JFrog Ltd. (FROG) Q2 2021 Earnings Call Transcript | The Motley Fool

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JFrog Ltd. (NASDAQ:FROG)
Q2 2021 Earnings Call
Aug 05, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the JFrog second-quarter fiscal 2021 financial results conference call. My name is Jenny, I will be your operator for today’s call. [Operator instructions]. I will now turn the call over to JoAnn Horne from the investor relations team.

You may begin.

JoAnn HorneInvestor Relations

Good afternoon, and thank you for joining us as we review JFrog’s fiscal ’21 second-quarter financial results, which were announced following the market close via press release earlier today. Joining us will be JFrog’s CEO and co-founder, Shlomi Ben Haim; and Jacob Shulman, JFrog’s CFO. Before we begin, let me review the safe harbor statement. During this call, we will 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 third quarter and full year of 2021.

The words anticipate, believe, continue, estimate, expect, intend, will, and similar expressions are intended to identify forward-looking statements or similar indications of future expectations. You are cautioned not to place undue reliance on these forward-looking statements which reflect our views only as of today and not as of any subsequent date. Please keep in mind that we are not obligating ourselves to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations.

For a discussion of material risks and other important factors that could affect our actual results, please refer to our Form 10-K for the year ended December 31, 2020, filed with the SEC on February 12, 2021, and our Form 10-Q for the quarter ended March 31, 2021, filed with the SEC on May 7, 2021, which are 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 quarterly report on Form 10-Q for the quarter ended June 30, 2021, 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 these 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. And with that, I’d like to turn the call over to JFrog’s CEO, Shlomi Ben Haim. Shlomi?

Shlomi Ben HaimChief Executive Officer and Co-Founder

Thank you, JoAnn. Greetings from the swamp and thanks for joining us for JFrog’s 2021 second-quarter earnings call. The first quarter was very productive for us. And before we start, I want to express my special thanks to JFrog’s employees for strong deliveries on all fronts.

In today’s calls, I would like to cover noteworthy items that will help to set the future of JFrog and the world of DevOps. First, I want to address the overall performance of the business in Q2. Then, I want to highlight some recent customer wins, including some from our expanding strategic sales team. I will also talk about our recent acquisition of Vdoo, a leading security platform creator.

I want to inform you about innovative product releases, we announced at swampUP our annual user conference. I will also address the recent hiring of our new executive vice president of product and engineering. These are all indicators of a solid future for JFrog beginning with the second half of the year and investments we are making on all fronts in order to fulfill our vision of becoming the company behind all software updates, the company that makes software liquid. Let’s start.

We brought the world groundbreaking innovation in Q2, we delivered on unique product investment and we extended our partner ecosystem, hosted a successful virtual annual DevOps community events for thousands of attendees, and held a sold-out in-person event in Tel Aviv at DevOps industry fairs since the pandemic began. This events and milestone have a single mission, to make every software creator successful by providing the best solution to release fast and secure software continuously. The future is clear. There will be more software.

Software needs to be updated. Updates can be only achieved with binary management, deployment, and automation for fearless fast flow. Leap by leap, JFrog is making this vision a reality. Now, let me share our 2021 second-quarter results with you.

I’m pleased to report that JFrog’s revenue climbed to $48.7 million, a growth of 34% over the same period last year. While our delivery is aligned with our commitment to the market, we continue to invest in the company’s solid growth and will soon pass a key milestone crossing $50 million revenue in the third quarter. Cloud revenue continues to grow in Q2 with a 47% increase year over year and now represents 24% of our total revenue compared to 21% in the previous year. Also, in Q2, we achieved a record quarterly free cash flow of $18 million.

Our expanding strategic sales team, which has now more than doubled as a result of the acquisition of Vdoo, continues to be successful in growing the business across our top-tier accounts with large customers moving to our multi-product end-to-end platform subscriptions. JFrog’s distribution solution continues to be the primary reason that our customers upgrade to Enterprise+, our high subscription level. For example, one of the world’s leading telecommunication providers recently used JFrog distribution to complete its nationwide 5G rollout to millions of customers by pushing software to the 5G edge location. In addition, a leading video game developer with multiple global data centers chose to upgrade to JFrog’s Enterprise+ subscription to overcome bandwidth and network lag by using our distribution capabilities.

Having been an artifact to the only customers in the past, this company also now uses X-ray to scan and secure software packages before they are delivered into production. These examples are only the tip of the iceberg, and I look forward to more success on the strategic sales front. On that note, I would like to turn to security. With data breaches and supply chains attacks on the rise, security remains a top priority for organizations of all sizes.

To deliver maximum value to our customers, we now include JFrog’s security solution, JFrog X-ray, in all subscriptions starting from Pro X. We are also pleased to see X-ray use cases coming from many different industries. For example, a global cloud storage service company with over 500 million users added X-ray to monitor and enforce security policies around third-party and open source license compliance. The security isn’t just about vulnerability, it’s about protecting the entire DevOps lifecycle.

An example is a multinational financial service company, which is now the largest X-ray customer. This customer is now using the combined power of artifactory and X-ray to control, secure and validate all of the third-party binaries that enter the organization that are hosted in artifactory and ultima
tely get to production environment that support their tens of millions of customers. These are just two of many more use cases that we are seeing that showcase customer needs to have security capabilities fully integrated into the software lifecycle and runtime environment. To that end, we recently announced that we completed the acquisition of Vdoo, a product security company.

We believe the joint team of X-ray and Vdoo along with the integrated technology solutions will drive JFrog’s next big leap forward in DevSecOps with an approach that looks at not just software composition but also software configuration and environmental factors. This solution will also discover…

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