FROG - NASDAQ

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 Q1 and the full year of 2025. 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, 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-K for the year ended December 31, 2024, to be filed with the SEC on February 14, 2025, 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 Ltd.'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 Ltd. investor relations website for a limited time. With that, I'd like to turn the call over to JFrog Ltd.'s CEO, Shlomi Ben Haim. Shlomi, thank you, Jeff.

Good afternoon to you all, and thank you for joining our call. I'm excited to share that JFrog Ltd. closed the fourth quarter and fiscal year 2024 on a high note, with meaningful results across all key focus areas, which we will discuss today. We believe that JFrog Ltd.'s strong cloud growth and adoption of our holistic advanced security solutions by enterprises underscore the strength of our platform strategy. We are honored to gain the trust of many of the world's leading companies, which are choosing JFrog Ltd. as their go-to software supply chain infrastructure. Our enterprise-focused go-to-market strategy in 2024 has secured multiyear sizable platform subscriptions from customers who chose JFrog Ltd. as the single source of tools for all types of software packages and AI models. This approach has driven higher customer lens, delivered durable revenue growth, and reinforced our leadership in the market. As we close out 2024, I'm pleased by the focused execution of our vision, making software universally accessible, continuously updated, and trusted everywhere. A true realization of the liquid software revolution in the era of AI. This momentum propels us into 2025, fueled and energized. Let me review some of our results in more detail. In 2024, JFrog Ltd.'s total revenue was $428.5 million, up 22% year over year. Cloud revenue for 2024 was $168 million, representing 41% year-over-year growth. Our gross margin for the year was 83.8%, alongside strong free cash flow of $107.8 million, with a free cash flow margin of 25% for the year. 2024 successes were driven by strong execution with our enterprise customers. Our investments in the first half of the year fueled their initiatives, resulting in some of JFrog Ltd.'s largest deals ever closing in the second half of the year. In today's call, Ed will further discuss the fourth quarter results and dive deeper into our annual performance. Now let me discuss the core of what fueled our accomplishments in Q4 and throughout 2024. First, JFrog Ltd.'s cloud success. As we embarked on 2024, we shared our outlook recognizing that the challenges of 2023, specifically around project migration and consumption discipline, would persist. Despite navigating a tight budgetary environment and rigid procurement processes in 2024, we remained focused on execution and securing strong wins. As a result, we were pleased in Q3 and Q4 to see large companies demonstrate confidence in JFrog Ltd. with multiyear commitments as they reignited their strategic cloud migration journeys with us once they had reached their optimal timing. Our 2024 cloud revenues were in line with the guidance we provided in Q2. We remain focused on driving more enterprise adoption of our cloud platform and building even tighter relationships with our cloud partners at AWS, Google Cloud, and Microsoft Azure. As an outcome of our strategic partnerships with the cloud providers, I'm pleased to report that we have recently signed a strategic collaboration agreement with AWS that we believe will enable joint enterprise customers to cost-effectively scale their DevSecOps AI-driven software solutions in the cloud. We are looking forward to keeping the cloud momentum and promoting partnerships to support customers' cloud adoptions. Second, to security. JFrog Ltd. was early to the market with the concept that DevOps and security were inseparable and believed the powerful combination should displace all point solutions via one platform. We continue to envision a future where security is no longer fragmented—a secured future powered by a single holistic and modern solution that optimizes operation and budget for JFrog Ltd. users. Emboldened by this vision, we set out to deliver a platform designed not only to consolidate tools but to amplify development teams' work, delivering unmatched protection and risk mitigation to our users' entire software supply chain. For