Ladies and gentlemen, thank you for joining us. And welcome to the JFrog Third Quarter 2020 Earnings Conference Call. I'll hand the conference over today to JoAnn Horne of the JFrog Investor Relations team. JoAnn, please go ahead..

Good afternoon. And thank you for joining us, as we review JFrog’s third quarter financial results, which were announced following the market closed via press release earlier today. Joining us will be JFrog’s CEO and Co Founder, Shlomi Ben Haim and Jacob Shulman, JFrog’s CFO.

During this call, we 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, including our outlook for the fourth quarter for the full year of 2020. The words anticipate, believe, continue, estimate, expect, intend, will and similar expressions are intended to identify forward-looking statements or similar indications of future expectation.

You are caution not to place undue reliance on these forward-looking statements, which reflect our views only as of today, and not as at any subsequent day.

Please keep in mind that we are not obligating ourselves to revise or publicly released the results of any revisions 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 discussion of material risks and other important factors that could affect our actual results, please refer to our prospectus filed with the SEC dated September 15, 2020, which is available in the Investor Relations section of our website and the earnings press release issued earlier today.

Additional information was made available in our quarterly reports on Form 10-Q for the quarter ended September 30, 2020. And other filings reports that we may follow 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 not in isolation from GAAP measures. Please refer to the tables in our earnings release for reconciliation of those measures to their most directly comparable GAAP financial measures.

A replay of this call will be available there for a limited time. With that, I'd like to turn the call over to JFox’s CEO, Shlomi Ben Haim.

Shlomi?.

Thank you, JoAnn. Good afternoon. And thanks for joining us for JFrog’s 2020 third quarter earnings call, which is our very first as a publicly traded company. We're proud and excited to have become a public company listed on NASDAQ under the symbol FROG in mid-September.

Before we get started, I would like to wish you and your loved ones the best of health, as we all face the new reality in how we learn, walk, communicate, and more. We are all affected by the current environment. And we look forward to better days ahead. This is JFrog’s first quarterly report.

Therefore, I would like to take a moment and thanks, JFrog’s employees for what we have built together. These employees we call the frogs are the reason for the company's success. And what makes us leap forward. Let me begin by explaining both our business and vision to put JFrog’s Q3 results into context.

As I start, I'd like you to ask yourself a couple of simple questions. What version of video or audio conference software are you using right now to attend this call? on your LinkedIn or Facebook application, what is the current software version you're using? When you watch Netflix at home what version do you use? Of course you don't know.

No one knows. I don't know. And frankly, as a user, you don't care. You just want up to date reliable, secure software without any hassle. Imagine there are no versions. This is JFrog’s liquid software vision, award without software versions, where the word software is updated seamlessly and securely without the hassle of update processes and downtime.

My co-founders Fred Simon, Yoav Landman and I launched JFrog in 2008 with a mission to make software development and delivery easier to manage through a process of what is known today as DevOps. As developers ourselves, we predicted the change in the way software is being built, released and deployed, not only by developers, but also by machines.

Since that time, JFrog has pioneered the complete end-to-end platform for continuous software release management, also known as CSRM. We are honored that more than 75% of Fortune 100 companies use JFrog to build and deliver software rapidly and securely daily.

As a brief overview of the business and financial, I'm pleased to report that for the quarter ending September 30, 2020, JFrog revenue was $38.9 million, a growth of 40% year-over-year for the same period. Non-GAAP operating income was $5.1 million more than double the prior year level.

Also, in Q3, we achieved a record level of quarterly free cash flow of $9.7 million. We continue to have a broad customer diversification and no single customer represented more than 2% of the company's revenues.

Our product continues to be mission-critical to our customers, regardless of COVID headwinds, and our growth retention remained in line with historical trends, demonstrating this criticality. In Q3, approximately 87% of revenue came from customers subscribed to our multi-product offers.

19% of revenue came from our platform enterprise plus subscription, which gives customers access to all JFrog’s products as an end-to-end solution.

We are proud and humbled by this growth to date, and we believe these results demonstrate JFrog’s increased adoption in the marketplace, as organizations continue to embrace modern software infrastructures, and transform into a digital world.

But saying that every company has become a software company or software is eating the world almost sounds like a cliché. However, we realized that conversation in companies board rooms are now focused on delivering digital experience and gaining competitive advantage to software, especially during today's challenges.

It is not a question of should we do it, but more when and how? How can we improve our user experiences and engagement with software? How can we be faster than our competitors yet be secure? What change is required, so rapid software releases will run on smooth yet resilient platform and increase go-to-market speed.

JFrog is leading the charge in these areas. Since the only way to implement software fast, securely and efficiently, with no downtime is through automation of the CSRM processes. And for that reason exactly DevOps shines.

As the word experiences this exploding amount of software, as a result of digital transformation, everyone is looking to be part of the software gold rush. And JFrog is the provider of the picks and shovels to millions of software developers around the world. We introduced the words with the first binary repository manager in 2008.

And claim that binary is also known as software packages will become the primary asset in the new software lifecycle. Today, JFrog offers an end-to-end hybrid, multi-cloud universal DevOps platform to empower organizations, developers and DevOps engineers to meet increased delivery requirements.

Of course, DevOps isn't a single process, but many connected tasks and tools across teams. And with the explosion of cloud native technologies, across open source, containers, Kubernetes and others. These teams face an even bigger challenge for organization such as how to manage the different technology types, that each have their own requirements.

