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JFrog Announces Second Quarter Fiscal 2021 Results

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Quarterly Revenue Increases 34%
Record Quarterly Operating Cash Flow of $19.2 million; Record Free Cash Flow of $18.0 million
Completes the Acquisition of Vdoo - the Creators of the Product Security Platform - After Quarter End

SUNNYVALE, Calif., August 05, 2021--(BUSINESS WIRE)--JFrog Ltd. (NASDAQ: FROG), the liquid software company, today announced financial results for its second quarter ended June 30, 2021.

"JFrog again reported a strong quarter across the business - including revenue growth, gross margin, and record cash flow - while delivering technical innovations around security, binary distribution and more," said Shlomi Ben Haim, JFrog’s Co-Founder and CEO. "To support the ongoing transformation of the DevSecOps market, we also took a major leap forward with the acquisition of Vdoo. When integrated with the JFrog Platform, we believe Vdoo will provide security all the way from development to IoT and other edge points. Our vision is to be the Company powering all software updates, and our continued investment in R&D and go-to-market brings us ever-closer to this reality, while positioning us for accelerating growth in the second half of the year."

Second Quarter Financial Highlights

  • Revenue for the second quarter of 2021 was $48.7 million, an increase of 34% from $36.4 million for the second quarter of 2020.

  • GAAP Gross Profit was $39.6 million; GAAP Gross Margin was 81.4%.

  • Non-GAAP Gross Profit was $40.6 million; Non-GAAP Gross Margin was 83.4%.

  • GAAP Operating Loss was ($14.2 million); GAAP Operating Margin was (29.2%).

  • Non-GAAP Operating Income was $1.0 million; Non-GAAP Operating Margin was 2.0%.

  • GAAP Net Loss Per Diluted Share was ($0.14); Non-GAAP Net Income Per Diluted Share was $0.01.

  • Operating Cash Flow was $19.2 million, with Free Cash Flow of $18.0 million.

  • Cash, Cash Equivalents and Investments were $615.2 million as of June 30, 2021.

Second Quarter & Recent Business Highlights

  • At quarter end, 415 customers had ARR greater than $100,000; 12 customers had ARR above $1 million.

  • Net Dollar Retention rate for the trailing four quarters was 129%.

  • Cloud revenue in Q2 grew by 47% to $11.5 million over the same period last year, representing 24% of total revenue, up from 21% a year ago.

  • At quarter end, customers using the complete JFrog Platform (Enterprise+ subscription) represented 32% of revenue in the second quarter of 2021, versus 17% in the second quarter of 2020.

  • Completed the acquisition of Vdoo for approximately $287 million to deliver holistic, end-to-end, continuous security from development to device.

  • Hosted swampUP 2021, JFrog’s annual user conference for thousands of global attendees, affecting millions of developers.

  • Announced new product capabilities and innovations, including Private Distribution Network, Federated Repositories, Signed Pipelines and Cold Artifact Storage.

  • Announced the hiring of a new Executive Vice President of Product and Engineering.

Third Quarter and Full Year 2021 Outlook

  • Third Quarter 2021 Outlook:

    • Revenue between $52 million and $53 million

    • Non-GAAP operating loss between $2.6 million and $3.6 million

    • Non-GAAP loss per share between $0.03 and $0.04, assuming approximately 96 million weighted average shares outstanding

  • Full Year 2021 Outlook:

    • Revenue between $202 million to $205 million

    • Non-GAAP operating loss between $4 million and $5 million

    • Non-GAAP loss per share between $0.04 and $0.05, assuming approximately 95 million weighted average shares outstanding

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

About JFrog

JFrog, the creator of the DevOps platform, is on a "Liquid Software" mission to enable the flow of software seamlessly and securely from the developer’s keystrokes to production. The end-to-end, hybrid JFrog Platform provides the tools and visibility required by modern software development organizations to fully embrace the power of DevOps. JFrog’s universal, multi-cloud DevOps platform is available as open-source, self-managed, and SaaS services on AWS, Microsoft Azure, and Google Cloud. JFrog is trusted by millions of users and thousands of customers, including a majority of the Fortune 100 companies that depend on JFrog solutions to manage their mission-critical software delivery pipelines. Learn more at jfrog.com.

