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 Joanne Horn of the JFrog Investor Relations team. Joanne, 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 close via press release earlier today. Joining us will be JFrog's CEO and co founder, Shlomi Vanham and Jacob Schulman, 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 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 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 report on Form 10 Q for the quarter ended September 30, 2020, and other filings with 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 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 there for a limited time. With that, I'd like to turn the call over to Jay Fox's CEO, Shlomi Vanheim. Shlomi?
Thank you, Joanne. Good afternoon, and thanks for joining us for JProg's 2023rd 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 Cymbled 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 a 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 JProk's first quarterly report. Therefore, I would like to take a moment and thanks Jay Frog employees for what we have built together. These employees we call the frogs are the reasons for the company's success and what makes us leap forward. Let me begin by explaining both our business and vision to put JPOC's Q3 results into context.
As a 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 JPROC Liquid Software Vision, a word 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, Yaw of Landman and I launched JPog in 2008 with a mission to make software development and delivery easier to manage. Through a process of what is known to date 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, J Pro has pioneered a complete end to end platform for continuous software release management, also known as CSRM.
We are honored that more than 75 percent of Fortune 100 companies use JPOC to build and deliver software rapidly and securely daily. As a brief overview of the business and financials, I'm pleased to report that for the quarter ending September 30, 2020, JFO revenue was $38,900,000, a growth of 40% year over year for the same period. Non GAAP operating income was $5,100,000, more than double the prior year level. Also In Q3, we achieved a record level of quarterly free cash flow of $9,700,000 We continue to have a broad customer diversification and no single customer represented more than 2% of the company's revenues. Our products continue 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 percent of revenue came from our platform enterprise plus subscription, which give customers access to all JProx products as an end to end solution. We are proud and humbled by this goal to date and we believe this results demonstrate J. Prox increased adoption in the marketplace as organizations continue to embrace modern software infrastructures and transformed into a digital world. But saying that every company has become a software company or software is eating the world almost sounds like a cliche.
However, we realized that compensation in company's boardrooms are now focused on delivering digital experience and gaining competitive advantage through 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 changes required?
So rapid software releases will run on a smooth yet resilient platform and increase go to market speed. Jbrogg is leading to 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 DevOp shines. As the world experiences this exploding amount of software, As a result of digital transformation, everyone is looking to be part of the software Goldrush and JFrog is the provider of the Pyx and Chappos to millions of software developers around the world. We introduced the world with the first finally repository manager in 2008 and claimed that binaries also known as software packages will become the primary asset in the com 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, This team space an even bigger challenge for organizations 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 5 different software package types regularly. 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 life cycle will be slow and messy and no software automation, no integration process will meet the needs of the organization.
Our product philosophy is based We'll provide you with a universal solution that integrates with every developer's ecosystem and can be deployed in every environment. Our fellow developers call it the Switzerland of DevOps, while our enterprise customers call it an anti vendor lock in solution. Starting with our flagship product and the heart of the JPY Pro Platform is JPY Factory. Not only is it the industry standard 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 X-ray, our security tool that natively integrates with Altifactory and provides a full vulnerability and licensed compliance solution that integrates with the developer's ecosystem.
X-ray helps the CECL of the world shift left and avoid security bottlenecks. Jbrooke distribution is how you take a blessed software package release bundle and deploy it into the edge securely. This tool chain creates the circle of trust in the CSRM workflow. J4 pipelines, our CICD solution, and the result of an acquisition we made in 2019 integrates and automates the flow of binaries through the dev ops spikes. We built JPog Mission Control and JPog Insight, the admin user dashboard to provide a holistic view of the platform and simplify the configuration and resources management in a 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 years behind in their approach. JPOG's market is very large and growing at past base. Looking at the landscape, we see several additional tiers of opportunity for our business. Many potential customers still rely on homegrown 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 JFog 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 their solution around software packages, not being fanatically universal, not offering security tools as part of a platform, not being hybrid nor multicloud, 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 to requested by our customers and community. Our R and D core teams 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 uses the strain on network resources. We also greatly enhanced our customers' ability to operate in highly regulated air gap secured environment, helping users, sign and validate release bundles with JPY distribution. New security scanning, scan reporting and license compliance capabilities were added to J. P.
