JFrog Ltd.

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 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 31st, 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 10-Q for the quarter ended June 30th, 2024, 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 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 Benhaim. Shlomi?

Thank you, Jeff. Good afternoon to you all, and thank you for joining our call. Q2 was a productive quarter for JFROG, demonstrating solid results in our revenue gross margin, free cash flow, and EPS. We extended JFOG 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. We are successfully transitioning to strategic outbound enterprise sales and increasing our average 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, JFrog plays a crucial role in organization software supply chain flow, encompassing DevOps, DevSecOps, and now MLOps. During the second quarter, JForg's cloud revenue reached $39.3 million, representing a 42% year-over-year growth. 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 goals. 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 ASPs for both new and existing customers. However, ITCV 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. Our 97% exceptional growth retention rate indicates that the vast majority of our customers consistently choose JFrog on every renewal. Given the innovation added to our platform with new capabilities 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 customers' expansion for the time being. With that, let me address ongoing adoption of the Jayfork 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, single source of 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 addressable markets. For example, One of the world's big four accounting firms recently chose JFrog as the 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. Working 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. 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. Admiral's head of capabilities for DevOps and applications, Kevin Foley, noted, quote, 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." As more companies discover the power of the J-PROC platform without the factory at its core, infused by security and machine learning solutions, we anticipate driving unmatched value for large-scale enterprises. I would now like to address one of our strategic partnerships. J-PROC 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. 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 JPEG 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 the GitHub developer's relation and co-pilot solutions. John Natal, Director 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 stored in J4 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. 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 Quack AI and our expansion into the world of MLOps and AI power software. In late June, we announced that we would be acquiring the MLOps platform company Quack AI in a deal that was finalized in early Q3. With this acquisition, JFog 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 in one platform. With Quad's platform to build, train, and experiment with the model, JFog Artifactory is the model registry of choice. And with JFog X-Ray and Advanced Security protecting the machine learning lifecycle into production, We believe the JFOG platform is uniquely positioned to bring data scientists and machine learning engineers the same level of fragility, 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 DevOps and MLOps life cycles. To the Quark 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. Before we dive deeply into the financials, I want to take a moment to welcome our newest board member, Luis Visoso. Luis' 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 JFO. I look forward to working with him and having him on board. With that, I'll turn the call over to our CFO, Ed Grebscheid, 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. Ed?

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 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 JFraud platform, plus security, and now MLOps with the recent acquisition of Quark AI. 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 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% 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. 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. We remain focused on expense discipline while absorbing the operating expenses through our acquisition of Quark 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 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. 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 31st, 2024. Cash flow from operations was $16.7 million in the quarter after taking into consideration our CapEx requirements free cash flow with $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. 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 9 cents to 11 cents, 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 54 cents to 56 cents based on 116 million estimated diluted weighted average shares outstanding. Let me provide more context around our guidance. 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, 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%. 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. 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 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. Finally, the acquisition of QAC 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 QAC 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.