Jfrog Ltd

NASDAQ:FROG

Ladies and gentlemen, thank you for joining us, and welcome to JFrog's Fourth Quarter and Fiscal 2024 Financial Results Conference Call. [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 fourth quarter and fiscal 2024 financial results, which were announced following the market close today via a 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 Q1 and the full year of 2025.

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

These statements are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from expectations. For a discussion of material risks and other important factors that could affect our actual results, please refer to our Form 10-K for the year ended December 31, 2023, which is available on the Investor Relations section of our website and the earnings press release issued earlier today. Additional information will be made available in our Form 10-K for the year ended December 31, 2024 to be filed with the SEC on February 14, 2025, and other filings and reports that we may file from time to time with the SEC.

Additionally, non-GAAP financial measures will be discussed on this conference call. These non-GAAP financial measures, which are used as measures of JFrog'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 to you all, and thank you for joining our call. I'm excited to share that JFrog closed the fourth quarter and fiscal year 2024 on a high note with meaningful results across all key focus areas, which we will discuss today.

We believe that JFrog's strong cloud growth and adoption of our holistic advanced security solutions by enterprises underscore the strength of our platform strategy. We are honored to gain the trust of many of the world's leading companies, which are choosing JFrog as their go-to software supply chain infrastructure.

Our enterprise-focused go-to-market strategy in 2024 has secured multiyear sizable platform subscriptions from customers who choose JFrog as the single source of tools for all types of software packages and AI models. This approach has driven higher customer lens, delivered durable revenue growth and reinforced our leadership in the market. As we close out 2024, I'm pleased by the focused execution of our vision, making software universally accessible, continuously updated and trusted everywhere, a true realization of the liquid software revolution in the era of AI. This momentum propels us into 2025 fueled and energized.

Let me review some of our results in more detail. In 2024, JFrog's total revenue was $428.5 million, up 22% year-over-year. Cloud revenue for 2024 was $168 million, representing 41% year-over-year growth. Our gross margin for the year was 83.8%, alongside strong free cash flow of $107.8 million or free cash flow margin of 25% for the year.

2024 successes were driven by strong execution with our enterprise customers. Our investments in the first half of the year fueled their initiatives, resulting in some of JFrog's largest deals ever closing in the second half of the year. In today's call, Ed will further discuss the fourth quarter results and dive deeper into our annual performance.

Now let me discuss the call of what fueled our accomplishments in Q4 and throughout 2024. First, JFrog's cloud success. As we embarked on 2024, we shared our outlook recognizing that the challenges of 2023, specifically around project migration and consumption discipline, would persist. Despite navigating tight budgetary environment and rigid procurement processes in 2024, we remain focused on execution and securing strong wins.

As a result, we were pleased in Q3 and Q4 to see large companies demonstrate confidence in JFrog with multiyear commitments as they reignited their strategic cloud migration journeys with us once they had reached their optimal timing. Our 2024 cloud revenues were in line with the guidance we provided in Q2. We remain focused on driving more enterprise adoption of our cloud platform and building even tighter relationships with our cloud partners at AWS, Google Cloud and Microsoft Azure.

As an outcropping of our strategic partnerships with the cloud providers, I'm pleased to report that we have recently signed a strategic collaboration agreement with AWS that we believe will enable joint enterprise customers to cost effectively scale their DevSecOps and AI-driven software solutions in the cloud. We are looking forward to keeping the cloud momentum and promoting partnerships to support customers' cloud adoptions.

Second, to security. JFrog was early to the market with the concept of the DevOps and security were inseparable and believe the powerful combination should displace all point solution via 1 platform. We continue to envision a future where security is no longer fragmented, a secured future powered by a single holistic and modern solution that optimizes operation and budget for JFrog users.

Emboldened by this vision, we set out to deliver a platform designed not only to consolidate tools but to amplify development teams work delivering unmatched protection and risk mitigation to our users' entire software supply chain. For over 3 years, we have doubled down on the security vision and invested organically and inorganically in what became the industry standard, a single solution that automates a system of record and security as a unified process as demanded by global CIOs and CISOs.

I'm pleased to report that 2024 closed on a strong note with our security core becoming a mission-critical piece of our enterprise offering. JFrog Advanced Security and JFrog Curation as part of our JFrog platform was successfully adopted by approximately 250 customers that are migrating from point solution tools like Snyk, Black Duck, Mend, Veracode, Checkmarx, Coverity and others. In 2024, our more sizable deals included not only DevOps migration to the cloud, but a clear bet place by customers on 1 solution, 1 platform that also covers their modern security requirements.

