JFrog Ltd Q1 FY2021 Earnings Call

Good afternoon and thank you for joining us as we review JFrog's First Quarter Financial Results, which were announced following the market close via press release earlier today. Joining us will be JFrog's CEO and Co-Founder, Shlomi Ben Haim; and Jacob Shulman, JFrog's CFO. During this call, we will 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 second quarter and full year 2021. The words anticipate, believe, 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, not any other 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 results. 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 prospectus and our Form 10-K filed with the SEC on February 12th, 2021 which is available in 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 March 31st, 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 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. And with that, I'd like to turn the call over to JFrog's CEO, Shlomi Ben Haim. Shlomi?

Thank you, JoAnn. Greetings from the floor and thanks for joining us for JFrog's 2021 first quarter earnings call. Before we start, and as some countries are still being ravaged by the pandemic, I want to take a moment and send our best wishes for good health and recovery to our employees, friends, and families in India. We're proud of our strong first quarter and I would like to thank all of the folks for their amazing work in making this a great launching pad for 2021. This quarter was a milestone for all of us, as it marked one year since the world entered the pandemic mode. I'm happy to see us beginning to emerge from it as we have opened the Israel offices where the majority of our R&D team is located. We will even be holding one of the first in-person DevOps events of the year in July taking place in Tel Aviv. We are looking forward to meeting our customers and partners face-to-face again, as we continue to bring more value to the community. Now, I want to share our 2021 first quarter results. I'm pleased to report that JFrog's revenue climbed to $45.1 million, a growth of 37% over the same period last year. Cloud revenues continued to grow with a 62% increase year-over-year, and our highly efficient business model contributed a quarterly free cash flow of $7.7 million. Now, on to a few of our Q1 business highlights. In the first quarter, JFrog increased the number of customers with over $100,000 in ARR to 395. Our customers with over a million remained unchanged. The strong growth of greater than $100,000 customer counts validates our land and expand models and demonstrates the high value for our customers. I'm also pleased to see healthy growth in new customer additions for Q1. In the previous year, under the pandemic forced reality, we guided our customer success team to focus on our installed base retention. As we reported in the past, we've performed very well on that end. 2021 started with a focus on net new customer growth in addition to our customer retention that continues to be very high. As a result, in Q1, we're seeing an acceleration of new logos coming to JFrog. We'll continue to stay focused on increasing net new customer wins for this fiscal year. Additionally, we continue to see new customers land at high subscription levels indicating demand for prospects and customers across DevOps maturity levels. For example, one of the largest integrators and consultancy firms in the world recently came to JFrog as a new customer. They adopted the multi-product end-to-end platform at our highest subscription level in order to standardize on a complete DevOps solution. The same applies for a universal solution that will also include software package distribution. So, once we build and secure binaries, they will be deployed safely on the edge closer to the developer. We are excited to see that more and more customers are approaching us requiring a full solution that includes security and distribution for multi-site and hybrid setups. These customers expand the DevOps environment beyond just the software build and CI/CD processes. Specifically, for our cloud business in Q1, I'm pleased to report robust year-over-year growth indicating ongoing digital transformation and migration initiatives across the industry. Cloud sales growth was also driven in Q1 through our partnership with the major cloud providers AWS, Microsoft, and Google with new offerings in cloud marketplaces and increased options for co-enterprise sales, driving deal volume and size. We also announced JFrog solutions availability on AWS GovCloud and Microsoft government cloud infrastructure to set the stage for future growth in governmental and highly regulated sectors. As another sales highlight, we noted in the past our emphasis on APAC and the China market, specifically as the target area for growth and expansion. This past quarter, we added the largest stock exchange in Mainland China as a customer and also welcomed a large state-owned financial and insurance company. We also recently announced expanding our footprint in China in sales, marketing, and support staff dedicated to that market. We look forward to these investments continuing to bear fruit. Turning quickly to the sales funnel, we continue to see growth in demand for our platform, with thousands of users joining our free tier and trial offering, both in the cloud and self-managed. We also see a growing number of new customers' conversions; we continue to invest in the customer experience and onboarding process to improve the adoption of our solutions and conversion rate. It's important to understand the drivers behind this global growth. In addition to Artifactory, which served as the control point of our customers' DevOps environments, we also see two key themes driving enterprise DevOps across the world: the security of software packages and software package distribution. First, on security, keeping the entire software lifecycle secure is the mantra for JFrog. With the JFrog platform, customers can uniquely identify vulnerable software components, discover the scope of their business impact, and completely automate the CI/CD flow to prevent glitches while fixing issues discovered across their business. Some of our customers tell us a solid supply chain attack could take them months or even years to identify where vulnerabilities may lie. While using JFrog, this process can take only a few seconds. We're proud of our security teams across product, R&D, and more that have made this a reality. In fact, one of the Fortune 100 financial organizations recently standardized on JFrog Xray and security solutions