Q1 2024 JFrog Ltd Earnings Call
Operator: Ladies and gentlemen, thank you for joining us and welcome to JFrog's first quarter 2024 financial results conference call. I'll now hand the conference over to Jeffrey Schreiner, VP, Investor Relations. Jeffrey, please go ahead.
Ladies and gentlemen, thank you for joining us and welcome to J Products' first quarter 'twenty 'twenty four financial results conference call.
Operator: I'll now hand, the conference over to Jeffrey Schreiner.
Jeffrey Allan Schreiner: D P Investor relations.
Jeffrey Allan Schreiner: Jeffrey Please go ahead.
Jeffrey Allan Schreiner: Good afternoon, and thank you for joining us as we review JFrog's first quarter 2024 financial results, which were announced following market close today via press release. Leading the call today will be JFrog CEO and co-founder Shlomi Van Haim and Ed Grabscheid, JFrog CFO.
Jeffrey Allan Schreiner: Good afternoon, and thank you for joining us as we review <unk> first quarter 2024 financial results, which were announced following market close today via press release, leading the call today will be Jay frog, CEO and co founder Shlomi been high and Ed grabbed shy.
Jay Brown: Jay Brown CFO.
Jeffrey Allan Schreiner: 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 and our outlook for Q2 and the full year of 2024. 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.
Jeffrey Allan Schreiner: 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.
Jeffrey Allan Schreiner: Including statements related to our future financial performance and included in our outlook for Q2, and the full year of 2024.
Jeffrey Allan Schreiner: Words anticipate believe continue estimate expect intend will and similar expressions are intended to identify forward looking statements or similar indications of future expectations.
Jeffrey Allan Schreiner: You are cautioned 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 obligating ourselves to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations.
Jeffrey Allan Schreiner: You are cautioned 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.
Jeffrey Allan Schreiner: Please keep in mind that we are not obligating ourselves to revise or publicly release the results of any revision to these forward looking statements in light of new information or future events.
Jeffrey Allan Schreiner: 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, 2023, which is available on the investor.
Jeffrey Allan Schreiner: 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, 2023, which is available on the investor relations section of our website and the earnest press release issued earlier today. Additional information will be made available in our Form 10-Q for the quarter ended March 31, 2024, and other filings and reports that we may file from time to time with the FEC.
Jeffrey Allan Schreiner: <unk> section of our website and the earnings press release issued earlier today.
Jeffrey Allan Schreiner: Additional information will be made available in our Form 10-Q for the quarter ended March 31, 2024, and other filings and reports that we may file from time to time with the SEC.
Jeffrey Allan Schreiner: Additionally, non-GAAP financial measures will be discussed at this conference. These non-GAAP financial measures, which are used as measures of JFrog's 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 reconciliation of those measures to their most directly comparable GAAP financial measures.
Jeffrey Allan Schreiner: 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.
Jeffrey Allan Schreiner: For a reconciliation of those measures to their most directly comparable GAAP financial measures.
Jeffrey Allan Schreiner: A replay of this call will be available on the JFrog Investor Relations website for a limited time. With that, I'd like to turn the call over to JFrog's CEO, Shlomi Benham. Shlomi. Thank you.
Jeffrey Allan Schreiner: A replay of this call will be available on the <unk> Investor Relations website for a limited time.
Shlomi Ben Haim: With that I'd like to turn the call over to <unk> CEO Shlomi been huh.
Jeffrey Allan Schreiner: Rami.
Shlomi Ben Haim: Thank you, Jeff. Good afternoon to you all, and thank you for joining us on our call. I'm pleased to report another strong quarter for JFrog, with all metrics exceeding the high end of our guidance. Unification of DevOps, DevSecOps, MLOps, and MLSecOps in a single platform continues to resonate in the market, resulting in continuous expansion across the portfolio. In the first quarter of 2024, JFrog delivered total revenue of $100.3 million, up 26% year-over-year. Our crowd revenue continues to show positive momentum in Q1, equalling $36.9 million, a growth of 47% year-over-year.
Shlomi Ben Haim: Thank you, Jeff and good afternoon to you all.
Speaker Change: And thank you for joining our call.
Shlomi Ben Haim: I'm pleased to report another strong quarter for <unk> with all metrics exceeding the high end of our guidance range.
Shlomi Ben Haim: The unification of Dev Ops Dev ops.
Shlomi Ben Haim: <unk> <unk> and <unk> in a single platform continues to resonate in the market.
Shlomi Ben Haim: <unk> and continued expansion across the portfolio.
Shlomi Ben Haim: In the first quarter of 2024, <unk> delivered total revenue of $100 3 million up 26%.
Shlomi Ben Haim: Our cloud revenue continued to show positive momentum in Q1, equaling $36 9 million a growth of 47% year over year.
Shlomi Ben Haim: Class goes above our guidance range of mid-40s was supported by increases in customer consumption. In Q1, JFrog customers with AR greater than $100,000 grew to 911 compared to 785 in the prior year, increasing 16% year-over-year. Customers with AR greater than $1 million increased by three in the quarter, now equalling a total of 40.
Shlomi Ben Haim: Cloud growth above our guidance range of mid forties was supported by increases in customer consumption.
Shlomi Ben Haim: In Q1, <unk> customers with greater than $100000 grew.
Shlomi Ben Haim: Go to 911 compared to 785 in the prior year increasing 16%.
Shlomi Ben Haim: Customers with greater than 1 million.
Shlomi Ben Haim: Increased by 3% in the quarter now equaling a total of 40. This is up from 21 in the year ago period growing 90% year over year, reflecting the continued success of our sales team stepped down efforts and adoption of the complete software supply chain platform by the enterprise.
Shlomi Ben Haim: This is up from 21 in the year-ago period, growing 90% year-over-year, reflecting the continued success of our sales team's top-down efforts and adoption of the complete software supply chain platform by the enterprise. Our customers continue to tell us that having a single system of record that allows the seamless secure flow of binaries for DevOps and security is mission critical to their business. In addition, we see the practices of DevOps being implemented by organizations that wish to enable the next generation of applications already incorporating Gen AI and machine learning.
Shlomi Ben Haim: Our customers continue to tell us that having a single system of record that allows the seamless secure flow binaries for Dev ops and security is mission critical to their business.
Shlomi Ben Haim: In addition, we see the practices of Dev ops being implemented by organizations that wish to enable the next generation of applications already incorporating gen AI and machine learning.
Shlomi Ben Haim: In the past year, we expanded the JFrog software supply chain platform to include MLOps and MLSecOps solutions as mandatory requirements to support our users alongside DevOps and DevSecOps comprehensive solutions. This unified approach led to some of the themes behind our first quarter successes that will be discussed today.
Shlomi Ben Haim: In the past year, we extended the <unk> software supply chain platform to include MLR dynamic setup solutions as mandatory requirements to support our users alongside Dev ops and <unk> comprehensive solution.
Shlomi Ben Haim: This unified approach led to some of the things behind our first quarter successes that will be discussed today.
Shlomi Ben Haim: On our call today, we will cover the continuous adoption of the JFrog platform, including embedded holistic security solutions. Next, I will look at cloud usage and migration trends. We will also share updates about our partners and channel go-to-market activity and game-changing technology integrations. Finally, I will share how JFrog's AI and ML solutions support the emerging needs of our customers. Let me address the adoption of the JFrog platform by the world's largest companies.
Shlomi Ben Haim: On our call today, we will cover the continued adoption of the <unk> platform, including embedded holistic security solutions next I will look at the cloud usage and migration trends. We will also share updates about our partners and channel go to market activity and game changing technology integrations finally I.
Shlomi Ben Haim: Sure, how <unk> AI and ml solutions support the emerging needs of our customers.
Shlomi Ben Haim: Let me address the adoption of the <unk> platform by the world's largest companies.
Shlomi Ben Haim: As a unified software supply chain platform with artifactory at its core, the JFrog platform continues to be chosen as a mission critical partner by some of the world's most demanding and highly regulated enterprises who are increasingly looking to standardize on holistic solutions. One of the most recognizable financial services companies in the world, Fidelity, recently extended their relationship with JFrog to drive DevOps scale alongside security while increasing SLA capabilities for thousands of developers.
Shlomi Ben Haim: As a unified software supply chain platform without the factory, it's called the <unk> platform continues to be chosen as mission critical partner by some of the world's most demanding and highly regulated enterprises, who are increasingly looking to standardize on holistic solutions.
Shlomi Ben Haim: Supporting over 42 million customers with a stated goal of over 90% of their applications in the cloud by 2026, Fidelity needed a partner with robust hybrid and multi-cloud capabilities to support the cloud-first and enterprise-scale DevSecOps vision. Girard McMahon, head of ALN Tools and Platforms at Fidelity, noted in a webcast with JFrog, "The whole development process has become You have to shift left, shift middle, and shift right.
Shlomi Ben Haim: One of the most recognizable financial services companies in the World Fidelity recently expanded their relationship with <unk> to drive Dev upscale alongside security, while increasing SLA capabilities for the thousands of developers.
Shlomi Ben Haim: Pumping over 42 million customers with a stated goal of over 90% of the applications in the cloud by 2026 fidelity needed a positive with robust hybrid and multi cloud capabilities to support the cloud first and enterprise scale that pickups vision.
Shlomi Ben Haim: Yeah, Rob Mcmahon head of <unk> tools and platform that fidelity noted in the webcast with <unk>.
Shlomi Ben Haim: The whole development processes has become much more symbiotic.
Shlomi Ben Haim: To shift left shifts needle and shift right.
Shlomi Ben Haim: As we continue to use tools like JFrog X-Ray and JFrog Artifactory, security is much more ingrained into the full lifecycle of software delivery. Fidelity is not alone. We see companies increasingly integrating DevOps and security strategies, tool-tool consolidation, scalability planning, and embracing cloud, hybrid, and multi-cloud environments. DevOps stakeholders have already taken ownership of software supplies and security in most companies. But enterprises failing to streamline security tools by minimizing point solutions will face higher expenses, wasted time, an inability to automate security practices, also known as DevSecOps, and possibly place the entire organization at risk.
Shlomi Ben Haim: As we continue to use tools like <unk> X Ray and Jeff about the factory security is much more ingrained into the full lifecycle of software delivery.
Shlomi Ben Haim: Fidelity is not alone we see companies increasingly integrating Dev ops and security strategies total consolidation scalability planning and embracing cloud hybrid and multi cloud environments.
