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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-Q
______________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-40787
______________________________
ForgeRock, Inc.
______________________________
(Exact name of registrant as specified in its charter)
Delaware
33-1223363
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
201 Mission Street Suite 2900 San Francisco CA
94105
(Address of Principal Executive Offices)
(Zip Code)
(415) 599-1100
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A common stock
FORG
New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
Smaller reporting company
o
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No
As of October 31, 2021, there were 12,650,000 shares of the registrant's Class A common stock outstanding and 69,248,400 shares of the registrant's Class B common stock outstanding.


Table of Contents




Signatures
2

Table of Contents
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risk and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include statements about:

a.our future financial performance, including our expectations regarding our revenue, cost of revenue, operating expenses, our ability to determine reserves and our ability to achieve and maintain future profitability;
b.our future operational performance, including our expectations regarding ARR, dollar-based net retention rate, and the number of large customers;
c.the sufficiency of our cash, cash equivalents and investments to meet our liquidity needs;
d.the demand for our products and services or for security solutions in general, including our recently introduced SaaS offering, the ForgeRock Identity Cloud;
e.our ability to attract and retain customers and partners;
f.our ability to cross-sell to our existing customers;
g.our ability to develop new products and features and bring them to market in a timely manner and make enhancements to our offerings;
h.our ability to compete with existing and new competitors in existing and new markets and offerings;
i.our expectations regarding the effects of existing and developing laws and regulations, including with respect to privacy, data protection and information security, as well as taxation;
j.the impact of the COVID-19 pandemic and associated economic downturn on our business and results of operations;
k.our ability to manage and insure risk associated with our business;
l.our expectations regarding new and evolving markets;
m.our ability to develop and protect our brand;
n.our ability to maintain the security and availability of our platform and protect against data breaches and other security incidents;
o.our expectations and management of future growth;
p.our ability to continue to expand internationally;
q.our expectations concerning relationships with third parties;
r.our ability to obtain, maintain, protect, enhance, defend or enforce our intellectual property;
s.our ability to successfully acquire and integrate companies and assets;
t.the attraction and retention of qualified employees and key personnel; and
u.the increased expenses associated with being a public company.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcomes of the events described in these forward-looking statements are subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

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PART I – FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
FORGEROCK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(unaudited)
September 30,
2021
December 31,
2020
Assets
Current assets:
Cash and cash equivalents$197,221 $99,953 
Short-term investments180,872  
Accounts receivable, net of allowances of $26 and $159, respectively
36,071 35,372 
Contract assets23,079 11,167 
Deferred commissions6,267 5,923 
Prepaid expenses and other assets7,224 3,802 
Total current assets450,734 156,217 
Deferred commissions12,242 8,825 
Property and equipment, net2,106 2,535 
Operating lease right-of-use assets4,358 — 
Contract and other assets1,543 817 
Total assets$470,983 $168,394 
Liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)
Current liabilities:
Accounts payable$878 $1,370 
Accrued compensation15,319 13,891 
Accrued expenses5,927 3,179 
Current portion of long-term debt 58 
Current portion of operating lease liability1,766 — 
Deferred revenue49,890 50,341 
Other liabilities2,700 10,192 
Total current liabilities76,480 79,031 
Long-term debt39,451 39,338 
Long-term operating lease liability2,876 — 
Deferred revenue7,300 5,162 
Other liabilities1,568 3,538 
Total liabilities127,675 127,069 
Commitments and contingencies (Note 9)
Redeemable convertible preferred stock, $0.001 par value; zero and 41,557 shares authorized at September 30, 2021 and December 31, 2020, respectively; zero and 40,843 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively (liquidation preference of zero and $268,619 at September 30, 2021 and December 31, 2020, respectively)
 231,503 
Stockholders’ equity (deficit):
Preferred stock, $0.001 par value; 100,000 and zero shares authorized as of September 30, 2021 and December 31, 2020, respectively; and zero shares issued and outstanding as of September 30, 2021 and December 31, 2020
  