This is why JFrog strategy of universal package management is so important. Modern development organizations use more than five different software package types regularly, and our customers routinely utilize more than 20 of them.

If you cannot centralize your package repository manager or you isolate management to a single technology, your development lifecycle will be slow and messy, and no software automation, no integration process will meet the needs of the organization.

Our product philosophy is based on the user's freedom of choice, we’ll provide you with a universal solution that integrates with every developer’s ecosystem, and can be deployed in every environment. Our federal developers call it the Switzerland of DevOps, while our enterprise customers call it an anti-vendor locking solution.

Starting with our Flagship product, and the heart of the JFrog platform is JFrog Artifactory. Not only is it the industry stand out, and the mother of all repositories, but also the only universal tool that supports over 25 technology types, comes in high availability version and scales to infinity.

Then JFrog Xray, our security tool that natively integrates with Artifactory and provides a full vulnerability and license compliance solution that integrates with the developer’s ecosystem. Xray helps the CISO of the word shift left and avoid security bottlenecks.

JFrog is how you take Ablaze [ph] software package release bundle and deploy it into the edge security. This tool chain creates the circle of trust in the CSRM and workflow, JFrog pipelines our CI/CD solution and the result of an acquisition we made in 2018 integrates and automates the flow of binaries through the DevOps pipes.

We build JFrog Mission Control and JPEG Insight the admin user dashboard to provide a holistic view of the platform and simplify the configuration and Resources Management in a multi-zone, multi-server environment. These tools together form our complete end-to-end platform.

And this is what sets us apart from the competition who are of years behind in the approach. JFrog’s market is very large and growing at a fast pace. Looking at the landscape, we see several additional tiers of opportunity for our business. Many potential customers still rely on Hong Kong Solutions that were built only 5 or 10 years ago.

These solutions are often incomplete, and will be replaced with robust but simple solution like JFrog that support modern cloud native technology and scale. The market also attracts competitors who attempt to solve certain aspects of the software development cycle. This point solutions fall short by not focusing the solution around software packages.

Not being fanatically universal, not offering security tools as part of a platform, not being hybrid nor multi-cloud. Focusing on legacy technologies their business has relied on for years, instead of adopting DevOps innovation to solve this pain. In Q3, we were proud to deliver updates requested by our customers and community.

Our RMD core team focused on solid roadmap execution that prioritize feature releases that specifically answered work from home challenges. This includes improvements in security tools, distribution, and team collaboration around DevOps. For example, we released peer-to-peer download functionality for automated software package distribution.

This capability not only accelerates the distribution flow, but also eases the strain on network resources. We also greatly enhanced our customer’s ability to operate in highly regulated urgup [ph] secured environment, helping users find and validate release bundles with JFrog distribution.

New security scanning, scan reporting and license compliance capabilities were added to JFrog Xray to serve companies with multiple security stakeholders. JFrog pipelines extended its reach into the community by releasing the ability for users to define their own reusable pipeline steps to centralize and simplify automation.

Alongside, a self-manage offering our hybrid platform continues to be a growth engine for JFrog and drive speed, security and efficiency for our customers. The adoption of the cloud was accelerated by COVID-19, which created the need for more data transfer and software delivery for our customers.

The remote walking word driven by COVID makes customers appreciate the ease of setup, while addressing the remote access required. Our cloud format, and SaaS revenue growth has significantly exceeded self-managed solution growth for the past two quarters.

In fact, JFrog was recently named number 14 on the Forbes Cloud 100, listing the world's most influential and successful cloud companies. This is our third year in a row selected to this list.

To continue this cloud momentum, in the third quarter we launched the JFrog free community offering in the cloud, responding to the demands of the community and giving developers easy access to our platform.

This offering includes JFrog repository Artifactory, as well as security scanning and software development pipelines orchestration tools, which are now available to the community on all major cloud providers, AWS, Microsoft Azure and Google Cloud in multiple regions.

We already see this offering increasing the number of JFrog’s cloud users by thousands, as well as increasing traffic to other digital and educational resources we provide. From a cloud partnership perspective, in Q4, we are hosting a dedicated DevOps Cloud Days Conference, alongside our partners AWS, Microsoft and Google.

This event is co- marketed, co-hosted, addressing the needs of H-CLOUD communities developers in a dedicated day for H-CLOUD. JFrog always balances between the needs of the business and the needs of the developer, since software packages are being produced and consumed by millions every day.

These packages are the lifeblood of liquid software that starts in developers communities that create them for all organizations. A key component of addressing developer community needs is providing tools that support their ecosystem tool chain, with minimum sales and marketing innovation.

For example, in Q3, our teams improved the JFrog command line interface to enable easier ecosystem integrations with JFrog product, released more open-source plugins to serve the community better, including CI/CD and observability tools integrations.

Released chart center as the community hub for cloud native developers assets, lead the C and C++ community with JFrog’s common package manager to further enhance these technologies and support the evolving IoT world. Over 70 companies have already shown interest in joining this effort.

JFrog held the first automotive DevOps summit with users from companies like Toyota, Volvo, Daimler and more. The demand from the market and our community involvement is at an all time record. This is also a great opportunity for me to welcome Ms. Micheline, our new Chief Marketing Officer.

Micheline is a veteran marketeer who brings vast experience in building high growth organizations from leading companies where she served such as Zscaler, Xactly, Salesforce and Sun Microsystems. Turning to sales.

