JFrog Ltd.

Ladies and gentlemen, thank you for joining us, and welcome to the JFROG Third Quarter 2020 Earnings Conference Call. I'll hand the conference over today to Joanne Horn of the JFROG Investor Relations Team. Joanne, please go ahead.

Good afternoon, and thank you for joining us as we review JFROG's Third Quarter financial results, which were announced following the market close via press release earlier today. Joining us will be JFrog's CEO and co-founder, Shlomi Ben Haim, and Jacob Shulman, JFrog's CFO. During this call, we may make statements related to our business that are forward-looking under federal securities laws and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements related to our future financial performance, including our outlook for the fourth quarter and for the full year of 2020. The words anticipate, believe, continue, estimate, Expect, intend, will, and similar expressions are intended to identify forward-looking statements or similar indications of future expectations. 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. For discussion of material risks and other important factors that could affect our actual results, please refer to our prospectus filed with the SEC dated September 15, 2020, which is available in the Investor Relations section of our website and the earnings press release issued earlier today. Additional information was made available in our quarterly report on Form 10-Q, for the quarter ended September 30, 2020, and other filings reports that we may file from time to time with the SEC. Additionally, non-GAAP financial measures will be discussed on this conference call. These non-GAAP financial measures, which are used as measures of JFROC's performance, should be considered in addition to, not as a substitute for, or in isolation from, GAAP measures. Please refer to the tables in our earnings release for reconciliation of those measures to their most directly comparable GAAP financial measures. A replay of this call will be available there for a limited time. With that, I'd like to turn the call over to JFrog's CEO, Shlomi Ben Haim. Shlomi?

Thank you, Joanne. Good afternoon, and thanks for joining us for JFrog's 2020 Third Quarter Earnings Call, which is our very first as a publicly traded company. We're proud and excited to have become a public company listed on Nasdaq under the symbol frog in mid-September. Before we get started, I would like to wish you and your loved ones the best of health as we all face a new reality in how we learn, walk, communicate, and more. We are all affected by the current environment, and we look forward to better days ahead. This is JPROG's first quarterly report. Therefore, I would like to take a moment and thank JPROG employees for what we have built together. These employees we call the frogs. are the reasons for the company's success and what makes us leap forward. Let me begin by explaining both our business and vision to put JPOG's Q3 results into context. As a start, I'd like you to ask yourself a couple of simple questions. What version of video or audio conference software are you using right now to attend this call? On your LinkedIn or Facebook application, what is the current software version you're using? When you watch Netflix at home, what version do you use? Of course, you don't know. No one knows. I don't know. And frankly, as a user, you don't care. You just want up-to-date, reliable, secure software without any hassle. Imagine there are no versions. This is JFrog's Liquid Software Vision, a world without software versions, where the world's software is updated seamlessly and securely without the hassle of update processes and downtime. My co-founders Fred Simon, Yoav Landman, and I launched JFOG in 2008 with a mission to make software development and delivery easier to manage through a process of what is known today as DevOps. As developers ourselves, we predicted the change in the way software is being built, released, and deployed, not only by developers, but also by machines. Since that time, J-Frog has pioneered a complete end-to-end platform for continuous software release management, also known as CSRM. We are honored that more than 75% of Fortune 100 companies use J-Frog to build and deliver software rapidly and securely daily. As a brief overview of the business and financials, I'm pleased to report that for the quarter ending September 30, 2020, J4G revenue was $38.9 million, a growth of 40% year-over-year for the same period. Non-GAAP operating income was $5.1 million, more than double the prior year level. Also, in Q3, we achieved a record level of quarterly free cash flow of $9.7 million. We continue to have a broad customer diversification No single customer represented more than 2% of the company's revenues. Our products continue to be mission critical to our customers, regardless of COVID headwinds, and our growth retention remained in line with historical trends demonstrating this criticality. In Q3, approximately 87% of revenue came from customers subscribed to our multi-product offers. 