FROG - NASDAQ

Ladies and gentlemen, thank you for joining us and welcome to JFrog's First Quarter 2025 Financial Results Conference Call. After today's prepared remarks, we will host a question-and-answer session. [Operator Instructions] I will now hand the conference over to Jeffrey Schreiner, VP Investor Relations. Jeffrey, please go ahead.

Thank you, Nicole. Good afternoon and thank you for joining us as we review JFrog's first quarter 2025 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 Ben Haim, and Ed Grabscheid, JFrog's CFO. During this call, we may make statements related to our business that are forward-looking under Federal Securities Laws and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements related to our future financial performance and including our outlook for Q2 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 can 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 31st, 2024, 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 31st, 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'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 Ben Haim. Shlomi?

Thank you, Jeff. Good afternoon and thank you for joining the call. We're kicking off 2025 on a strong note. Our first quarter results underscore JFrog's essential role as a system of record for software delivery from creation to production for customers prioritizing automation, scale, speed, and trust. The JFrog platform plays a pivotal role at the intersection of development, security, AI, and MLOps. And today, we're excited to share more details about quarterly performance driven by the solid execution of our strategic initiatives. In Q1, JFrog's total revenue was $122.4 million, up 22% year-over-year. Our operating margin of 17.4% demonstrates our commitment to profitable growth during a period of market uncertainty. Cloud revenue for Q1 equaled $52.6 million, representing 42% year-over-year growth, driven by increased consumption in addition to steady customer commitment. Our greater than $1 million customers grew to 54 compared to 40 in the year-ago period, equaling 35% growth year-over-year. Customers spending more than $100,000 annually grew to $1,051 compared to $911 in the year-ago period, equaling 15% growth year-over-year. Our strategic enterprise sales motion fueled by JFrog's software supply chain platform drove both growth and high enterprise customer retention, resulting in stabilizing net dollar retention, which Ed will further discuss later today. Now, allow me to address the core drivers behind our Q1 achievements. First, cloud growth. In Q1, we saw an overachievement in the cloud, driven by increased customer usage beyond contractual commitments, primarily fueled by developer activity. However, purchasing and budget constraints across our portfolio persist, resulting in longer sales cycles and delayed decisions to convert into commitment at higher usage tiers. Given continued macroeconomic uncertainty, we remain cautious and do not yet view this overage as a sustained trend. We have strategically invested in our multi-cloud and hybrid solutions, establishing them as a market standard, and work closely with our self-hosted customers to migrate to JFrog SaaS offering. We remain committed to capturing Q1's momentum across all core areas, DevOps, security, and MLOps. Next, to AI and machine learning. JFrog is the only platform that unifies DevOps, DevSecOps, and MLOps in a single solution. In Q1, we were proud to announce that all cloud enterprise customers now have access to JFrog ML, giving thousands of companies machine learning and model management technologies as part of their software supply chain solution. With the upcoming release of JFrog ML for hybrid customers, the JFrog platform is further solidifying its position as the system of record, not only for software packages, but also for AI models and artifacts. We believe we are leading the market with our natural model package approach, giving customers the 360-degree ability to manage the secure development of traditional software applications, as well as testing, training, experimenting, hosting, securing, and deploying machine learning models in a single solution. Driven by our security research and product teams, we also recently expanded our platform capabilities to include detection of malicious ML models with unmatched accuracy as validated by the community. Attacks on the ML supply chain are growing more frequent, requiring a new set of tools to protect all companies from threats that utilize malicious ML models as a Trojan horse into companies' AI development processes. This critical capability in security for ML or MLSecOps allows us to provide holistic security tooling across all package types, including AI artifacts, in one platform. Recognizing this reality, Hugging Face, the world's largest open-source AI and machine learning model hub, approached JFrog to help secure their entire repo of 1.5 million open-source ML models. Millions of global developers look to Hugging Face as their ML model hub, and Hugging Face is looking to JFrog to help fortify the community against malicious models. The CTO of Hugging Face, Julien Chaumond, said, “We are delighted to deepen our partnership with JFrog to implement high-quality scanning capabilities for our AI and ML models and deliver greater peace of mind for developers looking to create the next generation of AI-powered applications”. As part of our focus on security for the community, we were also proud to recently release our annual software supply chain State of the Union report, driven by customers' data, global surveys, and our security research team's unique findings. For example, the report shows that there were over 40,000 new CVEs published in 2024. However, our security research team revealed only a very small amount of these vulnerabilities were exploitable, highlighting the value of research-backed tools that help DevSecOps teams prioritize tasks. The report also revealed more than 25,000 secrets, such as login information or API keys were unintentionally revealed publicly, highlighting the need for secret detection as part of a consolidated software supply chain management and security approach. A great example in Q1 of security tool consolidation alongside DevSecOps policy enforcements comes from WalkMe, an SAP company which provides a leading digital adoption platform that helps organizations streamline user experiences. WalkMe serves over 1600 customers, including approximately 30% of the Fortune 500, with more than 35 million users across 42 countries. Using JFrog Artifactory as their binary repository, WalkMe made a decision in 2024 to migrate from various point solutions to JFrog Advanced Security and JFrog Eurasia. This migration delivered significant efficiency gains, unified their software supply chain security under a single platform, and enabled policy enforcements to curate and secure all externally sourced packages. Dan Adika, CEO of WalkMe shared, moving to JFrog not only improved our security posture across the software supply chain, but also allowed us to optimize our vendor landscape and consolidate around one system of record for DevSecOps. JFrog is looking forward to helping many organizations like WalkMe regain control and trust over the software supply chain, as we continue to see trends in consolidation of tooling and a move towards a holistic platform-based approach for DevSecOps. As an important part of our commitment to developers and development teams, I'm also excited to provide an update on our partnership with GitHub. In Q1, JFrog was on the road, meeting with top customers across North America and Europe, sharing our 2025 roadmap and strategic direction. The powerful partnership between GitHub and JFrog unifies processes across our best-of-breed platforms. With both solutions already standardized in many customers' development teams, we are jointly dedicated to providing a single-platform experience for users. We were proud to have GitHub CEO Thomas Dohmke join JFrog for our annual Leap events in New York and Frankfurt. As part of a fireside chat alongside customers, he noted, “GiHub and JFrog are part of the same systems. GitHub is the single source of tools for FOSSA [ph] and JFrog is the binary site of that workflow. We are bringing the best of breed systems together to enable customer experiences.” We are committed to building more strategic partnerships and integrations to deliver a too-integrated-to-fail experience across our customers' software supply chain. Whether developing software, implementing AI and ML practices, or securing the flow end-to-end. Before I hand it over to Ed, I'm proud to share that the outcomes highlighted today have positioned JFrog as the backbone not only for the majority of Fortune 100 companies, but also for some of the most cutting-edge new innovators. In Q1, we won a sizable Enterprise Plus deal with one of the world's most recognizable AI technology leaders, who are actively shaping the future of general artificial intelligence. Recognizing JFrog's unique hybrid capabilities, enabling fast developer velocity alongside enterprise-grade security, they selected JFrog as their system of record for software development and management. While the broad market remains challenging and the adoption of new technology faces growing pains and regulatory hurdles, we are energized by the strong business and technology accomplishments of Q1. We enter Q2 with excitement about the opportunities ahead, both across the industry and within our roadmap. With that, I will turn the call over to our CFO, Ed Grabscheid, with an in-depth recap of Q1 financial results and our updated outlook for Q2 and the full fiscal year of 2025. Ed?

