JFrog Ltd. (FROG) Earnings Call Transcript & Summary

Hey, everyone. Just wanted to thank everyone for attending the Annual Bank of America Global Technology Conference, and thank you for your continued support during the II season. For our next session, we are absolutely thrilled to be hosting a fireside chat with Shlomi Ben Haim, CEO; and Jacob Shulman, CFO of JFrog. Shlomi and Jacob, thanks again for taking the time to speak with us today, and welcome to the conference. Just a quick housekeeping comment for the audience out there. If you have any questions, please use the Q&A functionality on the webcast, and I will be able to ask management your questions on your behalf.

So let's get into it. Let's start from a very high level on JFrog. Could you both give us a brief background on yourselves and what the opportunity is that JFrog is addressing and how JFrog is positioned to capitalize on the opportunity?

Yes. Hi, Koji. My name is Shlomi Ben Haim, CEO and Co-Founder of JFrog. Jacob Shulman, join me here today. Jacob?

Yes. I'm Jacob Shulman, CFO of JFrog. I joined JFrog about 3 years ago, and it's been great to be with the company since then.

Awesome, awesome.

Thank you for having us, Koji.

Yes. And Shlomi, what do you guys do from a high level? What is the opportunity that JFrog kind of disrupts out there?

Yes, Koji. JFrog actually founded in 2008 by developers, for developers. Way before it was phrased DevOps, we realized that there is a big demand in the market to release faster software, to package faster and push it all the way to the deployment environment, whatever deployment environment you use. In order to facilitate that, we build a platform, an end-to-end platform during the years that help organization, not only to build software faster, but also to secure it and is focusing on the binary life cycle management in order to allow that. So JFrog is, today, the only end-to-end hybrid universal solution for your DevOps pipeline. And we are excited and honored to have over 6,000 customers, including the majority of the Fortune 100. And we are in a big, big market, over $50 billion addressable market, so we have big plans openly.

Sounds good. I wanted to take a step back and ask a question on -- and I'm asking everybody kind of the COVID state of the state question. It's now June 2021. It sure seems like the world is heading in the right direction overall, probably a long way to go before things really get back to normal or who even knows what the new normal is going to be. But I guess reflecting back over the past 16 months, how did the pandemic affect JFrog, the business? What did you learn? And I guess from your lens, how is the pandemic or is the pandemic still affecting the business? Or is it mostly behind the business from now?

Yes. Well, if there is one thing I've learned during these 16 or 17 months, depends when you're counting from, it's the fact that we cannot truly predict the future. 16 months ago, we have kind of -- a new reality falls on us, and we all had to go and work from home. On the business level, it's crystallized, the need for solutions like DevOps, solutions like what JFrog provides. People started to work remotely. They had to get an access to their IT infrastructure. The business had to keep on running and to do that from remote requires you to go with modern technology and modern infrastructure. And for that, we are grateful, obviously. We see the business growing during the pandemic, and we see the need, the authentic need for the change that we are driving, together with our customers and users. On the -- on our business level, we were very happy to see how fast we transitioned to work from home with all of our 800 employees in 10 different offices worldwide. And to keep JFrog growing, we actually went public during the pandemic. We had this very rare experience, and we are more excited to be back to work completely in Israel. And starting next week, we will go back to the office in Sunnyvale as well.

Got it. Got it. No. Thank you for that. And on that topic of future of work, when you're talking to your customers and prospects out there, when you're even thinking about your own organization, you mentioned Israel is back in the office, and you guys are opening up your office next week. What do you guys think about the future of work when you're just out there talking with everyone? Is it work from home a little bit, work from anywhere a lot? Is it -- you guys got to get back into the office? Everyone kind of saw what Apple put out there with their statement. Is it a hybrid office? I mean how do we think about the future of work from a JFrog lens?