to fortify against supply chain attacks. Second, on distribution specifically, we believe that getting packages to the last mile in production is the next wave of DevOps and solves a major pain point for all of our distributed customers. As part of our global customer event in February, we validated that software distribution is the number one driver for migration to our highest subscription level. Our customers tell us we are uniquely delivering software packages to the edge at scale, enabling the secure and fast movement of software packages to the edge. For example, one of the largest fast food chains in America with over 2,000 restaurants is utilizing JFrog to deliver software packages directly to each restaurant to build a liquid restaurant to manage supplies and food preparation with vision technology. A full sync is made between the order being made, the inventory in each of the restaurants, and final food delivery, managed by software, requiring updates powered by JFrog. As another example, one of Germany's most respected automotive companies is utilizing JFrog technologies to deliver software for the next generation of what they call liquid vehicles that will operate on over-the-air continuous software updates with zero downtime. The auto manufacturer’s team presented how software is built and aggregated in Artifactory, then secured and distributed only with the incremental software update. None of this is possible without the fast, secure, reliable distribution of software packages, or in our customer's words, without JFrog. The world is powered by software, and the flow is becoming more liquid. In Q1, we saw JFrog displacing competitors based on these factors as companies identified binaries as the pipeline's primary assets and moved to our universal hybrid DevSecOps solution. For example, one of Canada's largest banks moved away from a competitor that focuses only on a subset of technologies and security scanning to our complete platform. They took advantage of our high number of technology types supported and our distribution solution alongside our security focus. Now, I would like to turn to specific product enhancements and investments that are supporting our vision and end-in-mind approach. At JFrog, our customers' digital transformation is at the core of how we operate and how we develop our products. In Q1, we released our most significant set of new product capabilities and innovations in the past two years, changes that are unique in the market. These were built with a single goal in mind: getting software from developers' fingertips to the edge without any blocker in technology, processes, or security. Enhancements included enterprise scalability, binary management security, software distribution, and developer ecosystem integration. As a highlight regarding enterprise scalability capabilities, we released JFrog projects allowing administrators and team leads to efficiently manage their organization by business units and operate the nuts and bolts of DevOps, everything from permissions to storage quotas and more. This feature alone can save thousands of developer hours and other resources for organizations. For distribution, we enhance our peer-to-peer sharing feature and integrate the technology for developers, allowing them to plan for software distribution from the beginning. With these technologies, we will be able to monetize distribution capabilities not just through adding more edge node licenses but also scaling with our customers' data transfer, both in the cloud and on-prem. From a binary management perspective, we deliver new capabilities for the Rust programming language and cargo repository to support the hundreds of thousands of C++ developers. Rust was also rated the Most Loved Programming Language in the recent Stack Overflow Survey, and we are proud to welcome this growing community into JFrog and look forward to building the future with them. We further enhanced the platform to include more security and ID management features, such as the scheme standard for ID management and integration with HashiCorp Vault for secrets management. We also added support for private networking with our partners AWS and expanded support for C++ packages in JFrog Xray, expanding continuous security into IoT, automotive, and other verticals. This will allow companies the flexibility to integrate and standardize their security processes and external management tools, saving valuable time and effort. JFrog further enhances our ability to provide data and metrics to our platform customers about the health and quality of the DevOps pipeline via improvements to JFrog Insights. Users can now monitor the pipeline, as well as manage and allocate resources more efficiently. We also know that developers are the rainmakers of the software industry. So, for these developers—our users—we not only added new technology types but enhanced our command line tools, which is the main way developers interact with JFrog Technologies. Developers also need access to monitoring and management tools across those delivery pipelines. So, we expanded our partner integrations including Atlassian JIRA, PagerDuty, Datadog, and more to improve collaboration and traceability across the delivery process. We are excited about how these key updates bring an enhanced solution to the market that is driving both customer and community happiness. Finally, a quick note on our subscriptions. Subscriptions to the JFrog platform have undergone a change effective April 1st to match the high value JFrog is providing. Specifically, we included Xray as a mandatory security product in our Enterprise solution, ensuring customers’ repositories are always secure. In addition, we updated prices on Pro and Pro X subscription to align with the value provided to our customers. There were no changes to Enterprise+ subscriptions for on-prem and sub. These changes will already be built into our annual guidance. One last item before we dive into financials: we're greatly looking forward to our annual user conference and DevOps community event swampUP in Q2. This is the traditional venue where we unveil the JFrog roadmap and showcase broad industry use cases and stories from some of the world's top companies. swampUP is in late May and early June across different time zones. I look forward to welcoming you and your community of technologies to a three-day event of DevOps training, community sessions, tutorials, and ecosystem partners showcases. With that, I'd like to turn the call over to Jacob Shulman, JFrog CFO, to look more deeply at the Q1 financials.