X-ray to serve companies with multiple security stakeholders. Jay folk 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 managed 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 a 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 2 quarters. In fact, JPog was recently named number 14 on the Forbes Cloud 100, listing the world's most influential and successful cloud companies. This is our 3rd year in a row selected to this list. To continue this cloud momentum, In the third quarter, we launched the JPOC free community offering in the cloud, responding to the demand of the community and giving developers easy acts to our platform. This offering includes Jbrock Repository, as well as security scanning and software development clients 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 J. Prox Cloud users by the 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 based conference alongside our partners, AWS, Microsoft, and Google. This event is co marketed co hosted addressing the needs of each cloud communities developers in a dedicated day for each 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 change with minimum sales and marketing innovation. For example, in Q3, our teams improved the JAPO command line interface to enable easier ecosystem integrations with J Four products, release small open source plugins to serve the community better including CICD and observability tools integrations. Release Child Center as a community hub for cloud native developers as led the C and C plus plus community with J.
Prox Conan 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 1st 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. For me to welcome Michelin Nichemeh, our new Chief Marketing Officer. Michelin is a veteran marketer who brings bus experience in building high growth organizations from leading companies where she serves such as Zscaler, exactly Salesforce and Sun Microsystem.
Turning to sales. JFrog is driven by inbound inside sales motion only. Allowing us to keep the mantra of delivering products both by developers and not fold. Our land and expand revenue growth is driven by upsell 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 9 customers were over $1,000,000. We are focusing on our sales and marketing growth and will keep investing while scaling. Alongside our inside sales teams, we started to build Jbroke's 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 cost is solid.
And net dollar retention for the trailing 4th quarter was 136%. This is an important metric to judge our progress. In terms of our overall sales performance and funnel conversion, we saw a trend of time to sell increasing slightly during COVID-nineteen. These are increasingly getting escalated higher in the organization due to budget cuts or defaults 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 paying 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 demonstrate 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 our factory such as x-ray and distribution. To illustrate this, in Q3, we landed 1 of the world's largest retail brands utilizing JProk across both self managed and SaaS services and hosted on Microsoft Azure.
The deal drivers included the need to diversify their deployment across self managed SAS and multi region offerings 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 $1,200,000 in ARR while upgrading to the complete JFOC 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 in 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 Schulman, 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 categorized our customers into 2 segments, self managed and cloud SaaS, both of which payer 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 the private or public cloud. Our cloud saas customers pay a subscription fee based upon consumption of storage and data transfer. We report 2 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 3rd 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 3 months ended September 30, 2020 was $38,900,000, up 40% year over year. Self managed revenues also often called on prem were $30,100,000, up 32%.
Cloud revenues grew faster, up 70 4 percent to $8,800,000 or 22 percent of total revenues. Compared to 18% of total revenues last year. Net dollar retention for the trailing 4 quarters. During COVID, we saw lower up sells 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 4th quarter net dollar retention will remain above 130% for the next several quarters. As of the quarter end, we had 3 13 customers with ARR of over $100,000. Up from 286 customers as of June 30. Of the 313 customers, 9 at ARR greater than $1,000,000 as compared to 8 customers in the previous quarter. Now let's review the income statement in more details.
Gross profit in the quarter was $32,200,000, 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 and D expense was $8,900,000 or 23 percent of revenue, in line with the same ratio in the year ago quarter. We have continued to invest significantly in R&D, including the roll out of our free tier in Q3, along with expanding the capabilities of X-ray and distribution. Sales and marketing expenses were $13,300,000 or 34 percent of revenue compared to 36% in the year ago period.
We benefited from a number of cost saving measures this quarter as a result of COVID including reduced travel and converting marketing programs to an online mode. Note that approximately half of our sales and marketing costs a spend on community related functions, which are key to our developer driven model. G and A expense was $4,800,000 of 12% of revenue compared to 14% in the year ago period. G and A reflects an increase in our public company costs including our D and O insurance policy costs only for a portion of the quarter since the IPO. Non GAAP operating income was $5,100,000 or a 13% operating margin.
