JFrog(FROG) - 2021 Q1 - Quarterly Report

PART I Item 1. Financial Statements (Unaudited) This section presents JFrog Ltd.'s unaudited condensed consolidated financial statements for Q1 2021, showing revenue growth and increased net loss Condensed Consolidated Balance Sheets The balance sheet as of March 31, 2021, shows increased total assets and liabilities, driven by investments and deferred revenue Condensed Consolidated Balance Sheets | Balance Sheet Items | March 31, 2021 ($ in thousands) | December 31, 2020 ($ in thousands) | | :--- | :--- | :--- | | Total Current Assets | 675,161 | 652,561 | | Cash and cash equivalents | 146,676 | 164,461 | | Short-term investments | 458,977 | 433,595 | | Total Assets | 735,011 | 689,231 | | Total Current Liabilities | 140,042 | 122,700 | | Deferred revenue (current) | 102,432 | 91,750 | | Total Liabilities | 175,613 | 135,337 | | Total Shareholders' Equity | 559,398 | 553,894 | Condensed Consolidated Statements of Operations Q1 2021 saw 37% revenue growth, but operating loss widened significantly due to increased expenses, leading to a higher net loss Condensed Consolidated Statements of Operations | Income Statement Items | Three Months Ended Mar 31, 2021 ($ in thousands) | Three Months Ended Mar 31, 2020 ($ in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Total subscription revenue | 45,087 | 32,821 | +37% | | Gross profit | 36,660 | 26,417 | +39% | | Total operating expenses | 47,272 | 28,516 | +66% | | Operating loss | (10,612) | (2,099) | +406% | | Net loss | (7,895) | (2,125) | +272% | | Net loss per share | (0.09) | (0.08) | +12.5% | Condensed Consolidated Statements of Cash Flows Q1 2021 operating cash flow improved significantly, while investing activities increased due to short-term investments Condensed Consolidated Statements of Cash Flows | Cash Flow Items | Three Months Ended Mar 31, 2021 ($ in thousands) | Three Months Ended Mar 31, 2020 ($ in thousands) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | 8,811 | (1,249) | | Net cash used in investing activities | (27,890) | (7,887) | | Net cash provided by (used in) financing activities | 1,282 | (466) | | Net decrease in cash, cash equivalents, and restricted cash | (17,797) | (9,602) | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, revenue recognition, and financial instruments, highlighting lease standard adoption and revenue composition - The company adopted the new lease accounting standard, Topic 842, on January 1, 2021, resulting in the recognition of operating lease right-of-use (ROU) assets of $21.9 million and operating lease liabilities of $22.1 million on the balance sheet[34] Revenue by Category (Q1 2021) | Revenue by Category (Q1 2021) | Amount ($ in thousands) | Percentage of Revenue | | :--- | :--- | :--- | | Self-managed subscription | 34,823 | 77% | | SaaS | 10,264 | 23% | | Total | 45,087 | 100% | - As of March 31, 2021, the company had $129.2 million in remaining performance obligations, with 82% expected to be recognized as revenue over the next 12 months[40] - Total share-based compensation expense for Q1 2021 was $11.75 million, a substantial increase from $1.96 million in Q1 2020. As of March 31, 2021, unrecognized share-based compensation cost was $121.7 million, expected to be recognized over a weighted-average period of 3.2 years[74] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2021 performance, highlighting 37% revenue growth driven by customer expansion, but notes increased operating expenses and net loss Overview and Key Metrics JFrog's Q1 2021 revenue grew 37% to $45.1 million, driven by strong customer expansion and increased high-value customers - For Q1 2021, 23% of revenue came from SaaS subscriptions, up from 19% in Q1 2020[85] - Revenue from the comprehensive Enterprise Plus subscription grew to approximately 29% of total revenue in Q1 2021, up from 16% in Q1 2020[86] - The net dollar retention rate was 130% as of March 31, 2021, compared to 142% as of March 31, 2020[98] - The number of customers with Annual Recurring Revenue (ARR) of $100,000 or more increased to 395 as of March 31, 2021, up from 352 as of December 31, 2020[99] Results of Operations Comparison (Q1 2021 vs Q1 2020) Total subscription revenue increased by 37%, while operating expenses, particularly share-based compensation, surged across all categories - Total subscription revenue increased by $12.3 million (37%) YoY, with approximately $10.0 million of the increase attributable to growth from existing customers[122] - General and administrative expense increased by $8.5 million (163%) YoY, primarily due to a $6.1 million increase in share-based compensation expense[127] - Total share-based compensation expense increased by $9.8 million (501%) YoY, driven by a $5.1 million expense related to the CEO's RSU grant and $4.7 million from grants to other employees[128] Liquidity and Capital Resources JFrog maintains strong liquidity with $605.7 million in cash and investments, generating $8.8 million in operating cash flow for the quarter - Principal sources of liquidity as of March 31, 2021, were cash, cash equivalents, and short-term investments totaling $605.7 million[132] Cash Flow Summary | Cash Flow Summary | Three Months Ended Mar 31, 2021 ($ in thousands) | | :--- | :--- | | Net cash provided by operating activities | 8,811 | | Less: purchases of property and equipment | (1,135) | | Free cash flow (Non-GAAP) | 7,676 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency fluctuations, particularly NIS-denominated costs, and minimal interest rate risk on short-term investments - A significant portion of operating costs in Israel are denominated in NIS, creating foreign currency exposure, which the company mitigates through a hedging program[146][147] - A hypothetical 10% change in foreign currency exchange rates would have impacted results of operations by $0.9 million for the quarter, after considering hedges[147] - Interest rate risk on the $605.7 million of cash, cash equivalents, and short-term investments is not considered material due to the short-term nature of the holdings[150][132] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2021[152] - No material changes occurred during the quarter that affected the company's internal control over financial reporting[153] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not aware of any legal proceedings that would materially adversely affect its business or financial position - The company is not currently aware of any legal claims that would be materially adverse to its business in the ordinary course of operations[157] Item 1A. Risk Factors Updated risk factors include evolving labor laws, complex global data privacy regulations, security breaches, and challenges of expanding into China - The company highlights risks from evolving U.S. labor laws, specifically concerning employee classification, which could increase wage obligations[159] - Significant risk exists from complex and changing global data privacy laws, including CCPA/CPRA and GDPR, with the 'Schrems II' ruling creating uncertainty for cross-border data transfers[160][164][166] - Increased risk of security breaches and supply chain attacks, citing recent high-profile incidents, could lead to reputational damage, litigation, and significant costs[174][175] - Expansion into China exposes the company to risks including government regulation, an uncertain legal system, and potential intellectual property protection issues[183][186] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In February 2021, the company issued 49,823 ordinary shares in an unregistered private placement for an acquisition - The company issued 49,823 ordinary shares in February 2021 for an acquisition, exempt from registration under Section 4(a)(2) of the Securities Act[187][188] Item 6. Exhibits This section provides an index of exhibits filed with the Quarterly Report on Form 10-Q, including certifications and XBRL data