JFrog(FROG) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) JFrog Ltd.'s unaudited financial statements detail its financial position, performance, and cash flows for the three and six months ended June 30, 2025 Condensed Consolidated Balance Sheets JFrog Ltd.'s balance sheets reflect growth in total assets, liabilities, and shareholders' equity as of June 30, 2025 Condensed Consolidated Balance Sheet Highlights (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Total assets | $1,208,185 | $1,129,906 | | Total liabilities | $381,731 | $356,380 | | Total shareholders' equity | $826,454 | $773,526 | | Cash and cash equivalents | $51,277 | $49,869 | | Short-term investments | $560,423 | $472,138 | | Deferred revenue (current) | $260,066 | $247,187 | - Total assets increased by $78,300 thousand, or 6.9%, from December 31, 2024, to June 30, 2025, primarily due to growth in short-term investments[18] - Total shareholders' equity increased by $52,900 thousand, or 6.8%, from December 31, 2024, to June 30, 2025[18] Condensed Consolidated Statements of Operations JFrog Ltd. reported increased subscription revenue but a wider net loss for the three and six months ended June 30, 2025 Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total subscription revenue | $127,220 | $103,043 | $249,627 | $203,354 | | Gross profit | $97,018 | $81,150 | $189,244 | $160,857 | | Operating loss | $(25,971) | $(19,127) | $(48,941) | $(35,763) | | Net loss | $(21,675) | $(14,303) | $(40,178) | $(23,093) | | Net loss per share, basic and diluted | $(0.19) | $(0.13) | $(0.35) | $(0.21) | - Total subscription revenue increased by 23% for both the three and six months ended June 30, 2025, compared to the corresponding periods in 2024[20] - Net loss increased by 51.5% for the three months ended June 30, 2025, and by 74.0% for the six months ended June 30, 2025, year-over-year[20] Condensed Consolidated Statements of Comprehensive Loss Comprehensive loss improved for the three months ended June 30, 2025, driven by positive changes in derivative instruments Condensed Consolidated Statements of Comprehensive Loss Highlights (in thousands) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(21,675) | $(14,303) | $(40,178) | $(23,093) | | Other comprehensive income (loss), net of tax | $6,962 | $(1,583) | $5,084 | $(2,740) | | Comprehensive loss | $(14,713) | $(15,886) | $(35,094) | $(25,833) | - Other comprehensive income (loss) improved significantly, primarily driven by a net change in derivative instruments, which moved from a loss of $1,400 thousand in Q2 2024 to a gain of $7,000 thousand in Q2 2025[22] Condensed Consolidated Statements of Shareholders' Equity Shareholders' equity grew to $826,500 thousand by June 30, 2025, primarily from share-based compensation and comprehensive income Condensed Consolidated Statements of Shareholders' Equity Highlights (in thousands) | Item | Balance as of December 31, 2024 | Six Months Ended June 30, 2025 Changes | Balance as of June 30, 2025 | | :----------------------------------- | :------------------------------ | :------------------------------------ | :-------------------------- | | Ordinary Shares Amount | $315 | $11 | $326 | | Additional Paid-in Capital | $1,132,224 | $88,011 | $1,220,235 | | Accumulated Other Comprehensive Income | $655 | $5,084 | $5,739 | | Accumulated Deficit | $(359,668) | $(40,178) | $(399,846) | | Total Shareholders' Equity | $773,526 | $52,928 | $826,454 | - Share-based compensation expense contributed $74,900 thousand to additional paid-in capital for the six months ended June 30, 2025[26] - Issuance of ordinary shares from share options, restricted share units, and employee share purchase plan contributed to the increase in ordinary shares and additional paid-in capital[26] Condensed Consolidated Statements of Cash Flows Operating cash flow significantly increased for the six months ended June 30, 2025, with investing activities shifting to a net outflow Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Net cash provided by operating activities | $64,877 | $34,166 | | Net cash provided by (used in) investing activities | $(85,330) | $88,267 | | Net cash provided by financing activities | $21,097 | $11,922 | | Net increase in cash, cash equivalents, and restricted cash | $1,408 | $133,538 | | Cash, cash equivalents, and restricted cash—end of period | $52,035 | $218,315 | - Net cash provided by operating activities increased by 89.9% year-over-year for the six months ended June 30, 2025[29] - Investing activities shifted from a net inflow of $88,300 thousand in 2024 to a net outflow of $85,300 thousand in 2025, primarily due to increased purchases of short-term investments[29] Notes to Condensed Consolidated Financial Statements Detailed notes cover JFrog's accounting policies, revenue, investments, and share-based compensation, highlighting SaaS growth - JFrog provides a hybrid, universal, end-to-end software supply chain platform for delivering trusted, secure software updates, aiming to be the single source of truth for an organization's software footprint[31] Revenue Disaggregation by Category (in thousands, except percentages) | Category | Three Months Ended June 30, 2025 (Amount / % of Revenue) | Three Months Ended June 30, 2024 (Amount / % of Revenue) | | :-------------------------- | :------------------------------------------------ | :------------------------------------------------ | | Self-managed subscription | $70,118 / 55% | $63,765 / 62% | | SaaS | $57,102 / 45% | $39,278 / 38% | | Total subscription revenue | $127,220 / 100% | $103,043 / 100% | - Remaining performance obligations totaled $476,700 thousand as of June 30, 2025, with 67% expected to be recognized as revenue over the next 12 months[44] - Amortization of deferred contract acquisition costs increased by 42.4% to $4,700 thousand for the three months ended June 30, 2025, from $3,300 thousand in the prior year[45] - Marketable securities increased to $427,400 thousand as of June 30, 2025, from $366,600 thousand at December 31, 2024[47] - Total share-based compensation expense increased by 33% to $38,000 thousand for the three months ended June 30, 2025, and by 34% to $74,900 thousand for the six months ended June 30, 2025, primarily due to grants to new and existing employees[73] - Unrecognized share-based compensation cost related to unvested awards was $287,100 thousand as of June 30, 2025, expected to be recognized over a weighted-average period of 2.5 years[73] - JFrog operates in one operating and reportable segment. Long-lived assets are primarily located in Israel ($9,000 thousand) and the United States ($4,700 thousand) as of June 30, 2025[84] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses JFrog's 23% revenue growth, increased net loss from investments, and substantial free cash flow growth for H1 2025 - JFrog's total revenue grew by 23% for both the three and six months ended June 30, 2025, compared to the corresponding periods in 2024[90] - Revenue from SaaS subscriptions increased its contribution to total revenue, reaching 45% for the three months and 44% for the six months ended June 30, 2025, up from 38% and 37% respectively in 2024[87] - The company's net dollar retention rate was 118% as of June 30, 2025 and 2024, indicating strong expansion within existing customers[97] Customer Growth with Annual Recurring Revenue (ARR) (in thousands) | Customer Segment | As of June 30, 2025 | As of December 31, 2024 | | :-------------------------------- | :------------------ | :---------------------- | | Customers with ARR of $100,000 or more | 1,076 | 1,018 | | Customers with ARR of $1.0 million or more | 61 | 52 | Free Cash Flow (in thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | | Net cash provided by operating activities | $64,877 | $34,166 | | Less: purchases of property and equipment | $(1,274) | $(1,573) | | Free cash flow | $63,603 | $32,593 | - Free cash flow increased by 95.1% for the six months ended June 30, 2025, compared to the same period in 2024[104] - Gross margin decreased from 79% in Q2 2024 to 76% in Q2 2025, primarily due to the shift in revenue mix towards SaaS subscriptions, which incur higher hosting costs, and increased intangible amortization[120][129] - Operating expenses, including Research and Development, Sales and Marketing, and General and Administrative, increased across the board, driven by increased headcount and share-based compensation expenses[121][122][123][124] - As of June 30, 2025, JFrog had $611,700 thousand in cash, cash equivalents, and short-term investments, which management believes will be sufficient to meet liquidity needs for the next 12 months and long-term[137] Contractual Obligations as of June 30, 2025 (in thousands) | Obligation Type | Total | 2025 (Remainder) | 2026 and Thereafter | | :------------------------ | :------ | :--------------- | :------------------ | | Operating lease obligations | $14,865 | $4,369 | $10,496 | | Purchase obligations | $80,148 | $12,327 | $67,821 | | Total | $95,013 | $16,696 | $78,317 | Item 3. Quantitative and Qualitative Disclosures About Market Risk JFrog faces foreign currency and interest rate risks, partially mitigated by hedging, with inflation not yet material - JFrog's primary foreign currency exposure is to the exchange rate movements of the U.S. dollar against the New Israeli Shekel (NIS), as a significant portion of operating costs in Israel are NIS-denominated[150] - The company utilizes foreign currency forward and option contracts to hedge against foreign exchange risks, with a hypothetical 10% change in exchange rates not materially impacting results for the reported periods after considering hedging programs[151] - As of June 30, 2025, cash, cash equivalents, and short-term investments totaled $611,700 thousand, primarily denominated in U.S. dollars, and a hypothetical 1% increase in interest rates would not materially affect their fair value[154] - Inflation has not had a material effect on the business, but sustained inflationary pressures on costs could harm financial condition if not offset by price increases[155] Item 4. Controls and Procedures Management concluded JFrog's disclosure controls were effective as of June 30, 2025, with no material changes in internal control - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025[157] - 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[158] - The effectiveness of any internal control system is subject to inherent limitations, providing reasonable, not absolute, assurance[159] PART II. OTHER INFORMATION Item 1. Legal Proceedings JFrog is unaware of any legal proceedings that would materially adversely affect its business or financial position - JFrog is not currently aware of any legal proceedings that would have a material adverse effect on