Thank you, Shlomi, and good afternoon, everyone. During the first quarter of 2025, total revenues were $122.4 million, up 22% year-over-year. Our strong revenue results demonstrate continued execution of our go-to-market strategy with strength in our cloud revenues, growth in our Enterprise Plus subscription, and ongoing demand for our security core products. First quarter cloud revenues grew to $52.6 million, up 42% year-over-year, and represented 43% of total revenues versus 37% in the prior year. Our growth in the cloud was primarily driven by data consumption across our customer portfolio, which exceeded contractual minimum commitments. We believe this highlights the mission-critical nature of JFrog to our customers, and we strategically work towards converting this usage into annual commitments while continuing to navigate a rigid purchasing environment. During the first quarter, our self-managed or on-prem revenues were $69.8 million up 10% year over year. As a result of our cloud-first approach, we continue to observe our on-prem customers shift their investments in favor of capturing even greater value coming from our cloud solutions. In Q1, 55% of total revenues came from enterprise plus subscriptions up from 49% in the prior year. Driven by the ongoing execution of our enterprise go-to-market strategy and broader customer adoption of the JFrog platform, revenue contribution from enterprise plus subscriptions grew 37% year over year. Net dollar retention for the four trailing quarters was 116%. We continue to demonstrate that our customers view JFrog solutions as mission critical to their software supply chain with gross retention that equaled 97% as of the first quarter 2025. Now I'll review the income statement in more detail. Gross profit in the quarter was 101 million dollars representing a gross margin of 82.5% in line with our guidance compared to 85.1% in the year ago period. The change in gross margin relative to the year ago period was primarily driven by the increased mix of our cloud revenues. We expect annual gross margins to remain between 82.5% and 83.5% in the near future due to continued focus on cost optimization with cloud service providers. Operating expenses in the first quarter were $79.7 million of 5% sequentially equaling 65% of revenues. This compares to $71.3 million or 71% of revenues in the year ago period. The balance between strategic investments and operational efficiency demonstrates our commitment to profitable growth. Our operating profit in Q1 increased to 21.4 million dollars or an operating margin of 17.4% compared to $14.1 million or 14% operating margin in the first quarter of 2024. Cash flow from operations equaled $28.8 million dollars in the first quarter. After taking into consideration capex requirements our free cash flow reached $28.1 million or 23% margin compared to $16.6 million or 17% in the year ago period. Now turning to the balance sheet we ended the first quarter of 2025 with $563.5 million dollars in cash and short-term investments compared to 522 million dollars at the end of 2024. As of March 31st 2025 our RPO totaled $424.2 million a 62% increase year over year benefiting from customers multi-year commitments to the JFrog platform. And now let's turn to our outlook and guidance for Q2 and the full year 2025. While we see pipeline opportunities continuing to build the full year guidance does not capture the complete outperformance we achieved in Q1 due to the volatile macroeconomic environment which has grown more uncertain relative to the beginning of the fiscal year. We believe it is prudent to exercise caution in our forward outlook due to the current economic backdrop. Our updated guidance range suggests growing contributions from the JFrog security core broader adoption of the full JFrog platform and migration activity consistent with 2024. We continue to de-risk our outlook by excluding our largest opportunities given the uncertainty regarding the timing of customer deployments. We estimate full year 2025 baseline cloud growth to now be in the range of 31% to 33%. Cloud revenue guidance continues to exclude any contribution from usage above our annual customers' minimum commitments. We continue to expect our net dollar retention rate to stabilize in the mid-teens. For Q2 we expect revenues to be in the range of $121.5 million and $123.5 million equaling 19% year-over-year growth at the midpoint with non-GAAP operating profit anticipated to be between $17 million and $18 million and non-GAAP earnings per diluted share of $0.15 to $0.17 assuming a share count of approximately 120 million shares. For the full year of 2025 we anticipate a revenue range of $500 million to $505 million. Non-GAAP operating income is expected to be $74 million and $77 million and non-GAAP diluted earnings per share of $0.68 to $0.70, assuming a share count of approximately 120 million shares. Now, I'll turn the call back to Shlomi for some closing remarks before we take your questions.