Shlomi Ben Haim: That all stakeholders have already taken ownership of softer supplies and security in most companies.
Shlomi Ben Haim: But the enterprises failing to streamline security tools by minimizing point solutions will face higher expenses wasted time inability to automate security practices also known as that tech ops and possibly place the entire organization at risk.
Shlomi Ben Haim: One of the strongest differentiators is the company's security research team that fuels tools with unique data, often before anyone else in the market, delivering crucial value to DevSecOps processes. Reflecting this reality, the JFrog security research team recently released a software supply chain state of the union report. The report revealed that many companies still have major security gaps, with only about half of companies actively scanning and securing both code and binaries. It also revealed that despite sometimes using 10 or more security point solutions, companies are unable to detect that nearly 75% of supposedly critical vulnerabilities are not even exploitable.
Shlomi Ben Haim: One of the strongest Differentiators is the company security research team that few tools with unique data often before anyone else in the market delivering crucial value into that tech ops processes.
Shlomi Ben Haim: Reflecting this reality the <unk> security research team recently released a software supply chain state of the Union report.
Shlomi Ben Haim: The report revealed that many companies still have major security gaps with only about half of companies actively scanning and securing both code environment.
Shlomi Ben Haim: It also revealed that despite sometimes using 10 or more security point solutions companies are unable to detect that nearly 75% supposedly critical vulnerabilities are not even exploitable.
Shlomi Ben Haim: Industry analyst Paul Nashawaty from Futurum Group noted the report and its consequences. JFrog's analysis reveals an important finding: a sizable percentage of vulnerabilities that have been reported are not exploitable. This emphasizes how crucial it is for engineers to distinguish between theoretical vulnerabilities and those that pose real concerns.
Shlomi Ben Haim: Industry analyst, Paul nausea walkway from future.
Shlomi Ben Haim: Noted regarding the report and its consequences.
Shlomi Ben Haim: Okay probes analysis revealed an important finding a sizable percentage of the net abilities that have been reported are not exploitable. This emphasizes how crucial it is for engineers to distinguish between theoretical vulnerabilities and does that pose real concerns.
Shlomi Ben Haim: Our security research team's reports are closely tracked by the market, as they often uncover groundbreaking insights. This finding serves as the cornerstone for enhancing our tool capabilities, ensuring JFrog X-Ray, JFrog Advanced Security, and JFrog curation deliver our users unmatched DevSecOps protection. I would now like to address our cloud business. Exiting the first quarter of 2024, we continue to see organizations looking for optimization of their cloud spend in tight budgetary environments. We are actively building the pipeline for cloud migration and anticipate enterprise efforts will accelerate throughout the year, similar to how they approached 2023.
Shlomi Ben Haim: Our security research teams reports are closely tracked by the market as they often uncover groundbreaking insights. This finding serve as the cornerstone for enhancing our tool capabilities, ensuring J book X Ray <unk> advanced security and Jacob duration deliver our view.
Shlomi Ben Haim: The unmatched depth hiccups protection.
Shlomi Ben Haim: I would now like to address our cloud business exiting the first quarter of 2024, we continue to see organizations looking for optimization for the cloud spend and tight budgetary environment.
Shlomi Ben Haim: We are actively building the pipeline for cloud migration and anticipate enterprise efforts will accelerate throughout the year similar to how they approach 2023.
Shlomi Ben Haim: We are also seeing cloud customers looking to standardize on best-of-breed platforms to effectively manage their software delivery. For example, JFrog customer Informatica recently signed a new deal to grow the JFrog platform as the system of records for the software supply chain. Attracted to JFrog's universality, breadth of solution, and cloud-first development approach, Informatica supercharged their platform experience. Their DevSecOps team noted that Informatica empowers their customers to realize the transformative capabilities of their data, utilizing their AI-powered data management platform.
Shlomi Ben Haim: We are also seeing cloud customers looking to standardize on best of breed platform to effectively manage the total delivery.
Shlomi Ben Haim: For example, <unk> customer Informatica recently signed a new deal to grow the <unk> platform as the system of record for the software supply chain <unk>.
Shlomi Ben Haim: Attracted to Jay Province, Universality breadth of solution and cloud development approach Informatica supercharge their platform experience Bill Demchak upstream noted informatica empowers our customers to realize the transformative capabilities of the data utilizing company's AI powered data.
Shlomi Ben Haim: Management platform.
Shlomi Ben Haim: By partnering with JFrog and leveraging the solutions for our DevSecOps needs, we're able to take advantage of best practices across our software supply chain to improve efficiency. We expect JFrog's cloud growth in 2024, much like the previous year, to continue to be driven by usage extension. We anticipate that cloud migration projects will gradually emerge, carefully managed within budget constraints. Our guidance aligns with evolving market trends, and we remain committed to collaborating with our customers and partners to facilitate the adoption of our software supply chain platform. Now, I want to address our partner and refiller network as part of our strategic channel group.
Shlomi Ben Haim: By partnering with <unk> and leveraging the solutions for our depth pickups needs, we're able to take advantage of best practices across our software supply chain to improve efficiency.
Shlomi Ben Haim: We expect J Fox cloud growth in 2020 for much like the previous year to continue to be driven by usage expansion. We anticipate this cloud migration project will gradually emerge carefully manage within budget constraints.
Shlomi Ben Haim: Our guidance is aligned with evolving market trends and we remain committed to collaborating with our customers and partners to facilitate the adoption of our software supply chain platform.
Shlomi Ben Haim: JFrog is constantly expanding its partner network across resellers, integrators, and technology partners. As an investment in this area, we recently formalized a partnership with the leading governmental distributor, Kerasoft, to serve as a JFrog public sector reseller. Nathalie Gregory, Vice President of Open Source Solutions at Kairosoft, said, "Supply chain attacks in recent years have highlighted the importance of integrating security into each phase of software development. A single source of truth for a company's binaries in a solution like JFrog Artifactory, along with integrated security as part of a holistic platform, allows JFrog to provide agencies with unparalleled DevSecOps agility We anticipate further growth in JFrog's indirect and reseller sales for the enterprise as we continue to expand our partner programs across sectors and geographies. Finally...
Shlomi Ben Haim: Now I want to address our partner and reseller network as part of our strategic channel growth.
Shlomi Ben Haim: <unk> progress constantly expanding our partner network across resellers integrators and technology partners.
Shlomi Ben Haim: As an investment in this area, we recently formalized a partnership with a leading governmental distributor tariff cost to serve as the general public sector.
Shlomi Ben Haim: Natalie Gregory Vice President of open source solution that scales offset.
Shlomi Ben Haim: Slide 10 attacks in recent years have highlighted the importance of integrating security into each phase of software development. Our single source of tools for companies binaries and a solution like JP about the factory along with integrated security as part of a holistic platform allows <unk> to provide.
Shlomi Ben Haim: The agencies with unparalleled dipstick ops agility and peace of mind for the software supply chain.
Shlomi Ben Haim: We anticipate further growth in <unk> indirect and retail sales for the enterprise as we continue to expand our partner programs across sectors and geographies.
Shlomi Ben Haim: Finally allow.
Shlomi Ben Haim: Allow me to discuss the expansion of our platform to support MLOps and GenAI initiatives. In today's hype, every DevOps tool is talking about how their solutions support or utilize AI-based practices. But beyond the buzzwords, there is a critical question.
Speaker Change: Allow me to discuss the expansion of our platform to support MLR and G&A AI initiatives.
Shlomi Ben Haim: In today's high every Dev ops to restocking about how those solutions support all utilized AI based practices, but beyond the buzzwords. There is a critical question can the solution deliver on its promises and the infrastructure used effectively guide ml powered software securely.
Shlomi Ben Haim: Can the solution deliver on its promises? Can the infrastructure you use effectively guide ML-powered software securely from development to production? ML models are like all other binaries that require management, security, and governance. JFrog, with its model as a package approach, once again offers a top-tier solution to the industry, enabling freedom of choice for ML engineers and responsible AI adoption by the organization. With our commitment to universality, we have always focused on making the JFrog platform too integrated to fail.
Shlomi Ben Haim: From development to production ml models are like all other binary that required management security and governance.
Shlomi Ben Haim: <unk> with this model as the package approach once again offers adoptive solution to the industry, enabling freedom of choice for MLR engineers and responsible AI adoption by the organization.
Shlomi Ben Haim: With our commitment to universality, we have always focused on making the <unk> platform to integrate it to fail without the factory as the model registry of choice. We recently introduced the industry's first desktop platform to seamlessly integrate with Emerald flow and quad platforms as we anticipate.
Shlomi Ben Haim: With Artifactory as the model registry of choice, we recently introduced the industry's first DevOps platform to seamlessly integrate with MLflow and Quark platforms, as we anticipate MLOps market needs. Driven by the organic growth of our platform and customer demand, we continue to actively integrate AI and machine learning into software supply chain practices. MLflow, a Databricks open source project that has over 14 million monthly downloads, gives users the ability to build, manage, and deliver ML models in a streamlined workflow. Ali Ghodsi, CEO of Databricks, the data intelligence platform designed to help organizations harness the power of big data and artificial intelligence sets
Shlomi Ben Haim: Ml ops market gains.
Shlomi Ben Haim: Driven by the organic growth of our platform and customers demand. We continued to actively integrate AI and machine learning into software supply chain practices.
Shlomi Ben Haim: And then flow of data breaks open source project, which has over 14 million monthly downloads gives users the ability to build manage and deliver ml models in a streamlined workflow.
Shlomi Ben Haim: And it got see CEO of data breach the data intelligence platform designed to help organizations harness the power of big data and artificial intelligence said.
Shlomi Ben Haim: Originally developed by Databricks, MLflow streamlines the machine learning processes with a platform for experiment tracking, model packaging, and model deployment. Through a JFrog platform integration, users can now seamlessly utilize JFrog Artifactory as a model registry with JFrog X-Ray to secure the ML model artifact. This integration accelerates both the development and deployment phases of ML-powered applications, helping companies to drive responsible AI practices. As noted, we also announced the JFrog and Qwark integration.
Shlomi Ben Haim: Originally developed by data Briggs <unk> streamlines, the machine learning processes with a platform for our experiment tracking model packaging and model deployment.
Shlomi Ben Haim: J Paul platform integrations users can now seamlessly utilize J Paul about the factory is the model <unk> suite with <unk> rates to secure the animal model loss effects. This integration accelerates, both the development and deployment phases of MLP out applications, helping companies to drive.