JFrog is driven by inbound insight sales motion only, allowing us to keep the mantra of delivering products both by developers and not sold. Our land and expand revenue growth is driven by upsells to current customers, alongside initial entry point sales to new customers.

In fact, as of September 30, we had 313 customers with ARR greater than $100,000, of which nine customers were over $1 million. We are focusing on our sales and marketing growth, and we'll keep invest, while scaling. Alongside our inside sales team, we started to build JFrog strategic sales team by region.

This team is already expanding our footprint among our top 100 accounts and ensuring a smooth adoption of our platform. As such, our cohort goals is solid, a net dollar retention for the trailing four quarter was 136%. This is an important metric to judge our progress.

In terms of our overall sales performance and funnel conversion with so, a trends of time to sell increasing slightly during COVID-19. These are increasingly getting escalated higher in the organization due to budget cuts, or people's to executive approvals for expenses. And distributed workforce are making customers internal processes more complex.

We saw a brief dip in demand at the beginning of the pandemic, as well as a longer conversion time from trial or bankers to paying customers. Since then, we've seen demand growth improve. And we are confident that the ongoing free trials and new community cloud offerings will be converted in the future.

This momentum demonstrates the adoption of our multi-product offerings by the enterprise despite COVID and expressed budget concerns. Our expansions model in the self-hosted offering grows not only by adding additional servers, but also through demand for other products on top of Artifactory, such as Xray and Distribution.

To illustrate this, in Q3, we landed one of the world's largest retail brands utilizing JFrog across both self-managed and SaaS services, and hosted on Microsoft Azure. These drivers included the need to diversify their deployment across self-managed SaaS and multi-region offering in order to allow easy and smooth access for their team.

In addition, in Q3, our customer, a market leading company in cloud software for customers engagement and operational excellence, expanded its SaaS agreement to over $1.2 million in ARR, while upgrading to the complete JFrog platform to support distributed development teams around the globe.

This is a small sampling of successes, and we're excited about where we're going next in Q4. As we wrap up 2020, we plan to invest our resources in supporting new package types and technology enhancements, that helps our customers build and deliver even more rapidly and securely.

These investments will support our growth in 2021, allowing us to scale even further when the market recovers. With that, I'd like to turn it over to our CFO, Jacob Shulman for more detailed financial results..

Thank you, Shlomi. And thanks for joining us for our first earnings call. It's been an exciting time. And I want to thank my team and everyone who helped get us to this point. We are very pleased to have started our public company life with such a strong quarter. Before we look at the results, I wanted to quickly review our revenue model.

JFrog generates revenue from subscriptions. We categorize our customers into two segments, self-managed, and cloud SaaS, both of which pay a subscription fees. Self-managed customers pay based upon the number of servers, tied to a multi-tier subscription price. Self-managed customers can operate on-prem or in a private or public cloud.

Our cloud SaaS customers pay a subscription fee based upon consumption of storage and data transfer. We report two revenue lines. The license line is related to a small percentage of the revenue from the self-managed customers, which must be recorded as license and the remainder as a subscription revenues. So let us turn to the third quarter results.

Please note that all numbers referenced in my remarks are on a non-GAAP basis unless otherwise stated. A reconciliation to comparable GAAP metrics can be found in today's earnings release, which is available on our website and as an exhibit to the Form 8-K furnished to the SEC.

Total revenues for the three months ended September 30, 2020 was $38.9 million, up 40% year-over-year. Self-managed revenues, also often called on-prem were $30.1 million, up 32%. Cloud revenues grew faster, up 74% to $8.8 million, or 22% of total revenues compared to 18% of total revenues last year.

Our installed-base continues to expand driving 136% net dollar retention for the trailing four quarters. During COVID, we saw lower upsells from some customers, which reduced our net dollar retention in Q2. Net dollar retention in Q3 was largely flat with the rate in Q2 on a standalone basis. And we are seeing the same trend quarter-to-date.

As such, we expect our trailing four quarter net dollar retention will remain above 130% for the next several quarters. As of the quarter end, we had 315 customers with ARR of over $100,000, up from 286 customers as of June 30. Of the 315 customers, nine had a ARR greater than $1 million as compared to eight customers in the previous quarter.

Now let's review the income statement in more details. Gross profit in the quarter was $32.2 million, representing a gross margin of 82.7% compared to 82.5% in the year ago period. We continue to improve the cost structure of our cloud infrastructure and gain better margins on our cloud deployments.

R&D expense was $8.9 million, or 23% of revenue, in line with the same ratio in the year ago quarter. We have continued to invest significantly in R&D, including the rollout of our free tier in Q3, along with expanding the capabilities of Xray and Distribution.

Sales and marketing expenses were $13.3 million or 34% of revenue compared to 36% in the year ago period. We've benefited from a number of cost saving measures this quarter as a result of COVID, including the reduced travel and converting marketing programs to an online mode.

Note, that approximately half of our sales and marketing costs are spent on community related functions, which are key to our developer driven model.

G&A expense was $4.8 million or 12% of revenue compared to 14% in the year ago period, G&A reflects an increase in our public company costs, including our D&O insurance policy costs only for a portion of the quarter since the IPO.

Non GAAP operating income was $5.1 million or a 13% operating margin, increasing from $2.5 million or a 9% margin in the year ago period. Non-GAAP net income in the quarter was $5.3 million or $0.05 per diluted share, based on approximately 100 [ph] and $1.8 million weighted average diluted shares outstanding.

