JFrog Ltd. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Unaudited results are compared with Q1 2023 unless otherwise noted. Amounts are in U.S. dollars; financial figures below are in millions unless stated otherwise.
Business context
JFrog provides a hybrid software supply chain platform through self-managed subscriptions and JFrog-managed SaaS. SaaS represented 37% of Q1 revenue, up from 31%; Enterprise Plus represented approximately 49%, up from 44%. The company reported approximately 7,400 customers at December 31, 2023.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $100.3 | $79.8 | +26% |
| Gross profit / margin | $79.7 / 79% | $61.4 / 77% | Margin +2 percentage points |
| Operating expenses | $96.3 | $84.6 | +14% |
| Operating loss | $(16.6) | $(23.2) | Loss narrowed |
| Net loss | $(8.8) | $(20.8) | Loss narrowed |
| Basic and diluted loss per share | $(0.08) | $(0.21) | Improved |
| Cash from operations | $17.5 | $(1.1) | Improved |
| Free cash flow (non-GAAP) | $16.6 | $(1.4) | Improved |
Subscription and SaaS revenue grew 28% to $95.4 million; self-managed license revenue declined 7% to $4.9 million. Management attributed approximately $16.9 million of total revenue growth to existing customers, with the remainder from new customers. SaaS revenue was $36.9 million, up from $25.0 million.
Operating expense growth included higher share-based compensation (SBC), which rose 37% to $27.3 million, and higher sales and marketing spending. Interest and other income increased to $7.1 million from $4.0 million, primarily reflecting higher investment balances and interest rates. The Q1 2024 tax benefit was $0.8 million, versus tax expense of $1.6 million a year earlier.
Financial position and liquidity
At March 31, 2024, cash and cash equivalents were $71.4 million and short-term investments were $508.2 million, totaling $579.6 million in reported principal liquidity sources. Total assets were $997.1 million; total liabilities were $289.3 million and shareholders’ equity was $707.8 million. The filing reports no debt balance. Operating lease liabilities totaled $19.8 million.
Operating cash flow benefited from non-cash charges, including $27.3 million of SBC, and a $9.8 million decrease in accounts receivable; it was partly offset by working-capital outflows, including lower deferred revenue. Investing cash outflow was $46.9 million, mainly net purchases of short-term investments. Financing cash inflow was $16.6 million, primarily from employee equity transactions and option exercises.
Material changes and operating indicators
- Net dollar retention was 118%, down from 124% a year earlier. Management expects it to stabilize around current levels.
- Customers with ARR of at least $100,000 increased to 911 from 886 at December 31, 2023; customers with ARR of at least $1 million increased to 40 from 37.
- Remaining performance obligations were $261.7 million; the company expects to recognize 82% over the next 12 months.
- Gross margin rose to 79% from 77%, which management attributed primarily to higher revenue and lower third-party software costs. Hosting costs increased by $1.8 million, partly reflecting SaaS growth.
Outlook, risks and unusual items
The filing provides no specific quarterly or full-year 2024 revenue or earnings guidance. Management said existing cash, cash equivalents, short-term investments and operating cash flow should be sufficient for the next 12 months and long term. It expects continued investment in research and development, sales and marketing, and general and administrative functions; free cash flow may fluctuate as the company invests for growth.
Management reported no major interruption or material adverse operating impact from the Israel-Hamas war as of the filing date, while noting that escalation, employee military service and regional disruption remain risks. Other emphasized exposures include competition and macroeconomic pressure on customer spending, SaaS hosting costs, cybersecurity and service availability, and foreign-exchange movements against the Israeli shekel. The company uses hedges but states they reduce rather than eliminate currency risk.
There were no legal matters identified as likely to have a material adverse effect. The company disclosed a potential IIA payment of up to approximately $6.0 million in connection with certain transfers of grant-funded intellectual property outside Israel, subject to approval and applicable requirements. Non-cancelable operating lease and purchase obligations totaled $45.4 million. Disclosure controls were assessed as effective at a reasonable assurance level, with no material change in internal control over financial reporting reported during the quarter.
Key investor checks
- Track whether revenue growth, SaaS mix and Enterprise Plus adoption continue, and whether net dollar retention stabilizes or declines further.
- Assess the path to profitability alongside operating expense growth and the substantial SBC burden; $237.5 million of unrecognized SBC cost remained at quarter-end.
- Compare reported operating cash flow and free cash flow across periods, including the effects of collections, deferred revenue and other working-capital timing.
- Monitor liquidity and investment portfolio values, as well as hosting commitments, lease obligations and the conditional IIA intellectual-property payment exposure.
- Review the effects of Israel-related conflict, cybersecurity or service incidents, and shekel volatility on staffing, customer service and costs.
- Note potential share dilution: 38.5 million shares were reserved for future issuance at quarter-end, and the CEO and Chief Revenue Officer adopted Rule 10b5-1 plans covering up to 707,155 and 293,532 shares, respectively.