Summary
JFrog reported third quarter fiscal 2023 revenue of $88.6 million, up 23.1% from the prior-year quarter. Gross profit rose 22.8% to $68.9 million. Gross margin was 77.7%, down 0.2 percentage points. The company remained unprofitable on a GAAP basis. Operating loss was $18.1 million, though the loss narrowed from the prior-year quarter, and operating margin improved to -20.4%, up 12.2 percentage points. Net loss was $13.7 million, or -$0.13 per diluted share, also a narrowed loss. For the first nine months, revenue was $252.6 million, up 24.1%, and gross profit was $196.0 million, up 23.7%. The nine-month operating loss narrowed to $60.2 million, and net loss narrowed to $50.0 million, or -$0.49 per diluted share. Nine-month gross margin was 77.6%, down 0.3 percentage points, and operating margin was -23.8%, up 8.1 percentage points.
Cash generation improved sharply. Operating cash flow was $26.0 million in the quarter, up 406.6% from the prior-year quarter. For the nine months, operating cash flow was $41.6 million, up 194.5%. Free cash flow, a non-GAAP measure, was $25.4 million in the quarter. Capital expenditures were $0.59 million in the quarter, down 54.7%, and $1.36 million for the nine months, down 60.3%. Deferred revenue was $179.4 million, up 25.3% from the prior-year quarter. Remaining performance obligations were $235.1 million, up 23.9%.
Non-GAAP results showed positive operating income. Non-GAAP operating income was $11.9 million, with a 13.4% non-GAAP operating margin. Non-GAAP diluted earnings per share was $0.15. The company highlighted customer expansion metrics. Net Dollar Retention rate for the trailing four quarters was 119%. Customers with ARR of $100,000 or more increased to 848, compared with 696 in the year-ago period. Customers with ARR of $1 million or more increased to 30, up from 18. Enterprise+ subscriptions represented 46% of total revenue, versus 39% in the year-ago period. Management said it expects net dollar retention to stabilize around current levels after slower expansion across existing customers that began toward the end of fiscal 2022.
Guidance points to continued growth. For the fourth quarter of fiscal 2023, JFrog expects revenue between $92.5 million and $93.5 million, non-GAAP operating income between $10.0 million and $11.0 million, and non-GAAP net income per diluted share between $0.12 and $0.13, assuming approximately 111 million weighted average diluted shares outstanding. For the full fiscal year 2023, the company expects revenue between $345.1 million and $346.1 million, non-GAAP operating income between $32.8 million and $33.8 million, and non-GAAP net income per diluted share between $0.44 and $0.45, assuming approximately 109 million weighted average diluted shares outstanding.
Risks remain. The Israel-Hamas war broke out on October 7, 2023. Several hundred thousand Israeli military reservists were drafted, and certain JFrog employees and consultants in Israel have been called to service. The company activated its business continuity plan on October 7, 2023 and said there had been no major interruption or material adverse impact on business activities as of the date of its quarterly report. Other risks include managing rapid growth, a history of losses, a limited operating history, retaining and upgrading existing customers, attracting new customers, expanding sales and marketing, integrating acquisitions, security breaches, product vulnerabilities, service interruptions, competition, and general market, political, economic, and business conditions.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2023 | Q2 FY2023 | QoQ | Q3 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $88.6M | $84.2M | +5.3% | $72.0M | +23.1% |
| Gross profit | $68.9M | $65.7M | +4.8% | $56.1M | +22.8% |
| Gross margin | 77.7% | 78.1% | -0.4 pp | 77.9% | -0.2 pp |
| Research & development | $33.4M | $33.5M | -0.6% | $31.7M | +5.2% |
| Sales & marketing | $37.9M | $36.4M | +4.3% | $33.2M | +14.4% |
| General & administrative | $15.7M | $14.7M | +6.3% | $14.7M | +6.7% |
| Total operating expenses | $86.9M | $84.6M | +2.7% | $79.5M | +9.3% |
| Operating income (loss) | -$18.1M | -$18.9M | +4.5% | -$23.4M | +23.0% |
| Operating margin | -20.4% | -22.5% | +2.1 pp | -32.6% | +12.2 pp |
| Net income (loss) | -$13.7M | -$15.5M | +11.1% | -$23.6M | +41.6% |
| Net margin | -15.5% | -18.4% | +2.9 pp | -32.7% | +17.2 pp |
| Diluted EPS | -$0.13 | -$0.15 | +$0.02 | -$0.24 | +$0.11 |
| Customers | 736 | 736 | ±0.0% | — | — |
| Net retention rate | 119.0% | 120.0% | -1.0 pp | 130.0% | -11.0 pp |
Risks
The war between Israel and Hamas has affected the region where a material part of JFrog's research and development is conducted and where approximately half of its employees and consultants are located. Certain employees and consultants have been called for military service and may be absent for extended periods, which could disrupt operations and limit the company's ability to market its products.
Adverse macroeconomic conditions including inflation, higher interest rates, tighter credit, and bank instability are increasing customer budget scrutiny and delaying information technology spending. JFrog has recently experienced longer sales cycles for certain products and expects these challenges to continue in the current environment.
JFrog's net dollar retention rate was 119% as of September 30, 2023 compared with 130% as of September 30, 2022, and the company started experiencing slower expansion across existing customers towards the end of fiscal 2022. It expects net dollar retention to stabilize around current levels.
JFrog outsources substantially all cloud infrastructure to third-party providers chosen by customers and is vulnerable to their service interruptions, capacity limits, and product changes. Geopolitical tensions may heighten these risks, and customers or regulators could seek to hold JFrog accountable for breaches affecting a provider's infrastructure.
A breach or perceived breach could expose customer source code, secrets, and sensitive data, especially as JFrog expands into security services and acquired Vdoo. Remote work and supply chain attacks increase susceptibility, and insurance may be inadequate to cover resulting liabilities.
International expansion exposes JFrog to inconsistent privacy and data protection laws, labor regulations, sanctions, currency fluctuations including the NIS, and anti-corruption laws. As of September 30, 2023, it had customers in over 90 countries and employees in nine countries.
SaaS KPIs
All quarters →Free Cash Flow
Non-GAAP Operating Margin
Cloud Revenue
Remaining Performance Obligations
Customers with ARR > $100K
Customers with ARR > $1M
Cloud Revenue as % of Total Revenue
Enterprise+ Subscription as % of Total Revenue
Summary, forecast, risks and KPIs are extracted from JFrog Ltd's SEC filings for Q3 FY2023 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 1, 2026.