We were excited to see the validation of this trend led by standardization and consolidation as some of the world's most recognizable companies demonstrated their trust in JFrog across verticals in 2024, including 4 wins across the top 5 companies in automotive, financial, health care and telecommunication. Each of these industry-leading companies placed multimillion dollar multiyear security-driven platform deals in 2024.

In 2024, we invested not only in sales but also in strategic partnerships focusing on the security persona experience through our GitHub partnerships, we enable a 1 platform experience that coupled AI capabilities with security in GitHub Copilot and JFrog Curation. This is all supported by our advanced JFrog Catalog vulnerability database, backed by our security research team, enhancing enterprise security.

To summarize our security success for 2024, I'm happy to report our core security solutions comprise over 5% of our final ARR and approximately 12% of our ending RPO in 2024. And third, to our enterprise strategic success. To successfully focus on the enterprise market and organization needs more than just a dedicated sales force targeting high-end customers. This shift demand a comprehensive transformation in how a company operates and delivers value. It requires evolving the platform offering to address broader and more complex challenges, especially in the face of rapid technological changes. Additionally, it calls for an adjusted customer success approach, engagement with diverse persona and budget holders within client organizations and a redefined partner strategy. Sometimes, it even involves making difficult decision such as parting ways with the subset of low subscription customers to remain focused on the enterprise segment and ensure long-term success in the upmarket space.

I'm pleased to report that with our focus and efforts targeting the enterprise market, we have delivered consistent growth. In Q4, customers with ARR over $100,000 grew to a total of 1,018, up from 886 in the year ago period. The number of customers with ARR exceeding $1 million increased to 52, up from 37 in the year ago period.

Now before handing over to Ed, I want to dive into JFrog's perspective on MLOps and responsible AI. In 2024, we acquired Qwak AI, making JFrog the first company to unify DevOps, DevSecOps and MLOps within a single platform as the industry increasingly demands. In recent weeks, we launched the first implementation of JFrog ML available now to our cloud customers.

Our core values, such as multi-cloud and hybrid enterprise [indiscernible] [12:50] offerings are further empowering the Gen AI and MLOps ecosystem with JFrog's strong partnerships and integrations, including Hugging Face, GitHub and NVIDIA to enhance users' workflows. Today's enterprises know that machine learning operation, MLOps, is inseparable from DevOps and DevSecOps as getting AI models to production requires the same principle across development, security, deployment and maintenance of binaries.

Just as we have expanded our offering with security capabilities, building on Artifactory as the secured registry and the foundation of our platform. This MLOps expansion will empower our customers as they embrace AI-driven technologies. We are excited about what's ahead and look forward to promoting our partnerships with our customers and the community.

With that, I will turn the call over to our CFO, Ed Grabscheid, who will provide an in-depth recap of Q4 financial results and our outlook for 2025 Q1 and full fiscal year of 2025. Ed?

Thank you, Shlomi, and good afternoon, everyone. During the fourth quarter of 2024, total revenues were $116.1 million, up 19% year-over-year. For the full year 2024, revenues equaled $428.5 million, up 22% year-over-year. Fourth quarter cloud revenues grew to $49.4 million, up 37% year-over-year and representing 43% of total revenues versus 37% in the prior year. Our strength in the cloud was driven by contribution from large customer wins as well as smaller customer migration activity during the quarter.

In the fourth quarter of 2024, we recognized cloud revenues from customer migrations to a new enhanced cloud database product launched in 2024, which was previously delivered as an on-prem product. Contributions from this product in Q4 were approximately $1.3 million. Future customer migrations will be included as cloud revenues on a going-forward basis.

For the full year 2024, cloud revenues equaled $168 million, up 41% year-over-year. Full year cloud revenues equaled 39% of total revenues versus 34% in the prior year. During the fourth quarter, our self-managed or on-prem revenues were $66.7 million, with full year 2024 equaling $260.5 million, up 13% year-over-year.

Aligned with our strategy, we continue to see the majority of our new customers land and expand with our cloud solutions. JFrog's cloud-first approach naturally results in a slowing of customers' on-prem investments as they look forward to capturing even greater value coming from our cloud solutions.

