Summary
JFrog closed fiscal 2023 with fourth-quarter revenue of $97.3 million, up 27.1% year over year. Full-year revenue reached $349.9 million, up 24.9%. GAAP gross profit was $76.8 million in the quarter, up 29.7%, and $272.8 million for the year, up 25.3%. Gross margin improved to 79.0% in the fourth quarter, a gain of 1.6 percentage points. For the full year, gross margin was 78.0%, up 0.2 percentage points. The company still reported a GAAP operating loss of $15.4 million in the quarter, though that loss narrowed from the prior-year quarter. The full-year operating loss was $75.5 million, also narrowed. GAAP net loss was $11.2 million in the quarter, narrowed from the prior-year quarter, and $61.3 million for the full year, narrowed from the prior year. Full-year diluted EPS loss was $0.59, narrowed from the prior year. Operating margin was -15.8% in the quarter, up 16.7 percentage points, and -21.6% for the full year, up 10.5 percentage points.
Cash generation was a clear bright spot. Operating cash flow was $32.6 million in the fourth quarter, up 345.6% year over year, and $74.2 million for the full year, up 246.1%. Capital expenditures were $0.62 million in the quarter, down 30.6%, and $1.98 million for the year, down 54.2%. Free cash flow, a non-GAAP measure, was $32.0 million in the quarter and $72.2 million for the full year. Deferred revenue stood at $214.1 million at December 31, 2023, up 21.9% from the prior-year end. Remaining performance obligations were $259.8 million, up 26.9%.
Cloud revenue grew 59% year over year and represented 37% of total revenue, compared with 30% in the year-ago period. Net dollar retention rate for the trailing four quarters was 119%, down from 128% a year earlier. Customers with more than $100,000 in ARR rose to 886 from 736. Customers with more than $1 million in ARR reached 37, up from 19. Enterprise+ subscriptions accounted for 49% of fourth-quarter revenue, compared with 43% a year earlier. Total customers were approximately 7,400, up from approximately 7,200. On a non-GAAP basis, gross profit was $82.3 million and gross margin was 84.6% in the quarter. Non-GAAP operating income was $16.2 million, with a 16.6% operating margin. Non-GAAP diluted EPS was $0.19.
Management issued first-quarter 2024 guidance for non-GAAP operating income of $12.5 million to $13.5 million and non-GAAP diluted EPS of $0.13 to $0.15. For the full year 2024, the company guided non-GAAP operating income to $56.0 million to $58.0 million and non-GAAP diluted EPS to $0.58 to $0.60. The company also faces several risks. The Israel-Hamas war has required military reserve duty for certain employees and consultants, though JFrog said its business continuity plan was activated on October 7, 2023, and there had been no major interruption or material adverse impact on operating results as of the annual report date. Other named risks include the company's history of losses, limited operating history, ability to retain and upgrade existing customers, attract new customers, develop sales and marketing, integrate acquisitions, security breaches, product vulnerabilities, service interruptions, rapid technology changes, competition, and general market, political, economic, and business conditions. Customer concentration is modest: the 10 largest customers represented approximately 7% of total revenue for 2023, and no single customer accounted for more than 1%. International revenue was 38% of total revenue for 2023.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2023 | Q3 FY2023 | QoQ | Q4 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $97.3M | $88.6M | +9.7% | $76.5M | +27.1% |
| Gross profit | $76.8M | $68.9M | +11.5% | $59.3M | +29.7% |
| Gross margin | 79.0% | 77.7% | +1.3 pp | 77.4% | +1.6 pp |
| Research & development | $32.8M | $33.4M | -1.7% | $33.5M | -2.0% |
| Sales & marketing | $40.9M | $37.9M | +7.9% | $36.5M | +12.1% |
| General & administrative | $18.5M | $15.7M | +18.1% | $14.1M | +30.8% |
| Total operating expenses | $92.2M | $86.9M | +6.1% | $84.1M | +9.6% |
| Operating income (loss) | -$15.4M | -$18.1M | +14.8% | -$24.9M | +38.1% |
| Operating margin | -15.8% | -20.4% | +4.5 pp | -32.5% | +16.7 pp |
| Net income (loss) | -$11.2M | -$13.7M | +18.3% | -$23.2M | +51.5% |
| Net margin | -11.6% | -15.5% | +4.0 pp | -30.3% | +18.7 pp |
| Diluted EPS | -$0.11 | -$0.13 | +$0.02 | -$0.23 | +$0.12 |
| Customers | 736 | 736 | ±0.0% | 537 | +37.1% |
| Net retention rate | 119.0% | 119.0% | ±0.0 pp | 128.0% | -9.0 pp |
Risks
Unfavorable economic conditions and enhanced budget scrutiny have led to longer sales cycles for certain products, and customers may develop in-house software or competitors may lower prices, limiting growth. The filing states the company has recently experienced these challenges and expects them to continue given the current macroeconomic environment.
