Financial Data and Key Metrics Changes - JFrog reported Q2 revenue of $67.8 million, reflecting a 39% year-over-year growth compared to 41% in the previous quarter [10][30] - Cloud revenue grew by 68% year-over-year, up from 63% in the previous quarter, indicating strong demand for cloud solutions [10][30] - The number of customers with ARR over $100,000 increased to 647, a 56% year-over-year growth [11][33] - Net dollar retention for the trailing four quarters was 132%, slightly up from 131% in the previous quarter [11][33] - Gross profit was $56.8 million, with a gross margin of 83.7%, compared to 83.4% in the year-ago period [34] Business Line Data and Key Metrics Changes - Self-managed revenues (on-prem) were $48.6 million, up 31% year-over-year, but growth has slowed as new customers increasingly adopt cloud solutions [30][32] - The adoption of the full platform is a key factor in increasing customer size, with 36% of total revenue coming from Enterprise Plus customers, up from 32% in Q2 2021 [33][88] Market Data and Key Metrics Changes - Asia Pacific, the smallest geographic region for JFrog, has seen slower levels of DevOps adoption than expected [28] - The company noted that elongated sales cycles for large new business deals have emerged, particularly in the current macroeconomic environment [27][70] Company Strategy and Development Direction - JFrog continues to focus on strategic investments in R&D, particularly in security and IoT, while also enhancing cloud efficiency [92][96] - The introduction of the Advanced Security Package aims to provide a holistic solution for software supply chain protection, expected to be available commercially in Q3 [80][81] - The company is committed to maintaining a long-term revenue growth rate of 30% or greater, despite macroeconomic headwinds [29][38] Management's Comments on Operating Environment and Future Outlook - Management observed increased demand for cloud solutions and noted that elongated sales cycles for large deals are a concern [45][46] - The company remains confident in its ability to grow revenue and maintain operational efficiency, even in a challenging economic environment [38][39] Other Important Information - JFrog's cash flow from operations was $4 million in the quarter, with free cash flow of $3 million, maintaining a positive cash flow since going public [36] - The company expects revenue for Q3 to be between $70.5 million and $71.5 million, with non-GAAP operating profit ranging from negative $0.5 million to positive $0.5 million [39][40] Q&A Session Summary Question: Confidence in sustaining 30% growth - Management noted increased demand for cloud solutions and attractive expansion rates among existing customers, despite elongated sales cycles for large deals [45][46][47] Question: Economic uplift from customer migration to cloud - Migration to the cloud typically results in ARR growth, driven by increased data transfer and additional capabilities added by customers [56][59] Question: Efficiencies in spending and hiring - Management indicated a careful review of hiring and spending, focusing on strategic areas while improving cloud efficiency [60][62] Question: Differences in sales cycles across regions - Elongated sales cycles are observed for large deals, with no significant impact on smaller deals, and similar trends noted in EMEA and North America [71][72] Question: Advanced Security Package details - The Advanced Security Package will be available for Enterprise Plus and Enterprise X customers, with expected contributions to revenue assessed in Q4 [81][83] Question: R&D investment focus - R&D investments will focus on security, IoT, and enhancing cloud efficiency, with a rich roadmap for Artifactory improvements [92][93]

[Preliminary Information](index=1&type=section&id=Preliminary%20Information) [SEC Filing Information](index=1&type=section&id=SEC%20Filing%20Information) This document is a Quarterly Report on Form 10-Q for JFrog Ltd. for the period ended June 30, 2022, with JFrog being a large accelerated filer whose ordinary shares trade on The Nasdaq Global Select Market under the symbol FROG - JFrog Ltd. is filing a Quarterly Report on Form **10-Q** for the period ended June **30**, **2022**[2](index=2&type=chunk) - The company's ordinary shares trade on The Nasdaq Global Select Market under the symbol FROG[4](index=4&type=chunk) Shares Outstanding and Par Value | Metric | Value | | :----- | :---- | | Shares Outstanding (as of July 29, 2022) | 99,312,863 | | Par Value per Share | NIS 0.01 | [Note Regarding Forward-Looking Statements](index=3&type=section&id=Note%20Regarding%20Forward-Looking%20Statements) This section highlights that the report contains forward-looking statements subject to substantial risks and uncertainties, cautioning readers not to rely on them as predictions of future events - The report contains forward-looking statements that are subject to substantial risks and uncertainties, and actual results may differ materially[8](index=8&type=chunk)[9](index=9&type=chunk) - Future financial performance (revenue, costs, profitability) - Market acceptance of products - Anticipated trends, growth rates, and challenges - Effects of increased competition - Ability to maintain and expand customer base - Ability to develop new products and enhancements - Impact of natural disasters, public health epidemics (e.g., COVID-19), geopolitical tensions (e.g., war in Ukraine), and global economic conditions[11](index=11&type=chunk) [PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents JFrog Ltd.'s unaudited condensed consolidated financial statements, including the balance sheets, statements of operations, comprehensive loss, shareholders' equity, and cash flows, along with detailed notes explaining significant accounting policies and specific financial components for the periods ended June 30, 2022 and 2021 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2022 | December 31, 2021 | Change (vs. Dec 31, 2021) | | :-------------------------------- | :------------ | :---------------- | :------------------------ | | **Assets** | | | | | Total current assets | $510,188 | $499,022 | +$11,166 | | Total assets | $857,677 | $852,528 | +$5,149 | | **Liabilities and Shareholders' Equity** | | | | | Total current liabilities | $193,729 | $175,264 | +$18,465 | | Total liabilities | $232,253 | $213,947 | +$18,306 | | Total shareholders' equity | $625,424 | $638,581 | -$13,157 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total subscription revenue | $67,807 | $48,657 | $131,503 | $93,744 | | Gross profit | $52,563 | $39,586 | $102,396 | $76,246 | | Operating loss | $(22,410) | $(14,231) | $(41,549) | $(24,843) | | Net loss | $(23,773) | $(13,149) | $(43,477) | $(21,044) | | Net loss per share, basic and diluted | $(0.24) | $(0.14) | $(0.44) | $(0.23) | - Total subscription revenue increased **39%** for the three months ended June **30**, **2022**, compared to the same period in **2021**[17](index=17&type=chunk) - Total subscription revenue increased **40%** for the six months ended June **30**, **2022**, compared to the same period in **2021**[17](index=17&type=chunk) - Net loss widened significantly for both the three-month and six-month periods ended June **30**, **2022**, compared to **2021**[17](index=17&type=chunk) [Condensed Consolidated Statements of Comprehensive Loss](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(23,773) | $(13,149) | $(43,477) | $(21,044) | | Other comprehensive income (loss) | $(3,476) | $278 | $(4,957) | $(363) | | Comprehensive loss | $(27,249) | $(12,871) | $(48,434) | $(21,407) | - Other comprehensive income shifted to a loss in **2022**, primarily due to unrealized losses on derivative instruments[19](index=19&type=chunk) [Condensed Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) Changes in Shareholders' Equity (in thousands, except share data) | Metric | Six Months Ended June 30, 2022 | | :--------------------------------------- | :----------------------------- | | Balance as of December 31, 2021 | $638,581 | | Issuance of ordinary shares (options, RSUs, ESPP, business combination) | $2,873 + $0 + $3,253 + $0 = $6,126 | | Share-based compensation expense | $29,151 | | Other comprehensive loss, net of tax | $(4,957) | | Net loss | $(43,477) | | Balance as of June 30, 2022 | $625,424 | - Total shareholders' equity decreased from **$638.6 million** at December **31**, **2021**, to **$625.4 million** at June **30**, **2022**, primarily due to net loss and other comprehensive loss, partially offset by share-based compensation and share issuances[23](index=23&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net cash provided by operating activities | $8,983 | $27,984 | | Net cash provided by (used in) investing activities | $(27,720) | $71,866 | | Net cash provided by (used in) financing activities | $5,631 | $(5,101) | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $(13,106) | $94,749 | | Cash, cash equivalents, and restricted cash—end of period | $55,434 | $259,488 | - Net cash provided by operating activities decreased significantly from **$28.0 million** in H**1** **2021** to **$9.0 million** in H**1** **2022**[26](index=26&type=chunk) - Investing activities shifted from a net cash inflow of **$71.9 million** in H**1** **2021** to a net cash outflow of **$27.7 million** in H**1** **2022**, primarily due to net purchases of short-term investments[26](index=26&type=chunk) - Financing activities shifted from a net cash outflow of **$5.1 million** in H**1** **2021** to a net cash inflow of **$5.6 million** in H**1** **2022**, driven by proceeds from employee share plans[26](index=26&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [1. Organization and Description of Business](index=10&type=section&id=1.%20Organization%20and%20Description%20of%20Business) JFrog Ltd., incorporated in Israel in 2008, provides an end-to-end, hybrid, universal DevOps Platform that facilitates continuous software delivery - JFrog provides an end-to-end, hybrid, universal DevOps Platform for continuous software delivery, enhancing speed, security, and developer efficiency[29](index=29&type=chunk) [2. Summary of Significant Accounting Policies](index=10&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) The unaudited condensed consolidated financial statements are prepared in accordance with GAAP and SEC rules for interim reporting, with management's estimates and assumptions being crucial, and no significant changes to accounting policies occurred during the six months ended June 30, 2022 - Financial statements are prepared under GAAP, relying on management estimates for various financial items[30](index=30&type=chunk)[33](index=33&type=chunk) - No significant changes to accounting policies were made during the six months ended June **30**, **2022**[34](index=34&type=chunk) Long-Lived Assets by Geographic Region (in thousands) | Region | June 30, 2022 | December 31, 2021 | | :------------- | :------------ | :---------------- | | United States | $10,290 | $10,845 | | Israel | $19,672 | $18,165 | | Rest of world | $3,273 | $3,678 | | **Total** | **$33,235** | **$32,688** | [3. Revenue Recognition](index=11&type=section&id=3.%20Revenue%20Recognition) Revenue is disaggregated by category (self-managed subscription, license, SaaS) and geographic region, with **$51.6 million** and **$85.6 million** recognized from deferred revenue during the three and six months ended June 30, 2022, respectively, and remaining performance obligations totaling **$184.7 million** as of June 30, 2022, with **80%** expected to be recognized within the next **12** months Revenue by Category (in thousands, except percentages) | Category | 3 Months Ended June 30, 2022 (Amount) | 3 Months Ended June 30, 2022 (%) | 3 Months Ended June 30, 2021 (Amount) | 3 Months Ended June 30, 2021 (%) | 6 Months Ended June 30, 2022 (Amount) | 6 Months Ended June 30, 2022 (%) | 6 Months Ended June 30, 2021 (Amount) | 6 Months Ended June 30, 2021 (%) | | :----------------------- | :------------------------------------ | :------------------------------- | :------------------------------------ | :------------------------------- | :------------------------------------ | :------------------------------- | :------------------------------------ | :------------------------------- | | Self-managed subscription | $48,569 | 72% | $37,190 | 76% | $95,491 | 73% | $72,013 | 77% | | SaaS | $19,238 | 28% | $11,467 | 24% | $36,012 | 27% | $21,731 | 23% | | **Total subscription revenue** | **$67,807** | **100%** | **$48,657** | **100%** | **$131,503** | **100%** | **$93,744** | **100%** | Revenue by Region (in thousands, except percentages) | Region | 3 Months Ended June 30, 2022 (Amount) | 3 Months Ended June 30, 2022 (%) | 3 Months Ended June 30, 2021 (Amount) | 3 Months Ended June 30, 2021 (%) | 6 Months Ended June 30, 2022 (Amount) | 6 Months Ended June 30, 2022 (%) | 6 Months Ended June 30, 2021 (Amount) | 6 Months Ended June 30, 2021 (%) | | :------------ | :------------------------------------ | :------------------------------- | :------------------------------------ | :------------------------------- | :------------------------------------ | :------------------------------- | :------------------------------------ | :------------------------------- | | United States | $43,022 | 63% | $30,392 | 62% | $82,739 | 63% | $58,684 | 63% | | Israel | $1,712 | 3% | $1,165 | 3% | $3,335 | 3% | $2,058 | 2% | | Rest of world | $23,073 | 34% | $17,100 | 35% | $45,429 | 34% | $33,002 | 35% | | **Total subscription revenue** | **$67,807** | **100%** | **$48,657** | **100%** | **$131,503** | **100%** | **$93,744** | **100%** | - Remaining performance obligations totaled **$184.7 million** as of June **30**, **2022**, with **80%** expected to be recognized as revenue over the next **12** months[38](index=38&type=chunk) [4. Short-Term Investments](index=12&type=section&id=4.