over three years, we have doubled down on this security vision and invested organically and inorganically in what became the industry standout—a single solution that automates a system of record and security as a unified process as demanded by global CIOs and CISOs. I'm pleased to report that 2024 closed on a strong note with our security core becoming a mission-critical piece of our enterprise offering. JFrog Ltd. advanced security and JFrog Ltd. curation, as part of our JFrog Ltd. platform, were successfully adopted by approximately 250 customers that are migrating from point solution tools like Snyk, Black Duck, Checkmarx, Coverity, and others. In 2024, our most sizable deals included not only DevOps migration to the cloud but a clear bet placed by customers on one solution, one platform that also covers their modern security requirements. We were excited to see the validation of this trend led by standardization and consolidation, as some of the world's most recognizable companies demonstrated their trust in JFrog Ltd. across verticals in 2024, including four wins across the top five companies in automotive, financial, healthcare, and telecommunications. Each of these industry-leading companies placed multimillion-dollar, multiyear security-driven platform deals in 2024. In 2024, we invested not only in sales but also in strategic partnerships focusing on the security persona experience. Through our data partnerships, we enable a one-platform experience that couples AI capabilities with security in GitHub Copilot and JFrog Ltd. Curation. This is all supported by our advanced JFrog Ltd. catalog vulnerability database, backed by our security research team enhancing enterprise security. To summarize our security success in 2024, I'm happy to report our core security solutions comprise over 5% of our final ARR and approximately 12% of our ending RPO in 2024. And third, to our enterprise strategic success. To successfully focus on the enterprise market, an organization needs more than just a dedicated sales force targeting high-end customers. This shift demands a comprehensive transformation in how a company operates and delivers value. It requires evolving the platform offering to address broader and more complex challenges, especially in the face of rapid technological changes. Additionally, it calls for an adjusted customer success approach, engagement with diverse personas and budget holders within client organizations, and a redefined partner strategy. Sometimes, it even involves making difficult decisions, such as parting ways with a subset of low subscription customers to remain focused on the enterprise segment and ensure long-term success in the upmarket space. I'm pleased to report that with our focus and efforts targeting the enterprise market, we have delivered consistent growth. In Q4, customers with ARR over $100,000 grew to a total of 1,018, up from 886 in the year-ago period. The number of customers with ARR exceeding $1 million increased to 52, up from 37 in the year-ago period. Now before handing over to Ed, I want to dive into JFrog Ltd.'s perspective on MLOps and responsible AI. In 2024, we acquired Quack AI, making JFrog Ltd. the first company to unify DevOps, DevSecOps, and MLOps within a single platform. As the industry increasingly demands, in recent weeks, we launched the first implementation of JFrog Ltd. ML, available now to our cloud customers. Our core values, such as multi-cloud and hybrid enterprise-grade offerings, are further empowering the Gen AI and MLOps ecosystem with JFrog Ltd.'s strong partnerships and integrations, including Hugging Face, GitHub, and NVIDIA, to enhance users' workflows. Today's enterprises know that machine learning operations (MLOps) are inseparable from DevOps and DevSecOps, as getting AI models to production requires the same principles across development, security, deployment, and maintenance of binaries. Just as we have expanded our offering with security capabilities, building on Artifactory as a secured registry and the foundation of our platform, this MLOps expansion will empower our customers as they embrace AI-driven technologies. We are excited about what's ahead and look forward to promoting our partnerships with our customers and the community. With that, I will turn the call over to our CFO, Ed Grabscheid, who will provide an in-depth recap of Q4 financial results and our outlook for 2025 Q1 and the full fiscal year of 2025. Ed?

