Good afternoon, and thank you for joining us as we review JFrog's first quarter 2023 financial results, which were announced following market close today via press release. Leading the call today will be JFrog's CEO and Co-Founder, Shlomi Haim; and Jacob Shulman, JFrog's CFO. During this call, we may make statements related to our business that are forward-looking under federal security 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 Q2 and the full year of 2023. 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 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 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 March 31, 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 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's CEO, Shlomi Haim. Shlomi?

Thank you, Jeff. Good afternoon to you all, and thank you for joining the call. I'm pleased to report that JFrog's first quarter 2023 revenue exceeded our prior guidance range, driven by increased cloud usage by our customers and continued adoption of the mission-critical JFrog Platform even in a challenging economic environment. Our 2023 first quarter revenue was $79.8 million, reflecting 25% year-over-year growth. Our cloud usage accelerated in the quarter, delivering revenue of $25 million, increasing 49% year-over-year. Customers with ARR over $100,000 grew to 785 customers compared to 599 customers in the year-ago period, increasing 31% year-over-year. Customers with ARR over $1 million increased to 21 customers versus 16 customers in the first quarter of 2022, up 31% compared to the year-ago period. Our first quarter results demonstrate strong execution in a tough macroeconomic environment, highlighting the resiliency of our DevOps, cloud, and security initiatives powered by the JFrog Platform. I want to address what specifically made Q1 a strong quarter for JFrog. First, while we continue to operate in a challenging environment, our customers have pushed forward, expanding their infrastructure with JFrog as a mission-critical piece of the software supply chain management process. While some companies may be delaying or rescoping projects, we are seeing they ultimately need to move forward with high-value initiatives based on solutions like JFrog. As a result, in Q1, we did see some deals that had been pushed out from Q4 of 2022 reach the closing stage this quarter. As an example, our strategic sales team was proud to migrate our customer, Wix, to JFrog Cloud services based on their strategic DevOps workload migration initiatives. Wix is a world leader in the cloud-based web development platform domain, providing powerful services and a vast collection of templates to millions of customers worldwide, simplifying website building for individuals and companies. In order to update their application with speed, security, and reliability, Wix realized their on-premise infrastructure would not allow for the agility and scalability they required, leading them to embrace cloud services for their DevOps pipeline. In partnership with the JFrog strategic customer team, Wix defined the software supply chain end-to-end from production at scale, saying, "Every month, we are transferring massive amounts of data between our development team, production environment, and our customers. JFrog cloud services is a high-scale, resilient mission-critical component of our production system, managing container images and software packages of different technologies in multiple regions with full redundancy and fault tolerance for our customer-facing applications." That is Adam Spektor, the VP of Engineering of Wix. He also noted, "Migrating our DevOps workload to JFrog's multi-region, highly available software supply chain platform with Artifactory at its center allows our team to better support Wix's growth by providing reliable and innovative services." JFrog stands out in the DevOps and DevSecOps market by offering a hybrid and multi-cloud solution, which allows our customers to fully manage and secure their binaries across their software supply chain while migrating to the cloud at their own pace. We anticipate partnering with more companies like Wix to power strategic development initiatives at the world's most demanding enterprises. Second, I'm pleased to say Q1 showed early indicators of growth in our partners' ecosystem and ongoing efforts to expand our co-sell and channel partner motion. For example, a large partner in Japan built a key win for JFrog, one of the most recognizable insurance brands in Asia via our reseller channel. In another example, a top federal partner was able to secure a net new project, leading to an Enterprise Plus full platform subscription deal in support of a United States federal agency. We continue to believe the global partner motion, in addition to our robust strategic sales and direct sales motion, will expand in 2023. Third, in Q1, despite customers taking steps to be more efficient in their cloud consumption, we saw acceleration of cloud usage in both pay-as-you-go and annual SaaS customers. As businesses continue to streamline, they rightfully look for ways to be more efficient. With that in mind, JFrog continues to solidify its position within the company, enabling efficiency, accelerating speed of development, and delivering secure software releases that provide a competitive advantage. We're confident JFrog will continue to grow its cloud business in 2023, mainly due to increased usage and ongoing migration from self-managed subscriptions towards hybrid or multi-cloud environments. Now allow me to expand on some broader themes that we anticipate will continue to fuel JFrog in 2023 and beyond. Let me begin with cloud and hybrid. Our customers tell us, and we observe it in the community, that cloud migration and strategic hybrid topology adoption remain a top priority for most enterprises. We believe JFrog