Turning to the balance sheet and cash flow. We ended the quarter with $578 million in cash and short term investments, including $393 million in IPO proceeds. Cash flow from operations was $10.8 million in the quarter, after taken into consideration CapEx, free cash flow was a record $9.7 million.

We are pleased to have been cash flow positive for more than five years, though we continue to review the balance between growth and cash generation every quarter. I would now like to turn to our outlook for the fourth quarter and the full year 2020.

Revenue for Q4 will be $40.9 million to $41.9 million, with non-GAAP operating income of $1.2 million to $2.2 million and EPS of zero to $0.02, assuming share count of approximately 104 million shares.

While we don't provide guidance on he operating expenses, we do expect an increase as a percentage of revenue in Q4 due to a number of items, including increased R&D, public company cost, the bounce back from the - sum of the reduced spend due to the COVID shutdown, along with sales and marketing costs related to the new cloud community offering.

For the full year, we expect revenue of $129 million to $150 million. Non-GAAP operating income of $12 million to $13 million. Non-GAAP EPS of $0.11 to $0.13, based on the share count of approximately $101 million diluted shares. Now, let me turn the call back to Shlomi for some closing remarks, before we take your questions..

Thank you, Jacob. We believe JFrog continues to be positioned well in the market to address the needs of business going through rapid digital transformation. As a co-DevOps vendor, we see it as our responsibility to lead the market through the must happen changes in the software update landscape.

It is our mission to make DevOps a bridge not only between developers and ideal operators, but to an era of liquid software. Thanks for your attention, and may JFrog with us..

[Operator Instructions] Our first question comes from a line of Sterling Auty with JPMorgan. Your line is now open..

Yeah, thanks. Hi guys. In your prepared remarks, you talked about the health of the free trials in the community and expressed confidence and being able to convert that into new customers.

I'm just curious, what is it that's giving you the confidence that you should see healthy customer conversion as you finish off 2020 and head into 2021?.

Yes, good afternoon. This is Shlomi. I'll take this question, actually a great one. And I'll start by saying that we are very excited to have our first earnings call.

With regard to the demand, what we are looking at is award that, you know, food is being delivered by software, our kids are learning from home enabled by software, even COVID is being monitored by software. So the demand is there, because software needs to be updated.

And organizations already get that and the transformation that organizations are now facing is not just transformation of making your business digital, but also making sure that you build the secure when you deploy software faster. Now COVID started with what I think a market shock.

And then what we've seen is that more and more demand to solutions like JFrog came from cloud users and cloud native technologies. Therefore, we saw a growth in the demand in our cloud. And therefore we established this free tier in the cloud on the multi-cloud deployment environment to enable this demand fall on JFrog solution.

It is not just the demand of one tool, but the demands of an end-to-end solution that is expressed by all companies from all sectors. We are positive that as the market continued to digitalize businesses, we are positive that the demand will be converted into a customer funnel..

Got it? And then one follow up. You mentioned, you know the strength of R&D and some of the investment areas, including support for additional package types that you're working on towards the end of this year.

Can you give us a sense of maybe what some of those package types are that you don't currently support? And what the opportunity there might look like?.

Yeah, what a great question. And yes, we will continue the investment in R&D, and innovation on DevOps. When you sell to developers, we have to remember the developers might be the community that enables this change. But all of us are enjoying this change by consuming better and more secure software.

This is a result of millions of software packages that are being distributed and consumed daily. This software packages comes in different types and developers today, are although whelm [ph] with the amount of technology that they have to face.

When you provide the community with a fanatic universal solutions that support old package type, then you can actually consolidate it all under one platform that makes their life easier and smoother as they build secure release software.

Just recently, we released another support in a new package type called Alpine which supports containers, and cloud native technologies.

We are looking at the new package type that the community is asking for, and the community communicates with us on a daily basis through different systems in order to let us know what is the next challenge that they see, and what is the most popular software package that they will have to support.

On a daily basis, every enterprise that uses JFrog is more than 20 different package types. And when you give them a universal support, or what they call the Switzerland of DevOps, that's obviously is the pain and lowers all kinds of management resources..

That makes perfect sense. Thank you..

Thank you..

Our next question comes from Sanjit Singh with Morgan Stanley. Your line is now open..

Hi, Shlomi. Hi, Jacob. Thank you for taking the questions. And congrats on the on your first call as a as a public company and congrats on the IPO and really solid results coming out of….

Thank you….

Thank you. And so my question and maybe to start with you Shlomi is just to get - talk about the CSRM vision. And what we can sort of – how sort of track progress. I think you sort of mentioned in your script that Enterprise Plus was 19% of revenue, which is - it seems like an improvement over last quarter.

Can you give us a sense Shlomi of like, what are some of the trigger points or the inflection points in terms of as customers go from, let's say, a Pro X subscription to an Enterprise to Enterprise Plus, if you're getting to a certain number of service for Artifactory [ph], it's bringing on Xray, what are sort of the like, patterns that sort of give you guys the signal that this is going to be more of an end-to-end platform customer?.

Absolutely. And thank you for joining this call. Great to hear from you again, Sanjit. And this question is something that we will look at when we put together the strategy of the company moving forward.

First coming from the community demand, what is it that you really need? What do you need? Do you just need a best of breed solution, or you want to have a holistic end-to-end solution that kind of points each of your pain.

So one thing that we've seen is that every company now that build software will identify software packages as the first level citizen, as the primary asset, and therefore they will need the database of DevOps, they will need the repository.