%20Short-Term%20Investments) Short-term investments primarily consist of bank deposits, commercial paper, corporate debt securities, municipal securities, and government and agency debt, totaling **$375.0 million** as of June 30, 2022, with the majority maturing within one year Short-Term Investments (in thousands) | Type | June 30, 2022 (Fair Value) | December 31, 2021 (Fair Value) | | :------------------------ | :------------------------- | :------------------------- | | Bank deposits | $83,458 | $90,704 | | Certificates of deposit | $1,935 | - | | Commercial paper | $53,959 | $56,411 | | Corporate debt securities | $114,930 | $109,062 | | Municipal securities | $61,117 | $70,996 | | Government and agency debt | $59,558 | $25,671 | | **Total short-term investments** | **$374,957** | **$352,844** | | Due in 1 year or less | $256,535 | - | | Due in 1 year through 2 years | $34,964 | - | - Unrealized losses on marketable securities were determined not to be credit-related losses as of June **30**, **2022**[40](index=40&type=chunk) [5. Fair Value Measurements](index=13&type=section&id=5.%20Fair%20Value%20Measurements) The company measures financial instruments at fair value on a recurring basis, classifying them into Level **1** (quoted market prices) or Level **2** (observable inputs), with total financial assets at **$385.8 million** and liabilities at **$3.4 million** as of June 30, 2022, mostly Level **2** Fair Value Measurements (in thousands) | Category | June 30, 2022 (Fair Value) | Level 1 | Level 2 | | :--------------------------------------- | :------------------------- | :------ | :------ | | **Financial Assets** | | | | | Money market funds | $6,261 | $6,261 | $0 | | Cash equivalents (total) | $10,559 | $6,261 | $4,298 | | Short-term investments (total) | $374,957 | $0 | $374,957 | | Other financial assets | $319 | $0 | $319 | | **Total financial assets** | **$385,835** | **$6,261** | **$379,574** | | **Financial Liabilities** | | | | | Foreign currency contracts (total) | $3,438 | $0 | $3,438 | | **Total financial liabilities** | **$3,438** | **$0** | **$3,438** | - The company did not have any assets or liabilities valued based on Level **3** valuations as of June **30**, **2022**, or December **31**, **2021**[43](index=43&type=chunk) [6. Derivative Financial Instruments and Hedging](index=14&type=section&id=6.%20Derivative%20Financial%20Instruments%20and%20Hedging) JFrog uses foreign currency forward and option contracts to hedge against foreign exchange risks, primarily related to the NIS against the U.S. dollar, for up to twelve months, with the notional amount of total derivative instruments increasing to **$56.4 million** as of June 30, 2022 - JFrog uses foreign currency contracts to hedge against foreign exchange risks, mainly NIS to USD, for up to **12** months, not for trading[44](index=44&type=chunk) Notional Amount of Foreign Currency Contracts (in thousands) | Category | June 30, 2022 | December 31, 2021 | | :--------------------------------------- | :------------ | :---------------- | | Derivatives Designated as Hedging Instruments | $46,670 | $45,971 | | Derivatives Not Designated as Hedging Instruments | $9,703 | $4,975 | | **Total derivative instruments** | **$56,373** | **$50,946** | - Net deferred losses in Accumulated Other Comprehensive Income (AOCI) as of June **30**, **2022**, are expected to be recognized as operating expenses over the next **12** months[48](index=48&type=chunk) [7. Condensed Consolidated Balance Sheet Components](index=15&type=section&id=7.%20Condensed%20Consolidated%20Balance%20Sheet%20Components) This note details the composition of Property and Equipment, Net, which increased to **$7.7 million** as of June 30, 2022, and Accrued Expenses and Other Current Liabilities, which increased to **$34.6 million** over the same period, primarily due to higher accrued compensation and general accrued expenses Property and Equipment, Net (in thousands) | Category | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | Computer and software | $7,437 | $5,955 | | Furniture and office equipment | $2,412 | $2,248 | | Leasehold improvements | $5,557 | $4,893 | | Property and equipment, gross | $15,406 | $13,096 | | Less: accumulated depreciation and amortization | $(7,756) | $(6,407) | | **Property and equipment, net** | **$7,650** | **$6,689** | Accrued Expenses and Other Current Liabilities (in thousands) | Category | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | Accrued compensation and benefits | $18,576 | $17,601 | | Accrued expenses | $16,065 | $10,353 | | **Total** | **$34,641** | **$27,954** | [8. Goodwill and Intangible Assets, Net](index=16&type=section&id=8.%20Goodwill%20and%20Intangible%20Assets%2C%20Net) Goodwill increased slightly to **$248.0 million** as of June 30, 2022, due to a purchase accounting adjustment, while intangible assets, net, decreased to **$42.3 million** from **$48.0 million**, primarily due to amortization expenses of **$2.8 million** and **$5.7 million** for the three and six months ended June 30, 2022, respectively Goodwill (in thousands) | Metric | Amount | | :-------------------------- | :----- | | Balance as of December 31, 2021 | $247,776 | | Purchase accounting adjustment | $179 | | **Balance as of June 30, 2022** | **$247,955** | Intangible Assets, Net (in thousands) | Category | June 30, 2022 (Net Book Value) | December 31, 2021 (Net Book Value) | | :-------------------- | :----------------------------- | :----------------------------- | | Developed technology | $38,124 | $43,336 | | Customer relationships | $4,172 | $4,644 | | **Total** | **$42,296** | **$47,980** | | Amortization expense (3 months ended June 30, 2022) | $2,842 | | | Amortization expense (6 months ended June 30, 2022) | $5,684 | | - Expected future amortization expenses for intangible assets are **$5.7 million** for the remainder of **2022** and **$11.3 million** for **2023**[54](index=54&type=chunk) [9. Leases](index=17&type=section&id=9.%20Leases) The company has non-cancelable operating lease agreements for offices expiring through **2028**, with total operating lease cost for the three and six months ended June 30, 2022, being **$2.2 million** and **$4.2 million**, respectively, and additional obligations of **$10.8 million** expected to commence in **2022** and **2023** Operating Lease Costs (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease cost | $1,891 | $1,317 | $3,751 | $2,665 | | Short-term lease cost | $167 | $21 | $255 | $64 | | Variable lease cost | $100 | $105 | $192 | $195 | | **Total operating lease cost** | **$2,158** | **$1,443** | **$4,198** | **$2,924** | | Cash paid for operating leases (6 months) | $3,770 | $2,552 | | | - As of June **30**, **2022**, total operating lease liabilities were **$25.1 million**, with a weighted-average remaining term of **3.8** years[55](index=55&type=chunk) - Additional operating lease obligations of **$10.8 million** are related to facility leases commencing during the remainder of **2022** and **2023**[55](index=55&type=chunk) [10. Commitments and Contingencies](index=18&type=section&id=10.%20Commitments%20and%20Contingencies) JFrog has non-cancelable purchase obligations totaling **$83.9 million** as of June 30, 2022, mainly for hosting services, and is subject to the Israeli Innovation Law regarding intellectual property transfer, having accrued **$2.6 million** for a legal settlement Non-Cancelable Purchase Obligations (in thousands) | Year Ending December 31, | Amount | | :----------------------- | :----- | | 2022 (Remainder) | $2,995 | | 2023 | $23,087 | | 2024 | $18,995 | | 2025 | $38,817 | | **Total** | **$83,894** | - The company is subject to the Israeli Innovation Law, which restricts transferring intellectual property outside of Israel and may require an additional payment of approximately **$6.0 million** for approval[58](index=58&type=chunk) - JFrog has accrued approximately **$2.6 million** for an amicable settlement with former sales employees regarding wage and hour law allegations[60](index=60&type=chunk) [11. Shareholders' Equity and Equity Incentive Plans](index=18&type=section&id=11.%20Shareholders'%20Equity%20and%20Equity%20Incentive%20Plans) The 2020 Equity Incentive Plan authorized an additional **5,541,716 ordinary shares** and the 2020 Employee Share Purchase Plan (ESPP) authorized an additional **974,712 shares** in January 2022, with total share-based compensation expense for the six months ended June 30, 2022, being **$29.2 million** and **$230.6 million** in unrecognized costs remaining - The **2020** Equity Incentive Plan authorized an additional **5,541,716 ordinary shares**, and the ESPP authorized an additional **974,712 shares** on January **1**, **2022**[61](index=61&type=chunk)[64](index=64&type=chunk) Share Option Activity (as of June 30, 2022) | Metric | Amount | | :-------------------------- | :------------- | | Balance as of December 31, 2021 | 9,865,601 | | Exercised | (1,456,246) | | Forfeited | (291,933) | | **Balance as of June 30, 2022** | **8,117,422** | | Weighted-Average Exercise Price | $7.76 | | Aggregate Intrinsic Value | $112,907 | | Exercisable as of June 30, 2022 | 5,195,552 | | Weighted-Average Exercise Price (Exercisable) | $4.94 | Restricted Share Unit (RSU) Activity (as of June 30, 2022) | Metric | Amount | | :-------------------------- | :------------- | | Unvested as of December 31, 2021 | 3,376,569 | | Granted | 5,055,138 | | Vested and released | (311,508) | | Canceled/forfeited | (427,731) | | **Unvested as of June 30, 2022** | **7,692,468** | | Weighted-Average Grant Date Fair Value Per Share | $29.14 | Share-Based Compensation Expense (in thousands) | Line Item | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :--------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Cost of revenue: subscription–self-managed and SaaS | $1,613 | $824 | $2,919 | $1,586 | | Research and development | $5,330 | $2,680 | $10,462 | $4,509 | | Sales and marketing | $4,792 | $3,522 | $9,547 | $6,245 | | General and administrative | $3,342 | $7,078 | $6,223 | $13,514 | | **Total share-based compensation expense** | **$15,077** | **$14,104** | **$29,151** | **$25,854** | | Unrecognized share-based compensation cost (as of June 30, 2022) | $230,600 | | | | [12. Accumulated Other Comprehensive Income (Loss)](index=20&type=section&id=12.%20Accumulated%20Other%20Comprehensive%20Income%20(Loss)) Accumulated Other Comprehensive Income (Loss) (AOCI) shifted from a gain of **$611 thousand** at December 31, 2021, to a loss of **$4.3 million** at June 30, 2022, primarily due to other comprehensive loss before reclassifications from derivatives designated as hedging instruments Changes in AOCI (in thousands) | Component | Balance as of Dec 31, 2021 | Other Comprehensive Loss before Reclassifications (6 months) | Net Realized Losses (Gains) Reclassified from AOCI (6 months) | Balance as of June 30, 2022 | | :--------------------------------------- | :------------------------- | :----------------------------------------------------------- | :----------------------------------------------------------- | :-------------------------- | | Net Unrealized Losses on Available-for-Sale Marketable Securities | $(264) | $(908) | $(1) | $(1,173) | | Net Unrealized Gains (Losses) on Derivatives Designated as Hedging Instruments | $875 | $(5,528) | $1,480 | $(3,173) | | **Total AOCI** | **$611** | **$(6,436)** | **$1,479** | **$(4,346)** | [13. Income Taxes](index=20&type=section&id=13.%20Income%20Taxes) JFrog recorded an income tax expense of **$1.9 million** for the three months and **$2.7 million** for the six months ended June 30, 2022, a significant change from prior year benefits, due to the mix of pre-tax income/loss across jurisdictions, with a valuation allowance maintained for deferred tax assets in Israel Income Tax Expense (Benefit) (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax expense (benefit) | $1,880 | $(736) | $2,718 | $(3,093) | | Effective income tax rate | (9)% | 5% | (7)% | 13% | - A valuation allowance is provided for deferred tax assets in Israel, as their realization is not considered more likely than not[69](index=69&type=chunk) - Gross unrecognized tax benefits were **$4.4 million** as of June **30**, **2022**, with no significant change expected within the next **12** months[70](index=70&type=chunk) [14. Net Loss Per Share](index=21&type=section&id=14.%20Net%20Loss%20Per%20Share) Net loss per share (basic and diluted) was **$(0.24)** for the three months and **$(0.44)** for the six months ended June 30, 2022, compared to **$(0.14)** and **$(0.23)** for the corresponding periods in 2021, with potential ordinary shares excluded due to their anti-dilutive effect Net Loss Per Share (basic and diluted) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(23,773) | $(13,149) | $(43,477) | $(21,044) | | Weighted-average shares | 98,955,711 | 93,665,527 | 98,422,723 | 93,175,364 | | **Net loss per share** | **$(0.24)** | **$(0.14)** | **$(0.44)** | **$(0.23)** | - Approximately **13.6 million** and **13.5 million** potential ordinary shares were excluded from diluted net loss per share computation for the three and six months ended June **30**, **2022**, respectively, as their inclusion would have been anti-dilutive[71](index=71&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on JFrog's financial condition and results of operations, discussing the company's vision, business model, key financial performance indicators, and factors influencing future performance, including a detailed comparison of financial results and an analysis of liquidity and capital resources [Overview](index=22&type=section&id=Overview) - JFrog's vision is to enable 'Liquid Software' through an end-to-end, hybrid, universal DevOps Platform, accelerating software delivery and security[74](index=74&type=chunk)[75](index=75&type=chunk) - Revenue is generated from self-managed and SaaS subscriptions, with SaaS contributing **28%** and **27%** of total revenue for the three and six months ended June **30**, **2022**, respectively (up from **24%** and **23%** in **2021**)[77](index=77&type=chunk) Key Financial Highlights (in millions) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenue | $67.8 | $48.7 | $131.5 | $93.7 | | Revenue Growth (YoY) | 39% | | 40% | | | Net Loss | $(23.8) | $(13.1) | $(43.5) | $(21.0) | | Operating Cash Flow (6 months) | $9.0 | $28.0 | | | [COVID-19 Update](index=22&type=section&id=COVID-19%20Update) - JFrog has fully reopened its offices and operates under hybrid working schedules, continuously monitoring the uncertain