The Liquid Software Company

News Release Details

JFrog Announces Third Quarter 2020 Results

Nov 04, 2020 at 4:05 PM EST

Third Quarter Revenue Increased 40%; Year-to-Date Revenue Increased 46%
Record Free Cash Flow of $9.7 million in the Quarter
Raised $393 million from Initial Public Offering

SUNNYVALE, Calif., Nov. 04, 2020 (GLOBE NEWSWIRE) -- JFrog Ltd. (NASDAQ: FROG), the liquid software Company, today announced financial results for its third quarter ended September 30, 2020.

“In our first quarter as a public Company, JFrog’s demonstrated growth, high retention and strong momentum reflected the mission-critical nature of JFrog products to our customers,” said Shlomi Ben Haim, CEO and Co-founder of JFrog. “Our customers continue to adopt cloud-based and hybrid solutions as they embrace digital transformation through modern, cloud-native technologies. As DevOps continues to change the software update landscape, we look forward to leading the market in the fourth quarter and beyond.”

Third Quarter Financial Highlights:

  • Revenue for the third quarter of 2020 was $38.9 million, an increase of 40% from $27.8 million for the third quarter of 2019.  Revenue for the first nine months of 2020 was $108.1 million, an increase of 46% from $74.0 million for the first nine months of 2019. 
  • GAAP Gross Profit was $31.6 million; GAAP Gross Margin was 81.3%.
  • Non-GAAP Gross Profit was $32.2 million; non-GAAP Gross Margin was 82.7%.
  • GAAP Operating Loss was $5.4 million; GAAP Operating Margin was (14%).
  • Non-GAAP Operating Income was $5.1 million; non-GAAP operating margin was 13%.
  • GAAP Net Loss per diluted share was $0.14; non-GAAP Net Income Per Diluted Share was $0.05.
  • Operating Cash Flow was $10.8 million, with Free Cash Flow of $9.7 million.
  • Cash, cash equivalents and investments were $578.0 million as of September 30, 2020. 

Third Quarter & Recent Business Highlights

  • Ended the quarter with 313 customers with ARR greater than $100,000; 9 customers with ARR above $1 million. 
  • Net Dollar Retention for the trailing four quarters was 136%.
  • Named Micheline Nijmeh Chief Marketing Officer. 
  • Completed Initial Public Offering, with net proceeds of approximately $393 million.
  • Launched a free cloud tier for the developer community, expanding global exposure of core JFrog Platform services. 

Fourth Quarter and Full Year 2020 Outlook
Based on information as of today, November 4, 2020, JFrog is providing the following guidance for the fourth quarter and full year 2020:

  • Fourth Quarter 2020 Outlook:
    -- Revenue between $40.9 million and $41.9 million.
    -- Non-GAAP operating income between $1.2 million and $2.2 million.
    -- Non-GAAP net income per share between $0.00 and $0.02, assuming approximately 104 million weighted average diluted shares outstanding.
  • Full Year 2020 Outlook:
    -- Revenue between $149.0 million and $150.0 million.
    -- Non-GAAP operating income between $12.0 million and $13.0 million.
    -- Non-GAAP net income per share between $0.11 and $0.13, assuming approximately 101 million weighted average diluted 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 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. JFrog has offices across North America, Europe, and Asia. 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 fourth quarter and for the full year of 2020, and our leadership position in the markets in which we participate. 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, 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; 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; and general market, political, economic, and business conditions.  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 prospectus filed with the SEC pursuant to Rule 424(b), dated September 16, 2020,  our quarterly report on Form 10-Q for the quarter ended September 30, 2020, and other filings and reports that we may file from time to time with the SEC.  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 and (3) acquisition related costs. 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.

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 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’s net dollar retention rate compares its annual recurring revenue (“ARR”) from the same set of customers across comparable periods. 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 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.

