Q2 2024 JFrog Ltd Earnings Call

August 7, 2024

Operator: 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 Q3 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.

Speaker: In 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 Q3 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.

During this call we may make statements related to our business that are forward looking under federal Securities laws and are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995, including statements related to our future financial performance, including our outlook for Q3, 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. You are cautioned not to place undue reliance on these forward looking statements, which reflect our views only as of today.

Speaker: 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.

Operator: 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.

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 for a discussion of material risks and other important factors that could affect our results. Please refer to our Form 10-K for the year ended December 31, 2023, which is available on the Investor Relations section of <unk>.

Speaker: For a discussion of material risks and other important factors that could affect our results, please refer to our Form 10-K for the year ended December 31st, 2023, which is available in the investor relations section of our website and the earnings press release issued earlier today. Additional information will be made available in our Form 10-Q for the quarter ended June 30, 2024, and other filings and reports that we may file from time to time with the FEC.

Operator: For a discussion of material risks and other important factors that could affect our results, please refer to our Form 10-K for the year ended December 31st, 2023, which is available in the investor relations section of our website and the earnings press release issued earlier today. Additional information will be made available in our Form 10-Q for the quarter ended June 30, 2024, and other filings and reports that we may file from time to time with the SEC.

Our website and the earnings press release issued earlier today.

<unk> information will be made available in our Form 10-Q for the quarter ended June 32024, and other filings and reports that we may file from time to time with the SEC.

Speaker: Additionally, non-GAAP financial measures will be discussed on this conference call. These non-GAAP financial measures, which are used as a measure of JFrog's performance, should be considered in addition to, and not as a substitute for, or in isolation from, GAAP measures. Please refer to the tables in our earnings release for a reconciliation of those measures to their most directly comparable GAAP financial measures. A replay of this call will be available on the JFrog Investor Relations website for a limited time. With that, I'd like to turn the call over to JFrog CEO Shlomi Van Haim.

Operator: Additionally, non-GAAP financial measures will be discussed on this conference call. These non-GAAP financial measures, which are used as a measure of JFrog's performance, should be considered in addition to, and not as a substitute for, or in isolation from, GAAP measures. Please refer to the tables in our earnings release for a reconciliation of those measures to their most directly comparable GAAP financial measures. A replay of this call will be available on the JFrog Investor Relations website for a limited time. With that, I'd like to turn the call over to JFrog CEO Shlomi Van Haim. Thank you.

Additionally, non-GAAP financial measures will be discussed on this conference call. These non-GAAP financial measures, which are used as a measure of <unk> performance should be considered in addition to and not as a substitute for or in isolation from GAAP measures. Please refer to the tables in our earnings release for a reconciliation of those.

Measures to their most directly comparable GAAP financial measures a replay of this call will be available on the <unk> Investor Relations website for a limited time.

Speaker Change: With that I'd like to turn the call over to <unk> CEO Shlomi bin Hi, Shlomi.

Shlomi Van Haim: Thank you, Jeff. Good afternoon to you all, and thank you for joining us on our call. Q2 was a productive quarter for JFrog, demonstrating solid results in our revenue, gross margin, free cash flow, and EPS. We extended JFrog on all fronts, evolving into a provider of a comprehensive software supply chain platform fortified by enhanced security capabilities that are being adopted by the world's leading organizations. Our total revenue for the quarter was $103 million, up 22% year-over-year.

Shlomi: Thank you Jeff Good afternoon to you all and thank you for joining our call Q2 was a productive quarter for <unk> demonstrating solid results in our revenue gross margin free cash flow and EPS, we extended J program, all fronts evolving into a provider of a comprehensive software supply chain platform.

Fortified by enhanced acuity capabilities that are being adopted by the world's leading organizations.

Speaker Change: Our total revenue for the quarter was $103 million up 22% year over year.

Shlomi Van Haim: We are successfully transitioning to strategic outbound enterprise sales and increasing our average selling price, all while achieving impressive business efficiency. Our performance highlights the sustainability of our business as we expand our platform infused with innovation aligned with current and future market demands. JFrog plays a crucial role in an organization's software supply chain flow, encompassing DevOps, DevSecOps, and now MLOps. During the second quarter, JFrog's cloud revenue reached $39.3 million, representing 42% year-over-year growth.

Speaker Change: We are successfully transitioning to strategic outbound enterprise sales and increasing our ever selling price all while achieving an impressive business efficiencies.

Speaker Change: Our performance highlights the sustainability of our business as we expand our platform infused with innovation aligned with current and future market demand.

Speaker Change: <unk> plays a crucial role in organization software supply chain flow encompassing Dev ops Dev ops and now envelopes.

Speaker Change: During the second quarter, Jay Forbes cloud revenue reached $39 3 million, representing a 42% it'll be years ago Ed.

Shlomi Van Haim: Ed will further discuss our cloud business and dynamics on today's call. Throughout the past year, we added 115 net new logos to the greater than $100,000 AR category. In Q2, JFrog's customers in this category grew to 928, up from 813 in the previous year. The number of customers with an ARR exceeding $1 million increased by two during the quarter, reaching a total of 42, which represents 75% year-over-year exceptional growth

Speaker Change: Ed will further discuss our cloud business and dynamics on today's call.

Speaker Change: Throughout the past year, we added 115, net new logos to the greater than $100000 category.

Speaker Change: Q2 G probes customers in this category grew to 928 up from 813 in the previous year.

Speaker Change: Number of customers within a all exceeding $1 million increased by two during the quarter, reaching a total of 42, which represent 75% year over year exceptional goals.

Speaker Change: Its enterprise Gulf numbers are the result of our successful chiefs from a purely inbound inside sales model to a hybrid approach that combines enterprise sales with bottom up inbound sales.

Shlomi Van Haim: These enterprise growth numbers are the results of our successful shift from a purely inbound inside sales model to a hybrid approach that combines enterprise sales with bottom-up inbound sales. The rewards of this shift to enterprise sales are evident, with an increase in ASP for both new and existing customers. However, high TCV deal cycles are taking longer than anticipated due to budget constraints.

Speaker Change: The rewards of this shift to enterprise sales evidence with an increasing asp's for both new and existing customers. However, ITC V deal cycles are taking longer than anticipated due to budget constraints. This reality will be addressed as we look into the second half of 'twenty 'twenty four.

Shlomi Van Haim: This reality will be addressed as we look into the second half of 2024. Our 97% exceptional growth retention rate indicates that the vast majority of our customers consistently choose JFrog at every renewal. Given the innovation added to our platform with new capabilities and a significant portion of our customer base that has yet to upgrade to the full platform, we believe we can deliver durable expansion in the future. However, based on first half results, the strict budget environment, rigid procurement processes, longer sales cycles, and projects being delayed, we anticipate slower growth in customers' expansion for the time being.

Speaker Change: Our 97% exceptional growth retention rate, indicating that the vast majority of our customers consistently choose J prog on every renewal.

Speaker Change: Keeping the innovation added to our platform would you get the ability and significant portion of our customer base that has yet to upgrade to the full platform. We believe we can deliver durable expansion in the future.

Speaker Change: Based on first half results the strict budget environment rigid procurement processes longer sales cycles and projects being delayed we anticipate slower growth in customers expansion for the time being.

Speaker Change: With that let me address ongoing adoption of the <unk> platform by some of the world's most influential companies.

Shlomi Van Haim: With that, let me address the ongoing adoption of the JFrog platform by some of the world's most influential companies. A little over three years ago, we embarked on the journey of creating a software supply chain platform centered around artifactory, which has become the gold standard for software packages, the single source of tools, and the database of DevOps. We developed a holistic solution, now coupled with security capabilities that cater to various enterprise personas and expand our offerings and total addressable market.

Speaker Change: A little over three years ago, we embarked on the journey of creating a software supply chain platform centered around the factory, which has become the gold standard for software packages single source of truth and database of Dev ops, we developed a holistic solution now coupled with security capabilities that.

Speaker Change: Cater to various enterprise persona and expand our offerings and total addressable market for.

Shlomi Van Haim: For example, one of the world's big four accounting firms recently chose JFrog as their strategic partner to scale, secure, and deliver their software components. After experiencing multiple security breaches in the past, they noted their prior security solution couldn't scale and did not holistically protect their software supply chain.

Speaker Change: For example, one of the worlds Big four accounting firm recently chose <unk> as their strategic partner to scale secure and deliver the software components.

Speaker Change: After experiencing multiple security breaches in the past they noted the Playa security solution couldn't scale and did not holistically protect the softer supply chain.

Speaker Change: Working with our technical teams they were able to architect and begin execution on the security driven deal to elevate their security posture migrate to the cloud with <unk> advanced security and Jacob duration, while displacing a competitive solution.

Shlomi Van Haim: Working with our technical teams, they were able to architect and begin execution on a security-driven deal to elevate their security posture, migrate to the cloud with JFrog advanced security and JFrog curation while displacing a competitive solution. In another new logo deal, one of the United Kingdom's top insurance service organizations, Admiral, migrated to the JFrog platform away from Sonatype Nexus suite of tools. As they sought to move to a hybrid infrastructure and consolidate their security offerings, they discovered JFrog's comprehensive security suite was a match for their needs, a robust single system of records for binary management.

Speaker Change: In another new logo deal one of the United Kingdom, and stop insurance service organizations admin all migrated to the <unk> platform away from Phonotype Nexus suite of tools.

Speaker Change: They thought to move to a hybrid it infrastructure and consolidate their security offerings. They discover J Bronx comprehensive security suite was a match for their needs at all bus single system of record for binary management.

Speaker Change: Admirals head of capabilities. So they are often applications, Kevin Foley noted quote.

Shlomi Van Haim: Admiral's Head of Capabilities for DevOps and Applications, Kevin Foley, noted, "With JFrog, we're embracing a strategic partner that allows us to modernize to a cloud-based, scalable solution. JFrog is aligned with our mission to modernize and enhance security across our development processes with its comprehensive cloud-based DevSecOps platform." It empowers us with end-to-end security capabilities, crucial for maintaining the integrity and security of our software products. end quote. As more companies discover the power of the JFrog platform with artifactory as its core, infused with security and machine learning solutions, we anticipate driving unmatched value for large-scale enterprises. I would now like to address one of our strategic partners.

Kevin Foley: BJ frog, we're embracing a strategic partner that allow us to modernize the cloud based scalable solution J programs align with our mission to modernize and enhance security across our development processes with its comprehensive cloud based <unk> platform. It empowers us.

Speaker Change: With end to end security capabilities crucial for maintaining the integrity and security of our software products and quote.

Shlomi Van Haim: As more companies discover the power of the J-POC platform with artifactory as its core, infused with security and machine learning solutions, we anticipate driving unmatched value for large-scale enterprises. I would now like to address one of our strategic partners.

Speaker Change: As more companies discovered the power of the <unk> platform without the factory at its goal infused by security and machine learning solutions, we anticipate driving unmatched value for large scale enterprises.

Speaker Change: I would now like to address one of our strategic partnerships.

Shlomi Van Haim: JFrog continues to revolutionize the domains of DevOps, DevSecOps, and MLOps. In Q2, we completed and publicly announced the first phase of a strategic partnership with GitHub, the leader in source code management and AI-assisted development technology. This collaboration was driven by strong demand from our joint customers, including AT&T, Fidelity, Ansys, and Morgan Stanley, to name a few, who desired a seamless native workflow between these two best-of-breed platforms, GitHub for source code management and JFrog for binary management.

Shlomi Van Haim: JFrog continues to revolutionize the domains of DevOps, DevSecOps, and MLOps. In Q2, we completed and publicly announced the first phase of a strategic partnership with GitHub, the leader in source code management and AI-assisted development technologies. This collaboration was driven by strong demand from our joint customers, including AT&T, Fidelity, Ansys, and Morgan Stanley, to name a few, who desired a seamless native workflow between these two best-of-breed platforms, GitHub for source code management and JFrog for binary management.

Speaker Change: Gabriel continues to revolutionize the domains of Dev ops that pick up in MLR in Q2.

Speaker Change: We completed and publicly announced the first phase of our strategic partnership would get up the leader in source code management and AI Assistant development technologies.

Speaker Change: This collaboration was driven by strong demand from our joint customers, including AT&T Fidelity, and CS and Morgan Stanley to name a few who desire the seamless native workflow between these two best of breed platforms Github full source code management and Jay fraud for binary management.

Shlomi Van Haim: We were proud to co-engineer this pain-solving solution with GitHub and excited to launch the first phase of a deep integration between our platforms that begins to marry the world of code and binaries in a single-platform experience. Once the integration is completed, we expect to see contributions to the business that will drive JFrog Advanced Security goals as a result of the tight integration with GitHub Advanced Security. Additionally, we anticipate higher shift-left exposure to the SMB and AI market due to GitHub's developer relations and co-pilot solutions.

Shlomi Van Haim: We were proud to co-engineer this pain-solving solution with GitHub and excited to launch the first phase of a deep integration between our platforms that begins to marry the world of code and binaries in a single platform experience. Once the integration is completed, we expect to see contributions to the business that will drive JFrog Advanced Security Goals as a result of the tight integration with GitHub Advanced Security. Additionally, we anticipate higher shift-left exposure to the SMB and AI market due to GitHub's developer relations and co-pilot solutions.

Speaker Change: We were proud to co engineer this painful being solution would get up and excited to launch the first phase of a deep integration between our platforms that begins to marry the world of code and binary in a single platform experience.

Speaker Change: Once the integration is completed we expect to see contributions to the business that will drive <unk> advanced security costs as a result of the tight integration with get up advanced security. Additionally, we anticipate higher shift left exposure to the SMB and AI market due to the <unk>.

Speaker Change: <unk> relation and copilot solutions, John that the director of technology for AT&T noted.

Shlomi Van Haim: Jean Natal, Director of Technology for AT&T, noted that beyond DevOps and DevSecOps practices, the future will require advanced interactions with AI tools. For example, chatting with GitHub Copilot to select the right and secure software package based on the extensive metadata sold in the JFrog catalog can be a game changer. This integration will significantly enhance the efficiency of Copilot users across the software supply chain, binary focused, and COD environment. The partnership offers the best of both worlds.

Shlomi Van Haim: John Nathal, Director of Technology for AT&T, noted that beyond DevOps and DevSecOps practices, the future will require advanced interactions with AI tools. For example, chatting with GitHub Copilot to select the right and secure software package based on the extensive metadata stored in JFrog could be a game changer. This integration will significantly enhance the efficiency of Copilot users across the software supply chain, binary focused, and code environment. The partnership offers the best of both worlds.

Speaker Change: Beyond Dev ops and depths hiccups practices, the future will require advance interactions with AI tools chatting with Github copilot to select the right unsecured software package based on the extensive meta data stored in J pro catalog can be a game changer this integration with Cigna.

Speaker Change: Inefficiently enhance the efficiency of copilot users across the software supply chain binary focused and cloud environments.

Speaker Change: Partnership offers the best of both worlds.

Shlomi Van Haim: At our upcoming user conference, SwampUP, we are excited to welcome GitHub to our keynote stage to unveil the next phase of integrations, including co-pilot, AI, and advanced security capabilities. Finally, the expansion of our platform goes beyond DevOps and DevSecOps. I'm excited to share more about our acquisition of QuarkAI and our expansion into the world of MLOps and AI-powered software. In late June, we announced that we would be acquiring the MLOps platform company QuarkAI in a deal that was finalized in early Q3.

Speaker Change: At our upcoming user conference Swamp up we are excited to welcome get up to our keynote stage to unveil the next phase of integrations, including co pilot AI and advanced security capability.

Speaker Change: Finally, the expansion of our platform goes beyond Dev ops and depths of golf's I'm excited to share more about our acquisition of quack AI and our expansion into the world of MLR ops and AI powered software.

Speaker Change: In late June we announced that we would be acquiring the analogs platform company quack AI in a deal that was finalized in early Q3.

Shlomi Van Haim: With this acquisition, JFrog is the first company to offer a comprehensive end-to-end every op solution for developing, securing, and delivering both traditional and AI-powered applications on one platform. With Quad's platform to build, train, and experiment with models, JFrog Artifactory is the model registry of choice.

Shlomi Van Haim: With this acquisition, JFrog is the first company to offer a comprehensive end-to-end every-op solution for developing, securing, and delivering both traditional and AI-powered applications on one platform. With Quad's platform to build, train, and experiment with models, JFrog Artifactory is the model registry of choice.

Speaker Change: With this acquisition <unk> is the first company to offer a comprehensive end to end every up solution for developing securing and delivering both traditional and AI powered application in one platform.

Speaker Change: With quad platform to build train and experiment with model J Fogarty factory as the mother registry of choice and with <unk> X-ray and advanced security protecting the machine learning lifecycle into production. We believe the <unk> platform is uniquely positioned to bring data scientists and machine learning engineers.

Shlomi Van Haim: And with JFrog X-Ray and advanced security protecting the machine learning lifecycle into production, we believe the JFrog platform is uniquely positioned to bring data scientists and machine learning engineers the same level of agility, reliability, and efficiency as developers and DevOps engineers already enjoy. Our teams look forward to building an integrated solution to offer our users comprehensive coverage across the DevOps and MLOps lifecycle. To the Quack team, welcome to

Speaker Change: The same level of agility reliability and efficiency as developers and Dev ops engineers already enjoying.

Speaker Change: Our teams look forward to building an integrated solution to offer our users a comprehensive coverage across Dev ops and MLR slide cycles.

Dean: So the clock Dean welcome to this one we are now one United not only as a team but also as the creators of the first platform to unify the worlds of developers machine learning engineers and data scientists.

Shlomi Van Haim: We are now one, united not only as a team but also as the creators of the first platform to unify the worlds of developers, machine learning engineers, and data scientists. Before we dive deeply into the financials, I want to take a moment to welcome our newest board member, Luis Visoso. Luis's experience as the CFO of Unity, AWS, and Palo Alto Networks, along with his role as an independent board director at companies like Splunk, will be invaluable to the growth and scale of JFrog.