end of the COVID-19 pandemic[81](index=81&type=chunk)[82](index=82&type=chunk) [Factors Affecting Our Performance](index=23&type=section&id=Factors%20Affecting%20Our%20Performance) - **Extending Technology Leadership:** Continuous investment in new products and functionality, and integration with major package technologies[83](index=83&type=chunk)[84](index=84&type=chunk) - **Expanding Usage by Existing Customers:** Focus on increasing net dollar retention rate and growing the number of large customers[85](index=85&type=chunk)[88](index=88&type=chunk) - **Acquiring New Customers:** Leveraging self-service, freemium, free trials, and open-source offerings, alongside international expansion[90](index=90&type=chunk) Customer Metrics | Metric | June 30, 2022 | June 30, 2021 | | :-------------------------------- | :------------ | :------------ | | Net Dollar Retention Rate | 132% | 129% | | Customers with ARR ≥ $100,000 | 647 | (Not provided for June 30, 2021, but 537 as of Dec 31, 2021) | | Customers with ARR ≥ $1.0 million | 17 | (Not provided for June 30, 2021, but 15 as of Dec 31, 2021) | [Non-GAAP Financial Measures](index=24&type=section&id=Non-GAAP%20Financial%20Measures) - Free cash flow is a non-GAAP measure calculated as net cash provided by operating activities less purchases of property and equipment, used to evaluate liquidity and cash generated from core operations[91](index=91&type=chunk)[92](index=92&type=chunk) Free Cash Flow Reconciliation (in thousands) | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net cash provided by operating activities | $8,983 | $27,984 | | Less: purchases of property and equipment | $(2,131) | $(2,274) | | **Free cash flow** | **$6,852** | **$25,710** | [Components of Results of Operations](index=24&type=section&id=Components%20of%20Results%20of%20Operations) - **Revenue:** Comprised of self-managed subscriptions (license, support, upgrades) and SaaS subscriptions (access to managed product hosted in public cloud)[94](index=94&type=chunk)[95](index=95&type=chunk) - **Cost of Revenue:** Primarily personnel-related expenses, cloud costs, share-based compensation, and amortization of acquired intangibles[97](index=97&type=chunk)[98](index=98&type=chunk] - **Operating Expenses:** Includes Research and Development (personnel, share-based compensation for engineering), Sales and Marketing (personnel, commissions, marketing programs, costs for free offerings), and General and Administrative (finance, legal, HR, professional fees)[99](index=99&type=chunk)[100](index=100&type=chunk)[101](index=101&type=chunk)[102](index=102&type=chunk) - Interest and other income, net, includes income from cash equivalents and short-term investments, as well as foreign exchange gains and losses[103](index=103&type=chunk) - Income tax expense (benefit) is affected by the mix of jurisdictions, tax law developments, non-deductible expenses (like share-based compensation), and changes in valuation allowance[105](index=105&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) Consolidated Statements of Operations Data as Percentage of Total Revenue | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total subscription revenue | 100% | 100% | 100% | 100% | | Total cost of revenue—subscription | 22% | 19% | 22% | 19% | | Gross profit | 78% | 81% | 78% | 81% | | Research and development | 43% | 34% | 43% | 32% | | Sales and marketing | 47% | 45% | 47% | 45% | | General and administrative | 21% | 31% | 20% | 31% | | Total operating expenses | 111% | 110% | 110% | 108% | | Operating loss | (33)% | (29)% | (32)% | (27)% | | Net loss | (35)% | (27)% | (33)% | (22)% | [Comparison of the Three Months Ended June 30, 2022 and 2021](index=27&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20June%2030%2C%202022%20and%202021) Revenue (in thousands) | Category | 2022 | 2021 | $ Change | % Change | | :-------------------------- | :----- | :----- | :------- | :------- | | Subscription—self-managed and SaaS | $63,679 | $45,312 | $18,367 | 41% | | License—self-managed | $4,128 | $3,345 | $783 | 23% | | **Total subscription revenue** | **$67,807** | **$48,657** | **$19,150** | **39%** | | Increase from existing customers | $16,200 | | | | | Increase from new customers | $2,950 | | | | Cost of Revenue and Gross Margin (in thousands) | Metric | 2022 | 2021 | $ Change | % Change | | :-------------------------- | :----- | :----- | :------- | :------- | | Total cost of revenue—subscription | $15,244 | $9,071 | $6,173 | 68% | | Gross margin | 78% | 81% | | | | Primary drivers of cost increase | Amortization of intangibles ($2.4M), personnel-related expenses ($1.7M), share-based compensation ($0.8M) | | | | Operating Expenses (in thousands) | Expense Category | 2022 | 2021 | $ Change | % Change | | :-------------------------- | :----- | :----- | :------- | :------- | | Research and development | $28,945 | $16,688 | $12,257 | 73% | | Sales and marketing | $31,991 | $22,026 | $9,965 | 45% | | General and administrative | $14,037 | $15,103 | $(1,066) | (7)% | | **Total share-based compensation expense** | **$15,077** | **$14,104** | **$973** | **7%** | | Income tax expense (benefit) | $1,880 | $(736) | $2,616 | (355)% | [Comparison of the Six Months Ended June 30, 2022 and 2021](index=29&type=section&id=Comparison%20of%20the%20Six%20Months%20Ended%20June%2030%2C%202022%20and%202021) Revenue (in thousands) | Category | 2022 | 2021 | $ Change | % Change | | :-------------------------- | :----- | :----- | :------- | :------- | | Subscription—self-managed and SaaS | $122,748 | $86,650 | $36,098 | 42% | | License—self-managed | $8,755 | $7,094 | $1,661 | 23% | | **Total subscription revenue** | **$131,503** | **$93,744** | **$37,759** | **40%** | | Increase from existing customers | $32,500 | | | | | Increase from new customers | $5,259 | | | | Cost of Revenue and Gross Margin (in thousands) | Metric | 2022 | 2021 | $ Change | % Change | | :-------------------------- | :----- | :----- | :------- | :------- | | Total cost of revenue—subscription | $29,107 | $17,498 | $11,609 | 66% | | Gross margin | 78% | 81% | | | | Primary drivers of cost increase | Amortization of intangibles ($4.8M), personnel-related expenses ($3.2M), share-based compensation ($1.3M), hosting costs ($1.0M) | | | | Operating Expenses (in thousands) | Expense Category | 2022 | 2021 | $ Change | % Change | | :-------------------------- | :----- | :----- | :------- | :------- | | Research and development | $56,046 | $30,524 | $25,522 | 84% | | Sales and marketing | $61,171 | $41,791 | $19,380 | 46% | | General and administrative | $26,728 | $28,774 | $(2,046) | (7)% | | **Total share-based compensation expense** | **$29,151** | **$25,854** | **$3,297** | **13%** | | Income tax expense (benefit) | $2,718 | $(3,093) | $5,811 | (188)% | [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2022, JFrog had **$430.2 million** in cash, cash equivalents, and short-term investments, which is deemed sufficient to meet its needs for at least the next **12** months - As of June **30**, **2022**, JFrog had **$430.2 million** in cash, cash equivalents, and short-term investments, deemed sufficient to meet needs for at least the next **12** months[130](index=130&type=chunk) Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net cash provided by operating activities | $8,983 | $27,984 | | Net cash provided by (used in) investing activities | $(27,720) | $71,866 | | Net cash provided by (used in) financing activities | $5,631 | $(5,101) | - Operating cash flow for H**1** **2022** was **$9.0 million**, driven by net loss adjusted for non-cash charges and changes in operating assets/liabilities (e.g., deferred revenue increase, operating lease liabilities decrease)[133](index=133&type=chunk) - Investing activities for H**1** **2022** resulted in a net cash outflow of **$27.7 million**, primarily due to net purchases of short-term investments[135](index=135&type=chunk) - Financing activities for H**1** **2022** provided **$5.6 million**, mainly from employee share purchases and option exercises, partially offset by tax payments[136](index=136&type=chunk) [Contractual Obligations](index=33&type=section&id=Contractual%20Obligations) - No significant changes to critical accounting policies and estimates were made during the six months ended June **30**, **2022**, as disclosed in the Annual Report[141](index=141&type=chunk) Non-Cancellable Contractual Obligations (in thousands) as of June 30, 2022 | Obligation Type | Total | 2022 (Remainder) | 2023 and Thereafter | | :------------------------ | :---- | :--------------- | :------------------ | | Operating lease obligations | $36,426 | $3,837 | $32,589 | | Purchase obligations | $83,894 | $2,995 | $80,899 | | **Total** | **$120,320** | **$6,832** | **$113,488** | [Critical Accounting Policies and Estimates](index=33&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - No significant changes to critical accounting policies and estimates were made during the six months ended June **30**, **2022**, as disclosed in the Annual Report[141](index=141&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) JFrog is exposed to market risks including foreign currency exchange risk, primarily from NIS-denominated operating costs, which it mitigates through a hedging program, and interest rate risk on its cash and investments, though inflation risk is not currently material - **Foreign Currency Exchange Risk:** Primary exposure is to NIS against the U.S. dollar for Israeli operating costs, with a hedging program in place to reduce volatility, but not eliminate risk[144](index=144&type=chunk)[145](index=145&type=chunk) - **Interest Rate Risk:** Exposure from cash, cash equivalents, and short-term investments, where a hypothetical **1%** interest rate increase would not materially impact fair value as of June **30**, **2022**[148](index=148&type=chunk) - **Inflation Risk:** Not currently material, but rising costs (labor, sales & marketing, hosting) could adversely affect business if not offset by price increases[149](index=149&type=chunk) [Item 4. Controls and Procedures](index=35&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the effectiveness of JFrog's disclosure controls and procedures as of June 30, 2022, concluding they were effective at a reasonable assurance level, with no material changes in internal control over financial reporting during the period - Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June **30**, **2022**[152](index=152&type=chunk) - No material changes in internal control over financial reporting occurred during the period[153](index=153&type=chunk) - The effectiveness of any internal control system is subject to inherent limitations, providing reasonable, not absolute, assurance[154](index=154&type=chunk) [PART II. OTHER INFORMATION](index=36&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=36&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates by reference the legal proceedings information detailed in Note **10** to the condensed consolidated financial statements - Legal proceedings information is incorporated by reference from Note **10** of the financial statements[157](index=157&type=chunk) [Item 1A. Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) This section updates the risk factors previously disclosed, highlighting new or materially changed risks related to unfavorable global economic conditions, stringent and evolving privacy and data protection laws, cybersecurity threats, and challenges associated with international operations and the ongoing COVID-19 pandemic - **Unfavorable Economic Conditions:** Rising inflation (U.S. annual rate >**9.1%** as of June **2022**), interest rates, and geopolitical unrest (Russia-Ukraine war) could decrease IT spending and increase operating costs[159](index=159&type=chunk)[160](index=160&type=chunk)[161](index=161&type=chunk) - **Privacy, Data Protection, and Cybersecurity:** Subject to stringent and changing laws (e.g., CCPA, CPRA, GDPR, DSL, PIPL) and contractual obligations, with potential for significant costs, liabilities, and reputational harm from non-compliance or data breaches[165](index=165&type=chunk)[167](index=167&type=chunk)[174](index=174&type=chunk) - **Cybersecurity Breaches:** Increased risk from evolving techniques, supply chain attacks, and remote work, potentially leading to reputational damage, litigation, and significant remediation costs[177](index=177&type=chunk)[180](index=180&type=chunk) - **Foreign Operations:** Risks include unexpected changes in trade policies, different labor regulations, stringent privacy laws (especially in EU), geopolitical tensions, and challenges in managing a distributed workforce[182](index=182&type=chunk)[187](index=187&type=chunk) - **COVID-19 Pandemic:** Continues to impact economic activity, potentially leading to slowed growth for new customers, delays in projects, and extended sales cycles, with full impact still uncertain[191](index=191&type=chunk)[193](index=193&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds to report[195](index=195&type=chunk) [Item 3. Default Upon Senior Securities](index=43&type=section&id=Item%203.%20Default%20Upon%20Senior%20Securities) This item is not applicable to JFrog Ltd. for the reporting period - This item is not applicable[196](index=196&type=chunk) [Item 4. Mine Safety Disclosures](index=43&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to JFrog Ltd. for the reporting period - This item is not applicable[197](index=197&type=chunk) [Item 5. Other Information](index=43&type=section&id=Item%205.%20Other%20Information) There is no other information to report under this item - No other information to report[198](index=198&type=chunk) [Item 6. Exhibits](index=44&type=section&id=Item%206.%20Exhibits) This section provides an index of exhibits filed with the Quarterly Report on Form **10-Q**, including certifications from the Principal Executive Officer and Principal Financial Officer, and Inline XBRL documents - The exhibit index lists certifications (**31.1**, **31.2**, **32.1***, **32.2***) and Inline XBRL documents (**101** INS, SCH, CAL, DEF, LAB, PRE, **104**)[202](index=202&type=chunk) [Signatures](index=45&type=section&id=Signatures) The report is signed by Shlomi Ben Haim, Chief Executive Officer, and Jacob Shulman, Chief Financial Officer, on August 4, 2022, certifying compliance with Securities Exchange Act requirements - The report was signed by Shlomi Ben Haim (CEO) and Jacob Shulman (CFO) on August **4**, **2022**[205](index=205&type=chunk)[206](index=206&type=chunk)

