JFrog Ltd Q1 FY2023 earnings

JFrog reported first quarter fiscal 2023 revenue of $79.8 million, up 25.3% from the prior-year quarter. Gross profit was $61.4 million, up 23.2%, while gross margin slipped to 76.9%, down 1.3 percentage points. The company remained unprofitable on a GAAP basis. Operating loss was $23.2 million, a 21.3% wider loss than the prior-year quarter, and operating margin was -29.1%, up 1.0 percentage point. Net loss was $20.8 million, a 5.6% wider loss, and diluted EPS was -$0.21, a 5.0% wider loss. Non-GAAP operating income was $2.7 million, and non-GAAP EPS was $0.06. The revenue increase included about $12.5 million of growth from existing customers, with the rest from new customers. Gross margin fell mainly on higher third-party hosting costs, and operating expenses grew faster than revenue.

Cloud revenue reached $25.0 million, up 49% year over year, and represented 31% of total revenue, compared with 26% in the year-ago period. Net dollar retention rate was 124%, down from 131% a year earlier. The company had 785 customers with ARR of $100,000 or more, up from 599 in the year-ago period, and 21 customers with ARR of at least $1.0 million, up from 16. Customers adopting the Enterprise+ subscription represented 44% of total revenue, compared with 35% in the year-ago period. Revenue from subscriptions that provide access to multiple products was approximately 95% of total revenue, compared with approximately 93% in the year-ago period. JFrog announced on-premises and hybrid availability of JFrog Advanced Security, held its annual Leap customer symposium, won a DevSecOps award, and appointed a new CIO.

Cash generation weakened. Operating cash flow was negative $1.1 million, down 122.4% from the prior-year quarter. Capital expenditures were $0.3 million, down 76.7%. Free cash flow, a non-GAAP measure, was negative $1.4 million. Deferred revenue was $178.4 million, up 17.1%, and remaining performance obligations were $210.6 million, up 22.4%. Management said existing cash, cash equivalents, and short-term investments, together with cash from operations, should meet the company's needs for the next 12 months and in the long term.

Guidance points to continued growth. For the second quarter of 2023, JFrog expects revenue between $82.5 million and $83.5 million, non-GAAP operating income between $3.0 million and $4.0 million, and non-GAAP net income per diluted share between $0.05 and $0.06, assuming about 108 million weighted average diluted shares. For the full fiscal year 2023, the company expects revenue between $341.5 million and $345.5 million, non-GAAP operating income between $19.0 million and $20.0 million, and non-GAAP net income per diluted share between $0.19 and $0.21, assuming about 110 million weighted average diluted shares.

Risks remain. Management cited a challenging macro environment. The company started experiencing slower expansion across existing customers toward the end of fiscal 2022 and expects that trend to continue in the near future. JFrog has a history of losses and faces risks tied to managing rapid growth, retaining and upgrading existing customers, attracting new customers, expanding sales and marketing, integrating acquisitions, competing in its markets, and protecting against security breaches or product vulnerabilities. Interruptions or performance problems with its products and platform could also hurt results. The GAAP loss included significant share-based compensation and acquisition-related costs, which are excluded from non-GAAP results. General market, political, economic, and business conditions, as well as the duration and impact of the COVID-19 pandemic, could affect future performance.