Class A common stock; $0.001 par value; 1,000,000 and zero shares authorized as of September 30, 2021 and December 31, 2020, respectively; 12,650 and zero shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
13 — 
Class B common stock; $0.001 par value; 500,000 and zero shares authorized as of September 30, 2021 and December 31, 2020, respectively; 69,052 and zero shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
69 — 
Common stock; $0.001 par value; zero and 83,500 shares authorized as of September 30, 2021 and December 31, 2020, respectively; zero and 24,186 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
— 24 
Additional paid-in capital587,371 20,602 
Accumulated other comprehensive income7,322 5,253 
Accumulated deficit(251,467)(216,057)
Total stockholders’ equity (deficit)343,308 (190,178)
Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)$470,983 $168,394 
See accompanying notes to condensed consolidated financial statements

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FORGEROCK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Revenue:
Subscription term licenses$19,364 $16,102 $62,949 $42,204 
Subscription SaaS, support & maintenance22,940 14,910 61,543 41,686 
Perpetual licenses183 158 885 739 
Total subscriptions and perpetual licenses42,487 31,170 125,377 84,629 
Professional services1,739 953 3,652 2,865 
Total revenue44,226 32,123 129,029 87,494 
Cost of revenue:
Subscriptions and perpetual licenses4,517 2,976 12,312 9,003 
Professional services3,977 2,069 10,658 6,434 
Total cost of revenue8,494 5,045 22,970 15,437 
Gross profit35,732 27,078 106,059 72,057 
Operating expenses:
Research and development10,827 9,432 31,214 26,792 
Sales and marketing22,509 18,135 64,795 56,375 
General and administrative11,188 6,214 28,091 19,469 
Total operating expenses44,524 33,781 124,100 102,636 
Operating loss(8,792)(6,703)(18,041)(30,579)
Foreign currency gain (loss)(2,684)2,699 (3,003)(5,142)
Fair value adjustment on warrants and preferred stock tranche option(2,729)(2,415)(10,068)(4,196)
Interest expense(1,195)(1,201)(3,572)(3,318)
Other, net339 (65)(66)(225)
Interest and other expense, net(6,269)(982)(16,709)(12,881)
Loss before income taxes(15,061)(7,685)(34,750)(43,460)
Provision for income taxes205 124 660 303 
Net loss$(15,266)$(7,809)$(35,410)$(43,763)
Net loss per share attributable to Class A and Class B common stockholders:
Basic and diluted$(0.44)$(0.32)$(1.26)$(1.83)
Weighted-average shares used in computing net loss per share attributable to Class A and Class B common stockholders:
Basic and diluted34,680 24,039 28,124 23,941 
See accompanying notes to condensed consolidated financial statements

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FORGEROCK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Net loss$(15,266)$(7,809)$(35,410)$(43,763)
Other comprehensive income (loss), net of tax:
Net change in unrealized gains on available-for-sale securities20  24  
Foreign currency translation adjustment2,804 (2,792)2,045 5,826 
Total comprehensive loss$(12,442)$(10,601)$(33,341)$(37,937)
See accompanying notes to condensed consolidated financial statements

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FORGEROCK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share data)
(unaudited)
Three Months Ended September 30, 2021 and 2020
Redeemable convertible
preferred stock
Class A and Class B common stock and Common stockAdditional
paid-in
capital
Accumulated
other
comprehensive
income
Accumulated
deficit
Total
stockholders'
equity (deficit)
SharesAmountSharesAmount
Balances at June 30, 202142,778,408 $263,178 25,421,137 $25 $26,358 $4,498 $(236,201)$(205,320)
Stock-based compensation expense— — — — 3,109 — — 3,109 
Conversion of redeemable convertible preferred stock into Class B common stock in connection with initial public offering(42,778,408)(263,178)42,778,408 43 263,135 — — 263,178 
Issuance of common stock upon initial public offering net of underwriting discounts, commissions and issuance costs— — 12,650,000 13 289,307 — — 289,320 
Issuance of common stock upon exercise of warrants— — 344,085 1 8,272 — — 8,273 
Exercise of common stock options— — 328,417 — 718 — — 718 
Common stock issued upon vesting of restricted stock units, net of tax withholding— — 179,763 — (3,528)— — (3,528)
Unrealized loss on available-for-sale securities— — — — — 20 — 20 
Foreign currency translation adjustment— — — — — 2,804 — 2,804 
Net loss— — — — — — (15,266)(15,266)
Balances at September 30, 2021 $ 81,701,810 $82 $587,371 $7,322 $(251,467)$343,308 
Balances at June 30, 202040,842,619 $231,503 24,002,575 $24 $17,727 $16,217 $(210,217)$(176,249)
Stock-based compensation expense— — — — 1,404 — — 1,404 
Exercise of common stock options— — 53,445 — 50 — — 50 
Foreign currency translation adjustment— — — — — (2,792)— (2,792)
Net loss— — — — — — (7,809)(7,809)
Balances at September 30, 202040,842,619 $231,503 24,056,020 $24 $19,181 $13,425 $(218,026)$(185,396)
See accompanying notes to condensed consolidated financial statements