On top of that, if you build more benefit to the community and to the enterprise, such as security, and distribution, and CI/CD enablement, and dashboard, and easy configuration on the multi-site, multi-server environment, you bring enterprise value to the developers hands and help them adopt DevOps much faster.

So with our different subscription and the full alignment with our product portfolio, what we are seeing through your question is that more and more customers are looking for a secured repository. This is why Xray is being adopted quite rapidly.

And something that happened just recently in the past two years, is that every organization, especially under COVID, need to distribute software packages securely and rapidly. And therefore, JFrog distribution became a main trigger for companies to upgrade to the enterprise class.

What we reported in Q3, which was a wonderful quarter for us, is not just a growth in ARR, not just a growth in revenues, but also more and more customers that are upgrading to a multi-product solution and consolidating the DevOps practices around JFrog platform..

Understood those great details, Shlomi. My follow up question is sort of around the cloud. And it looks like the SaaS mix of the business improved again this quarter was like about 22% of revenue. You see other companies in the DevOps space, like in Atlassian, sort of aggressively pushing their customers to cloud.

I guess my question for me is, where are - where's the sort of DevOps market and the overall cloud transition? And then where is sort of the JFrog customer base? Is that something that you guys are trying to instead [ph] them towards? Are they - are they sort of pushing you guys along that? Hey, you want to go to the cloud faster? Thank you..

Yeah, well, you look at DevOps as one part of the software lifecycle, but let's look at the overall world. Everyone now looking at a distributed team and distributed the deployment environment and trying to avoid any kind of vendor locking.

So what is the solution? The solution is the freedom to choose what you want to use inside your organization, to not only support your software lifecycle, or CSRM, continuous software release management, but also to make sure that you bet right in the next year. Now, it's not enough to say that there is a cloud momentum.

Of course, there is a cloud momentum, JFrog started nine years ago to support both the cloud and the on-prem request. But the freedom of choice in the hybrid world is what the world is really demanding. What we are seeing is that none of our top 100 customers will bet only on cloud, or only on-prem.

And you can call it private cloud, public cloud, whatever, this is number one, they want to have a hybrid solution that plays the same, whether it's cloud or on-prem. The second thing that we see is that we live in a transition period.

Nobody just moved from 20, 30 years of building and releasing software to a different development and deployment environment in one day or one year. So we will continue to see the growth of the cloud, alongside establishment of private cloud and self hosted solution. And the third thing that we see is the request for multi-cloud environment.

We are collaborating and partnering with all the major cloud providers. But what we see coming from the enterprise is the solution of a multi-cloud environment, I just don't want to have AWS as my only deployment environment, I want to have other clouds and avoid any kind of vendor locking or region locking, as in my solution moving forward.

Now more and more assets are moving through the cloud and being duplicated in both environments, from different reasons, like security, and disaster recovery, and deployment in different geographies.

And, I think the JFrog solution, having this hybrid philosophy and multi-cloud philosophy, and identical software, both self hosted and on-prem, kind of serves the community very well. And therefore, we see the acceleration in our cloud adoption, alongside the other solution..

Appreciate it, Shlomi. Congrats in Q3..

Thank you..

Our next question comes from the line of Alex Kurtz with KeyBanc Capital Markets. Your line is now open..

Thanks for taking the question. And congrats, everyone on your first quarter as a public company. Maybe you could just touch on customer growth. I know we're not going to see it in maybe until the end of the year.

But what trends you saw, as far as new logo, new customer growth, this quarter versus last quarter? And then Shlomi, one axis of growth is, you know, additional servers going into to large enterprises. And I don't I don't know if there was an update in the quarter to come to a conclusion about how that tracked.

But just warmed [ph] to see if there was an update on sort of the densification of server licenses in your larger accounts?.

Yeah, so it's a great question, Alex. And thank you. In terms of the customer goals, obviously we look at it on an annual basis and then we see the growth and we see more and more customers adopting.

What we are really excited about is that demand, is that all time records, we see more and more customer prospects and community members joining our free fear in the cloud, on all clouds and also more and more trials that are being downloaded for all Codec’s.

With regard to the growth as we reported this year, this quarter we sold 300 and we report the 313 customers with over $100,000 in ARR, which also goes from the last time we spoke. We saw growth in companies that are in $1 million club now, and joining, while adopting our platform. We see these goals, we monitor it very, very closely.

And the other thing that's worth mentioning is that it's cross-industries, it's co-sizes, people and companies are adopting DevOps rapidly. We also happy to report that the overall number of customer is growing. And not just by logo, but also more accounts and more regions of the same customer.

And more and more adoption of our tools, not just Artifactory as the flagship product and the base of all subscription, but also Xray, and other services like distribution, and hybrid solutions that are being adopted by our customers. So overall, we see this goal in logos and account numbers. We also see the growth of the multi-product adoption.

And on an annual basis, we will share this details with you - we will obviously keep on tracking..

Great. And just on server growth, you know, per customer, maybe that's embedded in the net retention rate.

But is there anything worth noting or revisit at another time?.

No, it's a small thing, because as you all know, our subscription model is in full alignment with our offering. So if you start with the lowest entry point on JFrog subscription model, you get one server, if you go all the way up to the platform and do end-to-end illusion, then you start with six servers.