During 2024, we experienced another year of strong customer adoption of the complete JFrog platform, driven by customers looking to consolidate tooling and secure their software supply chain. In Q4, 54% of total revenues came from Enterprise Plus subscriptions, up from 49% in the prior year while delivering year-over-year revenue growth of 31%. Driven by the strong execution of our enterprise go-to-market strategy and upsell from our security core products, revenue contributions from Enterprise Plus subscriptions grew 35% year-over-year in 2024.

Our security core, which includes JFrog Curation, JFrog Advanced Security and JFrog Runtime has gained momentum as customers actively consolidate point solutions. As Shlomi noted, JFrog Curation and Advanced Security were key drivers of many of our enterprise deals closed in the second half of the year. Revenue contribution from security core in 2024 was impacted by expanded proof of concept and timing of purchasing decisions.

For the full year of 2024, security core revenue was 3% of total revenues, with our core security products now comprising more than 5% of our ending total ARR. Driven by a number of large multiyear commitments to JFrog, our security core represented approximately 12% of our remaining performance obligation, or RPO, as of December 31, 2024. We continue to anticipate that security core products will achieve material revenue contribution in 2025.

Net dollar retention for the 4 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 96% in 2024. As noted by Shlomi, during 2024, we continue to focus our go-to-market initiatives around the enterprise, demonstrated by our success in the second half as we secured some of the largest deals in the company's history.

Our team also prioritized new customer acquisition specifically targeting opportunities with higher initial ARR and greater expansion durability. Given our enterprise go-to-market focus, our customer count in fiscal 2024 equaled approximately 7,300.

Now I'll review the income statement in more detail. Gross profit in the quarter was $96.5 million, representing a gross margin of 83.2%, in line with our expectations compared to 84.6% in the year ago period. The change in gross margin relative to the year ago period was primarily due to the increased mix of our cloud revenues. We expect annual gross margins to remain between 82.5% and 83.5% in the near future.

Operating expense in the fourth quarter was $75.6 million, flat sequentially, equaling 65% of total revenues. This compares to $66.1 million or 68% of revenues in the year ago period. We remain focused on expense discipline while we continue to invest in strategic initiatives. Our operating profit in Q4 increased to $20.9 million or an operating margin of 18% compared to $16.2 million and 16.6% operating margin in the fourth quarter of 2023.

For the full year 2024, we delivered non-GAAP earnings per share of $0.65, a 27% increase year-over-year, assuming approximately 115 million weighted average diluted shares. This compares to $0.51 in the prior year and 109 million weighted average diluted shares.

Cash flow from operations equaled $49.1 million in the fourth quarter. After taking into consideration CapEx requirements, our free cash flow reached $48.5 million or 42% margin, a record quarter for JFrog. For the full year 2024, we generated $110.9 million in operating cash flow and $107.8 million in free cash flow, a 25% margin.

Now turning to the balance sheet, we ended 2024 with $522 million in cash and short-term investments compared to $545 million at the end of 2023 primarily due to the consideration paid for the acquisition of Qwak AI during Q3 2024. As of December 31, 2024, our RPO totaled $403 million, a 55% increase year-over-year, benefiting from multiyear commitments to our security and platform solutions.

Now I'd like to speak about our outlook and guidance for the first quarter and full year of 2025. As a reminder, our guidance philosophy will be more conservative than what was provided in the past. Our outlook for the first quarter of 2025 assumes no change in the current macro environment and reflects historical seasonality as JFrog's lowest volume renewal quarter.

Our outlook for the full year implies increased contributions from our security core, continued adoption of our full platform and cloud migration activity consistent with 2024. We estimate full year 2025 baseline cloud growth to be in the range of 30% to 32% and expect our net dollar retention to stabilize in the mid-teens. For Q1, we expect revenues to be in the range of $116 million and $118 million, equaling 17% year-over-year growth at the midpoint, with non-GAAP operating profit anticipated to be between $16.5 million and $17.5 million and non-GAAP earnings per diluted share of $0.15 to $0.17, assuming a share count of approximately 118 million shares.

For the full year of 2025, we would anticipate a revenue range of $499 million to $503 million, up 17% year-over-year at the midpoint. Non-GAAP operating income is expected to be between $73 million and $75 million and non-GAAP diluted earnings per share of $0.67 to $0.69 and assuming a share count of approximately 120 million shares.

During 2025, we will remain focused on investing in innovation to expand capabilities of our platform and deliver more value to our customers. We continue to be guided by balanced investing and a disciplined spending philosophy in line with prior execution.

