JFrog Ltd. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless noted. JFrog sells a hybrid DevOps software platform through self-managed and SaaS subscriptions.
Financial results
- Revenue: $79.8 million, up 25% from $63.7 million. Self-managed and SaaS subscription revenue was $74.5 million, up 26%; license revenue was $5.3 million, up 14%. SaaS was 31% of revenue versus 26% a year earlier.
- Gross profit and margin: $61.4 million; 77%, compared with $49.8 million and 78%. Higher hosting costs, personnel expenses, and stock-based compensation contributed to cost growth.
- Operating loss and margin: $23.2 million loss, or 29% of revenue, versus a $19.1 million loss, or 30%. Operating expenses rose 23% to $84.6 million, including R&D up 29%, sales and marketing up 22%, and G&A up 12%.
- Net loss: $20.8 million, or $0.21 per diluted share, versus $19.7 million, or $0.20 per share. Interest and other income increased to $4.0 million from $0.3 million, primarily due to higher interest income.
- Cash flow: Operating cash flow was negative $1.1 million, versus positive $5.0 million. Free cash flow, a non-GAAP measure, was negative $1.4 million versus positive $3.9 million. Cash, cash equivalents, and restricted cash ended at $40.4 million.
- Liquidity and obligations: Cash, cash equivalents, and short-term investments totaled $447.2 million. The balance sheet reports no borrowings; operating lease liabilities were $24.8 million. Contractual obligations totaled $82.2 million, including $53.5 million of purchase commitments.
- Other measures: Share-based compensation was $19.9 million, up 41%, and unrecognized compensation cost was $200.3 million. Total assets were $878.7 million and shareholders’ equity was $628.9 million. Remaining performance obligations were $210.6 million; 84% was expected to be recognized within 12 months.
Material changes and management commentary
- Revenue growth included approximately $12.5 million from existing customers, with the remainder attributed to new customers. Net dollar retention declined to 124% from 131%; management said slower expansion began toward the end of 2022 and was expected to continue in the near future.
- Customers with ARR of at least $100,000 rose to 785 from 736 at year-end 2022; customers with ARR of at least $1 million rose to 21 from 19.
- Multi-product subscriptions represented approximately 95% of revenue versus 93%; Enterprise Plus represented approximately 44% versus 35%.
- Management expects continued investment in R&D, sales and marketing, and G&A, and says existing liquidity plus operating cash flows should meet needs for at least the next 12 months and over the long term. The filing provides no specific numeric revenue or earnings guidance.
Risks, contingencies, and notable items
- The company reported longer sales cycles and increased customer budget scrutiny amid economic uncertainty, inflation, higher interest rates, tighter credit, and potential reductions in IT spending.
- Israel-related risks include regional conflict, political instability and proposed judicial changes, reserve-duty call-ups, and possible effects on operations, currency, and financing. The company notes that commercial insurance does not cover war- or terrorism-related losses.
- Operating costs in Israel create exposure to NIS exchange-rate movements. The company uses foreign-currency hedges; it said a hypothetical 10% currency change would not have materially affected Q1 results after hedging.
- Israeli Innovation Authority rules restrict certain transfers of intellectual property outside Israel; approval for a transfer could involve additional payments of up to approximately $6.0 million. The company also disclosed $2.4 million of additional lease obligations for a facility lease commencing in 2023.
- No currently known legal proceeding was identified as likely to have a material adverse effect. Management reported disclosure controls effective at a reasonable-assurance level and no material change in internal control over financial reporting.
Investor verification checklist
- Track SaaS growth, hosting costs, gross margin, and whether customer expansion and net dollar retention stabilize.
- Assess operating cash flow and free cash flow, including the effects of deferred revenue, working capital, and stock-based compensation.
- Review the size and terms of purchase commitments, lease obligations, and any IIA approval or payment triggered by an IP transfer.
- Monitor macroeconomic sales-cycle and IT-spending effects, as well as Israel-related operational and geopolitical developments.
- Confirm future results against management’s liquidity assessment and any subsequent formal guidance; this filing provides no numeric forecast.