Speaker Change: Before we dive deeply into the financials I want to take a moment to welcome our newest board member Lewis with social Louis' experience as the CFO for unity, AWS and Palo Alto networks, along with his role as an independent board director at companies like Splunk will be invaluable.

Speaker Change: To the growth and scale of Jabil I look forward to working with him and having him on board with that I'll turn the call over to our CFO, Ed Gripped shied, who will provide an in depth recap of Q2 financial results and update you on our outlook for both Q3 and full fiscal year.

Shlomi Van Haim: I look forward to working with him and having him on board. With that, I'll turn the call over to our CFO, Ed Grabscheid, who will provide an in-depth recap of Q2 financial results and update you on our outlook for both Q3 and full fiscal year 2024.

Speaker Change: For 2020 for Ed.

Ed Grabscheid: Thank you, Shlomi, and good afternoon, everyone. During the second quarter of 2024, total revenues were $103 million, up 22% year over year. Our second quarter results were within the range of our guidance across all measures. Customers continue to highlight the need to consolidate their software supply chain tools towards a best-of-breed platform solution, such as the JFrog platform, plus security, and now MLOps with the recent acquisition of Qu

Speaker Change: Thank you Shlomi and good afternoon, everyone. During the second quarter of 2024 total revenues were $103 million up 22% year over year.

Speaker Change: Our second quarter results were within range of our guidance across all measures customers continue to highlight the need to consolidate their software supply chain tools towards a best of breed platform solution, such as the J fraud platform plus security and now <unk> with the recent acquisition of <unk>.

Shlomi: As noted by Shlomi cloud revenues in the quarter equaled $39 3 million up 42% year over year, representing 38% of total revenues versus 33% in the prior year.

Ed Grabscheid: As noted by Shlomi, cloud revenues in the quarter equaled $39.3 million, up 42% year over year, representing 38% of total revenues versus 33% in the prior year. Self-managed revenues, or on-prem, were $63.8 million, up 13% year-over-year during the second quarter. We anticipate self-managed revenue growth trends to slightly decline in 2024 compared to 2023 as customers waiting to migrate to the cloud have paused investment in their on-prem deployment. Net dollar retention for the four trailing quarters was 118%, in line with their guidance. Our gross retention rate remained at 97%.

Ed Grabscheid: As noted by Shlomi, cloud revenues in the quarter equaled $39.3 million, up 42% year over year, representing 38% of total revenues versus 33% in the prior year. Self-managed revenues, or on-prem, were $63.8 million, up 13% year-over-year during the second quarter. We anticipate self-managed revenue growth trends to slightly decline in 2024 compared to 2023 as customers waiting to migrate to the cloud have paused investment in their on-prem deployment. Net dollar retention for the four trailing quarters was 118%, in line with our guidance. Our gross retention rate remained at 97%.

Shlomi: Self managed revenues or on Prem were $63 8 million.

Speaker Change: Up 13% year over year during the second quarter.

Shlomi: We anticipate self managed revenue growth trends to slightly decline in 2024 compared to 2023 as customers waiting to migrate to the cloud have paused investment in their on Prem deployments.

Speaker Change: Net dollar retention for the four trailing quarters was 118% in line with our guidance.

Speaker Change: Our gross retention rate remained at 97%.

Speaker Change: In Q2, 50% of total revenue came from enterprise plus subscriptions up from 45% in the prior year revenue.

Ed Grabscheid: In Q2, 50% of total revenue came from Enterprise Plus subscriptions, up from 45% in the prior year. Revenue contribution from Enterprise Plus subscriptions grew 35% year over year. Now, I'll review the income statement in more detail. Gross profit in the quarter was $86.9 million, representing a gross margin of 84.4% compared to 83.6% in the year-ago period. The increase in gross margin relative to the year-ago period is due to the elimination of outsourced costs derived from synergies related to the acquisition of VDU and ongoing cost discipline efforts.

Ed Grabscheid: In Q2, 50% of total revenue came from Enterprise Plus subscriptions, up from 45% in the prior year. Revenue contribution from Enterprise Plus subscriptions grew 35% year over year. Now, I'll review the income statement in more detail. Gross profit in the quarter was $86.9 million, representing a gross margin of 84.4% compared to 83.6% in the year-ago period. The increase in gross margin relative to the year-ago period is due to the elimination of outsource costs derived from synergies related to the acquisition of VDU and ongoing cost discipline efforts.

Speaker Change: Revenue contribution from enterprise, plus subscriptions grew 35% year over year.

Speaker Change: Now I'll review the income statement in more detail.

Speaker Change: Gross profit in the quarter was $86 9 million representing.

Speaker Change: Representing a gross margin of 84, 4% compared to 83, 6% in the year ago period.

Speaker Change: The increase in gross margin relative to the year ago period is due to the elimination of outsource cost derived from synergies related to the acquisition of video and ongoing cost discipline efforts.

Speaker Change: We reiterate expectations for annual targets remaining between 83%, 84% in the near future then trending towards the low eighty's aligned with our long term model and cloud growth.

Ed Grabscheid: We reiterate expectations for annual targets remaining between 83% and 84% in the near future, then trending towards the low 80s aligned with our long-term model and cloud growth. Operating expenses for the second quarter were $73.3 million, up $2 million sequentially, equaling 71.1% of revenues, up from $62.2 million, or 73.8% of revenues in the year-ago period.

Speaker Change: Operating expenses for the second quarter were $73 $3 million up $2 million sequentially, equaling 71, 1% of revenues up from $62 2 million or 73, 8% of revenues in the year ago period, we remained focus on expense discipline, while absorbing the <unk>.

Ed Grabscheid: We remained focused on expense discipline while absorbing the operating expenses through our acquisition of Quok and continuing to maintain the proper level of investment in scaling our enterprise sales team, channel partner ecosystem, and strategic R&D spending. Our operating profit in Q2 was $13.6 million, or 13.2% operating margin, compared to an operating profit of $8.2 million, or 9.7% operating margin in the year-ago period, an improvement of 3.5 percentage points. Diluted earnings per share equaled $0.15 based on approximately 115.2 million weighted average diluted shares compared to $0.11 per share in the prior year on 108.1 million weighted average diluted shares.

Ed Grabscheid: We remained focused on expense discipline, while absorbing the operating expenses through our acquisition of Quok and continuing to maintain the proper level of investment in scaling our enterprise sales team, channel partner ecosystem, and strategic R&D spending. Our operating profit in Q2 was $13.6 million, or 13.2% operating margin, compared to an operating profit of $8.2 million, or 9.7% operating margin in the year-ago period, an improvement of 3.5 percentage points. Diluted earnings per share equaled $0.15 based on approximately 115.2 million weighted average diluted shares compared to $0.11 per share in the prior year on 108.1 million weighted average diluted shares.

Speaker Change: Operating expenses through our acquisition of Clark and continuing to maintain the proper level of investment in scaling our enterprise sales team channel partner ecosystem and strategic R&D spending.

Speaker Change: Our operating profit in Q2 was $13 6 million or.

Speaker Change: Or 13, 2% operating margin compared to an operating profit of $8 2 million.

Speaker Change: Or nine 7% operating margin in the year ago period, an improvement of three five percentage points.

Speaker Change: Diluted earnings per share equaled 15 based on approximately $115 2 million weighted average diluted shares compared to <unk> 11 per share in the prior year on $108 1 million weighted average diluted shares.

Speaker Change: Turning now to the balance sheet and cash flow. We ended the second quarter of 2024 with $591 3 million in cash and short term investments up from $579 6 million as of March 31 2024.

Ed Grabscheid: Turning now to the balance sheet and cash flow, we ended the second quarter of 2024 with $591.3 million in cash and short-term investments, up from $579.6 million as of March 31, 2024. Cash flow from operations was $16.7 million in the quarter.

Speaker Change: Cash flow from operations was $16 7 million in the quarter after taking into consideration our capex requirements free cash flow was $16 million or 15, 5% free cash flow margin, we remain committed to our free cash flow margin targets provided within our long term model, implying an estimated mid <unk>.

Ed Grabscheid: After taking into consideration our CapEx requirements, free cash flow was $16 million, or 15.5% 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 June 30th, 2024, our remaining performance obligation totaled 272 million dollars. Now, I'd like to speak about our outlook and guidance for the third quarter and full year of 2024.

Ed Grabscheid: After taking into consideration our CapEx requirements, free cash flow was $16 million, or 15.5% 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 June 30, 2024, our remaining performance obligation totaled $272 million. Now, I'd like to speak about our outlook and guidance for the third quarter and full year of 2024.

Speaker Change: <unk> of 28% over the coming years.

Speaker Change: As of June 32020 for our remaining performance obligation totaled $272 million.

Speaker Change: Now I'd like to speak about our outlook and guidance for the third quarter and full year of 2024.

Ed Grabscheid: For the third quarter, we expect revenues to be in the range of $105 million to $106 million. We forecast non-GAAP income from operations to be in the range of $10 million to $11 million, and non-GAAP net income per share to be in the range of $0.09 to $0.11, based on 115 million estimated diluted weighted average shares outstanding. For the full fiscal year 2024, we expect revenue to be in the range of $422 million to $424 million, non-GAAP income from operations to be in the range of $52 million to $54 million, and non-GAAP net income per share to be in the range of $0.54 to $0.56 based on 116 million estimated diluted weighted average shares outstanding. Let me provide more context around our guidance.

Speaker Change: For the third quarter, we expect revenues to be in the range of $105 million to $106 million.

Speaker Change: We forecast non-GAAP income from operations to be in the range of 10 million to $11 million and non-GAAP net income per share to be in the range of nine to 11 <unk>.

Speaker Change: Based on 115 million estimated diluted weighted average shares outstanding.

Speaker Change: For the full fiscal year 2024, we expect revenue to be in the range of 422 million to $424 million non.

Speaker Change: non-GAAP income from operations to be in the range of 52 million to $54 million and non-GAAP net income per share to be in the range of 54 to.

Speaker Change: 56 <unk>.

Speaker Change: Based on 116 million estimated diluted weighted average shares outstanding.

Speaker Change: Let me provide more context around our guidance.

Ed Grabscheid: The revised guidance for fiscal year 2024 reflects a more challenging macroeconomic environment entering the third quarter, lower anticipated cloud revenue growth, and changes in customer purchasing habits. We anticipated our cloud revenue to achieve mid-40s year-over-year growth in 2024. However, we experienced customer migrations being postponed during the second quarter, and a pronounced slowdown in cloud consumption for our monthly subscribers who have no usage commitments.

Ed Grabscheid: The revised guidance for fiscal year 2024 reflects a more challenging macroeconomic environment entering the third quarter, lower anticipated cloud revenue growth, and changes in customer purchasing habits. We anticipated our cloud revenue to achieve mid-40s year-over-year growth in 2024. However, we experienced customer migrations being postponed during the second quarter, a pronounced slowdown in cloud consumption for our monthly subscribers who have no usage commitments, coupled with increased macro uncertainty.

Speaker Change: <unk> guidance for fiscal year, 2024 reflects a more challenging macroeconomic environment entering the third quarter lower anticipated cloud revenue growth and changes in customer purchasing habits.

Speaker Change: We anticipated our cloud revenue to achieve mid fourteens year over year growth in 2024, However, we experienced customer migrations being postponed during the second quarter, a pronounced slowdown in cloud consumption for a monthly subscribers, who have no usage commitments coupled with increased macro uncertainty, we now expect cloud revenue growth.

Ed Grabscheid: Coupled with increased macro uncertainty, we now expect cloud revenue growth to slow relative to prior expectations. Given the macro uncertainty, headwinds within our monthly cloud subscribers, and de-risking future enterprise customer migration projects in the second half, we now believe full year 2024 cloud growth will be around 40 percent. We would note that our revised cloud growth still represents strong execution in a challenging market. We continue to see security becoming a critical driver of larger customer deals and view the JFrog platform combined with security as the industry's choice for enterprise customers looking to manage and secure their software supply chain and consolidate point solutions.

Ed Grabscheid: We now expect cloud revenue growth to slow relative to prior expectations. Given the macro uncertainty, headwinds within our monthly cloud subscribers, and de-risking future enterprise customer migration projects in the second half, we now believe full year 2024 cloud revenue growth will be around 40 percent. We would note that our revised cloud growth still represents strong execution in a challenging market. We continue to see security becoming a critical driver of larger customer deals and view the JFrog platform combined with security as the industry's choice for enterprise customers looking to manage and secure their software supply chain and consolidate point solutions.

Speaker Change: To slow relative to prior expectations.

Speaker Change: Given the macro uncertainty headwinds within our monthly cloud subscribers and Derisking future enterprise customer migration projects in the second half. We now believe full year 2020 for cloud growth will be around 40%.

Speaker Change: I would note that our revised cloud growth still represents strong execution in a challenging market.

Speaker Change: We continue to see security, becoming a critical driver of larger customer deals and view the <unk> platform combined with security as the industry's choice for enterprise customers looking to manage and secure their software supply chain and consolidate point solutions.

Ed Grabscheid: We remain optimistic that JFrog Advanced Security and Curation will deliver durable revenue growth in the future. We're stepping into the second half of the year with a solid sales pipeline. However, given the longer sales cycle and proof of concept processes in a challenging purchasing environment, we now anticipate material revenue from our security core will be achieved in 2025. Given these noted changes compared to our prior expectations, we now believe our net dollar retention range for the full year is likely in the mid-teens versus the high-teens expectation we had exiting the first quarter of 2024.

Speaker Change: We remain optimistic that Jay Parag advanced security and curation will deliver durable revenue growth in the future. We're stepping into the second half of the year with a solid sales pipeline, however, given longer sales cycle and proof of concept processes and a challenging purchasing environment. We now anticipate material revenue from our secured.

Speaker Change: Core will be achieved in 2025.

Speaker Change: Given the noted changes compared to our prior expectations. We now believe our net dollar retention range for the full year is likely in the mid teens versus the high teens expectation, we had exiting the first quarter of 2024.

Ed Grabscheid: Finally, the acquisition of Quok closed in the beginning of July. We do not anticipate any meaningful revenue contribution in the third quarter or for the full year 2024. As we integrate Quok into JFrog, we will provide further updates regarding our anticipated contribution to growth and profitability. Now, I'll turn the call back to Shlomi for some closing remarks before we take your questions.

Speaker Change: Finally, the acquisition of <unk> closed in the beginning of July we do not anticipate any meaningful revenue contribution in the third quarter or for the full year 2024, as we integrate <unk> into <unk>, we will provide further updates regarding our anticipated contribution to growth and profitability.

Speaker Change: Now I'll turn the call back to Shlomi for some closing remarks before we take your questions.

Shlomi: Thank you Ed last week remarks, 300 days since the world and Israel begun.

Shlomi Van Haim: Thank you, Ed. Last week, we marked 300 days since the war in Israel began.

Operator: We continue to pray for the safe return of the 115 hostages still held in Gaza and for more peaceful days in the region and the world. In the face of these geopolitical and macroeconomic challenges, I'm honored and proud to walk with a team that remains steadfast in pursuing our company's strategic goals and upholding the culture that drives us forward. Frogs, you continue to inspire me daily, and I thank you for the effort, devotion, and commitment to building and growing our company.

Operator: We continue to pray for the safe return of the 115 hostages still held in Gaza and for more peaceful days in the region and the world. In the face of these geopolitical and macroeconomic challenges, I'm honored and proud to work with a team that remains steadfast in pursuing our company's strategic goals and upholding the culture that drives us forward. Frogs, you continue to inspire me daily, and I thank you for the effort, devotion, and commitment to building and growing our company.

Speaker Change: We continue to pray for the safe return of the 115 hostages still held in underground Gaza and four more peaceful days in the region and the world.

Speaker Change: In the face of these geopolitical and macroeconomic challenges I'm honored and proud to work with the team that remains steadfast in pursuing our company's strategic goals and upholding the culture that drives us forward.

Speaker Change: <unk> you continue to inspire me daily and I. Thank you for the airports devotion and commitment to building and growing our company.

Speaker Change: Well it depends on the seamless flow and faster delivery of profit software updates whether through Dev ops practices reinforced by holistic software supply chain security capabilities or MLR powered by machine. The <unk> platform is engineered to address one of the world's greatest challenges in.

Operator: The world depends on the seamless flow and trusted delivery of rapid software updates, whether through DevOps practices reinforced by holistic software supply chain security capabilities or MLOps powered by machines. The JFrog platform is engineered to address one of the world's greatest challenges, ensuring software runs efficiently and securely from developers to the edge. We are excited about the future and the limitless possibilities it holds for us. With that, thanks for joining us on our call, and may the frog be with you. Operator, we are now open to take questions.

Speaker Change: During softer runs efficiently and securely from developers to the edge. We are excited about the future and the limitless possibilities at all for us with that thanks for attending our call and made the frog be review operator, we are now open to take questions.

Speaker Change: Thank you, Sir and everyone. If you would like to ask a question. Please press star one on your telephone keypad, we do ask that you limit yourself to one question and one follow up we'll take our first question today from Pingo <unk> Jpmorgan.

Operator: Thank you, sir. And everyone, if you would like to ask a question, please press star one on your telephone keypad. We do ask that you limit yourself to one question and one follow-up. We'll take our first question today from Pinjalim Bora, J.P. Morgan.

Speaker Change: Oh, great. Thanks for taking the questions I, just wanted to understand a little bit more on.

Pinjalim Bora: Oh, great. Thanks for taking the questions. I just wanted to understand a little bit more about what transpired.

Pinjalim Bora: You had reaffirmed guidance, I think about five days remaining in the quarter. Did you notice the changes in the sales cycle dynamic, mainly in the month of July? Did it deteriorate towards kind of the end of July? Maybe help us think through that.

Speaker Change: What transpired you had reaffirmed guidance I think about five days remaining in the quarter did you notice the change changes in the sales cycle dynamics.

Speaker Change: Mainly in the month of July did it deteriorate towards kind of the end of July and maybe.

Speaker Change: Help us think through that.

Speaker Change: In July this is Ed thank.