Revenue for FY2023 was $349.9 million, up 24.9% year over year, but the filing notes prior growth of 35% in FY2022 and expects the revenue growth rate to decline in future periods. Net dollar retention rate fell to 119% as of December 31, 2023 from 128% as of December 31, 2022, and the company expects it to stabilize around current levels.
The company expanded into MLOps and AI with Artifactory and Platform features for machine learning models, but competitors or other third parties may incorporate AI technology more quickly or successfully. Uncertainty around generative AI may require costly research and integration and expose the company to additional claims, regulatory scrutiny, and reputational harm.
A material part of research and development is conducted in Israel, and approximately half of employees and consultants are located there. Employees have been called for military reserve duty, and the intensity and duration of the Israel-Hamas war remains difficult to predict, though the company reported no major interruption or material adverse impact as of the filing date.
The market is nascent and highly fragmented, and JFrog Artifactory is at the center of the platform. Competitors include Microsoft GitHub, GitLab, Cloudsmith, Sonatype, AWS, Microsoft Azure, Google Cloud, Snyk, IBM including Red Hat, and VMware now Broadcom, many of which have greater financial, technical, and other resources.
Competition for DevSecOps professionals is intense, especially for engineers in Israel and the San Francisco Bay Area, and employee headcount grew from approximately 1,300 as of December 31, 2022 to approximately 1,400 as of December 31, 2023. Equity value changes may reduce motivation and lead to attrition.
A limited-functionality version of JFrog Artifactory is licensed under AGPL, which allows commercial licensees to use it for free internally or to compete by providing it for free. The company has extremely limited ability to detect violations of the open source license, which could reduce demand and put pricing pressure on subscriptions.
A real or perceived defect, security vulnerability, error, or performance failure in the software could cause lost revenue, reputational damage, and liability. As products are used in more sensitive and mission-critical environments, corrective releases may require significant research and development and customer support resources.
The company is subject to stringent and changing privacy, data protection, and data security laws, and failure to comply could harm its business. Jurisdictions such as the United Kingdom and France have introduced digital services taxes, and other jurisdictions are considering similar laws, which could create substantial tax payments and administrative burdens.
The company has acquired Vdoo and Upswift and may acquire complementary businesses in the future. Integration may require significant management attention, disrupt the business, dilute shareholder value, and adversely affect results of operations.
The company outsources substantially all cloud infrastructure to third-party providers and provides service-level commitments. Service interruptions, capacity limitations, or termination of these agreements could disrupt SaaS offerings and require significant delays and expense to re-architect for a different cloud provider, with risks heightened by geopolitical tensions.
The company historically enters into a higher percentage of subscription agreements with new customers and renewals in the fourth quarter, and SaaS usage typically declines during holiday periods, particularly at the end of the fourth quarter. This seasonality may negatively affect bookings, deferred revenue, SaaS revenue, and results of operations.
Sales prices may fluctuate or decline due to competitive pricing pressures, discounts, and bundling by larger competitors. A shift in mix from self-managed to SaaS offerings, which have a lower gross margin, could also adversely affect revenue and gross profit.
Failure to maintain effective disclosure controls and internal control over financial reporting could impair the ability to produce timely and accurate financial statements or comply with regulations. The company expects continued increases in legal, accounting, financial compliance, and audit costs.
Executive officers, directors, current 5% or greater shareholders, and affiliated entities together beneficially owned approximately 18% of ordinary shares outstanding as of December 31, 2023. This concentration may limit other shareholders' ability to influence corporate matters, including director elections and other matters requiring shareholder approval.
As of December 31, 2023, the company had net operating loss carryforwards of $138.8 million in Israel and $51.5 million in U.S. state net operating loss carryforwards. Limitations on their use could cause income taxes to be paid earlier and cause carryforwards to expire unused.
The company has diversified U.S. and non-U.S. investments, and credit ratings and pricing can be negatively affected by liquidity, credit deterioration, economic risk, political risk, sovereign risk, or other factors. Future fluctuations in investment value could result in a significant realized loss.
Changes in the United States political environment, including trade agreements, immigration policy, import and export regulations, tariffs, tax laws, public company reporting requirements, and antitrust enforcement, could impact the business. An extended federal government shutdown or budget decisions limiting government spending may also negatively affect economic conditions and capital markets.
SaaS KPIs
All quarters →Free Cash Flow
Non-GAAP Operating Margin
Remaining Performance Obligations
Total Customers
Summary, forecast, risks and KPIs are extracted from JFrog Ltd's SEC filings for Q4 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.