its business, financial position, results of operations, or cash flows[66][161] Item 1A. Risk Factors JFrog faces risks from growth, competition, customer/personnel reliance, product defects, geopolitical tensions, and AI regulations - JFrog has experienced significant growth, with total revenues growing 23% for both the three and six months ended June 30, 2025, and employee headcount increasing from approximately 1,400 to 1,600 employees from December 31, 2023, to December 31, 2024[165] - The company has a history of losses, with net losses of $69,200 thousand, $61,300 thousand, and $90,200 thousand in 2024, 2023, and 2022, respectively, and may not achieve consistent profitability due to substantial increases in operating expenses[174] - JFrog faces intense competition in a highly fragmented and rapidly evolving market, with competitors often possessing greater financial and technical resources[179][182] - The business is highly dependent on customer renewals and the ability to expand sales to existing customers, which can fluctuate due to various factors including satisfaction, pricing, and economic conditions[185][188] - Reliance on key executive officers and highly skilled employees, particularly in engineering and sales, poses a risk due to intense competition for talent and high attrition rates[191][193] - The company depends on strategic relationships with third parties, including public cloud providers (AWS, Microsoft Azure, Google Cloud) and channel partners, and any failure to maintain or expand these relationships could harm results[196][200] - A limited-functionality version of JFrog Artifactory is available under an open source license (AGPL), which could negatively affect monetization and intellectual property protection[202][204] - Products are complex and may contain defects or security vulnerabilities, leading to potential liability, revenue loss, and reputational damage, especially as use expands to more sensitive applications[209] - Unfavorable economic conditions, such as inflation and recession, may adversely affect business by reducing enterprise IT spending and demand for products[229][230] - Issues in the development and use of AI technologies, combined with an uncertain regulatory environment (e.g., EU AI Act), may result in reputational harm, liability, or increased operating costs[242][243][244] - Failure to protect proprietary technology and intellectual property rights, including challenges from open source software use and potential litigation, could substantially harm the business[247][253][259] - The company is subject to stringent and changing laws and regulations related to privacy, data protection, and cybersecurity, with actual or perceived failures to comply potentially leading to significant liabilities and reputational harm[269][271] - International operations and expansion expose JFrog to risks including managing a distributed workforce, differing labor regulations, and compliance with various global laws, particularly in Israel, the EU, India, and China[278][283] - Geopolitical tensions, including the conflicts in the Middle East (Israel, Hamas, Hezbollah, Iran) and the Russia-Ukraine war, pose risks to operations, economic stability, and employee availability, particularly given JFrog's significant R&D presence in Israel[317][318][319][320][321] - The market price of JFrog's ordinary shares may be volatile due to various factors, including operating performance, competition, and geopolitical events, and the concentration of insider ownership (21% as of June 30, 2025) may limit other shareholders' influence[302][304] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported for the period - No unregistered sales of equity securities or use of proceeds were reported for the period[343] Item 3. Default Upon Senior Securities This item is not applicable for the reporting period, indicating no defaults upon senior securities - This item is not applicable[344] Item 4. Mine Safety Disclosures This item is not applicable for the reporting period, indicating no mine safety disclosures - This item is not applicable[345] Item 5. Other Information CFO and a board member adopted Rule 10b5-1 trading arrangements for ordinary share sales during Q2 2025 - On May 16, 2025, CFO Eduard Grabscheid adopted a Rule 10b5-1 trading arrangement for the sale of up to 98,842 ordinary shares, terminating by June 30, 2026[346] - On May 29, 2025, board member Yvonne Wassenaar adopted a Rule 10b5-1 trading arrangement for the sale of up to 10,172 ordinary shares, terminating by June 5, 2026[347] - No other officers or directors adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025[348] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including officer certifications and XBRL documents - Includes certifications of the Principal Executive Officer (Exhibit 31.1, 32.1) and Principal Financial Officer (Exhibit 31.2, 32.2) as required by the Securities Exchange Act and Sarbanes-Oxley Act[352][353] - Contains Inline XBRL Instance Document, Taxonomy Extension Schema Document, and Cover Page Interactive Data File[352] Signatures The report was duly signed on August 8, 2025, by the Chief Executive Officer and Chief Financial Officer - The report was signed by Shlomi Ben Haim, Chief Executive Officer, on August 8, 2025[357] - The report was signed by Eduard Grabscheid, Chief Financial Officer, on August 8, 2025[357]