Investor Contact:
JoAnn Horne
jhorne@marketstreetpartners.com
415-445-3240

 
JFrog LTD.
Condensed Consolidated Statements of Operations
(In thousands, except per share data; unaudited)
         
  Three Months Ended Nine Months Ended
   September 30,  September 30,
   2020   2019   2020   2019 
Revenues        
Subscription—self-managed and SaaS $35,714  $25,070  $99,172  $66,750 
License—self-managed  3,172   2,774   8,966   7,209 
Total subscription revenue  38,886   27,844   108,138   73,959 
Cost of revenue (1) (3)        
Subscription—self-managed and SaaS  7,047   5,109   19,712   13,320 
License—self-managed  214   240   642   602 
Total cost of revenue—subscription  7,261   5,349   20,354   13,922 
Gross profit  31,625   22,495   87,784   60,037 
Operating expenses        
Research and development (1) (2)  10,381   8,665   29,452   21,764 
Sales and marketing (1) (2) (3)  14,839   12,042   42,744   31,784 
General and administrative (1) (2)  11,804   5,108   21,748   12,991 
Total operating expenses  37,024   25,815   93,944   66,539 
Operating income (loss)  (5,399)  (3,320)  (6,160)  (6,502)
Interest and other income, net  384   635   1,522   2,457 
Income (loss) before income taxes  (5,015)  (2,685)  (4,638)  (4,045)
Provision for income taxes  250   429   1,053   1,138 
Net income (loss) $(5,265) $(3,114) $(5,691) $(5,183)
Net income (loss) per share - basic and diluted $(0.14) $(0.11) $(0.18) $(0.19)
Weighted average shares        
used in calculating net income (loss) per share:        
Basic and Diluted  37,516   27,463   31,359   26,879 
         
(1) Includes share-based compensation expense as follows:        
Cost of revenue: subscription—self-managed and SaaS $327  $225  $666  $422 
Research and development  1,086   1,863   2,782   2,890 
Sales and marketing  1,263   1,665   3,033   2,477 
General and administrative  6,984   1,142   7,918   1,752 
Total share-based compensation expense: $9,660  $4,895  $14,399  $7,541 
         
(2) Includes acquisition-related costs as follows:        
Research and development $352  $345  $1,051  $878 
Sales and marketing  114   111   342   291 
General and administrative  -   -   -   342 
Total acquisition-related costs $466  $456  $1,393  $1,511 
         
(3) Includes amortization of acquired intangibles as follows:        
Cost of revenue: license—self-managed $214  $240  $642  $602 
Sales and marketing  183   182   547   513 
Total amortization expense of acquired intangible assets $397  $422  $1,189  $1,115 
         


JFrog LTD.
Condensed Consolidated Balance Sheets
(In thousands; unaudited)
     
  September 30, December 31,
   2020   2019 
     
ASSETS    
CURRENT ASSETS    
Cash and cash equivalents $324,288  $39,150 
Short-term investments  253,748   127,331 
Accounts receivable, net  25,543   24,736 
Deferred contract acquisition costs  2,864   2,348 
Prepaid expenses and other current assets  11,249   5,364 
Total current assets  617,692   198,929 
Property and equipment, net  4,497   3,532 
Deferred contract acquisition costs, noncurrent  4,119   3,641 
Intangible assets, net  4,419   5,608 
Goodwill  17,320   17,320 
Other assets, noncurrent  5,920   9,010 
TOTAL ASSETS $653,967  $238,040 
     
LIABILITIES, CONVERTIBLE PREFERRED SHARES AND    
SHAREHOLDERS' EQUITY (DEFICIT)    
CURRENT LIABILITIES    
Accounts payables $8,849  $4,990 
Accrued expenses and other current liabilities  11,988   8,335 
Deferred revenue  78,280   72,676 
Total current liabilities  99,117   86,001 
Other liabilities, noncurrent  458   - 
Deferred revenue, noncurrent  8,014   9,629 
Total liabilities  107,589   95,630 
     