Ed Grabscheid: Hi Pinjalim, this is Ed. Thank you for your question. We noticed a push-out in the final few days of the quarter and a markable change in the macroeconomic environment in the first month of the new quarter. So, therefore, we didn't see much during Q2 until the final days of the quarter. We also noticed, in that time, significant, large strategic deals being pushed out, which indicated to us a change in the purchasing environment. Therefore, we revisited our forecasts and de-risked and adjusted our guidance going forward for the full year as well.

Pinjalim Bora: You had reaffirmed guidance, I think, with about five days remaining in the quarter. Did you notice the changes in the sales cycle dynamic, mainly in the month of July? Did it deteriorate towards kind of the end of July? Maybe help us think through that.

Speaker Change: Thank you for your question, we noticed a push out in the final few days of the quarter.

Ed Grabscheid: Hi Pinjalim, this is Ed. Thank you for your question. We noticed a push-out in the final few days of the quarter and a markable change in the macroeconomic environment in the first month of the new quarter. So, therefore, we didn't see much during Q2 until the final days of the quarter. We also noticed, in that time, significant large strategic deals being pushed out, which indicated to us a change in the purchasing environment. Therefore, we revisited our forecast and de-risked and adjusted our guidance going forward for the full year as well.

Speaker Change: And <unk>.

Speaker Change: <unk> change in the macroeconomic environment in the first month of the new quarter. So therefore, we didn't see much during Q2 until the final.

Speaker Change: Days of the quarter.

Speaker Change: We're also noticed in that time strategic deals significant large strategic deals being pushed out which indicated to us the change in the purchasing environment. Therefore, we revisited our our forecast and de risks.

Speaker Change: And adjusted our guidance going forward for the full year as well.

Speaker Change: Yeah understood and.

Pinjalim Bora: Yeah, understood. And one more question on the cloud revenue guidance now coming down five points. Is it possible to understand how much of that is driven by the monthly cloud part and the annual cloud part?

Speaker Change: And one more question on on the cloud revenue guidance coming down five points is it.

Speaker Change: Possible to understand how much of that is driven by the monthly cloud part is and the annual cloud.

Speaker Change: Yeah.

Speaker Change: So the monthly subscribers from our cloud.

Ed Grabscheid: So the monthly subscribers from our cloud for cloud growth are around two to three percentage points.

Speaker Change: For cloud growth is around 2% to three percentage points.

Speaker Change: If I may remind you.

Ed Grabscheid: If I may remind you,

Ed Grabscheid: If I may remind you, Pinjalim, cloud subscribers have no commitments. So it's a pay-as-you-go, and it's very much aligned with what Ed articulated regarding the macro environment.

Ed Grabscheid: EU Pendulum Cloud subscribers have no commitments, so it's a pay-as-you-go, and it's very much aligned with what Ed articulated regarding macro environments.

Speaker Change: And your name.

Speaker Change: Cloud subscribers.

Speaker Change: I have no commitments so its a bit as you go and it's very much aligned when it was the Ed articulated regarding.

Marko Envarmen: Marko Envarmen

Speaker Change: Macro environments.

Ryan Macwilliams: Next we'll take a question from Ryan Macwilliams Barclay.

Operator: Up next, we'll take a question from Ryan McWilliams of Barclays.

Ryan Macwilliams: Up next, we'll take a question from Ryan MacWilliams.

Speaker Change: Okay.

Ryan Macwilliams: Hey, guys. Thanks for taking the question just on the Microsoft partnership from what we heard so far it seems like this is more than just a sales and go to market partnership, but also more on the product side. So certainly love to hear what you think this J fraud Github partnership means from a product standpoint for the customers and how do you think about the potential opportunity there sizes.

Ryan Macwilliams: Hey guys, thanks for taking the question. Just on the Microsoft partnership, from what we've heard so far, it seems like this is more than just a sales and go-to-market partnership but also more on the product side. So Shlomi, I would love to hear what you think this JFrog GitHub partnership means from a product standpoint for customers. And how do you think about the potential opportunity, the size of this opportunity for JFrog?

Ryan McWilliams: Hey guys, thanks for taking the question. Just on the Microsoft partnership, from what we've heard so far, it seems like this is more than just a sales and go-to-market partnership but also more on the product side. So Shlomi, I would love to hear what you think this JFrog GitHub partnership means from a product standpoint for customers, and what you think about the potential opportunity, and the size of this opportunity for JFrog going forward.

Speaker Change: The opportunity for <unk> going forward.

Speaker Change: Yes. Thank you Ryan for the question, obviously every partnership, especially with a best of breed.

Shlomi Van Haim: Yes, thank you, Ryan, for the question. Obviously, every partnership, especially with the best of breed other platforms, when it's driven by customer demand, and our biggest customers, joint customer demand, shows the rapid adoption of both tools and the expectation from the market to have a single platform experience. So we have high hopes. We released the first phase of this integration a bit more than a month ago, and we are going to complete this phase with an announcement at SwampUP next month in Austin, Texas.

Shlomi Van Haim: And thank you, Ryan, for the question. Obviously, every partnership, especially with a best of breed other platform, when it's driven by customers' demand, and our biggest customers, joint customer demand, it shows the rapid adoption of both tools and the expectation from the market to have a single platform experience. So we have high hopes. We released the first phase of this integration a bit more than a month ago, and we are going to complete this phase with an announcement at SwampUP next month in Austin, Texas.

Speaker Change: Other platform, when it's driven by customers' demand and our biggest customers joint customers demand it.

Speaker Change: It shows the.

Speaker Change: Rapid adoption of both tools and the.

Speaker Change: The expectation from the market to have a one platform experience. So we have high goals, we released the first phase of niche integration.

Shlomi Van Haim: We are very excited about it. We like co-engineering with GitHub, and we hear customers are excited about it, so we have high hopes. I think it's too early to say how it will change the narrative and the adoption, but with everything that happens in our environment, the DevOps, and DevSecOps environment, this integration around DevOps, security, and AI is what our customers, joint customers,

Shlomi Van Haim: We are very excited about it. We like co-engineering with GitHub, and we hear customers are excited about it, so we have high hopes. I think it's too early to say how it will change the narrative and the adoption. But with everything that happens in our environment, the DevOps, and DevSecOps environment, this integration around DevOps, security, and AI is what our customers, joint customers,

Speaker Change: More than a month ago, and we are going to complete this phase with the announcement that swap up next.

Speaker Change: Next month.

Speaker Change: Austin, Texas now very much excited about it we like co engineering with <unk>.

Speaker Change: <unk>.

Speaker Change: And we used the customers excited about it so we have high hopes I think it's too early to say how it will.

Speaker Change: Change the narrative.

Speaker Change: And the adoption but.

Speaker Change: With everything that happens in our environment Dev ops Dev ops environment. This integration around data security and AI.

Speaker Change: Hi.

Speaker Change: It's what our customers joint customers expense.

Speaker Change: Appreciate the color and then for Ed.

Ed Grabscheid: I appreciate the color. And then, for Ed, is there a way for us to think about the historical contribution to cloud revenue growth from existing customers moving over from on-prem? And then, you know, for the customers that are now delaying their, you know, cloud transition, is this something that is put on pause, like slipped from 2Q to 3Q, or is this something that, you know, they're gonna maybe relook at in a better macro in 2025?

Ryan McWilliams: I appreciate the color. And then, for Ed, is there a way for us to think about the historical contribution to cloud revenue growth from existing customers moving over from on-prem? And then, you know, for the customers that are now delaying their, you know, cloud transition, is this something that is put on pause, like slipped from Q2 to 3Q, or is this something that, you know, they're gonna maybe relook at in a better macro in 2025?

Speaker Change: Is there a way for us to think about the historical contribution to cloud revenue growth from existing customers moving over from on Prem and then for the customers that are now delaying.

Speaker Change: Their cloud transition is this something that is put on pause like slipped from Q2 to <unk> or is this something that theyre going to maybe re look at it in a better macro and questioning fiber and so on.

Speaker Change: Yes. Thank you for your question first for those customers that are migrating from self hosted or cloud, we see anywhere from 20% to 80% in terms of an uplift.

Ed Grabscheid: Yeah, thank you for your question. First, for those customers that are migrating from self-hosted to cloud, we see anywhere from 20 to 80% in terms of an uplift in the subscription, therefore providing an increase in expansion for those customers. Regarding the timing of that and the push out that we saw, we looked at our forward-looking forecast, and we de-risked any migrations going forward at

Speaker Change: In.

Speaker Change: Subscription therefore, providing an increase an expansion for those customers.

Speaker Change: Regarding the timing of that and to push out that we saw we looked at our forward looking forecast that we derisk for any migrations going forward at this point.

Speaker Change: The next question comes from Sandy.

Sanjit Singh: The next question comes from Sanjit Singh, Morgan Stanley.

Operator: The next question comes from Sanjit Singh, Morgan Stanley.

Speaker Change: Thanks.

Speaker Change: Yeah.

Sandy: Yes. Thank you for taking the question I wanted to go back to.

Sanjit Singh: Thank you for taking the question. I wanted to go back to where you saw the weakness.

Sanjit Singh: Thank you for taking the question. I wanted to go back to where you saw the weakness. So we've talked about migrations, the monthly pay-as-you-go cloud business. In terms of, you know, whether it's enterprise, mid-market, SMB, or geographic exposures, or even across different industries, were there any particular segments that stood out that drove the incremental weakness or what you saw towards the end of the quarter going into July with that broad swath of weakness?

Sandy: Where you saw the weakness so you've talked about migrations and.

Shlomi Van Haim: So we've talked about migrations and the monthly pay-as-you-go cloud business. In terms of, you know, whether it's enterprise, mid-market versus SMB, or geographic exposures, or even across different industries, were there any particular segments that stood out that drove the incremental weakness or what you saw towards the end of the quarter going into July with that broadband?

Speaker Change: The monthly.

Speaker Change: As you go cloud business.

Speaker Change: In terms of like what.

Speaker Change: It's enterprise mid market SMB or geographic.

Speaker Change: Exposures or even across different industries.

Speaker Change: Was there any particular segments that stood out that drove the incremental weakness or what you saw towards the end of the quarter going into July was that broad based.

Shlomi: Yeah, Hey, Sanjay this is shlomi.

Shlomi Van Haim: Hi Sanjit, this is Shlomi. No, it goes across geographies, customer profiles, different demands, whether it's security or DevOps. It's more about budget concerns. And it's more about a rigid procurement environment. This is what we hear from our customers.

Shlomi: No. It's go it goes across geographies.

Speaker Change: Customers profile different demands, whether it's security or <unk> and small about budget concerns and it's more about.

Speaker Change: Procurement environment. This is what we hear from our customers.

Speaker Change: Understood and then on sort of the timing of sort of like the contribution at the advanced security.

Sanjit Singh: understood, and then on sort of the timing of sort of like the contribution of advanced security, I guess I'd be a little bit surprised why it would be pushed out. I mean, you obviously have the GitHub integration coming online. But I mean, globally, we just had a major outage with the CrowdStrike situation. So it would seem to me that the focus on the software supply chain and how we roll out updates is more critical than ever. And I would have. I suspect that there could be a potential tailwind to the business from big outages like that in the second half. So any reason behind the pushout of advanced marketing?

Speaker Change: It'd be a little bit surprised why it would push out I mean, you obviously have.

Speaker Change: The good hub.

Speaker Change: Integration coming online, but I mean globally, we just had a major outage.

Sanjit Singh: But I mean, globally, we just had a major outage with the CrowdStrike situation. So it would seem to me that the focus on the software supply chain and how we roll out updates is more critical than ever. And I would have expected a potential tailwind to the business from big outages like that in the second half. So any reason behind the push out of advanced security and maybe just the broader business, not seeing more of a benefit, post a pretty material global outage that the industry's

Operator: During this call, we may make statements related to our business that are forward looking under federal security laws and are made pursuant to the safe harbor provisions of the Private Security's Litigation Reform Act of 1995, including statements related to our future financial performance and including our outlook for Q3 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.

Speaker Change: With the with the crowd strike situation. So it would seem to me that like the focus on the.

Speaker Change: Software supply chain, and how we roll out updates becomes more critical than ever.

Speaker Change: Expected.

Speaker Change: A potential tailwind to the business from.

Speaker Change: Big outages like that in the second half so any reason behind like the push out of like advanced security and maybe just like the broader business not seeing more of a benefit post a pretty material on global outage that the industry is experiencing.

Operator: Your caution not to place undue reliance on these forward looking statements, which reflect our views only as of today and not as of any subsequent date. Please keep in mind that we are not 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.

Speaker Change: Yes, I can share with you what we hear from our customers and what led us to look again at the <unk>.

Shlomi Van Haim: Sanjit, I can share with you what we hear from our customers and what led us to look again at expectations.

Shlomi Van Haim: Sanjit, I can share with you what we hear from our customers and what led us to look again at the expectations. When we entered 2024, we thought about early adoption of our security solution. What happened was that most of our strategic customers started to look at the consolidation of point solutions, which was higher than expected in terms of TCB. So we are looking at higher potential, but then again, our potential also leads to longer proof of concept processes and longer procurement processes. And this is why we want to be a bit more conservative about security. With regard to GitHub,

Speaker Change: Asia.

Shlomi Van Haim: When we entered 2024, we thought about early adoption of...

Speaker Change: When we entered the 2024, we felt about early adoption of our security solution. What happened was that most of our strategic customers started to look at the consolidation of point solution, which was higher than expected in PCB.

Shlomi Van Haim: about early adoption of our security solution. What happened was that most of our strategic customers started to look at the consolidation of point solutions, which was higher than expected in TCB's perspective. So we are looking at higher potential, but then again, higher potential also leads to longer proof of concept processes and longer procurement processes. And this is why we want to be a bit more conservative about security. With regard to GitHub, the security piece is something that will be announced next month, as I mentioned, and then we hope that it will generate even more motivation for consolidation of point solutions into a platform security solution.

Operator: For discussion of material risks and other important factors that could affect our results, please refer to our form 10K for the year ended December 31, 2023, which is available on the investor relations section of our website and the earnings press release issued earlier today. Additional information will be made available in our form 10Q for the quarter ended June 30, 2024, and other filings and reports that we may file from time to time with the SEC.

Speaker Change: And so we are looking at a higher potential, but then again potential also lead to longer proof of concept processes and longer procurement processes and this is why we want to be a bit more conservative about the security with regard to Github.

Speaker Change: The security piece is something that will be announced next month as I mentioned and then we hope that it will generate even more motivation for consolidations.

Operator: Additionally, non-gap financial measures will be discussed on this conference call. These non-gap financial measures, which are used as measure of J. Frog's performance, should be considered in addition to, and not as a substitute for, or in isolation from, gap measures. Please refer to the tables in our earnings release for a reconciliation of those measures to their most directly comparable gap financial measures.

Speaker Change: Solution to the platform security solution.

Speaker Change: Co Gi Qaeda from Bank of America has the next question.

Operator: Koji Ikeda from Bank of America has the next question.

Koji Ikeda: Koji Ikeda from Bank of America has the next question.

Speaker Change: Yeah, Hey, guys. Thanks for taking my questions here.

Koji Ikeda: Yeah, hey guys, thanks for taking my questions here. I wanted to follow up on the first question that was asked in the Q&A and really try and understand a little bit more about the linearity of cloud deals. You know, with the guidance that was given on 6-25, you guys mentioned the demand environment deteriorated in the final few days of the month. Just, you know, even coming off the first quarter results, I think one of the big debates on JFrog is understanding how this cloud component is consumed.

Speaker Change: I wanted to follow up to the first question that was asked in the Q&A and really try and understand a little bit more about the linearity of cloud deals.

Operator: A replay of this call will be available on the J. Frog investor relations website for a limited time.

Operator: With that, I'd like to turn the call over to J.

Shlomi Benheim: Frog CEO, Schlomi Benheim. Schlomi? Thank you, Jeff.

Speaker Change: The guidance that was given on the 625, you guys mentioned the demand environment deteriorated in the final few days of the month, just even coming out the first quarter results I think one of the big debates on Jay for August is understanding how this cloud component is consumed.

Shlomi Benheim: Good afternoon to you all, and thank you for joining our call. Our total revenue for the quarter was $103 million, up 22% of you. We are successfully transitioning to strategic outbound enterprise sales and increasing our ever selling price all while achieving an impressive business efficiency. Our performance highlights the sustainability of our business. As we expand our platform infused with innovation, aligned with current and future market demands, J. Frog plays a crucial role in organization software supply chain flow, encompassing DevOps, DevSecOps, and now MLOPS.

Koji Ikeda: So, is that typically how the buyers are consuming cloud? It comes in big in the final few days of the quarter or the month. You know, is that the way we should be expecting users to buy this product?

Speaker Change: Is that typically how.

Speaker Change: Is that typically how the buyers are consuming cloud it comes in big and the final few days of the quarter or the month.

Speaker Change: Is that is that the way we should be expecting out how the users are buying this product.

Speaker Change: So the seasonality of purchasing in the quarter, we will typically see towards the end of the quarter. So the majority of deals are done at the end of the quarter and this is something that is not unique to Q2, we see that every quarter with the majority of that in terms of what we're seeing around large migration deals.

Ed Grabscheid: So the seasonality of purchasing in the quarter, we'll typically see towards the end of the quarter. So the majority of deals are done at the end of the quarter. This is something that is not unique to Q2. We see that every quarter, we're the majority of that.

Ed Grabscheid: So the seasonality of purchasing in the quarter we'll typically see towards the end of the quarter. So the majority of deals are done at the end of the quarter. This is something that is not unique to Q2. We see that every quarter; we're the majority of that.

Ed Grabscheid: In terms of what we're seeing around large migration deals, and specifically around what we saw during Q2, decisions that we felt were high probability when proof of concepts that were completed, those were pushed. They were pushed to later periods. We re-evaluated, as I mentioned, our forecast. We de-risked these large deals based on a very challenging macro environment, a rigid purchase environment. Therefore, in the second half, where we had significant migration deals, those have been removed from our forecast going forward.