Thank you, Shlomi, and good afternoon, everyone. During the fourth quarter of 2024, total revenues were $116.1 million, up 19% year over year. For the full year 2024, revenues equaled $428.5 million, up 22% year over year. Fourth quarter cloud revenues grew to $49.4 million, up 37% year over year and representing 43% of total revenues versus 37% in the prior year. Our strength in the cloud was driven by contributions from large customer wins as well as smaller customer migration activity during the quarter. In the fourth quarter of 2024, we recognized cloud revenues from customer migrations to a new enhanced cloud database product launched in 2024, which was previously delivered as an on-prem product. Contributions from this product in Q4 were $1.3 million. Future customer migrations will be included as cloud revenues on a going-forward basis. For the full year 2024, cloud revenues equaled $168 million, up 41% year over year. Full-year cloud revenues equaled 39% of total revenues, versus 34% in the prior year. During the fourth quarter, our self-managed or on-prem revenues were $66.7 million, with full-year 2024 equaling $260.5 million, up 13% year over year. Aligned with our strategy, we continue to see the majority of our new customers land and expand with our cloud solutions. JFrog Ltd.'s cloud-first approach naturally results in a slowing of customers' on-prem investments as they look forward to capturing even greater value coming from our cloud solutions. During 2024, we experienced another year of strong customer adoption of the complete JFrog Ltd. platform, driven by customers looking to consolidate tooling and secure their software supply chain. In Q4, 54% of total revenues came from enterprise plus subscriptions, up from 49% in the prior year, while delivering year-over-year revenue growth of 31%. Driven by the strong execution of our enterprise go-to-market strategy and upsell from our security core products, revenue contributions from enterprise plus subscriptions grew 35% year over year in 2024. Our security core, which includes JFrog Ltd. curation, JFrog Ltd. advanced security, and JFrog Ltd. runtime, has gained momentum as customers actively consolidate point solutions. As Shlomi noted, JFrog Ltd. curation and advanced security were key drivers of many of our enterprise deals closed in the second half of the year. Revenue contribution from SecurityCore in 2024 was impacted by expanded proof of concept and timing of purchasing decisions. For the full year of 2024, security core revenue was 3% of total revenues, with our core security products now comprising more than 5% of our ending total ARR. Driven by a number of large, multiyear commitments to JFrog Ltd., our security core represented approximately 12% of our remaining performance obligation or RPO as of December 31, 2024. We continue to anticipate that security core products will achieve material revenue contribution in 2025. Net dollar retention for the four trailing quarters was 100%. We continue to demonstrate that our customers view JFrog Ltd. solutions as mission-critical to their software supply chain, with gross retention that equaled 96% in 2024. As noted by Shlomi, during 2024, we continued to focus our go-to-market initiatives around the enterprise, demonstrated by our success in the second half, as we secured some of the largest deals in the company's history. Our team also prioritized new customer acquisition, specifically targeting opportunities with higher initial ARR and greater expansion durability. Given our enterprise go-to-market focus, our customer count in fiscal 2024 equaled approximately 7,300. Now I'll review the income statement in more detail. Gross profit in the quarter was $96.5 million, representing a gross margin of 83.2%, in line with our expectations, compared to 84.6% in the year-ago period. The change in gross margin relative to the year-ago period was primarily due to the increased mix of our cloud revenues. We expect annual gross margins to remain between 82.5% and 83.5% in the near future. Operating expense in the fourth quarter was $75.6 million, flat sequentially, equaling 65% of total revenues. This compares to $66.1 million or 68% of revenues in the year-ago period. We remain focused on expense discipline while we continue to invest in strategic initiatives. Our operating profit in Q4 increased to $20.9 million or an operating margin of 18% compared to $16.2 million and a 16.6% operating margin in the fourth quarter of 2023. For the full year 2024, we delivered non-GAAP earnings per share of $0.65, a 27% increase year over year, assuming approximately 115 million weighted average diluted shares. This compares to $0.51 in the prior year and 109 million weighted average diluted shares. Cash flow from operations equaled $49.1 million in the fourth quarter. After taking into consideration CapEx requirements, our free cash flow reached $48.5 million or a 42% margin, a record quarter for JFrog Ltd. For the full year 2024, we generated $110.9 million in operating cash flow and $107.8 million in free cash flow, a 25% margin.