Thank you, Shlomi, and good afternoon, everyone. I will provide a brief overview of our first quarter financial results and provide our outlook for Q2 and the full year of 2021. As a reminder, please note that all numbers referenced in my remarks are on a non-GAAP basis unless otherwise stated. A reconciliation to comparable GAAP measures can be found in today's earnings release, which is available on our website and as an exhibit to the Form 8-K furnished to the SEC. So, let's turn to our financial results. It was a good start to the year with the remote work trend again driving faster growth in our sales revenue. Total revenues for the three months ended March 31st, 2021, were $45.1 million, up 37% year-over-year. Self-managed revenues also often called on-prem were $34.8 million, up 32%. Cloud revenues again grew significantly faster, up 62% to $10.3 million or 23% of total revenues compared to 19% of total revenues in Q1 of last year. Net dollar retention for the trailing four quarters was 130%. As of quarter end, we had 395 customers with ARR of over $100,000, up from 352 customers as of December 31st, 2020. Of this growth, 10 customers had ARR greater than $1 million. We continue to see healthy growth in new customer additions with the majority landing at the Pro or Pro X subscription levels. We again saw solid growth in customers moving up the subscription pack to gain full access to the JFrog platform with the Enterprise+ plan. In Q1, 29% of total revenue came from Enterprise+ customers, up from 16% in Q1 of 2020. While we do not report bookings, I did want to point out that we saw a very strong booking in Q1. In line with a pricing change, we offered customers the opportunity to renew at the current rate if they moved to a higher subscription tier and a number of customers renewed with multi-year agreements. Now, let's review the income statement in more detail. Gross profit in the quarter was $37.6 million, representing a gross margin of 83.4% compared to 81.6% in the year-ago period. Over the recent quarters, we have made significant investments to improve the efficiency of operations, particularly in the cloud business, which positively impacted gross margins. R&D expense for the quarter was $11.7 million or 26% of revenue compared to 25% of revenue in the year-ago period. We have continued to invest significantly in enhancing our product offerings, including the introduction of peer-to-peer capabilities for distribution and the JFrog project feature that Shlomi discussed. We believe both represent enhanced monetization opportunities in the longer term as they mature. Sales and marketing expenses for the quarter were $16.9 million or 37% of revenue compared to 40% of revenue in the year-ago period. As expected, the spending on the free community offering stabilized during the quarter as we benefited from the infrastructure improvements made in prior quarters. G&A expense for the quarter was $7.2 million or 16% of revenue compared to 15% of revenue in the year-ago period. Non-GAAP operating income for Q1 was $1.9 million or 4.1% operating margin compared to $2.7 million or 2.2% operating margin in the year-ago period. We continue to balance investments in growing the business and leveraging the opportunity in front of JFrog with profitability. We continue to target the low to mid-single-digit operating margin in the near future. Non-GAAP net income in the quarter was $1.8 million or $0.02 per diluted share based on approximately 103.2 million weighted average diluted shares outstanding. Turning to the balance sheet and cash flow, we ended the quarter with $606 million in cash and short-term investments. Cash flow from operations was $8.8 million in the quarter. After taking into consideration CapEx, free cash flow was $7.7 million. During the quarter, we implemented new lease accounting, recognizing rights to use lease assets and related liabilities on the balance sheet. The implementation of this guidance did not have a material impact on our statements of operations or cash flow. As for guidance, for Q2, we expect revenue of $47.6 million to $48.6 million. With non-GAAP operating income of $0.5 million to $1.5 million and non-GAAP EPS of zero to $0.01 assuming a share count of approximately 104 million shares. At the midpoint of the guidance, we expect growth of approximately 32%. For the full year, we're increasing the low end of guidance and narrowing our outlook. We now expect revenue of $198 million to $204 million with non-GAAP operating income between $5 million and $7 million and approximately a 3% increase in fully diluted shares. At the midpoint, revenue growth is approximately 33%. Now, let me turn the call back to Shlomi for some closing remarks before we take your questions.