Financial Data and Key Metrics - Q1 2022 revenue was $63.7 million, reflecting 41% YoY growth, exceeding the midpoint of guidance by 4% [12] - Cloud revenue grew 63% YoY, driven by increased usage of security capabilities and platform subscriptions through cloud marketplaces [13] - Number of customers with ARR over $100,000 grew to 599, up from 537 in the previous quarter [14] - Trailing four-quarter net dollar retention expanded to 131% [14] - Gross profit was $53.8 million, with a gross margin of 84.4%, up from 83.4% YoY [46] - Non-GAAP operating income was $543,000, with a 0.9% operating margin [47] - Cash and short-term investments totaled $428 million at the end of the quarter [48] Business Line Performance - Cloud revenue growth accelerated to 63% YoY, driven by security solutions and full platform adoption [13] - Self-managed (on-prem) revenue grew 35% YoY to $46.9 million [39] - 35% of total revenue came from Enterprise+ customers, up from 29% in Q1 2021 [42] - Security solutions and end-to-end platform adoption drove higher customer consumption [15][16] Market Performance - Strong demand for hybrid and multi-cloud solutions, validated by customer migration trends [16] - Largest single company cloud contract in JFrog's history signed with a semiconductor manufacturer [19] - Automotive software manufacturer adopted JFrog platform for DevOps standardization, leading to $500,000 net new ARR [20] - European automobile manufacturer secured a $400,000 deal for software supply chain security [24] Strategy and Industry Competition - Focus on cloud-first security, end-to-end platform approach, and hybrid/multi-cloud offerings [11][16] - Investments in unified enterprise-grade platform and 360 funnel management [17] - Strategic partnerships with AWS and other cloud providers to expand market reach [31][33] - Competitive differentiation through holistic DevOps and security solutions, with no significant changes in the competitive landscape [96][99] Management Commentary on Operating Environment and Future Outlook - Management highlighted strong demand for security solutions post-Log4j and Spring Shell vulnerabilities [21][22] - Continued focus on delivering positive free cash flow and efficient growth [37] - Expectation of mid-50% baseline growth rate for cloud business, with potential upside from increased customer usage [40] - Full-year 2022 revenue guidance raised to $276.5 million - $278.5 million [50] Other Important Information - Pricing changes for on-prem offerings contributed $7.5 million in revenue over the past 12 months [44][75] - JFrog Connect (formerly Upswift) is gaining traction in IoT device management, with demand for over-the-air updates and monitoring [27][86] - Dart programming language support added to JFrog Artifactory, expanding developer community engagement [29] Q&A Session Summary Question: What drove the revenue acceleration in Q1? [55] - Answer: Three main drivers: growing adoption of SaaS services in the cloud, end-to-end platform adoption, and strategic sales investments [56][57][58] Question: Why was the full-year profitability outlook not raised despite the Q1 beat? [59] - Answer: FX volatility is hedged for 2022, and investments in security, Connect products, and partnerships are prioritized over short-term profitability [61][62] Question: Can sales and marketing initiatives accelerate customer growth? [65] - Answer: Yes, partnerships with cloud providers, system integrators, and professional services firms are expected to drive new customer acquisition [66] Question: How has cloud platform maturity evolved? [69] - Answer: Customers are adopting multi-cloud and hybrid solutions, with JFrog's platform enabling seamless migration and holistic security [71][72] Question: What is the contribution of pricing changes versus volume to growth? [74] - Answer: Pricing changes contributed $7.5 million, while growth primarily comes from expansion of existing customers [75][76] Question: How is the integration of Upswift (JFrog Connect) progressing? [82] - Answer: Strong demand for IoT device management, with security research team enhancing JFrog Xray's capabilities [83][84][86] Question: How is the macro environment impacting deal closure and sales cycles? [87] - Answer: No significant changes in methodology, with a diversified customer base mitigating industry-specific risks [88] Question: Why did billings growth slow to 9%? [91] - Answer: Tough comps from last year's price change pull-forward and cloud adoption headwinds [92][93] Question: Any changes in the competitive landscape? [96] - Answer: No significant changes, with JFrog's platform differentiation and partnerships strengthening its position [99][100] Question: What is the channel strategy and its impact? [116] - Answer: Channel revenue is currently 10-15% of total, with plans to expand through system integrators and professional services [117][120] Question: Are development projects slowing due to macro conditions? [109] - Answer: No, demand for DevOps and security solutions is growing, especially in enterprises and SMBs [110][113]

[Note Regarding Forward-Looking Statements](index=3&type=section&id=Note%20Regarding%20Forward-Looking%20Statements) This section serves as a cautionary statement, indicating that the report contains forward-looking statements subject to substantial risks and uncertainties - This section serves as a cautionary statement, indicating that the report contains forward-looking statements subject to substantial risks and uncertainties. Investors should not rely on these statements as predictions of future events, and actual results may differ materially[11](index=11&type=chunk)[12](index=12&type=chunk)[13](index=13&type=chunk) - Forward-looking statements cover various aspects including future financial performance, market acceptance, growth rates, competition, product development, and the impact of global events[14](index=14&type=chunk) [PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents JFrog Ltd.'s unaudited condensed consolidated financial statements for the three months ended March 31, 2022 and 2021, along with accompanying notes detailing significant accounting policies and financial instrument disclosures [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) - Total assets increased slightly from **$852.5 million** at December 31, 2021, to **$856.4 million** at March 31, 2022, primarily driven by an increase in short-term investments[17](index=17&type=chunk) - Total liabilities also saw an increase, mainly due to higher deferred revenue, reflecting ongoing sales and customer commitments[17](index=17&type=chunk) Condensed Consolidated Balance Sheets (in thousands) | Metric | March 31, 2022 | December 31, 2021 | | :-------------------------------- | :------------- | :------------------ | | **Assets** | | | | Cash and cash equivalents | $59,577 | $68,284 | | Short-term investments | $368,073 | $352,844 | | Total current assets | $507,351 | $499,022 | | Total assets | $856,396 | $852,528 | | **Liabilities** | | | | Deferred revenue (current) | $134,611 | $129,149 | | Total current liabilities | $182,757 | $175,264 | | Total liabilities | $219,878 | $213,947 | | **Shareholders' Equity** | | | | Total shareholders' equity | $636,518 | $638,581 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) - Total subscription revenue grew by **41% year-over-year**, from **$45.1 million** in Q1 2021 to **$63.7 million** in Q1 2022[20](index=20&type=chunk) - Net loss increased significantly from **$(7.9) million** in Q1 2021 to **$(19.7) million** in Q1 2022, primarily due to higher operating expenses, particularly in research and development and sales and marketing[20](index=20&type=chunk) Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Total subscription revenue | $63,696 | $45,087 | | Total cost of revenue—subscription | $13,863 | $8,427 | | Gross profit | $49,833 | $36,660 | | Total operating expenses | $68,972 | $47,272 | | Operating loss | $(19,139) | $(10,612) | | Net loss | $(19,704) | $(7,895) | | Net loss per share, basic and diluted | $(0.20) | $(0.09) | [Condensed Consolidated Statements of Comprehensive Loss](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) - Comprehensive loss widened to **$(21.2) million** in Q1 2022 from **$(8.5) million** in Q1 2021, driven by both increased net loss and higher unrealized losses on available-for-sale marketable securities and derivative instruments[21](index=21&type=chunk) Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(19,704) | $(7,895) | | Other comprehensive loss | $(1,481) | $(641) | | Comprehensive loss | $(21,185) | $(8,536) | [Condensed Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) - Total shareholders' equity slightly decreased from **$638.6 million** at December 31, 2021, to **$636.5 million** at March 31, 2022, primarily due to the net loss and other comprehensive loss, partially offset by share issuances[23](index=23&type=chunk) - Share-based compensation expense contributed **$14.1 million** to additional paid-in capital during Q1 2022, reflecting ongoing equity incentive programs[23](index=23&type=chunk) Condensed Consolidated Statements of Shareholders' Equity (in thousands, except share data) | Metric | Balance as of Dec 31, 2021 | Balance as of Mar 31, 2022 | | :-------------------------------- | :------------------------- | :------------------------- | | Ordinary Shares (Shares) | 97,312,040 | 98,641,858 | | Ordinary Shares (Amount) | $272 | $276 | | Additional paid-in capital | $776,690 | $795,808 | | Accumulated other comprehensive income (loss) | $611 | $(870) | | Accumulated deficit | $(138,992) | $(158,696) | | Total shareholders' equity | $638,581 | $636,518 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) - Net cash provided by operating activities decreased to **$5.0 million** in Q1 2022 from **$8.8 million** in Q1 2021, despite an increase in deferred revenue, due to a higher net loss[26](index=26&type=chunk)[128](index=128&type=chunk)[129](index=129&type=chunk) - Net cash used in investing activities decreased to **$(18.9) million** in Q1 2022 from **$(27.9) million** in Q1 2021, primarily due to lower net purchases of short-term investments[26](index=26&type=chunk)[130](index=130&type=chunk) - Net cash provided by financing activities increased significantly to **$5.2 million** in Q1 2022 from **$1.3 million** in Q1 2021, driven by proceeds from employee share purchases and option exercises[26](index=26&type=chunk)[131](index=131&type=chunk)[132](index=132&type=chunk) Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $5,031 | $8,811 | | Net cash used in investing activities | $(18,896) | $(27,890) | | Net cash provided by financing activities | $5,155 | $1,282 | | Net decrease in cash, cash equivalents, and restricted cash | $(8,710) | $(17,797) | | Cash, cash equivalents, and restricted cash—end of period | $59,830 | $146,942 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) - JFrog provides an end-to-end, hybrid, universal DevOps Platform, enabling continuous software delivery and enhancing security and developer efficiency[29](index=29&type=chunk) - Revenue from SaaS subscriptions increased its contribution to total revenue from **23%** in Q1 2021 to **26%** in Q1 2022, indicating a shift towards cloud-managed offerings[36](index=36&type=chunk)[81](index=81&type=chunk) - The company's long-lived assets are primarily located in Israel (**$17.6 million**) and the United States (**$10.5 million**) as of March 31, 2022[35](index=35&type=chunk) - Remaining performance obligations totaled **$172.1 million** as of March 31, 2022, with **83%** expected to be recognized as revenue over the next 12 months[38](index=38&type=chunk) - Goodwill increased slightly to **$247.9 million** as of March 31, 2022, due to a purchase accounting adjustment[52](index=52&type=chunk) - Intangible assets, net, decreased to **$45.1 million** as of March 31, 2022, from **$48.0 million** at December 31, 2021, with amortization expenses significantly increasing to **$2.8 million** in Q1 2022 from **$0.4 million** in Q1 2021[53](index=53&type=chunk) - Share-based compensation expense increased by **20% year-over-year** to **$14.1 million** in Q1 2022, primarily due to grants to new and existing employees and acquisition-related equity awards[68](index=68&type=chunk)[120](index=120&type=chunk) - The company recorded an income tax expense of **$0.8 million** in Q1 2022, compared to an income tax benefit of **$2.4 million** in Q1 2021, mainly due to the mix of pre-tax income/loss across different tax jurisdictions[71](index=71&type=chunk)[122](index=122&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on JFrog's financial condition and results of operations for the three months ended March 31, 2022, highlighting revenue growth, increased net loss, and strategic investments [Overview](index=21&type=section&id=Overview) - JFrog aims to enable 'Liquid Software' through its end-to-end, hybrid, universal DevOps Platform, bridging software development and deployment for faster, more secure releases[78](index=78&type=chunk)[79](index=79&type=chunk) - Revenue is primarily generated from self-managed and SaaS subscriptions, with SaaS contributing **26%** of total revenue in Q1 2022, up from **23%** in Q1 2021[81](index=81&type=chunk) - Enterprise Plus subscriptions, offering access to multiple products, accounted for approximately **35%** of total revenue in Q1 2022, up from **29%** in Q1 2021, indicating strong demand for comprehensive solutions[82](index=82&type=chunk) Key Financial Highlights (in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Revenue | $63,696 | $45,087 | | Net loss | $(19,704) | $(7,895) | | Operating cash flow | $5,031 | $8,811 | | Cash, cash equivalents, and short-term investments (as of period end) | $427,700 | N/A | [COVID-19 Update](index=21&type=section&id=COVID-19%20Update) - JFrog has fully reopened its offices and is conducting business as