Well, the future of work is going to be as everything we do in JFrog, it's going to be hybrid. And pre-pandemic, we had the working-from-home policy. We adjusted that based on the feedback we hear from our employees. We will still have a hybrid model that our employees can work half of the time from the office and at least 2 days a week from home. We are kind of practicing the lesson learned from the back to the office, back to the swamp process we had in Israel, so we start on June on the 3 months period to gradually bring back the employees to the office. The one very exciting thing for me is that we doubled the team during the pandemic. We hired people that never saw an office in JFrog. And therefore, we built the better together concept back in the office on 2 things: number one, to make sure that we are staying efficient in supporting our customers and their potential in the market; and number two, and more important, is to keep our teams safe. So we are working very closely with the authority on every region and excited to have this reunion back again.

Got it. Got it. Got it. And digging into the business a little bit, let's talk about the competitive differentiation. What do you see as JFrog's primary competitive advantages? What is the catalyst for a new customer signing up with JFrog? And typically, I guess the big question here is what are they using prior to coming to -- adopting JFrog?

That's a big question. We are looking at over a $50 billion market. So obviously, competition is just growing every day, and we are very excited to see that, although JFrog was the pioneer of DevOps, and the foundation we laid kind of paveed the way for this change that we are now called DevOps or digital transformation or cloud native, when we are looking at it, we are looking at 4 different tiers. The first one and probably the biggest opportunity out there is replacing homegrown solution and in-house development. What we see now is that what you built in the organization 10 years ago, even 5 years ago, it's not cloud-native ready. It's not hybrid. The transition to the cloud, the need of automation, the need of security embedded into your DevOps platform, this is all being changed as we speak. And with the JFrog Platform, we are replacing a lot of this in-house development and organizations that need to transition to this new world and to face this second wave of digital transformation, adopting these technologies. Now JFrog is not a developer to -- JFrog is not above the level of infrastructure. JFrog is the infrastructure. We enable this change. So therefore, the adoption and the changes are fundamental for the organization, and we see it across the board in all industries, in all regions. Whether it's cloud or self-hosted, we see it everywhere. The second tier after the homegrown solution is obviously the great partners that we have that sometimes overlap with what we offer. Those are the cloud players, the major cloud. So all of them are seeing the same potential. They see the same opportunity. And then when we look at it, and we come with the hybrid model, that you can have your DevOps pipeline on-prem or in the cloud and not just in the cloud but in a multi-cloud world that help the organization to avoid any kind of vendor lock-in with the cloud players, we see that on the company, on the enterprise level, that's a very big differentiator. When it comes to the expertise that we bring, the management of your software packages life cycle is something that JFrog is focused on from day 1. And therefore, we bring technology and innovation advantage. The other tier is other companies that in the infinity loop of DevOps are taking position in different places. In the world of continued software release management, everyone, everyone in this market, including companies that you introduced in this conference, need to check in and check out from the JFrog DevOps platform because we own the software packages. We own the binaries. We are the database of DevOps. And the universality we provide, the integration, seamless integration with every tool on your ecosystem we provide kind of putting us in the front when you choose your infrastructure.

Got it. Got it. Shlomi, I wanted to ask you a question on DevOps. We recently wrote a white paper on DevOps. What we learned during that process is that DevOps is really complicated stuff. There's so much going on in there from agile software development, to source codes, to binaries and CI/CD, ITOps, so many other layers in between all of that and the infinity loop that you're talking about. We wanted to go deep, but we realized we had to keep that white paper very, very high level because there's just so much in there. So I guess what does DevOps mean to JFrog? Why is DevOps important? And what is the key to being a disruptor in the category?

