Michael Cikos

Michael Cikos asked if there's a quantifiable correlation between major security incidents, like the npm hack, and the resulting revenue impact for JFrog, or if the revenue generation is more dependent on the specific ecosystem affected.

Answer

JFrog CEO Shlomi Ben Haim stated that the responsible way to assess potential revenue growth is by looking at the number of existing enterprise customers who have not yet adopted JFrog Security. He highlighted three growth avenues: existing customers adopting security, new enterprise logos subscribing with security from the outset, and expansion within companies already using JFrog Security. He noted that JFrog Curation is "exploding" due to the real threat and need for scale.

Michael Cikos sought to understand if there's a quantifiable correlation between the scale of security hacks, like the npm incidents, and a direct revenue impact for JFrog, or if the benefit is more broadly distributed.

Answer

JFrog CEO Shlomi Ben Haim clarified that potential revenue growth from security is driven by three avenues: existing customers yet to adopt JFrog Security, new enterprise logos subscribing with security from the outset, and expansion within companies already using JFrog Security. He highlighted the rapid adoption of JFrog Curation due to real threats and scale requirements.

Michael Cikos inquired about the Q4 cloud growth, specifically asking for details on the new cloud database product that contributed $1.3 million in revenue and its expected scaling. He also sought confirmation that the 30-32% cloud growth guidance for 2025 assumes a consistent pace of cloud migrations.

Answer

CEO Shlomi Ben Haim explained the new product is the JFrog Catalog, a cloud service database for the entire security suite. CFO Ed Grabscheid added that this revenue comes from self-hosted customers migrating to the new cloud-based version and is factored into the 30-32% cloud guidance. Shlomi confirmed the guidance is conservative, assuming a migration pace similar to H2 2024 and treating increased consumption as a potential upside.

Michael Cikos sought clarification on whether the company's more conservative guidance approach is a new development or a continuation of past prudence, and asked about the drivers for the significant growth in billings and RPO.

Answer

CEO Shlomi Haim clarified that the cautious stance is ongoing due to the macro environment's impact on large deal timing. CFO Ed Grabscheid attributed the strong RPO growth to the closing of several large, multi-year deals. Shlomi Haim added that this reflects a strategy of waiting for larger, more strategic platform deals, even if it takes longer.

Michael Cikos of Needham & Company requested more detail on public sector performance, asking if Q2 results were better than anticipated and whether the current environment is normalized or if Okta is simply executing better than planned.

Answer

CEO Todd McKinnon acknowledged that while there was significant uncertainty three months ago, the feared negative impacts in the federal space did not materialize, and the strategic need for Okta's platform remains high. CFO Brett Tighe added that some contract restructurings involved fewer users but were often accompanied by upsells of new products, which is a net positive for deepening the customer relationship.

Michael Cikos from Needham & Company asked for more detail on the 'incremental conservatism' in the guidance, questioning if it was tied to new logos, NRR, a specific segment like public sector, or if it was broad-based.

Answer

CFO Brett Tighe responded that the prudence was applied across the board, or 'All of the above.' He did specify that within the broader macro factor, there is some caution related to the federal vertical. CEO Todd McKinnon added that despite the cautious guidance, the company is not altering its investment levels or execution plans.

Michael Cikos asked for confirmation on the average deal size for OIG (Okta Identity Governance) and whether the AWS Marketplace business now exceeds 10% of Okta's total ACV.

Answer

CEO Todd McKinnon confirmed that an average of roughly $75,000 per customer for OIG is a fair assessment. Regarding the AWS partnership, CFO Brett Tighe noted that it is a growing percentage of the business, highlighted by the 80% revenue growth in FY'25 and being named AWS Partner of the Year, but did not confirm if it had crossed the 10% threshold.

Michael Cikos asked for specific data points, such as from the public sector or Americas SMB initiatives, that provide confidence in the broader move toward sales specialization.

Answer

CEO Todd McKinnon cited the public sector as the best long-term example of successful specialization. He also mentioned positive, though smaller-scale, data from the hunter-farmer model in Americas SMB. He added that the decision is also based on observing sales cycles and an instinct that dedicated focus, particularly on the developer market, will unlock significant growth that outweighs the costs.