So obviously, the growth in customers over $100,000 or million dollar also points the growth in the number of servers. So you will see more and more servers of JFrog being adopted, not just by - just by one product by, but also by the adoption of the end-to-end solution.

The second thing is that in the cloud, unlike the self hosted solution, we are seeing goals in terms of usage, because in the cloud, our model is not by server, but by consumption. And the amount, the overwhelming data transfer that we see, especially during COVID accelerates our growth in the cloud, not just by server, but by usage per customer..

Thank you..

Thank you..

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

Great, and thanks for taking my question. You mentioned during the third quarter that there was a large win and phone broke up, but I think it was within the retail vertical. Curious when you go into an account that that is a new customer for you.

Who are you displacing typically? And if there's any bakeoff, who you're typically going up against at this point?.

Yeah, well, as I mentioned, Rob, the DevOps adoption happens across verticals. It's happening everywhere in the world, it's not a matter of size. It's not even a matter of where you are in the adoption of CSRM.

And what we have noticed in the earlier use of DevOps is that it happened by sector, because obviously, CIOs are speaking with CIOs and shared best practices. What we see today is a race to adopt modern technology, the industry, the modern industry require that because they all understand that everything is powered by software.

So we see it coming from all from all industries, specifically around the adoption that we currently see. It comes from organizations that fall behind and COVID got them by surprise. So they have to accelerate the process.

They have to move to cloud native, they have to change what they build 5 or 10 years ago, and what they - what served them until now will not serve them and they will be overwhelmed with the amount of software that needs to be built, produced and distributed.

And therefore, we see a huge demand request for being educated, the request for more material about what this means. And therefore we also positive that this will be converted to customers and paying customers that will use our platform..

Great.

And the second, I know you guys embarked on a small number of direct sales folks, right as COVID was effectively heading, any update you can give on that front, so what kind of customer success metrics maybe they have had driven since you've had them on board over the last six months?.

Yeah, so as I mentioned, our sales team is driven by enterprise inside sales and by funnel that provides everything in JFrog so far was built on inbound inside sales. Obviously, we scale to the enterprise and to procurement process that generates more than a $1 million deals in ARR.

But what we are currently focusing on is building the strategic team that goes after the top 100 customers and accelerate the adoption of our end-to-end solution, not just by products, but also by deployment environments. So it's a hybrid strategic elite team that identifies the top customers.

And we'll be working on expanding our solution among these accounts, every year, these customers will be identified, and it's part of our strategic moving forward in terms of go-to-market and our sales and marketing team are aligned in how to build them and enable that..

Great. Thank you for the color..

Our next question comes from a line of Brad Reback with Stifel. Your line is now open..

Great, thanks very much. If you guys think about the 130% dollar expansion, like I mentioned earlier on a go forward basis, how should we think about that breaking out between server unit growth versus pricing gains as customers move to higher skews? Thanks..

Thank you for this question. Obviously, MDR is one of the key KPIs for JFrog to measure our success and to make sure that we are aligned with our goals.

What we've seen in the market is that the net dollar retention, especially around subscription is very important than what we are looking at, what we are focusing on is a fourth quarter measurement of the net dollar retention.

I will start by saying that we are accelerating our upsell mechanism not just by more servers or more consumption in the cloud, but by providing the community with more benefits. We are very focusing on fanatical happiness for our customers and developers.

And to see them get more benefits and to upgrade with more products and not just more of what they already have. In terms of the numbers, and the quarterly MDR, I will turn it over to Jacob Shulman, our CFO..

So Brad, our Q3 trailing four quarter net dollar retention rate was 136. If I look forward and net dollar retention of over 130%, 130% of the next few quarters, typically what we see is that in early stages of customer joining DevOps, they grow through adoption of new capabilities, and kind of upgrading to subscriptions.

And once they achieve Enterprise or Enterprise Plus subscriptions, then they grow through number of servers. Therefore, for self hosted on-prem customers in cloud it's all based on consumption.

So the more they adopt the different capabilities, not just report their manager but also Xray and distribution, the more traffic they generate, and that's why - that's how they grow. And that's why their net dollar retention rate expense as well..

That's great. Thank you very much..

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

Thank you. Good to talk to you guys. Hope everyone's well. On the new customer count, total - actually total customer..

Thank you. Hi, Jason..

Hi.

Can you give us the total customer count or new customers so we can just track that?.

Yeah, so Jason. Our customer count continues to grow from – in q3. However, the primary driver behind revenue growth is expansion of existing customers. As of the end of the quarter in Q, we've had more than 5800 customers. And the revenue growth in Q3 is driven primarily by those customers.

Contribution of new customers, so our revenue growth, typically very minimal at the beginning. And therefore, we will be reporting our customers - total customer counts on an annual basis..

I will jump in and add to it, that what we are seeing now Jason is also a different adoption of JFrog tool, we were used to see customers, new customers joining our portfolio due to the need of the repository.

And with the JFrog Xray, our security tool DevOps tool, and we JFrog distribution that helps you deploy software faster with the circle [ph] of trust mechanism. We see customers coming from a different corners of organizations, and join our portfolio.

The huge demand that we see in the free tier and the free trial represents the future as I see it in terms of number of customers that will join the JFrog family not just because of the repository solution, but the holistic end-to-end solution. So you should expect to see that in the future as well..

Understood. Okay. I forgot that you guys had said that about annual versus quarterly. I'm getting all confused with everything.

What – and Shlomi what are your biggest priorities for 2021, as you sit here in November? You know, what are the top two or three priorities as you move into 2021 for the company?.