Thank you, Jacob. 2021 has gotten off to a great start for JFrog. JFrog's hybrid universal end-to-end DevOps platform continues to innovate in the DevOps industry lead position, setting the goalpost for other companies to match. I look forward to sharing some of the exciting developments Q2 will bring in our next quarterly call, as well as welcoming you to our swampUP Conference in the meantime. And now we will be taking some questions.

Thank you. We will now begin the question-and-answer session. Our first question is from Sterling Auty from JPMorgan. Your line is open.

Yes, thanks. Hi guys. Can you focus a little bit more on the new logo additions in the quarter? Can you give us a sense maybe of magnitude? So, I think starting pre-pandemic, you're adding a couple hundred, it's slowed down, I think you're adding less than 100 for maybe the last quarter or so, has a bounce back and kind of where just generally are you in terms of that new logo additions?

Hi, great first question and thank you for it. As we stated in the script, JFrog is focusing on going to the top of the funnel. If you remember back in Q3 of the previous year, we launched the free tier to enable access to all of our prospects and end users in the world to the full platform. We now start to see the results of the optimization and this offering being available for our users. So, we see growth in new prospects, new users, and obviously, it's being translated to new logos in this Q1. In addition to that, we were always very pleased to see the amount of price and demand that we get on the free trial of a self-hosted solution is not materially declining. Therefore, we see the hybrid model, which is very much aligned with our methodologies and our offering, being translated to more net new logos in the year. We see this trend starting in Q4 and we saw it again in Q1.

Okay, great. And then one follow-up. I think a number of investors had identified the price increases that you mentioned, but I think they're wondering—you'd mentioned that they're contemplating in your guidance, but there seem to be significant price increases, why did it not have a more material impact either on this quarter's revenue or the full year outlook?