19% of revenue came from our Platform Enterprise Plus subscription, which gives customers access to all JFrogs products as an end-to-end solution. We are proud and humbled by this growth to date, and we believe these results demonstrate JFrogs' increased adoption in the marketplace as organizations continue to embrace modern software infrastructures and transform into a digital world. But saying that every company has become a software company or software is eating the world almost sounds like a cliché. However, we realize that conversations in companies' boardrooms are now focused on delivering digital experience and gaining competitive advantage through software, especially during today's challenges. It is not a question of should we do it, but more when and how. How can we improve our user experiences and engagement with software. How can we be faster than our competitors yet be secure? What changes are required so rapid software releases will run on a smooth yet resilient platform and increase go-to-market speed? JFrog is leading the charge in these areas. Since the only way to implement software fast, securely and efficiently with no downtime is through automation of the CSRM processes. And for that reason exactly, DevOps shines. As the world experiences this exploding amount of software as a result of digital transformation, everyone is looking to be part of the software gold rush. And JFrog is the provider of the picks and shuffles to millions of software developers around the world. We introduced the world with the first binary repository manager in 2008 and claimed that binaries, also known as software packages, will become the primary asset in the new software lifecycle. Today, JFrog offers an end-to-end hybrid multi-cloud universal DevOps platform to empower organizations, developers, and DevOps engineers to meet increased delivery requirements. Of course, DevOps isn't a single process, but many connected tasks and tools across teams. And with the explosion of cloud-native technologies across open source, containers, Kubernetes, and others, these teams face an even bigger challenge for organizations such as how to manage the different technology types that each have their own requirements. This is why JFrog's strategy of universal package management is so important. Modern development organizations use more than five different software package types regularly, and our customers routinely utilize more than 20 of them. If you cannot centralize your package repository manager or you isolate management to a single technology, your development lifecycle will be slow and messy, and no software automation, no integration process, will meet the needs of the organization. Our product philosophy is based on the user's freedom of choice. We provide you with a universal solution that integrates with every developer's ecosystem and can be deployed in every environment. Our fellow developers call it the Switzerland of DevOps, while our enterprise customers call it an anti-vendor lock-in solution. Starting with our flagship product, and the heart of the JFrog platform is JFrog Artifactory. Not only is it the industry standard and the mother of all repositories, but also the only universal tool that supports over 25 technology types, comes in high availability version and scales to infinity. Then JFrog X-Ray, our security tool that natively integrates with Artifactory and provides a full vulnerability and license compliance solution that integrates with the developer's ecosystem. X-Ray helps the CISO of the world shift left and avoid security bottlenecks. J-PROG Distribution is how you take a BLESS software package release bundle and deploy it into the edge security. This toolchain creates the circle of trust in the CSRM workflow. J-PROG Pipelines, our CI-CD solution, and the result of an acquisition we made in 2019 integrates and automates the flow of binaries through the DevOps pipes. We built JPEG Mission Control and JPEG Insight, the admin user dashboard, to provide a holistic view of the platform and simplify the configuration and resources management in a multi-zone, multi-server environment. These tools together form our complete end-to-end platform and this is what sets us apart from the competition who are years behind in their approach. JFOG's market is very large and growing at fast pace. Looking at the landscape, we see several additional tiers of opportunity for our business. Many potential customers still rely on homegrown solutions that were built only five or 10 years ago. These solutions are often incomplete and will be replaced with robust but simple solutions like JFrog that support modern cloud-native technology and scale. The market also attracts competitors who attempt to solve certain aspects of the software development cycle. These point solutions fall short by not focusing their solution around software packages, not being fanatically universal, not offering security tools as part of a platform Not being hybrid nor multi-cloud, focusing on legacy technologies their business has relied on for years instead of adopting DevOps innovation to solve this pain. In Q3, we were proud to deliver updates requested by our customers and community. Our R&D core teams focused on solid roadmap execution that prioritized feature releases that specifically answered work-from-home challenges. This includes improvements in security tools, distribution, and team collaboration around DevOps. For example, we release peer-to-peer download functionality for automated software package distribution. This capability not only accelerates the distribution flow, but also eases the strain on network resources. We also greatly enhance our customers' ability to operate in highly regulated ERGAP Secured Environment, helping users find and validate release bundles with JFrog distribution. New security scanning, scan reporting, and license compliance capabilities were added to JFrog X-Ray to serve companies with multiple security stakeholders. JFrog pipelines extended its reach into the community by releasing the ability for users to define their own reusable pipeline steps to centralize and simplify automation. Alongside a self-managed offering, our hybrid platform continues to be a growth engine for JFrog and drive speed, security, and efficiency for our customers. The adoption of the cloud was accelerated by COVID-19, which created the need for more data transfer and software delivery for our customers. The remote