Thank you, Ed. Our strong Q1 results were a reflection of the successful execution of our strategy across all three calls. Before we take your questions, let me quickly recap a few key highlights from Q1. We launched the world's first platform to unify DevOps, DevSecOps, and MLOps with the release of JFrog ML. We announced a partnership with Hugging Face to help secure millions of open source machine learning models and fortify the AI community. We also armed the community with our annual software supply chain state of the union report, illuminating the status of the enterprise software supply chain. We hit the road and welcomed our partners at GitHub as we met with top customers around the world, all while efficiently growing the business and exceeding our guidance. The JFrog team delivered amazing results. To my team, I'm proud of your efforts and grateful to stand beside you as we drive JFrog forward. These successes belong to you. Now while we are energized by these accomplishments, we also recently recognized Memorial Day and Independence Day holidays in Israel. We were quickly reminded of the many sacrifices that freedom requires. It is hard to truly celebrate when we know that 59 of our brothers and sisters, including American and European citizens, are still held captive in Gaza. We continue to hope and pray for a safe journey home and for peaceful days ahead. With that, thank you for joining our call and may the Frog be with you. Operator, we're now open to take questions.

[Operator Instructions] Your first question comes from the line of Pinjalim Bora with JPMorgan. Your line is open. Please go ahead.

Oh, great. Thanks for taking the questions and congrats on a very solid quarter. I just want to go back to some of your comments on the cloud numbers, Ed. Just want to make sure I understand this correctly. Was the consumption above commitment, was that broad-based across your customer base or was that a narrow set of customers and what have you seen in terms of consumption so far in April? And lastly, when you talk about the longer sales cycles and delayed decisions, is that something incremental that you have seen in Q1 or are you saying kind of that's been the environment so far in the last several quarters?

First of all, thank you for your question. It was a really strong quarter and as I mentioned, it was driven by data consumption. This was across a broad set of our customers, not only from the customer in terms of industry, but also from the geo perspective. Now, regarding your question on in-quarter, we don't comment on the in-quarter, so you'll have to wait until the public call in which we do a scheduled normal call in Q2. And then regarding the third question, which the life cycle on the third question, this is consistent with what we saw previously. It hasn't been an increase in terms of the sales cycle. This is what we stepped into 2025.