Now

turning to the balance sheet. We ended 2024 with $522 million in cash and short-term investments, compared to $545 million at the end of 2023, primarily due to the consideration paid for the acquisition of Quack AI during Q3 2024. As of December 31, 2024, our RPO totaled $403 million, a 55% increase year over year, benefiting from multiyear commitments to our security and platform solutions. Now I'd like to speak about our outlook and guidance for the first quarter and full year of 2025. As a reminder, our guidance philosophy will be more conservative than what was provided in the past. Our outlook for the first quarter of 2025 assumes no change in the current macro environment and reflects historical seasonality as JFrog Ltd.'s lowest volume renewal quarter. Our outlook for the full year implies increased contributions from our security core, continued adoption of our full platform, and cloud migration activity consistent with 2024. We estimate full-year 2025 baseline cloud growth to be in the range of 30% to 32% and expect our net dollar retention to stabilize in the mid-teens. For Q1, we expect revenues to be in the range of $116 million to $118 million, equaling 17% year-over-year growth at the midpoint, with non-GAAP operating profit anticipated to be between $16.5 million and $17.5 million and non-GAAP earnings per diluted share of $0.15 to $0.17, assuming a share count of approximately 118 million shares. For the full year of 2025, we would anticipate a revenue range of $499 million to $503 million, up 17% year over year at the midpoint. Non-GAAP operating income is expected to be between $73 million and $75 million, with non-GAAP diluted earnings per share of $0.67 to $0.69, assuming a share count of approximately 120 million shares. During 2025, we will remain focused on investing in innovation to expand the capabilities of our platform and deliver more value to our customers. We continue to be guided by a balanced investing and disciplined spending philosophy in line with prior execution.

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I'll turn the call back to Shlomi for some closing remarks before we take your questions.

Thank you, Ed. 2024, though tough, was a remarkable year for JFrog Ltd., with successes driven by our global team operating under an umbrella of adversity. Frogs, I'm proud and honored to stand beside you as my superheroes throughout the year. As we set our sights on 2025, we remain committed to quality growth and expanding our portfolio, bringing us closer to realizing our liquid software vision—a world where software delivery is effortless, secure, and seamless. Before we move on to questions, and as we gratefully acknowledge that some of the Israeli hostages have been safely returned and reunited with their families, we continue to hope and pray for the safe return of all those still held captive in Gaza. May 2025 bring peace to the region, and may the frog be with you. Operator, we are now open to take questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please raise your hand now. If you have dialed into today's call, please press star nine to raise your hand and star six to unmute. Please stand by while we compile the Q&A roster. Your first question comes from the line of Pinjalim Bora from JPMorgan Chase. Your line is now open. Please go ahead.

Oh, great. Thanks for taking the questions. Congrats on a very close to the year. Shlomi, obviously, you are seeing really strong security traction. Now 12% of RPO, 5% of the ARR. Given these successes, would you say you are seeing kind of a tangible change in prospective customer conversations, especially in those organizations where security is kind of a completely different siloed, you know, other than software development or engineering? Basically, I'm trying to understand if the recent successes around security are opening up more doors and if there are more kind of large eight-figure deals in the pipeline.

Yes. Thank you, Pinjalim, and happy Valentine's Day. Specifically regarding security, we hear more and more of the CIOs and the CISOs of the world looking at consolidating point solution tools. It's across the board. It's mainly around the coverage of the software supply chain aligned with the new threats and integration with other players. So the basic assumption is that our users would like to see an outcome where all the findings are presented on a single pane. Therefore, we are encouraged by what we hear. We are encouraged by what we see in the pipeline. Our customers and prospects keep pushing through consolidation and one holistic security solution coming together with DevOps.

Understood. Thank you, Shlomi. And, Ed, just maybe one question for you trying to understand kind of the assumptions on the guidance. A few parts to it. One is when you see NRR being mid-teens, are you talking about plus-minus kind of 215 plus-minus two, basically trying to figure out if it's gonna drop down from the current levels or it's gonna stay around the current levels? And then are you baking in any migrations into this guidance as well as what would you say is the kind of contribution from the recent pricing and packaging changes you have? Thank you.

So first off, I'll start with the net dollar retention rate. We're really pleased with where we ended, considering a really tough year in 2024, and what we see is, as I stated in the prepared statements, we're stabilizing in the mid-teens. That means somewhere between one to two percentage points is what we would anticipate. Now in terms of migration activity, the migration activity is very similar. What we're seeing going into the year is what we saw during 2024 and 2023. It's really around data consumption, and the data consumption changes above minimum commits have not changed. Therefore, this is why we see that stabilization of our net dollar retention rates. We don't see much of a pickup in activity in the migration activity. It's relatively stable.

