JFrog(FROG) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue for 2024 was $428.5 million, up 22% year over year [8][24] - Q4 2024 total revenues were$ 116.1 million, up 19% year over year [24] - Cloud revenue for 2024 was $168 million, representing 41% year-over-year growth [8][24] - Gross margin for the year was 83.8%, with a Q4 gross margin of 83.2% [9][34] - Free cash flow for 2024 was$ 107.8 million, with a free cash flow margin of 25% [9][37] Business Line Data and Key Metrics Changes - Cloud revenues in Q4 2024 grew to $49.4 million, up 37% year over year, representing 43% of total revenues [24][26] - Self-managed or on-prem revenues in Q4 were$ 66.7 million, with full-year 2024 at $260.5 million, up 13% year over year [27] - Revenue contributions from enterprise plus subscriptions grew 35% year over year in 2024, comprising 54% of total revenues [29][30] Market Data and Key Metrics Changes - The number of customers with ARR over$ 100,000 grew to 1,018, up from 886 in the previous year [20] - Customers with ARR exceeding $1 million increased to 52, up from 37 in the previous year [20] - Net dollar retention for the trailing four quarters was 100%, with gross retention at 96% for 2024 [32] Company Strategy and Development Direction - The company is focused on enterprise adoption of its cloud platform and building tighter relationships with cloud partners like AWS, Google Cloud, and Microsoft Azure [12] - A strategic collaboration agreement with AWS aims to enable joint enterprise customers to scale their DevSecOps AI-driven software solutions cost-effectively [12][85] - The company is committed to consolidating security solutions into a single platform to enhance operational efficiency and budget optimization for users [14] Management's Comments on Operating Environment and Future Outlook - Management noted that despite a tight budgetary environment, large companies are demonstrating confidence with multiyear commitments [11] - The outlook for 2025 includes a conservative estimate of cloud growth between 30% to 32% and net dollar retention stabilizing in the mid-teens [42] - Management emphasized a disciplined approach to spending and investment in innovation to expand platform capabilities [43] Other Important Information - The company ended 2024 with$ 522 million in cash and short-term investments, down from $545 million at the end of 2023 due to the acquisition of Quack AI [39] - Remaining performance obligations (RPO) totaled$ 403 million, a 55% increase year over year [39] Q&A Session Summary Question: Insights on security traction and customer conversations - Management noted an increase in CIOs and CISOs looking to consolidate point solution tools, indicating a positive trend in prospective customer conversations [52] Question: Guidance assumptions regarding net dollar retention - Management expects net dollar retention to stabilize in the mid-teens, with minimal changes anticipated in migration activity [56][57] Question: Clarification on cloud revenue and database contributions - The $1.3 million in Q4 cloud revenue was from customer migrations to a new enhanced cloud database product, which will be reflected in future cloud guidance [25][65] Question: Customer optimization and investment cycles - Management indicated that large projects typically begin in the second half of the year, suggesting a similar pattern for 2025 [74] Question: Changes in sales motion for security solutions - Management confirmed that the sales force is equipped to scale the security offering, with significant traction observed in large contracts [77] Question: Incremental margin contribution from security adoption - Management stated that gross margins are expected to remain between 82.5% and 83.5%, capturing all products holistically [114] Question: Impact of AI on opportunities - Management highlighted that enterprise customers are increasingly interested in using JFrog as a model registry for AI, presenting a significant opportunity [125] Question: Customer account changes and focus on enterprise - Management confirmed a strategic focus on enterprise customers, resulting in a reduction of lower subscription customers to enhance overall business focus [128]