.
Of new capabilities and steel when when you add hundreds of customers a year and thousand since since we stopped do you know building with a platform with you guys watching it.
I see the goal says as we expected and please remember is the answer to Koji. These.
These are mature companies.
Need a serious software supply chain coverage, meaning that they are ready to scale and they are not in the proof of concept of adopting a sop to supply chain salute solution. So we bill full-scale ability and we build a comprehensive solution that comes as one platform to to enable that this was one of the reasons that we we.
I also see a higher S P on the lending point.
Terrific. Thank you guys.
Your next question comes from the line appetite Kedron with Oppenheimer. Your line is now open.
Thanks, guys a couple of things for me slow me on the on the macro front and the allegation of the cell cycles. A couple of things on their first of all was January worst in December the same if you can talk about that.
And then second related to that is there any more color you can give us on <unk>.
<unk>, North America, Europe , Asia or type of customer enterprise commercial.
Yes. Thank you die. So it's too early for me to speak about January but the <unk> I can tell you that what we've seen in December and specifically in the last weeks of the previous quarter is kind of a pattern that that we keep on seeing and this is why we took it into consideration when we bought.
Actively <unk>.
Outlook.
We see that difference between geography's, not just because of the geopolitical situation in Europe , but some differences between geographies and how they adopt software supplier and how they adopt cloud. So obviously north America is leading with cloud migration.
<unk> with a big legacy industry <unk> start to move to the public cloud, we see ymir following but in a slower pace and APAC is really at the beginning of adopting platform solutions I'll still at the basics of data.
The second thing that we see that security, especially North America, and small specifically software supply chain security after the White House lounge should be saying that this is part of the regulation is part of every C. I O agenda 2023, and this is why we were very focused on having J for.
Advanced security for 2023 and not later this year. So I assume that we will keep saying this this trends elongated process small sea level sign off so we will see days, but the long say that in North America cloud growth.
Will still happen and security will still be stopping line of the C. I O and <unk> list.
Okay, and then may be following up on security in advance security more specifically.
Can you clarify the pricing changes related to advance security I mean, your headaches right before.
So the introduction of advanced security did want to pricing, how did that affect depressing scream and and how customers by it.
Yeah, So X Ray as you remember X ray as a tool to protect our Tech factory you have all the factory is your single source of truth, and then X Ray sits on top of it to make sure that your your binary repository protected what we have done with J for advanced security is we added capability.
Protect you from left and right to out in factory lift means how you protect you'll start to go the analyses how're you protect.
Your source code the how you protect your development environment right mean, how you protect your runtime environment container security secret detection and contextual analysis. So basically J for advanced security is is the price on top of the current subscription.
It focuses on on security for the full stop to supply chain X Ray is part of the current subscription which protect your factory now speaking of left and right to our Tech factory. We are looking at the power spend of over a billion dollar left loyalty factory developer security in around 4 billion dollar.
On the right to our Tech factory, which is more one time and production environment. So we are very excited about what J for advanced security can can bring in addition to all business.
Okay. So just to clarify did their slow me I take you mentioned the prepared remarks or Jacob Taylor don't remember that about 40 per cent of customers already have advanced security. So.
And a quarter to already almost half of your customers are paying extra for this or it just seems such.
Such a rapid adoption of an incremental paid solution yet your numbers and move into material kind of a way to suggest that it has been a meaningful impact helped me reconcile the two.
Yeah. It I I think that what we said is that Ah 40 per cent of our customers already have X Ray. This is not the advanced security got it advances. So what is on top of that and and requires an upgrade to a more superior subscription.
Got it and how what per cent of your customers have that.
We are just in the very early beginnings, we launched a J for good men security a few weeks ago and in the next few weeks, we are going to introduce J for between security for on Prime customer. So we are in the very early beginning and we hope to see that all the extra users will also upgrade to use J four <unk> security.
I appreciate it thank you so much.
Your next question comes from the line at Michael <unk>, which Keybanc. Your line is now open here.
Yes, Sir macro question first.
So some of these trends in cloud optimization and swore migrations, we're already taking place last quarter.
You can see that the hyperscaler numbers another place, but you another people and that's called cloud.
Native development, Uhm, headstrong corners, and third quarter and didn't didn't seem to be seeing that impact. So so what what's changed is just it's one quarter further into that optimization or are we actually seeing uhm.
More new software development projects, maybe canceled slowed down or less.
<unk> is that the change from last quarter to this corner.
Yeah, what we're seeing is more pronounced optimization of the cloud you <unk>.
And also somewhat delay and the customer migration to cloud some some customers put on hold the migration spend an additional approvals from sea level, while they stopped already investing into expansion of.
They're on a cell phone solutions.
Right Yeah.
Explain that what I'm, what I'm trying to get at is whether or not new development projects are slowing in a meaningful way and if that's changed from last quarter.
Yeah, I'll I'll say that we Michael.
If you if you're on an on frame environment and you already have the strategic approval to move to the public cloud what we see now is that you're holding and that's that's a very big chunk of their.
Migration process pipeline that we had the second thing was the cloud, especially at the end of of the last quarter. What we've seen is that maybe it's because of the Iran. Maybe because of budget reasons, but we've seen our cloud users goin' optimize the cloud usage.
Both in storage and data transfer and the last thing is that there are some hybrid users that are now deploying less funds in the on prim.
And not yet deploying more funds in the cloud we had the more conversation with sea levels than ever before that are waiting for a final biased budget approve it. So the main changed it we've seen between the end of last quarter to today is is around that.
Okay I'll just keep it at that one since we're at the top of the hour. Thanks.
Your next question comes from the line as Rob Owens with Piper Sandler Your line is now open.
Thanks for taking my question. This is Ethan on for Rob I, just wanted to kind of ask a little bit more on the I O T opportunity I know, there's some nightstands prepared remarks and.
Anywhere in the market that we've got right now are you seeing customers coming to you actively seeking this out or are you still kind of pain I'm in education.
Part of the cycle right now were you hoping customers understand that you have this capability.
Are you able to provide them with <unk> automated Luis appointment with with software. Thank you.
Yeah. Thank you all for this question as you remember in Q3 reported one big project that already adopted J for connect the I O T over the air update mechanism. We now have been five few other projects coming from very big customers that want to extend the factory and.
Security usage, all the way to the connected devices.
We are excited about that that part of the solution that we wanted to C. N N too and all the way to the device and it's still happening.
Thank you that's it for me.
There are no further questions at this time I turn the call back to <unk> for closing remarks.
I'd like to thank you all for your attendance today and looking forward to staying in touch. Thank you everyone.
This concludes today's call. Thank you for attending you may now I just can't.
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