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 third quarter and for the full year of 2021, our leadership position in the markets in which we participate, our expectations regarding the acquisition of Vdoo by us, including our ability to successfully integrate the acquisition into our business operations, including the DevOps platform, and realize anticipated benefits and synergies from the acquisition, our ability to accelerate growth in the second half of 2021, and our ability to meet market demands. 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; 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 Vdoo’s technology into our offerings; our and Vdoo’s ability to provide continuity to our respective customers following the acquisition, 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, 2020, our quarterly report on Form 10-Q for the quarter ended March 31, 2021, our quarterly report on Form 10-Q for the quarter ended June 30, 2021, and other filings and reports that we may file from time to time with the 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 and (4) 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.

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. JFrog defines non-GAAP weighted-average shares used to compute non-GAAP net income (loss) per share, basic and diluted, as GAAP weighted average shares used to compute net income (loss) per share attributable to common shareholders, basic and diluted, adjusted to reflect the ordinary shares issued in connection with the IPO that are outstanding as of the end of the period as if they were outstanding as of the beginning of the period for comparability.

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 June 30,

Six Months Ended June 30,

2021

2020

2021

2020

Revenue:

Subscription—self-managed and SaaS

$

45,312

$

33,161

$

86,650

$

63,458

License—self-managed

3,345

3,270

7,094

5,794

Total subscription revenue

48,657

36,431

93,744

69,252

Cost of revenue:

Subscription—self-managed and SaaS(1)

8,881

6,475

17,117

12,665

License—self-managed(3)

190

214

381

428

Total cost of revenue—subscription

9,071

6,689

17,498

13,093

Gross profit

39,586

29,742

76,246

56,159

Operating expenses:

Research and development(1)(2)

16,688

9,776

30,524

19,071

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

22,026

13,882

41,791

27,905

General and administrative(1)(2)

15,103

4,746

28,774

9,944

Total operating expenses

53,817

28,404

101,089

56,920

Operating income (loss)

(14,231

)

1,338

(24,843

)

(761

)

Interest and other income, net

346

574

706

1,138

Income (loss) before income taxes

(13,885

)

1,912

(24,137

)

377

Income tax expense (benefit)

(736

)

213

(3,093

)

803

Net income (loss)

$

(13,149

)

$

1,699

$

(21,044

)

$

(426

)

Undistributed earnings attributable to participating securities

(1,699

)

Net income (loss) attributable to ordinary shareholders

$

(13,149

)

$

$

(21,044

)

$

(426

)

Net income (loss) per share attributable to ordinary shareholders:

Basic

$

(0.14

)

$

$

(0.23

)

$

(0.02

)

Diluted

$

(0.14

)

$

$

(0.23

)

$

(0.02

)

Weighted-average shares used in computing net income (loss) per share attributable to ordinary shareholders:

Basic

93,666

28,340

93,175

28,247

Diluted

93,666

38,106

93,175

28,247

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

Cost of revenue: subscription—self-managed and SaaS

$

824

$

199

$

1,586

$

339

Research and development

2,680

930

4,509

1,696

Sales and marketing

3,522

1,097

6,245

1,770

General and administrative

7,078

557

13,514

934

Total share-based compensation expense

$

14,104

$

2,783

$

25,854

$

4,739

(2) Includes acquisition-related costs as follows:

Research and development

$

351

$

352

$

702

$

699

Sales and marketing

114

228

General and administrative

361

361

Total acquisition-related costs

$

712

$

466

$

1,063

$

927

(3) Includes amortization of acquired intangibles as follows:

Cost of revenue: license—self-managed

$

190

$

214

$

381

$

428

Sales and marketing

182

182

364

364

Total amortization expense of acquired intangible assets

$

372

$

396

$

745

$

792

JFROG LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands; unaudited)

June 30, 2021

December 31, 2020

Assets

Current assets:

Cash and cash equivalents

$

259,220

$

164,461

Short-term investments

356,005

433,595

Accounts receivable, net

36,070

37,048

Deferred contract acquisition costs

3,952

3,247

Prepaid expenses and other current assets

13,288

14,210

Total current assets

668,535

652,561

Property and equipment, net

6,231

4,963

Deferred contract acquisition costs, noncurrent

6,524

4,949

Operating lease right-of-use assets

19,231

Intangible assets, net

3,302

4,047

Goodwill

17,320

17,320

Other assets, noncurrent

7,665

5,391

Total assets

$

728,808

$

689,231

Liabilities and Shareholders’ Equity

Current liabilities:

Accounts payable

$

9,742

$

9,911

Accrued expenses and other current liabilities

17,316

21,039

Operating lease liabilities

4,751

Deferred revenue

102,752

91,750

Total current liabilities

134,561

122,700

Deferred revenue, noncurrent

16,413

11,087

Operating lease liabilities, noncurrent

14,747

Other liabilities, noncurrent

1,140

1,550

Total liabilities

166,861

135,337

Shareholders’ equity:

Share capital

262

257

Additional paid-in capital

657,509

628,054

Accumulated other comprehensive income

9

372

Accumulated deficit

(95,833

)

(74,789

)

Total shareholders’ equity

561,947

553,894

Total liabilities and shareholders’ equity

$

728,808

$

689,231

JFROG LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands; unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2021

2020

2021

2020

Cash flows from operating activities:

Net income (loss)

$

(13,149

)

$

1,699

$

(21,044

)

$

(426

)

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

Depreciation and amortization

1,076

896

2,082

1,755

Share-based compensation expense

14,104

2,783

25,854

4,739

Non-cash operating lease expense

1,380

2,658

Net amortization of premium or discount on investments

1,543

156

2,886

424

Changes in operating assets and liabilities:

Accounts receivable

15,353

(4,784

)

978

(2,427

)

Prepaid expenses and other assets

1,013

1,624

(1,373

)

(1,320

)

Deferred contract acquisition costs

(896

)

(284

)

(2,280

)

(445

)

Accounts payable

785

(420

)

(169

)

781

Accrued expenses and other liabilities

1,048...

1,071

4,706

2,154

Operating lease liabilities

(1,275

)

(2,642

)

Deferred revenue

(1,809

)

4,372

16,328

629

Net cash provided by operating activities

19,173

7,113

27,984

5,864

Cash flows from investing activities:

Purchases of short-term investments

(62,634

)

(45,277

)

(151,214

)

(86,055

)

Maturities and sales of short-term investments

164,129

35,035

225,954

69,075

Purchases of property and equipment

(1,139

)

(357

)

(2,274

)

(1,506

)

Prepayment for purchase of intangible asset

(600

)

(600

)

Net cash provided by (used in) investing activities

99,756

(10,599

)

71,866

(18,486

)

Cash flows from financing activities:

Payments of deferred offering costs

(1,612

)

(2,474

)

Proceeds from exercise of share options

1,316

510

3,606

906

Payments to tax authorities from employee equity transactions, net

(7,699

)

(8,707

)

Net cash used in financing activities

(6,383

)

(1,102

)

(5,101

)

(1,568

)

Net increase (decrease) in cash, cash equivalents, and restricted cash

112,546

(4,588

)

94,749

(14,190

)

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

146,942

31,341

164,739

40,943

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

$

259,488

$

26,753

$

259,488

$

26,753

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

$

259,220

$

26,461

$

259,220

$

26,461

Restricted cash included in prepaid expenses and other current assets

13

14

13

14

Restricted cash included in other assets, noncurrent

255

278

255

278

Total cash, cash equivalents, and restricted cash

$

259,488

$

26,753

$

259,488

$

26,753

JFROG LTD.