Increasing from $2,500,000 or a 9% margin in the year ago Non GAAP net income in the quarter was $5,300,000 or $0.05 per diluted share based on approximately 101,800,000 weighted average diluted shares outstanding. Turning to the balance sheet and cash flow. We ended the quarter with $578,000,000 in cash and short term investments, including $393,000,000 in IPO proceeds. Cash flow from operations was $10,800,000 in the quarter, after taking Ethoca's iteration CapEx, free cash flow was a record $9,700,000. We are pleased to have been cash flow positive for the more than 5 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 the full year 2020. Revenue for Q4 will be $40,900,000 to $41,900,000 with non GAAP operating income of $1,200,000 to $2,200,000 and EPS of $0.02 assuming share count of approximately 104,000,000 shares. While we don't provide guidance on operating expenses, we do expect an increase as a percentage of revenue in Q4 due to a number of items, including increased R and D, public company costs, the bounce back from the some 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 $149,000,000 to $150,000,000 non GAAP operating income of $12,000,000 to $13,000,000 non GAAP EPS of $0.11 to $0.13 based on a share count of approximately 101,000,000 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 JFOC continues to be positioned well in the market to address the needs of business going through rapid digital transformation. As a call, 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 breach not only between developers and IT operators, but to an era of liquid software. Thanks for your attention and make the frog be with us.
Our first question comes from the line of Sterling Auty with JP Morgan. Your line is now open.
In your prepared remarks, you talked about the health of the free trials and the community and expressed confidence in 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 a word that food is being delivered by software.
Our kids are learning from home enabled by soft where 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 your secure and you deploy software faster. Now, COVID started with what I think a market shock. And then what we have seen is that more and more demand to solutions like J.
Pro 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 demand of an end to end solution that is expressed by all companies from all sectors. We are positive that as the market continues to digitalized businesses. We are positive that the demand will be converted into a customer funnel.
Got it. And then one follow-up. You mentioned 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?
Yes, what a great question. And yes, we will continue the investment in R&D. And innovation around DevOps. When you sell to developers, we have to remember that 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 also win with the amount of technology that they have to face. When you provide the community, with a fanatic universal solution that support all package type. And you can actually consolidate it all under one platform that makes the life easier and smoother as they build the Cuban 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 communicate 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 JPOG This is more than 20 different package types. And when you give them a universal support or what they call the Switzerland of DevOp, that obviously is the pain and lowers all kind of management resources.
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. Congrats on the, on your first call as a public company. Congrats on the IPO.
And really solid results coming out of the game. Thank you. And so my question, maybe to start with you, Shlomi, is just to get talk about the CSRM vision. And what we can sort of house sort of track progress? I think you sort of mentioned in your script that enterprise plus was 19 percent of revenue, which is, it seems like an improvement over last quarter.
Can you give us a sense of show
me 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 WEX subscription to an enterprise to enterprise plus? Is it getting to a certain number of service for our factory? Is it bringing on X-ray? 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?
Yes, absolutely. And thank you for joining this call. Great to hear from you again, Sanjay. And this question is something that we 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 the best of breed solution or you want to have a holistic end to end solution that kind of point 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 1st level of 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 CICD enablement and Vashboard and easy configuration on a multi site multi server environment, you bring enterprise value to the developer's hand and help them adopt DevOps much faster.
So with our different subscription and the full alignment with our product portfolio, what we are seeing to your question is that more and more customers are looking for a secured repository. This is why X-ray is being adopted quite rapidly. And something that happened just recently in the past 2 years is that every organization, especially under COVID, need to distribute software packages securely and rapidly. And therefore, JFob 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 dev ops practices around JPS platform.