A wonderful question. Thank you. Well, first of all, as we all experienced, we are we are living in an unknown reality. I'm also tracking the news regarding the election trying to understand how our reality will look tomorrow. But we are stepping into a year that the pandemic is still around us. And the demand is different.

And developers are not just serving the organization, but also serving the business. So obviously, we will be focused on different investment.

The first and probably the most important driver for JFrog success is our RMD [ph] and our ecosystem development, not just the core product that we will invest in, not just a better, stable, scalable, reliable software that come from JFrog, but also the ecosystem support, how can we provide more plugins and more community tools that will help you to adopt DevOps and will help you and support you to adopt our tool.

This is what we call the two integrated to fill solution. So R&D investment, is that my top priority for 2021. Alongside the R&D investment, we are also looking at the sales and marketing mechanism that scales with the business. We introduced the world with new software solution, with new capabilities.

And therefore our top of the funnel, all the way to the conversion of [indiscernible] to paying customer is focusing on enablement and focusing on reaching out to the enterprise in all different levels.

You probably assume that a conversation with developers sounds A and a consultation with the SEC ops or security experts sound B and therefore, our capabilities not just in the R&D level, but also sales and marketing and especially with a focus on the strategic team will be my main priority.

And if I may, one last thing and maybe the most important, JFrog is in its transition, as well as the company we just a month ago, we were a private company. We are now a public company, active in 10 different countries and our team is amazing. But this team needs to grow and it needs to go everywhere in the world.

So we will be able to support you guys better as the company scales..

Very good. Thank you..

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

Thanks. Hey guys, again, congrats on your first call as a public company. Good start. I have questions.

Also, if you Shlomi, and this is I'm trying to kind of perhaps tie your Enterprise Plus, plus the Xray product, if you could talk about first of all Xray, how much of the focus over there is on proprietary closed versus open source? And how do you feel about the maturity level of Xray? I'm just trying to think how much of a key factor is that in Enterprise Plus adoption or some of the other pieces like distribution inside the pipeline are the main drivers for upgrades?.

Hey, Ittai, and good evening to you in Israel. I think that this question is to the point because of what the community required, and it's not about how can we scan and secure open source components, this is all technology organization adopted open source. 10 years ago, and 15 years ago, and different companies provide the different scanners.

I think that what Xray is really unique in is the fact that Xray is natively sitting on top of Artifactory and securing your number one hub for all software packages from all types.

So when you look at Xray, and you look at the database that Xray comes with in order to compare and to reference open source license compliance and security vulnerability, Xray gives you a different solution, a different solution with a completely new vision of securing your software packages, and not necessarily your source code repository.

Now why this is important, because Artifactory is also your proxy. Artifactory is also your bridge to the outside world, bringing open source components, and you need Xray to support that.

And the second thing, which is even more important, you want to power your organization with automation, because you want to be fast, not just secure, and Xray integrates with your CI/CD environment, and Xray can automatically break your B if something was identified.

So Xray is a [indiscernible] product for that and becoming more and more mature, adopting - adopted by the biggest organizations in the world. And we will keep on investing in Xray, because the award of CSRM is incomplete if you just have a binary management without the security of distribution alongside it.

Now, other security solution, according to my understanding, will fall behind not just because of the fact that they are not good enough of securing your package management, your software package solution. But also because of the fact that more and more of our customers are looking for an end-to-end solution.

They don't want to have a security solution for containers for one company, a security solution for the repository from another and a security solution for Artifactory from a third company. Having Xray embedded into your DevOps platform is a big plus.

And we see more and more customers upgrading to what we call the Enterprise Plus, which is the platform that includes Xray, and more and more customers upgrading to POX [ph], which is the secured Artifactory..

Got it. Excellent. Very good. And then for you, Jacob, you mentioned if I got the comments, right 19% of revenue was from Enterprise Plus in the quarter. Can you just refresh our minds what was in there perhaps in the last couple of quarters, so we can understand progress? And then I know you didn’t been guided anything on next year.

And you know, in this world a couple months is a long time.

But is there a general framework you'd like us to keep in mind as we think about the potential range of outcomes for next year?.

So first of all, in terms of some stats about enterprise class adoption, our revenues from enterprise class in the second quarter was 17%.

And If I remember correctly, our revenues in the 2019 from Enterprise class was 19 – 10% So we see very nice growth in Enterprise plus adoption and the customer expand there - as we expand our capability with Enterprise Plus and customers adopt this end-to-end solution. We will see this, this revenues contributing even bigger portion in the future..

Very good. And on next year..

Can you repeat the about the question about the next?.

Yeah, is there a general framework you'd like us to keep in mind as we think about how we model next year, you know, either growth or profitability measures?.

Yeah. So as we see our net dollar retention rate, staying above 130 this will give you an idea about our expected revenue growth. To remind that our revenues primarily contributed by expansion of existing customers, rather than new customers. There are some stability, we intend to invest back into the business.

Shlomi talked about different areas of investment and focus areas. In the near future, we expect our profitability to be low to mid single digits, in terms of percent of revenue..

Very good. Good luck, guys. Thank you..

Our next question comes from Nikolay Beliov with Bank of America. Your line is now open..

Thanks for taking the questions. As you guys try to push deeper into the Fortune 100 accounts, can you please talk about how you think your go to market strategy is going to evolve.

And we're in the process of building a overlay direct sales force?.

