JFrog Ltd.

Welcome to JFrog's second quarter fiscal 2021 financial results conference call. My name is Jenny. I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press star then 1 on your touch-tone phone. I will now turn the call over to Joanne Horn from Investor Relations Team. You may begin.

Good afternoon, and thank you for joining us as we review JFrog's fiscal 21 second quarter financial results, which were announced following the market close via a press release earlier today. Joining us will be JFrog's CEO and co-founder, Shalmi Benhaim, and Jacob Shulman, JFrog's CFO. Before we begin, let me review the Safe Harbor Statement. 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 third quarter and full year of 2021. The words anticipate, believe, continue, estimate, expect, intend, will, and similar expressions are intended to identify forward-looking statements or several 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 a discussion of material risks and other important factors that could affect our actual results, please refer to our Form 10-K for the year ended December 31, 2020, filed with the SEC on February 12, 2021, and our Form 10-Q for the quarter ended March 31, 2021, filed with the SEC on May 7, 2021, which are 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 quarterly report on Form 10-Q for the quarter ended June 30, 2021, and other filings and 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 JFROG's performance, should be considered in addition to, not as a substitute for, in isolation from, GAAP measures. Please refer to the tables in our earnings release for reconciliation of these 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. And with that, I'd like to turn the call over to JFrog's CEO, Shlomi Benhaim. Shlomi?