is uniquely positioned to support enterprises as they migrate at their own pace, handling both on-prem and cloud simultaneously. Many of these initiatives are multi-quarter or multi-year efforts, and we're proud to help new and existing customers drive success in these areas. This was a common theme our top customers highlighted at our LEAP Event, an intimate gathering of some of JFrog's influential customers that included representatives from many of the world's most recognizable enterprises. As part of customers' cloud migration journeys, they were excited to hear that our advanced security solutions would be available in a hybrid model to support both emerging and historic workloads. Our holistic security capabilities differentiate us from other vendors, and we're proud to be strategic partners as our customers migrate and manage DevOps and DevSecOps throughout their journey. To illustrate this from a business perspective, we recently welcomed a leading payment and financial services provider to the JFrog Software Supply Chain Platform. This company had previously relied on Sonatype Nexus to manage their DevOps processes on-prem, but was looking for a more scalable, multi-region capable, and hybrid solution. We're excited to support them in their journey as they advance their cloud-first and customer app-driven services for over 30 million customers. Next, I would like to highlight DevOps and security tooling consolidation. As more tasks and responsibilities are shifted left to developers and DevSecOps teams, there is increasing difficulty in managing multiple point solutions for each task. This is especially evident in security tooling, where point solutions can force developers to use multiple tools and try to make sense of data, actions, and reporting, leading to long incomplete remediation cycles, which can ultimately leave companies vulnerable. We believe we have a great opportunity to displace and consolidate the functionality of multiple toolsets and even entire security companies. Many customers view the DevSecOps tooling portfolio and see Nexus Firewall, Synopsys Black Duck, Snyk, Checkmarx, just to name a few, as point solutions for many capabilities. By addressing multiple areas of security in one platform, we believe JFrog's holistic DevSecOps tooling is well positioned to address customers' needs across the software supply chain. As additional value, we combined the power of the JFrog Platform with Artifactory as a single source of record for DevOps. Our customers can control and secure their entire pipeline from developers to devices. Therefore, the JFrog security approach is to provide a comprehensive platform-driven solution, which we are confident will bear fruit as the software supply chain security market matures. We see early indicators of this in Q1, for example, with our JFrog Platform customer, InterVenn Biosciences, a life science company specializing in glycoproteomics, that aims to make the new era of personalized, predictive, and preventative care a reality. After initially choosing JFrog Artifactory for end-to-end binary lifecycle management, companies like InterVenn are positioned to standardize many security capabilities with the JFrog Platform, while point solutions in the market increasingly become redundant to JFrog's security capabilities. In addition to the commercial adoption of our security tools, we were excited to be recognized by the Global InfoSec Awards as the most comprehensive DevSecOps solution at the recent RSA Security Conference. We look forward to building on our commercial success and industry recognition as we continue to listen to our customers' needs across our security portfolio. Third, I would like to focus on the ever-increasing need for both speed and trust in the software release cycles. At our LEAP Conference, some of our leading customers were very clear. They have a need for speed but cannot sacrifice security and reliability across their global infrastructure. We were excited to welcome presentations by not just one of the top automotive companies in the world and one of the top IT firms in the world, but also one of the top global gaming development companies with hundreds of millions of players over the last decade. We were proud to see how the rapid release cycles were powered by the JFrog Platform, providing them with a global scale, highly available, fully federated architecture, keeping their developers productive and delivering software with trust. Next, I want to highlight an important executive staff update. JFrog made a strategic hire in March, proudly welcoming our new CIO, Aran Azarzar. Aran has over 20 years of experience in IT and cybersecurity, developing global systems and implementing leading security strategies. Under his leadership, we look forward to accelerating and scaling our corporate infrastructure, allowing us to serve customers even more efficiently while impacting the bottom line. Welcome, Aran. In closing, I'd like to reflect on JFrog's commitment to profitable long-term growth and cash flow generation while creating value for both our customers and shareholders as we focus on execution across the business. Driven by the strength in adoption of the JFrog Platform and our expectations for future contributions from the platform security core, we believe our operating model can achieve a 5-year revenue CAGR of 22% to 24% through fiscal year 2027, which would imply a potential revenue range of $775 million to $825 million, while delivering free cash flow in the range of $200 million to $240 million, implying estimated margins of 26% to 29%. With that, I'll turn the call over to our CFO, Jacob Shulman, who will provide an in-depth recap of Q1 financial results, update you on our guidance for Q2 and for fiscal year 2023, as well as provide more details on the assumptions within our long-term models. Jacob?