Understood. And Shlomi, I think you talked about a Q1 deal, most recognizable AI technology leader. I want to just understand, maybe help us understand a little bit more on that particular deal. Are we talking about a LLM provider? What kind of competitive dynamics did you see in the deal? Why did they make that choice? And is that basically end-to-end from artifactory to advanced security to everything?

Hi, Pinjalim. Wow. This is an amazing deal that we won a new logo, a company that we all know. And the first use case that they are now committed to is having JFrog platform as their system of records for all models and to provide services and agent services to their customers. Next, they will consider, according to their roadmap, JFrog security to secure the models before they leave their data centers. And last, they will also look at the ML models solution that we provide with the platform. So this is just the first quarter. We won it in Q1. We are very excited about it. But the potential is amazing. And this logo demonstrates exactly what we built the platform to.

Understood. Thank you so much.

Your next question comes from the line of Mike Cikos with Needham. Your line is open. Please go ahead.

Hey, team. This is [indiscernible] for Mike Cikos over at Needham. Thanks for taking our questions. I was wondering if you could give a little more color on how you thought through guidance construction. Have you seen any macro impact so far? And how exactly did you further de-risk the guidance on top of the more cautious approach you took entering the year? Was it more pipeline scrubbing or a broad cut? Any thoughts there would be great.

Hi. I'll go ahead and start and then Shlomi can fill in. So first off, we had a very strong quarter, as I mentioned, during Q1. And we did not carry forward the full benefit of that over-performance into the full year. Why didn't we do that? It's not necessarily based on something we saw at JFrog. It's the fact that we see uncertainty in the market. And we are being more cautious and adding prudence into the outlook based on this uncertainty in the markets. So there's no change in our philosophy. As you recall, we went into the full year with conservative guidance. We've de-risked our pipeline of the largest deals. And in addition to that, we're adding more caution based on the outlook and uncertain macro environments. In terms of the second half, again, we exclude our largest, more complex deals. And on a year-over-year comparison, if you remember, three of the largest deals were closed in the second half of 2024. Therefore, there may be some possible upside. But it's still too soon. We want to get through Q2, and then we can reevaluate where the markets are and provide updated guidance after Q2.

Yes, Mike, not a lot to add. But I will just tell you that everything that we wanted to see in Q1 happened, from the deliveries, the overachievements, and the pipeline building. But it's just the first quarter, as Ed mentioned. And we need to be cautious with how we guide you guys. So we're very happy about it and also happy to update the guidance according to our philosophy.

That makes sense. Thank you. And then on the lower commitments and the tighter environment, in the past, you've spoken about customers sort of stopping on-prem expansion while they await migrating to the cloud. Did you see any hesitancy or delays of any sort connected to the macro exacerbating this during the quarter?

We haven't seen any changes from the behavior through Q1 that we saw during 2024. It's a very similar behavior in terms of migration activity. Customers that are waiting to migrate will remain in their self-hosted instance, and they will not typically expand unless it's maybe security. However, we continue to build the pipeline, and we continue to see growth in our pipeline. And if everything plays out, we may see some of those opportunities in the second half.

Awesome. Thanks so much.

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

Yes, thank you for taking my question. And congrats on the really strong start to the year. Shlomi, I can remember the last time you spent so much time talking about the ML opportunity in your script. And so I wanted to dive into why and why now you're emphasizing this so much as part of your messaging. I mean, is there a theory there around models being the new binaries and JFrog not making that shift from compiled code binaries to securing models and how important that is to the business? I'd love to if you could just expand on the ML opportunity as you guys see it today?

Yes. Well, this is one of the most exciting things that we've released ever. Following the acquisition of Qwak AI, we worked very hard to implement their platform into the JFrog platform. And currently, JFrog is the only platform that provides DevOps, DevSecOps, and MLOps practices under the same solution. We are excited about it mainly because of the fact that it opens so many doors, including the Hugging Face integration, the integration with NVIDIA that we discussed in the past. Our customers that are telling us that they start to use JFrog Artifactory as their model registry and JFrog X-Ray as their scanner. Listen, we stand ready to what this models revolution brings to the universe. And I'm happy that we expanded the platform. We are looking forward to see how it will be translated into the pipeline.

Excellent. And then, Ed, sort of a question back on like the cloud business. Those customers that are consuming an excess of contract, what do you think their behavioral response is likely to be as the year goes on? Is it a situation where ultimately they'll have to sign a new commitment contract with higher usage? Do they just get to consume sort of on demand at their sort of original unit pricing? Or do you expect them to sort of curtail or optimize usage to get usage more in line with their commitment? From what you see today, how do you see that element from those customers exceeding commitment playing out?