Understood. That was great detail, Shlomi. My follow-up question is sort of around the cloud. I mean, it looks like the SaaS mix of the business improved again this quarter. It looks like it was 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 Sony is where are is the sort of DevOps market in the overall, cloud transition? And then where is sort of the JFrog customer base? Is that something that you guys are trying to incent them towards or are they sort of pushing you guys along there? Hey, do you want to go to cloud faster?
Thank you.
Yes. Well, you look at DevOps as one part of of the software lifecycle, but let's look at the overall world. Everyone now looking at a distributed team and distributed deployment environment and trying to avoid any kind of vendor lock in. 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 life cycle or CSM continued 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. JP started 9 years ago to support both the cloud and the on prem request. But the freedom of choice and 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 1. 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 2030 years of building and releasing software to a different development and deployment environment in 1 day or 1 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 that the request for multi cloud environments 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 lock in or region lock in as in my solution moving forward.
Now more and more assets are moving to the cloud and being duplicated in both environments from different reasons like security and disaster recovery and deployment in different geographies. And I think that J. Prox solution having this hybrid philosophy and multi cloud philosophy and identical software both self posted and on prem kind of serve the community very well. And therefore, we see the acceleration in our cloud adoption alongside the other solutions.
Appreciate it. Just let me congrats on Q3.
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 maybe until the end of the year, but, what trend you saw as far as new logo, new customer growth this quarter versus last quarter? Then, Swamy, one axis of growth is, additional servers going into large enterprises and I don't know if there was an update in the quarter to come to a conclusion about how that tracked, but I'm just wanting to see if there was an update on sort of the densification of of server licenses and your larger accounts?
Yes. So it's a great question, Alex. And thank you. In terms of the customer growth, obviously, we will look at on an annual basis and we see the growth and we see more and more customers adopting. What we are really excited about is the demand is that all time record.
We see more and more custom prospects and community member joining our 3 tier in the cloud on all cloud. And also more and more trials that are being downloaded for all products. With regard to the growth, as we reported, this year, we this quarter, we saw, 300 and we reported 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 the $1,000,000 club now and joining, while adopting our platform. We see these goals.
We monitor it very, very closely. And, the other thing that worth mentioning is that it's cost industries, it's cost sizes, people and companies are adopting DevOps rapidly. We also happy to report that the overall number of customer is growing and, 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 Altifactory flagship product and the base of all subscription, but also X-ray and other services like distribution, and, and hybrid solutions that are being adopted by our customers. So overall, We see this growth 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 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 worth noting because as you all know, our subscription model is in a full alignment with our offering. So if you start with the lowest entry point on GPON subscription model, you get one server. If you go all the way up to the platform and do end to end solution, then you start with 6 servers. So obviously, the growth in customers over $100,000 or $1,000,000 also, point the growth in the number of servers So you would see more and more servers of JPFob 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, accelerate our growth in the cloud not just by server, but by usage per customer.
Thank you.
Our next question comes from Rob Owens with Piper Sandler.
Great. Thanks for taking my question. You mentioned during the third quarter that there was a large win and my phone broke up, but I think it was within the retail vertical. Curious, when you go into an account that is a new customer for you, who are you displacing typically? And if there's any bake off who you're typically going up against at this point?
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 what we have noticed in the earlier years of DevOps is that it happened by a 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 requires that because they all understand that everything is powered by software. So we see it coming from all industries. Specifically around the adoption that we currently see, it comes from organizations that fall behind and 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 built 5 or 10 years ago. And what they what serve them until now will not serve them and they will be overwhelmed with the amount of software that need to be produced and distributed And therefore, we see a huge demand request for being educated, requests for more material about what this means. And therefore, we're also positive that this will be converted to, customers and paying customers that will use our platform.
Great. And then second, I know you guys embarked on a small number of direct sales folks, right as COVID was effectively hitting. Any updates you can give on that front? So what kind of customer success metrics? Maybe they have have driven since you've had them on board over the last 6 months?
Yes. So as I mentioned, our sales team is driven by enterprise insight sales and by a funnel that provides. Everything in J POX so far was built on inbound, inside sales, Obviously, we scaled to the enterprise and to procurement process that generate more than $1,000,000 POs 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 environment. So it's a hybrid strategic elite team that identify the top customers and will be working on spending our solution among this account.