Thank you, Shlomi, and good afternoon, everyone. During the first quarter, total revenue was $79.8 million, up 25% year-over-year. Our stronger-than-expected revenue in the quarter was driven by ongoing customer adoption of the JFrog Platform and a higher-than-expected contribution from our cloud business. In the first quarter, our cloud business saw a sequential improvement in usage, delivering revenue of $25 million, up 49% year-over-year. While the improvement in usage helped drive high quarterly revenues, we don't believe the overall industry trends related to optimization are completely in the rearview mirror. We remain cautiously optimistic that the first wave of customer optimization is likely behind us and anticipate our customers will grow with JFrog in a more efficient manner going forward. We view the recent increase in usage by our customers as a positive signal that the need to generate software continues to be a secular trend and see the customer optimization efforts as short-term adjustments driven by macroeconomic challenges, another shift in how infrastructure software is utilized. We still anticipate our baseline growth rate within our cloud business will remain in the mid-40s during fiscal year 2023 with any potential upside generated by increased customer usage. Self-managed revenues on-prem were $54.8 million, up 17% year-over-year during the first quarter. Overall expansion within self-hosted has slowed relative to prior year results, given the shift by large customers towards hybrid deployments, which favor expansion into the cloud. We believe the announced release of JFrog Advanced Security for self-hosted, which occurred during the first quarter, can be a catalyst for revenue growth and customer expansion. Net dollar retention for the four trailing quarters was 124%, a decline of 4 points due to macro headwinds. Our gross retention continued to be 97% with no change in overall customer churn trends. In Q1, 44% of total revenue came from Enterprise Plus subscriptions, up from 35% in Q1 of 2022. Now let me discuss our income statement in more detail. Gross profit in the quarter was $66.2 million, representing a gross margin of roughly 83% compared to 84% in the year-ago period. A higher mix of our cloud business impacted gross margins on a year-over-year basis. Operating expenses for the first quarter were $63.5 million, up only $1 million sequentially, equaling 80% of revenues compared with $53.2 million or 84% of revenues in the year-ago period. Our year-over-year growth in operating expenses reflects ongoing investments in our go-to-market motion, security, and strategic sales team. Non-GAAP operating profit in Q1 was $2.7 million or a 3.4% operating margin compared to an operating profit of $543,000 or 0.9% operating margin in the prior year. We delivered another quarter of positive net income equaling $5.9 million or $0.06 per diluted share based on 107 million diluted shares outstanding versus a year-ago income of $158,000 or $0.00 per diluted share. Turning to the balance sheet and cash flow. We ended the March quarter with $447 million in cash and short-term investments, up from $443 million as of December 31, 2022. Cash flow from operations was negative $1.1 million in the quarter. After taking into consideration CapEx, free cash flow was negative $1.4 million or negative 2% free cash flow margin. Our operating cash flow and free cash flow margins were negatively impacted during the quarter due to the timing of billings and prepayments for license renewals. This does not change our expectations for low double-digit free cash flow margins in fiscal 2023. As of March 31, 2023, our remaining performance obligations totaled $210.6 million. Before providing our guidance, I would like to discuss in more detail the underlying assumptions in our long-term target model. Our estimated 5-year revenue CAGR of 22% to 24% through fiscal year 2027 assumes the current macroeconomic conditions will persist for several quarters and implies our cloud business will remain the primary driver of growth. We believe that on an annual basis, contribution to cloud growth will likely be driven primarily by customer expansion of subscription tiers and use cases, our new advanced security add-on, and, to a lesser extent, cloud migrations. Our assumption for our self-hosted business implies growth driven primarily by expansion of use cases and adoption of our end-to-end platform, including the security part. Given the higher expected mix of our SaaS revenues, we would anticipate our gross margin to trend lower towards the range of 80%. In line with our prior targets as a percentage of revenues, we anticipate spending on a non-GAAP R&D would be a range of 20% to 22%. Investment in sales and marketing on a non-GAAP basis should move from 38% in fiscal year 2022 to a range of 26% to 28% by 2027. Overall spending on non-GAAP G&A is expected to trend towards a range of 8% to 10% by 2027, down from the 14.6% reported in fiscal year 2022. Based on our forecast for revenue, gross margin, and non-GAAP operating expense, we would anticipate a range of non-GAAP operating income of 21% to 23% compared to the 0.5% margin reported in fiscal year 2022. Assuming an additional 5% to 6% for a delta between non-GAAP operating income and free cash flow implies a potential fiscal year 2027 free cash flow margin range of 26% to 29%. This suggests, on a dollar basis, free cash flow greater than $200 million by 2027. We believe this long-term target model reaffirms JFrog's commitment to profitable growth, something embedded in the company's DNA for years. We see the adoption of the JFrog Platform and the addition of its recent security core as critical infrastructure software solutions, allowing our customers to manage, secure, and distribute binaries across their software supply chain. Finally, I'd like to speak about our guidance for the second quarter and full year 2023. Our full year 2023 expectations continue to estimate strong growth in our cloud business. We reiterate our belief that our trailing 12-month net dollar retention ratio will be in the low-120s for fiscal year 2023. We forecast continued expansion in our operating and free cash flow margins through fiscal year 2023, given our continued focus on profitable growth. For Q2, we expect revenue to be between $82.5 million to $83.5 million with non-GAAP operating profit between $3 million to $4 million and non-GAAP earnings per diluted share of $0.04 to $0.05, assuming a share count of approximately 108 million shares. For the full year of 2023, we anticipate a revenue range between $341.5 million and $345.5 million. Non-GAAP operating income is expected to be between $19 million and $20 million and non-GAAP earnings per diluted share of $0.19 to $0.21, assuming a share count of approximately 110 million shares. Now let me turn the call back to Shlomi for some closing remarks before we take your questions.