Well, Q1 revenues were not impacted by the price increases, mainly due to the factor that the supply was stable. The price increases will focus on the on-prem subscriptions only and mainly on the Enterprise subscription. Basically, it applies to 40% of our revenue. So, the material revenue impact is not that significant when you consider that perspective. The second thing is that the price increases we have performed are very much aligned with the values that we created and injected into our subscription and also remove any kind of friction between the different subscriptions as you move on from one subscription to another on the JFrog platform. It was not related to the cloud revenue. In fact, it is not impacting the default users; the majority of our lending customers are still using the Pro version. So, we expect it to have an impact on around 40% of our total revenue.

Our next question is from Jack Andrews from Needham. Your line is open.

Good afternoon. Thanks for taking my questions. Shlomi, I was wondering if you could just talk about Xray for a moment. You referenced a very strong compelling example with how it might be impacted with the SolarWinds attack. Are your customers in the broader market really aware of Xray's capabilities? Or do you need to spend time evangelizing the value proposition around this?

That’s a great question regarding technology. Xray comes with a very unique vision. Xray, as everything else in JFrog, is focused on securing your software packages. Basically, this is the asset that you manage from the moment you build software to the moment you deploy it. And this is why we created Xray. This is why Xray is now natively sitting on Artifactory and securing your repository. What we start to see more and more is that the demand is just growing; our customers are looking for security solutions that can be natively embedded into their CI/CD pipeline, and Xray fits perfectly into it. First of all, it's allowing you to secure Artifactory, looking into the major data, the dependencies, software that you bring from outside the organization, and some software that you create inside the organization, and provide you with the full protection not only by scanning your repository but also with the ability to break the CI/CD flow if any vulnerable solution is being pushed. The second thing that we see is that, while many other vendors in the markets are focusing on what we call the left side of the software lifecycle, Xray is starting to cover more and more phases. As you create software and distribute software, it is in our vision to provide everyone with a security solution that escalates the full binary flow, the full pipeline, all the way from the moment it’s being built to the deployment environment, and Xray fits perfectly into this paradigm. We see more and more demand as we reported, and more enterprises in our portfolio are switching to subscriptions that include Xray, and also the changes that we've made to the subscription model include Xray as part of the Enterprise package and above.

That's actually the detail around that. This is a follow-on question. Can you update us? You gave an example of what sounds like a nice displacement win; could you just update us on how much of your market you consider Greenfield in nature versus these displacement opportunities that you may be going after these days?

Yeah, well, it's very obvious now to see it: it used to be JFrog saying that binaries are super important. What you hear everywhere in the market, and it just takes a fast look over the other vendors' roadmap, the organizations around us are focusing on software packages because the full automation of DevOps and management of binaries has become the most important part of the continuous delivery flow. When you look at JFrog, and the primary flagship product Artifactory is the database of all those software packages, it makes a lot of sense to add security on top of the automation, CI/CD distribution, and also to think about shifting even right to IoT and DevOps, IoT. Our main focus on binaries from day one since the moment we created the company. And this is how we also build and improve our product portfolio. It's also very much aligned with what we see in the market and it's also very much aligned with other vendors that we are displacing with our solution on the customer side.

Your next question is from Brad Reback from Stifel. Your line is open.

Great, thanks very much. Jacob, could you take a minute and just review the commentary you had around the billings impact from the price increase?

Sure. Absolutely. So, we had a record quarter in terms of bookings. A certain portion of these bookings were related to customers who wanted to renew their businesses by upgrading to higher-level subscriptions and prices prior to the change. Some of them also entered into multi-year agreements. That's why we saw approximately 40% of these bookings related to early renewals by the customers.

And just as a follow-up to that, as we think about billings for the next couple of quarters going forward, I'm assuming we should expect this to be somewhat of a headwind to growth rate, maybe quarters two and three, maybe even four?

Again, we don't believe that billing and bookings represent our revenue growth opportunities. There will definitely be headwinds for future quarters for bookings, but it does not necessarily mean that it will impact revenue.

Our next question is from Jason Ader from William Blair. Your line is open.