Well, that's a great question, Sanjit. It's one quarter that we've actually seen usage over our minimum commit. If you recall, in 2024, we didn't have cases where we had so many customers across our portfolio, across geographies that have performed above our minimum commits at these levels. So we have to first evaluate, is this sustainable or is this something that is just one quarter? Now, what do we see? We still know that we're in a rigid purchasing environment. We know that it has become uncertain in terms of the macro environment developers are using. There is opportunity and they're being pushed not only by their boards, by their management to continue to innovate and develop, but you have the other side, which is the procurement and the office of the CFO that is pushing back. We're still in a cost optimized type of environment. So, you know, it's still too soon to know what's going to happen. They can continue to use over their minimum commits and will happily take that. It's not part of my guidance looking forward. And we'll have to see what happens.

Understood. Thanks so much, Ed, for the insights.

Your next question comes from the line of Brad Reback with Stifel. Your line is now open. Please go ahead.

Great. Thanks very much. Ed, just following up on Sanjit's question. If a customer goes -- if they use up their full commit, do they then go to the rack rate or do they continue to be able to consume at the price they had under the contract?

When they go over their commit, we actually have a penalty rate that they go and they use. But typically what we find is that customers will re-up if they see that this usage becomes consistent. So, we work very closely with the customer together with our sales organization to increase the data consumption package and get them pricing that's in line with expectations moving forward.

Great. And the RPO growth was as strong as it's been since the first quarter of '21 sequentially. Was that concentrated in a few large deals or was that broad-based?

Well, Brad, you remember in Q3, we closed three of the largest deals and we continue to close sizable deals. These are multi-year deals. These include security. The timing of our booking will certainly depend on how the performance of the RPO and the CRPO. But in addition to that, we now start to see our customers doing multi-year agreements and that's what's reflected in our RPO. So, we're seeing it across a broad number of customers. It's not concentrated to a few. It's not all of the customers, but it's certainly a strong indication of the demand coming to JFrog by our customers.

Great. Thanks very much.

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

Hey, thank you. So, for Shlomi, over a million new models and data sets were out of the Hugging Face in 2024, tripled from the year prior. It's approaching Docker and NPM. We also saw a 6.5% increase in malicious models. So, what inning are we in in terms of maturation of this ecosystem? And then with malicious models increasing at a faster pace, how aware are builders in the space of the potential risks out there?

So, Kingsley, thanks for the question. We are in the very early stage of implementing MLOps. Actually, to be honest with you, what we hear from our customers, specifically the enterprise customers, that there are two big question marks floating around the ML adoption. The first one is the security of the models and where models will go and how it would be governed and secured. And the second one, how much it's going to cost me when it will go up to production. So, together with our customers, we are building the roadmap. We are working with them on QBRs to prepare to the strategy, to answer their bold questions. And I think that though we are at the early beginning of ML adoption, it's unstoppable. Developers are already using it. They are not waiting. So, I think that what you will see next is that the enterprise start to align themselves with the demand coming from the bottom up.

Thanks. That's helpful. So, for Ed, I want to circle back on RPS. So, obviously, we've had some really strong commitments starting back from Q3, but even some great sequential growth this quarter. So, I just am trying to foot that with some of the challenges that you're seeing securing more commitments in Q1. I mean, were you expecting even higher RPO growth in this Q1?

Kingsley, we did exactly what we expected to do in Q1. In fact, we did better than we expected to do because the cloud usage was much higher than expectations. So, we don't guide for it, but we were pleasantly surprised by our cloud usage ending the quarter. Now, I would tell you the RPO, again, is based off of the multi-year and the strength in the multi-year that we see from several customers and where the market is going. They want to secure in this environment multi-year agreements to lock in pricing. And we also see now security being added on top of this. So, all of these factors. And in addition to that, Kingsley, the timing of when these bookings happen. So, Q1 of this quarter, as it's comparing to the prior year, is a significant increase because of the timing of the bookings, these large bookings happening towards the second half of 2024.

Really helpful. Impressive results. Thanks, Ed.

Your next question comes from the line of Miller Jump with Truist. Your line is now open. Please go ahead.

Miller, I think you're on mute.

Hi, can you hear me now?

Yes.

Sorry about that. So, thank you for taking the question. Just to follow up on that, you know, the scope of the deals has been obviously a big evolution point over the last year. Can you just talk about maybe any more detail on the pipeline you're seeing right now in terms of volume and number and dollar value of deals versus where you were at the same time last year?

