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JFrog Announces Third Quarter Fiscal 2022 Results

November 2, 2022 4:05 PM

SUNNYVALE, Calif.--(BUSINESS WIRE)-- JFrog Ltd. (“JFrog”) (Nasdaq: FROG), the Liquid Software company and creators of the JFrog DevOps Platform, today announced financial results for its third quarter, ended September 30, 2022.

“Our third quarter results exceeded the high-end of guidance across all metrics, as cloud revenues grew 60%, driven with our cloud marketplace partners and higher levels of customer usage,” said Shlomi Ben Haim, JFrog Co-founder and CEO. “We are reimagining the way DevOps and Security play together. As part of our strategy, we launched JFrog’s Advanced Security, a ground shaking DevSecOps product that is now part of our platform, and provides our users a binary-focused approach to software supply chain security.”

Third Quarter Financial Highlights

Recent Business & Product Highlights

Fourth Quarter and Fiscal Year 2022 Outlook

The section titled "Non-GAAP Financial Information" below describes our usage of non-GAAP financial measures. Reconciliations between historical GAAP and non-GAAP information are contained at the end of this press release following the accompanying financial data.

Conference Call Details

A live webcast of the conference call will be accessible from the investor relations website at https://investors.jfrog.com/events-and-presentations.

About JFrog

JFrog Ltd. (Nasdaq: FROG), is on a mission to power all the world’s software updates, driven by a “Liquid Software” vision to allow the seamless, secure, fearless flow of binaries from developers to the edge. The JFrog DevOps Platform enables software creators to power their entire software supply chain throughout the full binary lifecycle, so they can build, secure, distribute, and connect any source with any production environment. JFrog’s hybrid, universal, multi-cloud DevOps platform is available as both self-hosted and SaaS services across major cloud service providers. Millions of users and thousands of customers worldwide, including a majority of the Fortune 100, depend on JFrog solutions to securely embrace digital transformation. Once you leap forward, you won’t go back! Learn more at jfrog.com and follow us on Twitter: @JFrog.

Forward-Looking Statements:

This press release and the earnings call referencing this press release contain “forward-looking” statements, as that term is defined under the U.S. federal securities laws, including but not limited to statements regarding JFrog’s future financial performance, including our outlook for the fourth quarter and for the full year of 2022, our leadership position in the markets in which we participate, our ability to drive growth, our expectations regarding the market and revenue potential for JFrog.

Artifactory, JFrog Xray, JFrog Distribution and JFrog Connect, including the efficacy and benefit of integrating of any of the foregoing with other products and platform, the growth potential of our cloud business, including hybrid and multi-cloud, our ability to provide effective tools and solutions to detect and remediate security vulnerabilities, the ability of our strategic sales team to grow the business across top-tier accounts, our ability to expand usage of our platform in the government and commercial sectors, our ability to successfully integrate acquisitions into our business operations, including the DevOps platform, and realize anticipated benefits and synergies from such acquisitions, our ability to contribute data to global security standards bodies, and our ability to innovate and meet market demands and the software supply chain needs of our customers. These forward-looking statements are based on JFrog’s current assumptions, expectations and beliefs and are subject to substantial risks, uncertainties, assumptions and changes in circumstances that may cause JFrog’s actual results, performance or achievements to differ materially from those expressed or implied in any forward-looking statement.

There are a significant number of factors that could cause actual results to differ materially from statements made in this press release and our earnings call, including but not limited to: risks associated with managing our rapid growth; our history of losses; our limited operating history; our ability to retain and upgrade existing customers our ability to attract new customers; our ability to effectively develop and expand our sales and marketing capabilities; our ability to integrate and realize anticipated synergies from acquisitions of complementary businesses; risk of a security breach incident or product vulnerability; risk of interruptions or performance problems associated with our products and platform capabilities; our ability to adapt and respond to rapidly changing technology or customer needs; our ability to compete in the markets in which we participate; our ability to successfully integrate technology from recent acquisitions, into our offerings; our ability to provide continuity to our respective customers following our acquisitions, and our ability to realize innovations following the acquisition; general market, political, economic, and business conditions; and the duration and impact of the COVID-19 pandemic. Our actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to, risks detailed in our filings with the Securities and Exchange Commission, including in our annual report on Form 10-K for the year ended December 31, 2021, our quarterly reports on Form 10-Q, and other filings and reports that we may file from time to time with the Securities and Exchange Commission. Forward-looking statements represent our beliefs and assumptions only as of the date of this press release. We disclaim any obligation to update forward-looking statements.