Anything on pricing, Ed?

The last thing on the pricing. Pricing, we do a pricing change, and we've done that now for consecutive years. The impact on the pricing in 2025 would be comparable to what we saw during 2024. So it's not a significant change. On a year-over-year basis, the focus was more on the pro subscriptions, but in terms of our upper tier of subscriptions, it remains relatively the same year over year, a similar impact on a year-over-year basis.

Understood. Thank you very much.

Your next question comes from the line of Michael Cikos with Needham. Please go ahead.

Hey, guys. Thanks for taking the questions here and congrats on a strong finish to the quarter and for the year as well. Wanted to start a little just to get some more color on the cloud growth that we saw in Q4 and I guess the expectations, great to hear on that 30% to 32% you're looking for next year. Can we just dive into the database comment? I think that might be new for me, and apologies if I missed it. But that $1.3 million in revenue that we generated in Q4, was that anticipated and how should we think about that scaling as we look out over the upcoming year?

Yes, Mike. Hi. This is Shlomi. I'll start and Ed, feel free to jump in. Our research team during 2024 was busy building a cloud service, which is the JFrog Ltd. catalog that serves as the database of all of our security suites. JFrog Ltd. X-ray, JFrog Ltd. advanced security, JFrog Ltd. runtime. This is now being a cloud service provided to all of our customers faster than cloud, and therefore, we recognize that as part of our new security suite and part of our cloud services. In addition to that, Mike, regarding the $1.3 million, it's not first off, secondly, it's a decision by our self-hosted customers. When they migrate from an older version to this new version, the newer database version is a cloud service. Therefore, going forward, we will reflect that in our cloud guidance of 30% to 32%.

Got it. Got it. Thank you for helping on that. And then the second question I have, you've again, just hitting on the cloud migrations, and I think Pinjalim was teasing at this a little bit before me, but to drive that 30% to 32% again, it sounds like you guys are assuming a relatively consistent pace of cloud migrations, but just wanted to make sure I was always hearing that properly.

Yes, Mike. As we guided before, we are being conservative looking at our pipeline and derisking it, looking at migration as step one, as we saw mainly in the second half of the year, and consumption increasing as an upside, a step two. We are looking at the pipeline. We are looking at the portfolio. We are looking at the trend in the market. And this is how we base our guidance on.

Great. Thank you, and congrats on all the security disclosures as well. Thank you very much, guys.

Thank you.

Your next question comes from the line of Sanjit Singh with Morgan Stanley. Please go ahead.

Yeah. Thank you for taking the questions, and congrats on a strong Q4. To that point, you know, if we rewind about a year ago, you guys also had a strong quarter, particularly in cloud. And then, you know, I think the expectations got a little bit muddled to start the year. So I was wondering if you could sort of, again, go through the assumptions. Is there sort of a natural cadence in terms of the customer base, in terms of how they think about optimization and then investment following optimization in terms of like a Q1 first half versus second half dynamic? It seemed like that was kind of a theme in 2023 and 2024. Is that the sort of the right storyline as we think about 2025, potentially another optimization cycle to start the year followed by projects coming online and the incremental investment in cloud?

So first off, regarding Q4 of 2023, we had a one-time benefit in there, so I want to put that out there. Very different than what we saw in Q4 of 2024. This is not a one-time benefit. And it's strength in the cloud. As we step into 2025, what we see is customers that remain very cost-conscious and they are built into their commits and minimum commits. They are not spending above those minimum commits, first off. So we're not seeing usage above the minimum commit. Secondly, as you stated, we start to see projects, these large projects that we talked about that we derisk from our pipeline, many of those projects happen towards the second half of the year. Regardless of when we start those conversations, we just see those projects starting towards the second half of the year, and I would anticipate that we would see something very similar in 2025 as we did in 2024.