usual, following increased vaccination rates and less virulent COVID-19 strains[85](index=85&type=chunk) - The company continues to monitor the pandemic's impact, acknowledging ongoing uncertainty and potential future effects on operations, sales cycles, and financial condition[86](index=86&type=chunk)[185](index=185&type=chunk) [Factors Affecting Our Performance](index=22&type=section&id=Factors%20Affecting%20Our%20Performance) - JFrog plans to extend its technology leadership by continuously enhancing its platform with new products and expanded functionality, investing in integrations with major package technologies[87](index=87&type=chunk)[88](index=88&type=chunk) - The company aims to expand usage by existing customers, leveraging its net dollar retention rate (**131%** as of March 31, 2022, up from **130%** in Q1 2021) and growing its base of large customers (**599** with ARR ≥ **$100K**, **16** with ARR ≥ **$1M**)[89](index=89&type=chunk)[90](index=90&type=chunk)[91](index=91&type=chunk) - Acquiring new customers is a key growth driver, supported by self-service, freemium offerings, free trials, and open-source software, alongside international expansion efforts[92](index=92&type=chunk)[93](index=93&type=chunk) [Non-GAAP Financial Measures](index=23&type=section&id=Non-GAAP%20Financial%20Measures) - Free cash flow is presented as a non-GAAP measure, calculated as net cash provided by operating activities less purchases of property and equipment, to indicate liquidity for strategic initiatives[94](index=94&type=chunk)[95](index=95&type=chunk) - Free cash flow decreased to **$3.9 million** in Q1 2022 from **$7.7 million** in Q1 2021, reflecting lower operating cash flow[96](index=96&type=chunk) Free Cash Flow (in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $5,031 | $8,811 | | Less: purchases of property and equipment | $(1,143) | $(1,135) | | Free cash flow | $3,888 | $7,676 | [Components of Results of Operations](index=23&type=section&id=Components%20of%20Results%20of%20Operations) - Revenue is disaggregated into self-managed and SaaS subscriptions, with self-managed including license, support, and upgrades, and SaaS providing access to managed cloud products[97](index=97&type=chunk)[98](index=98&type=chunk)[99](index=99&type=chunk)[100](index=100&type=chunk) - Cost of revenue for subscriptions includes customer support, cloud hosting, personnel, share-based compensation, and amortization of acquired intangibles, expected to increase with revenue[101](index=101&type=chunk)[102](index=102&type=chunk) - Operating expenses (R&D, Sales & Marketing, G&A) are expected to increase due to investments in headcount, product development, marketing programs, and administrative functions to support business growth[103](index=103&type=chunk)[104](index=104&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk) - Interest and other income, net, includes earnings on investments and foreign exchange gains/losses. Income tax expense/benefit is influenced by jurisdictional income mix and non-deductible expenses[107](index=107&type=chunk)[108](index=108&type=chunk) [Results of Operations Comparison (Three Months Ended March 31, 2022 vs. 2021)](index=25&type=section&id=Results%20of%20Operations%20Comparison%20(Three%20Months%20Ended%20March%2031%2C%202022%20vs.%202021)) - Approximately **$15.0 million** of the revenue increase was from existing customers, with the remainder from new customers[113](index=113&type=chunk) Revenue Comparison (in thousands, except percentage) | Metric | 2022 | 2021 | $ Change | % Change | | :-------------------------------- | :----- | :----- | :------- | :------- | | Subscription—self-managed and SaaS | $59,069 | $41,338 | $17,731 | 43% | | License—self-managed | $4,627 | $3,749 | $878 | 23% | | Total subscription revenue | $63,696 | $45,087 | $18,609 | 41% | Cost of Revenue and Gross Margin Comparison (in thousands, except percentage) | Metric | 2022 | 2021 | $ Change | % Change | | :-------------------------------- | :----- | :----- | :------- | :------- | | Total cost of revenue—subscription | $13,863 | $8,427 | $5,436 | 65% | | Gross margin | 78% | 81% | -3% | - | | Primary drivers for cost increase | Amortization of intangibles ($2.4M), personnel-related expenses ($1.5M), share-based compensation ($0.5M) | | | | Operating Expenses Comparison (in thousands, except percentage) | Metric | 2022 | 2021 | $ Change | % Change | | :-------------------------------- | :----- | :----- | :------- | :------- | | Research and development | $27,101 | $13,836 | $13,265 | 96% | | Sales and marketing | $29,180 | $19,765 | $9,415 | 48% | | General and administrative | $12,691 | $13,671 | $(980) | (7)% | | Total share-based compensation expense | $14,074 | $11,750 | $2,324 | 20% | - R&D expense surged due to increased headcount (including acquisitions), share-based compensation, and acquisition-related compensation[116](index=116&type=chunk) - Sales and marketing expense rose due to higher personnel costs, share-based compensation, and marketing program investments[118](index=118&type=chunk) - G&A expense decreased primarily due to a **$3.6 million** reduction in share-based compensation, partially offset by increased personnel-related expenses[119](index=119&type=chunk)[120](index=120&type=chunk) Other Income/Expense Comparison (in thousands, except percentage) | Metric | 2022 | 2021 | $ Change | % Change | | :-------------------------------- | :----- | :----- | :------- | :------- | | Interest and other income, net | $273 | $360 | $(87) | (24)% | | Income tax expense (benefit) | $838 | $(2,357) | $3,195 | (136)% | | Effective income tax rate | 23% | (4)% | | | - Interest and other income decreased due to lower investment balances. The shift from income tax benefit to expense was driven by the mix of pre-tax income/loss in different tax jurisdictions[121](index=121&type=chunk)[122](index=122&type=chunk)[123](index=123&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) - JFrog's primary liquidity sources are cash, cash equivalents, and short-term investments, totaling **$427.7 million** as of March 31, 2022[125](index=125&type=chunk) - The company believes its current liquidity, combined with operating cash flow, will be sufficient for at least the next 12 months, but future capital requirements depend on growth, investments, and potential acquisitions[125](index=125&type=chunk)[126](index=126&type=chunk) - Operating cash flow decreased due to higher net loss, while investing cash outflow decreased due to lower short-term investment purchases. Financing cash inflow increased from employee equity transactions[128](index=128&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk)[132](index=132&type=chunk) Cash Flow Summary (in thousands) | Cash Flow Type | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Operating Activities | $5,031 | $8,811 | | Investing Activities | $(18,896) | $(27,890) | | Financing Activities | $5,155 | $1,282 | Non-Cancellable Contractual Obligations as of March 31, 2022 (in thousands) | Obligation Type | Total | 2022 (Remainder) | 2023 and Thereafter | | :---------------------- | :---- | :--------------- | :------------------ | | Operating lease obligations | $25,545 | $5,549 | $19,996 | | Purchase obligations | $74,622 | $6,825 | $67,797 | | Total | $100,167 | $12,374 | $87,793 | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details JFrog's exposure to market risks, specifically foreign currency exchange risk and interest rate risk, and the strategies employed to mitigate these exposures - JFrog is exposed to foreign currency exchange risk, primarily from NIS-denominated operating costs in Israel against the U.S. dollar, despite most revenue being in USD[138](index=138&type=chunk) - The company uses foreign currency forward and option contracts as hedging instruments to reduce volatility, though these programs do not eliminate all risk[139](index=139&type=chunk) - Interest rate risk is minimal due to the short-term nature of its cash, cash equivalents, and short-term investments, with a hypothetical **1%** interest rate change having no material impact on fair value[142](index=142&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of JFrog's disclosure controls and procedures and notes no material changes in internal control over financial reporting during the quarter, while also acknowledging the inherent limitations of any control system - Management, including the CEO and CFO, concluded that JFrog's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2022[143](index=143&type=chunk)[144](index=144&type=chunk)[145](index=145&type=chunk) - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[146](index=146&type=chunk) - The effectiveness of internal controls is subject to inherent limitations, including judgment in design and implementation, and the inability to completely eliminate misconduct[147](index=147&type=chunk) [PART II. OTHER INFORMATION](index=33&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to the legal proceedings detailed in Note 10 of the condensed consolidated financial statements, which includes a settlement for a wage and hour dispute with former sales employees - JFrog is not currently aware of any matters that would individually or collectively have a material adverse effect on its business, financial position, results of operations, or cash flows[60](index=60&type=chunk) - The company has agreed to amicably resolve a wage and hour dispute with former sales employees for approximately **$2.6 million**, which was accrued as part of sales and marketing expenses in Q4 2021[61](index=61&type=chunk) [Item 1A. Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) This section updates the risk factors previously disclosed, focusing on potential impacts from global economic conditions, stringent privacy and cybersecurity regulations, and challenges associated with international operations [Risks Related to Our Business and Industry](index=33&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) - Unfavorable conditions in the industry or global economy, including geopolitical unrest (e.g., Russia-Ukraine war), inflation, and interest rate hikes, could limit business growth and negatively affect results of operations by decreasing IT spending[152](index=152&type=chunk) [Risks Related to Privacy, Data Protection and Cybersecurity](index=33&type=section&id=Risks%20Related%20to%20Privacy%2C%20Data%20Protection%20and%20Cybersecurity) - JFrog is subject to stringent and evolving global privacy, data protection, and data security laws (e.g., CCPA, CPRA, GDPR, DSL, PIPL), with non-compliance potentially leading to significant costs, liabilities, and reputational harm[153](index=153&type=chunk)[157](index=157&type=chunk)[159](index=159&type=chunk)[166](index=166&type=chunk) - Security breaches or unauthorized access to proprietary and confidential data, including through cyberattacks or employee error, could damage reputation, lead to litigation, regulatory investigations, and significant financial liabilities[169](index=169&type=chunk)[172](index=172&type=chunk)[175](index=175&type=chunk) - The company faces heightened cybersecurity risks due to remote work and geopolitical tensions, with evolving attack techniques and regulatory requirements increasing compliance burdens and costs[174](index=174&type=chunk)[177](index=177&type=chunk) [Risks Related to Foreign Operations](index=38&type=section&id=Risks%20Related%20to%20Foreign%20Operations) - International operations, with primary R&D in Israel and customers in over 90 countries, expose JFrog to risks such as changes in tariffs, labor regulations, privacy laws, political/economic conditions (e.g., Russia-Ukraine war), currency exchange rates, and intellectual property protection[179](index=179&type=chunk)[180](index=180&type=chunk)[182](index=182&type=chunk) [General Risk Factors](index=39&type=section&id=General%20Risk%20Factors) - The ongoing COVID-19 pandemic continues to pose risks, potentially leading to slowed growth for new customers, fewer upgrade orders, increased sales cycle lengths, and delays in new projects, with the full impact remaining uncertain[184](index=184&type=chunk)[185](index=185&type=chunk)[187](index=187&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports the issuance of ordinary shares in February 2022 as consideration for a previous acquisition, exempt from registration under the Securities Act - In February 2022, JFrog issued **48,183** ordinary shares as consideration for a prior acquisition, exempt from registration under Section 4(a)(2) or Rule 701 of the Securities Act[188](index=188&type=chunk)[189](index=189&type=chunk) - No proceeds were generated from these unregistered sales of equity securities[190](index=190&type=chunk) [Item 3. Default Upon Senior Securities](index=40&type=section&id=Item%203.%20Default%20Upon%20Senior%20Securities) This item states that there are no defaults upon senior securities to report - Not applicable[191](index=191&type=chunk) [Item 4. Mine Safety Disclosures](index=40&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item indicates that there are no mine safety disclosures required - Not applicable[192](index=192&type=chunk) [Item 5. Other Information](index=40&type=section&id=Item%205.%20Other%20Information) This item states that there is no other information to report - Not applicable[193](index=193&type=chunk) [Item 6. Exhibits](index=41&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications, XBRL documents, and other required filings - The exhibit index includes certifications from the Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2) and various Inline XBRL documents (Exhibits 101 INS, SCH, CAL, DEF, LAB, PRE, 104)[197](index=197&type=chunk)

JFrog Ltd. (NASDAQ:FROG) Q4 2021 Earnings Conference Call February 10, 2022 5:00 PM ET Company Participants JoAnn Horne - IR Shlomi Haim - Co-Founder and CEO Jacob Shulman - CFO Conference Call Participants Mike Cikos - Needham and Co Kingsley Crane - Berenberg Sandeep Singh - Morgan Stanley Koji Ikeda - Bank of America Ittai Kidron - Oppenheimer Rob Owens - Piper Sandler Steve Enders - KeyBanc Capital Markets Operator Good day, and thank you for standing by. Welcome to the JFrog's Fourth Quarter Fiscal 202 ...

