JFrog Announces Third Quarter 2024 Results

• Total Revenues of $109.1 million; up 23% Year-over-Year
• Cloud Revenues up 38% Year-over-Year; driven by cloud migrations and security
• Customers with ARR Greater than $1 million equaled 46, up 53% Year-over-Year
• Announced expansion of the JFrog Platform with MLOps and Runtime Security

JFrog Ltd. ("JFrog") (NASDAQ:FROG), the Liquid Software company and creators of the JFrog Software Supply Chain Platform, today announced financial results for its third quarter ended September 30, 2024.

"Our third quarter results reflect strong execution in a tight budgetary environment, with some of the largest enterprise wins in JFrog's history," said Shlomi Ben Haim, Co-founder and CEO of JFrog. "The continued expansion of the JFrog Platform - with Artifactory at its core as the single source of truth for DevOps, DevSecOps, and MLOps - laid the foundation for future success, while remaining aligned with our DNA of driving efficient growth," Ben Haim added.

Third Quarter 2024 Financial Highlights

• Revenue for the third quarter of 2024 was $109.1 million, up 23% year-over-year.
• GAAP Gross Profit was $81.8 million; GAAP Gross Margin was 75.0%.
• Non-GAAP Gross Profit was $90.3 million; Non-GAAP Gross Margin was 82.8%.
• GAAP Operating Loss was ($29.9) million; GAAP Operating Margin was (27.4%).
• Non-GAAP Operating Income was $14.7 million; Non-GAAP Operating Margin was 13.5%.
• GAAP Net Loss Per Share was ($0.21); Non-GAAP Diluted Earnings Per Share was $0.15.
• Operating Cash Flow was $27.6 million; Free Cash Flow of $26.7 million.
• Cash, Cash Equivalents and Investments were $467.8 million as of September 30, 2024.
• Remaining performance obligations were $346.1 million as of September 30, 2024.

Recent Business & Product Highlights

• Cloud revenue equaled $42.4 million during the third quarter of 2024, an increase of 38% year-over-year. Cloud revenue represented 39% of total revenue, compared to 35% in the year-ago period.
• Net Dollar Retention rate for the trailing four quarters was 117%.
• Customers with greater than $100K ARR increased to 966, compared with 848 in the year-ago period.
• Customers with greater than $1 million ARR increased to 46, up from 30 in the year-ago period.
• Customers adopting the end-to-end JFrog Platform Enterprise+ subscription represented 50% of total revenue during the third quarter of 2024 versus 46% in the year-ago period.
• Announced JFrog Runtime Security, driving traceability from code to production and back.
• Announced GitHub and JFrog Platform integrations at 10th annual swampUP user conference, delivering seamless DevSecOps and AI experiences across code and binaries.
• Announced collaboration with NVIDIA to deliver secure machine learning (ML) models and large language models (LLMs) with transparency, traceability, and trust.
• Announced JFrog ML to bridge Data Science and DevSecOps processes for machine learning, based on JFrog's own technologies and its recently-acquired Qwak AI MLOps technologies.

Fourth Quarter and Fiscal Year 2024 Outlook

• Fourth Quarter 2024 Outlook:
  • Revenue between $113.5 million and $114.5 million
  • Non-GAAP operating income between $14.0 million and $15.0 million
  • Non-GAAP net income per diluted share between $0.13 and $0.15, assuming approximately 117 million weighted average diluted shares outstanding
    
    

• Fiscal Year 2024 Outlook:
  • Revenue between $425.9 million to $ 426.9 million
  • Non-GAAP operating income between $56.4 million and $57.4 million
  • Non-GAAP net income per diluted share between $0.59 and $0.61, assuming approximately 116 million weighted average diluted shares outstanding

The section titled "Non-GAAP Financial Information" below describes our usage of non-GAAP financial measures. Reconciliations between historical GAAP and non-GAAP information are contained at the end of this press release following the accompanying financial data.

Conference Call Details

• Event: JFrog's Third Quarter 2024 Financial Results Conference Call
• Date: Thursday, November 7, 2024
• Time: 2:00 p.m. PT (5:00 p.m. ET)

A live webcast of the conference call will be accessible from the investor relations website at https://investors.jfrog.com/events-and-presentations.