Understood. That's great. And then, Shlomi, on the security side with the business at 5% of ARR, is there going to be any additional sort of change in sales motion? I imagine that you're seeing traction with some of these really large customers, some of these large deals that you signed, particularly in the second half, buying onto the security vision. As you kind of try and push down into the mainstream of the enterprise base within the JFrog Ltd. customer base, are you contemplating any changes, incentives to drive to broaden the breadth of that adoption of the security solutions?

Yes. Sanjit, our strategic team and the entire sales force is armed with what it takes in order to scale with our security offering now matured, and 2024 demonstrates that. We were very pleased by these very big contracts that triggered a much larger deal because of the security addition. And it's now not only JFrog Ltd. advanced security and JFrog Ltd. curation. We launched JFrog Ltd. runtime recently, as you know. And the MLSecOps is stepping in. Customers are starting to inquire more and more about how they can secure AI models with the JFrog Ltd. suite. We reported today 250 customers that embrace our security solution. That means that we have a mission with an additional 7,000 and the rest of the industry. So we are very optimistic about it, and we will take it leap by leap.

Thank you so much, Shlomi.

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

Hey. Thank you, and congrats on a strong year to fiscal 2024. On the strategic collaboration agreement (SCA), that's also a software combination analysis. Great to see. I'm just curious, like, what's truly incremental about the agreement and then wondering what sort of increased resources might be allocated for procurement on the AWS side.

Yeah, Kingsley. As you know and as we described in the past, we are not just building our cloud solution. We are also building the relationship with the cloud providers. And with each of them, it's a different effort that we are pushing. Not only on the technology integration and improvement of the user experience in different regions, but also the commercial part of it. What we've managed to do with AWS together with our partners team is that we got to an agreement that will have more cost-effective scale to our customers. So, basically, with the better conditions with AWS, we can be more attractive with our customers, and this is a very important agreement as we keep scaling with the cloud overall, AWS specifically.

That's helpful. And then, Ed, you officially became CFO on January 1 of last year. And I think there's this idea out there in the market that the guidance philosophy may be changing and that there could be more upside to guidance now than in years past. So just how much credence is there to that idea? And then second, could you speak to just the fundamental drivers of upside this next year? Thank you.

Well, I don't think it's an idea. I think it's a fact. We've said it now a couple of times on the prepared statements that we're going with a much more conservative guide, and that's the philosophy that I'm taking. It's focused on a couple of things here, Kingsley. Number one is the derisking of these large deals that create swings in the quarter. We are taking those out of our guidance. Usage is certainly not something that we take into consideration in the guidance, and we're only looking at those opportunities that are committed strong commitments going forward. Therefore, I'm not pegging a number necessarily in terms of the beat, but I'm saying that it's much more conservative going forward than what you're used to from JFrog Ltd.

Makes perfect sense. Looking forward to this year. Thank you.

Your next question comes from the line of Ryan McWilliams with Barclays. Please go ahead.

Hey, guys. Thanks for taking the question. For Shlomi, how has macro been since the start of the fourth quarter? And did you notice any changes or improvement in your conversations with customers since the US presidential election?

Well, thank you for the question. We don't see a big change in the macro. We still see very conservative bets on the commitment, even if it's multiyear contracts. Projects that are in the pipeline are still being discussed. There is a lot of discussions about AI and MLOps in production, but still, customers are being very hesitant, and more specifically about the new administration now that the executive order was changed, taking a bit more time to wait and see what the new administration will bring in terms of regulation of AI adoption in production. But no specific change that I can report on.

Perfect. And then glad to see the strong security commentary. Do you think the fourth quarter going forward could see more seasonality for security sales, you know, like, as people make these decisions towards year-end and this more of an enterprise sale for JFrog Ltd.?