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FORGEROCK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share data)
(unaudited)
Nine Months Ended September 30, 2021 and 2020
Redeemable convertible
preferred stock
Class A and Class B common stock and Common stockAdditional
paid-in
capital
Accumulated
other
comprehensive
income
Accumulated
deficit
Total stockholders' equity (deficit)
SharesAmountSharesAmount
Balances at December 31, 2020
40,842,619 $231,503 24,185,622 $24 $20,602 $5,253 $(216,057)$(190,178)
Stock-based compensation expense— — — — 6,396 — — 6,396 
Series E-1 redeemable convertible preferred stock issuance, net of issuance costs1,935,789 19,951 — — — — — — 
Reclassification of preferred stock tranche option liability upon issuance of Series E-1 redeemable convertible preferred stock— 11,724 — — — — — — 
Conversion of redeemable convertible preferred stock into Class B common stock in connection with initial public offering(42,778,408)(263,178)42,778,408 43 263,135 — — 263,178 
Issuance of common stock upon initial public offering net of underwriting discounts, commissions and issuance costs— — 12,650,000 13 289,307 — — 289,320 
Issuance of common stock upon exercise of warrants— — 344,085 1 8,272 — — 8,273 
Exercise of common stock options— — 1,563,932 1 3,187 — — 3,188 
Common stock issued upon vesting of restricted stock units, net of tax withholding— — 179,763 — (3,528)— — (3,528)
Unrealized loss on available-for-sale securities— — — — — 24 — 24 
Foreign currency translation adjustment— — — — — 2,045 — 2,045 
Net loss— — — — — — (35,410)(35,410)
Balances at September 30, 2021
 $ 81,701,810 $82 $587,371 $7,322 $(251,467)$343,308 
Balances at December 31, 2019
31,145,475 $139,734 23,716,033 $24 $14,660 $7,599 $(172,785)$(150,502)
Stock-based compensation expense— — — — 3,751 — — 3,751 
Series E-1 redeemable convertible preferred stock issuance, net of issuance costs9,697,144 91,769 — — — — — — 
Exercise of common stock options, net of repurchased shares from employees— — 650,919 1 807 — — 808 
Repurchase of shares from employees— — (310,932)(1)(37)(1,478)(1,516)
Foreign currency translation adjustment— — — — — 5,826 — 5,826 
Net loss— — — — — — (43,763)(43,763)
Balances at September 30, 2020
40,842,619 $231,503 24,056,020 $24 $19,181 $13,425 $(218,026)$(185,396)
See accompanying notes to condensed consolidated financial statements

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FORGEROCK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Nine Months Ended September 30,
20212020
Operating activities:
Net loss$(35,410)$(43,763)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation795 883 
Noncash operating lease expense1,186 — 
Restructuring and impairment charges 356 
Stock-based compensation expense6,396 4,950 
Amortization of deferred commissions10,436 9,614 
Foreign currency remeasurement loss1,972 5,171 
Change in fair value of redeemable convertible preferred stock warrant liability5,871 799 
Change in fair value of preferred stock tranche option liability4,157 3,392 
Accretion of premium amortization of discount on short-term investments608 (7)
Other non-cash157 649 
Changes in operating assets and liabilities:
Deferred commissions(14,366)(11,621)
Accounts receivable(2,170)8,948 
Contract and other non-current assets(13,500)(2,499)
Prepaid expenses and other current assets(3,696)153 
Operating lease liabilities(1,614)— 
Accounts payable272 (364)
Accrued expenses and other liabilities3,244 (318)
Deferred revenue4,306 (1,161)
Net cash used in operating activities(31,356)(24,818)
Investing activities:
Purchases of property and equipment(459)(768)
Purchases of short-term investments(201,415)(2,992)
Sales of short-term investments19,960  
Net cash used in investing activities(181,914)(3,760)
Financing activities:
Proceeds from initial public offering, net of underwriting discounts and commissions295,694  
Payment of offering costs(4,076) 
Proceeds from exercises of employee stock options3,189 458 
Proceeds from issuance of redeemable convertible preferred stock19,951 93,532 
Redeemable convertible preferred stock issuance costs (343)
Employee payroll taxes paid for net shares settlement of restricted stock units(3,528) 
Repurchase of common stock from employees (2,307)
Proceeds from issuance of debt, net of issuance costs 9,914 
Principal repayments on debt(120)(186)
Net cash provided by financing activities311,110 101,068 
Effect of exchange rates on cash and cash equivalents and restricted cash(638)88 
Net increase in cash, cash equivalents and restricted cash97,202 72,578 
Cash, cash equivalents and restricted cash, beginning of year100,042 28,785 
Cash, cash equivalents and restricted cash, end of year$197,244 $101,363 

