GlobeNewswire Inc | Nov 4, 2020 04:05PM EST

November 04, 2020

Third Quarter Revenue Increased 40%; Year-to-Date Revenue Increased 46%Record Free Cash Flow of $9.7 million in the QuarterRaised $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, JFrogs 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 OutlookBased 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

-- Event: JFrogs Third Quarter Fiscal 2020 Financial Results Conference Call -- Date: Wednesday, November 4, 2020 -- Time: 2:00 p.m. PT (5:00 p.m. ET) -- Webcast link: https://investors.jfrog.com/events-and-presentations

About JFrog

JFrog is on a Liquid Software mission to enable the flow of software seamlessly and securely from the developers 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. JFrogs 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 JFrogs 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 JFrogs current assumptions, expectations and beliefs and are subject to substantial risks, uncertainties, assumptions and changes in circumstances that may cause JFrogs 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 JFrogs financial performance. JFrog believes they are useful to investors, as a supplement to GAAP measures, in evaluating its operational performance, as further discussed below. JFrogs 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 JFrogs 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 JFrogs 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, JFrogs 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:

JFrogs 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. JFrogs 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.

JFrogs 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. JFrogs 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 Hornejhorne@marketstreetpartners.com415-445-3240

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 $ 35,714 $ 25,070 $ 99,172 $ 66,750 and SaaSLicense?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 7,047 5,109 19,712 13,320 and SaaSLicense?self-managed 214 240 642 602 Total cost of 7,261 5,349 20,354 13,922 revenue?subscriptionGross profit 31,625 22,495 87,784 60,037 Operating expenses Research and development 10,381 8,665 29,452 21,764 (1) (2)Sales and marketing (1) 14,839 12,042 42,744 31,784 (2) (3)General and administrative 11,804 5,108 21,748 12,991 (1) (2)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, 384 635 1,522 2,457 netIncome (loss) before (5,015 ) (2,685 ) (4,638 ) (4,045 )income taxesProvision for income taxes 250 429 1,053 1,138 Net income (loss) $ (5,265 ) $ (3,114 ) $ (5,691 ) $ (5,183 )Net income (loss) per $ (0.14 ) $ (0.11 ) $ (0.18 ) $ (0.19 )share - basic and dilutedWeighted average shares used in calculating net income (loss) per share:Basic and Diluted 37,516 27,463 31,359 26,879 (1) Includes share-basedcompensation expense as follows:Cost of revenue:subscription?self-managed $ 327 $ 225 $ 666 $ 422 and SaaSResearch 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 $ 9,660 $ 4,895 $ 14,399 $ 7,541 compensation expense: (2) Includesacquisition-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 $ 466 $ 456 $ 1,393 $ 1,511 costs (3) Includes amortizationof acquired intangibles as follows:Cost of revenue: $ 214 $ 240 $ 642 $ 602 license?self-managedSales and marketing 183 182 547 513 Total amortization expenseof acquired intangible $ 397 $ 422 $ 1,189 $ 1,115 assets

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, 4,119 3,641 noncurrentIntangible 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 ANDSHAREHOLDERS' 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 toreconcile net loss to net cash provided byoperating activities: Depreciation and 928 763 2,683 2,043 amortization Share-based compensation 9,660 4,894 14,399 7,541 expenses Losses (gains) on short-term 588 (87 ) 1,012 (367 ) investments, netChanges in operatingassets and liabilities: Accounts 1,620 (736 ) (807 ) 313 receivable Prepaid expenses (2,965 ) 150 (4,285 ) (5,281 ) and other assets Deferred contract (549 ) (471 ) (994 ) (1,746 ) acquisition costs Accounts payables 1,492 856 2,273 1,306 Accrued expenses and other 1,909 156 4,063 831 liabilities Deferred revenue 3,360 2,573 3,989 5,942 Net cash provided by operating 10,778 4,984 16,642 5,399 activitiesCASH FLOWS FROMINVESTING ACTIVITIES: Purchases of short-term (149,718 ) (20,612 ) (235,773 ) (132,526 ) investments Maturities of short-term 39,346 19,795 105,823 22,295 investments Sales of short-term - - 2,598 29,160 investments Purchases of property and (1,105 ) (296 ) (2,611 ) (1,383 ) equipment Payments related to business - - - (20,860 ) combination, net of cash acquired Net cash used in investing (111,477 ) (1,113 ) (129,963 ) (103,314 ) activitiesCASH FLOWS FROMFINANCING ACTIVITIES: Proceeds from initial public offering, net of underwriting discounts and commissions and other issuance 397,685 - 395,211 - costs Proceeds from exercise of share 817 511 1,723 1,109 options Net cash provided by (used in) 398,502 511 396,934 1,109 financing activitiesNet increase(decrease) in cash, 297,803 4,382 283,613 (96,806 )cash equivalents,and restricted cashCash, cashequivalent, and restricted cash?Beginning of period 26,753 78,600 40,943 179,788 Cash, cashequivalent, and restricted cash?End of period $ 324,556 $ 82,982 $ 324,556 $ 82,982 Reconciliation ofcash, cashequivalents andrestricted cashwithin the consolidated balancesheets to theamounts shown in thestatements of cashflow above:Cash and cash $ 324,288 $ 80,909 $ 324,288 $ 80,909 equivalentsRestricted cashincluded in prepaid 14 221 14 221 expenses and othercurrent assetsRestricted cashincluded in other 254 1,852 254 1,852 assets, noncurrentTotal cash, cashequivalents, and $ 324,556 $ 82,982 $ 324,556 $ 82,982 restricted cash