Thank you, Joanne. Greetings from the swamp, and thanks for joining us for JFrog's 2021 second quarter earnings call. The past quarter was very productive for us, and before we start, I want to express my special thanks to JFrog's employees for strong deliveries on all fronts. In today's calls, I would like to cover not-worthy items that will help to set the future of JFrog and the world of DevOps. First, I want to address the overall performance of the business in Q2. Then, I want to highlight some recent customers' wins, including some from our expanding strategic sales team. I will also talk about our recent acquisition of VDU, a leading security platform creditor. I want to inform you about innovative product releases we announced at Plompa, our annual user conference. I will also address the recent hiring of our new Executive Vice President of Product and Engineering. These are all indicators of a solid future for JFOG, beginning with the second half of the year, an investment we are making on all fronts in order to fulfill our vision of becoming the company behind all software updates, the company that makes software liquid. Let's start. We brought the world groundbreaking innovation in Q2. We delivered on unique product investment, and we expanded our partner ecosystem, hosted a successful virtual annual DevOps community event for thousands of attendees, and held a sold-out in-person event in Tel Aviv at DevOps Industry First since the pandemic began. These events and milestones have a single mission, to make every software creator successful by providing the best solution to release fast and secure software continuously. The future is clear. There will be more software. Software needs to be updated. Updates can be only achieved with binary management, deployment, and automation for a fearless fast flow. Leap by leap, JFrog is making this vision a reality. Now let me share our 2021 second quarter results with you. I'm pleased to report that JFrog's revenue climbed to $48.7 million, a growth of 34% over the same period last year. While our delivery is aligned with our commitment to the market, we continue to invest in the company's solid growth and will soon pass a key milestone, crossing $50 million revenue per quarter. Cloud revenue? continued to grow in Q2 with a 47% increase year-over-year and now represents 24% of our total revenue compared to 21% in the previous year. Also, in Q2, we achieved a record quarterly free cash flow of $18 million. Our expanding strategic sales team, which has now more than doubled as a result of the acquisition of Vidoo, continues to be successful in growing the business across our top tier accounts with large customers moving to our multi-product end-to-end platform subscriptions. JFOG distribution solution continues to be the primary reason that our customers upgrade to Enterprise Plus, our highest subscription level. For example, one of the world's leading telecommunication providers recently used JFOG distribution to complete its nationwide 5G rollout to millions of customers by pushing software to the 5G edge locations. In addition, a leading video game developer with multiple global data centers chose to upgrade to JFOX Enterprise Plus subscription to overcome bandwidth and network lag by using our distribution capabilities. Having been an artifact to the only customers in the past, this company also now uses x-rays to scan and secure software packages before they are delivered into production. These examples are only the tip of the iceberg, and I look forward to more success on the strategic transform. On that note, I would like to turn to security. With data breaches and supply chains attacked on the rise, security remains a top priority for organizations of all sizes. To deliver maximum value to our customers, We now include JFrog Security Solution, JFrog X-Ray, in all subscriptions starting from Pro X. We are also pleased to see X-Ray use cases coming from many different industries. For example, a global cloud storage service company with over 500 million users added X-Ray to monitor and enforce security policies around third-party and open-source license compliance. But security isn't just about vulnerabilities. It's about protecting the entire DevOps lifecycle. An example is a multinational financial service company, which is now the largest X-Ray customer. This customer is now using the combined power of Artifactory and X-Ray to control, secure, and validate all of their third parties, binaries that enter the organization, that are hosted in Artifactory, and ultimately, get the production environment that supports their tens of millions of customers. These are just two of many more use cases that we are seeing that showcase customers' needs to have security capabilities fully integrated into the software lifecycle and runtime environment. To that end, we recently announced that we completed the acquisition of Vidu, a product security company, We believe the joint team of X-Ray and VDU, along with the integrated technology solutions, will drive JFrog's next big leap forward in SecOps with an approach that looks at not just software composition, but also software configuration and environmental factors. This solution will also discover zero-day vulnerabilities and will secure the binaries beyond the DevOps pipeline all the way to the devices. X-Ray has long provided security scanning for developers, and the joint solutions will build on these strong foundations to expand J-PROG's reach into operation and security engineering. Just a few days ago, J-PROG security researchers identified and analyzed several malicious Python packages they have discovered on the PyPy public registry. These software packages contain vulnerabilities aimed at stealing users' credit card numbers, Discord tokens, and granting code execution capabilities to attackers. The public Python software package registry has removed several packages this week as a result. The power of VDU's scanning technology and team of expert researchers as part of JFOG is already amplifying the value of this merger. showing how software developers and users all over the world can be protected by a real end-to-end binary-first security solution. As another example of how VDU's advanced security technology and JFOG's end-to-end DevOps platform could deliver value to our customers, we only need to look at the recent Castella supply chain attack. This attack was similar to the SolarWinds hack, where vulnerability, was exploiting the software of service providers, which has been utilized by the provider's customers. This affected thousands of their customers in a ransomware attack. This again only emphasized the need to scan, vet, and secure third-party software binaries before any download or deployment process. With JFrog and Vidu's unique technology, JFrog Artifactory will store and manage the binaries being released. And JFrog X-Ray, fortified with V2's technology, will enable the detection of unknown vulnerabilities. This allows software consumers, as well as their customers, to fully understand any risk and ensure the security hygiene of the products and the devices they rely on. I'm excited by the progress that JFrog and V2 teams are already making. We have added nearly 80 security experts globally across engineering, sales, marketing, and other functions to the JFog team. Vidu's CEO, Nati Davidi, and Asaf Karas, Vidu's CTO, are now co-members of our leadership team and will be leading the combined security R&D group. The two teams, Vidu and JFog, have started to work on merging products and expect the rollout of the first set of solutions as part of the JPEG platform in 2022. Now on to our cloud business. Cloud goals were slightly slower as we saw some of our highest users' customers take steps to consolidate their accounts, implementing a more strategic approach to the cloud users. We are currently reaching new agreements with many of these customers, which include usage scaling and expect to see return to higher cloud goals in the future quarter. We are confident there is a path to gaining even more momentum in the second half of the year through our partnership with the major cloud providers, AWS, Microsoft Azure, and Google Cloud, with new offerings in their marketplaces and expanding into strategic co-selling and co-marketing opportunities. This past quarter, we already won several big deals through these partnerships, including the leading point-of-sale software provider for retail and the leading American cloud data services company. We have also made new cloud marketplace offerings available in support of our strategy to meet customers where they are working. For example, Google Cloud Marketplace customers can now quickly and easily provision the JPEG platform with full enterprise-plus subscription capabilities in just a few clicks. On AWS, we're providing a 30-day free trial for cloud enterprise subscription on the marketplace, allowing users to try out our enterprise offering prior to making a purchase. This is an added option to drive top-of-funnel activities. Now, a little about the competition. In Q2, we continue to see JPEG displacing legacy competitors with a unified platform. scalable platforms. One example of moving to JFOG includes an Indian multinational information technology leader that provides business consulting, information technology, and outsourcing services. This is due to the need for scale and the need to manage binaries across multi-site topologies and keep artifacts in sync between remote development sites. Their existing solution did not allow them to build and deploy in multiple regions and support a hybrid model of both on-prem and cloud. Another example is a European car manufacturer, which adopted JFrog to centralize their binary management and security, as their existing competitive solution could not meet the broad requirements of a unified platform, license compliance, and a universal technology support. These customers' examples highlight how an integrated, hybrid, universal, end-to-end platform can drive businesses' outcomes and serve as critical competitive differentiators. Now, to some DevOps community events highlights. At the end of May, we had regionally-focused three-day virtual annual user conferences and DevOps community events for JFOG SwampUp 2021. we revealed to thousands of attendees and millions of global developers several significant sets of groundbreaking technology and new capabilities to support enterprise scalability, binary management, security, software distribution, project management, and developer ecosystem integration. This includes the all-new private distribution network, a groundbreaking innovation that accelerates software package distribution by multiple orders of magnitude, to speed up deployment and concurrent downloads across large-scale environments spanning hybrid infrastructure, edges, and IoT devices. We also announced federated repositories, a new capability of JPEG Artifactory, which addresses the challenge of managing binaries across multi-site topologies and keeping artifacts in sync between remote development sites, a must for global teams. We also reviewed current pipelines and new industry-first innovation of JPEG pipelines, which leverages blockchain-like technology to enable organizations to ensure the integrity and security of all automation flows and artifacts as they progress from creation to deployment. Finally, we announced cold artifact storage, currently in beta. This solution enables organizations to save costs and improve performance by archiving artifacts that need to be easily stored and rapidly rehydrated to meet regulatory requirements of corporate policy. Overall, this is the most significant set of product enhancements and innovations delivered since the introduction of our unified platform, all driving us closer towards our liquid software vision of powering all software updates. To help drive this vision forward, we have made an important addition to the leadership team with the hiring of a new Executive Vice President of Product and Engineering, Sagi Dudayi. With 25 years of global experience in managing technology and product development, Sagi joined JFOG after nine successful years as the CTO of Vonage. Where he led a global tech force of the company, spearheaded the movement to cloud products and supported over $1 billion in revenue. We look forward to leveling up JFrog's product and engineering as we expand globally. With these recent organizational changes, the streamlined subscription delivered in the first half of 2021, the product innovation, the inorganic accelerator, and the growth we see with our strategic team, we anticipate acceleration in the business in the second half of 2021. With that, I would like to turn the call over to Jacob Schulman, JFrog's CFO, who is also celebrating his birthday today, Mazel Tov, Jacob. Please take it from here to look more deeply at the Q2 financial.