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 Supplemental disclosure of cash flow information
Cash paid for interest$2,536 $2,714 
Conversion of redeemable convertible preferred stock to common stock (Note 12)$263,178 $ 
Deferred offering costs accrued but not yet paid$2,298 $ 
Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalents$197,221 $101,307 
Restricted cash included in prepaids and other current assets23 56 
Total cash and cash equivalents and restricted cash$197,244 $101,363 
See accompanying notes to condensed consolidated financial statements

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Overview and Basis of Presentation
Company and Background
ForgeRock, Inc. and its wholly owned subsidiaries (referred to as “ForgeRock”, the “Company”, “we” or “us”) is a modern digital identity platform transforming the way enterprises secure, manage, and govern the identities of customers, employees and partners, APIs, microservices, devices, and Internet of Things (IoT). ForgeRock makes this possible through a unified and extensive identity platform to enable enterprises to provide exceptional digital user experiences without compromising security and privacy. ForgeRock’s identity platform provides a full suite of identity management, access management, identity governance, and artificial intelligence (AI)-powered autonomous identity solutions. The Company is headquartered in San Francisco, California and has operations in Canada and the United States of America (collectively referred to as Americas), France, Germany, Norway and the United Kingdom (collectively referred to as EMEA), Australia, New Zealand and Singapore (collectively referred to as APAC). The Company was formed in Norway in 2009 and incorporated in Delaware in February 2012.
Initial Public Offering

On September 20, 2021, the Company completed an initial public offering (“IPO”), in which the Company issued and sold 12,650,000 shares of Class A common stock at a price per share of $25.00, including 1,650,000 shares resulting from the exercise in full of the underwriters’ option to purchase additional shares. The Company received net proceeds of $295.7 million from the IPO, after deducting underwriting discounts and commissions of $21.3 million and before deducting estimated offering costs of $6.4 million.

Immediately prior to the completion of the IPO, all shares of the Company’s outstanding redeemable convertible preferred stock converted into 42,778,408 shares of common stock on a one-to-one basis and immediately thereafter but still prior to the completion of the Company’s IPO, all outstanding common stock were reclassified into 25,421,137 shares of Class B common stock on a one-to-one basis.

Basis of Presentation and Principles of Consolidation

The accompanying unaudited interim condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which in the opinion of management are necessary to fairly state the financial position and the results of operations for the interim periods presented. The Company’s condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). All intercompany balances and transactions have been eliminated in consolidation.

Unaudited Interim Condensed Consolidated Financial Information

The accompanying interim condensed consolidated balance sheet as of September 30, 2021, the condensed consolidated statements of operations, comprehensive loss, and redeemable convertible preferred stock and stockholders’ equity (deficit) for the three and nine months ended September 30, 2021 and 2020 and the interim condensed consolidated statements of cash flows for the nine months ended September 30, 2021 and 2020 and the related footnote disclosures are unaudited.

These interim condensed consolidated financial statements should be read in connection with the Company’s audited financial statements for the year ended December 31, 2020, included in the final prospectus for the Company’s IPO dated September 15, 2021 and filed with the U.S. Securities and Exchange Commission, or the SEC, pursuant to Rule 424(b)(4) on September 17, 2021 (the “Final Prospectus”).