Shlomi Ben Haim: Responsible AI practices.
Shlomi Ben Haim: As noted we also announced the GE program Guac integration Guac is an MLR platform designed to facilitate the construction deployment management and monitoring of AI work flows, allowing users to deliver AI applications at speed and scale. This integration further expense that Jay.
Shlomi Ben Haim: Qwark is an MLOps platform designed to facilitate the construction, deployment, management, and monitoring of AI workflows, allowing users to deliver AI applications at speed and scale. This integration further expands the JFrog platform, catering to ML engineers by providing them with a single source of tools for their models. Alon Lev, CEO of Quark, noted that integrating with a proven artifact repository like JFrog Artifactory allows Quark to provide the automation capabilities that make data scientists and ML engineers more efficient while allowing DevOps and DevSecOps teams to manage ML models like any other software package in a holistic, secure software supply chain.
Shlomi Ben Haim: <unk> platform catering to ml engineers by providing them with a single source of truth for their models and long live CEO of Quark noted integrating with a proven artifact repository like J Paul about the factory allows <unk> to provide the automation capabilities. This mixed.
Shlomi Ben Haim: Data scientist and MLR engineers, more efficient, while allowing Dev ops in depth upstream to manage ml models like any other software package in a holistic secure software supply chain.
Shlomi Ben Haim: As JFrog continues to bring together DevOps, DevSecOps, MLOps, and MLSecOps into a single enterprise-grade platform, we look forward to supporting the emerging needs of our users and aim to further expand the platform to enable ongoing consolidation needs across the software supply chain. We are excited about the growth opportunity the world of MLOps and MLSecOps has introduced as part of the Gen AI revolution, and we will keep expanding our platform in this direction as it's a natural leap forward for us and for our customers.
Shlomi Ben Haim: As J P continues to bring together a dev ops Dev ops <unk> <unk> into a single enterprise grade platform, we look forward to supporting the emerging needs of our users and aim to further expand the platform to enable ongoing consolidation needs across the software supply chain.
Shlomi Ben Haim: We're excited about the growth opportunity the world of MLR and MLC pickups introduced as part of the Gen. AI Revolution, and we will keep expanding our platform towards a direction as its natural leap forward for us and for our customers.
Shlomi Ben Haim: With that, I will turn the call over to our CFO, Ed Grabscheid, who will provide an in-depth recap of Q1 financial results and update you on our outlook for both Q2 and the full fiscal year of 2024.
Ed Grabscheid: With that I will turn the call over to our CFO, Ed <unk> will provide in depth recap of Q1 financial results and update you on our outlook for both Q2 and full fiscal year of 2024.
Ed Grabscheid: Thank you, Shlomi, and good afternoon, everyone. During the first quarter of 2024, total revenues were $100.3 million, up 26% year-over-year. First quarter results exceeded the high end of our guidance range across all measures as a result of ongoing strength in our cloud revenues and growth in our Enterprise Plus subscription. We continue to see customers looking to consolidate their software supply chain tools toward a best-of-breed platform solution.
Ed Grabscheid: Thank you Shlomi and good afternoon, everyone. During the first quarter of 2024 total revenues were $103 million up 26% year over year.
Ed Grabscheid: First quarter results exceeded the high end of our guidance range across all measures as a result of ongoing strength in our cloud revenues and growth in our enterprise plus subscriptions.
Ed Grabscheid: We continue to see customers looking to consolidate their software supply chain tools towards a best of breed platform solution.
Ed Grabscheid: Our results demonstrate strong execution during the first quarter. As noted by Shlomi, in the first quarter of 2024, we saw customers allocating efforts towards efficiency and their software development spend versus a focus on accelerating new projects. Cloud revenues in the quarter equaled $36.9 million, up 47% year-over-year, representing 37% of total revenues versus 31% in the prior year. The growth in cloud revenues above our guidance in the mid 40s for 2024 was driven by customer usage levels above commitment. We reiterate fiscal 2024 baseline cloud growth of around the mid 40s for the full year.
Ed Grabscheid: Our results demonstrate strong execution during the first quarter.
Ed Grabscheid: As noted by Shlomi and the first quarter of 2024, we saw customers allocating efforts towards efficiency in their software development spend versus a focus on accelerating new projects.
Ed Grabscheid: Cloud revenues in the quarter equaled $36 9 million up 47% year over year, representing 37% of total revenues versus 31% in the prior year.
Ed Grabscheid: The growth in the cloud revenues above our guidance in the mid <unk> for 2024 was driven by customer usage levels above commitments.
Ed Grabscheid: We reiterate fiscal 2024 baseline cloud growth around the mid <unk> for the full year.
Ed Grabscheid: Self-managed revenues, or on-premises, were $63.4 million, up 16% year-over-year during the first quarter. We anticipate self-hosted revenue growth trends in 2024 will be similar to 2023. Net dollar retention for the four trailing quarters was 118%, in line with our guidance for high teens during 2024. However, our gross retention rate remained at 97%. Our first quarter results saw strong customer adoption of the complete JFrog platform, driven by customers consolidating point solutions and securing their full software supply chain.
Ed Grabscheid: Self managed revenues are on Prem were $63 4 million up 16% year over year during the first quarter we.
Ed Grabscheid: We anticipate self hosted revenue growth trends in 2024 will be similar to 2023.
Ed Grabscheid: Net dollar retention for the four trailing quarters was 118% in line with our guidance for high teens during 2024.
Ed Grabscheid: Our gross retention rate remained at 97%.
Ed Grabscheid: Our first quarter results saw strong customer adoption of the complete J fraud platform driven by customers consolidating point solutions and securing their full software supply chain in Q1, 49% of total revenue came from enterprise plus subscriptions up from 44% in the prior year.
Ed Grabscheid: In Q1, 49% of total revenue came from Enterprise Plus subscriptions, up from 44% in the prior year. Revenue contribution from Enterprise Plus subscriptions grew 39% year over year. Now I'll review the income statement in more detail. Gross profit in the quarter was $85.3 million, representing a gross margin of 85.1% compared to 82.9% in the year-ago period. The increase in gross margin relative to the year-ago period is attributable to the elimination of outsource costs derived from the synergies related to the acquisition of VDU and ongoing cost discipline efforts.
Ed Grabscheid: Revenue contribution from enterprise, plus subscriptions grew 39% year over year.
Ed Grabscheid: Now I'll review the income statement in more detail.
Ed Grabscheid: Gross profit in the quarter was $85 3 million, representing a gross margin of 85, 1% compared to 82, 9% in the year ago period.
Ed Grabscheid: The increase in gross margin relative to the year ago period is attributable to the elimination of outsource cost derived from the synergies related to the acquisition of Btu and ongoing cost discipline efforts.
Ed Grabscheid: We reiterate our expectation for annual targets remaining between 83 to 84% in the near future, then trending towards the low 80s aligned with our long-term model and cloud growth. Operating expenses for the first quarter were $71.3 million, up $5.2 million sequentially, equaling 71% of revenues, up from $63.5 million, or 80% of revenues in the year-ago period. We continue to remain focused on expense discipline while investing in scaling our enterprise sales team, channel partner ecosystem, and strategic R&D spending.
Ed Grabscheid: We reiterate expectation for annual targets remaining between <unk>, 83% to 84% in the near future then trend towards the low <unk> aligned with our long term model and cloud growth.
Ed Grabscheid: Operating expenses for the first quarter were $71 3 million.
Ed Grabscheid: Up $5 $2 million sequentially, equaling, 71% of revenues up from $63 5 million or 80% of revenues in the year ago period.
Ed Grabscheid: We continue to remain focused on expense discipline, while investing in scaling our enterprise sales team channel partner ecosystem and strategic R&D spending.
Ed Grabscheid: Our operating profit in Q1 was $14.1 million, or 14% operating margin, compared to an operating profit of $2.7 million, or 3.4% operating margin in the year-ago period, an improvement of 10.6 percentage points. Earnings per share equaled $0.16 based on approximately 114.6 million weighted average diluted shares compared to $0.06 per share in the prior year on 106.9 million weighted average diluted shares. Turning to the balance sheet and cash flow, we ended the first quarter of 2024 with $579.6 million in cash and short-term investments, up from $545 million as of December 31st, 2023. Cash flow from operations was $17.5 million in the quarter.
Ed Grabscheid: Our operating profit in Q1 was $14 1 million or.
Ed Grabscheid: Our 14% operating margin compared to an operating profit of $2 7 million.
Ed Grabscheid: Our three 4% operating margin in the year ago period, an improvement of 10 six percentage points.
Ed Grabscheid: Earnings per share equaled 16 based on approximately $114 6 million weighted average diluted shares compared to <unk> <unk> per share in the prior year and $106 9 million weighted average diluted shares.
Ed Grabscheid: Turning to the balance sheet and cash flow. We ended the first quarter of 2024 with $579 6 million in cash and short term investments up from $545 million as of December 31, 2023.
Ed Grabscheid: Cash flow from operations was $17 5 million in the quarter after taking into consideration our capex requirements free cash flow was $16 6 million or 16, 6% free cash flow margin.
Ed Grabscheid: After taking into consideration our CapEx requirements, free cash flow was $16.6 million, or 16.6% free cash flow margin. We remain committed to our free cash flow margin targets provided within our long-term model, implying an estimated midpoint of 28% over the coming years. As of March 31st, 2024, our remaining performance obligation totaled $261.7 million. Now, I would like to speak about our guidance for the second quarter and full year 2024. Our outlook for 2024 implies continued momentum within our cloud business, driven by expectations for increasing customer usage, adoption of our Enterprise Plus platform, and contribution from new security products.
Ed Grabscheid: We remain committed to our free cash flow margin targets provided within our long term model, implying an estimated midpoint of 28% over the coming years.
Ed Grabscheid: As of March 31, 2020 for our remaining performance obligations totaled $261 7 million.
Ed Grabscheid: Now I would like to speak about our guidance for the second quarter and full year 2024.
Ed Grabscheid: Our outlook for 2024 implies continued momentum within our cloud business driven by expectations for increasing customer usage adoption of our enterprise plus platform and contribution from new security products.
Ed Grabscheid: We anticipate seasonality in 2024 to be consistent with 2023, as customer activity likely accelerates through the year, weighted more towards the second half, as budgets and resources are allocated to key initiatives after focusing on expense rationalization by customers during the first quarter. Given the expectation of our self-hosted and cloud businesses, we reiterate our guidance suggesting a net dollar retention rate of high teams exiting the fiscal year 2024, implying stability through the remainder of the year.