Yes, thank you, Nikolay. Going with JFrog, is actually agnostic to the size of the company when it comes to technology. We build a [indiscernible] for developers and DevOps companies and therefore their product portfolio evolution starting from 2008, all the way up until 2020 is being improved, based on what we hear.

It's not just the product, but also the package types that we support, and the integration with the ecosystem. However, when it comes to the enterprise, you hear all kinds of other requirements, let me share some examples.

And our package for data analysts is not something that you see in 100, 200, 500 people company, you see it in the enterprise, you see it in the financial sector, they need support for a certain package that gives thousands of developers a solution under JFrog repository.

A second thing that you will see in the enterprise is scalability, scalability and where they can push because when we are looking at the biggest bank of the world, when we are looking at the huge retail company of the world, they have tens of thousands of developers, and they need to make sure that our product scales to infinity and not breaks when they start to consume all to distribute software.

The last thing that I would say is that in big organization and in the enterprise, it's basically award with all technologies, they have all the products, they have variety of technologies, they are adopting in one side of the world faster than the other side of the world.

And they also want to make sure that they can consolidate it all under one platform. So we learn a lot from the enterprise. But the innovation starts from the community millions and tens of millions of developers they communicate with us on a daily basis, and tell us what the pain is.

On the business side, enterprise sales and SMB says obviously look different than our sales team is based on those different tiers. Although the majority of our sales team is inside inbound, and this strategic team is at the top of the pyramid, its still built on these tiers of SMB enterprise and strategic.

Moving forward, what we are seeing now is that the enterprise while adopting the platform requires someone that understands the organization and not just the technology solution. Let me give you an example.

One organization can introduce us to the DevOps team and the day after to the security team and the day after to the product team because one will need security, the other will need distribution and the third will need to build software.

So our evolution happens alongside the enterprise adoption, obviously, we are learning fast what all this needs and our strategic team is being very aligned with the market change and the adoption of DevOps in the enterprise..

And my second question is around CI/CD.

What is the state of the land? Everybody - looks like everybody's using Jenkins at this point, what is the level of innovation at the Jenkins ecosystem? And how can you convince customers to begin to use your CI/CD? And what's your edge on that front of the platform?.

That's a great question, Nikolay. And obviously, you see, and I see the same reality. Jenkins is a great CI server, supporting the largest community for the past 10 years. It's an open source solution, that spread around the world and been very successful.

But what's happening now is that cloud native steps into our world, and containers and micro services are exploding the market. And therefore you need your developers to be faster, they need to be faster, not just in terms of how they build and how they automate, but also by the fact that they need concurrent pipelines.

And in terms of concurrent pipelines, JFrog pipelines, is the most advanced innovate technology that the market now has to offer. The second thing that they will need is the freedom of choice, not just by building with a CI server, but looking at the CI and CD, the continuous integration and continuous deployment.

And when you look at that, you also want to allow them to get those source not just from one GIT [ph] repository, but for multiple vendors and JFrog pipeline is the only tool in the world that will get it from any source to any destination.

And the third thing, which is also very unique to JFrog, is the JFrog pipeline is embedded into the platform, one UI, one unified solution that not just build your software, and deploy your software, but also integrate with Xray, integrates with Artifactory and pushes to the runtime. I think that Jenkins is a wonderful tool.

But there's companies are looking at cloud native, they will have to look at solutions like JFrog pipeline..

Thanks so much..

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

Well, good afternoon, and congratulations on the results. And thanks for fitting me into the call here. I just want to ask one high level question if I could.

For Shlomi, I was just wondering, you know, how much evangelizing do you think that you still need to do just regarding the overall importance of software binary management and moving towards your vision of continuous software delivery versus I mean, how much does this become a true mainstream concept? That's widely understood in the market these days?.

Jack, thank you for this question. Actually, we get this question a lot, because JFrog was the first company in the world that introduced the community and developers to the need of managing software on the software package or what we call the binary level.

And for the first five years, we were struggling to explain why this is the most important asset, why this is the primary piece of software that you have to be focused on. But now, when you need to deliver software several times a day, you just have to look at your pipeline. And what you see is yes, software [ph] is very important for developers.

But what happens from the moment that you create the software package, what happened is that you secure software packages, you distribute software packages, you enable software packages on the edges. And you can also have incremental software updates with a chip process of just updating the software package.

So what we now see is that the rapid releases and the CSRM mechanism that organization are adopting is focusing on software packages as first level citizen and everybody understand that.

Now another fact is that if you look at the landscape and other solutions in the market, and if you look at the roadmap, just ask yourself, what is it that they invest in? They invest in package management solution, package management, security, package management distribution, so in a way, it's kind of, you know, being accepted by all vendors and all organizations.

And the last thing that if I may add in the world of containers and micro service and world of fast shipping of software. That's the only thing, the only thing that the world consume and produce. And this is what makes the organization fast, whether they are in the cloud, or on-prem.

And this is what also make them engage faster and more secure with the customers. So I think that we will see more and more of this. I'm very honored to be the first called DevOps company in the public sector. And it also says something about our vision and what liquid software represents in the world of power users..

Great, appreciate your perspective. Thank you..

And that's all the time we have. I will now turn the call back to Shlomi..

Thank you. All thank you very much for your attention. The frogs and I are very excited about what we see looking forward to the adoption of our tool, the adoption of DevOps. I appreciate your time. I wish us all better days and secure days and made the frog be with us all. Thank you very much..

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