Well, if there is one thing, Ryan, that we learned in 2024, is that if you want to go after big contracts, you have to be patient. And to remind you all, we started the year with introductory prices of our security suite thinking that maybe this will be more tempting, but the big guys are taking their time before they are displacing other products and before they are betting on a holistic solution. And they also want to make sure it's a modern security suite that will fit the requirements in the future. So I don't think that you will see any type of special seasonality here, but I do think this is how we look at the pipeline. This is why we are being a bit more conservative than last year. I do think that proof of concept for security tools will take longer, and at the end, if the customers choose JFrog Ltd., this might be multiyear multimillion-dollar deals as we delivered in 2024.

Appreciate the color. Thanks so much.

Your next question comes from the line of Billy Mandel with KeyBanc Capital Markets. Please go ahead. And moving along, your next question comes from the line of Andrew Sherman with TD Cowen. Please go ahead.

Great. Thanks. Can you hear me?

Yes. We can hear you.

I like the new

There's no true-ups. As we stated before, most of our customers have moved to a monthly use-it-or-lose-it mechanism for their cloud, so we don't have the true-up that you saw previously. And so there was nothing that was of significant or large true-ups like we did in 2023.

Okay. Perfect. And then, Shlomi, and I know these aren't in guidance anymore, but you had a lot of strong big deals in Q3 this year. We'd love to hear what you're seeing in the pipeline given these are long sales cycles. Are there similar types of deals in the pipeline? And any commentary along enterprise traction would be great. Thanks.

Yeah. A lot of big deals in Q3 and some of them in Q4, and we were very pleased with the second half of 2024. We are looking at the pipeline. We have some big opportunities there to include not only cloud migration but couple it with the security. As we reported before, we are looking at it being very conservative with how we derisk the pipeline, and we will report in the next quarter and after about the future success.

Alright. Thank you.

Your next question comes from the line of Shrenik Kothari with Baird. Please go ahead.

Yeah. Thanks for taking my question. Congrats, guys. So, Shlomi, of course, you highlighted the 250 customers adopting advanced security and curation. So it's a real great job. I was just curious, beyond the big deal pipeline, again, I mean, that's great execution that we have shown so far. Are you seeing any signs of potential kind of correlation between kind of now having an integrated platform approach and also seeing some traction to the faster expansion or just in terms of visibility upsell, cross-sell? Since you mentioned about runtime interaction, so just curious into the incremental adoption of these advanced security modules or features, and then I had a follow-up for Ed.

Yeah. Well, thank you, Shrenik, for the question. Obviously, out of 250 customers we reported today that are using the new security suite of JFrog Ltd. as part of the platform, several that are really multiyear, multimillion-dollar deals. The best are supposed to go with the per-seat model, and we hope to see this growth coming in 2025 and after. Regarding the rest of the portfolio, the practices are there. The price plan is there. The team is mature. And we are ready to go after the opportunity. I think JFrog Ltd. offers not only the best holistic security in the market but also aims to future opportunities like MLSecOps threats and also better integration. One of them is with GitHub, another one with Hugging Face, as we mentioned. I'm really excited about what the future brings.

Great. I appreciate that, Shlomi. And just Ed, just in light of what Shlomi just said, just curious, how should we think about incremental top line and potentially margin contribution attributable to the security, incremental security adoption that you're seeing going forward? Not necessarily asking for the rest of the year, but just the broad frameworks of how should we think about incremental margin.

Yeah. So we have a very strong margin profile. We guide at the corporate level. So the 82.5% to 83.5% takes into consideration all products and all deployments. We do not break it out by security or other products; it's captured holistically in our corporate guidance that we provide in terms of our gross margin.

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

Yeah. Hey, guys. Thanks so much for taking the question. Only one from me here. Nice performance on the free cash flow margin to end 2024 at 25.2%, which is really close to your 2027 target model here. But when I look at the guide for 2025, 19%. So really just trying to understand the six points of margin degradation there in the free cash flow. And anything we should think about there from 2025 and the progression to 2027, or is this just, you know, kind of an effect of guidance conservatism on the revenue going down to the cash flow side? Thank you.

