JFrog Ltd Q3 FY2021 earnings

JFrog's third quarter fiscal 2021 revenue reached $53.7 million, up 38.1% from $38.9 million in the prior-year quarter. Year-to-date revenue was $147.4 million, up 36.4% from $108.1 million. Gross profit was $42.2 million, up 33.6% from $31.6 million, while gross margin slipped to 78.7% from 81.3%. The company reported an operating loss of $20.9 million, wider than the $5.4 million loss in the prior-year quarter. Net loss was $20.5 million, wider than $5.3 million. Diluted net loss per share was -$0.21 for the quarter and -$0.44 for the nine months. On a non-GAAP basis, operating income was $1.3 million and non-GAAP gross margin was 84.5%. The gap between GAAP and non-GAAP results reflects share-based compensation, acquisition-related costs and amortization of acquired intangibles.

JFrog ended the quarter with 466 customers that had annual recurring revenue of $100,000 or more, up 49% from 313 a year earlier. The company had 14 customers with ARR of at least $1 million, up 56% from 9. Cloud revenue grew 50% over the prior-year period and represented 24% of total revenue, up from 22%. The net dollar retention rate remained at 129% for the trailing four quarters. Customers using the complete JFrog Platform, known as Enterprise+ subscription, represented 34% of revenue in the quarter, versus 19% a year earlier. Multi-product subscriptions represented approximately 92% of total revenue for the quarter and nine months, compared with 87% and 86% in the prior-year periods. The company completed the acquisition of Upswift and also acquired Vdoo earlier in the year. It received U.S. Department of Defense Iron Bank certification and partnered with SBC S to expand in Japan. JFrog also achieved CVE Numbering Authority certification.

Operating cash flow was -$17.7 million in the quarter, down from $10.8 million in the prior-year quarter. For the nine months, operating cash flow was $10.2 million, down 38.5% from $16.6 million. Free cash flow was -$18.7 million in the quarter and $7.1 million for the nine months. The company noted that holdbacks related to recent acquisitions weighed on operating cash flow. Capital expenditures were $0.9 million in the quarter, down 17.1% from $1.1 million, and $3.2 million for the nine months, up 22.2% from $2.6 million. Deferred revenue rose 41.7% to $110.9 million from $78.3 million. Remaining performance obligations increased 53.2% to $139.7 million from $91.2 million. Operating margin was -38.9% in the quarter, down from -13.9%, and -31.0% for the nine months, down from -5.7%.

For the fourth quarter of 2021, JFrog guided revenue between $57.5 million and $58.5 million, non-GAAP operating income between $0.1 million and $1.0 million, and non-GAAP net income per share between $0.00 and $0.01. The fourth quarter outlook assumes approximately 104 million weighted average diluted shares outstanding. For the full fiscal year 2021, the company guided revenue between $205 million and $206 million, non-GAAP operating income between $4.2 million and $5.2 million, and non-GAAP net income per share between $0.04 and $0.05, also assuming approximately 104 million weighted average diluted shares. The company listed several risks in its filings, including managing rapid growth, a history of losses, a limited operating history, the ability to retain and upgrade existing customers, the ability to attract new customers, the ability to expand sales and marketing, the integration of acquisitions, the risk of a security breach, product interruptions, competition, and general market, political, economic and business conditions. The COVID-19 pandemic also remains a risk. JFrog said the pandemic has slowed growth and caused longer sales cycles and project delays. The company fully reopened all offices as of October 1, 2021.