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 and and enable
Our next question comes from the line of Brad Reback with Stifel.
If you guys think about the 130 percent dollar expansion rate you 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.
Yes, thank you for all this question. Obviously, NDR is 1 of the key KPI 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. And what we are looking at, what we are focusing on is a 4th 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 benefit.
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 NDR, I would turn it over to Jacob Schulman, our CFO.
So Brad, our Q3 trailing 4 quarter, net dollar retention rate was $136,000,000,000.
If I look forward and
net of retention of over 130 percent, 130 percent at the next few quarters. Typically, what we see is that in early stages of customer journey and 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. That's for, for, self hosted on prem customers, in cloud, it's all based on consumption. So the more they adopt the different capabilities, not just repository manager, but also X-ray and distribution, the more traffic they generate, and that's why they that's how they grow.
And that's why the net dollar cash generation rate expands as well.
Great. Thank you very much.
Our next question comes from Jason Ader with William Blair. Your line is now open.
On the on the, new customer count, total, actually total customer count. Hi. Can you give us the total customer count or new customers so we can just track that?
Yeah. So, Jason, Our customer count continue to grow from, in Q3. However, the primary driver behind our revenue growth is expansion of existing customers. At the end of the quarter, in Q2 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 customer total customer count on annual basis.
I will jump in and add to it that what we are seeing now, Jason, is also a different adoption of JFOC tool. We were used to see customers, new customers joining our portio due to the need of the repository. And with the JPOG X-ray, our security tool, SecOps tool, and we jiggle distribution, that help you deploy software faster with a circle of trust mechanism. We see customers coming from a different corners organizations and join our portfolio. The huge demand that we see in the free tier and the free trial represent the future as I see it in terms of number of customers that will join the JPY 4 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. 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 What are the top 2 or 3 priorities as you move into 2021 for the company?
A wonderful question. Thank you. Well, 1st of all, as we all experience, we are living in an unknown reality. I'm also tracking the news regarding the elections, 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 now just serving the organization, but also serving the business.
So obviously, we will be focused on different investments. The first And probably the most important driver for JPYFOC success is our R and D 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 JPOG, but also, the ecosystem support how can we provide more plug ins and more community tools that will help you to adopt DevOps and will help you and support you to adopt our tools. This is what we call the 2 integrated to fail solution. So R&D Investment is that my top priority for 2021.
Alongside the R and 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 the leads to paying customers 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 conversation with a sec ops or security experts sound B And therefore, our capability is not just in the R and 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 JProG is in a transition as well as a 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 Itay Hedran with Oppenheimer.
Thanks. Hey guys and congrats on your first call as a public company. Good start. I have questions. I'll start with you, Shlomi, and this is, I'm trying to perhaps Toni, your enterprise plus the X-ray product.
If you could talk about first of all X-ray, much of the focus over there is on proprietary code versus open source? And how do you feel about the maturity level of X-ray? 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, Dai, 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 component? This is a old technology organization adopted open source 10 years ago 15 years ago and different companies provided different scanners. I think that what X-ray is really unique in is the fact that X-ray is natively sitting on top of our factory and securing your number one hub for all software packages from all types.
So when you look at X-ray and you look at the database that X-ray comes with in order to compare and to reference, open source license compliance and security vulnerabilities, X-ray 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 our factory is also your proxy. Our factory is also your bridge to the outside world, bringing open source component and you need X-ray 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 X-ray integrates with your CICD environment, and X-ray can automatically break your bid. It's something, what they identified. So X-ray is a 3 years product and becoming more and more mature adopted by the biggest organizations in the world. And we will keep on investing in X-ray because the word of CSRM is incomplete if you just have a binary management without the security, all 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 security solution for the containers for one company, a security solution for the Git repository form and other. A security solution for our factory for the 3rd company. Having X-ray 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 X-ray, and more and more customers upgrading to PoX, which is the secured multi factory. 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. You just refresh our minds what was it there perhaps in the last couple of quarters so we can understand progress?