Thank you, Jacob. We are excited to see that our customer base across multiple verticals, geographies, and implementation sides continue to see JFrog as mission-critical. As we leap ahead in 2023, I want to thank the JFrog team for delivering on a quarter that exceeded the goals we set. The team is passionately working to support our customers and drive success in a complex market across DevOps, security, and IoT. Thank you all for your attendance, and may the FROG be with you. And now we'll be happy to take your questions.

Your first question comes from the line of Sanjit Singh with Morgan Stanley.

Congrats to the team on a solid start to the year. I wanted to start a little bit with the demand trends that you saw throughout the quarter. You guys serve tech companies, but also large enterprise companies, as well as banks, and coming off some of the headlines around Silicon Valley Bank. What were some of the demand trends from a booking perspective in the back half of March and then the early reads on April and May?

Sanjit, thank you for the question. This is Shlomi. Regarding the demand that we've seen in the first quarter, it was actually as described, split into three things that we have seen. First, our strategic team going direct after some pipeline that was pushed out from 2022 and fulfilled it. Second, by partners that promoted the JFrog Platform, and our partner team worked closely with them both for new opportunities and existing customer expansion. And third, obviously, the cloud, which was the main change between the last quarter of the previous year and this first quarter of this year. Cloud consumption looks like it's coming back, especially because of the fact that JFrog provides an infrastructure cloud service. So optimization goes to a limit, as you understand, and we started to see the numbers climbing back.

If I may add to that, Sanjit, regarding cloud consumption, the quarter began very similarly to the trends we saw in Q4 and then picked up momentum as we moved further into the quarter.

Understood. Yes, that's very helpful context. And then I guess a question on the long-term model. I was a little surprised to see you introduce those 5-year targets. If I look at the revenue growth today, we're growing sort of the low to mid-20s. The 5-year view basically said that growth will sustain 22% to 24%. So can you talk about what gives you the confidence to, in this highly uncertain environment, have the confidence to go out there with a 5-year view on growth and on free cash flow margins? And if you could give us any sort of context? I think Jacob walked us through some of the assumptions, but is it going to be a function of additional products? Is it going to be a function of security becoming a larger part of the business? Are you going into other marketing segments to sort of unpack the growth equation for us?

Yes, we based the model basically on two vectors that we believe will see additional sustainable growth in the next 5 years. One of them is the cloud business, our cloud services. As you know, we projected and guided that this will grow at the mid-40s, and we see this trend still coming in. The portion of revenue that comes from the cloud versus the on-prem is still going as we project, so we think that it will have further contribution in the next 5 years. Second, we invested a lot in security. We released this quarter the self-hosted version of JFrog Advanced Security. In the last quarter of 2022, we released the cloud version of it. We believe that security will play a significant role and will bring a material revenue impact in the next 5 years.