working world driven by COVID makes customers appreciate the ease of setup while addressing the remote access required. Our cloud format and SAS revenue growth has significantly exceeded self-managed solution growth for the past two quarters. In fact, J-PoG was recently named number 14 on the Forbes Cloud 100, listing the world's most influential and successful cloud companies. This is our third year in a row selected to this list. To continue this cloud momentum, In the third quarter, we launched the JPEG-free community offering in the cloud, responding to the demand of the community and giving developers easy access to our platform. This offering includes JPEG repository Artifactory, as well as security scanning and software development pipelines orchestration tools, which are now available to the community on all major cloud providers, AWS, Microsoft Azure, and Google Cloud in multiple regions. We already see this offering increasing the number of JFrogs Cloud users by the thousands, as well as increasing traffic to other digital and educational resources we provide. From a cloud partnership perspective, in Q4, we are hosting a dedicated DevOps Cloud Days conference alongside our partners, AWS, Microsoft, and Google. This event is co-marketed, co-hosted, addressing the needs of each cloud community's developers in a dedicated day for each cloud. JFrog always balances between the needs of the business and the needs of the developer, since software packages are being produced and consumed by millions every day. These packages are the lifeblood of liquid software that starts in developers' communities that create them for all organizations. A key component of addressing developer community needs is providing tools that support their ecosystem toolchain with minimum sales and marketing innovation. For example, in Q3, our teams improved the JFrog command line interface to enable easier ecosystem integrations with JFrog products, released more open source plug-ins to serve the community better, including CI-CD and observability tool integrations. released ChartCenter as a community hub for cloud native developers' assets, led the C and C++ community with JFrog's Conan Package Manager to further enhance these technologies and support the evolving IoT world. Over 70 companies have already shown interest in joining this effort. JFrog held the first automotive DevOps Summit with users from companies like Toyota, Volvo, Daimler and more. The demand from the market and our community involvement is at an all-time record. This is also a great opportunity for me to welcome Micheline Nijmech, our new Chief Marketing Officer. Micheline is a veteran marketeer who brings vast experience in building high growth organizations from leading companies where she served such as Zscaler, Exactly, Salesforce, and Sun Microsystem. Turning to sales, JForg is driven by inbound inside sales motion only, allowing us to keep the mantra of delivering products both by developers and not sold. Our land and expand revenue goal is driven by upsell to current customers alongside initial entry point sales to new customers. In fact, as of September 30th, we had 313 customers with ARR greater than $100,000, of which 9 customers were over $1 million. We are focusing on our sales and marketing goals and will keep investing while scaling. Alongside our inside sales team, we started to build J-PROX strategic sales team by region. This team is already expanding our footprint among our top 100 accounts and ensuring a smooth adoption of our platform. As such, our cohort growth is solid. Net dollar retention for the trailing 4 quarter was 136%. This is an important metric to judge our progress. In terms of our overall sales performance and funnel conversion, we saw a trend of time to sell increasing slightly during COVID-19. Deals are increasingly getting escalated higher in the organization due to budget cuts or defaults to executive approvals for expenses. And distributed workforce are making customers' internal processes more complex. We saw a brief dip in demand at the beginning of the pandemic, as well as a longer conversion time from trial to paying customers. Since then, we've seen demand growth improve, and we are confident that the ongoing free trials and new community cloud offerings will be converted in the future. This momentum demonstrates the adoption of our multi-product offerings by the enterprise despite COVID and expressed budget concerns. Our expansions model in the self-hosted offering grows not only by adding additional servers, but also through demand for other products on top of Artifactory, such as X-Ray and Distribution. To illustrate this, in Q3 we landed one of the world's largest retail brands utilizing J-PROG across both self-managed and SaaS services and hosted on Microsoft Azure. The deal drivers included the need to diversify their deployment across self-managed SaaS and multi-region offering in order to allow easy and smooth access for their team. In addition, in Q3, our customer, a market-leading company in cloud software for customers' engagement and operational excellence, expanded its SaaS agreement to over $1.2 million in ARR. while upgrading to the complete JFrog platform to support distributed development teams around the globe. This is a small sampling of successes, and we're excited about where we're going next in Q4. As we wrap up 2020, we plan to invest our resources in supporting new package types and technology enhancements that helps our customers build and deliver even more rapidly and securely. These investments will support our growth in 2021, allowing us to scale even further when the market recovers. With that, I'd like to turn it over to our CFO, Jacob Schulman, for more detailed financial results.