Michael Cikos asked if the CCB guide would have been raised by the Q4 beat amount if not for the U.S. Federal caution, and also inquired where planned sales capacity additions are being directed.

Answer

Co-CEO and CFO Stephen Vintz agreed it was a 'fair characterization' that the guide would have been higher absent the Fed caution. Regarding capacity, he explained the additions reflect confidence from recent performance and are aimed at capturing opportunities in the second half of 2025 and into 2026, clarifying that the company is not currently capacity-constrained.

An analyst on behalf of Michael Cikos requested a quantitative breakdown of the 2025 guidance reduction between the public and private sectors and asked for color on the U.S. federal business environment.

Answer

Co-CEO Stephen Vintz specified that approximately two-thirds of the CCB guidance revision is attributed to the U.S. public sector, with the remainder related to the enterprise business. He reiterated that the federal business faces visibility challenges due to personnel disruptions. Co-CEO Mark Thurmond added that while top-of-funnel demand is positive, especially with Tenable One's new FedRAMP authorization, the timing of deal closures remains uncertain.

Michael Cikos from Needham & Company inquired about the pricing for OT security and sought an update on new business trends for both VM and non-VM products.

Answer

CEO Amit Yoran stated that OT security is licensed per IP address or asset, similar to other on-prem offerings. CFO Steve Vintz described the VM business as 'stabilized' and noted that while the macro makes new business tougher, the company added nearly 400 new logos and results were modestly better than Q2.

Michael Cikos of Needham & Company asked how GitLab gains confidence that it is winning in the competitive AI market, especially with customers testing multiple vendors and considering recent growth trends.

Answer

CEO Bill Staples expressed confidence based on direct engagement with customers conducting competitive bake-offs, where he sees GitLab Duo winning against other leading tools in large accounts. He also pointed to the strong positive feedback from the private beta of GitLab Duo Workflow as a key factor that will strengthen their competitive position upon its public release.

Michael Cikos from Needham & Company asked how the 40% seat contribution to DBNRR compared to expectations and whether the sales force is now indexing more towards pricing and tier upgrades.

Answer

CFO Brian Robins explained that the fluctuation in the seat component of DBNRR was expected due to the large deal signed in the prior year and is simply an output of the solution-selling process. He stated that there are no concerns related to this metric, as the focus is on landing the best solution for the customer, which increasingly involves larger deals on the Ultimate tier.

Michael Cikos sought a tangible metric to support the strong commentary on broad-based Inference demand and enterprise adoption, attempting to reconcile the positive tone with the initial view of a sequential RPO decline.

Answer

CEO Michael Intrator first corrected the premise by reiterating that total committed revenue backlog is growing massively to $29 billion when including recent large deals. He then explained that the Inference trend is the most exciting qualitative indicator because it represents the actual monetization of AI by customers, which validates the entire ecosystem's investment and ensures future growth.

Michael Cikos questioned the confidence behind the second-half guidance, asking why the company isn't embedding more conservatism given the ongoing uncertainty in the U.S. Federal market.

Answer

Interim CEO Thomas Hogan explained that while they adjusted revenue guidance, their confidence stems from strong performance in other segments like U.S. state and local, LatAm, and Asia Pac. He emphasized the 'must-have' nature of their software, citing direct feedback from agencies. Hogan also pointed to the growing Intelligence and Defense sector as an emerging tailwind. CRO Marcus Jewell added that long-standing executive relationships with customers provide stability through the temporary uncertainty.

Michael Cikos asked for clarification on the sales structure for the 'investigative persona' and whether the U.S. Federal business is still primarily in a pipeline-building phase for 2025 or if guidance includes early wins.

Answer

Chief Revenue Officer Marcus Jewell explained that the go-to-market motion is a dedicated specialist team, not an overlay, that calls directly on heads of investigative units. Interim CEO Thomas Hogan confirmed that 2025 is largely a pipeline-building year for the federal business, with the bulk of acceleration from the new Cellebrite Federal Solutions unit and FedRAMP expected to materialize in 2026, a dynamic fully reflected in the 2025 guidance.