So, what we are seeing, as we saw in the previous year, is that our big companies, big enterprise companies are securing bigger deals, especially around the platform adoption, including security. And our sales team is also triggering discussions around that to encourage the adoption of the full platform and security on top of DevOps. So, just like last year and the year before, the second half of the year is where we see more sizable deals coming in. And this is something that, as Ed mentioned, we are also de-risking when we provide you some guidance. But we see the pipeline growing and we are very encouraged about it.

Thanks. And then maybe for Ed, you know, you talked about de-risking on the revenue side. We have the guide for the bottom line as well. But just any color on, are you changing the way that you're thinking about investments going forward, given the macro uncertainty you called out, you know, either in the type of investments or the volume?

Well, Miller, you know, part of our DNA is to very much focus on profitability and make wise decisions. We balance our investments and our profitability and therefore never really get ahead of ourselves so that we can manage through these uncertain periods of time. And the way that we built the guidance, because of the conservatism on the top line, we believe anything that we overachieve would flow to the bottom line.

Yes. And with that, Miller, as you saw in the past, in 2024, it was Qwak AI. Before that, Pidu [ph] and other companies. When we need to move fast and when we need to invest more, whether it's on the go-to-market side or the R&D, the IP, the expansion of the platform, we use this efficiency also to become fast and to become aggressive toward the opportunities that we see in the market. Therefore, you see now that JFrog is the only solution in the world that provides all three practices under one platform.

Understood. Thank you.

Your next question comes from the line of Raimo Lenschow with Barclays. Your line is now open. Please go ahead.

Hey, guys. This is Eamon Coughlin on for Raimo Lenschow. Thanks for the question. Great to hear your traction with the GitHub partnership. Are you seeing any impact to landing net new deals or expanding usage with your existing base from this partnership? Or is it too early to tell?

Remo, we are completely astonished about the reaction of our customers to this partnership. It was so clear to everyone that these two best-of-breed platforms should play together as one. As I mentioned in the call, we traveled together with the GitHub CEO, with Thomas, in Europe and in the U.S. We met our top customers. Hundreds of them are already adopting the solution. Now, regarding new logos and new opportunities, obviously, it makes it much more stronger as a message to the state who is doing source code and who is doing binaries, and how the security plays together and how co-pilot and our AI capabilities are playing together. But it's across the board. It's coming from developers' usage. It's coming from security adoption. I'm not sure that we can put the finger on what's specifically growing, but we see the growth, and we also see the growth in the pipeline.

Got it. Thanks, Shlomi. And then for the JFrog's core security platform, just curious if the performance in 1Q was better than expected, how we should think about the pipeline for core security throughout 2025, and then how that go-to-market motion is evolving for this product.

We are very pleased with what we saw in Q1. As you know, we will disclose all numbers at the end of this fiscal year. We are pleased with what we saw coming in in Q1, and we are very much happy about what we see in the pipeline. Still on us to make sure that it keeps growing at the same pace as we demonstrated in 2024.

Got it. Thanks, guys.

Your next question comes from the line of Mark Cash with Raymond James. Your line is now open. Please go ahead.

Thank you. Yes, so Shlomi, maybe going back to that last question, and realizing it was just last week, but JFrog's presence at RSA has really grown over the years. So just really curious as to any takeaways coming out of RSA for JFrog. Any areas that stood out as advantages to capitalize on from a product or channel partner perspective to you?

You mean overall or specifically on security?

Really on security, just because the way we've seen the booth and the presence grow in RSA.

Yeah. So what we have heard in RSA is that two trends are heavily happening. The first one is consolidation of tools. One of them was included in today's call when I spoke about WalkMe and the consolidation of tools, moving from multiple tools to JFrog as a platform solution. The second thing, and this is another big opportunity for us to grow, is the security around models. It's not anymore just software packages. It's not anymore just a few type of binaries. It's also the new era of AI with the primary asset of models and how you secure that. So you will see more partnership coming in with JFrog, and you will see more use cases that developers are not just securing their software packages, but also models. As I said, we are happy about the Q1 results. We are more than happy, and thank you for reminding me, RSA and RSA results. And we are building the pipeline to make sure that we deliver what we committed to at the end of the year.

Great. And for Ed, you know, I think last year you guys had a focus on making sure you had quality accounts that would expand, you know, now we're a quarter into '25. I guess, how's your confidence in growing the base? Obviously, like the bigger customers are doing well, but just kind of growing the funnel and the base, and then what would be the key drivers of getting momentum there? Thank you.