About Non-GAAP Financial Measures:

JFrog discloses the following non-GAAP financial measures in this release and the earnings call referencing this press release: non-GAAP operating income (loss), non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses (research and development, sales and marketing, general and administrative), non-GAAP operating margin, non-GAAP net income (loss), non-GAAP net income (loss) per diluted share, non-GAAP net income (loss) per basic share, and free cash flow. JFrog uses each of these non-GAAP financial measures internally to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, for short- and long-term operating plans, and to evaluate JFrog’s financial performance. JFrog believes they are useful to investors, as a supplement to GAAP measures, in evaluating its operational performance, as further discussed below. JFrog’s non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in its industry, as other companies in its industry may calculate non-GAAP financial results differently, particularly related to non-recurring and unusual items. In addition, there are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies and exclude expenses that may have a material impact on JFrog’s reported financial results.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. A reconciliation of the historical non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included below in this press release. A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis without unreasonable effort due to the uncertainty regarding, and the potential variability of, reconciling items that may be incurred in the future such as share-based compensation, the effect of which may be significant.

JFrog defines non-GAAP gross profit, non-GAAP operating expenses (research and development, sales and marketing, general and administrative), non-GAAP gross margin, non-GAAP operating margin, non-GAAP operating income (loss) and non-GAAP net income (loss) as the respective GAAP balances, adjusted for, as applicable: (1) share-based compensation expense; (2) the amortization of acquired intangibles; (3) acquisition-related costs; (4) legal settlement costs and (5) income tax effects. JFrog defines free cash flow as Net cash provided by (used in) operating activities, minus capital expenditures. Investors are encouraged to review the reconciliation of these historical non-GAAP financial measures to their most directly comparable GAAP financial measures.

Management believes these non-GAAP financial measures are useful to investors and others in assessing JFrog’s operating performance due to the following factors:

Share-based compensation. JFrog utilizes share-based compensation to attract and retain employees. It is principally aimed at aligning their interests with those of its shareholders and at long-term retention, rather than to address operational performance for any particular period. As a result, share-based compensation expenses vary for reasons that are generally unrelated to financial and operational performance in any particular period.

Amortization of acquired intangibles. JFrog views amortization of acquired intangible assets as items arising from pre-acquisition activities determined at the time of an acquisition. While these intangible assets are evaluated for impairment regularly, amortization of the cost of acquired intangibles is an expense that is not typically affected by operations during any particular period.

Acquisition-related costs. Acquisition-related costs include expenses related to acquisitions of other companies. JFrog views acquisition-related costs as expenses that are not necessarily reflective of operational performance during a period.

Legal settlement costs. From time-to-time JFrog incurs charges related to litigation settlements. We exclude these charges and related professional service costs when associated with a significant settlement because they are not reflective of JFrog’s ongoing business and operating results.

Income tax effects. JFrog’s non-GAAP financial results are adjusted for income tax effects related to these non-GAAP adjustments and changes in our assessment regarding the realizability of our deferred tax assets, if any. Excluding income tax effects of non-GAAP adjustments provides a more accurate view of JFrog’s operating results.

Non-GAAP weighted average share count. Diluted GAAP and non-GAAP weighted-average shares are the same, except in periods that there is a GAAP loss and a non-GAAP income. The non-GAAP weighted-average shares used to compute the non-GAAP net income per share - diluted are adjusted to reflect dilution equal to the dilutive impact had there been GAAP income.

Additionally, JFrog’s management believes that the non-GAAP financial measure, free cash flow, is meaningful to investors because management reviews cash flows generated from operations after taking into consideration capital expenditures due to the fact that these expenditures are considered to be a necessary component of ongoing operations.

Operating Metrics

JFrog’s number of customers with annual recurring revenue (“ARR”) of $100,000 or more is based on the ARR of each customer, as of the last month of the quarter. JFrog’s number of customers with ARR of $1 million or more is based on the ARR of each customer, as of the last month of the quarter. JFrog defines ARR as the annualized revenue run-rate of subscription agreements from all customers as of the last month of the quarter. The ARR includes monthly subscription customers, so long as JFrog generates revenue from these customers. JFrog annualizes its monthly subscriptions by taking the revenue it would contractually expect to receive from such customers in a given month and multiplying it by 12.