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

Thank you, Ed. 2024, although tough was a remarkable year for JFrog with successes driven by our global team operating under an umbrella of adversity. Frogs, I'm proud and honored to stand beside you as my super heroes throughout the year. As we set our sights on 2025, we remain committed to quality growth and expanding our portfolio bringing us closer to realizing our liquid software vision, a world where software delivery is effortless, secure and seamless.

Before we move on to questions and as we gratefully acknowledge that some of the Israeli hostages have been safely returned and reunited with their families, we continue to hope and pray for the safe return of all those still held captive in Gaza. May 2025 bring peace to the region and may the Frog be with you.

Operator, we are now open to take questions.

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

Congrats on bring close to the year. Shlomi, obviously, you have seen really strong security traction now 12% of RPO, 5% of the ARR. Given these successes, would you say you are seeing kind of a tangible change in prospective customer conversations especially in those organizations where security is kind of a completely different silo other than software development or engineering. Basically, I'm trying to understand if the recent successes around security is opening up more doors and if there are more kind of large heat figure kind of deals in the pipeline.

Yes. Thank you, Pinjalim, and Happy Valentine's everyone. Specifically regarding security, we hear more and more of the CIOs and the CISOs of the world looking at consolidating point solution tools. It's across the board. It's mainly around the coverage of the software supply chain aligned with the new threats and integration with other players. So the basic assumption is that our users would like to see an outcome, which is kind of all the findings are presented on a single pane. Therefore, we are encouraged by what we hear. We are encouraged by what we see in the pipeline of our customers and prospects keep pushing through consolidation and 1 holistic security solution coming together with DevOps.

Understood. And Ed, just maybe 1 question for you, trying to understand kind of the assumptions on the guidance. A few parts to it. One is when you say NRR being mid-teens, are you talking about plus/minus kind of 250 plus/minus, basically trying to figure out if it's going to drop down from the current levels or it's kind of stay around the current levels? And then are you baking in any migrations into this guidance as well as what would you say kind of contribution from the recent pricing and packaging changes you have done?

So first off, I'll start with the net dollar retention rate. We're really pleased with where we ended, considering a really tough year in 2024. And what we see is, as I stated in the prepared statements, we're stabilizing in the mid-teens. That means somewhere between 1 to 2 percentage points is what we would anticipate.

Now in terms of migration activity, the migration activity is very similar what we're seeing going into the year is what we saw during 2024 and 2023. It's really around data consumption and the data consumption changes, above minimum commits have not changed. Therefore, this is why we see that stabilization of our net dollar retention rates. We don't see much of a pickup in activity in that migration activity. It's relatively stable.

Anything on pricing, Ed?

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

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

Congrats on a strong finish to the quarter and for the year as well. I wanted to start off just to get some more color on the cloud growth that we saw in Q4 and I guess the expectation is great to hear on that 30% to 32% you're looking for next year. Can we just dive into the database comment? I think that might be new for me, and apologies if I missed it, but that $1.3 million in revenue that we generated in Q4 was that anticipated? And how should we think about that scaling as we look out over the upcoming year?

Yes, Mike, hi, this is Shlomi. I'll start and Ed, feel free to chime in. Our research team during 2024 was busy building cloud service, which is the JFrog Catalog that serves as the database of all of our security suites, JFrog Xray, JFrog Advanced Security, JFrog Curation and Runtime. This is now being a cloud service provided to all of our customers, so faster than cloud. And therefore, we recognize that as part of our new security suite and part of our cloud services.

In addition to that, Mike, regarding the $1.3 million, it's not material, first off. Secondly, it's a decision by our self-hosted customers when they migrate from a older version to this new version, the newer database version is a cloud service. Therefore, going forward, we will reflect that in our cloud guidance of 30% to 32%.

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

Yes, Mike, as we guided before, we are being conservative looking at our pipeline and derisking it, looking at migration as step 1 as we saw mainly in the second half of the year and consumption increasing as an upside as step 2. We are looking at the pipeline. We are looking at the portfolio. We are looking at the trend in the market, and this is how we based our guidance on.

Great. And congrats on all the security disclosures as well.

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

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

So first off, regarding Q4 of '23, we had a onetime benefit in there. So I want to put that out. They're very different than what we saw in Q4 of '24. This is not a onetime benefit, and it's strength in the cloud. As we step into 2025, what we see is customers that remain very cost conscious and they are built into their commits and minimum commits. They are not spending above those minimum commits per stock. So we're not seeing usage above the minimum commit.