Ed Grabscheid: In terms of what we're seeing around large migration deals, and specifically around what we saw during Q2, decisions that we felt were high probability, with proof of concepts that were completed, those were pushed. We re-evaluated, as I mentioned, our forecast. We de-risked these large deals based on a very challenging macro environment, a rigid purchase environment. Therefore, in the second half, where we had significant migration deals, those have been removed from our forecast going forward.

Speaker Change: And specifically around what we saw during Q2 was that decision that we felt were.

Speaker Change: High probability weight in proof of concepts that were completed those were pushed.

Speaker Change: Those were pushed to later periods.

Shlomi Benheim: During the second quarter, J. Frog's cloud revenue reached $39.3 million, representing a 42% year over year ago. Ed would further discuss our cloud business and dynamics on today's goal. Throughout the past year we added 115 net new logos to the greater than $100,000 ARR category. In Q2, JFrog's customers in this category grew to 928 up from 813 in the previous year, the number of customers with an ARR exceeding $1 increased by 2 during the quarter, reaching a total of 42 which represent 75% year-over-year exceptional goals.

Speaker Change: Reevaluated as I mentioned, our forecast we've derisked.

Speaker Change: These large deals based on a very challenging macro environment rigid purchase environment. Therefore in the second half where we had.

Speaker Change: A significant migration deals those have been removed from our forecast going forward.

Koji Ikeda: Okay, and then to follow up on that, you know, with the revised guidance for the full year on the cloud, that does imply somewhere around a mid-30s growth rate in the cloud for the second half. So it sounds like you've taken...

Koji Ikeda: Okay, and then to follow up on that, you know with the revised guidance for the full year on the cloud, that does imply somewhere around a mid-30s growth rate in the cloud for the second half. And so it sounds like you've taken out...

Speaker Change: Okay, and then just a follow up on that with the revised guidance for the full year on the cloud that does imply.

Speaker Change: Somewhere around the mid <unk> growth rate in the cloud for the second half and so it sounds like you've taken out a bunch of the migration assumptions, but what is there anything else within that guidance that you are taking into consideration aside from the migrations for that cloud number thanks guys.

Shlomi Benheim: These enterprise growth numbers are the results of our successful shift from a purely inbound inside sales model to a hybrid approach that combines enterprise sales with bottom-up inbound sales. The rewards of this shift to enterprise sales are evidence with an increase in ASP for both new and existing customers. However, high-TCV deals cycles are taking longer than anticipated due to budget constraints. This reality will be addressed as we look into the second half of 2024.

Speaker Change: Sure in.

Shlomi Van Haim: Sure. In addition to that, because of the macro...

Ed Grabscheid: Sure. In addition to that, because of the macro...

Speaker Change: In addition to that because of the macro environment in this region purchasing environment, we're not seeing the level of expansion that we expected in the second half and therefore, the combination of the migrations and expansion on renewables are being factored into the guidance going forward.

Shlomi Van Haim: Koji, if I may add to it, we are looking at 40% growth here in the cloud; we are looking at a profitable business here. We have to be conservative and think about what the market is telling us, and therefore, in a very responsible way. We looked at our pipeline and the big projects that the pipeline introduced, and we reacted based on what we saw in the first half of the year.

Shlomi Van Haim: Koji, if I may add to it, we are looking at 40% growth here in the cloud. We are looking at a profitable business here. We have to be conservative and think about what the market is telling us. And therefore, in a very responsible way, we looked at our pipeline and the big projects that the pipeline introduced, and reacted based on what we saw in the first half of the year.

Speaker Change: Could you if I may add to it.

Speaker Change: Looking at the 40% growth year over year in the cloud we're looking at the profit profitable.

Shlomi Benheim: Our 97% exceptional growth retention rate indicates that the vast majority of our customers consistently choose JFrog on every renewal, giving the innovation added to our platform with duke abilities and significant portion of our customers base that has yet to upgrade to the full platform we believe we can deliver durable expansion in the future. Based on first half results, the strict budget environment, rigid procurement processes, longer sales cycles and projects being delayed, we anticipate slower growth in customer expansion for the time being.

Speaker Change: This year, we have to be conservative bent to and do you think about what the market is telling us and therefore.

Speaker Change: In a very responsible way, we looked at our pipeline and the big projects the pipeline introduce and reacted based on what we saw in the first half of the year.

Speaker Change: Well go to our next question <unk> Canaccord Genuity.

Operator: We'll go to our next question from Kingsley Crane of Canaccord Genuity.

Kingsley Crane: We'll go to our next question from Kingsley Crane of Canaccord Genuity.

Speaker Change: Yes.

Kingsley Crane: Hi, thanks for taking the question. So I want to return to the cloud guide that everyone's talking about. You know, it makes sense that you saw some changes and you want to be conservative. The new guide, I still believe, would imply sequential reacceleration in the back half. So just want to get a sense of how you risk the guidance here? And then what's the risk that this could deteriorate further? Despite the conservative take we've taken out here, thanks.

Kingsley Crane: Hi, thanks for taking the question. So I want to return to the cloud guide that everyone's talking about. You know, it makes sense that you saw some changes and you want to be conservative. The new guide, I still believe, would imply sequential re-acceleration in the back half. So I just want to get a sense of how you risk the guidance here? And then what's the risk that this could deteriorate further? Despite the conservative take we've taken out here, thanks.

Speaker Change: Hi, Thanks for taking the question so I wanted to return to.

Speaker Change: To the cloud guide that everyone's talking about.

Speaker Change: It makes sense that you saw some changes and you want to be conservative.

Shlomi Benheim: With that, let me address ongoing adoption of the JFrog platform by some of the world's most influential companies. A little over three years ago, we embarked on the journey of creating a software supply chain platform centered around out the factory which has become the gold standouts for software packages, single-source tools and database of DevOps. We developed a holistic solution now coupled with security capabilities that cater to various enterprise personas and expand our offerings and total adjustable markets.

Speaker Change: The New guide I still believe would imply sequential reacceleration in the back half. So just wanted to get a sense of how de risked the guidance here and there.

Speaker Change: What's the risk that that could deteriorate further.

Speaker Change: Despite the conservative take we've taken out here. Thanks.

Speaker Change: Thanks.

Speaker Change: Yes. Thank you for your call for the question Kingsley.

Ed Grabscheid: Yeah, thank you for your call and question Kingsley. So, what we know today, we feel comfortable with the number that we're presenting, around 40% year over year growth in the cloud, which Shlomi had mentioned, and I mentioned during the call still represents a very good year over year growth in the cloud. Three, two to 3% of that decline is coming from our monthly customers that do not have commitments with us.

Ed Grabscheid: Yeah, thank you for your call and question, Kingsley. So, what we know today, we feel comfortable with the number that we're presenting, around 40% year over year growth in the cloud, which Shlomi had mentioned, and I mentioned during the call still represents a very good year over year growth in the cloud. Three, two to 3% of that decline is coming from our monthly customers that do not have commitments with us.

Speaker Change: So what we know today, we feel comfortable with the number that we're presenting around 40% year over year growth in the cloud, which slowly had mentioned and I mentioned during the call still represents a very.

Shlomi Benheim: For example, one of the world's big four accounting firms recently chose JFrog as the strategic partner to scale, secure and deliver the software components. After experiencing multiple security breaches in the past, they noted the prior security solution couldn't scale and did not holistically protect the software supply chain. Walking with our technical team, they were able to architect and begin execution on a security driven deal to elevate their security posture, migrate to the cloud with JFrog advanced security and JFrog curation while displacing a competitive solution.

Speaker Change: Good year over year growth in the cloud.

Speaker Change: Three 2% to 3% of that decline is coming from our monthly customers that do not have commitments with us and we've stated that in the past. In addition to that we've taken a very close look at our forecast going forward and derisked as much as we felt comfortable with derisking any deals in <unk>.

Ed Grabscheid: And we've stated that in the past. In addition to that, we've taken a very close look at our forecast going forward and de-risked as much as we felt comfortable with de-risking any deals in our pipeline and in the forecast for the second half of 2024.

Speaker Change: Our pipeline and in the forecast for the second half of 2024.

Speaker Change: Okay. Thank you that's helpful and so let me just one for you it's great to hear about you get home partnership and how it can help copilot users, bringing the best of both worlds just wanted to think through how it could translate to business impacts.

Kingsley Crane: Okay, thank you. That's helpful. And Shlomi, just one for you.

Shlomi Benheim: In another new logo deal, one of the United Kingdom's top insurance service organizations, Admiral, migrated to the JFrog platform away from Sonnet App Nexus suite of tools. If they sought to move to a hybrid infrastructure and consolidate their security offerings, they discovered JFrog's comprehensive security suite was a match for their needs. A robust single system of records for binary metad. Admirals, Head of Capabilities for DevOps and Applications, Kevin Foley noted, quote, with JFrog, we are embracing a strategic partner that allow us to modernize to a cloud-based, scalable solution.

Speaker Change: Is this sort of a nice feature for existing users like how much of this can be an on ramp forget hubs large user base to explore J ferrar.

Speaker Change: I think.

Shlomi Van Haim: You know, it's great to hear about the GitHub partnership and how it can help co-pilot users bring the best of both worlds. But I just want to think through some of how it could translate to business impact. For example, is this sort of a nice feature for existing users? Like how much of this could be an on ramp for GitHub's large user base to explore JFrog?

Shlomi Van Haim: You know, it's great to hear about the GitHub partnership and how it can help co-pilot users bring the best of both worlds. But I just want to think through some of how it could translate to business impact. For example, is this sort of a nice feature for existing users? Like how much of this could be an onramp for GitHub's large user base to explore JFrog?

Speaker Change: Lee.

Speaker Change: <unk>.

Shlomi Van Haim: I think Kingsley it's relevant to any organization.

Speaker Change: Planned event to any organization.

Speaker Change: <unk> is using <unk> <unk> first and then to any organization that might migrate from big bucket or get them. So obviously the potential is.

Shlomi Van Haim: is relevant to any organization that is using GitHub or JFrog first, and then to any organization that might migrate from Bitbucket or GitHub. So obviously, the potential is very high, mainly because of the fact that it also brings some differentiators that other vendors cannot provide, like enhanced security consolidation with these two platforms, co-pilot, and JFrog security collaboration. So users can actually chat with co-pilots and get binary information. The collaboration with GitHub is based on our customers' feedback, so I don't see how this can go wrong. And also the trend in the market for consolidation, moving from point solutions to best-of-breed platforms. We're very honored and very excited about this partnership.

Operator: I think Kingsley, it's relevant to any organization that is using GitHub or JFrog first, and then to any organization that might migrate from Bitbucket or GitLab. So obviously, the potential is very high, mainly because of the fact that it also brings some differentiators that other vendors cannot provide, like enhanced security consolidation with these two platforms, co-pilot, and JFrog security collaboration. So users can actually chat with co-pilots and get binary information. The collaboration with GitHub is based on our customers' feedback, so I don't see how this can go wrong. And also, there is a trend in the market for consolidation, moving from point solutions to best-of-breed platforms, and we're very honored and very excited about this partnership.

Speaker Change: It's very.

Speaker Change: Hi, mainly because of the fact that it also brings some differentiate but with other vendors cannot provide like enhanced security.

Shlomi Benheim: JFrog is aligned with our mission to modernize and enhance security across our development processes with its comprehensive cloud-based DevSecOps platform. It empowers us with end-to-end security capabilities, crucial for maintaining the integrity and security of our software products, end-quote. As more companies discover the power of the JFrog platform without evacuating its core, infused by security and machine learning solutions, we anticipate driving unmatched value for large-scale enterprises.

Speaker Change: Consolidation with these two platforms copilot and Jacob security collaboration so users can actually chats with compilers and get binary information and collaboration will be picked up is based on our customers' feedback. So I don't see how this can go wrong and also the trend in the market for <unk>.

Speaker Change: Solidago moving from point solution to a best of breed platform, we're very honored and very excited about this balance sheet.

Speaker Change: Great. Thank you.

Speaker Change: The next question comes from Michael Needham.

Mike Cikos: The next question comes from Mike Cikos, Needham.

Shlomi Benheim: I would now like to address one of our strategic partnerships. JFrog continues to revolutionize the domains of DevOps, DevSecOps and MLO. In Q2, we completed and publicly announced the first phase of a strategic partnership with GitHub, the leader in source code management and AI assisted development technologies. This collaboration was driven by strong demands from our joint customers, including AT&T, Fidelity, Ansys and Morgan Stanley, to name a few, who desired a seamless native workflow between these two best-of-beat platforms, GitHub for source code management and JFrog for binary management.

Michael Needham: Hey, Thanks for taking the question guys.

Mike Cikos: Hey, thanks for taking the question, guys. I know my colleagues and I are all a little confused by the 40% growth that we're calling out for the cloud. And just to put a finer point on it, I want to think about the sense: does guidance currently contemplate a lift in Q4 for true-ups under these take-or-pay commitments like what we experienced in Q4 of 23? Does that help explain some of the growth dynamics in the second half of the year we're looking at?

Speaker Change: Right.

Michael Needham: I know my colleagues and I are all a little confused by the 40% growth that we're calling out for cloud and just to put a finer point on it I.

Speaker Change: I wanted to get a sense.

Speaker Change: This guidance currently contemplates a lift in Q4 for true ups under these take or pay commitments like what we experienced in Q4 of 23 does that help explain some of the the growth dynamics in the second half of the year, we're looking at.

Speaker Change: Hi, Mike This is Ed.

Ed Grabscheid: Hi Mike, this is Ed. Yeah, thank you for that question. As we move our customers, the cloud customers, from an annual use it or lose it to a monthly use it or lose it, we would expect over time that we would have fewer true ups. Therefore, we don't see as large of a true up during Q4 of 2024 as we did during 2023. So I wouldn't expect the same level of what we saw in 2023.

Speaker Change: Yes. Thank you for that question as we move our customers cloud customers from an annual.

Speaker Change: Use it or lose it to a monthly use it or lose it we would expect over time that we would have fewer true us. Therefore, we don't see as large of a true up during Q4 of 2024 as we did during 2023.

Shlomi Benheim: We were proud to co-engineer this pain-solving solution with GitHub, and excited to launch the first phase of a deep integration between our platforms that begins to marry the world of code and binaries in a single platform experience. Once the integration is completed, we expect to see contributions to the business that will drive JFrog advanced security growth as a result of the tight integration with GitHub advanced security. Additionally, when dissipate higher shift-left exposure to the SMB and AI market due to the GitHub's developer's relation and co-pilot solutions, John Natal, direct of technology for AT&T noted, beyond DevOps and DevSecOps practices, the future will require advanced interactions with AI tools, chatting with GitHub co-pilot to select the right and secure software package based on the extensive metadata sold in JFrog catalog can be a game changer. This integration will significantly enhance the efficiency of co-pilot users across the software supply chain, binary-focused and code environments. The partnership offers the best of both worlds.

Speaker Change: So I wouldn't expect the same level as what we saw during 2023.

Speaker Change: Okay, but just to be clear there is an anticipated benefit of some sort that that's currently baked into this guide we have today.

Ed Grabscheid: Okay, but just to be clear, there is an anticipated benefit of some sort that's currently baked into this guide.

Ed Grabscheid: Okay, but just to be clear, there is an anticipated benefit of some sort that's currently baked into this guide we have. No, we do not consider that.

Mike Cikos: No, we do not consider that. Oh, there's not.

Speaker Change: No we do not consider that.

Mike Cikos: Okay. Okay. Thank you. Thank you for closing the loop on that. And then I, I did just want to come back to some of the comments there on the weakness or the changes in behavior that we're showing since, I know Shlomi, in the prepared remarks, you had cited the increased ASPs and the higher TCV deals.

Mike Cikos: Oh, there's that. Okay. Okay. Thank you. Thank you for closing the loop on that. And then I...

Speaker Change: Okay. Okay. Thank you. Thank you for closing the loop on that and then I.

Mike Cikos: I did just want to come back to some of the comments there on the weakness or the changes in behavior that were showing up. Since I know Shlomi, in the prepared remarks, you had cited the increased ASPs and the higher TCV deals. Can you help us think about, like..., for those delayed cycles. Is it more prevalent for those larger tickets? Or is it really across the board? We're calling out like the monthly for the cloud users, but any more granularity as far as these different customer segments would really be helpful.

Speaker Change: I did just want to come back to.

Speaker Change: Some of the comments there on the on the weakness or the changes in behavior that we're showing up.

Shlomi: I know shlomi in the prepared remarks, you had cited the increased asp's.

Shlomi: And in the higher <unk> deals.

Speaker Change:

Mike Cikos: Can you help us think about, like, delayed cycles. Is it more prevalent for those larger tickets? Or is it really across the board? We're calling out the monthly for the cloud users, but any more granularity as far as these different customer segments would really be helpful.

Speaker Change: Can you help us think about like.

Speaker Change: For those delayed cycles.

Speaker Change: Yes.

Speaker Change: Is it more prevalent for those larger tickets or it's really across the board, we're calling out like the monthly for the cloud users but.

Speaker Change: Any more granularity as far as these different customer segments would really be helpful.

Speaker Change: Yes, Thanks, Mike, Yes, it's across the board.

Shlomi Van Haim: Yeah, thanks, Mike. Yes, it's across the board.

Shlomi Van Haim: Yeah, thanks, Mike. Yes, it's across the board, geographies, different customers, different industries, different sectors. And not only that, but also DevOps and security, which leads us to understand that it's more about the procurement habits than the technology demands of a successful proof of concept. What we see, however, is that IoT TV requires a higher, a longer process. So sales cycles are longer when you deploy more funds in today's environment. If it was under $100,000, maybe it would be easier.

Shlomi Van Haim: in the visit.

Speaker Change: Graffiti different customers different industry different.

Shlomi Benheim: At our upcoming user conference Wampup, we are excited to welcome GitHub to our keynote stage to unveil the next phase of integrations, including co-pilot AI and advanced security capabilities. Finally, the expansion of our platform goes beyond DevOps and DevSecOps.