Well, Koji, first of all, thank you for this white paper. I read it. It's wonderful. And it's covering, as you said, on a high level, not just the pain, but also the potential and the requirement as we move forward. When we founded JFrog in 2008, DevOps was not a phrase. The only thing we saw as developers ourselves is that we need to provide a common ground for the ITOps and the developer. And the reason for that is not just because of the organization change that you want to do. It's mainly because of the demand that came from the market. Our world consumes more software. Therefore, any organization will have to build faster and to deploy faster, so you will get access to your consumer faster than your competitor. In order to do that, developers had to start and automate some of the process. And instead of releasing a version once a year, maybe twice a year, you are now doing it several times a day. Now look at us, even if you think about this WebEx-based conference, we don't know what WebEx version we use we don't know our Facebook version or LinkedIn version or Twitter version. We just got used to the fact that the vendor is pushing software update and making sure that the service is up, running, secured and serving us well. With this in mind, we looked at what would be the primary assets to enable that? And what we have realized back then, 12 years ago, that the binaries, also known as software packages or artifacts or images, are the primary asset, the one thing that you have to work on in order to automate and to become faster and at the end of the day to push an incremental update to your deployment environment. Therefore, we created Artifactory, our flagship product, the binary universal repository, coined by the community the Switzerland of DevOps because we support all technologies, in-depth support for over 30 different types of technologies, whether you are a Java developer or a Docker developer or use Docker or use another technology, JFrog Artifactory became the database of DevOps. The second thing that we've seen is that being fast is not enough, and the demand in the market and what you see and what you covered in your white paper also bring a new pain of SecOps. The security process needs to be embedded into the build and release process of your software. And we developed JFrog Xray on top of Artifactory, natively sit on your repository and secure these binaries, this very important asset. The third product that was just announced last week on our user conference at swampUP, JFrog Distribution take those software packages, the release bundle that is ready to be pushed on one too many, all over the world, whether it's in the cloud or on-prem, pushing software artifacts and create your internal network or you can call it the internal CDN for Artifactory or PDN, and we are very excited about this tool flow. Everything that we have in the platform is automated by our CI/CD JFrog pipeline, which is a result of one of the acquisitions we have done. And we also have a dashboard for the admin user that kind of control the full pipeline and give you a transparent picture of what happened in your DevOps pipeline. From everything that happens on your Git repository, to your Kubernetes and run time environment, you will use tools like JFrog Platform. And we are very happy to provide this hybrid universal DevOps platform to the world.

Got it. Got it. Well, maybe it's not got it because my next question is, so I'm not a developer by any means. I could barely use Excel. You guys are a binary repository. I mean what does that exactly mean? What is the difference between an Artifactory and like a GitHub or a GitLab or a source code management platform? I mean what is the difference there? And why does someone need to have a JFrog? Or why couldn't you do it all with a source code management tool?

That's a very good question. And actually, we get this question from the day we founded JFrog. In 2008, if you would say to a developer, "Hey, you need to manage your software bid to release process. Based on your software packages, it would be almost a joke in the industry." But we insisted because what we have seen is that what you bring from outside, what you bring from public hub, what you bring from open-source repositories is software packages. What you create inside your organization are software packages. So you asked about Git, the source code is managing Git, and then you have your continuous integration on top of it. When you build out of it, what you create is a software package. From that point on, Koji, everything you do is on the software package on the binary level. This is the 0 and 1 code packages that speaks with your machine. You cannot automate source code. You don't have metadata in source code. It doesn't manage the dependencies on source code. And therefore, the old DevOps pipeline from the moment a binary was created or brought from the outside, which also explains why security in this world is crucial. Everything that happened from the build to the release is managed on the binary level. And more important, when you think about the runtime environment, what is the update that you push to those servers out there? You push binaries. You push software packages. So basically, software packages became first-level citizen when it comes to DevOps management.

Got it. Got it, I think. I got a couple of questions here from the buy side. Want to make sure I get these asked over to you is -- first question is why does JFrog need to exist in a world that is 100% cloud?

