Business context and reporting period
JFrog Ltd. filed this unaudited Form 10-Q for the quarter ended March 31, 2022. The company sells a hybrid DevOps platform through self-managed subscriptions and SaaS offerings, with a smaller upfront license component. Results are for the three months ended March 31, 2022, compared with the same period in 2021.
Key financial metrics
Amounts are in U.S. dollars; figures below are in millions except per-share data.
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $63.7 | $45.1 |
| Gross profit / gross margin | $49.8 / 78% | $36.7 / 81% |
| Operating loss | $(19.1) | $(10.6) |
| Net loss / diluted loss per share | $(19.7) / $(0.20) | $(7.9) / $(0.09) |
| Operating cash flow | $5.0 | $8.8 |
| Free cash flow (non-GAAP) | $3.9 | $7.7 |
At March 31, 2022, cash and cash equivalents were $59.6 million and short-term investments were $368.1 million, totaling $427.7 million. Total assets were $856.4 million, total liabilities $219.9 million, and shareholders’ equity $636.5 million. The balance sheet presents no borrowings; operating lease liabilities were $25.1 million. Current deferred revenue was $134.6 million, with a further $17.8 million noncurrent. No separate debt balance is reported in the supplied filing text.
Material changes versus the prior comparable period
- Revenue rose 41% year over year. Self-managed subscription and SaaS revenue increased 43%; license revenue increased 23%. Management attributed approximately $15.0 million of the revenue increase to existing customers, with the remainder from new customers.
- SaaS represented 26% of revenue, versus 23% a year earlier. Multi-product subscriptions represented approximately 93% versus 91%, while Enterprise Plus represented approximately 35% versus 29%.
- Gross margin declined to 78% from 81%, primarily reflecting higher acquired-intangible amortization, including costs associated with the 2021 Vdoo acquisition.
- Operating expenses increased 46% to $69.0 million. R&D rose 96% and sales and marketing 48%, reflecting higher headcount, share-based compensation, acquisition-related costs and marketing investment. G&A declined 7%, partly because the prior-year period included CEO RSU expense.
- Net loss widened to $19.7 million from $7.9 million; operating loss margin was approximately -30% versus -24%. Share-based compensation was $14.1 million, up from $11.8 million.
- Operating cash flow fell to $5.0 million from $8.8 million, and free cash flow to $3.9 million from $7.7 million. Cash and cash equivalents fell from $68.3 million at year-end, while short-term investments increased from $352.8 million.
Outlook, commentary, risks and unusual items
- The filing provides no numerical full-year revenue or earnings guidance. Management expects continued investment and increases in absolute R&D, sales and marketing, and G&A expenses; free cash flow may fluctuate as the company invests for growth.
- Management said existing cash, cash equivalents, short-term investments and operating cash flow should meet needs for at least the next 12 months. Remaining performance obligations were $172.1 million; 83% was expected to be recognized over the next 12 months.
- Net dollar retention was 131%, versus 130% a year earlier. Customers with ARR of at least $100,000 numbered 599, up from 537 at December 31, 2021; customers with ARR of at least $1 million numbered 16, up from 15.
- Non-cancelable purchase obligations were $74.6 million, and operating lease payments totaled $25.5 million. Together, the disclosed contractual commitments were $100.2 million.
- A wage-and-hour dispute with former sales employees was being negotiated for an approximately $2.6 million settlement, subject to arbitrator approval; the estimated amount was accrued in Q4 2021. IIA-related intellectual-property transfer restrictions may require approval and could involve an additional payment of up to approximately $6.0 million.
- Risks highlighted include economic weakness and reduced IT spending, geopolitical tensions and the war in Ukraine, cybersecurity and software-supply-chain threats, privacy and data-protection regulation, international operations, and NIS/U.S. dollar exposure. The company uses foreign-currency hedges; management said a hypothetical 10% currency movement, after hedging, would not have materially affected Q1 results.
- Management reported offices fully reopened, while noting continuing uncertainty around COVID-19, potential sales-cycle delays and customer payment extensions. It also stated disclosure controls were effective at a reasonable-assurance level and that no material change in internal control over financial reporting occurred during the quarter.
Important facts for investors to verify
- Whether 41% revenue growth and 131% net dollar retention continue, and how much growth comes from expansion versus new customers.
- Whether gross margin stabilizes as acquired-intangible amortization and cloud-related costs evolve.
- How operating-expense growth, especially R&D and sales and marketing, affects the path to profitability and cash generation.
- Cash conversion and liquidity, including the timing of deferred revenue recognition and the $100.2 million of disclosed lease and purchase commitments.
- The final status and cost of the employee settlement, and any implications of IIA restrictions for intellectual property transfers.
- Potential dilution: 98.6 million ordinary shares were outstanding at quarter-end, and the filing reports substantial outstanding equity awards and shares reserved for future issuance.