PART I [Item 1. Business](index=5&type=section&id=Item%201.%20Business) JFrog offers a universal, hybrid, end-to-end DevOps platform for "Liquid Software," managing software packages as the system of record for over 6,650 organizations Key Financial and Operational Metrics (FY 2021 vs. FY 2020) | Metric | FY 2021 | FY 2020 | | :--- | :--- | :--- | | **Revenue (million USD)** | 206.7 | 150.8 | | **Revenue Growth (%)** | 37 | 44 (vs 2019) | | **Net Loss (million USD)** | (64.2) | (9.4) | | **Operating Cash Flow (million USD)** | 27.9 | 29.5 | | **Free Cash Flow (million USD)** | 23.7 | 25.9 | | **Total Customers** | ~6,650 | ~6,050 | | **Customers with ARR > $100k** | 537 | 352 | | **Customers with ARR > $1M** | 15 | 10 | - JFrog's core product is **JFrog Artifactory**, a universal package repository that serves as the "single source of truth" for an organization's software packages[33](index=33&type=chunk) - The platform includes integrated products for the entire software release cycle: JFrog Pipelines (CI/CD), JFrog Xray (security scanning), JFrog Distribution (package distribution), and others[34](index=34&type=chunk)[35](index=35&type=chunk)[37](index=37&type=chunk) - The company's go-to-market strategy is a bottom-up, community-focused approach, utilizing freemium offerings, free trials, and open-source software to drive adoption before converting users to paid subscriptions[40](index=40&type=chunk)[41](index=41&type=chunk)[45](index=45&type=chunk) - Key competitors include diversified software companies like IBM (Red Hat) and VMware, developer-focused companies like GitLab and Sonatype, and major cloud providers such as AWS, GCP, and Microsoft Azure[62](index=62&type=chunk) [Item 1A. Risk Factors](index=17&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including operational challenges, intense competition, cybersecurity threats, data privacy regulations, and international political and economic instability - **Business & Operational Risks:** The company has a history of losses, with a net loss of **$64.2 million in 2021**, and may not achieve consistent profitability as operating expenses are expected to increase[86](index=86&type=chunk) - **Competition:** The market is highly fragmented with competition from large software companies (IBM, VMware), developer-focused firms (GitLab, Sonatype), and major cloud providers (AWS, GCP, Microsoft), many of whom have greater resources[100](index=100&type=chunk)[102](index=102&type=chunk) - **Cybersecurity & Data Privacy:** The company is subject to stringent and evolving laws like GDPR and CCPA; a breach or non-compliance could result in significant liabilities and reputational harm[165](index=165&type=chunk)[180](index=180&type=chunk) - **International Operations:** A significant portion of R&D is in Israel, exposing the company to regional instability, while expansion into China carries regulatory and IP protection risks[190](index=190&type=chunk)[229](index=229&type=chunk) - **COVID-19 Impact:** The pandemic has caused slowed growth, longer sales cycles, and project delays, with its full impact on future results remaining uncertain[247](index=247&type=chunk)[250](index=250&type=chunk)[251](index=251&type=chunk) [Item 1B. Unresolved Staff Comments](index=50&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the Securities and Exchange Commission - None[258](index=258&type=chunk) [Item 2. Properties](index=50&type=section&id=Item%202.%20Properties) JFrog is co-headquartered in Sunnyvale, California, and Netanya, Israel, leasing all its office facilities which are deemed adequate - The company leases approximately **49,000 square feet in Sunnyvale, CA**, and **55,000 square feet in Netanya, Israel**, with leases expiring in 2026[259](index=259&type=chunk) [Item 3. Legal Proceedings](index=50&type=section&id=Item%203.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 11 of the consolidated financial statements - The company refers to Note 11 for details on legal proceedings, disclosing a dispute with former sales employees resolved for approximately **$2.6 million**[261](index=261&type=chunk)[492](index=492&type=chunk) [Item 4. Mine Safety Disclosures](index=50&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[262](index=262&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities](index=51&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Shareholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) JFrog's ordinary shares trade on Nasdaq under 'FROG' since its 2020 IPO; the company has never paid cash dividends and retains earnings for operations - The company's ordinary shares are listed on Nasdaq under the ticker symbol **FROG**[264](index=264&type=chunk) - The company has never declared or paid cash dividends and does not anticipate doing so in the foreseeable future[266](index=266&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=53&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) JFrog's FY2021 revenue grew, driven by customer expansion, but net loss widened significantly due to increased share-based compensation and personnel costs, while maintaining strong liquidity Revenue Performance (FY 2021 vs. FY 2020) | Revenue Category | 2021 (thousand USD) | 2020 (thousand USD) | % Change | | :--- | :--- | :--- | :--- | | Subscription—self-managed and SaaS | 190,046 | 137,978 | 38 | | License—self-managed | 16,637 | 12,849 | 29 | | **Total Subscription Revenue** | **206,683** | **150,827** | **37** | Operating Expenses (FY 2021 vs. FY 2020) | Expense Category | 2021 (thousand USD) | 2020 (thousand USD) | % Change | | :--- | :--- | :--- | :--- | | Research and development | 79,604 | 41,113 | 94 | | Sales and marketing | 96,962 | 60,936 | 59 | | General and administrative | 56,663 | 34,519 | 64 | - The increase in R&D expense was primarily driven by a **$19.3 million** increase in personnel costs from headcount growth (including acquisitions) and a **$10.7 million** increase in share-based compensation[320](index=320&type=chunk) - Share-based compensation expense increased by **139% to $56.9 million in 2021** from **$23.9 million in 2020**, attributable to new grants and expenses related to the Vdoo acquisition[323](index=323&type=chunk)[324](index=324&type=chunk) - The company's net dollar retention rate was **130%** as of December 31, 2021, compared to **133%** as of December 31, 2020[295](index=295&type=chunk) - In 2021, the company acquired Vdoo Connected Trust Ltd. for **$299.3 million** and Upswift Ltd. to expand its security and device management capabilities[286](index=286&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures about Market Risk](index=64&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company faces market risks primarily from foreign currency exchange rates, particularly USD/NIS, mitigated by hedging, and low interest rate risk due to short-term investments - The company's primary foreign currency exposure is from operating costs in Israel denominated in NIS; a hypothetical **10% change** would impact 2021 results by **$2.8 million** after hedging[347](index=347&type=chunk)[348](index=348&type=chunk) - Interest rate risk is low due to short-term investments; a hypothetical **1% increase** in rates would not materially impact fair value as of December 31, 2021[351](index=351&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=65&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited consolidated financial statements for fiscal years 2021, 2020, and 2019, including balance sheets, statements of operations, cash flows, and the auditor's report Consolidated Balance Sheet Data (as of Dec 31) | Account | 2021 (thousand USD) | 2020 (thousand USD) | | :--- | :--- | :--- | | **Total Current Assets** | 499,022 | 652,561 | | Goodwill | 247,776 | 17,320 | | **Total Assets** | **852,528** | **689,231** | | **Total Current Liabilities** | 175,264 | 122,700 | | **Total Liabilities** | **213,947** | **135,337** | | **Total Shareholders' Equity** | **638,581** | **553,894** | Consolidated Statement of Operations Data (Year Ended Dec 31) | Account | 2021 (thousand USD) | 2020 (thousand USD) | | :--- | :--- | :--- | | **Total Subscription Revenue** | 206,683 | 150,827 | | **Gross Profit** | 164,860 | 122,376 | | **Total Operating Expenses** | 233,229 | 136,568 | | **Operating Loss** | (68,369) | (14,192) | | **Net Loss** | **(64,203)** | **(9,405)** | Consolidated Statement of Cash Flows Data (Year Ended Dec 31) | Account | 2021 (thousand USD) | 2020 (thousand USD) | | :--- | :--- | :--- | | Net cash provided by operating activities | 27,902 | 29,458 | | Net cash used in investing activities | (125,545) | (311,796) | | Net cash provided by financing activities | 1,444 | 406,134 | - The auditor's report identified two critical audit matters: revenue recognition (SSP evaluation) and the valuation of assets/liabilities from the Vdoo acquisition[361](index=361&type=chunk)[363](index=363&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=101&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[532](index=532&type=chunk) [Item 9A. Controls and Procedures](index=101&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with no material changes identified - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[534](index=534&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2021, based on the COSO framework[536](index=536&type=chunk) [Item 9B. Other Information](index=101&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[539](index=539&type=chunk) [Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=102&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - Not applicable[540](index=540&type=chunk) PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=102&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the company's 2022 proxy statement - Information is incorporated by reference from the Proxy Statement to be filed within 120 days of the fiscal year-end[542](index=542&type=chunk) - The company has adopted a Code of Business Conduct and Ethics, which is available on its investor relations website[543](index=543&type=chunk) [Item 11. Executive Compensation](index=102&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's 2022 proxy statement - Information is incorporated by reference from the Proxy Statement[544](index=544&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters](index=102&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Shareholder%20Matters) Information on security ownership of beneficial owners and management is incorporated by reference from the company's 2022 proxy statement - Information is incorporated by reference from the Proxy Statement[545](index=545&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=102&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related party transactions and director independence is incorporated by reference from the company's 2022 proxy statement - Information is incorporated by reference from the Proxy Statement[546](index=546&type=chunk) [Item 14. Principal Accountant Fees and Services](index=102&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information on principal accountant fees and services is incorporated by reference from the company's 2022 proxy statement - Information is incorporated by reference from the Proxy Statement[547](index=547&type=chunk) PART IV [Item 15. Exhibits and Financial Statement Schedules](index=103&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K - This section provides an index of all documents filed with or incorporated by reference into the Form 10-K[549](index=549&type=chunk)[550](index=550&type=chunk) [Item 16. Form 10-K Summary](index=104&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company has not provided a summary for its Form 10-K - None[554](index=554&type=chunk)

JFrog Ltd. (NASDAQ:FROG) Q3 2021 Earnings Conference Call November 4, 2021 5:00 PM ET Company Participants JoAnn Horne - IR Shlomi Haim - Co-Founder and Chief Executive Officer Jacob Shulman - Chief Financial Officer Conference Call Participants Jason Ader - William Blair Jack Andrews - Needham Ittai Kidron - Oppenheimer Koji Ikeda - Bank of America Kingsley Crane - Berenberg Operator Good day, and thank you for joining us. Welcome to JFrog's Third Quarter Fiscal 2021 Financial Results Conference Call. [Ope ...