Convertible preferred shares  -   175,844 
     
SHAREHOLDERS' EQUITY (DEFICIT)    
Share capital  254   80 
Additional paid-in capital  616,860   31,835 
Accumulated other comprehensive income  339   35 
Accumulated deficit  (71,075)  (65,384)
Total shareholders' equity (deficit)  546,378   (33,434)
TOTAL LIABILITIES, CONVERTIBLE PREFERRED SHARES AND    
SHAREHOLDERS' EQUITY (DEFICIT) $653,967  $238,040 
     


JFrog LTD.
Condensed Consolidated Statements of Cash Flow
(In thousands; unaudited)
          
   Three Months Ended Nine Months Ended
    September 30,  September 30,
    2020   2019   2020   2019 
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:        
Net loss $(5,265) $(3,114) $(5,691) $(5,183)
Adjustments to reconcile net loss to net cash provided by operating activities:       
 Depreciation and amortization  928   763   2,683   2,043 
 Share-based compensation expenses  9,660   4,894   14,399   7,541 
 Losses (gains) on short-term investments, net  588   (87)  1,012   (367)
Changes in operating assets and liabilities:        
 Accounts receivable  1,620   (736)  (807)  313 
 Prepaid expenses and other assets  (2,965)  150   (4,285)  (5,281)
 Deferred contract acquisition costs  (549)  (471)  (994)  (1,746)
 Accounts payables  1,492   856   2,273   1,306 
 Accrued expenses and other liabilities  1,909   156   4,063   831 
 Deferred revenue  3,360   2,573   3,989   5,942 
 Net cash provided by operating activities  10,778   4,984   16,642   5,399 
CASH FLOWS FROM INVESTING ACTIVITIES:        
 Purchases of short-term investments  (149,718)  (20,612)  (235,773)  (132,526)
 Maturities of short-term investments  39,346   19,795   105,823   22,295 
 Sales of short-term investments  -   -   2,598   29,160 
 Purchases of property and equipment  (1,105)  (296)  (2,611)  (1,383)
 Payments related to business combination, net of cash acquired  -   -   -   (20,860)
 Net cash used in investing activities  (111,477)  (1,113)  (129,963)  (103,314)
CASH FLOWS FROM FINANCING ACTIVITIES:        
 Proceeds from initial public offering, net of underwriting discounts       
 and commissions and other issuance costs  397,685   -   395,211   - 
 Proceeds from exercise of share options  817   511   1,723   1,109 
 Net cash provided by (used in) financing activities  398,502   511   396,934   1,109 
Net increase (decrease) in cash, cash equivalents, and restricted cash  297,803   4,382   283,613   (96,806)
Cash, cash equivalent, and restricted cash        
—Beginning of period  26,753   78,600   40,943   179,788 
Cash, cash equivalent, and restricted cash        
—End of period $324,556  $82,982  $324,556  $82,982 
          
Reconciliation of cash, cash equivalents and restricted cash within the consolidated balance sheets to the amounts shown in the statements of cash flow above:        
Cash and cash equivalents $324,288  $80,909  $324,288  $80,909 
Restricted cash included in prepaid expenses and other current assets  14   221   14   221 
Restricted cash included in other assets, noncurrent  254   1,852   254   1,852 
Total cash, cash equivalents, and restricted cash $324,556  $82,982  $324,556  $82,982 
          


JFrog LTD.
Reconciliation from GAAP to Non-GAAP Results
(In thousands, except per share data; unaudited)
         
  Three Months Ended Nine Months Ended
   September 30,  September 30,
   2020   2019   2020   2019 
Reconciliation of gross profit and gross margin        
GAAP gross profit  $31,625  $22,495  $87,784  $60,037 
Plus: Share-based compensation expense  327   225   666   422 
Plus: Amortization of acquired intangibles  214   240   642   602 
Non-GAAP gross profit  $32,166  $22,960  $89,092  $61,061 
GAAP gross margin   81.3%  80.8%  81.2%  81.2%
Non-GAAP gross margin  82.7%  82.5%  82.4%  82.6%
         