It's a wonderful question. And the answer is that we knew that, starting from 2009, a year after we founded JFrog, that everything we do should be hybrid. And then JFrog provides its services on a hybrid level in the cloud, on-prem. Now while all companies that will start today and in the last decade will start in the cloud will never use their own compute or manage their data centers. What we see is that there is still a need, let's say, in the next 20 years of the enterprise to use on-prem and cloud. Therefore, we provide JFrog Platform as a service in the cloud on all cloud in more than 30 different regions. And we also provide JFrog as a self-hosted solution, if you want to manage it yourself. In the world of cloud, when you push software to the cloud, it doesn't mean that you don't build it. It doesn't mean that you don't secure it. It doesn't mean that you are not promoting it. And more than that, you are doing it more often. So JFrog is vital for these processes, and it's available both in self-hosted solution and in cloud.

Got it. Got it. And the follow-up question there is, in what ways is JFrog investing in the product specifically to suit a world that eventually gets to become 100% cloud?

So cloud is one of the change that drives DevOps to be more mandatory for every company, every organization. We boldly stated on the swampUP stage that every company will become a DevOps company, not a software company, a DevOps company. And the reason for that is very authentic. We need more software, and software is getting everywhere. And in order to power the software updates of the world, you need tools like JFrog. And when you build something and when you create something and you need to release it several times a day, you need to make sure that it's fast, that it's secure and it's cheap. Now the cloud, when it comes to networking, when it comes to manage your compute -- manage your network in the cloud, cheap means a lot, security means a lot. And this is where you need JFrog. And what we've built, now with distribution that you can take only the incremental piece that you want to update and not the full version, not the terabytes of version that you need to push to the cloud. You just take the binary, the software packages, going back to your previous question, and implement that, deploy that in your cloud environment, it makes JFrog the one solution that helps company to be faster, to be secure, to push incremental updates and being cheap, to be more efficient and therefore not falling behind their competitors that are releasing faster.

Got it. Got it. Super helpful. Thank you. Let's not forget about Jacob. I got a question for you. Let's bring him into the conversation here and give Shlomi a break. Pricing model. Those -- for those that may be new to the story like myself, could you please go over the pricing model from -- of the business and maybe from the different product tiers or the different deployment models that JFrog has?

Yes. Absolutely, Koji. So first of all, our pricing, we're 10% subscription business. So all of our products we sell on a subscription base. We have 2 deployment types, self-managed and our SaaS solution. So for self-managed, we charge by number of servers that we sell to customers. For SaaS solution, which are based on users, which is measured in data transfer or storage. And we tried to build our subscriptions to mirror the customer journey that we see because, typically, customers will land very small with just Artifactory. When they're just making their first steps in a DevOps journey, the first tool that they would need is our flagship product, Artifactory. That's how they typically would get in the enterprise that our foot in the door with this entry-level subscription called Artifactory Pro. And that for self-managed deployment, that will be about $3,200 per server per year. Then the next natural step for that team would be to add security capabilities, so they will transition to our Pro X subscription, which is slightly higher than $19,000 per server per year and includes, on top of Artifactory, also our Xray product, security product as well as support. And then we'll see this viral adoption by different teams within the enterprise. And when several teams adopt our products, then it makes sense for the enterprise to convert and upsell to the next level of our subscription called Enterprise, which basically provides enterprise benefits or enterprise features for the customer. If you think about it, Koji, what sometimes benefits for developers is different from benefits for the enterprise. What's important for developers is ease of implementation, ecosystem integrations, cool features, nice cool UI. What's important for enterprise is DRP, security, user management, multi-cloud, hybrid. So enterprises will get those features once they upgrade to our Enterprise subscription. And entry level in the web subscription is $41,500 for 3 servers. And then typically, we'd see customers grow through a number of additional servers to standardize on this solution. When they're ready to distribute packages, as Shlomi said, to different locations, devices, et cetera, customers, then they would compare it to our platform, whole platform, which is Enterprise+ subscription. And entry level to that subscription is $115,000 for 6 servers. And then we'll continue to see the adoption of different features in PDN, which is distribution capabilities, as well as continuing to standardize through additional number of servers.