0 3 The Liquid Software Company DISCLAIMER 2 This presentation contains forward-looking statements that reflect our current views with respect to, among other things, the operations and financial performance of JFrog Ltd. and its subsidiaries (collectively, "JFrog," "we," "us," or "our"). All statements other than statements of historical facts contained in this presentation, including statements regarding matters such as our industry, business strategy, goals, and expectations concerning our market positio ...

[Filing Information](index=1&type=section&id=Filing%20Information) Securities Registered | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------ | :---------------- | :---------------------------------------- | | Ordinary Shares, NIS 0.01 par value | FROG | The Nasdaq Global Select Market | - The registrant is a **non-accelerated filer** and an **emerging growth company**[3](index=3&type=chunk)[5](index=5&type=chunk) - As of October 29, 2021, **96,390,794 ordinary shares**, NIS 0.01 par value per share, were outstanding[4](index=4&type=chunk) [Note Regarding Forward-Looking Statements](index=3&type=section&id=NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) - This report contains forward-looking statements regarding future financial performance, market acceptance, competition, customer expansion, product development, business model management, acquisitions, intellectual property, employee retention, cash sufficiency, regulatory compliance, and external event impacts like the coronavirus pandemic[10](index=10&type=chunk)[13](index=13&type=chunk) - Forward-looking statements are subject to **substantial risks and uncertainties**, and actual results may differ materially from those described[10](index=10&type=chunk)[11](index=11&type=chunk) [Part I - Financial Information](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents JFrog Ltd.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, shareholders' equity, and cash flows, prepared in accordance with GAAP for interim reporting [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (in thousands) | Metric | September 30, 2021 | December 31, 2020 | | :-------------------------------- | :------------------- | :------------------ | | Total Assets | $829,679 | $689,231 | | Total Liabilities | $185,436 | $135,337 | | Total Shareholders' Equity | $644,243 | $553,894 | | Cash and cash equivalents | $84,607 | $164,461 | | Short-term investments | $317,776 | $433,595 | | Deferred revenue (current) | $110,905 | $91,750 | | Goodwill | $247,776 | $17,320 | - Total assets increased by **$140.4 million**, primarily driven by a significant increase in goodwill and intangible assets due to acquisitions[16](index=16&type=chunk) - Cash and cash equivalents decreased by **$80.0 million** and short-term investments by **$115.8 million**, while deferred revenue increased by **$19.2 million**[16](index=16&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | YoY Change (%) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | YoY Change (%) | | :---------------------------------- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Total subscription revenue | $53,703 | $38,886 | 38% | $147,447 | $108,138 | 36% | | Gross profit | $42,242 | $31,625 | 33.5% | $118,488 | $87,784 | 34.9% | | Operating loss | $(20,916) | $(5,399) | 287% | $(45,759) | $(6,160) | 643% | | Net loss | $(20,464) | $(5,265) | 289% | $(41,508) | $(5,691) | 629% | | Net loss per share, basic and diluted | $(0.21) | $(0.14) | 50% | $(0.44) | $(0.18) | 144% | - Total subscription revenue increased by **38%** for the three months and **36%** for the nine months ended September 30, 2021, compared to the prior year periods[18](index=18&type=chunk) - Net loss significantly widened to **$(20.5) million** for the three months and **$(41.5) million** for the nine months ended September 30, 2021, primarily due to increased operating expenses[18](index=18&type=chunk) [Condensed Consolidated Statements of Comprehensive Loss](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net loss | $(20,464) | $(5,265) | $(41,508) | $(5,691) | | Other comprehensive income (loss) | $(116) | $(450) | $(479) | $304 | | Comprehensive loss | $(20,580) | $(5,715) | $(41,987) | $(5,387) | - Comprehensive loss increased significantly for both the three and nine months ended September 30, 2021, primarily driven by the increased net loss[19](index=19&type=chunk) [Condensed Consolidated Statements of Convertible Preferred Shares and Shareholders' Equity (Deficit)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Convertible%20Preferred%20Shares%20and%20Shareholders'%20Equity%20(Deficit)) - Total shareholders' equity increased from **$553.9 million** as of December 31, 2020, to **$644.2 million** as of September 30, 2021[16](index=16&type=chunk)[23](index=23&type=chunk) - Key changes in shareholders' equity for the nine months ended September 30, 2021, include **$81.8 million** from ordinary shares issued related to business combinations and **$42.7 million** in share-based compensation expense, partially offset by a net loss of **$41.5 million**[23](index=23&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :---------------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $10,241 | $16,642 | | Net cash used in investing activities | $(88,243) | $(129,963) | | Net cash provided by (used in) financing activities | $(1,094) | $396,934 | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $(79,096) | $283,613 | - Net cash provided by operating activities decreased to **$10.2 million** in 9M 2021 from **$16.6 million** in 9M 2020[26](index=26&type=chunk) - Investing activities used **$88.2 million** in 9M 2021, primarily due to payments for business combinations, while financing activities shifted from providing **$396.9 million** in 9M 2020 (due to IPO) to using **$1.1 million** in 9M 2021[26](index=26&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) - JFrog provides an end-to-end, hybrid, universal DevOps Platform for Continuous Software Release Management, enabling organizations to deliver software updates faster and more securely[27](index=27&type=chunk) - The company adopted new accounting standards for Leases (Topic 842) and Cloud Computing Arrangement Implementation Costs (ASU 2018-15) on **January 1, 2021**, with no material impact on its financial statements[37](index=37&type=chunk)[38](index=38&type=chunk) - JFrog will cease to be an **emerging growth company** as of **December 31, 2021**, becoming a large accelerated filer, requiring compliance with public company accounting pronouncements and auditor attestation under Section 404(b)[34](index=34&type=chunk) Revenue by Category (in thousands, except percentages) | Category | 3 Months Ended Sep 30, 2021 (Amount / %) | 3 Months Ended Sep 30, 2020 (Amount / %) | 9 Months Ended Sep 30, 2021 (Amount / %) | 9 Months Ended Sep 30, 2020 (Amount / %) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Self-managed subscription | $40,591 / 76% | $30,161 / 78% | $112,604 / 76% | $85,269 / 79% | | SaaS | $13,112 / 24% | $8,725 / 22% | $34,843 / 24% | $22,869 / 21% | | Total subscription revenue | $53,703 / 100% | $38,886 / 100% | $147,447 / 100% | $108,138 / 100% | Revenue by Region (in thousands, except percentages) | Region | 3 Months Ended Sep 30, 2021 (Amount / %) | 3 Months Ended Sep 30, 2020 (Amount / %) | 9 Months Ended Sep 30, 2021 (Amount / %) | 9 Months Ended Sep 30, 2020 (Amount / %) | | :------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | United States | $33,769 / 63% | $24,924 / 64% | $92,453 / 63% | $69,429 / 64% | | Israel | $1,049 / 2% | $726 / 2% | $3,107 / 2% | $2,020 / 2% | | Rest of world | $18,885 / 35% | $13,236 / 34% | $51,887 / 35% | $36,689 / 34% | | Total subscription revenue | $53,703 / 100% | $38,886 / 100% | $147,447 / 100% | $108,138 / 100% | - JFrog acquired Vdoo Connected Trust Ltd. in **July 2021** for **$299.3 million** (cash and shares) to expand security technology, and Upswift Ltd. in **August 2021** for **$9.5 million** for device management, significantly increasing goodwill and intangible assets[55](index=55&type=chunk)[56](index=56&type=chunk)[63](index=63&type=chunk)[64](index=64&type=chunk) Total Share-Based Compensation Expense (in thousands) | Expense Category | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :---------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Cost of revenue: subscription–self-managed and SaaS | $1,180 | $327 | $2,766 | $666 | | Research and development | $4,547 | $1,086 | $9,056 | $2,782 | | Sales and marketing | $4,307 | $1,263 | $10,552 | $3,033 | | General and administrative | $6,823 | $6,984 | $20,337 | $7,918 | | Total share-based compensation expense | $16,857 | $9,660 | $42,711 | $14,399 | - Unrecognized share-based compensation cost was **$183.6 million** as of September 30, 2021, expected to be recognized over a weighted-average period of **3.4 years**[83](index=83&type=chunk) - Income tax benefit of **$0.4 million** for Q3 2021 and **$3.5 million** for 9M 2021, primarily due to a partial release of valuation allowance associated with the acquisitions[85](index=85&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes JFrog's financial performance, highlighting strong subscription and Enterprise Plus revenue growth, increased operating losses from strategic investments, and the impact of COVID-19 [Overview](index=27&type=section&id=Overview) - JFrog's vision is 'Liquid Software' through an end-to-end, hybrid, universal DevOps Platform for Continuous Software Release Management, enabling organizations to deliver software updates faster and more securely[92](index=92&type=chunk)[93](index=93&type=chunk) - SaaS subscriptions contributed **24%** of total revenue for both the three and nine months ended September 30, 2021, an increase from **22%** and **21%** in the corresponding 2020 periods[95](index=95&type=chunk) - Revenue from Enterprise Plus subscriptions grew significantly, representing **34%** and **32%** of total revenue for the three and nine months ended September 30, 2021, respectively, up from **19%** and **17%** in 2020, demonstrating increased demand for end-to-end solutions[96](index=96&type=chunk) Key Financial Highlights (in millions, except percentages) | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | YoY Growth | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | YoY Growth | | :---------------------------------------- | :-------------------------- | :-------------------------- | :--------- | :-------------------------- | :-------------------------- | :--------- | | Revenue | $53.7 | $38.9 | 38% | $147.4 | $108.1 | 36% | | Net loss | $(20.5) | $(5.3) | - | $(41.5) | $(5.7) | - | | Operating cash flow (9M only) | - | - | - | $10.2 | $16.6 | -38.5% | | Cash, cash equivalents, and short-term investments (as of Sep 30, 2021) | $402.4 | - | - | - | - | - | [Acquisition of Vdoo Connected Trust Ltd.](index=28&type=section&id=Acquisition%20of%20Vdoo%20Connected%20Trust%20Ltd.) - JFrog acquired Vdoo Connected Trust Ltd. on **July 19, 2021**, to accelerate security technology expansion and deliver a holistic security solution as part of its platform[99](index=99&type=chunk) [COVID-19 Update](index=28&type=section&id=COVID-19%20Update) - The company experienced slowed growth, longer average sales cycles, and delays in new projects during the COVID-19 pandemic, with continued uncertainty regarding the full impact, especially from new variants[100](index=100&type=chunk)[101](index=101&type=chunk)[217](index=217&type=chunk) - JFrog fully reopened all its offices as of **October 1, 2021**, after temporarily requiring remote work and intermittent partial reopenings[102](index=102&type=chunk) [Factors Affecting Our Performance](index=28&type=section&id=Factors%20Affecting%20Our%20Performance) - Future performance depends on extending technology leadership through new products and integrations, expanding usage by existing customers, and acquiring new customers via self-service and international expansion[103](index=103&type=chunk)[105](index=105&type=chunk)[109](index=109&type=chunk) Net Dollar Retention Rate | Period | Net Dollar Retention Rate | | :----- | :------------------------ | | Sep 30, 2021 | 129% | | Sep 30, 2020 | 136% | Customers with Annual Recurring Revenue (ARR) | ARR Threshold | As of Sep 30, 2021 | As of Dec 31, 2020 | | :-------------------- | :----------------- | :----------------- | | $100,000 or more | 466 | 352 | | $1.0 million or more | 14 | 10 | [Non-GAAP Financial Measures](index=29&type=section&id=Non-GAAP%20Financial%20Measures) - Free cash flow is presented as a non-GAAP financial measure, calculated as net cash provided by operating activities less purchases of property and equipment, serving as a **liquidity indicator**[112](index=112&type=chunk) Free Cash Flow (in thousands) | Metric | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :---------------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $10,241 | $16,642 | | Less: purchases of property and equipment | $(3,190) | $(2,611) | | Free cash flow | $7,051 | $14,031 | [Components of Results of Operations](index=30&type=section&id=Components%20of%20Results%20of%20Operations) - Revenue is generated from self-managed subscriptions (license, support, upgrades) and SaaS subscriptions (usage-based)[114](index=114&type=chunk) - Cost of revenue primarily includes customer support, cloud-related costs, personnel expenses, share-based compensation, and amortization of acquired intangible assets[117](index=117&type=chunk) - Operating expenses (Research and Development, Sales and Marketing, General and Administrative) are expected to increase due to headcount growth, share-based compensation, marketing programs, and professional fees[119](index=119&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk) [Results of Operations (Detailed Comparison)](index=32&type=section&id=Results%20of%20Operations) Total Subscription Revenue (in thousands, except percentages) | Period | 2021 Revenue | 2020 Revenue | $ Change | % Change | | :-------------------------- | :----------- | :----------- | :------- | :------- | | 3 Months Ended Sep 30 | $53,703 | $38,886 | $14,817 | 