Speaker Change: <unk> and not only that but also Dev ops and security, which lead us to understand that it's more about the procurement habits than the technology.

Speaker Change: Demand in the <unk>.

Speaker Change: Successful proof of concept.

Shlomi Van Haim: What we see, however, is that higher TCV requires a longer process, so sales cycles are longer when you deploy more funds in today's environment. If it was under $100,000, maybe it would be easier, but when you consolidate a set of tools around the platform, it leads to a higher TCV. This is good news, but it takes longer. This is not such good news. We want to be conservative, and this is why we implement what we see in H1 in the projection of H2. Brad Reback.

Speaker Change: We see however, the tire GCB.

Speaker Change: Rick Wise, Ohio, a longer process. So sales cycles are longer when you deploy more funds in today's environment.

Shlomi Benheim: I'm excited to share more about our acquisition of Quack AI and our expansion into the world of MLOPS and AI powers of... In late June, we announced that we would be acquiring the MLOPS platform company Quakei in a deal that was finalized in early Q3. With this acquisition, JFrog is the first company to offer a comprehensive end-to-end every option for developing, securing and delivering both traditional NAI-powered application in one platform. With Quakei's platform to build train and experiment with the model, JFrog Artifactory, as the model registry of choice, and with JFrog X-ray and advanced security protecting the machine learning lifecycle into production, we believe the JFrog platform is uniquely positioned to bring data scientists and machine learning engineers the same level of fragility, reliability, and efficiency as developed present DevOps engineers already enjoy.

Speaker Change: If it was under $100000, maybe it would be easier, but when you consolidate the set of tools and so on the platform. It leads to a higher <unk>. This is the good news.

Shlomi Van Haim: But when you consolidate a set of tools on the platform, it leads to a higher TCP. This is the good news. But it takes longer. This is not such good news. We want to be conservative. And this is why we implement what we see in H1 on the projection of page two. Brad Reback for

Speaker Change: But it takes a longer this is not the that's not such a good news.

Speaker Change: We want to be conservative and this is why we implement.

Speaker Change: What we've seen H, one and the projection of page two.

Speaker Change: Brad Reback from Stifel has the next question.

Brad Reback: Brad Reback from Stiefel has the next question. Great, thanks very much. Ed, can you remind us what percent of the cloud is month-to-month?

Speaker Change: Okay.

Speaker Change: Great. Thanks, very much and can you remind us what percent of the cloud is month to month.

Speaker Change: Yes, the percentage is approximately 25% of our cloud business.

Ed Grabscheid: Yeah, the percentage is approximately 25% of our cloud business. Mark, Mark, please.

Speaker Change: Monthly.

Brad Reback: Okay, and I guess, just going back at it last quarter you were fairly adamant that the mid 40 would be achieved just on your comments.

Brad Reback: Okay, and I guess just going back at it, last quarter, you were fairly adamant that the mid 40s would be achieved just on your commitment. What changed? Yeah, what we saw last quarter was visibility into a pipeline that had significant migration deals. That has been de-risked. In addition to that, the purchasing and rigidity of the purchases have certainly changed. The monthly consumption, which again does not have commitments, we saw a significant decline in those monthly customers. Both of those factors are being taken into consideration going forward. Therefore, we've made that adjustment to our cloud growth.

Brad Reback: Okay, and I guess just going back at it last quarter, you were fairly adamant that the mid 40s would be achieved just on your commitment. What changed? Yeah, what we saw last quarter was visibility into a pipeline that had significant migration deals. That has been de-risked. In addition to that, the purchasing and rigidity of the purchases have certainly changed. The monthly consumption, which again does not have commitments, we saw a significant decline in those monthly customers. Both of those factors are being taken into consideration going forward. Therefore, we've made that adjustment to our cloud growth.

Shlomi Benheim: Our teams look forward to building an integrated solution to offer our users' comprehensive coverage across DevOps and MLOPS life cycles. To the Quake team, welcome to the swamp. We are now one united not only as a team, but also as the creators of the first platform to unify the world of developers, machine learning engineers, and data scientists.

Speaker Change: What changed.

Speaker Change: Okay.

Speaker Change: Yes, what we saw last quarter was visibility into a pipeline that had significant migration deals that had been de risk. In addition to that the purchasing.

Speaker Change: And richness of the purchases have certainly changed the monthly consumption, which again do not have commitments.

Speaker Change: We saw a significant decline in those monthly customers. Both of those factors are being taken into consideration going forward. Therefore, we have made that adjustment to our cloud growth.

Shlomi Benheim: Before we dive deeply into the financials, I want to take a moment to welcome our newest board member, Luisa Soso. Luisa's experience as the CFO of Unity, AWS, and Palo Alto Networks, along with his role as an independent board director at companies like Splunk, will be invaluable to the growth and scale of JFrog. I look forward to walking with him and having him on board.

Speaker Change: Andrew Sherman from TD Cowen has the next question.

Operator: Andrew Sherman from TD Cowen has the next question.

Andrew Sherman: Andrew Sherman from TD Cowen has the next question.

Speaker Change: Okay.

Andrew Sherman: Oh, great. Thanks. Following up on Brad's question there, we're all kind of scratching our heads on the same topic, obviously, but just want to be clear that the 40% now has no migrations assumed in it, and it's all committed, with no SMB, no usage, so the 40% should be the bottom, if you will.

Andrew Sherman: Following up on Brad's question there, and we're all kind of scratching our heads on the same topic, obviously, but just want to be clear that the 40% now has no migrations assumed in it, and it's all committed, with no SMB, no usage, so the 40% should be the bottom, if you will.

Speaker Change: Thanks.

Speaker Change: <unk>.

Andrew Sherman: Following up on Brad's question there.

Speaker Change: Kind of scratching our heads on the same topic, obviously, but just wanted to be clear that the 40% now is no migrations assume DNA and its all committed.

Ed Grapshide: With that, I'll turn the call over to our CFO Ed Grapshide, who will provide an in-depth recap of Q2 financial results and update you on our outlook for both Q3 and full fiscal year 2020 poll. Ed? Thank you, Shlomi, and good afternoon, everyone.

Speaker Change: With no.

Speaker Change: SMB no usage, so that 40% should be the bottom if you will.

Speaker Change: Oh.

Shlomi Van Haim: Now, 40% is still very significant growth. So, of course, we assume that some migrations will happen. But we de-risk the big strategic migrations. And we are looking at what we've learned from the second quarter. And this is why we're just

Shlomi Van Haim: 40% is a very significant growth rate. So, of course, we assume that some migrations will happen. But we de-risk the big strategic migrations. And we are looking at what we've learned from the second quarter. And this is why we're just

Speaker Change: 3%.

Speaker Change: <unk> is a very significant growth. So of course, we assume that some migrations will happen, but we derisk.

Ed Grapshide: During the second quarter of 2024, total revenues were $103 million, up 22% year-over-year. Our second quarter results were within range of our guidance across all measures. Customers continue to highlight the need to consolidate their software supply chain tools towards a best-of-breed platform solution, such as the JFrog platform plus security, and now MLOPS with the recent acquisition of QAI. As noted by Shlomi, cloud revenues in the quarter equal $39.3 million, up 42% year-over-year, representing 38% of total revenues, versus 33% in the prior year.

Speaker Change: The big strategic migration.

Speaker Change: We are looking at what we've done for the second quarter and this is why we adjust.

Speaker Change: Okay.

Andrew Sherman: Okay, um... And is there something that happened in June industry-wide that may have slowed migrations kind of across the board? You're not the only vendor that's called this out, but what changed abruptly budget-wise or cloud migration-wise? Jaron, do you think?

Speaker Change: <unk>.

Speaker Change: And is there something that happened in June industry wide that may have slowed migrations kind of across the board youre not the only vendor that's called this out but what what what changed abruptly budget wise or migrate cloud migration wise.

Speaker Change: In June do you think.

Speaker Change: Yes, well it is not even June it's the last week of the quarter or the last few days of the quarter. When we started to see that more strategic big projects are being pushed.

Shlomi Van Haim: Yeah, well, it's not even June. It's the last week of the quarter, the last few days of the quarter, when we started to see that more of these big strategic projects are being pushed. And yes, you heard it from not only J-PoB; you heard it from the market. We saw the same. It's mainly around budget constraints and procurement processes, and this is why we took action based on what we saw in the last few days of the quarter.

Shlomi Van Haim: Yeah, well, it's not even June. It's the last week of the quarter, the last few days of the quarter, when we started to see that more of these big strategic projects are being pushed. And yes, you heard it from not only J-PoB; you heard it from the market. We saw the same. It's mainly around budget constraints and procurement processes. And this is why we took action based on what we saw in the last few days of the quarter.

Ed Grapshide: Self-managed revenues were on-prem, were $63.8 million, up 13% year-over-year during the second quarter. We anticipate self-managed revenue growth trends to slightly decline in 2024 compared to 2023, as customers waiting to migrate to the cloud have paused investment in their on-prem deployments. Net dollar retention for the four-trailing quarters was 118% in line with our guidance. Our gross retention rate remained at 97%. In Q2, 50 percent of total revenue came from enterprise plus subscriptions up from 45 percent in the prior year. Revenue contribution from enterprise plus subscriptions grew 35 percent year over year.

Speaker Change: And.

Speaker Change: And yes, you heard it from not only J P. You've heard it from the market we sold the same it's a.

Speaker Change: It's mainly around budget constraints and the procurement processes and this is why we.

Speaker Change: We took act based on what we saw in the last few days of the polls.

Speaker Change: The next question comes from Nomura Securities.

Operator: The next question comes from Miller Jump, Truth Security.

Miller Jump: The next question comes from Miller Jump, Truth Security.

Speaker Change: Security.

Speaker Change: Thank you for taking the question.

Miller Jump: Thank you for taking the question. I guess last quarter you guys called out digestion in the customer base. I'm just curious, did this quarter have a continuation of that theme as a headwind in addition to the deal cycle changes, or did you see improvement there?

Speaker Change: I guess last quarter, you guys called out digestion in the customer base I'm just curious in this quarter have a continuation of that theme is a headwind in.

Speaker Change: In addition to the deal cycle changes or did you see improvement there.

Ed Grapshide: Now I'll review the income statement in more detail. Gross profit in the quarter was 86.9 million dollars, representing a gross margin of 84.4 percent, compared to 83.6 percent. In the year ago period, the increase in gross margin relative to the year ago period is due to the elimination of outsourced costs derived from synergies related to the acquisition of VDO and ongoing cost discipline efforts. We reiterate expectations for annual targets remaining between 83 and 84 percent in the near future than trending towards the low 80s aligned with our long term model and cloud growth.

Miller: Hey, Miller.

Ed Grabscheid: Hey Miller, thank you for that question. We did not see anything related to digestion. What we're seeing is customers that are delaying purchasing decisions. We saw that towards the last week of the quarter. We're now starting to see optimization in terms of their spend as they continue to think about this uncertain macro environment, the very rigid purchasing environment that we're faced with.

Speaker Change: Thank you for that question.

Speaker Change: So we did not see anything related to digest and what we're seeing is customers that are.

Speaker Change: Delaying purchasing decisions, we saw that towards the last week of the quarter. We're now starting to see optimization in terms of their spend they continue to think about.

Ed Grabscheid: But we didn't see anything related to digestion.

Speaker Change: This uncertain macro environment, the very rigid purchasing environment that we're faced with but we didn't see anything related to digestion.

Ed Grabscheid: But we didn't see anything related to digestion.

Speaker Change: Okay. Thanks, and then actually might come back to you on this one as well.

Miller Jump: Okay, thanks. And then I actually might come back to you on this one as well, Ed. Just given the cut to guidance, it looks like now we're in a position where you need to see a reacceleration at the low end of your FY27 revenue targets. Can you just talk about the drivers and, more specifically, the timing of how you see that playing out from here?

Speaker Change: Just given the cut the guidance it looks like now we're in a position where you need to see a reacceleration at the low end of your FY 2007 revenue targets can you just talk about the drivers and more specifically the timing of how you see that playing out from here.

Ed Grapshide: Operating expenses for the second quarter were 73.3 million dollars up to million dollars sequentially equaling 71.1 percent of revenues up from 62.2 million dollars or 73.8 percent of revenues in the year ago period. We remain focused on expense discipline while absorbing the operating expenses through acquisition of quack and continuing to maintain the proper level of investment in scaling our enterprise sales team, channel partner ecosystem and strategic R&D spending are operating profit in Q2 was 13.6 million dollars or 13.2 percent operating margin compared to an operating profit of 8.2 million dollars or 9.7 percent operating margin in the year ago period.

Speaker Change: Yes, so first off we changed our guidance only 1%.

Ed Grabscheid: Yeah, so first off, you know, we changed our guidance only by 1%. So we went from 22 to 21% on our annual guidance. And, and, you know, we continue to maintain our focus on the execution of the three pillars or the three legs of the stool of our long-term model, which is adoption of the full platform, migration to the cloud, and, of course, security. So based on those factors, and the fact that we have not baked in the potential tailwind that we may get from AI and ML operations, when we think about that in the long term model, with multiple years to go, even though we're faced with a macro environment right now, we still feel very confident in the long term model and the top line growth that we presented in that model.

Speaker Change: So we went from 22% to 21% on our annual guidance and we continue to maintain our focus on execution of the three pillars are the three legs of the stool of our long term model, which is.

Speaker Change: Adoption of full platform migration to the cloud and of course security.

Speaker Change: So based on those factors and the fact that we have not baked in the potential tailwind that we may get from AI and ml ops, when we think about that.

Ed Grapshide: And improvement of three and a half percentage points diluted earnings per share equal 15 cents based on approximately 115.2 million weighted average diluted shares compared to 11 cents per share in the prior year on 108.1 million weighted average diluted shares.

Speaker Change: Long term model with multiple years to go even though we are faced with the macro environment.

Speaker Change: Right now we still feel very confident in the long term model in the topline growth that we presented in that model.

Ed Grapshide: Turning now to the balance sheet in cash flow, we ended the second quarter of 2024 with 591.3 million in cash and short term investments up from 579.6 million as of March 31st, 2024. Cash flow from operations with 16.7 million dollars in the quarter after taking into consideration our cat X requirements free cash flow with 16 million dollars or 15.5 percent 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 percent over the coming years. As of June 30th, 2024 are remaining performance obligation total 272 million dollars.

Speaker Change: Okay.

Speaker Change: The next question comes from Jesse <unk> UBS.

Operator: The next question comes from Jeff Hickey, UBS. Hey, everyone, thank you.

Jeff Hickey: The next question comes from Jeff Hickey, UBS. Hey, everyone, thank you.

Speaker Change: Okay.

Jesse: Hey, everyone. Thanks for taking the questions. The first one will just maybe more color just on how customer conversations has that obviously.

Jeff Hickey: Hey, everyone, thank you for taking the questions. The first one would just be maybe more color on how customer conversations have been and, obviously, you know, your cloud business, in general, is driven by kind of a project-oriented model. There was, I think, an expectation that at age two, you'd start to see more projects come online as customers got more visibility into their work plans. How have those conversations evolved? Have those changed in any way, or is it still just a lot more? You know, elongated sales cycles just from budget procurement scrutiny.

Jeff Hickey: Hey, everyone, thank you for taking the questions. The first one would just be maybe more color on how customer conversations have been and, obviously, you know, your cloud business, in general, is driven by kind of a project-oriented model. You know, there was, I think, an expectation that at age two, you'd start to see more projects come online as customers got more visibility into their work plans. How have those conversations evolved? Have those changed in any way, or is it still just a lot more? You know, elongated sales cycles just from a budget, procurement, and scrutiny perspective.

Jesse: Your card business in general, it's driven by kind of a project oriented model.

Speaker Change: There was I think an expectation that page two you'll start to see more projects come online as customers got more visibility into their work homes. How those conversations evolved have those changed at all or is it still just a lot more focus on.

Speaker Change: Elongated sales cycles, just from a budget procurement scrutiny perspective.

Speaker Change: That's one.

Speaker Change: Okay.

Ed Grapshide: Now I'd like to speak about our outlook and guidance for the third quarter in full year of 2024. For the third quarter, we expect revenues to be in the range of 105 million to 106 million dollars. We forecast non-gap income from operations to be in the range of 10 million to 11 million dollars and non-gap net income per share to be in the range of 9 cents to 11 cents based on 115 million estimated diluted weighted average shares outstanding. Lee Lee.

Jeff Hickey: Uh, so customer conversation if I if I heard the question right, sorry, it was a bit hard to hear, customer conversation what?

Shlomi Van Haim: So customer conversation, if I heard the question correctly, right, I'm sorry, it was a bit hard to hear customer conversation. What we hear from our customers is the following. The first thing that everybody points to is consolidations of point solutions into a platform. There are a lot of our on-prem customers that are speaking about future migration to the cloud. Obviously, this is not happening in today's environment.

Speaker Change: So customer concentration if I if I heard the question right I'm, sorry, it was a bit hard to hear.

Speaker Change: Customer compensation, what we hear from our customers.

Shlomi Van Haim: We hear from our customers the following: the first thing that everybody points to is consolidation of point solutions into a platform. There are a lot of our on-premises customers that are speaking about future migration to the cloud. Obviously, this is not happening in today's environment. And third, that security is embedded into the solution. So there is no DevOps standalone or security standalone; it comes together.

Speaker Change: Following the first thing and everybody.

Speaker Change: As consolidations of point solution into a platform.

Speaker Change: There are a lot of our on Prem customers that are speaking about future migration to the cloud.

Speaker Change: Obviously this is not happening in today's environment.

Jeff Hickey: And third, that security is embedded into the solution. So there is no DevOps standalone or security standalone. It all comes together.

Speaker Change: And third that security is embedded into the solution. So there is no Dev ops Standalone all security Standalone It comes together.