Your next question comes from the line of Pinjalim Bora with JPMorgan.

This is Noah on for Pinjalim. First, what has been the impact, if any, from the Advanced Security SKU for self-managed? Kind of that launch in March? And just also I have a quick follow-up.

The self-hosted version of Advanced Security was launched in early March, and it did not have any significant impact on the quarterly results. We are pleased with the customer engagement and have our first customers in production, but it was not material for the quarter itself.

Got it. And then I guess what would be the rationale behind introducing a number of developers for the pricing lever for Advanced Security? And also, it seems like the price for the Enterprise X for cloud came down dramatically. What was driving that decision?

Yes. So Advanced Security is a new product for us. There are several goals we wanted to achieve by introducing this metric. First of all, it should be a seamless metric between SaaS and self-hosted. Second, it should be comparable to the competition in the market. As we said, we have a lot of expectations that this solution will replace and help to consolidate other point solutions in the market. So to help our customers compare the business value, also with the technical value, that also the decision was made. Lastly, we see a lot of opportunities as these products will continue to expand and our customers will continue to consolidate on this product going forward. I would add to it, the fact that, first of all, as Jacob mentioned, the market is used to the security solution around the DevSecOps model. This is one aspect. But we also have to remember that this security solution, JFrog Advanced Security, comes on top of the current subscription. So we had to come up with a model that also makes sense for our customers to pay more than the base subscription.

Your next question comes from the line of Brad Reback with Stifel.

Shlomi or Jacob, as you sort of think about the optimization commentary that you guys presented here, any sense of the accelerating usage coming from net new workloads as opposed to customers just finding fewer ways to save money?

Your question referred to the cloud business?

Yes, Shlomi, exactly.

Yes. So, what we charge for in the cloud, and this is very much aligned with the best practices in the market, is for storage of binaries and data transfer of binaries. So optimization goes on this for both new customers and existing customers. Our cloud business is split between annual commitment and monthly commitment. On the monthly commitment, we see more new business. This is, I think, what you referred to in your question. On the annual commitment, we saw that the optimization that we experienced in the last quarter of the previous year started to climb back to the numbers that we saw. We hope to see that these commitments are being renewed during the year. I may add to that, as we see our customers adopting a full platform. Our platform is not just used in developer environment but also used in production environments. So definitely, cloud usage is driven not just by standardization of customers or development, but new workloads that reflect operational activities as well.

That's great. Very helpful. And then just high level, I've gotten a few questions on this. Is there any disproportionate vertical exposure in the customer base? Or is it fairly broad-based?

It is fairly broad-based. We have a very diversified customer base. None of our customers represent more than 2% of our revenue. The largest verticals for us would be the financial and tech industry.

Your next question comes from the line of Mike Cikos with Needham.

If I could just build off the last question for a second. I know that you guys are citing financials in the tech industry as the largest two verticals. And I think it was a little surprising to get given the level of enterprise exposure that you guys have and, let's say, that financial services exposure, specifically that you guys didn't seem to be impacted by maybe some of this broader financial shocks to the system we're seeing with some of the regional banks. Can you help us think through maybe why your solution or why the growth with your customers seem to be a little bit more immune versus some of the chatter we've heard from other companies that are reporting this season? And then I have a follow-up as well.

Yes, Mike. I think that when you look at the market, whether it comes from one sector or the other, the infrastructure is a matter of will you or will you not build software. I don't know any bank or any other organizations that will stop building and releasing software, and this is our business. So we have a reason to believe that this is a bit more sustainable than applications or other services that are provided in the cloud. The second trend that we see is that both on-prem and cloud are going to coexist and stay in different industries. The fact that we provide both of them and sometimes both of them at the same time to the same organization gives our customers the flexibility to move between the cost that they have on the self-hosted infrastructure piece like JFrog versus the consumption base in the cloud and manage the migration based on their own picks. If I may add to that, we see our products provide tremendous value in organizations of larger scale that spread out in different regions, global organizations. Therefore, we do see ourselves more installed in top-tier financial institutions and, to a lesser extent, exposed to smaller regional banks.