Ed Grabscheid: We anticipate seasonality in 2024 to be consistent with 2023 as customer activity likely accelerates through the year weighted more towards the second half as budgets and resources are allocated to key initiatives after focus on expense rationalization by customers during the first quarter.
Ed Grabscheid: Given the expectation of our self hosted and cloud businesses, we reiterate our guidance, suggesting a net dollar retention rate in the high teens exiting the fiscal year 2024, implying stability through the remainder of the year.
Ed Grabscheid: We will continue to expand operating expenses on a dollar basis during 2024 but see room for operating leverage as ongoing cost discipline and strategic investment remain balanced. For Q2, we expect revenue to be between $103 million and $104 million, equaling 23% year-over-year growth at the midpoint, with non-GAAP operating profit between $13 million and $14 million and non-GAAP earnings per diluted share of $0.13 to $0.15, assuming a share count of approximately 116 million shares.
Ed Grabscheid: We will continue to expand operating expenses on a dollar basis. During 2024, let's see room for operating leverage as ongoing cost discipline and strategic investment remain balanced.
Ed Grabscheid: For Q2, we expect revenue to be between $103 million and $104 million equaling, 23% year over year growth at the midpoint.
Ed Grabscheid: With non-GAAP operating profit between $13 million and $14 million and non-GAAP earnings per diluted share of 13 to 15.
Ed Grabscheid: Assuming a share count of approximately 116 million shares.
Ed Grabscheid: For the full year of 2024, we raised our revenue range between $425.5 million and $429.5 million. Non-GAAP operating income is expected to be between $56 million and $58 million, and non-GAAP earnings per diluted share of $0.59 to $0.61, assuming a share count of approximately 116 million shares.
Ed Grabscheid: For the full year of 2024, we raised our revenue range between $425 $5 million and $429 5 million.
Ed Grabscheid: non-GAAP operating income is expected to be between $56 million and $58 million and.
Ed Grabscheid: And non-GAAP earnings per diluted share of <unk> 59 to 61.
Ed Grabscheid: Assuming a share count of approximately 116 million shares.
Shlomi Ben Haim: Now I'll turn the call back to Shlomi for some closing remarks before we take your questions.
Ed Grabscheid: Now I'll turn the call back to Shlomi for some closing remarks before we take your questions.
Shlomi Ben Haim: Thank you, Ed. In one week, Israel will observe its 76th Independence Day. This year, Israel can truly celebrate, but only mark the day. The 132 civilian hostages still held by Hamas in Gaza since October 7 remind us that until they are safely reunited with their families, an important milestone like Independence Day cannot be celebrated in full.
Shlomi: Thank you Ed in one week, Israel will observe it 76 independent state this.
Shlomi Ben Haim: This year, Israel can truly celebrate but only market to date.
Shlomi Ben Haim: 132 civilian hostages still held by amounts in Gaza Since October seven reminds us that until they are safely reunited with their family and important milestones like independence day cannot be celebrated in flu.
Shlomi Ben Haim: Despite the ongoing challenges of the war in Israel and global macroeconomic uncertainties, the JFrog team remains dedicated to our goals and culture. Team JFrog, your unwavering commitment and consistent delivery are truly admirable. I'm saluting your resilient spirit and thank you for your hard work. Q1 was a solid start for the year.
Shlomi Ben Haim: Despite the ongoing challenges of the wall in the Israel and global macroeconomic uncertainties that Jay prop team remains dedicated to our goals and culture Bmj product.
Shlomi Ben Haim: Unwavering commitment and consistent delivery are truly admirable.
Shlomi Ben Haim: Saluting Youll resilient spirit and thank you for your hard work.
Shlomi Ben Haim: Q1 was a solid start for the year. We continue to believe that <unk> is a system critical for the entire software supply chain is uniquely positioned for success in the expanding world of Dev ops and security as well as seeing potential growth in the emerging market of Gen II.
Shlomi Ben Haim: We continue to believe that JFrog, as a system of records for the entire software supply chain, is uniquely positioned for success in the expanding world of DevOps and security, as well as potentially seeing potential growth in the emerging market of Gen AI. We also recently announced our annual user conference, SwampUP, to be held in September in Austin, Texas. This year's keynotes will change the DevOps, DevSecOps, and MLOps landscape as we again prepare together with our partners and community to set the industry standouts moving forward. With that, thanks for joining our call, and may the frog be with you. Operator, we are now open to take questions.
Shlomi Ben Haim: We also recently announced our annual user conference lump up to be held in September in Austin, Texas.
Shlomi Ben Haim: <unk> Keynotes will change the devil they pick ups in MLR landscape as we again prepare together with our partners and community to set the industry standouts moving forward with that thanks for attending our call and made the frog be with your operator, we are now open to take questions.
Operator: Thank you. We will now begin the question and answer session. If you've dialed in and would like to ask a question, please press star one on your telephone keypad, raise your hand, and join the queue. If you'd like to withdraw your question, simply press star one again. If you're called upon to ask a question or listen via the loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Speaker Change: Thank you we will now begin the question and answer session. If you dialed in we would like to ask a question. Please press star one on your telephone key passenger heater hand, and joined the queue you would like to withdraw your question simply press Star. One again you are called upon to ask a question are listening.
Operator: <unk> allows speaker on their device. Please pickup your handset and ensure that your phone is not on mute when asking your question.
Operator: We ask that you please limit yourself to one question and one follow up again.
Operator: We ask that you please limit yourself to one question and one follow-up. Again, press star 1 to join the queue. Your first question comes from the line of Sanjit Singh, with Morgan Stanley. Please go ahead.
Operator: Press Star one to join the queue.
Operator: Your first question comes from the line of Sandeep Singh.
Sanjit Kumar Singh: With Morgan Stanley. Please go ahead.
Sanjit Kumar Singh: Yeah, thank you for taking the question. Shlomi, I just wanted to get your latest take on the spending environment and the macro environment. This time last year, the market, including JFrog customers, was still in sort of cost optimization mode, watching their cloud spend. At the same time, they were also hesitant to invest in data centers. And so, as 2024 has started, what trends sort of remain similar to back then? And to what extent are you seeing any sort of improvement in terms of your customers being willing to invest?
Sanjit Kumar Singh: Yes. Thank you for taking the question. So let me I just wanted to get your latest read on the spending environment and the macro environment. This time last year.
Sanjit Kumar Singh: And the market and including <unk> customers, we're still in sort of.
Sanjit Kumar Singh: Cost optimization mode watching your cloud spend at the same time. There are also hesitant to invest in data center and so as 2024 has started.
Shlomi: What trends sort of remained similar to back then and to what extent are you seeing any sort of improvement in terms of your customers willing to invest.
Shlomi Ben Haim: Sanjit, thank you for the question. So what we see in the cloud environment is that our clouds keep growing faster than on-prem, mainly because of user consumption, and cloud migration projects being included in our pipeline as we see the market coming back very slowly toward that direction. On self-hosted, we see a bit of a gulf between adoption and expansion, but it remains the same as it was in 2023.
Sanjit Kumar Singh: And Sanjay.
Speaker Change: Thank you for the question.
Shlomi Ben Haim: We see actually in the cloud environment.
Shlomi Ben Haim: Is that our cloud growing faster than the <unk>.
Shlomi Ben Haim: Brian.
Shlomi Ben Haim: Mainly because the user consumption.
Shlomi Ben Haim: And cloud migration project.
Shlomi Ben Haim: Included in our pipeline as we see the market coming back very slowly, but will that variation on the same pulses.
Shlomi Ben Haim: We see a beta for golf.
Shlomi Ben Haim: On the adoption and the expansion.
Shlomi Ben Haim: Overall, cloud and on-prem remind us a lot as we reported in 2023. Q1 started with 47% of zero vehicles in the cloud and more and more. Cloud customers are looking forward to a multi-year subscription when they speak about migration and betting more on migration from self-hospice.
Shlomi Ben Haim: So it remains the same as it was in 2020 overall cloud and on brand.
Shlomi Ben Haim: Remind us of all designate bolt.
Shlomi Ben Haim: 23, Q1 started with 47% deal vehicles into cloud.
Shlomi Ben Haim: More and more.
Shlomi Ben Haim: Cloud customers.
Shlomi Ben Haim: Looking forward, our multiyear subscription when we speak about migration and betting more on migration from sub losses.
Sanjit Kumar Singh: And just to follow up maybe for Ed on the cloud business, Ed, if I back out the true up from last quarter, I think which was around one and a half million, when I look at the sequential growth in the cloud, it was lower than it has been in prior Q1s for the past couple of years. Any reason for the lower sequential growth this quarter once I do that normalization?
Shlomi Ben Haim: Understood and just a follow up maybe for Ed on the cloud business.
Sanjit Kumar Singh: If I back out the true up from last quarter, I think which was around $1 5 million.
Ed Grabscheid: Look at the sequential growth in cloud it was lower than it has been in prior Q1s for the past couple of years.
Sanjit Kumar Singh: Any reason for the lower sequential growth this quarter. Once you once you get that normal normalization.
Ed Grabscheid: Hi Sanjit, this is Ed, and thank you for the question. What we saw in Q4 was a quarter of significant consumption. We see Q1 as more of a digestion quarter. Now, when you look at it on a year over year basis, we grew 47%. On a dollar basis, we grew much more in Q1 than we did in the prior quarter. So what we're seeing is that customers expanded in terms of usage in Q4. In Q1, they took that opportunity to digest a little bit more and think about projects and software development projects more for later quarters.
Sanjit Kumar Singh: Hey, Sanjay this is Ed and thank you for the question.
Ed Grabscheid: What we saw in Q4 was a quarter of significant consumption.
Ed Grabscheid: We see Q1 is more of a digestion quarter now when you look at on a year over year basis, we grew 47% on a dollar basis. We grew much more in Q1 than we did in the prior quarter. So what we're seeing is that customers.
Ed Grabscheid: Expanded in terms of usage in Q4 and.
Ed Grabscheid: In Q1, they took that opportunity to digest, a little bit more and think about project spend.
Ed Grabscheid: Software development projects more towards later quarters.
Sanjit Kumar Singh: I appreciate the color and thank you very much.
Speaker Change: I appreciate the color. Thank you very much.
Operator: Our next question comes from the line of Pinjalim Bora with J.P. Morgan. Please go ahead.