Michael Cikos from Needham & Company asked about the timeline for the CEO search process and sought reaffirmation of the long-term financial model presented at the March 2024 Investor Day.

Answer

Executive Chairman Thomas Hogan revealed the CEO search process began a few weeks prior and that search firms are actively building a candidate slate. Both Hogan and CEO Yossi Carmil confirmed there is no change to the company's strategy or the long-term financial model, citing favorable market conditions and a strong growth path.

Michael Cikos of Needham & Company asked about the drivers behind the surprising improvement in sales cycles and the level of conservatism baked into the reiterated full-year guidance following a strong Q1.

Answer

CEO Matthew Prince attributed the improved sales cycles to operational excellence and faster expansion deals with existing customers but cautioned that he does not expect the trend to continue indefinitely. CFO Thomas Seifert described the full-year guidance as 'prudent,' reflecting confidence in their strategy but also acknowledging the volatile global environment.

In a follow-up, Michael Cikos asked for confirmation on the ASC 606 revenue headwind, the current percentage of customers on long-term contracts, and the reasons for the increased unlevered free cash flow conversion and lower tax rate.

Answer

EVP and CFO Tim O'Brien confirmed the full-year ASC 606 headwind remains consistent with prior commentary. He stated that customers on longer-term contracts represent over 50% of ARR. He attributed the higher free cash flow conversion and lower tax rate primarily to greater-than-expected benefits realized from the Adlumin acquisition.

Michael Cikos inquired about the specific Q4 2024 revenue contribution from the Adlumin acquisition, its embedded value in the 2025 guidance, and the future strategy for the long-term contract initiative.

Answer

EVP and CFO Tim O'Brien stated that Adlumin contributed approximately $2.5 million in revenue in Q4 from its November 20 acquisition date and had roughly $21 million in ARR at the time of purchase. He noted that while the 2025 guide incorporates Adlumin, its specific contribution would not be broken out. Regarding contracts, O'Brien explained that the mix of customers on annual terms would increase naturally over time as new business is signed, rather than through another large-scale push.

Michael Cikos requested the specific quantified impact of upfront subscription revenue from on-prem customers in Q3 and asked if the headwinds from estate optimization and pricing would continue into 2025.

Answer

EVP and CFO Tim O'Brien quantified the upfront revenue recognition impact as approximately 4 percentage points of growth in Q3 and confirmed these headwinds are expected to persist through the first half of 2025. CEO John Pagliuca added that the 2025 persistence is a byproduct of the timing, as much of the optimization occurred in the first half of 2024, creating a challenging year-over-year comparison.

Michael Cikos asked for details on the negotiation process for the record TCV deal, whether the new B2 Overdrive offering was a factor, and if there have been any changes in top-of-funnel demand generation.

Answer

CEO Gleb Budman explained the record deal was an AWS displacement where the customer expanded its initial contract after experiencing Backblaze's performance and service. He clarified that B2 Overdrive was not a factor in this specific deal but was developed in response to broader customer demand. CFO Marc Suidan noted that changes in demand generation are primarily internal, stemming from a Q4 marketing restructure to focus more on outbound efforts, which began ramping up in March.

Michael Cikos sought more specific timing on the Q1 consumption slowdown and its status in April, and asked if international partner strength for Confluent Platform (CP) indicates a key growth vector.

Answer

CEO Jay Kreps clarified that the consumption slowdown was evident throughout March, not just at the end, and that trends stabilized in April without an immediate rebound. CFO Rohan Sivaram confirmed that the partner ecosystem is a growth driver across both Confluent Platform and Cloud, highlighting the strategic advantage of their multi-deployment model rather than a specific preference for CP internationally.

Michael Cikos asked for the timing of the behavioral shift in digital native customers during the quarter and whether the recovery was driven by delayed projects or the new go-to-market motion.

Answer

CFO Rohan Sivaram described the shift as a progressive momentum throughout the quarter rather than a specific event, as optimizations concluded and DSP adoption grew. CEO Jay Kreps added it was a combination of both the natural 'sawtooth' investment cycle of customers and an intentional GTM focus on driving new DSP products, enabled by the new consumption-based sales compensation plan.