JFrog’s net dollar retention rate compares its ARR from the same set of customers across comparable periods. JFrog calculates net dollar retention rate by first identifying customers (the “Base Customers”), which were customers in the last month of a particular quarter (the “Base Quarter”). JFrog then calculates the contracted ARR from these Base Customers in the last month of the same quarter of the subsequent year (the “Comparison Quarter”). This calculation captures upsells, contraction, and attrition since the Base Quarter. JFrog then divides total Comparison Quarter ARR by total Base Quarter ARR for Base Customers. JFrog’s net dollar retention rate in a particular quarter is obtained by averaging the result from that particular quarter with the corresponding results from each of the prior three quarters.

JFROG LTD.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data; unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021

Revenue:

Subscription—self-managed and SaaS

$

67,750

$

49,248

$

190,498

$

135,898

License—self-managed

4,241

4,455

12,996

11,549

Total subscription revenue

71,991

53,703

203,494

147,447

Cost of revenue:

Subscription—self-managed and SaaS(1)(2)(3)

15,678

11,262

44,345

28,379

License—self-managed(3)

220

199

660

580

Total cost of revenue—subscription

15,898

11,461

45,005

28,959

Gross profit

56,093

42,242

158,489

118,488

Operating expenses:

Research and development(1)(2)

31,698

23,142

87,744

53,666

Sales and marketing(1)(2)(3)

33,152

24,321

94,323

66,112

General and administrative(1)(2)(4)

14,682

15,695

41,410

44,469

Total operating expenses

79,532

63,158

223,477

164,247

Operating loss

(23,439

)

(20,916

)

(64,988

)

(45,759

)

Interest and other income, net

1,369

20

2,159

726

Loss before income taxes

(22,070

)

(20,896

)

(62,829

)

(45,033

)

Income tax expense (benefit)

1,482

(432

)

4,200

(3,525

)

Net loss

$

(23,552

)

$

(20,464

)

$

(67,029

)

$

(41,508

)

Net loss per share, basic and diluted

$

(0.24

)

$

(0.21

)

$

(0.68

)

$

(0.44

)

Weighted-average shares used in computing net loss per share, basic and diluted

99,618

95,707

98,825

94,029

(1) Includes share-based compensation expense as follows:

Cost of revenue: subscription—self-managed and SaaS

$

1,903

$

1,180

$

4,822

$

2,766

Research and development

6,806

4,547

17,268

9,056

Sales and marketing

6,548

4,307

16,095

10,552

General and administrative

3,960

6,823

10,183

20,337

Total share-based compensation expense

$

19,217

$

16,857

$

48,368

$

42,711

(2) Includes acquisition-related costs as follows:

Cost of revenue: subscription–self-managed and SaaS

$

6

$

3

$

19

$

3

Research and development

2,304

2,305

6,828

3,007

Sales and marketing

228

279

464

279

General and administrative

10

511

244

872

Total acquisition-related costs

$

2,548

$

3,098

$

7,555

$

4,161

(3) Includes amortization of acquired intangibles as follows:

Cost of revenue: subscription–self-managed and SaaS

$

2,386

$

1,773

$

7,158

$

1,773

Cost of revenue: license—self-managed

220

199

660

580

Sales and marketing

298

327

770

691

Total amortization expense of acquired intangible assets

$

2,904

$

2,299

$

8,588

$

3,044

(4) Includes legal settlement costs as follows:

General and administrative

$

—

$

—

$

216

$

—

JFROG LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands; unaudited)

As of

September 30, 2022

December 31, 2021

Assets

Current assets:

Cash and cash equivalents

$

53,971

$

68,284

Short-term investments

380,031

352,844

Accounts receivable, net

49,037

50,483

Deferred contract acquisition costs

7,390

5,271

Prepaid expenses and other current assets

18,620

22,140

Total current assets

509,049

499,022

Property and equipment, net

8,050

6,689

Deferred contract acquisition costs, noncurrent

12,471

9,120

Operating lease right-of-use assets

23,738

25,999

Intangible assets, net

40,524

47,980

Goodwill

247,955

247,776

Other assets, noncurrent

10,838

15,942

Total assets

$

852,625

$

852,528

Liabilities and Shareholders’ Equity

Current liabilities:

Accounts payable

$

13,122

$

10,868

Accrued expenses and other current liabilities

28,966

27,954

Operating lease liabilities

6,928

7,293

Deferred revenue

143,199

129,149

Total current liabilities

192,215

175,264

Deferred revenue, noncurrent

16,535

17,957

Operating lease liabilities, noncurrent

15,999

20,014

Other liabilities, noncurrent

2,958

712

Total liabilities

227,707

213,947

Shareholders’ equity:

Share capital

281

272

Additional paid-in capital

834,900

776,690

Accumulated other comprehensive income (loss)

(4,242

)

611

Accumulated deficit

(206,021

)

(138,992

)

Total shareholders’ equity

624,918

638,581

Total liabilities and shareholders’ equity

$

852,625

$

852,528

JFROG LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands; unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021

Cash flows from operating activities:

Net loss

$

(23,552

)

$

(20,464

)

$

(67,029

)

$

(41,508

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation and amortization

3,698

3,058

10,789

5,140

Share-based compensation expense

19,217

16,857

48,368

42,711

Non-cash operating lease expense

1,847

1,640

5,449

4,298

Net amortization of premium or discount on investments

626

1,596

3,014

4,482

Loss on foreign exchange

1,937

—

1,937

—

Changes in operating assets and liabilities, net of business combinations:

Accounts receivable

3,736

(7,150

)

1,215

(6,172

)

Prepaid expenses and other assets

969

(17,311

)

5,105

(18,684

)

Deferred contract acquisition costs

(1,864

)

(1,565

)

(5,470

)

(3,845

)

Accounts payable

(99

)

(510

)

2,128

(679

)

Accrued expenses and other liabilities

(2,268

)

957

3,189

5,663

Operating lease liabilities

(1,786

)

(1,293

)

(7,212

)

(3,935

)

Deferred revenue

2,667

6,442

12,628

22,770

Net cash provided by (used in) operating activities

5,128

(17,743

)

14,111

10,241

Cash flows from investing activities:

Purchases of short-term investments

(124,436

)

(19,460

)

(305,715

)

(170,674

)

Maturities and sales of short-term investments

117,906

56,019

273,775

281,973

Purchases of property and equipment

(1,306

)

(916

)

(3,437

)

(3,190

)

Payments related to business combination, net of cash acquired

—

(195,752

)

(179

)

(195,752

)

Purchase of intangible asset

(300

)

—

(300

)

(600

)

Net cash used in investing activities

(8,136

)

(160,109

)

(35,856

)

(88,243

)

Cash flows from financing activities:

Proceeds from exercise of share options

1,802

1,154

4,675

4,760

Proceeds from employee share purchase plan

1,923

3,092

5,176

3,092

Payments to tax authorities from employee equity transactions, net

335

(239

)

(160

)

(8,946

)

Net cash provided by (used in) financing activities

4,060

4,007

9,691

(1,094

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

(2,293

)

—

(2,293

)

—

Net decrease in cash, cash equivalents, and restricted cash

(1,241

)

(173,845

)

(14,347

)

(79,096

)

Cash, cash equivalents, and restricted cash—beginning of period

55,434

259,488

68,540

164,739

Cash, cash equivalents, and restricted cash—end of period

$

54,193

$

85,643

$

54,193

$

85,643

Reconciliation of cash, cash equivalents, and restricted cash within the Condensed Consolidated Balance Sheets to the amounts shown in the Condensed Consolidated Statements of Cash Flows above:

Cash and cash equivalents

$

53,971

$

84,607

$

53,971

$

84,607

Restricted cash included in prepaid expenses and other current assets

12

787

12

787

Restricted cash included in other assets, noncurrent

210

249

210

249

Total cash, cash equivalents, and restricted cash

$

54,193

$

85,643

$

54,193

$

85,643

JFROG LTD.

RECONCILIATION OF GAAP TO NON-GAAP RESULTS

(in thousands except per share data; unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021

Reconciliation of gross profit and gross margin

GAAP gross profit

$

56,093

$

42,242

$

158,489

$

118,488

Plus: Share-based compensation expense

1,903

1,180

4,822

2,766

Plus: Acquisition-related costs

6

3

19

3

Plus: Amortization of acquired intangibles

2,606

1,972

7,818

2,353

Non-GAAP gross profit

$

60,608

$

45,397

$

171,148

$

123,610

GAAP gross margin

77.9

%

78.7

%

77.9

%

80.4

%

Non-GAAP gross margin

84.2

%

84.5

%

84.1

%

83.8

%

Reconciliation of operating expenses

GAAP research and development

$

31,698

$

23,142

$

87,744

$

53,666

Less: Share-based compensation expense

(6,806

)

(4,547

)

(17,268

)

(9,056

)

Less: Acquisition-related costs

(2,304

)

(2,305

)

(6,828

)

(3,007

)

Non-GAAP research and development

$

22,588

$

16,290

$

63,648

$

41,603

GAAP sales and marketing

$

33,152

$

24,321

$

94,323

$

66,112

Less: Share-based compensation expense

(6,548

)