Reconciliation of operating expenses        
GAAP research and development $10,381  $8,665  $29,452  $21,764 
Less: Share-based compensation expense  (1,086)  (1,863)  (2,782)  (2,890)
Less: Acquisition-related costs expenses  (352)  (345)  (1,051)  (878)
Non-GAAP research and development $8,943  $6,457  $25,619  $17,996 
         
GAAP sales and marketing  $14,839  $12,042  $42,744  $31,784 
Less: Share-based compensation expense  (1,263)  (1,665)  (3,033)  (2,477)
Less: Acquisition-related costs expenses  (114)  (111)  (342)  (291)
Less: Amortization of acquired intangibles  (183)  (182)  (547)  (513)
Non-GAAP sales and marketing  $13,279  $10,084  $38,822  $28,503 
         
GAAP general and administrative  $11,804  $5,108  $21,748  $12,991 
Less: Share-based compensation expense  (6,984)  (1,142)  (7,918)  (1,752)
Less: Acquisition-related costs expenses  -   -   -   (342)
Non-GAAP general and administrative $4,820  $3,966  $13,830  $10,897 
         
Reconciliation of operating income (loss) and operating margin        
GAAP operating income (loss)  $(5,399) $(3,320) $(6,160) $(6,502)
Plus: Share-based compensation expense  9,660   4,895   14,399   7,541 
Plus: Acquisition-related costs expenses  466   456   1,393   1,511 
Plus: Amortization of acquired intangibles  397   422   1,189   1,115 
Non-GAAP operating income (loss)  $5,124  $2,453  $10,821  $3,665 
GAAP operating margin   (13.9%)  (11.9%)  (5.7%)  (8.8%)
Non-GAAP operating margin  13.2%  8.8%  10.0%  5.0%
Reconciliation of net income (loss)        
GAAP net income (loss)  $(5,265) $(3,114) $(5,691) $(5,183)
Plus: Share-based compensation expense  9,660   4,895   14,399   7,541 
Plus: Acquisition-related costs expenses  466   456   1,393   1,511 
Plus: Amortization of acquired intangibles  397   422   1,189   1,115 
Non-GAAP net income (loss)  $5,258  $2,659  $11,290  $4,984 
Net income (loss) per share - basic $0.06  $0.03  $0.12  $0.06 
Net income (loss) per share - diluted $0.05  $0.03  $0.11  $0.05 
Shares used in non-GAAP per share calculations:        
GAAP weighted-average shares used to compute net income per share- basic  37,516   27,463   31,359   26,879 
Add:        
Non-GAAP unweighted adjustment for ordinary shares issued in connection with IPO  53,180   61,937   58,997   61,937 
Non-GAAP weighted-average shares used to compute net income per share - basic 90,696   89,400   90,356   88,816 
         
GAAP weighted-average shares used to compute net income per share - diluted  37,516   27,463   31,359   26,879 
Add:        
Non-GAAP unweighted adjustment for ordinary shares issued in connection with IPO  53,180   61,937   58,997   61,937 
Dilutive ordinary share equivalents  11,092   9,015   10,120   9,071 
Non-GAAP weighted-average shares used to compute net income per share - diluted 101,788   98,415   100,476   97,887 
         


JFrog LTD.
Reconciliation of GAAP Cash Flow from Operating Activities to Free Cash Flow
(In thousands; unaudited)
         
  Three Months Ended Nine Months Ended
   September 30,  September 30,
   2020   2019   2020   2019 
Net cash provided by operating activities $10,778  $4,984  $16,642  $5,399 
Less: Purchases of property and equipment  (1,105)  (296)  (2,611)  (1,383)
Free cash flow $9,673  $4,688  $14,031  $4,016 
         
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