Ed Grapshide: For the full fiscal year 2024, we expect revenue to be in the range of $422 million to $424 million, non-gap income from operations to be in the range of $52 million to $54 million, and non-gap net income per share to be in the range of $0.54 to $0.56 based on $116 million estimated deluded weighted average shares outstanding. Let me provide more context around our guidance. The revised guidance for fiscal year 2024 reflects a more challenging macroeconomic environment entering the third quarter, lower anticipated cloud revenue growth, and changes in customer purchasing habits.

Shlomi Van Haim: A lot of them are also looking to the future with what MLOps brings and the fact that they will have to support MLOps with DevOps practices so they know that it will be part of those services. And therefore, when we push not only to extend our platform but also to look at the ecosystem, we choose the partners that we want to go with. So this is what we hear on the technology side.

Speaker Change: A lot of them are also pointing.

Shlomi Van Haim: Also, pointing out the future with what MLOps brings and the fact that they will have to support MLOps with DevOps practices so they know that it will be part of those services. And therefore, when we push not only to extend our platform but also to look at the ecosystem, we choose the partners that we want to go with. So this is what we hear on the technology side. What we hear on the procurement and the budget side is that they have to be very strict, very disciplined in their commitment, and also apply all types of optimization of costs as long as this situation in the market continues.

Speaker Change: The future with was MLR spring and the fact that they will have to support <unk> with the Dev ops practices are they note that it will be part of those services.

Speaker Change: And therefore, when we boost not only to expand our platform, but also to look at the ecosystems. We chose the partners that we want to.

Speaker Change: Go win so.

Speaker Change: This is what we do on the technology side, what we hear on the procurement and the budget side is that they have to be very street very decent plan through their commitment and and also to apply all type of optimization on the cost.

Shlomi Van Haim: What we hear on the procurement and the budget side is that they have to be very strict, very disciplined in their commitment, and also apply all types of optimization of costs as long as this situation in the market continues.

Ed Grapshide: We anticipated our cloud revenue to achieve mid-forties year-over-year growth in 2024. However, we experienced customer migrations being postponed during the second quarter, a pronounced slowdown in cloud consumption for our monthly subscribers who have no usage commitments, coupled with increased macro uncertainty, we now expect cloud revenue growth to slow relative to prior expectations. Given the macro uncertainty, headwinds within our monthly cloud subscribers, and de-risking future enterprise customer migration projects in the second half, we now believe full-year 2024 cloud growth will be around 40%.

Speaker Change: As long as this situation in the market is going up.

Speaker Change: Got it. Thank you for that color. One quick one for you you made a comment earlier I wanted just to be crystal clear on that is that as as we move customers from annual 12 month lease we'd expect fewer true ups is that something that youre like should we expect that 25% of monthly business shift.

Jeff Hickey: Got it. Thank you for that, Colleen. One quick one for you, Ed.

Jeff Hickey: Got it. Thank you for that, Colin. One quick one for you, Ed.

Speaker Change: As we add closer to Q4.

Speaker Change: No I think.

Jeff Hickey: You made a comment earlier, and I want to just be crystal clear on this. You said that as we move customers from annual to monthly, we'd expect fewer true ups. Is that something that you're, like, should we expect that 25% of monthly business to shift up as we edge closer to Q4?

Speaker Change: Clarify the question I believe the question was what we'd move customers from self hosted.

Ed Grapshide: We would note that our revised cloud growth still represents strong execution in a challenging market. We continue to see security becoming a critical driver of larger customer deals, and view the J-Frog platform combined with security as the industry's choice for enterprise customers looking to manage and secure their software supply chain and consolidate point solutions. We remain optimistic that J-Frog advanced security and curation will deliver durable revenue growth in the future. We're stepping into the second half of the year with a solid sales pipeline.

Speaker Change: Two cloud, we see an uplift anywhere from 20% to 80% customers that moved from monthly, which do not have commitments to us to an annual within cloud.

Speaker Change: We don't see an uplift in those customers that immediately but over time as budgets allow we would start to see an improvement.

Ed Grabscheid: Now, I think, let me clarify the question. I believe the question was when we move customers from self-hosted to hosted. We don't see an uplift in those customers immediately, but over time, as budgets allow, we would start to see an improvement in the uplift and expansion of those customers.

Ed Grabscheid: Now, I think, let me clarify the question. I believe the question was when we move customers from self-hosted. We don't see an uplift in those customers immediately, but over time, as budgets allow, we would start to see an improvement in the uplift and expansion of those customers.

Speaker Change: The uplift in <unk>.

Speaker Change: Spansion of those customers.

Speaker Change: We'll take the next question from Jason Adair William Blair.

Operator: We'll take the next question from Jason Ader, William Blair.

Jason Ader: We'll take the next question from Jason Ader, William Blair.

Ed Grapshide: However, given longer sales cycle and proof of concept processes, in a challenging purchasing environment, we now anticipate material revenue from our security core will be achieved in 2025. Given the noted changes compared to our prior expectations, we now believe our net dollar retention range for the full year is likely in the mid-teens versus the high-teens expectation we had exiting the first quarter of 2024.

Speaker Change: Yes. Thank you.

Jason Ader: Yeah, thank you. I just wanted to ask whether you guys are very confident that there's no competitive issue here or execution issue. You know, you talked about macro. I think we all get that. But you are moving to this new strategic outbound sales model. That's not simple for an organization that never had that. So just wanted to know if you've identified any execution issues on top of the macro issues or competition.

Jason Ader: Yeah, thank you. I just wanted to ask whether you guys are very confident that there's no competitive issue here or execution issue. You know, you talked about macro, I think we all get that, um but you are moving to this new strategic outbound sales model, which is not simple for an organization that has never had that, so just wanted to know if you've identified any execution issues on top of the macro issues or competitive challenges.

Speaker Change: Just wanted to ask whether.

Speaker Change: You guys are very confident that there is no competitive issue here or execution issue.

Speaker Change: You talked about macro I think we all get that.

Speaker Change: But you are moving to this new strategic outbound sales model.

Speaker Change: Thats not simple for an organization that never had that so just wanted to know if you.

Ed Grapshide: Finally, the acquisition of Quack closed in the beginning of July. We do not anticipate any meaningful revenue contribution in the third quarter or for the full year 2024. As we integrate Quack into J-Frog, we will provide further updates regarding our anticipated contribution to growth and profitability.

Speaker Change: You've identified any execution issues on top of the macro issues or competitive.

Speaker Change: Yes.

Shlomi Van Haim: Jason, thank you for this question. This is Shlomi.

Shlomi: Hey, Jason. Thank you Paul This question this is shlomi.

Bob: Well there are few Bob mentioned that we mentioned in the call in nature.

Shlomi Van Haim: Well, there are a few parameters that we mentioned in the call that need to be kind of taken into consideration. For example, we said that we had a 97% retention rate for our ARR, which is suggesting that these customers are not moving, or their installed base is not moving to competitors. The second thing is that I never saw an enterprise customer invest two, three quarters in a proof of concept and, at the end, tell me that they need a bit more time but then move to a competitor. We never saw that happening.

Shlomi Benheim: Now, I'll turn the call back to Shlone for some closing remarks before we take your questions. Thank you, Ed.

Shlomi Van Haim: The two parameters that we mentioned in the call need to be kind of taken into consideration. First, we said that we have a 97% retention rate for our ARR, which is suggesting that these customers are not moving, or their installed base is not moving to competitors. The second thing is that I never saw an enterprise customer invest two, three quarters in a proof of concept and, at the end, tell me that they need a bit more time but then move to a competitor. We never saw that happening.

Speaker Change: Kind of.

Speaker Change: Dig into.

Shlomi Benheim: Last week, we marked 300 days since the world in Israel began. We continue to pray for the safe return of the 115 hostages still held in underground Gaza and for more peaceful days in the region and the world. In the face of this geopolitical and macro-economic challenges, I'm honored and proud to walk with a team that remains steadfast in pursuing our company's strategic goals and upholding the culture that drives us forward.

Speaker Change: Due consideration.

Speaker Change: We said that we have 97% retention rate of our wheat chest, suggesting that these customers are not moving our installed base and it is not moving to a competitor on the second thing is that I never so an enterprise customer invest.

Speaker Change: Three quarters in a proof of concept and SDN.

Speaker Change: Telling me that they need a bit more time, but then moving to a competitive though we never we never saw that happening.

Shlomi Benheim: Frogs, you continue to inspire me daily, and I thank you for the effort, devotion, and commitment to building and growing our company. The world depends on the similar slow entrusted delivery of rapid software updates, whether through DevOps practices reinforced by holistic software supply and security capabilities or MLOps powered by machines. The JFrog platform is engineered to address one of the world's greatest challenges, ensuring software runs efficiently and securely from developers to the edge. We are excited about the future and the limitless possibilities it holds for us.

Shlomi Van Haim: In addition to that, when we are looking at our pipeline and we speak with our customers, we don't usually hear them looking for another solution in the market. There is always competition, but this is not the narrative that we see in the pipeline. And the last thing is that when you think about the partnership between JFrog and GitHub, think about the CIOs and the CISOs of the market. Who will go and check out something else when the two best of breed are coming together to provide you with one platform experience? So it's less about the competitive environment; it's more about the macro environment. I'm certain about that, and this is what we hear from our customers as well.

Jason Ader: In addition to that, when we are looking at our pipeline and we speak with our customers, we don't hear them looking for another solution in the market. Usually, there is always competition, but this is not the narrative that we see in the pipeline. And the last thing is that when you think about the partnership between JFrog and GitHub, think about the CIOs and the CISOs of the market, who will go and check out something else when the two best of breed are coming together to provide you with one platform experience. So it's less about the competitive environment. It's more about the macro environment. I'm certain about that. And this is what we hear from our customers as well.

Speaker Change: In addition to that when we are looking at our pipeline and and we speak with our customers. We don't hear them looking for another.

Speaker Change: Another solution in the market there is always competition, but this is not the nature of the institutional pipeline and the last thing is that.

Speaker Change: When you think about the partnership between <unk> and <unk>.

Speaker Change: Think about the CIO and the systems of the market.

Speaker Change: Who will go and check something else when the two best of breed are coming together to provide you with one platform expands so it's less about the competitive environment, it's more about the macro environment.

Shlomi Benheim: With that, thanks for attending our call and may the frog be with you.

Speaker Change: Certain about that and this is what we hear from our customers as well.

Operator: Operator, we are now open to take questions. Thank you, sir, and everyone if you would like to ask a question, please press star one on your telephone keypad. We do ask that you limit yourself to one question and one follow-up.

Shlomi Van Haim: All right, then a quick follow-up on the GitHub partnership. What do you think their main motivation was to do this deal? Do you think it's the advanced security capabilities that you have that they can now kind of co-sell with? And then, just, is that special in any way to their range of partnerships? I mean, do they have partnerships with other security vendors, for example, that would be sort of an alternative for the GitHub reps to recommend?

Jason Ader: All right, then a quick follow-up on the GitHub partnership. What do you think their main motivation was to do this deal? Do you think it's the advanced security capabilities that you have that they can now kind of co-sell with? And then, just, is that special in any way to their range of partnerships? I mean, do they have partnerships with other security vendors, for example, that would be sort of an alternative for the GitHub reps to recommend?

Speaker Change: Alright, then a quick follow up on the get hub the partnership.

Speaker Change: What do you think their main motivation is to do this deal do you think its the advanced security capabilities that you have it can now kind of co sell with.

Speaker Change: Then just is that is that special in any way.

Pinjalim Bora: We'll take our first question today from Angelin Bora, JP Morgan. Oh great. Thanks for taking the questions. I just wanted to understand a little bit more on what transpired. You had reaffirmed the guidance, I think, about five days remaining in the quarter. Did you notice the changes in the sales cycle dynamics mainly in the month of July? Did it deteriorate towards the end of July? Maybe help us think through that? Hi, good to see you. Thank you for your question.

Speaker Change: To their range of partnerships I mean, do they have a partnerships with other.

Speaker Change: Security vendors.

Speaker Change: For example.

Speaker Change: That would be sort of an alternative for to get hub reps to recommend.

Speaker Change: Yeah, well I can speak for myself and I can speak maybe on behalf of my customers of what we've heard from them.

Jason Ader: Yeah, well, I can speak for myself, and I can speak, maybe, on behalf of my customers about what we've heard from them. First of all, there are a few differentiators in this partnership. A, It's binary expertise next to source code expertise. That's the kind of the long run coming together of binary and source code. The second thing is security. Both JFrog and GitHub bring advanced security capabilities that protect your software supply chain. And we are complementary to each other. We coexist one next to the other. They protect your source code, while we protect your binaries.

Shlomi Van Haim: Yeah, well, I can speak for myself, and I can speak, maybe, on behalf of my customers about what we've heard from them. First of all, there are a few differentiators in this partnership. A, It's binary expertise next to source code expertise. That's the kind of the long run coming together of binary and source code. The second thing is security. Both JFrog and GitHub bring advanced security capabilities that protect your software supply chain. And we are complementary to each other. We coexist one next to the other. They protect your source code, while we protect your binaries.

Speaker Change: First of all the help you differentiate those in this partnership.

Speaker Change: It's the binary expertise next to their souls codec strategies.

Shlomi Benheim: We noticed a push out in the final few days of the quarter and a remarkable change in the macroeconomic environment in the first month of the new quarter. So, therefore, we didn't see much during Q2 until the final days of the quarter. We're also noticed in that time, strategic deals, significant large strategic deals being pushed out, which indicated to us a change in the purchasing environment. Therefore, we revisited our forecast and de-risk and adjusted our guidance going forward for the full year as well.

Speaker Change: Yes.

Speaker Change: I mean, the long run.

Speaker Change: Coming together binary in sales from the second thing is security, both Jay and bring advanced security capabilities that protect yourself to supply chain and we are complementary to each other we coexist one next to the other day protect El Salto, we predict youll binary and it.

Shlomi Van Haim: And it goes together, and it's very appealing to customers, especially when they can see it on one platform with one view. And the third thing, and this is a very fast growing adoption, co-pilot and AI-driven applications are something that requires more insights from the metadata and the binaries and the collaboration between JFrog and GitHub. Introducing a chat between a developer and a co-pilot, getting the information from our factory and X-ray is very appealing for our customers as well. So, as mentioned in the quote, our customers are driven by consolidation and the differentiations that can come from this collaboration.

Shlomi Van Haim: And it goes together, and it's very appealing to customers, especially when they can see it on one platform with one view. And the third thing, and this is a very fast growing adoption, co-pilot and AI-driven applications are something that requires more insights from the metadata and the binaries and the collaboration between JFrog and GitHub. Introducing a chat between a developer and a co-pilot getting the information from our factory and X-Ray is very appealing for our customers as well. So, as mentioned in the quote, our customers are driven by consolidation and the differentiations that can come from this collaboration.

Speaker Change: Those together and it's very appealing to the customers, especially when they can see it on one platform with one view and the third thing and this is a very fast growing adoption compiled.

Shlomi Benheim: Yeah, understood. And one more question on the cloud revenue guidance coming down. Five points. Is it possible to understand how much of that is driven by the monthly cloud part and the annual cloud? So, the monthly subscribers from our cloud is for cloud growth is around two to three percentage points. If I may remind you, Benjamin, cloud subscribers have no commitments. So, it's a bit as you go and it's very much aligned with what Heather decolated regarding the macro environments.

Speaker Change: And AI driven application.

Speaker Change: Is something that requires more insights from the major that then the binaries and the collaboration between <unk> and Github introducing.

Speaker Change: The chairs of the development with profile is getting the information from our factory and X-ray is very appealing for our customers as well as mentioned in the call.

Speaker Change: Our customers are.

Speaker Change: Driven by consolidation and the differentiation that can come from these collaborations.

Speaker Change: We'll take the next question from <unk> Cantor Fitzgerald.

Operator: We'll take the next question from Yi-Fu Lee of Cantor Fitzgerald. Thank you for taking my call.

Yi-Fu Lee: We'll take the next question from Yi-Fu Lee of Cantor Fitzgerald. Thank you for taking my call.

Yi-Fu Lee: Thank you for taking my question, gentlemen. I guess my question is more to reconcile, we've seen great hyperscaler growth rates this quarter, above average, and in terms of, I appreciate the comment on the migration slowdown, I guess, Shlomi and Ed, what are the dashboards that you guys look at on a daily basis, monthly basis, weekly basis, to make you more comfortable that the animal spears of the Seattle CTOs will continue with that migration going forward? We just want to get more clarity on that.

Speaker Change: Thank you for taking my questions gentlemen, I guess my question is multi reconcile we see great hyperscale or growth rates.

Ryan Macwilliams: Next, we'll take a question from Ryan McWilliams, Barclays. Hey, guys. Thanks for taking the question. Just on the Microsoft partnership, from what we heard so far, it seems like this is more than just a sales and good market partnership, but also more on the product side. So, Sean, we love to hear what you think this J-Frog GitHub partnership means from our products standpoint for the customers. And how do you think about the potential opportunity, their size of this opportunity for a J-Frog going?

Speaker Change: This quarter above average and like interface I appreciate the comment on the migration slow down I guess slow me like what are the dashboards that you guys look at on a daily basis monthly basis weekly basis to get you more comfortable that the animal spirits of.

Speaker Change: No.

Speaker Change: <unk> will continue with that migration going forward.

Speaker Change: Just want to get more clarity on that.

Speaker Change: Yeah.

Shlomi Benheim: Thank you, Ryan, for the question. Obviously, every partnership, especially with the best of breed, the other platform, when it's driven by customer's demand, and our biggest customers join customer's demand, it shows the rapid adoption of both tools and the expectations from the market to have a one platform. So we have high hopes, we released the first phase of this integration, a big more than a month ago, and we are going to complete this phase with the announcement that swap up next month in Austin, Texas.

Ed Grabscheid: Hi, this is Ed. Yeah, so we're always looking at the pipeline. This is an indication of how we believe that the forward looking will play out. And through those discussions that we have with our customers, as well as with the internal sales team. In addition to that, we also look at, you know, behaviors in the market. And based on what we see now and the change in the macro environment, the change in the purchasing environment, and what we see in terms of the deep risk of those forecasts, this is how we make the decision. And this is why we opted to be conservative in our approach and lower our cloud guidance.