(4,307

)

(16,095

)

(10,552

)

Less: Acquisition-related costs

(228

)

(279

)

(464

)

(279

)

Less: Amortization of acquired intangibles

(298

)

(327

)

(770

)

(691

)

Non-GAAP sales and marketing

$

26,078

$

19,408

$

76,994

$

54,590

GAAP general and administrative

$

14,682

$

15,695

$

41,410

$

44,469

Less: Share-based compensation expense

(3,960

)

(6,823

)

(10,183

)

(20,337

)

Less: Acquisition-related costs

(10

)

(511

)

(244

)

(872

)

Less: Legal settlement costs

—

—

(216

)

—

Non-GAAP general and administrative

$

10,712

$

8,361

$

30,767

$

23,260

Reconciliation of operating income (loss) and operating margin

GAAP operating loss

$

(23,439

)

$

(20,916

)

$

(64,988

)

$

(45,759

)

Plus: Share-based compensation expense

19,217

16,857

48,368

42,711

Plus: Acquisition-related costs

2,548

3,098

7,555

4,161

Plus: Amortization of acquired intangibles

2,904

2,299

8,588

3,044

Plus: Legal settlement costs

—

—

216

—

Non-GAAP operating income (loss)

$

1,230

$

1,338

$

(261

)

$

4,157

GAAP operating margin

(32.6

)%

(38.9

)%

(31.9

)%

(31.0

)%

Non-GAAP operating margin

1.7

%

2.5

%

(0.1

)%

2.8

%

Reconciliation of net income (loss)

GAAP net loss

$

(23,552

)

$

(20,464

)

$

(67,029

)

$

(41,508

)

Plus: Share-based compensation expense

19,217

16,857

48,368

42,711

Plus: Acquisition-related costs

2,548

3,098

7,555

4,161

Plus: Amortization of acquired intangibles

2,904

2,299

8,588

3,044

Plus: Legal settlement costs

—

—

216

—

Less: Income tax effects

639

(858

)

2,020

(4,754

)

Non-GAAP net income (loss)

$

1,756

$

932

$

(282

)

$

3,654

Net income (loss) per share - basic

$

0.02

$

0.01

$

(0.00

)

$

0.04

Net income (loss) per share - diluted

$

0.02

$

0.01

$

(0.00

)

$

0.04

Shares used in non-GAAP net income (loss) per share calculations:

GAAP weighted-average shares used to compute net loss per share - basic and diluted

99,618

95,707

98,825

94,029

Add: Dilutive ordinary share equivalents(1)

5,603

8,407

—

9,353

Non-GAAP weighted-average shares used to compute net income (loss) per share - diluted

105,221

104,114

98,825

103,382

(1) Potentially dilutive shares are excluded in calculating the non-GAAP diluted shares for the nine months ended September 30, 2022 as the inclusion of such shares would have been anti-dilutive due to net loss in these periods.

JFROG LTD.

RECONCILIATION OF GAAP CASH FLOW FROM OPERATING ACTIVITIES TO FREE CASH FLOW AND SUPPLEMENTAL DISCLOSURE

(in thousands; unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021

Free cash flow reconciliation:

Net cash provided by (used in) operating activities

$

5,128

$

(17,743

)

$

14,111

$

10,241

Less: purchases of property and equipment

(1,306

)

(916

)

(3,437

)

(3,190

)

Free cash flow

$

3,822

$

(18,659

)

$

10,674

$

7,051

Supplemental disclosure:

Key employee holdback prepayments related to acquisitions(1)

$

—

$

(19,037

)

$

—

$

(19,037

)

Retention bonus related to acquisition(2)

$

(2,073

)

$

—

$

(2,073

)

$

—

(1) During the three months ended September 30, 2021, as part of our acquisitions of Vdoo Connected Trust Ltd. (“Vdoo”) and Upswift Ltd., we entered into holdback agreements with key employees of the acquired companies and made aggregate prepayments of $19.0 million, which will be released to the employees subject to their continued employment with us. The holdback amount is being expensed primarily in research and development over the required service period up to four years.

(2) During the three months ended September 30, 2022, we paid retention bonuses of $2.1 million to current employees from the Vdoo acquisition. Vdoo’s continuing employees are entitled to three annual installments of retention bonus as part of the acquisition arrangements. The retention bonus has been expensed primarily in research and development over the service period.

Investor Contact:

Jeff Schreiner

[email protected]

Source: JFrog Ltd.

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