JFrog(FROG) - 2021 Q4 - Annual Report

PART I Item 1. Business 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] - 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][35][37] - 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][41][45] - 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] Item 1A. Risk Factors 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] - 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][102] - 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][180] - 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][229] - 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][250][251] Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None[258] Item 2. Properties 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] Item 3. Legal Proceedings 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][492] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[262] PART II Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities 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] - The company has never declared or paid cash dividends and does not anticipate doing so in the foreseeable future[266] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 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] - 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][324] - The company's net dollar retention rate was 130% as of December 31, 2021, compared to 133% as of December 31, 2020[295] - 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] Item 7A. Quantitative and Qualitative Disclosures about Market Risk 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][348] - 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] Item 8. Financial Statements and Supplementary Data 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][363] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[532] Item 9A. Controls and Procedures 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] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2021, based on the COSO framework[536] Item 9B. Other Information The company reports no other information for this item - None[539] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[540] PART III Item 10. Directors, Executive Officers and Corporate Governance 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] - The company has adopted a Code of Business Conduct and Ethics, which is available on its investor relations website[543] Item 11. Executive Compensation 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] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters 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] Item 13. Certain Relationships and Related Transactions, and Director Independence 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] Item 14. Principal Accountant Fees and Services 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] PART IV Item 15. Exhibits and Financial Statement Schedules 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][550] Item 16. Form 10-K Summary The company has not provided a summary for its Form 10-K - None[554]