Yes, we see still great momentum in our customers moving from lower subscriptions into the enterprise. And in particular, if you look at E+, the growth that we generate from our E+, customers, today now more than 55% of our revenue is coming from E+, and we have significant growth over 30-plus percent in year-over-year revenue growth coming from that particular subscription. So we do see nice momentum. Now, regarding how do we continue to carry that going forward, as we add more value to that platform, and we continue to add more products to enterprise, this quarter we added ML to the platform. We will start to see more of our customers moving from the lower subscription to higher subscription, and we have a long runway to go, still with less than 10% of our customers in E+.

Yes, Mark, I think just to add a bit about what Ed mentioned, the balance between what you want to add as a value only to your enterprise customers and what you have on the lower subscription is something that we work on for the past 15 years. On one hand, you want to promote the top of funnel, those who doesn't start at the platform level, and on the other hand, you want to differentiate the platform. This quarter, we added MLOps capabilities. We expect to see even more migration from lower subscription to the enterprise plus.

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

Yes, hey, guys, thanks so much for taking the questions. When I look at the investor deck, I love how you guys are sticking with this 2027 revenue target. I really like the confidence there, but it does seem like growth kind of accelerates from here out of 2025, and so just curious on why are you so confident with that 2027 target still?

Thank you for your question regarding the long-term model. We are still evaluating that. As we said actually last year, we are on track. We're on track, and in fact, after even Q1, we remain on track with the long-term model, but there is uncertainty right now that we have to take into consideration, and we'll revisit the long-term model, and we may come back to you in the second half of 2025 with updates.

Got it. Thank you. And one thing I'm really liking about JFrog, maybe even more than the growth, is the cash flow generation, and so you did 23% free cash flow margin this quarter. I think this is the best ever for a Q1, and when you look historically, free cash flow margin generally builds throughout the year, so I'm trying not to get ahead of my skis here, so maybe help me understand the free cash flow dynamics in the first quarter. It does sound like cloud overage maybe helped out a little bit, but just really thinking about it against the 20% margin guide for 2025.

Yes, so free cash flow in Q1 seasonably tends to be where we have many of our payments first off, so annual payments are in Q1, and the second piece to take into consideration is the conservatism on the top line, so because we remain conservative on the top line, we don't take into consideration the large customer opportunities, and we're not taking that into consideration in our free cash flow. It's not captured in free cash flow margin. So today, any overachievement that we would have on our top line would flow to the bottom and potentially improve free cash flow margin and what we're showing in the long-term model -- or in the investor deck, excuse me.

Thank you. [Speaker 4] Your next question comes from the line of Andrew Sherman with TD Cowen. Your line is open. Please go ahead.

Oh, great. Thanks. Shlomi would love to hear a little bit more about the pipeline of big deals in large enterprise, if you can, and given what you did last year, which was so strong in the second half, do you see that kind of playing out more Q2 or second half, and how is, like, pipeline coverage versus a year ago levels?

Yes, Andy, you probably all understand that if we have a big deal in the pipe, it's already there. No big deal -- no sizable deal of multimillion-dollar deal is coming in a quarter before. So we are working on it, promoting it, building the relationship. And still, while we guide you guys, we de-risk those meaningful, sizable deals. So we have a few of them in the second half of the year currently projected, and we are very excited about it. All of them include not just DevOps but also security, the majority of them coming from the cloud as we plan it strategically. And some of them might even include other elements that we added this year, but it's too early to tell.

Okay, great. And speaking of security, have you seen any change to the sales cycles there, specifically given that it's a different go-to-market motion? And on customer renewals, for those that have been on advanced security for a while, how have those renewals gone in the reception to the roll-off of intro pricing? And then if you're able to display some point solutions in the process, and that helps fund the budget, it would be great to hear about that.

Yes, so first of all, regarding security, the pipeline is being built, as I mentioned. And cycles are the same. I'm happy to see that most of our customers and prospects that are now looking at JFrog are taking security as part of the complete solution. So cycles are the same cycle, but maybe with more capabilities included. Regarding renewals, as you remember, the second half of 2024 was a bit more busy in terms of our security deals. So we'll see in the second half, I will be able to come up with maybe more information and insight about it. But what we've seen so far, one quarter behind us, what we've seen so far is very much aligned with our projection in terms of renewals and even upselling some of our customers.

Great. Thanks, guys.

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

Yes, congrats on the great quarter. So just to follow up on MLOps, I understand it's early days, and you and Ed have said that they're not baking any MLOPs-related monetization into this fiscal guidance. But I think you said you have rolled out a credit-based monetization model for AI usage. Just as you are kind of test pricing levers across your customers, just if you can comment, Shlomi, on how the adoption telemetry is looking like. Is the AI usage exceeding kind of the commit minimums or any internal thresholds that you had in mind on these early accounts? And just curious, like, how to think about potential contribution here? And then I had a quick follow-up for Ed.