Yeah. Thank you. Good afternoon, guys. First question for you is for Shlomi, is there any lingering impact that you're seeing in the business from COVID and people not being in the office, not being able to get in front of certain folks? And then are you assuming in your guidance any benefits, especially in the second half from reopening?

Unfortunately, what we see now in the world kind of reminds us that the pandemic is still here. I started the script by sending our best wishes to the team in India, but India is just one country that is still struggling with the pandemic. Regarding our guidance, there is no change; we still see Q1 and Q2 behaving under the reality post-pandemic. We believe that Q3 and Q4 will act differently. We already have the majority of our team in Israel back to business. We hope that we will see more and more of our customers. Remember, JFrog is also a company that starts from the bottom up. So, the moment developers are back to their seats and to conferences, the community will start to bubble again, I believe that we will start to see more and more demand, and something that will become more important will take different priorities in the organization. But to your question, there is no change in the guidance. We still believe that the second half of the year will be better, and we are aligning our roadmap and business plan accordingly.

Okay. Thank you. And then a follow-up for Jacob, Jacob, net retention rate hit 130% as you reported, where do you see that going over the next, I don’t know, four to six quarters?

Yeah. First of all, Jason, we will see that the net retention rate stabilize around these levels. Obviously, we've seen over the past quarter a reduction in net dollar retention. Now we see stabilization around these levels. Our annual guidance, midpoint suggests 33% year-over-year growth and that implies net dollar retention of 130%. So we continue to target 130% in the long term.

Right. And then do you have any longer-term trajectory that you want to guide us towards?

Obviously, we see a lot of opportunities in front of us with new product adoptions and new features that we launch to enhance them and create opportunities in the future. So we do believe that net dollar retention will remain and may even grow from this level.

Our next question is from Ittai Kidron from Oppenheimer. Your line is open.

Thanks. Hey, guys, I wanted to dig into the guidance itself. I was somewhat disappointed you didn't raise the guidance for the year, especially on the first quarter of the year. So, Shlomi, I want to kind of ask perhaps what from your perspective did not go right into quarter, were there parts of the business that you weren't happy performance-wise? And with respect to your hiring, you'd say clearly you have a massive opportunity ahead of you? Do you feel like you're investing enough? Most companies your size, with your growth are not profitable for a reason? You seem to think that you can still deliver a profit and deliver on the growth, why not invest more and drive more? Do you not see an opportunity to invest more dollars and drive more growth?

Yes, Ittai. Those are two excellent questions. The first relates to the growth we expected, and I'm happy to say that our predictions aligned well with the actual numbers. We were proactive in managing our portfolio and adapting to technological changes and market dynamics, all while navigating the ongoing challenges posed by COVID-19. We are pleased to have met our market commitments. Looking ahead to 2021, we have a clear view of our goals and believe that JFrog's objectives and operational efficiency can coexist without conflict. Regarding additional investment opportunities, we have never followed a strategy of spending money solely to reap greater rewards. Our approach is consistent with our established plans; we allocate significant resources across various areas, particularly in marketing. We've invested heavily in our developer advocate team, which has been actively engaging with the community and organizing unique conferences, despite the remote nature of our work. We commit millions to sales and marketing, ensuring that every expenditure aligns with our strategic goals rather than being just for the sake of spending. On the research and development front, we've significantly expanded our team over the past year, adding hundreds of new members to JFrog. The rapid growth of this team is impressive, and it's reflected in our output; we have introduced an unprecedented level of innovation across six different products in just one quarter, all of which have provided substantial advancements for our clients. I have never witnessed JFrog spending money without a clear purpose, nor have I seen us refrain from investing due to a rigid budget. We are committed to building and growing the company as planned, ensuring that we maintain a sustainable business. We will pursue profitability when necessary and increase investments when warranted.

Jacob, maybe as a follow-up. Can you talk about the productivity of your sales organization right now? How is it tracking relative to your expectations? And maybe how even is it across your base, clearly, there are some that are performing and underperforming? But is it generally, are they close together? Or do you have very big corners there?

