JFrog(FROG) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - JFrog's total revenue for Q3 2024 was $109.1 million, representing a 23% year-over-year increase [11][20] - Cloud revenue reached$ 42.4 million, up 38% year-over-year, accounting for 39% of total revenues compared to 35% in the prior year [20][11] - Self-managed revenue was $66.7 million, reflecting a 15% year-over-year increase [20] - Net dollar retention for the trailing four quarters was 117%, with a gross retention rate of 97% [21] - Gross profit was$ 90.3 million, resulting in a gross margin of 82.8%, down from 83.7% in the previous year [23] - Operating profit was $14.7 million, with an operating margin of 13.5%, slightly up from 13.4% in the year-ago period [25] Business Line Data and Key Metrics Changes - The number of customers with an ARR over$ 100,000 increased to 966, up from 848 in the previous year [11] - Customers with an ARR exceeding $1 million grew to 46, representing a 53% year-over-year increase [12] - 50% of total revenue came from Enterprise Plus subscriptions, up from 46% in the prior year, with revenue contribution from these subscriptions growing 35% year-over-year [22] Market Data and Key Metrics Changes - The cloud business experienced sequential growth driven by increased migration activity, although overall usage trends remained moderate compared to the previous year [13] - The market continues to demand higher standards for software integrity, with enterprises prioritizing modernization of their software supply chain security [15] Company Strategy and Development Direction - JFrog is focused on a unified platform experience, integrating DevOps, DevSecOps, and MLOps into one solution [8] - The company aims to expand its security offerings, with JFrog Runtime Security being recognized as a critical solution for organizations [8][15] - The strategic partnership with GitHub aims to enhance security capabilities and integrate AI functionalities [18] Management's Comments on Operating Environment and Future Outlook - Management expressed a cautious outlook regarding large migration deals in the 2024 pipeline, indicating that customer migration activity has not yet fully turned the corner [14] - The company anticipates cloud revenue growth of around 40% year-over-year for 2024, with year-to-date cloud growth currently at 42% [29] - Management remains focused on expense discipline while investing in future growth opportunities [24] Other Important Information - JFrog's acquisition of Qwak closed in early July, contributing less than 0.5% to Q3 revenue [31] - The company ended Q3 2024 with$ 467.8 million in cash and short-term investments, down from $591.3 million as of June 30, 2024 [26] Q&A Session Summary Question: How did Q3 results come in compared to expectations? - Management indicated that Q3 performance was largely due to significant projects that were closed, including deals pushed from Q2 [37] Question: What gives confidence for 2025 being a year of material contribution from security? - Management noted that security was a critical component of large deals secured in Q3, and they see more opportunities combining cloud growth and security [39] Question: What is the customer behavior regarding renewals with a security component? - Management observed that customers are adopting and expanding their security solutions, with a focus on large projects [44] Question: How should 2025 be viewed in terms of growth? - Management is being conservative in building the outlook and guidance for 2025, considering the macro environment [47] Question: How is macro impacting cloud usage? - Management noted that while customers are planning to migrate to the cloud, execution is taking longer than expected [56] Question: What are the contributing factors to cloud growth? - Management mentioned that large-scale wins, annual customer commitments, and smaller migrations are contributing to cloud growth [60] Question: How is JFrog addressing deployment integration bottlenecks? - Management emphasized the importance of consolidating solutions and providing support for customers to overcome integration challenges [65] Question: What is the status of the partnership with GitHub? - Management highlighted ongoing co-engineering efforts and the potential for innovation and customer retention through the partnership [68] Question: What is the outlook for AI integration in revenues? - Management indicated that while AI is a significant opportunity, it will take time for it to translate into revenue as customers are still in the experimental phase [85]