Ed: Hi, This is Ed yes, so we're always looking at the pipeline. This is an indication of how we believe them.

Speaker Change: Forward looking will will play out and through those discussions that we have with our customers as well as what the internal sales team.

Speaker Change: In addition to that we also look at behaviors in the market and based on what we see now in the change in the macro environment to change in the purchasing environment and what we see in terms of the Derisk. Those forecast. This is how we make the decision and this is why we opted to be conservative in our approach and lower our cloud guidance.

Shlomi Van Haim: And if I may add to it, uh, when, when?

Shlomi Van Haim: And if I may add to it, when Ed is saying we are looking at our pipeline, it's not just a general number. We are looking at different stages. What gives us the confidence to answer your question is looking at our pipeline after the technology wins. This is also what has brought us to the conclusion that we have to de-risk those big projects. So looking at the late stage after the tech win before budget discussions, this is the main dashboard that we are looking at. Okay, Shlomi, and then my follow-up is:

Speaker Change: And if I may add to it.

Speaker Change: When and then saying we're looking at the pipeline, it's not just a general number we're looking at different stages, but give us the confidence to your question is looking at our pipeline after the technology wins.

Ed Grabscheid: Ed is saying we are looking at our pipeline. It's not just the general number.

Shlomi Benheim: We are very much excited about it. We like co-engineering with GitHub, and we hear the customers excited about it, so we have high hopes. I think it's too early to say how it will change the narrative in the adoption, but with everything that happens in our environment, DevOps, DevSecOps environment, this integration around DevOps, security, and AI is what our customers, join customers expect.

Ryan Macwilliams: I appreciate the color.

Shlomi Van Haim: We are looking at different stages. What gives us the confidence to answer your question is looking at our pipeline after the technology wins. This is also what has brought us to the conclusion that we have to de-risk those big projects. So looking at late stage after the tech win before budget discussions, this is the main dashboard that we are looking at. Okay, thanks Shlomi, and then my follow-up is:

Speaker Change: This is also what brought us to the conclusion that we have to derisk those big projects. So looking at late stage. After the tech win before budget discussions. This is the main thing that we're looking at.

Yi-Fu Lee: Thanks Shlomi, and then my follow-up is more of a, if I step out a little bit, I think last month there was news or the chatter of Direct Competitor, GitLab, on some M&A activities. What are your thoughts on the consolidation in this space? Thank you for your time. We appreciate it.

Speaker Change: Okay. Thanks, Shlomi and then my follow up is more of a step out.

Speaker Change: A little bit.

Speaker Change: I think last month, they were news over chat of direct competitor I get that.

Ed Grapshide: And then for Ed, is there a way for us to think about the historical contribution to cloud revenue growth from existing customers moving over from on-prem, and then for the customers that are now delaying their cloud transition? Is this something that is put on pause? Is this something that they are going to maybe re-look at in a better macro in 2025 and so on?

Speaker Change: On some M&A activities I should say your thoughts on the consolidation in the space.

Speaker Change: Any commentary on that.

Speaker Change: So.

Shlomi Van Haim: So if the question is about the landscape and the competition with hyperscale, we see co-selling and co-marketing potential there.

Shlomi Van Haim: So if the question is about the landscape and the competition with hyperscale, we see co-selling, and co-marketing potential there. And with GitLab specifically, well, we don't hear from our customers that are migrating to GitLab package management solution, no security solution. And we don't see any MLOps capabilities with GitLab. So, only 30% of our customers are using GitLab. I guess that this partnership with GitHub is aligning us more with what our customers prefer to see in the future when they speak about consolidation, but we don't see a lot of GitLab competition in our pipeline.

Speaker Change: The question is about the landscape.

Speaker Change: Competition with the Hyperscale, we see.

Speaker Change: Co selling co marketing.

Speaker Change: Our banjo there.

Shlomi Van Haim: And with GitLab specifically...

Speaker Change: And.

Ed Grapshide: Thank you for your question. First, for those customers that are migrating from self-hosted to cloud, we see anywhere from 20 to 80% in terms of an uplift in the subscription, therefore providing an increase in expansion for those customers. Regarding the timing of that and the push-out that we saw, we looked at our forward-looking forecasts, and we've de-risked for any migrations going forward at this point.

Speaker Change: With good luck specifically.

Shlomi Van Haim: specifically, well, we don't hear from our customers that are migrating to GitLab package management solution, no security solution, and we don't see any MLOps capabilities with GitLab. Under 30% of our customers are using GitLab. I guess that this partnership with GitHub is aligning us more with what our customers prefer to see in the future when they speak about consolidation, but we don't see a lot of GitLab competition in our pipeline.

Speaker Change: Well, we don't hear from our customers that are migrating to us.

Speaker Change: To get lab package management solution, no security solution, and we don't see any analogs capabilities with Gila.

Speaker Change: <unk>.

Speaker Change: On the 30% of our customers are using it lapped I guess that this offer.

Speaker Change: Partnership with Github is aligning us more with what our customers are.

Speaker Change: To see in the future when do you think about consolidation.

Speaker Change: We don't see a lot of.

Sanjit Singh: The next question comes from Sanji Singh, Morgan Stanley. Thank you for taking the question. I wanted to go back to where you saw the weakness, so we've talked about migrations and the monthly pay-as-you-go cloud business.

Speaker Change: Competition in our pipeline.

Speaker Change: We'll take the next question today from Rob Owens Piper Sandler.

Rob Owens: We'll take the next question today from Rob Owens, Piper Sandler.

Operator: We'll take the next question today from Rob Owens, Piper Sandler. Great, thank you for taking my question. I guess just to shift a little bit, I would like to ask on the clock acquisition from a clarification standpoint.

Rob Owens: We'll take the next question today from Rob Owens, Piper Sandler. Great. Thank you for taking my question. I guess just to shift a little bit, we'd like to ask about the quark acquisition from a clarification standpoint.

Rob Owens: We'll take the next question today from Rob Owens, Piper Sandler.

Rob Owens: Great. Thank you for taking my question I guess just to shift a little bit we'd like to ask on the the Clark acquisition from a clarification standpoint, you said no revenue in the expectations moving forward guessing there is that expense and the expectations. So can you quantify that number one and how should we think about integration is relatively simple.

Shlomi Benheim: In terms of whether it's enterprise, mid-market, SMB, or geographic exposures or even across different industries, were there any particular segments that stood out that drove the incremental weakness or what you saw towards the end of the quarter going into July without broad-based? Hi Sanji, this is Shlomi. No, it goes across geographies, customers profile, different demands whether it's security or DevOps. It's more about budget concerns and it's more about rigid procurement environment. This is what we hear from our customers.

Speaker Change: A plug and play standpoint or will this require increased investment over some period of time that we should contemplate margins from that perspective. Thank you.

Ed: Yes, Hi, this is Ed yes, so we're still in the process we closed the quarter. The first week of July and we're still in the process of integrating them there is.

Ed Grabscheid: Yeah, hi, this is Ed. Yeah, so we're still in the process. We closed the quark the first week of July, and we're still in the process of integrating them. There is expense that we're absorbing. And as you know, JFrog has a proven history of being very diligent in terms of the way that we manage our expenses, and will continue to be focused on profitability. The integration, which, as we complete that integration, will, of course, balance operational efficiency and the ongoing investment. And this will be very much aligned with our expectations from a long-term perspective as well.

Speaker Change: Expense that we're absorbing and as you know in J fraud has proven history of being very diligent in terms of the way that we manage our expenses and will be continued to be focused on profitability.

Shlomi Benheim: And then on sort of the timing of sort of like the contribution of advanced security, I guess I'd be a little bit surprised why it would push out. I mean, you obviously have the GitHub integration coming online, but I mean globally we just had a major outage, you know, with the with the crowd strike situation. So it seemed to me that like the focus on the, you know, software supply chain and how we roll out updates becomes like more critical than ever, and I would have expected, you know, a potential pale into the business from, you know, big outages like that in the second half.

Speaker Change: The integration.

Speaker Change: Which as we complete that integration, we will of course balance the operational efficiency and the ongoing investment.

Speaker Change: And this will be very much.

Speaker Change: Aligned with our expectations from a long term model as well.

Shlomi Van Haim: If I may answer it, Rob, on integration and the solution to the market, it's not a matter of MLOps, yes or no; it will be adopted. It will.

Shlomi Van Haim: If I may answer it, Rob, on integration and the solution to the market, it's not a matter of MLOps, yes or no; it will be adopted. And as you know, and as we announced in the previous quarters, we integrated with MLflow, we integrated with AWS SageMaker, and with Quark. So this is based not only on the trends in the market for adopting AI technologies but also the fact that it's a very logical next leap forward for JFrog.

Speaker Change: If I may answer your dropdown.

Speaker Change: Integration of the solution to the market.

Speaker Change: It's not a matter of MLR sales, although it will be adopted it will be and as you know and as we announced in the previous quarter, we integrated with ml flow, we integrated with AWS paint, Jamaica and with Quad. So this is based not only on the trends in the market adopting AI.

Shlomi Van Haim: And as you know, and as we announced in previous quarters, we integrated with MLflow, we integrated with AWS SageMaker, and with Quark. So this is based not only on the trends in the market for adopting AI technologies but also the fact that it's a very logical next leap forward for JFrog. Artifactory is already serving as the model registry of choice, and X-Ray is already scanning your models. So improving or expanding our platform was a mandatory next step forward for JFrog. And as Ed mentioned, once the integration is completed, we will also share our expectations with you.

Shlomi Benheim: So any reason behind like the push out of like advanced security and maybe just like the broader business, not saying more of the benefit post a pretty material on global outage that the industry is experiencing. I can share with you what we hear from our customers and what led us to look again at the expectation. When we entered the 2024, we thought about early adoption of our security solution, what happened was that most of our strategic customers started to look at the consolidation of point solutions, which was higher than expected in TCP perspective.

Speaker Change: But also the fact that it's a very logical next.

Speaker Change: Looking forward for <unk> as the factory is already serving as the model registry of choice X rays already scanning your model so improving our expanding our platform was.

Shlomi Van Haim: Artifactory is already serving as the model registry of choice, and X-ray is already scanning your models. So improving or expanding our platform was a mandatory next step forward for JFrog. And as Ed mentioned, once the integration is completed, we will also share our expectations with you.

Ed: Our mandatory next step forward for J, Paul and as Ed mentioned once the integration will be completed we will also.

Speaker Change: Sure.

Speaker Change: Our expectations with you.

Speaker Change: And we'll go next to Nick <unk> Scotiabank.

Operator: And we'll go next to Nick Altman, of Scotiabank.

Nick Altman: And we'll go next to Nick Altman, of Scotiabank.

Shlomi Benheim: So we are looking at higher potential, but then again, higher potential also leads to longer proof of concept processes and longer procurement processes. And this is why we want to be a bit more conservative about the security with regard to GitHub, the security piece is something that will be announced next month as I mentioned. And then we hope that it will generate even more motivation for consolidations of point solution to the platform security solution.

Nick: Okay awesome. Thanks, guys.

Nick Altman: Hey, awesome. Thanks, guys.

Nick: I wanted to follow up on advanced <unk> and curation.

Nick: Maybe just talk about what gives you confidence this is more macro related or more scrutiny on budgets versus product market fit given this is a newer product offering and then secondly, I think historically, we talked about advanced security and curation, becoming a material portion of revenue for this year I guess, how should we think about the tie.

Nick Altman: Um, I wanted to follow up on advanced security and curation. Maybe just talk about what gives you confidence this is more macro-related or more scrutiny on budgets versus product market fit, given this is a newer product offering. And then, secondly, I think historically, we talked about advanced security and curation becoming a material portion of revenue for this year. I guess, how should we think about the timeline now as to when that can be material to revenue or just any sort of goalposts as to what that can contribute this year? Thanks.

Speaker Change: <unk> now has two one that can be material to revenue or just any sort of goalpost as to what that can contribute this year. Thanks.

Koji Ikeda: Koji, I, Kada from Bank of America has the next question. Yeah, hey guys, thanks for taking my questions here. I wanted to follow up to the first question that was asked in the Q&A and really try and understand a little bit more about the linearity of cloud deals, you know, with the guidance that was given on 625 you guys mentioned the demand environment deteriorated in the final few days of the month.

Speaker Change: Yes. Thank you. Thank you for this question.

Shlomi Van Haim: Yes, thank you. Thank you for this question. Well, we came into 2024 very humbled by the adoption; we wanted to see our portfolio starting to look at advanced security and curation. And what we saw is that they were willing to consider a full consolidation around JFrog advanced security and JFrog curation. We are looking at the pipeline, we are looking at the strategic build, and we are hearing about proof of concept in the world's leading organizations.

Shlomi Van Haim: I wanted to follow up on advanced security and curation, or maybe just talk about what gives you confidence this is more macro-related or more scrutiny on budgets versus product market fit, given this is a newer product offering. And then, secondly, I think historically, we talked about advanced security and curation becoming a material portion of revenue this year. I guess, how should we think about the timeline now as to when that might happen? Material to revenue or just any sort of goalposts as to what that can contribute this year? Thanks.

Speaker Change: We came into 2024 very humbled with the adoption we wanted to see how the portfolio starting to look at the advanced security installation and what we saw.

Speaker Change: Is that they are willing to consider a full consolidation of <unk> advanced security and Jay population. We're looking at the pipeline. We are looking at this strategic deals. We're all hearing about the proof of concept in the world's leading organizations and this gives me the confidence.

Koji Ikeda: Even coming off the first quarter results, I think one of the big debates on J Frog is understanding how this cloud component is consumed. So is that typically how the buyers are consuming cloud? It comes in big in the final few days of the quarter or the month. Is that the way we should be expecting how the users are buying this product? So the seasonality of purchasing in the quarter will typically see towards the end of the quarter.

Shlomi Van Haim: And this gives me the confidence that it's not only the security solution but also the movement on point solutions and consolidation around one platform. A, B, JFrog advanced security is displacing a lot of point solutions, secret detection, infrastructures, static analysis, and so on. JFrog curation has less competition in the market, and it's very innovative based on what we see.

Speaker Change: It's not only the security solution, but also the movement from point solution and consolidation of on one platform.

Speaker Change: A b.

Speaker Change: <unk> advanced security is displacing a lot of point solutions secret detection infrastructures.

Speaker Change: I think analysis and so on Jay population and less competition in the market and it's very innovative based on what we see it's also appealing not only to the security persona, but also to the Dev ops persona and therefore.

Koji Ikeda: So majority of deals are done in the end of the quarter. This is something that is not unique to Q2. We see that every quarter where the majority of that in terms of what we're seeing around large migration deals and specifically around what we saw during Q2 was that decisions that we felt were. High probability when proof of concepts that were completed, those were pushed. Those were pushed later periods. We re-evaluated, as I mentioned, our forecast, we de-risked these large deals based on a very challenging macro environment, rigid purchase environment.

Shlomi Van Haim: It's also appealing not only to the security persona but also to the DevOps persona. And therefore, we see more interest coming from two directions in the enterprise. We are looking at the pipeline, we are looking at the size of the deals, we are looking at the names of the customers. But we also know that they face their own challenges in this macro environment. We have patience, but I will take a big deal with a higher TCV any day over a small deal just to get in somewhere and not displace my competitor. So this is what we see now. And this is why we decided to de-risk this project and the pipeline.

Speaker Change: We see.

Speaker Change: <unk>.

Speaker Change: More interest coming from two directions in the enterprise.

Shlomi Van Haim: Yes, thank you. Thank you for this question. Well, we came into 2024 very humbled by the adoption. We wanted to see our portfolio start to look at advanced security and curation. And what we saw is that they are willing to consider a full consolidation around JFrog advanced security and JFrog curation. We are looking at the pipeline, we are looking at the strategic deals, and we are hearing about the proof of concept in the world's leading organization.

Shlomi Van Haim: This gives me the confidence that it's not only the security solution but also the movement on point solutions and consolidation around one platform. A, B, JFrog advanced security is displacing a lot of point solutions, secret detection, infrastructures, static analysis, and so on. JFrog curation has less competition in the market, and it's very innovative based on what we see. It's also appealing not only to the security persona but also to the DevOps persona. And therefore, we see more interest coming from two directions in the enterprise. We are looking at the pipeline, we are looking at the size of the deals, and we are looking at the names of the customers.

Speaker Change: We are looking at the pipeline, we're looking at the size of the deals we are looking at the names of the customers. We also know that.

Shlomi Van Haim: We also know that they face their own challenges with this macro environment. But we have patience.

Speaker Change: They face their own challenges with this macro environment.

Shlomi Van Haim: Thank you, everyone.

Speaker Change: We have patients, but I will say it.

Speaker Change: Big deal with the higher PCB any day over a small deal just to get in somewhere and not to displace my competitor. So this is what we see now and this is why we decided.

Koji Ikeda: Therefore, in the second half where we had significant migration deals, those had been removed from our forecast going forward. Okay, and then to follow up on that, you've revised guidance for the full year on the cloud because that doesn't fly somewhere around a mid-30s growth rate in the cloud for the second half. And so it sounds like you've taken out a bunch of the migration assumptions, but what is there anything else within that guidance that you're taking into consideration aside from the migrations for that cloud number?

Speaker Change: To derisk.

Speaker Change: This project and did the buyback holdings.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Everyone. At this time there are no further questions I would like to hand, the conference back to Shlomi for any additional or closing remarks.

Shlomi Van Haim: Everyone, at this time, there are no further questions. I'd like to hand the conference back to Shlomi for any additional or closing remarks.

Operator: Everyone, at this time, there are no further questions. I'd like to hand the conference back to Shlomi for any additional or closing remarks.

Speaker Change: Yes.

Shlomi Van Haim: Thank you very much for joining us today. May the frog be with you, and may we have more peaceful days moving forward. Thank you very much.

Shlomi: Thank you very much for joining us today made abroad B with you and May we have more peaceful days moving forward. Thank you very much.

