JFrog Ltd. (NASDAQ:FROG) Q3 2023 Earnings Call Transcript

JFrog Ltd. (NASDAQ:FROG) Q3 2023 Earnings Call Transcript November 1, 2023

Operator: Ladies and gentlemen, thank you for joining us and welcome to JFrog’s Third Quarter 2023 Earnings Conference Call. I’ll hand the conference over today to Shanti Ariker, Chief Legal Officer. Shanti, please go ahead.

Shanti Ariker: Good afternoon, and thank you for joining us as we review JFrog’s third quarter 2023 financial results, which were announced following market close today via a press release. Leading the call today will be JFrog’s CEO and co-founder, Shlomi Ben-Hayim, and Jacob Schulman, 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 relating to our future financial performance, including our outlook for Q4 and the full year of 2023. The words anticipate, believe, continue, estimate, expend, 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 these 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, 2022, filed with the SEC on February 9, 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 September 30, 2023, 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, or in isolation from, GAAP measures. Please refer to the tables in our earnings release for a reconciliation of those financial — 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 Ben-Haim.

Shlomi?

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Q&A Session

Shlomi Haim: Thank you, Shanti, for the introduction, and thanks for stepping in today as we send warm wishes for a fast return to health for Jeff Schreiner, our VP of Investor Relations. Greetings from Israel, good afternoon, everyone, and thank you for joining us. On Saturday, October 7, the Nation of Israel awoke to a brutal terrorist attack targeting its civilian population. This tragic event resulted in the loss of innocent lives, including children, women, and the elderly. This heartbreaking incident escalated rapidly into an expanded war against the terrorist organization, Hamas. A few hours into the situation, JFrog, as a global Company with a presence in 10 different countries, activated its business continuity plan comprising three pillars.

First, our internal plan to ensure the safety of our employees in Israel and maintaining communication channels. Second, is a technology pillar to ensure continuity of our services, security, cyber defense, and R&D. Finally, we activated the plan for external facing activities to ensure continuity of our customers’ engagement, support, and external communication. I’m pleased to report that our operations are running smoothly and our employees are safe and accounted for. Notably, the conflict in Israel has not prompted us to change our physical year 2023 business goals that were previously shared with you. We are closely monitoring the situation but remain confident that the Company will meet these targets. We extend our heartfelt condolences to the families who have tragically lost their loved ones.

Our thoughts and prayers are with them during this incredibly difficult time. We pray for the safe and fast return of the hostages who have been kidnapped by Hamas and we hope for the complete recovery of the thousands of individuals who have been injured. With that, I will move to the business. I’m pleased to report that JFrog’s third quarter revenue again exceeded our prior guidance driven by increased cloud consumption, broader adoption of our security solution, and growing enterprise scale adoption of the JFrog software supply chain platform. Our third quarter revenue was $88.6 million, reflecting 23% year-over-year growth. Cloud usage accelerated in Q3, delivering revenue of $30.6 million, increasing 46% year-over-year. We also exceeded our profitability guidance with a non-GAAP profit of $16.6 million, generating $25.4 million in free cash flow.

Customers with ARR over $100,000 grew to 848 compared to 696 in the year-ago period, increasing 22% year-over-year. Customers with ARR over $1 million increased by six companies in the quarter to a total of 30 versus having 18 customers over $1 million in Q3 of last year. This is up 67% compared to the year-ago period. These results reflect the critical importance of the full JFrog software supply chain platform for software development infrastructure, with our three pillars of DevOps, security, and IoT driving strategic customer value. Now, I would like to expand on what made Q3 a strong quarter for JFrog, as our investments continue to bear fruit in accordance with the long-term plans we shared with you at the beginning of the year. First, we continue to see growth in large-scale enterprise adoption of our complete software supply chain platform.

Next, our comprehensive integrated software supply chain security and the adoption of our built-in end-to-end technology versus built-on legacy point solution scanners. Third, our cloud growth and marketplace channels driven by our strategic sales team and through our cloud partnerships. And finally, JFrog’s expansion into machine learning operations and AI solutions. I’ll start with the growth in large-scale enterprise platform adoption. With increasing demands for delivering speed and the need for scalability and regulatory compliance, we are seeing more of our enterprise customers consolidating tools into a comprehensive platform. As an example, one of the largest telecommunication providers in the United States, with millions of global users, migrated away from a competitive self-hosted solution to the JFrog platform in Q3 with an eight-figure multi-year new business deal to standardize their operation and modernize their DevOps and DevSecOps practices in the cloud.