Sanjit Kumar Singh: Our next question comes from the line of pendulum Bora with Jpmorgan. Please go ahead.
Pinjalim Bora: Great, hey, thanks for taking the questions. Shlomi, I'll ask you about MLOps, MLflow is interesting, but maybe talk about how the conversations with customers are trending at this point. Are you seeing customers considering JFrog as, JFrog Artifactory as a proxy for kind of a hugging face or any kind of model repositories? And since a lot of the MLOps works kind of like that, we use a lot of open source libraries. Is it kind of even underscoring the security aspect of the JFrog platform that you have? So anything around MLOps, what are you hearing from customers that helps?
Operator: Great.
Pinjalim Bora: Thanks for taking the questions.
Pinjalim Bora: Shlomi I'll ask you on envelopes ml slow is interesting, but maybe talk about how your conversations with customers are trending at this point.
Pinjalim Bora: Do you see customers considering Jane for all guys Jay for clarity factory as a proxy.
Pinjalim Bora: Form.
Pinjalim Bora: Hugging phase or any kind of model deposit trees.
Pinjalim Bora: And since a lot of the <unk>.
Pinjalim Bora: <unk>, we use a lot of open source library.
Pinjalim Bora: Is it is it kind of even underscoring the security aspect of the <unk> platform that you have.
Pinjalim Bora: Anything around <unk>, what are you hearing from customers that helps.
Shlomi Ben Haim: Yes, Pinjalim, hi. MLOps, obviously, is the natural expansion of what we call the natural leap forward for JFrog, as we treat all models as a package, just another binary. What we hear from our customers, what we hear from the market, by the way, and what we hear from the community as well, is that they are looking to have a single source of records for models, just as they have for the other packages.
Speaker Change: Yes, it's been doing high MLR obviously.
Shlomi Ben Haim: Is the natural expansion or what we call the natural leap forward for <unk>.
Shlomi Ben Haim: As we all models in the back it's just another binary what we hear from our customers what we informed the market by the way will reinforce the community as well.
Shlomi Ben Haim: They are looking to have a single source of Brightcove for models just as they have all the other packages.
Shlomi Ben Haim: Artifactory obviously serves that purpose. X-ray serves as the scanner for models and malicious models. And this is what we announced back in Q4 of the previous year. Now, with the universality philosophy in mind, we are providing all data scientists and machine learning engineers with freedom of choice. Choose whatever platform works for you, whether it's MLflow, which is super popular, as we mentioned, with millions of downloads a month, or others like Kwok and others coming from AWS SageMaker. So the universality around artifactory will make artifactory the registry of choice for models as well as it is today for all the other binaries.
Shlomi Ben Haim: The factory, obviously serve that X Ray serves a scanner Pall mall goes on the leasing model and this is what we announced back in Q4, the previous year now with the unit growth solid fee philosophy in the mine.
Shlomi Ben Haim: Providing all the data science is an MLA engineers with the freedom of choice to whatever platform works for you whether its Amazon, which is simple Buffalo as we mentioned with millions of.
Shlomi Ben Haim: Amongst.
Shlomi Ben Haim: Or other like swaps and other.
Shlomi Ben Haim: Coming from AWS pacemaker, so the universe solid Vietnam factory will make out the factory the registry of choice for small business. When is the date for all of the algebra.
Pinjalim Bora: Yep, understood. Now, one question for you, Ed. On the cloud business, correct me if I heard this wrong, but it seems like you're seeing incremental efficiency efforts by customers and optimization efforts by customers in Q1. Just wanted to make sure I heard that correctly. And maybe how are those customers kind of optimizing at this point? Because that's something different than what others are saying, that optimization is mostly done. And maybe help us understand the consumption trend going into April or so far in.
Speaker Change: Yes understood. One question for you Ed on the cloud business.
Ed Grabscheid: Correct me, if I heard this wrong, but it seems like youre seeing incremental efficiency.
Pinjalim Bora: Efforts by customers optimization efforts by customers in Q1, just wanted to make sure I heard that correctly and maybe how are those customers kind of optimizing at this point, because thats something different than what others are saying that <unk> already done, mostly and maybe help us understand the consumption trend going into April or so far in may.
Ed Grabscheid: Thank you for the question, Pinjalim. What we're seeing first off is that, again, this being a quarter of digestion after a very strong Q4, we got into the mid 40s, and we exceeded our guidance in terms of 47% on a year over year basis. What we're seeing in terms of the trends is that the customer today's behavior is more towards and aligned with what we're seeing in 2023, that purchasing decisions as well as large projects will most likely come towards the second half of 2024, but we are reiterating our guidance around the mid-40s for the full year.
Speaker Change: Thank you for the question pendulum.
Pinjalim Bora: I understand. Thank you very much.
Ed Grabscheid: What we're seeing first off is that again this being a quarter of digestion. After a very strong Q4, we guided to the mid Forty's and we were we exceeded our guidance in terms of.
Pinjalim Bora: 47% on a year over year basis, what we're seeing in terms of the trends is that.
Pinjalim Bora: The customer today that behavior is more towards an aligned with what we're seeing in 2023 that purchasing decisions as well as large projects will most likely come towards the second half.
Pinjalim Bora: 2024, but what we're what we are reiterating our guidance around mid <unk> for the full year.
Speaker Change: Understood. Thank you very much.
Pinjalim Bora: Sure.
Operator: Our next question comes from the line of Koji Ikeda with Bank of America. Please go ahead.
Pinjalim Bora: Our next question comes from the line of Koji Ikeda with Bank of America. Please go ahead.
Koji Ikeda: Yeah, hey, guys, thanks so much for taking the questions. I wanted to ask a question, or maybe maybe another question here on the staff side. You know, I know there is a lot of focus on this revenue line item here. And so as we think about this, I wanted to ask you a question about the visibility in SAS. You know, when I look at the net new revenue in SAS, after normalizing for that one time, it looks about the same as the fourth quarter. And so really try to understand what your visibility looks like with your SAS customers, say for the rest of your budget.
Koji Ikeda: Yeah, Hey, guys. Thanks, so much for taking the questions.
Speaker Change: Wanted to ask a question.
Koji Ikeda: Maybe another question here on the SaaS side I know there is a lot of focus on on this revenue line item here.
Koji Ikeda: So.
Koji Ikeda: As we think about I wanted to ask a question on the visibility and SaaS when I look at the net new revenue in SaaS after normalizing for that onetime it looks about the same as the fourth quarter and so really trying to understand what your visibility visibility looks like with your SaaS customers save for the.
Koji Ikeda: The rest of your business.
Ed Grabscheid: Yeah, so what we see and what we've commented before is that we guide towards the mid 40s. It's on the commit. Anything above the mid 40s would be usage, and we don't necessarily guide on usage. So if we see a percentage growth that is above the mid 40s, that is because additional consumption, what we see today and what we have visibility on is in the commitments. And we continue to reiterate at mid 40s for our cloud.
Speaker Change: Yes, so what we see and what we've commented before that we guided towards mid 40 bps on the commit anything above mid fourteens would be usage and we don't necessarily guide on usage. So if we see a percentage growth.
Ed Grabscheid: That is above the mid forty's that is because additional consumption, but we see today and what we have visibility to is in the commitments and we continue to reiterate at mid <unk> for our cloud business.
Koji Ikeda: Got it. That makes sense. And just a follow-up here, if I may. JFrog, we definitely view you guys as an enterprise DevSecOps tool. I think there's no denying that. But you do have SMBs and smaller bid markets as customers, and so I wanted to ask the question on how demand and resiliency are shaking out in the lower end of your customer base.
Speaker Change: Got it that makes sense.
Speaker Change: Just a follow up here if I may.
Koji Ikeda: Jay fraud.
Koji Ikeda: We definitely view you guys as an enterprise <unk>, So I think theres no denying that but.
Speaker Change: You do have SMB and smaller mid markets as customers and so wanted to ask the question on how demand and.
Speaker Change: Resiliency is shaken out in the lower end of your customer base.
Shlomi Ben Haim: Thanks, Koji. Specifically, on security, it's a known pain point for all sizes of companies. Software supply chain security is being changed, not only consolidated, but changed because of the threat that's coming from the runtime environment, in which you have binary stressors only. So the JFrog advanced security, JFrog curation, and X-Ray are covering these needs for the SMB as well. Now, all types of customers, all profiles of customers, and I'm not speaking about really small developer jobs, but SMBs are, for sure, looking for solutions that provide comprehensive coverage across the software supply chain, and this is what the JFrog security solution is attracted to.
Speaker Change: Yeah. Thanks, Scott.
Shlomi Ben Haim: Typically on security.
Shlomi Ben Haim: It's a known vein for all sizes of companies talk to us a biogen securities being changed not only consolidated.
Shlomi Ben Haim: Any change because of the threat is coming from the on Prem environment in which you have binary.
Shlomi Ben Haim: Only so that Jay book advance acuity that Jane book duration and X Ray are covering this needs for the SMB, whereas now all type of customers both by the customer that im not thinking about ways.
Shlomi Ben Haim: Developed to the shops.
Shlomi Ben Haim: But the S&P for sure are looking for a solution.
Shlomi Ben Haim: The comprehensive capital ratio will disrupt the supply chain and this is Bob.
Shlomi Ben Haim: <unk> Securities.
Shlomi Ben Haim: Solution.
Shlomi Ben Haim: <unk>.
Shlomi Ben Haim: In fact, Bob.
Koji Ikeda: Thanks, guys. Thanks for taking the questions.
Speaker Change: Thanks, guys. Thanks for taking the questions.
Koji Ikeda: Yes.
Koji Ikeda: Yes.
Operator: Our next question comes from the line of Mike Cikos with Needham. Please go ahead.
Koji Ikeda: Our next question comes from the line of Mike <unk> with Needham. Please go ahead.
Operator: Yes.
Michael Joseph Cikos: Hey, guys, thanks. Thanks for taking the questions here. And I'll jump on the bandwagon here since we're all asking about SaaS and the cloud. Just to punctuate that point that we were speaking about with Koji.
Michael Joseph Cikos: Hey, guys. Thanks, Thanks for taking the questions here.
Michael Joseph Cikos: I'll jump on the bandwagon here since we're all asking about SaaS and cloud.
Michael Joseph Cikos: Just to punctuate that point that we were speaking about with Koji.
Michael Joseph Cikos: But I want to make sure one of the things we're getting from clients here as you delivered a 47% growth in Q1 were reiterating the mid 40% for the full year and I think what I'm getting.