The interim condensed consolidated financial statements are presented in accordance with the rules and regulations of the U.S. Securities and Exchange Commission and do not include all disclosures normally required in annual consolidated financial statements prepared in accordance with U.S. GAAP. In management’s opinion, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and include all adjustments necessary to state fairly the consolidated financial position of the Company as of September 30, 2021, the results of operations for the three and nine months ended September 30, 2021 and 2020 and cash flows for the three and nine months ended September 30, 2021 and 2020. The results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any future period.

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Use of Estimates

The Company’s condensed consolidated financial statements are prepared in accordance with U.S. GAAP as set forth in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”). These accounting principles require us to make certain estimates and assumptions. The significant estimates and assumptions include but are not limited to (i) standalone selling price (“SSP”) in revenue recognition, (ii) valuation of deferred taxes, (iii) valuation of stock-based compensation, (iv) valuation of the Company’s common stock prior to the Company’s IPO in September 2021, (v) valuation of the preferred stock tranche option liability prior to the Company’s IPO, and (vi) valuation of preferred stock warrant liability. Management evaluates these estimates and assumptions on an ongoing basis and makes estimates based on historical experience and various other assumptions that are believed to be reasonable. However, because future events and their effects cannot be determined with certainty, actual results may differ from these assumptions and estimates, and such differences could be material.
In 2019, the World Health Organization categorized the Coronavirus disease (“COVID-19”) as a pandemic. The rapid worldwide spread of COVID-19 has resulted in economic and societal disruptions and uncertainties, which have negatively impacted business with a corresponding decrease in demand for certain goods and services, including possibly from the Company’s customers.

The COVID-19 pandemic has disrupted and may continue to disrupt the operations of the Company’s customers and partners, particularly the Company’s customers in industries, including travel and entertainment, that have been especially impacted by the pandemic. Other disruptions or potential disruptions resulting from the COVID-19 pandemic include restrictions on the Company’s personnel and the personnel of the Company’s partners to travel and access customers for training, delays in product development efforts, and additional government requirements or other incremental mitigation efforts that may further impact the Company’s business, financial condition, and results of operations.
If the pandemic or its impact changes, the Company’s judgments or estimates will also change, and those changes could materially impact the Company’s condensed consolidated financial statements.

2. Summary of Significant Accounting Policies

Except for the policies updated below, including the accounting policy for leases that was updated below as a result of the Company adopting the FASB Accounting Standards Update (“ASU”) Leases (“Topic 842”) on January 1, 2021, there have been no significant changes from the significant accounting policies disclosed in Note 2 of the “Notes to Consolidated Financial Statements” of the audited consolidated financial statements for the year ended December 31, 2020 which are included in our prospectus filed pursuant to Rule 424(b)(4) on September 17, 2021 (the “Final Prospectus”).

Stock-based compensation

All stock-based compensation to employees, including the purchase rights issued under the Company's 2021 Employee Stock Purchase Plan (the “2021 ESPP”), is based on the fair value of the awards on the date of grant. This cost is recognized as an expense following the straight-line attribution method, over the requisite service period, for stock options, restricted stock units (RSUs) and restricted stock, and over the offering period, for the purchase rights issued under the 2021 ESPP. The Company uses the Black-Scholes option pricing model to measure the fair value of its stock options and the purchase rights issued under the 2021 ESPP. The fair value of the RSUs is determined using the fair value of the Company’s Class A common stock on the date of grant.

The Company accounts for equity awards issued to employees and non-employees based on the fair value of the award, determined using the Black-Scholes option valuation model. Prior to the IPO, the fair value of the Company’s common stock was determined by the estimated fair value of the Company’s common stock at the time of grant. Prior to the IPO, the fair value of the shares of common stock underlying stock options had been established by our board of directors, which was responsible for these estimates, and had been based in part upon a valuation provided by a third-party valuation firm. Because there had been no public market for our common stock, our board of directors considered this independent valuation and other factors, including, but not limited to, revenue growth, the current status of the technical and commercial success of our operations, our financial condition, the stage of development and competition to establish the fair value of our common stock at the time of grant of the option. After the IPO, the Company uses the market closing price of its Class A common stock on the date of grant for the fair value.