Got it. Got it. I got a follow-up question here from the buy side. Thinking about -- it's along the lines of a platform versus basket of applications. We've seen this theme kind of play out in other categories like CRM or in the back office, too. And undoubtedly, with DevOps probably going to start to become a conversation piece as this evolution happens. And I guess the question is, if I'm out there developing a new software technology for off-the-shelf or within a private application, I mean, why would someone go with a basket of applications versus a platform, say, like Microsoft Azure? Why can't I just stick everything on there or in AWS? Where does JFrog fit into that conversation of a platform versus a basket of, I'll call it, point of -- basket of point applications. But we know you guys are more of a platform but just thinking along the lines of everything on Azure or AWS versus incorporating a JFrog, too.

This is a very good question. And if you look at the history of JFrog, you understand that what we've built with the community and by the community is a business that is based on a bottom-up philosophy, everything from the developers. The developers became the transformers of the digital transformation. And therefore, building it with them is very strong, very authentic and based on the need, on the authentic need and not just what we had in mind. So what we have learned. First of all, we have learned that you should come with a super strong superior technology in order to convince these guys. They are not impressed by waving hands of the CEO or a great marketing team. They are impressed with your technology if it's a pain solver. The second thing is that in this world, you have to choose what are your expertise and to cover that and not to go and fight with the best-of-breed philosophy. There are tools in the DevOps tool chain that are doing monitor. There are tools that are doing planning. If you use Atlassian Jira for planning, you are happy with Atlassian Jira, JFrog's platform will integrate with that. If you use Datadog for monitoring or if you use ServiceNow or PagerDuty, JFrog will integrate with that. If you use Splunk or Observability, JFrog will integrate with that. Any kind of CI tool, integrate with that. But when it comes to the binary management, this is where we want to provide you with a full solution. And this is why hosting your binaries, storing them, building with binaries, managing that data -- the metadata, the dependencies, securing them in a smart way that also integrate with your CI/CD flow and distribute them, so what you push to the runtime environment will also be secured and fast. This is what JFrog provides. So when it comes to the binaries, we are the binaries people, and it's not in conflict with the best-of-breed solution that organizations are looking for. That's on the developer level. This is from the bottom up. From the top-down, when you look at Microsoft Azure, and Microsoft is a great partner of ours as well, as Google Cloud and AWS, their KPIs to drive more traction in the cloud, more consumption in the cloud, working with developers, providing developers with the solution we provide, obviously, we have a technology advantage on top of it. But put this aside, think about the modern world. There is no single enterprise from the Global 2000 that will just go and be an AWS shop or a Microsoft shop. When you need a multi-cloud environment, you go to JFrog. When you need a hybrid environment because you also have your self-hosted machine and cloud, you go to JFrog. And when it comes to the binary management benefit, plus the benefits for the enterprise, I think that JFrog found, not just the expertise sweet spot, but also the right way to address the enterprise need.

Got it. Shlomi, that's a great, great answer. Wanted to switch gears a little bit. You guys just recently had your swampUP conference a few weeks ago. A lot of big product announcements at the conference, federated repositories, signed pipelines, Cold Artifact Storage, private distribution network that you briefly talked about earlier, a bunch of others, too. I guess maybe what are the 1 or 2 product announcements that you're most excited about coming out of swampUP and why?