Yes, thank you, Shrenik. ML is out as part of the JFrog platform for around two months. So while we are excited and some of our customers are already starting to use it, it's too early for me to judge whether it's going to be part of the pipeline building or it's too early. As I mentioned, there are some governance and budget questions, not necessarily technology questions around it. And this is why we decided that the MLOps capabilities will be part of your Enterprise Plus subscription. And in order to grow with us, in order to scale with us, then you will be able to buy more ML credits. So even if someone started to use it two months ago, it's still part of the package. We don't yet see a significant impact on the pipeline, but we are looking forward to providing you with more information once we will have evidence from the market.

Got it. I appreciate that, Shlomi. And Ed, I know you said on the call that you won't comment on in-quarter, but just if we can elaborate on anything at all, any changes in linearity across the first quarter, particularly in enterprise accounts. Are you seeing more deals late in the quarter versus more the usual even staggered patterns that you typically see? Just any sense there?

So, Shrenik, outside of the usage that we saw in Q1, that on a year-over-year basis is totally different than what we saw in Q1 of 2024. The linearity and our expectations were perfectly in line.

Perfect. Thanks a lot. Appreciate it.

Your next question comes from the line of Jason Celino with Keybanc. Your line is now open. Please go ahead.

Yes. Thanks for taking my question. You know, when we look at the sequential growth on the cloud side, it's the biggest Q1 we've seen and, frankly, one of your biggest quarters outside of a Q4 on the cloud side. It sounds like most of this was driven from consumption. Did any of the upside that you saw come from, you know, that enterprise deal that you signed, or was it just signed too late in the quarter that it wouldn't have contributed anyway?

Yes. Hey, Jason. Consumption was above the average, especially after '23 and '24. We were excited to see developers coming back and using and consume from our cloud services. But let me be clear. It was across the board. The deals that we submitted in Q1, the contracts that we secured in Q1, the long-term contract, the adoption of our security solution. I think that on all fronts, and if you add to it also the free cash flow, RPO, all fronts, we scored high. And may I also remind you and everyone else, this is the third quarter in a row that we are exceeding our guidance, and we see a momentum here that we want to keep. It's not only because of technology adoption. It's also because of the strategic way we build and execute on the pipeline.

Okay. Excellent. And then maybe just a clarification for Ed. You know, given it was an acceleration in Q1, and then the guide you're taking up for cloud for the full year goes up by about a point. So your visibility to the rest of the year, I understand you're trying to be prudent and thoughtful with how you're thinking about the rest of the year. But how should we think about the pace of decel? Because you're looking at 10 points of deceleration just to end the year on an average basis. You know, would you think that the pace of decel would be, you know, more second-half weighted? Or any help you can help with the linearity there?

I'm happy to help, and I'll give you three very easy bullets to understand. Number one, the de-risk of our pipeline from the largest deals. And as you know, those typically happen in the second half, and those are typically cloud migration deals, and they're not factored into our guide. The second is the conservatism that we've already built in our guidance, which we've explained as we stepped into 2025. So we're being more conservative. And the fact that I'm not carrying over the full outperformance of Q1 into the full year. We have to evaluate to see where we're at after Q2, and you may see some opportunity. But again, it's too soon to know.

Okay, thank you, Ed.

Your next question comes from the line of Jonathan Ruykhaver with Cantor Fitzgerald. Your line is now open. Please go ahead.

Yes, hey, guys. So I just have one question. And I realize that code suggestion is not a focus of JFrog, but just looking at the impact of Open AIs proposed acquisition of Windsurf, it just makes one think. There are a lot of dynamics at play. OpenAI seemingly is going to be competing more directly with GitHub Copilot, in addition to Amazon Code Whisperer. But I think that, you know, from my perspective, it seems to point to heightened competition, obviously, between the AI platforms. And, you know, we're seeing those platforms move towards tighter integration of the various solutions across the development tool chain. So I'm just curious, Shlomi, on your perspective on how this potentially impacts the repository opportunity. It doesn't, you know, drive more strategic partnerships.

Yes, that's a great question. And as we know, this market evolves very fast. Currently, from what we see, and specifically from the player you mentioned, that we work very closely with them, the more, the merrier. It's not overlapping the model registry we provide. For sure, it's not overlapping the other software packages that you need to use in order to drive AI. It's not covering the security and the model scanning that we provide. So what the future will bring, I don't know. But currently, we are collaborating. And the synergy is actually what our customers are asking for. So currently, my answer is that I see more collaboration than competition.

Yes. Okay. 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. We are very, very excited about this quarter. We are excited about what ahead. And we wish you from here, from the swamp at Sunnyvale, a great afternoon. Thank you.