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 ofgross profit and gross marginGAAP gross profit $ 31,625 $ 22,495 $ 87,784 $ 60,037 Plus: Share-basedcompensation 327 225 666 422 expensePlus: Amortizationof acquired 214 240 642 602 intangiblesNon-GAAP gross $ 32,166 $ 22,960 $ 89,092 $ 61,061 profitGAAP gross margin 81.3 % 80.8 % 81.2 % 81.2 %Non-GAAP gross 82.7 % 82.5 % 82.4 % 82.6 %margin Reconciliation of operating expensesGAAP research and $ 10,381 $ 8,665 $ 29,452 $ 21,764 developmentLess: Share-basedcompensation (1,086 ) (1,863 ) (2,782 ) (2,890 )expenseLess:Acquisition-related (352 ) (345 ) (1,051 ) (878 )costs expensesNon-GAAP research $ 8,943 $ 6,457 $ 25,619 $ 17,996 and development GAAP sales and $ 14,839 $ 12,042 $ 42,744 $ 31,784 marketingLess: Share-basedcompensation (1,263 ) (1,665 ) (3,033 ) (2,477 )expenseLess:Acquisition-related (114 ) (111 ) (342 ) (291 )costs expensesLess: Amortizationof acquired (183 ) (182 ) (547 ) (513 )intangiblesNon-GAAP sales and $ 13,279 $ 10,084 $ 38,822 $ 28,503 marketing GAAP general and $ 11,804 $ 5,108 $ 21,748 $ 12,991 administrativeLess: Share-basedcompensation (6,984 ) (1,142 ) (7,918 ) (1,752 )expenseLess:Acquisition-related - - - (342 )costs expensesNon-GAAP general $ 4,820 $ 3,966 $ 13,830 $ 10,897 and administrative Reconciliation ofoperating income (loss) andoperating marginGAAP operating $ (5,399 ) $ (3,320 ) $ (6,160 ) $ (6,502 )income (loss)Plus: Share-basedcompensation 9,660 4,895 14,399 7,541 expensePlus:Acquisition-related 466 456 1,393 1,511 costs expensesPlus: Amortizationof acquired 397 422 1,189 1,115 intangiblesNon-GAAP operating $ 5,124 $ 2,453 $ 10,821 $ 3,665 income (loss)GAAP operating (13.9 %) (11.9 %) (5.7 %) (8.8 %)marginNon-GAAP operating 13.2 % 8.8 % 10.0 % 5.0 %marginReconciliation of net income (loss)GAAP net income $ (5,265 ) $ (3,114 ) $ (5,691 ) $ (5,183 )(loss)Plus: Share-basedcompensation 9,660 4,895 14,399 7,541 expensePlus:Acquisition-related 466 456 1,393 1,511 costs expensesPlus: Amortizationof acquired 397 422 1,189 1,115 intangiblesNon-GAAP net income $ 5,258 $ 2,659 $ 11,290 $ 4,984 (loss)Net income (loss) $ 0.06 $ 0.03 $ 0.12 $ 0.06 per share - basicNet income (loss) $ 0.05 $ 0.03 $ 0.11 $ 0.05 per share - dilutedShares used innon-GAAP per share calculations:GAAPweighted-averageshares used to 37,516 27,463 31,359 26,879 compute net incomeper share- basicAdd: Non-GAAP unweightedadjustment forordinary shares 53,180 61,937 58,997 61,937 issued inconnection with IPONon-GAAPweighted-averageshares used to compute 90,696 89,400 90,356 88,816 net income per share -basic GAAPweighted-averageshares used to 37,516 27,463 31,359 26,879 compute net incomeper share - dilutedAdd: Non-GAAP unweightedadjustment forordinary shares 53,180 61,937 58,997 61,937 issued inconnection with IPODilutive ordinary 11,092 9,015 10,120 9,071 share equivalentsNon-GAAPweighted-averageshares used to compute 101,788 98,415 100,476 97,887 net income per share -diluted

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 cashprovided by $ 10,778 $ 4,984 $ 16,642 $ 5,399 operatingactivitiesLess: Purchasesof property and (1,105 ) (296 ) (2,611 ) (1,383 )equipmentFree cash flow $ 9,673 $ 4,688 $ 14,031 $ 4,016