Michael Cikos of Needham & Company inquired about U.S. market demand trends amid policy uncertainty, potential extensions in sales cycles, the cause for the year-over-year decline in quarterly billings, and the rationale for the forecasted decline in cash flow from operations for fiscal 2026.

Answer

CEO Elad Sharon stated that Cognyte sees a significant opportunity in the U.S. and is increasing investments to expand its footprint with state, local, and federal agencies, expecting U.S. growth to outpace other territories. CFO David Abadi clarified that Q4 billings were strong and in line with expectations following an abnormally high Q3. He explained that the fiscal 2026 cash flow from operations forecast of $45 million remains robust, following an exceptionally strong fiscal 2025 which benefited from significant working capital efficiencies.

Michael Cikos inquired about the characteristics of customers signing large deals ($10M-$20M) and whether their product needs differ, as well as the current customer budget environment.

Answer

CEO Elad Sharon explained that the demand drivers, such as data complexity and the need for advanced analytics, are consistent across the market, not just for large-deal customers. He noted these customers are expanding both capacity and functionality. Regarding budgets, Sharon highlighted healthy demand, citing an increase in new logos year-to-date (30 vs. 29 in all of FY24) and strong attendance at the company's recent summit as evidence of a favorable spending environment and market tailwinds.

Michael Cikos of Needham & Company, LLC inquired about the cause of the sequential decline in software revenue and asked for clarity on the expected mix between software and professional services for the rest of the year.

Answer

CEO Elad Sharon explained that the change in software revenue reflects a conversion of some perpetual license sales to subscription offerings, noting that overall recurring revenue grew significantly year-over-year. CFO David Abadi added that while government clients still prefer perpetual licenses, the company's guidance incorporates growing subscription revenue, which now constitutes over 55% of total revenue and provides strong visibility for future growth.

Michael Cikos inquired about the specific drivers behind the stabilization of Atlas consumption growth in Q4. He also requested more detail on the quarterly timing of the anticipated $50 million multiyear headwind in the non-Atlas business for FY26.

Answer

CFO Serge Tanjga explained that stable Atlas growth expectations for FY26 are based on a stable macro environment, stronger contributions from the FY25 cohort of workloads, and continued new workload acquisition. He also noted that the $50 million non-Atlas headwind is expected to be a 'back half-weighted phenomenon,' mirroring the outperformance in Q3 and Q4 of FY25.

Michael Cikos asked if the better-than-expected consumption growth was broad-based or concentrated and questioned the motivation for customers running AI workloads on-prem—whether for optimization or due to the immaturity of the market.

Answer

CFO Michael Gordon confirmed the consumption improvement was broad-based but reiterated it was a slight beat, not a major shift. CEO Dev Ittycheria suggested that running AI on-prem is driven by both factors: some customers are committed to their on-prem estate, while the broader market is still in the very early, experimental days of AI application development.

Michael Cikos requested more detail on the growth of the $1 million-plus ARR customer cohort, particularly in the context of the company's go-to-market initiatives and GSI partnerships.

Answer

CEO Jay Chaudhry attributed the growth to two key factors: an account-centric sales process and deeper engagement with Global System Integrators (GSIs). He noted that GSIs are now embedding Zscaler into their core transformation practices and actively helping to close large, seven-figure deals, which is crucial for unlocking the 6x upsell opportunity within the existing customer base.

Michael Cikos asked about initial customer feedback for Capella AI Services and the source of management's confidence in an anticipated increase in Capella migrations.

Answer

CEO Matthew Cain reported that early feedback on Capella AI Services is very positive, as customers see the platform's core strengths as highly relevant for AI and are investing in the company's long-term roadmap. He explained that confidence in migrations stems from detailed customer mapping, a more mature pipeline of opportunities, and successful reference cases. CFO Gregory Henry added that having multi-million dollar migration customers and advocates moving to new companies also bolsters this confidence.

Michael Cikos inquired about the visibility into the closing timeline for the large key account deals in Q4 and the potential for some to slip into the next fiscal year. He also requested quantification of the 'precontracted ARR' mentioned and how it compares to historical levels.