Got it. That was going to be something that was going to drive it next year because I appreciate you calling out the lack of exposure to those regional banks. And then, I guess, if I could just have my follow-up here. I know that a lot of people are circling around the commentary you guys offered regarding the accelerating cloud usage through Q1. I think it would be helpful, at least from my perspective. I know that you said Q1 started with very similar trends to what you guys had seen in Q4. So, two points here. One, during Q1, when did the trend start to normalize or return to a more typical, I guess, growth algorithm versus where you guys have been in Q4 and the start of Q1? And then any commentary you'd be able to provide on how that trend played into April? I imagine that's one of the things you guys are factoring into your guidance here for Q2, but I think both of those data points would be helpful around the cloud consumption.

Yes. So we did see our cloud usage growing faster in the month of March. In April, we did see kind of similar trends. Obviously, our guidance assumes a certain level of conservatism. We said on the call that we don't think that the optimization is fully behind us. We do expect that our customers will continue to grow more efficiently. And so, there's still a lot of uncertainty in the market. Therefore, our guidance does assume some level of conservatism.

Your next question comes from the line of Kingsley Crane with Canaccord.

So one for Shlomi and one for Jacob. It seems like a significant portion of the immediate opportunity for Advanced Security is in on-premise. How incremental is the Advanced Security update compared to only having it for cloud in the past? And then how much of this is baked into the fiscal '23 guidance?

So the JFrog Advanced Security in the self-hosted version is actually answering our hybrid philosophy and strategy. The majority of our customers are still using a self-hosted version. Therefore, we think there is a lot of room for growth there. It's based on an identical model as the cloud, which is a bi-fit model. So we think that there's a lot of room to grow with the self-hosted JFrog Advanced Security. The second reason that we were excited to announce this quarter was that most of the point solutions that we aim to displace with the JFrog platform and with Advanced Security on top of it are self-hosted solutions. We know that the market is fragmented, and we are coming with a solution both for the cloud and self-hosted with a financial model that aligns with the target of this space.

Yes. And Mr. Crane, we said that we expect a material contribution from Advanced Security products in fiscal 2024. So we're ramping up. We're very happy with the customer engagement. We see a lot of opportunities, and we expect a material contribution from Advanced Security in 2024.

Your next question comes from the line of Koji Ikeda with Bank of America.

I wanted to go back to some of the commentary that you had from a prior question and also in the prepared remarks about optimizations and how you don't believe that optimizations are fully behind. You said that you feel the first wave is behind, but optimizations are not fully behind. It seems like you're alluding to there might be a second wave here, or maybe I'm reading into it too much. What are you hearing or seeing that makes you believe there may be another wave or another optimization wave could be coming? Is there a certain geography or vertical that you're thinking about?

We don't expect a second wave. What we're observing is that our customers are continuing to use the cloud more efficiently. We charge based on data transfer and storage, with storage being more immediate. Optimization yields quicker results while data transfer involves longer-term processes. Our customers are very focused on costs; their budgets remain tight, and they want to stay within these limits to avoid needing additional approvals. As a result, customers continue to use our products because it's an infrastructure investment. They are growing with us, but moving forward, they will do so more efficiently.

Koji, I would add to it. The different segments that we see, there are companies, big enterprises that are in the process of migrating to the cloud and might slow down because they still have their on-prem solution for infrastructure. They use JFrog, they are in the process of migrating and might slow down with how much workload they move to the cloud. And there are others that have already migrated or signed with us already with the cloud solution to start with. These guys will probably have to prioritize infrastructure versus other activities that they have in the cloud. In both scenarios, we are being very careful with what we projected. We don't want to say that the optimization is behind us, but the big wave of optimization that we saw in the last quarter of the previous year was more significant than what we saw this quarter. This is why we have reason to believe that the market is slowly coming back.

Your next question comes from the line of Ittai Kidron with Oppenheimer.

Since Koji asked about the fiscal '27 guide, I'll start with that as well. The margin targets you have for that year are slightly lower than what you had in your previous long-term model. Can you elaborate a little bit on that, the reasoning behind it?

Well, we do expect a high contribution from SaaS. We do expect, as a result of that, it's probably more impact on free cash flow because SaaS tends to be more shorter-term contracts today, at least. We don't have many multiyear contracts in the SaaS business, and as SaaS becomes a bigger portion, that will probably impact slightly the free cash flow. In terms of profitability, I think we provide the same targets.