About JFrog

JFrog Ltd. (NASDAQ:FROG), is on a mission to create a world of software delivered without friction from developer to device. Driven by a "Liquid Software" vision, the JFrog Software Supply Chain Platform is a single system of record that powers organizations to build, manage, and distribute software quickly and securely, ensuring it is available, traceable, and tamper-proof. The integrated security features also help identify, protect, and remediate against threats and vulnerabilities. JFrog's hybrid, universal, multi-cloud platform is available as both self-hosted and SaaS services across major cloud service providers. Millions of users and 7K+ customers worldwide, including a majority of the Fortune 100, depend on JFrog solutions to securely embrace digital transformation. Learn more at www.jfrog.com or follow us on X @JFrog.

Forward-Looking Statements:

This press release and the earnings call referencing this press release contain "forward-looking" statements, as that term is defined under the U.S. federal securities laws, including but not limited to statements regarding JFrog's future financial performance, including our outlook for the fourth quarter and for the full year of 2024, expectations regarding the market and revenue potential for the JFrog Platform, including JFrog Artifactory, JFrog Xray, JFrog Curation, JFrog Advanced Security, JFrog ML and JFrog Runtime Security, and including the efficacy and benefit of integrating of any of the foregoing with other products and platform, our expectations regarding the mission-critical nature of the "JFrog Platform" to our customers' infrastructure and its growth potential, the growth potential of our cloud business, including hybrid and multi-cloud, our expectations regarding potential for growth in binary management within MLOps/MLSecOps, our ability to provide effective tools and solutions to detect and remediate security vulnerabilities, our expectations regarding our strategic integrations and collaborations, the ability of our strategic sales team to grow the business across top-tier accounts, our ability to expand usage of our platform in the government and commercial sectors, our ability to contribute data to global security standards bodies, our ability to innovate and meet market demands and the software supply chain needs of our customers and our expectations regarding the integration of Qwak AI's business into ours, including our ability to successfully integrate into our business operations, including our software supply chain-focused platform, and realize anticipated benefits and synergies from the acquisition. These forward-looking statements are based on JFrog's current assumptions, expectations and beliefs and are subject to substantial risks, uncertainties, assumptions and changes in circumstances that may cause JFrog's actual results, performance or achievements to differ materially from those expressed or implied in any forward-looking statement.

There are a significant number of factors that could cause actual results to differ materially from statements made in this press release and our earnings call, including but not limited to: risks associated with managing our rapid growth; our history of losses; our limited operating history; our ability to retain and upgrade existing customers our ability to attract new customers; our ability to effectively develop and expand our sales and marketing capabilities; our ability to integrate and realize anticipated synergies from acquisitions of complementary businesses and our strategic collaborations; risk of a security breach incident or product vulnerability; risk of interruptions or performance problems associated with our products and platform capabilities; our ability to adapt and respond to rapidly changing technology or customer needs; our ability to compete in the markets in which we participate; our ability to successfully integrate technology from acquisitions into our offerings; our ability to provide continuity to our respective customers and realize innovation following our acquisitions; and general market, political, economic, and business conditions. Our actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to, risks detailed in our filings with the Securities and Exchange Commission, including in our annual report on Form 10-K for the year ended December 31, 2023, our quarterly report on Form 10-Q for the quarter ended March 31 and June 30, 2024, and other filings and reports that we may file from time to time with the Securities and Exchange Commission. Forward-looking statements represent our beliefs and assumptions only as of the date of this press release. We disclaim any obligation to update forward-looking statements.

About Non-GAAP Financial Measures:

JFrog discloses the following non-GAAP financial measures in this release and the earnings call referencing this press release: non-GAAP operating income (loss), non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses (research and development, sales and marketing, general and administrative), non-GAAP operating margin, non-GAAP net income (loss), non-GAAP net income (loss) per diluted share, non-GAAP net income (loss) per basic share, and free cash flow. JFrog uses each of these non-GAAP financial measures internally to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, for short- and long-term operating plans, and to evaluate JFrog's financial performance. JFrog believes they are useful to investors, as a supplement to GAAP measures, in evaluating its operational performance, as further discussed below. JFrog's non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in its industry, as other companies in its industry may calculate non-GAAP financial results differently, particularly related to non-recurring and unusual items. In addition, there are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies and exclude expenses that may have a material impact on JFrog's reported financial results.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. A reconciliation of the historical non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included below in this press release. A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis without unreasonable effort due to the uncertainty regarding, and the potential variability of, reconciling items that may be incurred in the future such as share-based compensation, the effect of which may be significant.