Yes. Well, the sales and marketing organization is growing significantly. As you remember from the previous calls, we are also developing a strategic team that goes after the top customers and expands our footprint there. Our marketing team is growing fast. And when I say growing, it's not just in one location or two, it's actually globally. We now invest a lot in APAC; we see the growing demand in Asia-Pacific for DevOps, and we increase the team in Japan, China, and India to support that. What we also invest in is more partnerships and more integration, thinking about channels in different shapes and forms, not only on the self-hosted solution but also in the cloud. So you should, when you look at the JFrog sales and marketing expansion, it is globally; it is hybrid; it is bottom-up, and it ought to be also top-down with a strategic team. I think, again, we are very much aligned with our plan and our investment plan.

Our next question is from Rob Owens from Piper Sandler. Your line is open.

Hi, guys. This is Ben Schmitt on for Rob. Thanks for taking my question. You mentioned that in Q1 you started to focus more on new logos and wonder if you can remind us just the kind of expected trajectory for adoption for these new logos and when we would expect them to start materially impacting revenue growth.

Yes. I would take the question. So, as we noted in our prepared remarks, we see acceleration in adding new customers to the JFrog team portfolio. Actually, we've seen several quarters in a row growing the number of new customers coming to JFrog. Just to remind you that a significant portion of our revenues are coming from the expansion of existing customers. That's why we believe that most of the future growth will come from the expansion of existing customers, but obviously, it's very important for us to grow the overall customer count to allow the land-and-expand notion to continue for many years going forward.

And just to add to it, we are very focused on adding new logos and increasing the number of net new logos. But we also have to remember that the revenue is not very much aligned with a number of new logos; we are building the future by adding more and more new customers.

Got it. Thanks. And you mentioned that distribution is one of the biggest factors that brings Enterprise up to Enterprise+. Can you help us better understand the impetus behind that? What happened to those organizations? Is it a DevOps organization on their side that needs to get organized and unified enough to need that distribution? Or what is the impetus that brings them to that point where they're ready for that?

Yes, well, that’s also a great follow-up on your previous question. If you look at the numbers, the Enterprise+ revenues now represent 29% of our total revenue compared to 16% last year. So, obviously, we see this growth; we see the expansion; we see customers identifying the innovation and the benefits of using the full platform. Part of these triggers are the software distribution. Now, you may ask yourself, what is different? Software delivery was there before JFrog, 10 years ago, 20 years ago, 30 years ago. The main difference now is that organizations want to be fast. They want to be secure. And they want to be efficient with their budget. They want to save costs. So fast, obviously, as you get closer to your developer, and you take whatever is ready and bake it in Artifactory and push it to the edge, then you're faster. If it's automated, even more secure, if you lock the pipeline, if you scan it by Xray, and you blaze whatever release bundle you have, that happens automatically from Artifactory, scanned by Xray and pushed to the edge, then you're more secure. You have more confidence; you can even move faster because you don't have all kinds of security gates in front of you. And the third thing you want to be efficient with your budget. You will see; just a few years ago, if you wanted to have a software update, you would push everything and would have a new version on the edge with Artifactory, Xray, JFrog pipeline, and JFrog distribution that enables that you can push only the incremental piece of software that you want to update. Therefore, your whole pipeline from building to distribution becomes super-efficient, saving a lot of resources for your company. Why is this changing? Because it is created by our customers. It is built by the community. You would be building something on your network, maybe on top of a CDN. Now you understand that you can have something faster, more secure, fully automated, while also saving money not just on technology but also on headcount. So, the future looks as we predicted, and we are very happy to see that we are starting to harvest the fruits of our labor, as I started the answer with a percentage from the total revenue.