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Short-term investments

Short-term investments consist primarily of money market funds, U.S. treasury and agency securities, commercial paper, corporate debt and asset-backed securities. The Company’s policy generally requires investments to be investment grade, with the primary objective of minimizing the potential risk of principal loss. The Company classifies its short-term investments as available-for-sale securities at the time of purchase and reevaluates such classification at each balance sheet date. The Company has classified its investments as current based on the nature of the investments and their availability for use in current operations.

Available-for-sale debt securities are recorded at fair value each reporting period. Unrealized gains and losses on these investments are reported as a separate component of accumulated other comprehensive income (loss) on the condensed consolidated balance sheets until realized. Interest income is reported within other, net in the condensed consolidated statements of operations. The Company periodically evaluates its investments to assess whether those with unrealized loss positions are other-than-temporarily impaired. The Company considers various factors in determining whether to recognize an impairment charge, including the length of time the investment has been in a loss position, the extent to which the fair value is less than the Company’s cost basis, and the financial condition and near-term prospects of the investee. Realized gains and losses are determined based on the specific identification method and are reported in Other, net in the consolidated statements of operations. The Company did not consider any of its investments to be other-than-temporarily impaired as of September 30, 2021.

JOBS Act Accounting Election

As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). The Company may elect to use this extended transition period under the JOBS Act until such time as the Company is no longer considered to be an EGC. The adoption dates for recently adopted accounting standards discussed below reflect this election, where applicable.
Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use (ROU) asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach.

The Company adopted ASU 2016-02 and related amendments on January 1, 2021, using the optional transition method and recorded an initial adjustment of $5.8 million to operating lease right-of-use assets, $6.5 million to operating lease liabilities and $0.7 million of unamortized deferred rent included in other liabilities in the condensed consolidated balance sheet on January 1, 2021. The Company elected the package of practical expedients permitted under the transition guidance within Topic 842, which allowed the Company to carry forward the historical lease classification, retain the initial direct costs for any leases that existed prior to the adoption of the standard and not reassess whether any contracts entered into prior to the adoption are leases. The Company also elected to account for lease and non-lease components in its real estate lease agreements as a single lease component in determining lease assets and liabilities. In addition, the Company elected not to recognize the right-of-use assets and liabilities for leases with lease terms of one year or less. The Company did not elect the practical expedient allowing the use-of-hindsight, which would require the Company to reassess the lease term of its leases based on all facts and circumstances through the effective date and did not elect the practical expedient pertaining to land easements as this is not applicable to the current contract portfolio.

As of September 30, 2021, the aggregate balances of lease right-of-use assets and lease liabilities were $4.4 million and $4.6 million, respectively. The standard did not materially affect the Company’s condensed consolidated statements of operations. The Company will continue to disclose comparative reporting periods prior to January 1, 2021 under the previous accounting guidance, ASC 840 Leases. See Note 7 Leases for further information.


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3. Segment and Revenue Disclosures
Segment Reporting:
Revenue by geographic region is based on the delivery address of the customer and is summarized in the below table (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Americas$21,123 $18,422 $66,689 $47,900 
EMEA16,194 10,367 45,084 30,714 
APAC6,909 3,334 17,256 8,880 
Total Revenue $44,226 $32,123 $129,029 $87,494 

The Company’s revenue from the United States was $18.8 million and $61.1 million, for the three and nine months ended September 30, 2021, respectively. The Company’s revenue from the United States was $16.7 million and $44.0 million, for the three and nine months ended September 30, 2020, respectively. The Company’s revenue from the United Kingdom was $5.0 million for the three months ended September 30, 2021. The Company’s revenue from the United Kingdom did not exceed 10% of the Company’s total revenue for the nine months ended September 30, 2021. The Company’s revenue from the United Kingdom was $3.4 million and $10.9 million for the three and nine months ended September 30, 2020, respectively. No other individual country exceeded 10% of the Company’s total quarterly or year to date revenue.
Disaggregation of revenue
The principal category the Company uses to disaggregate revenues is the nature of the Company’s products and services as presented in the condensed consolidated statements of operations, the total of which is reconciled to the condensed consolidated revenue from the Company’s single reportable segment. In the following table, revenue is presented by software license and service categories (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Revenue:
Multi-year term licenses$10,222 $7,162 $37,834 $17,440 
1-year term licenses
9,142 8,940 25,115 24,764 
Total subscription term licenses19,364 16,102 62,949 42,204 
Subscription SaaS, support and maintenance22,940 14,910 61,543 41,686 
42,304 31,012 124,492 83,890 
Perpetual licenses183 158 885 739 
Total subscriptions and perpetual licenses42,487 31,170 125,377 84,629 
Professional services1,739 953 3,652 2,865 
Total Revenue$44,226 $32,123 $129,029 $87,494 
Contract assets and deferred revenue
Contract assets and deferred revenue from contracts with customers were as follows (in thousands):
September 30,
2021
December 31,
2020
Contract assets$23,630 $11,347 
Deferred revenue57,190 55,504 
Contract assets are recorded when revenue is recognized prior to invoicing. Contract assets are transferred to accounts receivable upon customer invoicing. Beginning of the period contract asset amounts transferred to accounts receivable during the period were $3.1 million and $1.0 million for the three months ended September 30, 2021 and 2020, respectively and $8.0 million and $5.5 million for the nine months ended September 30, 2021 and 2020, respectively.