RECONCILIATION OF GAAP TO NON-GAAP RESULTS

(in thousands; unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2021

2020

2021

2020

Reconciliation of gross profit and gross margin

GAAP gross profit

$

39,586

$

29,742

$

76,246

$

56,159

Plus: Share-based compensation expense

824

199

1,586

339

Plus: Amortization of acquired intangibles

190

214

381

428

Non-GAAP gross profit

$

40,600

$

30,155

$

78,213

$

56,926

GAAP gross margin

81.4

%

81.6

%

81.3

%

81.1

%

Non-GAAP gross margin

83.4

%

82.8

%

83.4

%

82.2

%

Reconciliation of operating expenses

GAAP research and development

$

16,688

$

9,776

$

30,524

$

19,071

Less: Share-based compensation expense

(2,680

)

(930

)

(4,509

)

(1,696

)

Less: Acquisition-related costs

(351

)

(352

)

(702

)

(699

)

Non-GAAP research and development

$

13,657

$

8,494

$

25,313

$

16,676

GAAP sales and marketing

$

22,026

$

13,882

$

41,791

$

27,905

Less: Share-based compensation expense

(3,522

)

(1,097

)

(6,245

)

(1,770

)

Less: Acquisition-related costs

(114

)

(228

)

Less: Amortization of acquired intangibles

(182

)

(182

)

(364

)

(364

)

Non-GAAP sales and marketing

$

18,322

$

12,489

$

35,182

$

25,543

GAAP general and administrative

$

15,103

$

4,746

$

28,774

$

9,944

Less: Share-based compensation expense

(7,078

)

(557

)

(13,514

)

(934

)

Less: Acquisition-related costs

(361

)

(361

)

Non-GAAP general and administrative

$

7,664

$

4,189

$

14,899

$

9,010

Reconciliation of operating income (loss) and operating margin

GAAP operating income (loss)

$

(14,231

)

$

1,338

$

(24,843

)

$

(761

)

Plus: Share-based compensation expense

14,104

2,783

25,854

4,739

Plus: Acquisition-related costs

712

466

1,063

927

Plus: Amortization of acquired intangibles

372

396

745

792

Non-GAAP operating income

$

957

$

4,983

$

2,819

$

5,697

GAAP operating margin

(29.2

)%

3.7

%

(26.5

)%

(1.1

)%

Non-GAAP operating margin

2.0

%

13.7

%

3.0

%

8.2

%

Reconciliation of net income (loss)

GAAP net income (loss)

$

(13,149

)

$

1,699

$

(21,044

)

$

(426

)

Plus: Share-based compensation expense

14,104

2,783

25,854

4,739

Plus: Acquisition-related costs

712

466

1,063

927

Plus: Amortization of acquired intangibles

372

396

745

792

Less: Income tax effects(1)

(1,160

)

(3,896

)

Non-GAAP net income

$

879

$

5,344

$

2,722

$

6,032

Net income per share - basic

$

0.01

$

0.06

$

0.03

$

0.07

Net income per share - diluted

$

0.01

$

0.05

$

0.03

$

0.06

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

GAAP weighted-average shares used to compute net income per share - basic

93,666

28,340

93,175

28,247

Add: Non-GAAP unweighted adjustment for ordinary shares issued in connection with IPO

61,937

61,937

Non-GAAP weighted-average shares used to compute net income per share - basic

93,666

90,277

93,175

90,184

GAAP weighted-average shares used to compute net income per share - diluted

93,666

38,106

93,175

28,247

Add: Non-GAAP unweighted adjustment for ordinary shares issued in connection with IPO

61,937

61,937

Add: Dilutive ordinary share equivalents

9,091

9,873

9,634

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

102,757

100,043

103,048

99,818

(1) Income tax effects of non-GAAP adjustments in the three months and six months ended June 30, 2020 were immaterial.

JFROG LTD.

RECONCILIATION OF GAAP CASH FLOW FROM OPERATING ACTIVITIES TO FREE CASH FLOW

(in thousands; unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2021

2020

2021

2020

Net cash provided by operating activities

$

19,173

$

7,113

$

27,984

$

5,864

Less: purchases of property and equipment

(1,139

)

(357

)

(2,274

)

(1,506

)

Free cash flow

$

18,034

$

6,756

$

25,710

$

4,358

View source version on businesswire.com: https://www.businesswire.com/news/home/20210805005163/en/

Contacts

Investor Contact:
JoAnn Horne
jhorne@marketstreetpartners.com