Okay. And then on the upside in the cloud in the quarter, can you double-click on that a little bit? Is there any color you can provide on how broad that was? Were there one or two, three customers that really jumped up their usage? Any vertical or region where this was more pronounced? I'm just trying to find a common denominator there.

Yes, Ittai. So first, to the question whether it was one customer or across-the-board, we saw it everywhere, not by geography, not by sector, or not by one customer. It was a trend. I think that most of the companies were instructed at the end of the previous year to cut costs on hosting and they moved very fast. As Jacob mentioned before, the low-hanging fruit of storage and the cleanup of the repositories, and now they had to start the year and start to rebuild their infrastructure to enable the service. So we started to see it coming back. No specific sector, geography, or customers. Climbing back is normal for us, and it took time. We didn't start in January, it started at the end of the quarter, and this is where we saw it starting to climb back.

Okay. And then lastly for me on the Advanced Security. Nice to see that come on premise, I guess, on the hosted. I guess, Shlomi, I'm trying to get into the long-term potential of the attach rate of this. Do you think there will be differences in the attach rate of Advanced Security to SaaS customers versus non-SaaS customers? And can you talk about what the dollar uplift usually is for a SaaS customer adding this versus a non-SaaS customer adding this?

Yes. When looking at the portfolio, we have three different options. One is fully self-hosted. Second is hybrid, and third is fully cloud. We started with the cloud. Obviously, that was a faster time to market because the customer doesn't have to install anything. You just click and start. That was a great launch for JFrog Advanced Security at the end of 2022. This quarter, we released the self-hosted version, which requires a deeper conversation about how to embed that with what version of the platform. So that came second when we already had some practices. We think that in today's JFrog customer portfolio, the majority are still self-hosted, and big enterprises are using multiple tools. The majority of them will use more than 10 different tools to gather the DevSecOps. So JFrog Advanced Security is very appealing in terms of consolidation and performance features and keeping the software supply chain secure, focusing on the value that the platform brings. We hope that while they will migrate to the cloud because, as you see, we push the cloud business as well in parallel, while they migrate to the cloud, it will be an easy smooth move because they will already have it installed and practiced in the organization.

Your next question comes from the line of William Jump with Truist Securities.

Congrats on the solid execution in the quarter. I kind of want to start on hiring. A lot of your competitors have pumped the brakes on hiring or even made cuts to headcount in the beginning of the year. So can you guys just talk about how you think about hiring in the current environment and how that goes with sales productivity, especially given the leverage that you just called out in your long-term model there?

Yes. I'll take that question, Miller. First of all, as you know as well, we've been growing in a very efficient manner. Our plan and execution and a path to profitability have started many years ago. This has been embedded in the company's DNA. So in the first place, we did not hire so many employees, so we didn't have to go through a reduction in force. Second, we did slow hiring, and we reported that in the second half of last year. We're focusing on improving efficiency and profitability. We do reallocate some resources to projects with high ROI. We closed projects that don't provide some ROI. We focus on execution and performance. Therefore, we continue to do kind of improvements on an ongoing basis, and therefore, we didn't have to go through this big headcount reduction.

Got it. That makes sense. And then, I guess, another question, just a trend that you called out last quarter was kind of the pay-as-you-go customers shifting to annual contracts. Is that something you continue to see in Q1? And, I guess, is there any impact that we should think about there as far as your guidance?

Yes. The transition of pay-as-you-go customers to annual is a natural progression of these customers. Typically, new customers start as pay-as-you-go because they're not yet familiar with the products. They don't know how they're going to utilize them. Therefore, they want to be cautious; they're not willing to commit to long term. Once they use the product, they become familiar, and then only then they know that they want to commit and get some discounts depending on the size of the commitment. It's a natural progression of our customer journey, and it's actually beneficial for JFrog. The longer commitment, the better their old map will work with the customer, and the better value they could deliver and see from the products. We continue to see some customers transitioning from pay-as-you-go to annual commitments this quarter, but Q4 was more pronounced given the additional budget strict requirements that were imposed on some of our users.

To be very clear about that, that's as Jacob mentioned, also part of our strategy. We would prefer to have customers committed to an annual contract and to build the road map with them, build the platform with them. It's aligned with the strategy. This will only happen if they will be committed to a long run. Yes, we will see it, but it's also very much aligned with the way we direct our strategic sales team to push it.

Your next question comes from the line of Jonathan Ruykhaver with Cantor.