Well, first, thank you for this question. SwampUP, for us, both in North America and in EMEA, APAC, was amazing. That was the biggest swampUP in the past 5 years. We had over 4,000 community members coming from all over the world to gather together and listen to the future of DevOps on JFrog's stage. That was an amazing experience for us. Over 40 speakers from the community, not JFrog speakers, community speakers, speaking about how they use JFrog and how they practice DevOps. That was an amazing experience, and I'm honored and grateful for it. The announcement we have done on the keynote stage, sharing with the world the new technologies that is coming from JFrog is based on what we hear from the market that is the next demand, what brings -- what comes with the second wave of digital transformation. Now everybody is telling us, Koji, that Git repository with CI server, that's done. Everybody understands that. You don't have to explain that. Maybe 10 years ago, you had to explain why you need continuous integration server to automate the process and to become faster and to build 1,000 times a day and not 10 times a day. Now it's commoditized. It's clear. Everybody understands that. But what happened next? From this moment on, you have software packages. But these software packages are not ending up at the hands of the developer. They have the InfoSec guys, a new persona that joined the party with the SecOps revolution, telling you, it's not good enough for me that you are fast. I also want to make sure that you are securing the organization. And SolarWind attack cannot happen in my organization because you automated everything. The second thing that we have seen is that taking software packages, binaries to the edge is extremely important for the organization as the second wave of digital transformation is happening. Therefore, on stage, we announced 2 things that got us kind of under the spotlight. One is the PDN. How can you not just build faster and have your release bundle of software packages ready to be distributed but also distribute it. And we started to speak in the last 2 weeks with product managers that built 10 years ago some kind of an in-house solution on top of Akamai or other CDN and now looking at this secure end-to-end binary life cycle. The second thing is the holistic security solutions that we provide, and JFrog invested a lot in SecOps in the last 3 years. And it's not just about Xray. It's also about signed pipeline. JFrog's CI/CD is the only tool in the world that cryptonize and signed your pipeline, so what is getting inside is also what is getting outside of the organization. And there are no surprises because of the cloud-native, multi-pipeline work environment. So we were very happy and pleased to see how strong pipeline, distribution, federated repos that help you mirroring all of your technology and all the hybrid solutions that we shared on stage. We saw and the rest of the world saw it as well. The amount of question is maybe the only benefit that you have on the virtual conference. You see the questions on the panel. Everybody see the question, everybody see the answer. The demand for more information, the excitement from the community was amazing, amazing feedback for us to know that we are on the right way.

Yes, yes. That makes sense. So I wanted to ask you, we're kind of running up on time here, but the go-to-market strategy coming out of the pandemic. As the world transitions out of the pandemic, I guess, this question, either for Shlomi or Jacob, is that what are you guys doing? How are you guys thinking about that go-to-market strategy? Any changes in investments or any positioning? Or how do we think about that coming out of the pandemic into the new world?

Yes. I'll start, and Jacob, feel free to chime in.

Sure.

Koji, what we are doing is not just building more and more technology pieces and technology layers and more partnerships and ecosystem integration. We are investing a lot in our sales and marketing. And starting from 2020, a bit earlier than when the pandemic started, we started to build our strategic team. So what we are now seeing in JFrog that it's not just going from the bottom up with the free tier, with the developers, with the community. It also comes from the top-down. We hired a strategic team that is not just salespeople. This is a team of field marketing, support, dedicated support, solution engineers that are building a group of expertise that comes to the organization holistically from the top-down and expanding the footprint of JFrog. So we are seeing a need in the market because when you adopt a platform, it's different than just buying Artifactory or buying Xray. You are changing methodologies. It's changing themes. And therefore, the strategic team is growing fast, and the business is growing with it.

And if I may add to that, we're also expanding in international geographies. APAC is an area of focus for us. APAC is not a bottom-up, go-to-market notion. It's traditional economy with more top-down. So we're expanding our direct presence there as well as expanding our partnership network in order to capture those markets as well.

Got it. Got it. Shlomi, Jacob, we're out of time. This has been an awesome conversation. Thanks for taking time out of your busy day to speak with us today. Super appreciate it from Bank of America. So thank you so much. Have a good rest of your day. Thank you, guys. Thank you. Thank you so much again.

Thank you so much.

Thank you, Koji. May the FROG be with you. Thank you.

Thank you. Yes. Thank you. Bye.