38% | | 9 Months Ended Sep 30 | $147,447 | $108,138 | $39,309 | 36% | * Approximately $12.0 million (3 months) and $33.5 million (9 months) of the increase was from existing customers, with the remainder from new customers. Total Cost of Revenue and Gross Margin (in thousands, except percentages) | Period | 2021 Cost of Revenue | 2020 Cost of Revenue | $ Change | % Change | 2021 Gross Margin | 2020 Gross Margin | | :-------------------------- | :------------------- | :------------------- | :------- | :------- | :------------------ | :------------------ | | 3 Months Ended Sep 30 | $11,461 | $7,261 | $4,200 | 58% | 79% | 81% | | 9 Months Ended Sep 30 | $28,959 | $20,354 | $8,605 | 42% | 80% | 81% | * Increase in cost of revenue primarily due to amortization of intangibles from Vdoo acquisition, increased personnel-related expenses, and share-based compensation expense. * Gross margin decreased slightly due to higher amortization expense. Operating Expenses (in thousands, except percentages) | Expense Category | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | % Change | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | % Change | | :------------------------ | :-------------------------- | :-------------------------- | :------- | :-------------------------- | :-------------------------- | :------- | | Research and development | $23,142 | $10,381 | 123% | $53,666 | $29,452 | 82% | | Sales and marketing | $24,321 | $14,839 | 64% | $66,112 | $42,744 | 55% | | General and administrative | $15,695 | $11,804 | 33% | $44,469 | $21,748 | 104% | * R&D increase driven by personnel, share-based compensation, and acquisition-related compensation. * Sales & Marketing increase driven by personnel, share-based compensation, and marketing program costs. * G&A increase driven by personnel, professional fees, and officer/director insurance premiums. Share-Based Compensation Expense (in thousands, except percentages) | Period | 2021 Expense | 2020 Expense | $ Change | % Change | | :-------------------------- | :----------- | :----------- | :------- | :------- | | 3 Months Ended Sep 30 | $16,857 | $9,660 | $7,197 | 75% | | 9 Months Ended Sep 30 | $42,711 | $14,399 | $28,312 | 197% | * Increase primarily due to grants to new and existing employees, including those from the Vdoo acquisition, and a significant increase related to CEO RSU grants in 2020. Interest and Other Income, Net (in thousands, except percentages) | Period | 2021 Amount | 2020 Amount | $ Change | % Change | | :-------------------------- | :---------- | :---------- | :------- | :------- | | 3 Months Ended Sep 30 | $20 | $384 | $(364) | -95% | | 9 Months Ended Sep 30 | $726 | $1,522 | $(796) | -52% | * Decrease primarily due to lower interest income on deposits and marketable investments from lower interest rates, and higher currency translation loss. Income Tax Expense (Benefit) (in thousands, except percentages) | Period | 2021 Amount | 2020 Amount | $ Change | % Change | 2021 Effective Tax Rate | 2020 Effective Tax Rate | | :-------------------------- | :---------- | :---------- | :------- | :------- | :---------------------- | :---------------------- | | 3 Months Ended Sep 30 | $(432) | $250 | $(682) | -273% | 2% | -5% | | 9 Months Ended Sep 30 | $(3,525) | $1,053 | $(4,578) | -435% | 8% | -23% | * Shift from expense to benefit primarily due to a partial release of valuation allowance associated with acquisitions and income tax benefit in the U.S. [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) - As of September 30, 2021, principal liquidity sources were cash, cash equivalents, and short-term investments totaling **$402.4 million**[150](index=150&type=chunk) - Existing liquidity and cash from operations are believed to be sufficient for at least the next **12 months**, but future capital requirements depend on growth, investments, and potential acquisitions[151](index=151&type=chunk) Cash Flow Summary (in thousands) | Cash Flow Activity | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :---------------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $10,241 | $16,642 | | Net cash used in investing activities | $(88,243) | $(129,963) | | Net cash provided by (used in) financing activities | $(1,094) | $396,934 | - Net cash provided by operating activities for 9M 2021 was **$10.2 million**, primarily influenced by net loss, non-cash charges (e.g., share-based compensation), and changes in operating assets and liabilities (e.g., deferred revenue increase, prepaid expenses increase)[153](index=153&type=chunk) - Net cash used in investing activities for 9M 2021 was **$88.2 million**, mainly due to **$195.8 million** in payments for business combinations (net of cash acquired) and capital expenditures, partially offset by proceeds from short-term investments[156](index=156&type=chunk) - Net cash used in financing activities for 9M 2021 was **$1.1 million**, primarily due to tax payments for employee equity transactions, partially offset by proceeds from share option exercises and the employee share purchase plan[158](index=158&type=chunk) [Critical Accounting Policies and Estimates](index=39&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - The preparation of financial statements requires significant estimates and assumptions, particularly in allocating purchase price for acquired businesses to tangible and identifiable intangible assets and liabilities based on estimated fair values[162](index=162&type=chunk)[164](index=164&type=chunk) [Recent Accounting Pronouncements](index=40&type=section&id=Recent%20Accounting%20Pronouncements) - Details on recently adopted and issued accounting pronouncements are provided in Note 2 of the condensed consolidated financial statements[165](index=165&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section outlines JFrog's exposure to market risks, primarily foreign currency and interest rate risks, and mitigation strategies including hedging programs and capital preservation investment management - JFrog is exposed to foreign currency exchange risk, mainly from NIS-denominated operating costs in Israel against the U.S. dollar, and uses short-term foreign currency contracts to hedge these risks[167](index=167&type=chunk)[168](index=168&type=chunk) - A hypothetical **10%** change in foreign currency exchange rates or interest rates would not materially impact the company's results or financial statements, considering hedging programs and short-term investments[168](index=168&type=chunk)[171](index=171&type=chunk) - The company's investment activities prioritize capital preservation and liquidity, with cash, cash equivalents, and short-term investments primarily denominated in U.S. dollars[170](index=170&type=chunk)[171](index=171&type=chunk) [Item 4. Controls and Procedures](index=41&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded JFrog's disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2021, with no material changes in internal control over financial reporting - JFrog's disclosure controls and procedures were evaluated as **effective** at a reasonable assurance level as of **September 30, 2021**[173](index=173&type=chunk) - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the period[174](index=174&type=chunk) - The effectiveness of any internal control system is subject to inherent limitations, providing reasonable, not absolute, assurance[175](index=175&type=chunk) [Part II - Other Information](index=43&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings) JFrog is not aware of any current legal proceedings that would materially adversely affect its business, financial position, results of operations, or cash flows - The company is not aware of any current legal proceedings that would have a **material adverse effect** on its business or financial condition[177](index=177&type=chunk) [Item 1A. Risk Factors](index=43&type=section&id=Item%201A.%20Risk%20Factors) This section updates risk factors, emphasizing new risks from acquisitions, evolving labor laws, stringent privacy and cybersecurity regulations, foreign operations challenges, and the uncertain impact of COVID-19 [Risks Related to Our Business and Industry](index=43&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) - Acquisitions, such as Vdoo and Upswift in **Q3 2021**, may require significant management attention, disrupt business, dilute shareholder value, and may not achieve anticipated synergies or successful integration[179](index=179&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk) - Failure to comply with evolving labor and employment laws and regulations, including employee classification standards (e.g., in California), could harm business, financial condition, and results of operations[182](index=182&type=chunk)[183](index=183&type=chunk) [Risks Related to Privacy, Data Protection and Cybersecurity](index=44&type=section&id=Risks%20Related%20to%20Privacy,%20Data%20Protection%20and%20Cybersecurity) - JFrog is subject to stringent and changing global privacy, data protection, and data security laws (e.g., CCPA, CPRA, GDPR, ePrivacy Regulation, UK data protection, Israeli Privacy Protection Law), with potential for **significant costs, liabilities, and reputational harm** from non-compliance or breaches[184](index=184&type=chunk)[187](index=187&type=chunk)[190](index=190&type=chunk)[191](index=191&type=chunk)[194](index=194&type=chunk)[195](index=195&type=chunk)[196](index=196&type=chunk) - Security breaches or unauthorized access to proprietary/confidential data, including through third-party vendors or supply chain attacks, could result in **reputational damage, litigation, regulatory investigations, loss of business, and significant remediation costs**, potentially exceeding insurance coverage[200](index=200&type=chunk)[207](index=207&type=chunk)[208](index=208&type=chunk)[210](index=210&type=chunk) - The company may be more susceptible to security incidents due to remote work during the COVID-19 pandemic, and evolving cyber threats require continuous investment in detection and prevention[205](index=205&type=chunk)[209](index=209&type=chunk) [Risks Related to Foreign Operations](index=48&type=section&id=Risks%20Related%20to%20Foreign%20Operations) - Expanding operations in China exposes JFrog to economic, political, and social risks, including government control over exchange rates, challenges in enforcing intellectual property rights, and restrictions on data transfer[211](index=211&type=chunk)[212](index=212&type=chunk) - Political or trade controversies between the United States and China could adversely affect JFrog's business, financial position, and stock price[213](index=213&type=chunk) [General Risk Factors](index=49&type=section&id=General%20Risk%20Factors) - JFrog will lose its 'emerging growth company' status on **December 31, 2021**, requiring full compliance with public company regulations, including auditor attestation requirements under Section 404 of the Sarbanes-Oxley Act[214](index=214&type=chunk) - The global COVID-19 pandemic continues to cause slowed growth, increased average length of sales cycles, and delays in new projects, with its full impact remaining uncertain and potentially not fully reflected in results until future periods[216](index=216&type=chunk)[217](index=217&type=chunk)[218](index=218&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=51&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In August 2021, JFrog issued **49,823 ordinary shares** as acquisition consideration, exempt from registration under Section 4(a)(2) or Rule 701, with no proceeds generated or used - In **August 2021**, JFrog issued **49,823 ordinary shares** as consideration for an acquisition, exempt from registration under Section 4(a)(2) of the Securities Act or Rule 701[220](index=220&type=chunk)[221](index=221&type=chunk) - No proceeds were used from these unregistered sales of equity securities[222](index=222&type=chunk) [Item 3. Default Upon Senior Securities](index=51&type=section&id=Item%203.%20Default%20Upon%20Senior%20Securities) This item is not applicable to JFrog for the reporting period - Not applicable[223](index=223&type=chunk) [Item 4. Mine Safety Disclosures](index=51&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to JFrog for the reporting period - Not applicable[224](index=224&type=chunk) [Item 5. Other Information](index=51&type=section&id=Item%205.%20Other%20Information) This item is not applicable to JFrog for the reporting period - Not applicable[225](index=225&type=chunk) [Item 6. Exhibits](index=52&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Quarterly Report on Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer, and Inline XBRL documents - Exhibits include certifications from the Principal Executive Officer (**31.1, 32.1**) and Principal Financial Officer (**31.2, 32.2**), and Inline XBRL documents (**101 INS, SCH, CAL, DEF, LAB, PRE, 104**)[229](index=229&type=chunk) [Signatures](index=53&type=section&id=Signatures) The Quarterly Report on Form 10-Q was signed on **November 5, 2021**, by Shlomi Ben Haim, Chief Executive Officer, and Jacob Shulman, Chief Financial Officer - The report was signed by Shlomi Ben Haim (Chief Executive Officer) and Jacob Shulman (Chief Financial Officer) on **November 5, 2021**[233](index=233&type=chunk)

Financial Performance & Growth - JFrog's LTM (Last Twelve Months) revenue is $175 million[6] - The LTM YoY (Year-over-Year) revenue growth is 37%[6] - The company's 2Q'21 LTM Net Dollar Retention Rate is 129%[6] - 2Q'21 Free Cash Flow is $18 million[35] - The company's revenue grew 44% from FY'19 to FY'20, reaching $150.8 million in FY'20[36] Market & Customer Base - JFrog has over 6,000 ending customers as of December 31, 2020[6] - The Total Addressable Market (TAM) is estimated at $22 billion[6] - Enterprise Plus subscriptions accounted for 68% of revenue in 2Q'21[33] - 78% of Fortune 100 companies are customers[30] - 27% of Global 2000 companies are customers[30] Financial Metrics & Targets - The company targets a long-term Non-GAAP gross margin of 80%[55] - The company targets a long-term Non-GAAP operating margin of 23%[59] - The company targets a long-term Free Cash Flow Margin of 30%[60]