Shlomi Van Haim: Thank you very much for joining us today. May the frog be with you and may we have more peaceful days moving forward. Thank you very much. Once again, everyone, that does conclude today's conference. Thank you for your participation; you may now go.

Speaker Change: Yeah.

Operator: Once again, everyone, that does conclude today's conference. Thank you for your participation. You may now disconnect.

Speaker Change: Once again, everyone that does conclude today's conference. Thank you for your participation you may now disconnect.

Koji Ikeda: Thanks, guys. Sure, in addition to that, because of the macro environment and this rigid purchasing environment, we're not seeing the level of expansion that we expected in the second half. Therefore, the combination of the migrations and expansion on renewals are being factored into the guidance going forward.

Speaker Change: [music].

Shlomi Benheim: Koji, if I may add to it, we are looking at 40% growth year in the cloud, we are looking at the profitable business year. We have to be conservative and to think about what the market is telling us. And therefore, in a very responsible way, we looked at our pipeline and the big projects that the pipeline introduced and reacted based on what we saw in the first half of the year.

Kingsley Crane: We'll go to our next question from Kingsley Crane, Canacorn Genuity. Hi, thanks for taking the question. So I want to return to the cloud guide that everyone's talking about. You know, it makes sense that you saw some changes and you want me to be conservative. The new guide I still believe would imply sequential reacceleration in the back half. So just want to get a sense of how the risk the guidance is here. And then what's the risk that could deteriorate further despite the conservative take we've taken out here? Thanks.

Ed Grapshide: Yeah, thank you for your call for the question, Kingsley. So what we know today, we feel comfortable with the number that we're presenting around 40% your growth in the cloud, which Shlomi had mentioned and I mentioned during the call still represents a very good year over your growth in the cloud. 3 to 3% of that decline is coming from our monthly customers that do not have commitments with us and we've stated that in the past.

Ed Grapshide: In addition to that, we've taken a very close look at our forecast going forward and the risk as much as we felt comfortable with the risking any deals in our pipeline and in the forecast for the second half of 2024. Okay, thank you. That's helpful.

Shlomi Benheim: And Shlomi, just one for you, you know, it's great to hear about the GitHub partnership and how it can help co pilot users bring the best of both worlds. Just want to think through some of how it can translate to business impacts. You know, is this sort of a nice feature for existing users like how much of this can be an on-ramp for GitHub's large user base to explore day frog. I think it's relevant to any organization that is using GitHub or J4 first and then to any organization that might migrate from Bitbuck or GitHub, so obviously the potential is very high.

Shlomi Benheim: Mainly because of the fact that it also brings some differentiates of the other vendors cannot provide like enhanced security consolidation with these two platforms co pilot and J book security collaboration. So users can actually chat with co pilot and get binary information. The collaboration with GitHub is based on our customer feedback. So I don't see how this can go wrong and also the trend in the market for consolidation moving from point solution to a separate platform. We're very honored and very excited about this problem. Thank you. Great to hear. Thank you.

Michael Cikos: The next question comes from Mike Cikos, Needham. Okay, thanks for taking the question, guys. I know my colleagues and I are all a little confused by the 40% growth that we're calling out for cloud. And just to put a finer point on it, I want to take it a sense. Does guidance currently contemplate a lift in Q4 for true ups under these taker pay commitments, like what we experience in Q4 of 23?

Michael Cikos: Does that help explain some of the growth dynamics in the second half of the year we're looking at? Hi, Mike. This is Ed. Yeah, thank you for that question. As we move our customers, cloud customers from an annual use that are losing to a monthly use of her lose it, we would expect over time that we would have fewer true ups. Therefore, we don't see as large of a true up during Q4 of 2024 as we did during 2023.

Michael Cikos: So I wouldn't expect the same level as what we saw during 2023. Okay, but just to be clear, there is an anticipated benefit of some sort that's currently baked into this guide we have today. No, we do not consider that. Oh, there's not. Okay. Thank you. Thank you for closing the loop on that.

Shlomi Benheim: And then I did just want to come back to some of the comments there on the on the weakness or the changes in behavior that we're showing up. Since I know Shlomi and the prepared remarks, you had cited the increase day as peas and the higher TCV deals. Can you help us think about like for those delayed cycles? Is it more prevalent for those larger tickets or it's really across the board?

Shlomi Benheim: We're calling out like the monthly for the cloud users, but any more granularity as far as these different customer segments would really be helpful. So yeah, thanks, Mike. Yes, it's a possible geographies, different customers, different industry, different sectors, and not only that, but also DevOps and security, which leads us to understand that it's more about the procurement habits than the technology demanded the successful. What we see, however, the higher TCV requires a higher along the process.

Shlomi Benheim: So cell cycles are longer when you deploy more funds in today's environment, if it was under $100,000, maybe it would be easier. But when you consolidate the set of tools around the platform, it leads to a higher TCV. This is the good news, but it takes longer. This is not that not such a good news. We want to be conservative and this is why we implement what we see in H1 on the projection of H2.

Ed Grapshide: Brad, read back from Stifle has the next question. Great, thanks very much. Ed, can you remind us what percent of the cloud is month to month? Yeah, the percentage is approximately 25% of our cloud visits.

Ed Grapshide: Robinson, Mon please. Okay, and I guess just going back at it. Last quarter you were fairly adamant that the mid 40s would be achieved just on your commits. What changed? Yeah, what we saw last quarter was visibility into a pipeline that had significant migration deals that has been the risk. In addition to that, the purchasing and origin of the purchases have certainly changed the monthly consumption, which again do not have commitments. We saw a significant decline in those monthly customers, both of those factors are being taken into consideration, going forward. Therefore, we've made that adjustment to our cloud growth.

Andrew Sherman: Andrew Sherman from TD talent has the next question. Oh, great. Thanks. Following up on Brad's question there, we're all kind of scratching our heads on the same topic, obviously, but just want to be clear that the 40% now has no migrations assumed in it, and it's all committed. With no SMB, no usage, so the 40% should be the bottom, if you will. Now 40% is the very significant goal, so of course, we assume that some migrations will happen.

Shlomi Benheim: But with the risk, the big strategic migration, and we are looking at what we've learned from the second quarter, and this is why we're just. Okay.

Shlomi Benheim: And is there something that happened in June industry, why that may have slowed migrations kind of across the board, you're not the only vendor that's called this out, but what? What changed abruptly budget wise or migration, migration wise in June, do you think? Yeah, well, it's not even June. It's the last week of the quarter, the last few days of the quarter, when we started to see that more of these strategic big projects are being pushed.

Shlomi Benheim: And yes, you heard it from not only JAPO, we heard it from the market. We saw the same. It's mainly around budget constraints and procurement processes, and this is why we took act based on what we saw in the last few days of the course.

Miller Jump: The next question comes from Miller jump truth securities. Thank you for taking the question. I guess last quarter, you guys called out digestion and the customer base.

Shlomi Benheim: I'm as curious did this quarter have a continuation of that theme as a headwind in addition to the deal cycle changes, or did you see improvement there? Hey Miller, thank you for that question. We did not see anything related to digestion. What we're seeing is customers that are delaying purchasing decisions. We saw that towards the last week of the quarter, we're now starting to see optimization in terms of their spend as they continue to think about this uncertain macro environment, the very rigid purchasing environment that we're faced with.

Ed Grapshide: But we didn't see anything related to digestion, and, okay, thanks, and then I actually might come back to you on this one as well.

Ed Grapshide: Just given the cut to guidance that looks like now we're in a position where you need to see a re-acceleration at the low end of your FY27 revenue targets, can you just talk about the drivers and more specifically the timing of how you see that flying out from here? Yeah, so first off, you know, we changed our guidance only 1%. So we went from 22 to 21% on our annual guidance, and we continue to maintain our focus on execution of the three pillars or the three legs of the stool of our long-term model, which is adoption of the bull platform, migration to the cloud, and of course security.

Ed Grapshide: So based on those factors and the fact that we have not baked in the potential tailwind that we may get from AI and ML ops, when we think about that in the long-term model, with multiple years to go, even though we're faced with the macro environment, right now we still feel very confident in the long-term model and the top-line growth that we presented in that model.

Jeffrey Schreiner: The next question comes from Jeff. Hey everyone, thank you for taking the question. First one would just be maybe more color just on how customer conversations have been, and obviously, you know, your cloud business in general is driven by kind of a project oriented model, you know, I think an expectation that in May 2, you start to see more projects come online as customers got more visibility and their work lines. How have those conversations evolved? Has those changed in any way, or has it still just a lot more focus on, you know, elongated sales cycles just from a budget procurement scrutiny perspective?

Shlomi Benheim: So customer conversation, if I hear the question right, I'm sorry, it was a big talk to here, customer conversation, what we hear from our customers is the following. The first thing that everybody points to is consolidations of point solution into a platform. There are a lot of our on-prem customers that are speaking about future migration to the cloud. Obviously, this is not happening in today's environment, and third, that security is embedded into the solution.

Shlomi Benheim: So there is no DevOps standalone or security standalone, it comes together. A lot of them are also pointing the future with what MLOps bring, and the fact that they will have to support MLOps with the DevOps practices, so they know that it will be part of those services. And therefore, when we push not only to extend our platform, but also to look at the ecosystem, we choose the partners that we want to go with. So this is what we hear on the technology side.

Ed Grapshide: What we hear on the procurement and the budget side is that they have to be very disciplined to their commitment, and also to apply all type of optimization on them as long as this situation in the market is going on. Thank you for that. One quick one for you. You made a comment earlier. I want to just be crystal clear on this. You said as as we move customers from annual to monthly, we'd expect your true up.

Ed Grapshide: Is that something that you're like, should we expect that 25% of monthly business to shift up as we have closer to Q4? No, I think let me clarify the question. I believe the question was what we do. We move customers from self-hosted to cloud. We see an uplift anywhere from 20 to 80%. Customers that move from monthly, which do not have commitments to us to an annual within cloud. We don't see an uplift in those customers immediately, but over time as budgets allow, we would start to see an improvement in the uplift and expansion of those customers.

Jason Ader: We'll take the next question from Jason Adarib, William Blair. Yes, thank you. I just wanted to ask whether you guys are very confident that there's no competitive issue here or execution issue. You talked about macro. I think we all get that, but you are moving to this new strategic outbound sales model. That's not simple for an organization. I never had that.

Shlomi Benheim: So just wanted to know if you've identified any execution issues on top of the macro issues or competitive. Jason, thank you for this question. Well, there are a few parameters that we mentioned in the call and it's kind of taken into consideration. A, we said that we have 97% retention rate of our ARR, which is suggesting that these customers are not moving or installed based. It's not moving to competitive. The second thing is that I never saw an enterprise customer invest two or three quarters in a proof of concept.

Shlomi Benheim: And at the end, telling me that they need a bit more time, but then moving to a competitor, we never, we never saw that happening in addition to that when we are looking at our pipeline. And, and we speak with our customers, we don't hear them looking for another, another solution in the market usually there's always competition, but this is not the narrative that was in the pipeline. And the last thing is that when you think about the partnership between Jay program GitHub, think about the CIOs and the seasons of the market, who will go and check something else when the two kinds of bread are coming together to provide you with one platform experience. And so it's less about the competitive environment. It's more about the market environment. I'm certain about that. And this is what we hear from our customers as well.

Shlomi Benheim: Other than a quick follow up on the GitHub partnership. What do you think their main motivation is to do this deal? Do you think it's the advanced security capabilities that you had that they can now kind of co-sell with. And then just, is that, is that special in any way to, you know, to their range of partnerships? I mean, do they have partnerships with other security vendors? For example, that would be sort of an alternative for the GitHub reps to recommend. Yeah, well, I can speak for myself and I can speak maybe on behalf of my customers of what we've heard from them.

Shlomi Benheim: First of all, there are few differentiators in this partnership. A, it's the binary expertise next to the source code expertise. That's the kind of the long gone coming together of binary and source code. So the second thing is security, both JFrog and Eta bring advanced security capabilities that protect your software supply chain. And we are complementary to each other. We coexist one next to the other. They protect your source code, we protect your binaries.

Shlomi Benheim: And it goes together in its very appealing to the customers, especially when they can see it on one platform with one view. And the third thing, this is a very fast growing adoption, co-pilot and AI driven application is something that requires more insights from the major data and the binaries and the collaboration between JFrog and Github. Introducing a chat of a developer with co-pilot getting the information from our factory and the X-ray is very appealing for our customers as well. So as mentioned in the quote, our customers are driven by consolidation and the differentiations that can come from this collaboration.

Yi Lee: We'll take the next question from Yifu Lee, Cantor Fitzgerald. Thank you for taking my question, gentlemen. I guess my question is more to reconcile. We see great, hyper-scale growth rates, this quarter, above average. And in terms of, I appreciate a comment on the migration slowdown. I guess slow me in that.

Ed Grapshide: What are the dashboards that you guys look at on a daily basis, monthly basis, to get you more comfortable that the animal spheres of, you know, the CLCTOs will continue with that migration going forward. We just want to get more clarity on that.

Shlomi Benheim: Hi, this is Ed. Yeah, so we're always looking at the pipeline. This is an indication of how we believe that the forward looking will, will play out and through those discussions that we have with our customers as well as with the internal sales team. In addition to that, we also look at, you know, behaviors in the market and based on what we see now and the change in the macro environment, the change in the purchasing environment.

Shlomi Benheim: And what we see in terms of the deep risk of those forecasts, this is how we make the decision and this is why we opted to be conservative in our approach and lower our cloud guidance. And if I may add to it, when Ed is saying we're looking at our pipeline, it's not just the general number. We're looking at different stages. What gives us the confidence to your question is looking at our pipeline after the technology win.

Shlomi Benheim: This is also what brought us to the conclusion that we have to de-risk those big projects. So looking at the stage after the tech win before budget discussions, this is the main stage for that we are looking at.

Ed Grapshide: Okay, thanks so long.

Operator: The end of my follow up is more of a step out a little bit.

Shlomi Benheim: I think last month, they were news of a shadow of the Reback competitor, get that on some M&A activities that should say, Yoav's also on the consolidation and the space in the commentary on that. So, if the question is about the landscape and the competition with the hyperscale, we see co-selling, co-marketing potential there. And with Hitler specifically, we don't hear from our customers that migrating to Hitler, the package management solution, no security solution, and we don't see any ML ops capabilities with Hitler.

Shlomi Benheim: So, under 30% of our customers are using Hitler, I guess that this partnership with Hitler is aligning us more with what our customers refer to seem the future when they speak about consolidation. But we don't see a lot of Hitler competition in our pipeline.

Ed Grapshide: We'll take the next question today from Rob Owen, Piper Sandler. Great, thank you for taking my question, and I guess just to shift a little bit, would like to ask on the clock acquisition from a clarification standpoint. You said no revenue in the expectations moving forward, guessing there is that expense in the expectations. So, can you quantify that number one and how should we think about integration?

Ed Grapshide: Is this relatively simple from a plug-and-place standpoint or with this require increased investment over some period of time that we should contemplate margins from that perspective? Thank you. Hi, this is, yes, so we're still in the process. We've closed the clock the first week of July, and we're still in the process of integrating them. There is expense that we're absorbing, and as you know, and Jay Frog has proven history of being very diligent in terms of the way that we manage our expenses, and we'll be continuing to be focused on profitability. The integration, which as we complete that integration, we will of course balance the operational efficiency and the ongoing investment, and this will be very much aligned with our expectations from a long-term model as well.

Shlomi Benheim: If I may end to interrupt on the integration and the solution to the market, it's not the matter of MLopsis or not, it will be adopted, it will be. And as you know, when as we announced in the previous quarters, we integrated with MLflow, we integrated with AWS SageMaker, and with what? So, this is based not only on the trends in the market of adopting AI technologies, but also the fact that it's a very logical next leap forward for Jay Frog. Artifactory is already serving as the model registry of choice, X-rays already scanning your models, so improving or expanding our platform was a mandatory next step forward for Jay Frog.

Shlomi Benheim: And as I mentioned, once the integration will be completed, we will also share our expectations with you.

Nicholas Altmann: Hi, I'm going to go next to Nick Altmann, Scotia Banks. Hey, awesome, thanks guys. I wanted to follow up on advanced security and curation. Maybe just talk about what gives you confidence, this is more macro related or more scrutiny on budgets versus product markets fit. Given this is a newer product offering. And then secondly, I think historically we talked about advanced security and curation becoming a material portion of revenue for this year.

Shlomi Benheim: I guess how should we think about the timeline now as to when that can be material to revenue or just any sort of goal post as to what that can contribute this year. Thanks. Yes, thank you. Thank you for this question. Well, we came into 2024 very humbled with the adoption. We wanted to see our portfolio starting to look at the advanced security and J4 curation. We are looking at the pipeline.

Shlomi Benheim: We are looking at the strategic build well hearing about the proof of concept in the world's leading organization. This gives me the confidence that if it's not only the security solution, but also the movement from point solution and consolidation around one platform. A, B, J4 advanced security is displacing a lot of point solution, secret detection, infrastructure, static analysis and so on. J4 curation have less competition in the market and it's very innovative based on what we see.

Shlomi Benheim: It's also appealing not only to the security persona, but also to the DevOps persona. And therefore, we see more interest coming from two directions in the enterprise. We are looking at the pipeline. We are looking at the size of the days. We are looking at the names of the customers. We also know that they face their own challenges with this macro environment. We have patients, but I will take a big deal with the higher DCV any day over a small deal just to get in somewhere and not to displace my competitor. So this is what we see now and this is why we decided to de-risk these projects and the pipeline accordingly.

Operator: Thank you. Everyone at this time, there are no further questions.

Shlomi Benheim: I'd like to hand the conference back to Shlomi for any additional or closing remarks. Thank you very much for joining us today. May the fraud be with you and may we have more fiscal days moving forward. Thank you very much.

Operator: Once again, everyone that does conclude today's conference. Thank you for your participation.

Operator: You may now disconnect.

Q2 2024 JFrog Ltd Earnings Call

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