Michael Joseph Cikos: From folks is the idea that hey, it's a skinny.
Michael Joseph Cikos: It's a skinny upside to mid Forty's ie like it doesn't leave you a lot of wiggle room and Ed If I could just go back to your earlier comment.
Michael Joseph Cikos: It sounds like the mid $40 that you've guided to for the year is based on commitment right. So in the context of that visibility.
Michael Joseph Cikos: Mid Forty's is quote unquote in hand, if you will and then the consumption is really the go get to drive upside to that is that a fair characterization.
Michael Joseph Cikos: But I want to make sure one of the things we're getting from clients here is that you deliver the 47% growth in Q1. We're reiterating the mid-40s for the full year. And I think what I'm getting from folks is the idea that hey, it's a skinny upside to the mid-40s, i.e., like, it doesn't leave you a lot of wiggle room. And Ed, if I could just go back to your earlier comment, it sounds like the mid-40s that you've guided to for the year are based on commitment, right? So in the context of that visibility, that mid-40s is, quote-unquote, in hand, if you will, and then consumption is really the go-get-to-drive upside to that. Is that a fair characteristic?
Michael Joseph Cikos: Yeah. Thanks for the question, Mike So first of all our guidance suggest that our pipeline would support the mid <unk> and that is based on consumption secondly.
Ed Grabscheid: Yeah, thanks for the question, Mike. First of all, our guidance suggests that our pipeline would support the mid 40s. And that is based on consumption. Secondly, based on the, I'm sorry, commitment.
Ed Grabscheid: On the I'm, sorry commitment the secondly.
Ed Grabscheid: Second, usage would be a driver of anything above that mid-40s growth. Any acceleration beyond that would be migrations, although we don't anticipate anything from a migrations perspective to pick up from what we saw at the levels of 2023.
Ed Grabscheid: Usage would be a driver of anything above that mid fourteens growth.
Ed Grabscheid: Acceleration beyond that would be migrations, although we don't anticipate anything from a migration perspective to pick up from what we saw at the levels of 2023.
Speaker Change: And if I may ask.
Speaker Change: Sorry, just one more sentence about that amortization, we started 2023 with the same.
Shlomi Ben Haim: Well, listen; we started 2023 with the same volatility and the same hesitation in the market. People in the first quarter are far more cautious about the budgets they are planning. They are not yet executing. Big migration projects are not even being discussed at this point.
Shlomi Ben Haim: With the same volatility and the same hesitation in the market people.
Shlomi Ben Haim: On the first quarter are far more cautious about those budgets.
Shlomi Ben Haim: Plenty.
Shlomi Ben Haim: Not yet executing these migration project I will not even being discussed at this point a want to stabilize the expenses and then to staff and executive comp and in 2023.
Shlomi Ben Haim: They want to stabilize their expenses and then start the year. And exactly as it happened in 2023, and as we predicted and finished the year with a big hype about the cloud goal, this is what we will see here this year. The market is still not out of the woods, and customers are looking at cloud expansion and cloud spending with a magnifying glass. So Q1 is very much aligned. We even exceeded our guidance. It's very much aligned with our target. But also, if you look at the dollar base, it's a big success among our portfolio.
Shlomi Ben Haim: And then as we predicted.
Shlomi Ben Haim: <unk> finished the year with a peak.
Shlomi Ben Haim: The cloud goal. This is what we will see here. This year the market is still not out of the wood.
Shlomi Ben Haim: Customers are looking at cloud the expansion in cloud spending.
Shlomi Ben Haim: Magnifier, So Q1 is.
Shlomi Ben Haim: And very much in line, we even exceeded our guidance is very much aligned with ours.
Shlomi Ben Haim: Target.
Shlomi Ben Haim: Also if you look at the dollar base.
Shlomi Ben Haim: Big success, among our portfolio.
Michael Joseph Cikos: understood, and understood. Thank you. Thank you for that.
Speaker Change: Understood understood. Thank you. Thank you for that and then just a follow up here.
Michael Joseph Cikos: I think transparently.
Michael Joseph Cikos: And then just a follow-up here. I think, transparently, a little bit of the head scratching outside of your purview is just the comment around digestion in response to Sanjit's earlier question. So I would just like to get a sense that digestion was, was that anticipated? And then the follow-up question is, Has that been more front-end loaded? Was it back-end loaded to Q1? Has there been any change in behavior in the interim? Again, to give you some sort of confidence that those projects that people are looking at are going to start coming online in the second half of this year.
Speaker Change: Bit of a head scratching outside of your purview is just on the comment around the digestion in response to Sanjay earlier question Joe.
Michael Joseph Cikos: I'd just like to get a sense that digestion was was that anticipated and then the follow up is.
Michael Joseph Cikos: Has that been more front end loaded was it back end loaded into Q1 has there been any change in behavior in the interim again to give you some sort of a <unk>.
Michael Joseph Cikos: Confidence that those projects that people are looking at are going to start coming online in the second half of this year.
Ed Grabscheid: Yeah, this was not a head scratcher for us. This was something to be expected.
Michael Joseph Cikos: Yes. This was not a head scratcher for US this was something to be expected the customer behavior and what we see in terms of seasonality there is typically.
Ed Grabscheid: The customer behavior and what we see in terms of seasonality, there's typically a seasonalally weaker in Q1 as budget decisions are being made, and new software development projects are being determined. And that typically will scale through and grow throughout the course of the year. And this is the trend that we're seeing.
Ed Grabscheid: Seasonal seasonally weaker than Q1 as budget decisions are being made.
Ed Grabscheid: New software development projects are being determined and that typically will scale through and grow throughout the course of the year and this is the trend that we're seeing.
Michael Joseph Cikos: Got it. Okay. Okay. Thank you for calling that out. I really do appreciate it. I'll turn it over to our colleagues.
Speaker Change: Got it okay. Okay. Thank you for calling that out I really do appreciate it I'll turn it over to my colleagues.
Operator: Our next question comes from the line at Jason Ader with William Blair. Please go ahead.
Michael Joseph Cikos: Our next question comes from the line adjacent Nadir with William Blair. Please go ahead.
Jason Noah Ader: Yeah, thank you. Good afternoon, guys. I wanted to ask about security. Shlomi, maybe talk about pipeline build for security and what you guys are seeing out there with the sales reps and then, What are the biggest challenges you're seeing in terms of really just getting this thing out there and getting people onto the JFrog platform?
Jason Noah Ader: Yes. Thank you good afternoon guys.
Jason Noah Ader: <unk>.
Jason Noah Ader: I wanted to ask about security.
Jason Noah Ader: Shlomi, maybe talk about pipeline build for security and what you guys are seeing out there on the ground.
Jason Noah Ader: With the sales reps and then.
Jason Noah Ader: What are the biggest challenges you are seeing in terms of really just getting this thing out there and.
Jason Noah Ader: Getting people onto the <unk> platform.
Shlomi Ben Haim: Yeah, Jason, these are two great questions. First, about the pipeline. We are thrilled to see the pipeline growing with our enterprise portfolio. And we are very happy to see that they are not only considering JFrog advanced security versus curation or curation versus JFrog advanced security, but both. And to remind you, this is also coming with a different model on top of our subscription that comes Basic. So we see the pipeline.
Shlomi: Yes, Jason results two great questions first of all the pipeline, we are thrilled to see the pipeline growing with.
Shlomi Ben Haim: With our enterprise portfolio.
Shlomi Ben Haim: And we.
Shlomi Ben Haim: We are very happy to see that.
Shlomi Ben Haim: Omni considering James.
Shlomi Ben Haim: <unk> advanced security versus collation observation versus JP will get them to agree with you and to remind you. This is also coming with a different model on top of our subscription based so we see the pipeline. We see growing these are very promising enterprises that are looking at full adoption of software.
Shlomi Ben Haim: We see it growing. These are very promising enterprises that are looking at full adoption of software security, software supply chain security. On the flip side of it, none of them is coming from the dock.
Shlomi Ben Haim: Acuity to soft of supplies and security.
Shlomi Ben Haim: On the other side on the flip side of it.
Shlomi Ben Haim: None of them is coming from the docs. They all have security solution that all running proof of concepts. They are all looking to display sort of consolidate and pipeline building on the landscape of security is taking longer so on one hand very.
Shlomi Ben Haim: They all have security solutions. They are all running proofs of concept. They are all looking to display, sort of consolidate, and pipeline building on the landscape of security is taking longer. So, on the one hand, very thrilled, very excited about the pipeline and the type of customers that are approaching us and running a proof of concept, a solid one, very organized one, consolidating five or more different tools. On the other hand, the life cycle of a proof of concept for security is longer than that for DevOps.
Shlomi Ben Haim: And very excited about the pipeline and the type of customers.
Shlomi Ben Haim: Paul Gene gas and wining concept the solid one very organized one consolidating five or more different tools on the other hand, the lifecycle of a sponsor fall of security is longer than the demo plant.
Jason Noah Ader: Gotcha. Okay.
Speaker Change: Gotcha Okay.
Shlomi Ben Haim: No.
Speaker Change: How is that.
Jason Noah Ader: Line Shlomi with your expectations I guess six months ago. I mean is this sort of what you expected.
Jason Noah Ader: Or is it taking a little bit slower than you expected and you still are as optimistic as ever in terms of the value proposition, but it's just going to take a little bit more time.
Jason Noah Ader: Yes.
Jason Noah Ader: Im saying in confidence with our target and what we guided you guys. This year security will become a material piece of.
Jason Noah Ader: Performance in our base.
Speaker Change: Very good good luck guys.
Speaker Change: Thank you.
Jason Noah Ader: Okay.
Shlomi Ben Haim: So, how is that aligned, Shlomi, with your expectations, I guess, six months ago? I mean, is this sort of what you expected? Or is it taking, a little bit slower than you expected? And, you know, you still are as optimistic as ever in terms of the value proposition, but it's just going to take a little bit more time?
Jason Noah Ader: Our next question comes from the line of Miller jump was tourist Securities. Please go ahead.
Speaker Change: Great. Thank you for taking the questions I guess, maybe I'll ask one on the self managed side of the business.
Shlomi Ben Haim: You actually had a modest reacceleration there this quarter just curious if there was anything onetime in nature or anything that made you indicated this might actually exceed your expectations for that part of the business. This year.
Shlomi Ben Haim: Hey, Bill this is Ed no onetime nothing onetime base slight acceleration in our self hosted business. We would expect that the trend in sell hosts it will be very similar in 2024 as to what we saw in 2023.