Nice quarter. So I'm wondering if you could talk about how you feel around the opportunity with pipelines. I know that the focus has been on Artifactory and, by design, you have built numerous integrations with other CI/CD tools. But any updated thoughts on how you see your positioning there, anything you might be doing around innovation and/or packaging or pricing that might change that opportunity with pipeline?

Yes. Thank you for this question. Pipeline is a JFrog CI/CD solution, intended to better automate processes within the platform. Now, remember, what we are in is moving bandwidth from one stage to another. JFrog Pipelines is probably the best way to automate these processes, not just in terms of building, testing, and releasing, but also in terms of automating security as part of the DevSecOps solution we provide. JFrog Pipelines completely integrates with whatever CI/CD tools you have in the market. Whether you use GitHub Actions or Jenkins or other tools, JFrog Pipelines will integrate with that. This is actually another motivating feature or product that leads our customers to adopt the full platform. At our LEAP event, we shared with our top customers the new capabilities of software releases from one stage to another environment. This is all powered by JFrog Pipelines.

So talk about that go-to-market motion with Pipelines then because I would imagine that customers already using Jenkins or other CI/CD tools would have to be sold quite heavily on the need for a pipeline.

Yes. There are two ways to look at it. First, Pipelines is part of our platform subscription and it would be a reason for you to upgrade from a lower subscription to a higher subscription in our model. Second, pipelines are also consumption-based, both on a self-hosted and in the cloud. If you use more than the base, then you pay more. The motivation on the customers' side would be around better, faster releases that are more secure, and we keep adding more and more features to it. Some of it is integrating with your CI/CD, which was chosen by the developers a step before, and some of it while you are implementing the platform.

Your final question comes from Rob Owens with Piper Sandler.

With all the focus around generative AI and its applicability across DevSecOps, I'm wondering, from your purview, number 1, your thought process around where it could benefit your product sets, and an interesting follow-up, I guess, to the prior question. And then number 2, just from where you said potential impact on the industry, does this lend more opportunity for JFrog down the road?

Yes, obviously, a great question. Listen, AI, by definition, is here to replace human intervention in the process of building, releasing, and securing software in our domain. JFrog is a binary company. We deal with binaries. Obviously, the more you create, the more you build, and the more binaries you create, this is a great opportunity for us. We're a machine language company. AI is going to generate more business for JFrog. What we need to ensure is that this business is not disrupted by automation of how you maintain binaries as well. This has been what we built with Artifactory since the beginning. We're excited about the opportunity. Ten years ago, CI/CD generated machine work versus developers and created more work for binaries or people dealing with binaries. AI is a big opportunity for a company like JFrog. The second side of it is the security piece that we're managing. Security can be powered by AI, not only around scanning and finding vulnerabilities but also in other areas. When you have to replace a binary that is stored in Artifactory and put it in production, this can also be done by AI, and we are excited about these opportunities. We're looking at different ways of implementing responsible AI because, as you probably know, some of the regulations are also being created as we speak. It's not just about what feature or what trends we want to cling on; it's about how responsible we should be when we build automation that removes human intervention from the process and implements smart and responsible AI. We're looking at it at a high strategic level for JFrog.

Your final question comes from Michael Turits with KeyBanc Capital.

This is Billy on for Michael. Congratulations on the results in the quarter. It seems to make sense that since you're not a seat-based model, it seems reasonable you'd be less impacted or not directly impacted by developer headcount reductions. Have you seen any slowing in development projects and the pace of software development as a result of developer headcount reductions across the industry?

So our customers are telling us that they have to prioritize things. That's the real work behind this kind of balancing we see in the market. They have to prioritize. Maybe a year ago they would just throw money at all kinds of experiments. This year, they are taking it in a bit more disciplined way. The second thing is that, if you were in a process of migrating to the cloud, that will require a period of a parallel infrastructure environment. Moving your legacies to the cloud doesn't happen in a day. It will happen over a period; sometimes, a multi-year project. Some of them push this decision further, although they know that strategically they will go there. They push it further. So in both ways, whether you prioritize or you're not enabling a hybrid environment, this will have an impact on our projection.

There are no further questions at this time. I'll turn the call back over to Shlomi for closing remarks.

I'd like to thank you all for your attendance today. We had a wonderful quarter, and we are looking forward to sharing more results in the coming quarters. May the FROG be with you. Thank you.

This concludes today's conference call. Thank you for attending. You may now disconnect.