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Revenue recognized that was included in the deferred revenue balance at the beginning of the period was $24.2 million and $17.5 million for the three months ended September 30, 2021 and 2020, respectively and $45.5 million and $33.4 million for the nine months ended September 30, 2021 and 2020, respectively.
Remaining performance obligations
Remaining Performance Obligations (“RPO”) represents transaction price allocated to still unsatisfied or partially satisfied performance obligations. Those obligations are recorded as deferred revenue or contractually stated or committed orders under multi-year billing plans for subscription and perpetual licenses, Software as a Service “SaaS” and support and maintenance contracts for which the associated deferred revenue has not yet been recorded.
As of September 30, 2021, total remaining non-cancellable performance obligations under the Company’s subscriptions SaaS, support and maintenance contracts with customers was approximately $125.4 million. Of this amount, the Company expects to recognize revenue of approximately $77.6 million, or 62%, over the next 12 months, with the balance to be recognized as revenue thereafter.
Contract Costs
The following table summarizes the account activity of deferred commissions for the three and nine months ended September 30, 2021 and 2020:
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Beginning balance$17,055 $10,225 $14,748 $10,042 
Additions to deferred commissions4,656 4,654 14,197 11,170 
Amortization of deferred commissions(3,202)(3,281)(10,436)(9,614)
Ending balance$18,509 $11,598 $18,509 $11,598 
September 30,
2021
December 31,
2020
Deferred commissions, current$6,267 $5,923 
Deferred commissions, noncurrent12,242 8,825 
Total deferred commissions$18,509 $14,748 
Concentrations of Credit Risk and Significant Customers

The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments and accounts receivable. Cash and cash equivalents and short-term investments are currently held in one financial institution and, at times, may exceed federally insured limits.

As of September 30, 2021 and December 31, 2020, no single customer represented greater than 10% of accounts receivable. For the three and nine months ended September 30, 2021 and 2020, no single customer represented greater than 10% of revenue.
4. Collaborative Arrangements
In the three and nine months ended September 30, 2021, the Company recognized revenue of $1.3 million and $3.5 million, respectively, and royalty expenses of $0.1 million and $0.6 million, respectively, related to the Company’s collaborative arrangements. In the three and nine months ended September 30, 2020, the Company recognized revenue of $0.1 million and $1.2 million and royalty expenses of $0.2 million and $0.4 million, respectively.


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5. Fair Value Measurements

ASC 820, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs.

The standard describes a fair value hierarchy based on the following three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last unobservable:
Level 1 – Quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The following table represents the fair value hierarchy for the Company’s financial assets and liabilities held by value on a recurring basis (in thousands):
September 30, 2021
Level 1Level 2Level 3Total
Assets:
Money market funds$169,315 $ $ $169,315 
Total cash equivalents169,315   169,315 
Commercial paper 58,050  58,050 
Asset-backed securities 30,287  30,287 
Corporate debt securities 66,099  66,099 
U.S. Government debt securities 26,436  26,436 
Total short-term investments 180,872  180,872 
     Total cash equivalents and short-term investments $169,315 $180,872 $ $350,187 
December 31, 2020
Level 1Level 2Level 3Total
Assets:
Money market funds$79,876 $ $ $79,876 
Liabilities:
Preferred stock warrants$ $ $2,401 $2,401 
Preferred stock tranche option  7,567 7,567 
Total liabilities$ $