Speaker Change: Okay. Thanks, and then maybe just one more.
Shlomi: Obviously this is a lumpy metric, but it also looked like Hunter Kay customers were the slowest on net adds and they've been in some time.
Shlomi Ben Haim: Is there anything to indicate that that digestion period that you talked about is indicating large customers more than the overall.
Shlomi: But what we saw in Q4 and a lot of this you are right. It is lumpiness and seasonality we had significant traction in our large customers really in the second half of 2023. So this quarter that we're saying somewhat digestion as customers are looking at their budgets and considering.
Shlomi Ben Haim: Expansion opportunities we saw in Q1.
Shlomi: Although there was nice growth it wasn't at the same pace that we saw in previous quarters, we would expect that that would start to trend.
Shlomi: <unk> normalize in future quarters, and it will be similar to what we saw in 2023.
Speaker Change: Understood. Thank you.
Shlomi Ben Haim: Yes.
Jason Noah Ader: We are staying in confidence with our targets and what we tell you guys that this year, security will become a material piece of our performance in our organization.
Shlomi Ben Haim: Our next question comes from the line of Jason Selina with Keybanc capital markets. Please go ahead.
Jason Noah Ader: Very good. Good luck, guys. Thank you.
Speaker Change: Great glad to be on.
Operator: Our next question comes from the line of Miller Jump with Truist Securities. Please go ahead.
Jason Noah Ader: We actually saw some big news this week.
Miller Jump: That a major player in Nasdaq.
Miller Jump: The man out of it.
Miller Jump: Private standalone.
Miller Jump: Great. Thank you for taking the questions. I guess maybe I'll ask one on the self-managed side of the business. You know, you actually had a modest re-acceleration there this quarter. Just curious if there was anything unusual in nature or anything that made you indicate this might actually exceed your expectations for that part of the business this year.
Miller Jump: Have you seen any changes in the competitive dynamics in security over the last call. It six months and then more importantly, do you see any incremental share gain opportunities on the horizon.
Miller Jump: On the competitive landscape.
Speaker Change: Yes, that's a very.
Speaker Change: Good question first of all.
Miller Jump: While the last quarter was full of events to change everything.
Miller Jump: On one hand, we see the need for consolidation.
Miller Jump: Its platform and therefore.
Miller Jump: Customers mentioning.
Miller Jump: <unk> phone that they can consolidate around especially around security and amongst together on the other hand, there were a lot of changes.
Miller Jump: Thats acquired Synopsys bolt.
Miller Jump: <unk> stock.
Miller Jump: And.
Miller Jump: <unk>.
Miller Jump: Some changes so obviously there are a lot of changes.
Speaker Change: Thanks, Tony plagued by moving but one thing is staying the same customers are looking to consolidate and to have a comprehensive security solution and then on that end.
Miller Jump: Security landscape and the competitive landscape didnt changed from that point.
Ed Grabscheid: Hey Miller, this is Ed. No one-time, nothing one-time-based, slight acceleration in our self-hosted business. We would expect that the trend in self-hosted will be very similar in 2024 to what we saw in 2023.
Speaker Change: Okay, and then maybe just a quick one for Ed.
Miller Jump: Okay, thanks. And then maybe just one more. You know, obviously, this is a lumpy metric, but it also looks like 100k customers were the slowest on net ads that they've been in some time. You know, is there anything to indicate that the digestion period that you talked about is indicating large customers more than the overall?
Ed Grabscheid: Gesture and that we're all kind of discussing today.
Ed Grabscheid: Well, what we saw in Q4, and a lot of this, you're right, is lumpiness and seasonality. We had significant traction with our large customers really in the second half of 2023. So this quarter, we're seeing some digestion as customers are looking at their budgets and considering expansion opportunities. We saw in Q1, although there was nice growth, it wasn't at the same pace that we saw in previous quarters. We would expect that that would start to trend more normalized in future quarters, and it will be similar to what we saw in 2023.
Speaker Change: Did you start seeing it very beginning in the quarter or was it towards the end or just pretty consistent throughout.
Ed Grabscheid: It was consistent throughout the quarter.
Speaker Change: Okay, great awesome.
Miller Jump: understood. Thank you.
Ed Grabscheid: Our next question comes from the line of Kingsley Crane with Canaccord. Please go ahead.
Operator: Our next question comes from the line of Jason Salina with KeyBank Capital Markets. Please go ahead.
Speaker Change: Hi, Thanks for taking the question <unk> in the spirit of RSA I wanted talked about security and Mandaean threat report 31 vendors were impacted by zero day threats in the past year, that's up from three in 2018, not mentioning thousands of end customers apart to buy those breaches.
Jason Noah Ader: Started some <unk> security research in your prepared remarks can you talk about the value of having that security research team. In addition to your security capabilities, including things like <unk> accretion.
Jason Noah Ader: Hey, great. Glad to be on.
Operator: Yes.
Jason Noah Ader: You all know thing that Chamber security research team is one of the largest in the industry.
Jason Noah Ader: Not only by the size of the team and how they will trained but also by the amount of fleet bowls and finding that we are sharing with their customers and with the community.
Jason Noah Ader: You know, we actually saw some big news this week, you know, that a major player in APSEC would be spun out as a private standalone. You know, have you seen any changes in the competitive dynamics, you know, in security over the last, call it, six months? And then, more importantly, do you see any incremental, you know, share gain opportunities on the horizon, just in the competitive landscape? Thanks.
Shlomi Ben Haim: Yes, that's a very good question. First of all, the last quarter was full of events that changed everything. On the one hand, we see the need for consolidation around best-of-breed platforms, and therefore, customers mention the platform that they can consolidate around, especially around security and DevOps together. On the other hand, there were a lot of changes. HashiCorp got acquired, Synopsys sold their entire stack, and Atlassian has made some changes. So obviously, there are a lot of changes. Tectonic plates are moving.
Jason Noah Ader: <unk> me.
Jason Noah Ader: We released our state of the Union for software supply chain security, finding and Dan just after the Docker hub.
Shlomi Ben Haim: <unk>.
Shlomi Ben Haim: We shifted packages.
Shlomi Ben Haim: Square up together with Docker.
Shlomi Ben Haim: This is an amazing differentiator because our customers can know before the rest of the market.
Shlomi Ben Haim: Tom.
Shlomi Ben Haim: Might be companies included in the database of our security solution. So obviously.
Shlomi Ben Haim: It's a great service for the community, but it also boosting our tools to be able to detect some threads before other foods can catch them.
Speaker Change: Thank you that's really helpful. And then for Ed really strong gross margins at 85% can you talk about the efficiencies you're finding there even as cloud generally increases as a percent of your overall revenue.
Shlomi Ben Haim: Yes, very strong gross margins as you pointed out 85, 1%.
Shlomi Ben Haim: One of the reasons that we had such strong gross margins in Q1 is that we removed.
Shlomi Ben Haim: Eliminated a third party outsource database as we now standardized on the <unk> database that we acquired.
Shlomi Ben Haim: Two three years ago. So we saw some efficiency gained there however, what we see in our model is that we'll continue to spend and invest in those databases and other costs associated with our gross margin. So our model indicates that we'll still.
Shlomi Ben Haim: And as it's in our guidance between <unk>, 83% to 84% gross margins during 2024.
Speaker Change: Thank you helpful.
Shlomi Ben Haim: Our next question comes from the line of <unk>, Li with Cantor Fitzgerald.
Speaker Change: Thank you for taking my question question it could be booked.
Shlomi Ben Haim: But one thing is saying the same thing. Customers are looking to consolidate and to have a comprehensive security solution. And then, on that end, the security landscape and the competitive landscape haven't changed from that.
Speaker Change: So let me I'll add in.
Shlomi Ben Haim: I want to focus on the consolidation opportunity.
Shlomi Ben Haim: Maybe.
Jason Noah Ader: Okay, and then maybe just a quick one for Ed. You know, the digestion that we're all kind of discussing today, did you start seeing it very early in the quarter, or was it toward the end, or just pretty consistent throughout?
Ed Grabscheid: It was consistent throughout the quarter. Okay.
Shlomi Ben Haim: Celine you could comment on like the up sell to other products.
Jason Noah Ader: Okay, great, awesome.
Ed Grabscheid: Prepared remarks, you talked about the security as an example, how 'bout other parts like see ICD distribute Iot device management.
Operator: Our next question comes from Alana Kingsley Crane with Canaccord. Please go ahead.
Speaker Change: Any updates on that front as well.
Operator: Yes.
William Kingsley Crane: Hi, thanks for taking the question. Shlomi, in the spirit of RSA, I want to talk about security. In Mandiant's threat report, 31 vendors were impacted by zero-day threats in the past year. That's up from three in 2018, not mentioning, you know, thousands of end customers impacted by those breaches. You cited some of JFrog's security research in your prepared remarks. Can you talk about the value of having that security research team in addition to, you know, your security capabilities, including things like JFrog creation?
Speaker Change: Yes so.
Shlomi Ben Haim: Well, thank you for noting that the JFrog security research team is one of the largest in the industry, not only by the size of the team and how they were trained, but also by the amount of reports and findings that we share with customers and with the community. Recently, we released the State of the Union for Software Supplies and Security Findings, and then just after the Docker Hub scanning and malicious packages on Docker Hub together with Docker.
Shlomi Ben Haim: This is an amazing differentiator because our customers can know before the rest of the market about threats that might become, and it's included in the database of our security solutions. So obviously, it's a great service for the community, but it's also boosting our tools to be able to detect some threats before other tools can catch them.
Operator: Obviously.
Shlomi Ben Haim: Consolidation of stores around one platform right.
Shlomi Ben Haim: With both the capabilities of the factory at the center.
Shlomi Ben Haim: Single cell. So critical then to raise your CFO packages on top of it the security solution, but also what you mentioned distribution automation.
Shlomi Ben Haim: The database as Ed just mentioned is all.
Shlomi Ben Haim: Coming in in one platform, one package and the expansion potential is.
Shlomi Ben Haim: Is around all of them.
Shlomi Ben Haim: Differently packaged into some bastard offerings versus the cloud and the cloud we are looking to see more consumption based on more usage and more adoption and in Brazil cost of this expansion by state and by number of servers by location by projects by buy sizes Athene and.
Shlomi Ben Haim: And so on so that's.
Shlomi Ben Haim: The expansion motion and we see now.