And then I know you didn't guide anything on next year. In this world a couple of months is a long time, but is there a general framework you like us to keep in mind as we think about the potential range of outcomes for next year?
Yes. So, 1st of all, in terms of some talked about enterprise plus adoption. Our revenues from enterprise plus in the second quarter was 17% if I remember correctly, our revenues in the 2019 from enterprise plus was 19% 10%. So we've seen very nice growth in enterprise plus adoption and the customer expand their as we expand our capability with enterprise us and customers adopt this end to end solution. We will see this revenues contributing even bigger portion in the future.
Very good. And our next year?
Can you repeat the question about the next year?
Yes, is it a general framework you'd like us to keep in mind as we think about how we model next year either growth of profitability measures.
Yes. So, as we see our net dollar retention rate, saying above 130, that should 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. Terms of profitability. We intend to invest back into the business. So let me talk about different areas of investments and focus areas.
In the near future, we expect our profitability to be low to mid single digits. In terms of percent of revenue.
Our next question comes from Nikolay Beliov with Bank of America.
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 where in the process of building an overlay direct sales force? Yes. Thank you, Nicole. I'm going with JFrog, is actually agnostic to the size of the company when it comes to technology. We build, attain solver for developers and DevOps companies.
And therefore, the product portfolio evolutions starting from 2008 all the way 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, 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 So data analyst 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 JProgg 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 a 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 a word with 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 developers that communicate with us on a daily basis and tell us what the pain is. On the business side, enterprise sales and SMB sales obviously look different and our sales teams is based on those different tiers. Although, the majority of our sales team is inside inbound and the strategic team is at the top of the pyramid, it's still build on these deals of SMB Enterprise And Strategic.
Moving forward, what we are seeing now is that the enterprise while adopting the the platform requires someone that understand 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 are these 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 CICD. What is the state of the land? Everybody looks like everybody is 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 CICD? And what's your edge on that front of the platform? That's a great question, Nikolai. 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, it's an open source solution that, that's spread around the world and have been very successful. But what's happening now is that cloud native steps into our world and containers and microservices 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, Jaypock pipeline 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 the CI server, but looking at the CI and the CD, the continuous integration and the continuous deployment. And when you look at that, you also want to allow them to, to get those sourced, not just from one bit repository, but from multiple vendors. And JAPO 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 J. Prox, is that JAPOC pipeline is embedded into the platform, 1 UI, 1 unified solution, that not just, build your software and deploy your software, but also integrate with X-ray, integrates with our factory and pushes to the run time. I think that Jenkins is a wonderful tool, but as companies are looking at cloud native, they will have to look at solutions like JFOC pipeline.
Our next question comes from Jack Andrews with Needham. Your line is now open.
Good afternoon. Congratulations on the results and thanks for fitting me into the call here. Just want to ask one high level question, if I could, for Shlomi. I'm just wondering, 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 is this become a true mainstream concept that's widely understood in the market these days.
Yes, Jade, thank you for this question. Actually, we get this question a lot because, JFOG was the 1st 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 binaries level. And, for the 1st 5 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, Solskold is very important for developers.
But what happened from the moment that you create this 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 cheap 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 1st level citizen and everybody understand that. Now another fact is that if you look at their landscape and other solutions in the market and if you look at the roadmap, just ask yourself, what is it that they're investing? They invest in package management solution, package management security, package management distribution. So in a way, it's kind of being being accepted by all vendors and all organizations.
And the last thing that, if I may add, in the world of containers and microservices and the 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 organization fast, whether they are in the cloud, on prem. And this is what also make them engage faster and more secure with their customers. So I think that we will see more and more of this. I'm very honored to be the 1st call DevOps company in the public sector.
And it's also said something about our vision and what liquid software represent in the world of power users.
Great. I appreciate your perspective. Thank you.
Thank you
Thank you very much for your attention. The frogs and I are very excited about what, what we see looking forward. Of our tool, the adoption of DevOps. I appreciate your time. I wish us all better days and secure days and may the product 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.