Answer

CEO Matthew Cain explained that confidence in the Q4 forecast stems from the breadth of the strategic deal pipeline, allowing for multiple paths to success even if some deals move to the next year. CFO Gregory Henry quantified the precontracted ARR as the largest in company history, at 'several million dollars' and roughly double what would be seen in a typical high quarter, driven by prior deals and the large Q3 Capella migration.

Michael Cikos followed up on the customer count question, asking why industry M&A isn't leading to more new customer additions and whether this is because existing customers are simply consolidating more workloads onto Elastic.

Answer

CEO Ash Kulkarni confirmed this interpretation, explaining that the focus is on enterprise and mid-market customers, many of whom are already Elastic customers. When they consolidate workloads from a competitor (often due to M&A), it registers as an expansion of the existing relationship rather than a new customer add. This expansion motion, he noted, is working very well.

Michael Cikos sought to clarify the timeline of the sales execution issues, asking when the segmentation changes were implemented and when the problem was identified. He also asked if there has been any notable improvement in deal progression since the quarter's end.

Answer

CEO Ashutosh Kulkarni specified that the segmentation changes were rolled out on May 1, the start of the fiscal year, and the negative impact was identified late in the quarter, in July. He confirmed that corrective actions are in place and they are already seeing 'positive signs' of deals progressing, as many slipped deals were not lost. CFO and COO Janesh Moorjani affirmed that this execution issue is the core reason for the revised full-year guidance.

Michael Cikos of Needham & Company, LLC inquired about the early customer adoption and impact of the Fusion v2 launch, asking for signs of faster expansion or stickiness and details on the go-to-market strategy.

Answer

CEO Charles Giancarlo stated that while it's early, dozens of customers have already adopted Fusion v2 with 'enthusiastic' feedback on its fleet management capabilities. He noted that this creates a network effect, but it will take several quarters to see a measurable impact on expansion rates.

Michael Cikos asked if the customer preference for CapEx purchases is linked to data repatriation efforts aimed at managing costs for Gen AI workloads.

Answer

CFO Kevan Krysler clarified that there isn't a broad preference for CapEx; in fact, demand for Evergreen//One in the velocity business (deals under $5 million) is strong. He suggested the delays in larger subscription deals might be due to increased customer scrutiny on all large software and SaaS expenditures, rather than a shift in purchasing preference.

Michael Cikos from Needham & Company inquired about the size of partners and deals originating from competitive displacement, and asked which specific platform features are resonating most with new Global 2000 customers.

Answer

CEO Rajiv Ramaswami explained that partners cover the full customer spectrum, with a channel-led motion for smaller customers and a co-selling motion for large enterprises. He attributed success with Global 2000 customers to platform enhancements in scalability and ecosystem support, as well as more streamlined internal deal teams to manage complex sales cycles.

Michael Cikos of Needham & Company asked if the full-year operating margin guidance was influenced by being behind on hiring or by plans for increased investments. He also sought more detail on the drivers of the expected Q2 to Q3 sequential revenue decline.

Answer

CFO Rukmini Sivaraman explained that the spending ramp is part of the annual plan, similar to last year, and not due to being behind on hiring. She confirmed that the Q2-to-Q3 seasonality is driven by Q2 being a stronger quarter due to December year-end spending, a pattern now amplified by renewal cohorts following the same historical cycle.

Michael Cikos asked if the strong pipeline metrics for million-dollar-plus ACV deals from last quarter still hold and requested clarification on the $30 million free cash flow benefit from partner payments in fiscal 2025.

Answer

CFO Rukmini Sivaraman declined to update the specific pipeline metrics quarterly but confirmed that pipe creation for large deals remains good, though it's still early to draw conclusions on sales cycle length. She clarified that the recurring $30 million free cash flow benefit in FY25 is due to a timing difference between cash collection and OpEx recognition for a non-recurring partner payment, which is expected to taper off after this fiscal year.

Michael Cikos of Needham & Company asked for the size of the AI/ML ARR base as a percentage of total ARR and its composition from the 'scalers' cohort. He also inquired about the 2025 gross margin trajectory, considering the new Atlanta data center and extended server life.