Yeah. Thank you, Koji. That's a great question. So first off, you know, we're very happy with our free cash flow and our free cash flow margin in the performance, but you also have to take into consideration a lot of large multiyear deals. Some of those customers choose to pay upfront. We don't necessarily know when they choose to do that. So you get some benefit of customers paying upfront. We also have very strong and disciplined practice around collections. So you see some of that benefit of that as well. As we head into 2025, again, we go off of a fundamental practice of around 4% to 5% difference from the operating margin. So as you start to see growth in the top line, I would expect that would trickle down to the bottom.

And, Koji, may I add this is Shlomi. This is not surprising, I hope. Because if there is one thing that you saw us delivering from the beginning is a very disciplined, efficient DNA around the efficiency of the business. So it's part of our strategy. It was not different in 2021, and it's not different in 2024. And the performance starts speaking for themselves.

Yep. Totally get it. Thanks, guys. Thanks for taking the questions.

Your next question comes from the line of Rob Owens with Piper Sandler. Please go ahead.

Great. Thanks for taking my question. This is Ethan on for Rob today. Shlomi, I just want to ask with the AI conversation shifting more and more towards agentic solutions, how does this kind of change the opportunity for AI, especially as we consider kind of the new capabilities brought by Block?

Well, Rob, putting all the AI stuff aside, I will say that the majority of our enterprise customers are already inquiring about having Artifactory as the model registry and making JFrog Ltd. the single source of record for AI models as well. That's by itself is a huge opportunity for JFrog Ltd. And our R&D and product team are focusing on fostering this opportunity. On the security side, there is a lot of kind of fake future about how you secure AI, how you secure your IP, and what the administration will set as a regulation. And we are setting our security tools with the future demand. We just released our first JFrog Ltd. ML as a result of the Quack acquisition as part of our platform. And we are learning more about our customers' demand. We said that we are conservative about the pipeline. Therefore, we didn't include any MLOps guidance in 2025. And we will learn as we go, focusing on the value for the customers.

Got it. That makes sense. And just as a quick follow-up, I think you mentioned in your remarks about parting ways with some smaller customers as you kind of focus on the enterprise opportunity. I was wondering if you could kind of provide some more color on that and, you know, maybe how that might have impacted the customer account number that you reported given it was down slightly year over year, I believe. Thanks.

Yes. We said starting Q1 of the previous year that we were going to be focused on execution, we are going to be focused on enterprise execution. We replaced 740 logos with 604 logos that have more chances to go with JFrog Ltd. and with what we offer. Some of the low subscribers, some of them are monthly users of our cloud. We had to focus the business. We had to focus the team. We had to focus our technology and offering, and that's some of the results. I hope that you would see more and more growth coming from the customers who choose to stay with JFrog Ltd. Again, still, the retention is super high.

As a reminder, if you would like to ask a question, please raise your hand. If you have dialed into today's call, please press star nine to raise your hand and star six to unmute. Your next question comes from the line of Billy Mandel with KeyBanc Capital Markets. Your line is now open. Please go ahead.

Hey. Can you guys hear me alright?

We can hear you, Billy.

Hey. Congratulations on a strong Q4. Just want to ask about the GitHub partnership, which was, of course, a hot topic into 2024. Curious to hear how you're seeing that drive pipeline, and maybe as we look out to the balance of 2025, what the evolution of that partnership might look like.

Yes. Well, we are getting wonderful feedback from the field about the GitHub integration. Customers who chose GitHub and JFrog Ltd. together are now enjoying a one-platform experience. We deliver that on the DevOps level, security level, and Copilot with AI. I think that what we currently hear is that customers are more interested in having a solution of Copilot with the JFrog Ltd. platform. So working with Copilot and enhancing the software supply chain management through this integration is mainly what they are focusing on. Because they are immediately pointing to the ROI of their development team using both of us together. So that would probably be our main focus.

Great. Thank you.

There are no further questions at this time. I will now turn the call back to Shlomi for closing remarks.

Thank you, everyone, for joining our call. May the frog be with you and happy Valentine.