Hi. This is Peggy on behalf of Sanjit. I wanted to touch on the Enterprise+ subscription a little bit. I saw another quarter of uptick, how much of that is coming from the pull-forward bookings because of Enterprise pricing increase and how do you expect the price increase to affect it in the longer run?

Yes. So Enterprise+ pricing did not change. What changed is the pricing for the Enterprise package and some of the products packages. So, as we added a lot of value to the portfolio, including the Enterprise+ subscription, we actually added tens of customers to our Enterprise+ subscription. Part of these customers obviously utilized the previous price changes, but we see adoption of our Enterprise+ subscription across different customers. And as I said, this quarter was probably the largest number of customers who transitioned to the Enterprise+ subscription.

Got it. Got it. That's super helpful. I wanted to touch on the competitive environment a little bit. A lot of DevOps players have talked about expanding into other parts of the DevOps pipeline. Have you seen any incremental competitive pressure on that front?

Yeah, well, Peggy, the landscape of DevOps is being expanded every day. Every day, we see more and more innovation stepping into the market and more vendors that are claiming part of the DevOps lifecycle. If you really ask yourself what DevOps is, it's all about how can we build and push software in the most secure and fast way. So in the landscape of building software, there is no difference among the source code guys, the git companies, the different git providers. On the security side, we see an evolving market. There is more demand for security that is automated into the field and release flow. And we see more innovation alongside the developers and fewer solutions on the right side that are securing and pushing software. In the world of automation, CI/CD, I believe that this realm is quite mature at the CI level and very premature at the CD, or the continuous deployment level. Therefore, there is still a lot of room to grow. We are pleased to observe that the market appreciates the roadmap items, they value the JFrog way, focusing on software packages, focusing on a universal solution. Universality starts to matter; they start to appreciate the freedom of choice that developers demand and more vendors, from the biggest companies in the world to the smallest, are talking with developers and not just with the CIO or the systems of the organization.

Hi. Thank you. Congrats on the quarter. It's good to see the expansion in partnership with Atlassian, a great customer of yours for some time. They also have some product overlap; they have Bitbucket in that left side of the ecosystem. They also have Bamboo and mortar pipelines. So if you look at the whole SDLC, how do you think about the relationship between those two product suites?

Atlassian is an amazing company. We are working together from day one. We love seeing them serving developers and how the complementary solution the Atlassian and JFrog bring together to the market. They have Bitbucket as a git repository for source code. They have Bitbucket pipelines that replace, I think, Bamboo, the CI server. They manage the administration and planning. When you use Artifactory as your binary repository aligned with your Git repository and utilize Xray that sits on top of it, obviously, it plays well together. This is why we also reported in our call today a new integration or an enhanced integration with the platform. We will keep on investing in this partnership. We actually love working with them.

It's really helpful. So just one more with Atlassian also being a hybrid cloud company, it's been moving towards cloud, and we've seen similar pricing dynamics play out with raising products in specific parts of the product suite. So I guess how should we think about the strategy behind the recent price raises, as applied to just Pro and Pro X for on-prem?

Well, as you know, JFrog's philosophy is that in the near future, the world will demand more and more hybrid solutions. If you look even 10 years from now, the world would demand hybrid solutions. When we speak with our top customers, the leaders of the Fortune 100 groups, they speak about hybrid and multi-cloud. None of them want to be just on-prem or just cloud. And none of them want to become a one cloud shop. What we are planning to do is to extend our multi-cloud and have more cloud vendors available for our users. We are also going to double down on hybrid solutions. So our users will have the freedom to choose whether they use on-prem or cloud or both. But with our eyes open, we also understand that the big enterprises of tomorrow are starting in the Cloud and probably will go to the Cloud. Therefore, you can see in our roadmap and in our deployment environment, in our services, and in our sales and marketing investments, we are very much focused on growing the cloud alongside our self-hosted solution. Guys, I would like to thank you all for joining us today. May we have a better day and good news post-pandemic by the next earnings call. And by then may the frog be with you all. Thank you very much.

Thank you, ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.