Answer

Executive Matt Steinfort stated that specific AI ARR is not disclosed as it's intermingled with pull-through revenue and managed as an integrated product. He confirmed that while scalers contribute, the majority of AI revenue is not yet from that cohort. Regarding gross margins, he projected a slight dip in early 2025 from Atlanta data center costs, followed by a recovery, reiterating confidence in the full-year free cash flow target.

Michael Cikos inquired about the wide range for Q4 EBITDA margin guidance and sought details on the confidence behind the preliminary 2025 baseline growth outlook of low to mid-teens.

Answer

CFO Matt Steinfort attributed the wide Q4 EBITDA margin range to the timing of lumpy R&D investments, specifically using contractors for product acceleration. He expressed confidence in the 2025 growth outlook based on strong performance in the self-serve funnel, the recovery of the managed hosting business, and AI revenue contribution tracking ahead of plan, all independent of macro improvements.

Michael Cikos asked for an update on the go-to-market changes initiated earlier in the year, seeking to understand the progress on sales productivity and the rationale for accelerating sales rep hiring.

Answer

CFO Jim Benson noted that while it's early, they are seeing positive leading indicators like an improving pipeline in strategic accounts. CEO Rick McConnell added that with over 30% of sales reps having less than a year of tenure, productivity is expected to increase over time. He also highlighted strong partner traction, with partners now originating over 50% of new logos, providing confidence in the strategy.

Michael Cikos requested more detail on the 'go-to-market optimization' mentioned in the release and asked how it factored into the company's guidance philosophy.

Answer

CEO Bill McDermott outlined a strategy of 'building strength on strength,' combining the core subscription business with new growth from RaptorDB and the Now Assist AI portfolio. He highlighted organizational leadership changes to enhance execution and a focus on both high-value enterprise and high-volume commercial deals. He also noted internal use of AI for sales territory management as an example of optimization. President and CFO Gina Mastantuono confirmed that all these factors were 'thoughtfully put into our guide.'

Michael Cikos of Needham & Company asked about the revised timeline for achieving positive free cash flow after the announced investments and sought to clarify the relationship between prioritized engineering services and unbilled receivables.

Answer

Chairman and CEO Thomas Siebel stated that while the company is no longer targeting full-year fiscal '25 cash flow positivity, it remains on track to be cash flow positive in Q4 '25 and expects to cross over into sustained positivity at some point in fiscal '26. He emphasized the strategic necessity of investing in the Microsoft partnership. Siebel also clarified that prioritized engineering services are high-margin, software-like deliverables with no direct linkage to unbilled receivables.

Michael Cikos asked about the drivers of gross margin, including the impact of AI customers and new products, and whether the current level of customer usage growth is the new normal or if it could accelerate.

Answer

CEO Olivier Pomel stated that gross margins are stable and actively managed by balancing feature development with optimization work; product mix is not a major factor. He suggested that a key catalyst for future usage growth acceleration would be the broader adoption of production-level AI applications by non-AI-native companies, which would create more complex, observable application stacks.

Michael Cikos of Needham & Company asked for an update on the progress of the recent shift to a regional sales model and inquired about potential changes to sales rep incentives for 2025 given the shifting pipeline composition.

Answer

CEO Corey Thomas stated that the shift to a regional model is progressing 'very well,' citing the pipeline acceleration as evidence of focused execution by sales leaders. He noted the sales team has hit its execution goals for building and converting pipeline. The next step is to observe the deal cycles and conversion velocity for the new Exposure Command platform, which will inform future plans and determine if growth can exceed the 'mild acceleration' outlook.

Michael Cikos asked if the recent security-related headlines had negatively impacted sales cycles or demand, and whether the reiterated margin guidance accounted for any delayed spending.

Answer

CEO Sridhar Ramaswamy confirmed there has been 'not really any noticeable effect or delay' on sales cycles, though the company is now more proactive in security discussions. CFO Mike Scarpelli stated there is no delayed spend, but the company may accelerate hiring in the second half, which is already factored into the maintained full-year guidance.