Secondly, as you stated, we start to see projects. These large projects that we talked about that we derisk from our pipeline. Many of those projects happen towards the second half of the year. Regardless of when we start those conversations, we just see those projects starting towards the second half of the year, and I would anticipate that we would see something very similar in '25 as we did in 2024.

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

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

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

Congrats on a strong year to fiscal '24. On the strategic collaboration agreement, SCA, funny that's also a software composition analysis. It's great to see. Just curious like what what's truly incremental about the agreement? And then wondering what sort of increased resources might be allocated for procurement on AWS side?

Yes, Kingsley, as you know and as we described in the past, we are not just building our cloud solution, we are also building the relationship with the cloud providers. And with each of them, it's a different effort that we are pushing, not only on the technology integration and improvement of the user experience in different regions, but also the commercial part of it.

What we've managed to do with AWS together with our partner team is that we got to an agreement that will have more cost-effective scale to our customers. So basically, with the better conditions with AWS, we can be more attractive with our customers. And this is a very important agreement as we keep scaling with the cloud overall and AWS specifically.

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

Well, I don't think it's an idea. I think it's a fact. We've said it now a couple of times on the prepared statements that we're going with a much more conservative guide, and that's the philosophy that I'm taking. It's focused on a couple of things here, Kingsley. Number 1 is the derisking of these large deals that create swings in the quarter. We are taking those out of our guidance. Usage is certainly not something that we take in consideration in the guidance, and we're only looking at those opportunities that are committed, strong commitments going forward. Therefore, I'm not pegging a number necessarily in terms of the beat, but I'm saying that it's much more conservative going forward and what you're used to from JFrog.

Makes perfect sense. Looking forward to this year.

Your next question comes from the line of Ryan MacWilliams with Barclays.

For Shlomi, how has macro been since the start of fourth quarter? And did you notice any changes or improvement in your conversations with customers since the U.S. presidential election?

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

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

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

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

Great. Can you hear me?

Yes, we can hear you.

Congrats on the quarter. Just a quick one for you. Could you confirm there were no true-ups or overages in the cloud number for Q4?

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

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

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

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

So Shlomi, of course, you highlighted the 250 customers adopting the Advanced Security and Curation. So it's a real great job. I was just curious, beyond the big deal pipeline, again, I mean, that's -- it's a great execution that you have shown so far. But seeing any signs of potential kind of correlation between kind of now having an integrated platform approach and also seeing some traction sort of faster expansion or just in terms of visibility, upsell, cross-sell since you mentioned about Runtime seeing traction. So just curious in terms of incremental adoption of these Advanced Security modules or features? And then I had a follow-up for Ed.

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

Great. Appreciate that, Shlomi. I'd just add in light of what Shlomi just said, just curious how should we think about incremental top line and potentially margin contribution attributable to the security -- incremental security adoption that you are seeing going forward, not necessarily asking for the rest of the year, but just as a broad framework of how should we think about incremental margin?

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

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

Only one from me here. Nice performance on the free cash flow margin to end 2024 at 25.2%, which is really close to your 2027 target model here. But when I look at the guide for 2025, 19%, so really just trying to understand the 6 points of margin degradation there in the free cash flow. And anything we should think about there and from 2025 and the progression to 2027? Or is this just kind of an effect of guidance conservatism on the revenue flowing down to the cash flow side?

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

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

Yes. Totally get it.

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

This is Ethan on for Rob today. Shlomi, I just want to ask with the AI conversation shifting more and more towards genetic solutions, how does this kind of change the opportunity, the AI opportunity for JFrog, if at all, especially as we consider kind of the new capabilities brought by Qwak?

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

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

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

[Operator Instructions] Your next question comes from the line of Billy Mandl with KeyBanc Capital Markets.

Can you guys hear me all right?

We can hear you, Billy.

Congratulations on a strong 4Q. Just wanted to ask about the GitHub partnership, which was, of course, a hot topic in 2024. Curious to hear how you're seeing that drive pipeline? And maybe as we look out to the balance of 2025, what's the evolution of that partnership might look like?

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

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

Thank you, everyone, for joining our call. May the Frog be with you and Happy Valentine.

This concludes today's call. Thank you for attending. You may now disconnect.