Shlomi Ben Haim: Additional products on the platform.
Speaker Change: Got it got it.
Shlomi Ben Haim: So can you help us on you and then my.
Shlomi Ben Haim: Last follow up is on the.
Shlomi Ben Haim: Opportunity.
Shlomi Ben Haim: It's great that you've given customer obviously, the freedom of choice that'll have to allot.
Shlomi Ben Haim: You'll have to lock themselves up in anything like <unk> hasn't changed.
Shlomi Ben Haim: Never.
Shlomi Ben Haim: Wonder how mature ops opportunity and whether you think it's going to be more significant to I guess the contribution to <unk>.
Shlomi Ben Haim: Yes.
Shlomi Ben Haim: <unk> is not material.
Shlomi Ben Haim: AI is not material, but the practices are being built now and the nice thing about what we see is that the MLR engineered the Python engineers data scientists.
Shlomi Ben Haim: Actually using the best practices and Boston.
Shlomi Ben Haim: <unk>, two <unk> <unk> and <unk>. So it is not material this might be a tailwind, but it's not going to change our 2020 call guidance.
Shlomi Ben Haim: We are planning to invest more and expand more tending jabil platform prepared to this.
Shlomi Ben Haim: Big.
Shlomi Ben Haim: The opportunity is.
Shlomi Ben Haim: Coming into next year.
Speaker Change: Thanks, Thanks for that Shlomi.
Shlomi Ben Haim: Okay.
Operator: Our next question comes from Alana Yi-Fu Lee, with Canner Fitzgerald.
William Kingsley Crane: Thank you, that's really helpful. And then for Ed, really strong gross margins at 85%. Can you talk about the efficiencies you're finding there, even as cloud generally increases as a percent of your overall revenue? Yeah, very strong.
Shlomi Ben Haim: Our next question comes from the line that Brad Reback with Stifel. Please go ahead.
Ed Grabscheid: Yeah, very strong gross margins, as you pointed out, 85.1%. One of the reasons that we had such strong gross margins in Q1 is that we removed, eliminated a third-party outsource database as we now standardized on the VDU database that we acquired two, three years ago. So we saw some efficiency gains there. However, what we see in our model is that we'll continue to spend on and invest in those databases and other costs associated with our gross margins. So our model indicates that we'll still, and as it's in our guidance, between 83 to 84% gross margins in 2024.
Speaker Change: Great. Thanks, very much Ed.
Ed Grabscheid: Digestion commentary I understand the mid 40% cloud growth for the year, but it sure feels like Youre trying to point us towards less pronounced seasonality in the June quarter than we've seen in the last couple of years. So maybe were towards the lower end of that mid forty's.
Ed Grabscheid: Thanks.
Yi Fu Lee: Thank you for taking my question. Shlomi or Ed, in terms of consolidation, I want to focus on the consolidation opportunity. Maybe if you or Ed could comment on the upsell to other products. I know in the prepared remarks you talked about security as an example. How about other products like CICD, Distribute, IoT device management? Any updates on that front as well?
Ed Grabscheid: Yes, Hi, Brad.
Ed Grabscheid: The way that we look at this is that it is a metric that has seasonality what we're guiding to in the mid <unk> for the full year that means it's around the mid 40 is it could be up a few points it could be down a few points, what we know today and what we see is is the commitments and that's around mid forties.
Yi Fu Lee: Anything above that would be.
Yi Fu Lee: Usage.
Yi Fu Lee: Anything below that that could be because of monthly, but what we see is around mid forty's and seasonality will play a factor in that quarter to quarter.
Speaker Change: Okay. Thanks very much.
Shlomi Ben Haim: Yeah, so obviously, the consolidation of tools on one platform comes with all the capabilities of the factory, the center, and the single source of record and the registry of all packages on top of it, the security solution, but also, what you mentioned, distribution, automation, the database that Ed just mentioned, these are all coming in one platform, one package. And the expansion potential is around all of them.
Yi Fu Lee: Our next question comes from the line of Nick Altmann with Scotiabank. Please go ahead.
Yi Fu Lee: It's differently packaged in the self-hosted offering versus the cloud. In the cloud, we are looking to see more consumption based on more usage and more adoption. And in the self-hosted, it's expansion by seat and by number of servers, by location, by project, by sizes of teams, and so on. So that's the expansion motion that we see now with additional products on the platform.
Shlomi Ben Haim: Got it, got it. That's extremely helpful, Shlomi. And then my last follow-up is on the MLOps opportunity. It's great that you're giving customers, obviously, the freedom of choice. They don't have to lock themselves up in anything, like they could use housing space or a space maker or whatever. I was wondering how material the MLOps opportunity is, and when do you think it's going to be more significant in terms of, I guess, the contribution to JFrog?
Yi Fu Lee: Yes, MLOps is not mature. AI is not mature. But the practices are being built now, and the nice thing about what we see is that the ML engineers, the Python engineers, the data scientists are actually using the best practices of DevOps and DevSecOps to build MLOps and MLSecOps. So it's not mature yet. This might be a tailwind, but it's not going to change our 2024 guidance. And we are going to invest more and expand more, getting the JFrog platform prepared for this big opportunity that is coming in the next year.
Shlomi Ben Haim: Thanks for watching Robbie and Ed. Our next question comes from the line of Brad Reback with Stiefel. Please go ahead. Great, thanks very much.
Speaker Change: Awesome. Thanks, guys.
Yi Fu Lee: Just given the channel efforts and how you guys have bumped up the sales force over the last year can you maybe just talk to.
Brad Robert Reback: Some of the productivity from some of the newly onboard partners.
Shlomi Ben Haim: No.
Brad Robert Reback: Last year and when do you guys kind of out of your first partner event and then specifically on the direct go to market side, maybe just talk to overall sales productivity.
Shlomi Ben Haim: Yes.
Brad Robert Reback: Is channel and Bob.
Shlomi Ben Haim: Keith.
Brad Robert Reback: Updating you.
Brad Robert Reback: It's one.
Brad Robert Reback: The transition to the top down enterprise sale.
Shlomi Ben Haim: Sales.
Brad Robert Reback: We are running.
Brad Robert Reback: Collaboration with the partners and with the channels.
Brad Robert Reback: By geography.
Brad Robert Reback: These by expertise so its different partners that you would see on security versus different partners that you will see on Dev ops and disciplined Bob Hope that you will see in France versus deep involvement that you will see in Japan.
Brad Robert Reback: And then one last thing is that we will now we added an announced the tariff cost.
Brad Robert Reback: The partnership also go after the.
Brad Robert Reback: Public sector or the highly regulated environment, which they are super familiar with so.
Brad Robert Reback: We are expanding more and more the relationship with our partner then window channels to have multi set of indications that can promote that jabil platform offering.
Brad Robert Reback: Ed, on the digestion comment...
Brad Robert Reback: Okay. Thanks, and then.
Brad Robert Reback: I wanted to follow up on the digestion comment.
Operator: Our next question comes from the line of Brad Reback with Stiefel. Please go ahead. Great. Thanks very much.
Brad Robert Reback: I think it was kochi asking about weather.
Brad Robert Reback: Whether it's more sort of geared towards the SMB side of the equation, but.
Brad Robert Reback: Okay any other trends that you saw within the installed base around the digestion was it sort of broad based with the Geo specific.
Brad Robert Reback: Sector specific.
Brad Robert Reback: Any more granularity on that digestion comment that you made in Q1 and sort of any trends or patterns patterns that you'd call out would be helpful. Thanks.
Brad Robert Reback: Yeah, hi Brad. You know, the way that we look at this is that it is a metric that has seasonality. What we're guiding to in the mid 40s is for the full year, that means it's around the mid 40s, it could be up a few points, it could be down a few points. What we know today and what we see is the commitments, and that's around the mid 40s. Anything above that would be usage. Anything below that, that could be because of monthlies, but what we see is around the mid-40s, and seasonality will play a factor in that quarter to quarter.
Ed Grabscheid: Yeah, there was nothing that we saw in terms of trends. It was a broad base across the portfolio, so there was nothing that we could point out specifically.
Brad Robert Reback: Yes, there was nothing that we saw in terms of trends. It was a broad base across the portfolio nothing that we can point out specifically.
Operator: Our next question comes from the line of Nick Altmann with Scotiabank. Please go ahead.
Nicholas William Altmann: Awesome. Thanks, guys. Um, just given the channel efforts and how you guys have built up the sales force over the last year, can you maybe just talk about some of the productivity from some of the newly onboarded partners, both, you know, last year and when you guys kind of held your first partner event, and then specifically on the direct go-to-market side, maybe just talk about overall sales productivity.
Shlomi Ben Haim: I think the channel and partners, as we keep updating you, is one of the transitions to the top-down enterprise in Excel that we are running. The collaboration with partners and with channels is by geography, and it's by expertise. So it's different partners that you will see in security versus different partners that you will see in DevOps. It's different partners that you will see in France versus different partners that you will see in Japan.
Shlomi Ben Haim: And the one last thing is that we have now added and announced the KeraSoft partnership to also go after the public sector, the highly regulated environment, which they are super familiar with. So we are expanding our relationship with our partners and with our channels to have more resellers in the field that can promote the JFrog platform operation.
Nicholas William Altmann: Okay, thanks. And then, um, I wanted to follow up on the digestion comment. I think it was Koji, you know, asking about, you know, whether it's more sort of geared towards the SMD side of the equation, but any other trends that you saw within the installed base around the digestion? Was it sort of broad based? Was it geo specific? You know, sector specific? Just any more granularity on that digestion comment that you made in Q1 and sort of any trends or patterns that you call out would be helpful. Thanks. Yeah, there was nothing that we saw in terms of trends. It was a
Operator: There are no further questions at this time. I will turn the call back to Shlomi for closing remarks.
Speaker Change: There are no further questions at this time I turn the call back to slow me for closing remarks.
Shlomi Ben Haim: Thank you everyone for joining our call. We had a wonderful quarter.
Shlomi: Thank you everyone for joining our call.
Shlomi Ben Haim: We had a wonderful quarter.
Operator: We are looking for more peaceful days in the region, and may the Frog be with you. Thank you very much. This concludes today's call. Thank you for attending. You may now disconnect.
Shlomi Ben Haim: King for more seats will be in the region and made a frothy with you. Thank you very much.
Operator: This concludes today's call. Thank you for attending you may now disconnect.
Operator: [music].
Operator: Yes.
Operator: [music].