JFrog defines non-GAAP gross profit, non-GAAP operating expenses (research and development, sales and marketing, general and administrative), non-GAAP gross margin, non-GAAP operating margin, non-GAAP operating income (loss) and non-GAAP net income (loss) as the respective GAAP balances, adjusted for, as applicable: (1) share-based compensation expense; (2) the amortization of acquired intangibles; (3) acquisition-related costs; and (4) income tax effects. JFrog defines free cash flow as Net cash provided by (used in) operating activities, minus capital expenditures. Investors are encouraged to review the reconciliation of these historical non-GAAP financial measures to their most directly comparable GAAP financial measures.

Management believes these non-GAAP financial measures are useful to investors and others in assessing JFrog's operating performance due to the following factors:

Share-based compensation. JFrog utilizes share-based compensation to attract and retain employees. It is principally aimed at aligning their interests with those of its shareholders and at long-term retention, rather than to address operational performance for any particular period. As a result, share-based compensation expenses vary for reasons that are generally unrelated to financial and operational performance in any particular period.

Amortization of acquired intangibles. JFrog views amortization of acquired intangible assets as items arising from pre-acquisition activities determined at the time of an acquisition. While these intangible assets are evaluated for impairment regularly, amortization of the cost of acquired intangibles is an expense that is not typically affected by operations during any particular period.

Acquisition-related costs. Acquisition-related costs include expenses related to acquisitions of other companies. JFrog views acquisition-related costs as expenses that are not necessarily reflective of operational performance during a period.

Income tax effects. JFrog's non-GAAP financial results are adjusted for income tax effects related to these non-GAAP adjustments and changes in our assessment regarding the realizability of our deferred tax assets, if any. Excluding income tax effects of non-GAAP adjustments provides a more accurate view of JFrog's operating results.

Non-GAAP weighted average share count. Diluted GAAP and non-GAAP weighted-average shares are the same, except in periods that there is a GAAP loss and a non-GAAP income. The non-GAAP weighted-average shares used to compute the non-GAAP net income per share - diluted are adjusted to reflect dilution equal to the dilutive impact had there been GAAP income.

Additionally, JFrog's management believes that the non-GAAP financial measure, free cash flow, is meaningful to investors because management reviews cash flows generated from operations after taking into consideration capital expenditures due to the fact that these expenditures are considered to be a necessary component of ongoing operations.

Operating Metrics

JFrog's number of customers with annual recurring revenue ("ARR") of $100,000 or more is based on the ARR of each customer, as of the last month of the quarter. JFrog's number of customers with ARR of $1 million or more is based on the ARR of each customer, as of the last month of the quarter. JFrog defines ARR as the annualized revenue run-rate of subscription agreements from all customers as of the last month of the quarter. The ARR includes monthly subscription customers, so long as JFrog generates revenue from these customers. JFrog annualizes its monthly subscriptions by taking the revenue it would contractually expect to receive from such customers in a given month and multiplying it by 12.

JFrog's net dollar retention rate compares its ARR from the same set of customers across comparable periods. JFrog calculates net dollar retention rate by first identifying customers (the "Base Customers"), which were customers in the last month of a particular quarter (the "Base Quarter"). JFrog then calculates the contracted ARR from these Base Customers in the last month of the same quarter of the subsequent year (the "Comparison Quarter"). This calculation captures upsells, contraction, and attrition since the Base Quarter. JFrog then divides total Comparison Quarter ARR by total Base Quarter ARR for Base Customers. JFrog's net dollar retention rate in a particular quarter is obtained by averaging the result from that particular quarter with the corresponding results from each of the prior three quarters.

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