forg-20220630

; forg-20220630

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 June 30, 2022


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

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 every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


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 Exchange Act). Yes o No ☒

As of July 31, 2022, there were 37,845,089 shares of the registrant's Class A common stock outstanding and 47,184,236 shares of the registrant's Class B common stock outstanding.

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PART 1. FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

Condensed Consolidated Balance Sheets			5

Condensed Consolidated Statements of Operations			6

Condensed Consolidated Statements of Comprehensive Loss			7

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity			8

Condensed Consolidated Statements of Cash Flows			10

Notes to Condensed Consolidated Financial Statements			11

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			26

Item 3. Quantitative and Qualitative Disclosures About Market Risk			45

Item 4. Controls and Procedures			46

PART 11. OTHER INFORMATION

Item 1. Legal Proceedings			47

Item 1A. Risk Factors			47

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Initial Public Offering			86

Item 3. Defaults Upon Senior Securities			86

Item 4. Mine Safety Disclosures			86

Item 5. Other Information			86

Item 6. Exhibits			87

Signatures			88

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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 ForgeRock’s future financial or operating performance. In some cases, you can identify forward looking statements because they contain words such as "may," "will," "should," "expects," "plans," "anticipates,” “going to,” "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these words or other similar terms or expressions that concern ForgeRock’s expectations, strategy, priorities, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

•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;

•our future operational performance, including our expectations regarding ARR, dollar-based net retention rate, and the number of large customers;

•the sufficiency of our cash, cash equivalents and investments to meet our liquidity needs;

•the demand for our products and services or for security solutions in general, including our recently introduced SaaS offering, the ForgeRock Identity Cloud;

•our ability to attract and retain customers and partners;

•our ability to cross-sell to our existing customers;

•our ability to develop new products and features and bring them to market in a timely manner and make enhancements to our offerings;

•our ability to compete with existing and new competitors in existing and new markets and offerings;

•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;

•the impact of the ongoing geopolitical tensions related to Russia’s actions in Ukraine on our business, including inflationary pressures and interest rate risks;

•our ability to manage and insure risk associated with our business;

•our expectations regarding new and evolving markets;

•our ability to develop and protect our brand;

•our ability to maintain the security and availability of our platform and protect against data breaches and other security incidents;

•our expectations and management of future growth;

•our ability to continue to expand internationally and our exposure to fluctuations in foreign currencies;

•our expectations concerning relationships with third parties, including channel, system integrator and technology partners;

•our ability to obtain, maintain, protect, enhance, defend or enforce our intellectual property;

•our ability to utilize open source software in our platform and offerings;

•our ability to successfully acquire and integrate companies and assets;

•the attraction and retention of qualified employees and key personnel, including our direct sales force;

•our estimated total addressable market; and

•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.

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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. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

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)

(Unaudited)


	June 30, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	99,083	$	128,381
Short-term investments	248,128		241,411
Accounts receivable, net of allowance for credit losses of $192 and $34, respectively	45,899		55,999
Contract assets	15,673		19,670
Deferred commissions	8,343		8,457
Prepaid expenses and other assets	10,362		9,787
Total current assets	427,488		463,705
Deferred commissions	16,441		15,601
Property and equipment, net	2,751		2,463
Operating lease right-of-use assets	10,785		12,626
Contract and other assets	3,091		2,783
Total assets	$	460,556	$	497,178
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,930	$	2,039
Accrued expenses	5,924		5,016
Accrued compensation	16,017		22,359

Current portion of operating lease liability	1,263		1,820
Deferred revenue	64,261		67,222
Other liabilities	1,858		2,258
Total current liabilities	91,253		100,714
Long-term debt	39,547		39,483
Long-term operating lease liability	10,008		11,037
Deferred revenue	2,136		8,172
Other liabilities	1,811		1,646
Total liabilities	144,755		161,052
Commitments and contingencies (Note 8)

Stockholders’ equity:

Class A common stock; $0.001 par value; 1,000,000 shares authorized as of June 30, 2022 and December 31, 2021, 37,790 and 28,892 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively	38		29
Class B common stock; $0.001 par value; 500,000 shares authorized as of June 30, 2022 and December 31, 2021, 47,208 and 53,761 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively	47		54

Additional paid-in capital	615,321		593,196
Accumulated other comprehensive income	3,060		6,672
Accumulated deficit	(302,665)		(263,825)
Total stockholders’ equity	315,801		336,126
Total liabilities and stockholders’ equity	$	460,556	$	497,178

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 June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenue:
Subscription term licenses	$	15,527	$	22,504	$	35,185	$	43,585
Subscription SaaS, support & maintenance	29,562		20,239		55,748		38,603
Perpetual licenses	19		147		105		702
Total subscriptions and perpetual licenses	45,108		42,890		91,038		82,890
Professional services	2,569		1,063		4,731		1,913
Total revenue	47,677		43,953		95,769		84,803
Cost of revenue:
Subscriptions and perpetual licenses	6,415		4,149		12,268		7,796
Professional services	2,912		3,792		5,763		6,681
Total cost of revenue	9,327		7,941		18,031		14,477
Gross profit	38,350		36,012		77,738		70,326
Operating expenses:
Research and development	15,666		9,952		30,144		20,387
Sales and marketing	30,050		22,044		57,028		42,286
General and administrative	14,935		8,656		28,479		16,903
Total operating expenses	60,651		40,652		115,651		79,576
Operating loss	(22,301)		(4,640)		(37,913)		(9,250)
Foreign currency gain (loss)	1,026		33		1,461		(319)
Fair value adjustment on warrants and preferred stock tranche option	—		(3,761)		—		(7,339)
Interest expense	(881)		(1,197)		(1,780)		(2,377)
Other, net	275		(207)		343		(403)
Interest and other expense, net	420		(5,132)		24		(10,438)
Loss before income taxes	(21,881)		(9,772)		(37,889)		(19,688)
Provision for income taxes	489		286		951		456
Net loss	$	(22,370)	$	(10,058)	$	(38,840)	$	(20,144)
Net loss per share attributable to common stockholders:
Basic and diluted	$	(0.26)	$	(0.40)	$	(0.46)	$	(0.81)
Weighted-average shares used in computing net loss per share attributable to common stockholders:
Basic and diluted	84,445		25,161		84,107		24,792

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 June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net loss	$	(22,370)	$	(10,058)	$	(38,840)	$	(20,144)
Other comprehensive loss, net of tax:
Net change in unrealized gain (loss) on available-for-sale securities	(481)		19		(2,167)		4
Foreign currency translation adjustment	(1,153)		(64)		(1,445)		(759)
Total comprehensive loss	$	(24,004)	$	(10,103)	$	(42,452)	$	(20,899)

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)


For the Three and Six Months Ended June 30, 2022
	Redeemable convertible preferred stock			Class A and Class B common stock and Common stock			Additional paid-in capital		Accumulated other comprehensive income		Accumulated deficit		Total stockholders' equity (deficit)
	Shares	Amount		Shares	Amount
Balances at March 31, 2022	—	$	—	84,251,552	$	84	$	601,834	$	4,694	$	(280,295)	$	326,317
Stock-based compensation expense	—	—		—	—		7,971		—		—		7,971
Exercise of common stock options	—	—		454,267	1		1,142		—		—		1,143
Issuance of common stock under employee stock purchase plan	—	—		292,531	—		4,374		—		—		4,374
Unrealized loss on available-for-sale securities	—	—		—	—		—		(481)		—		(481)
Foreign currency translation adjustment	—	—		—	—		—		(1,153)		—		(1,153)
Net loss	—	—		—	—		—		—		(22,370)		(22,370)
Balances at June 30, 2022	—	$	—	84,998,350	$	85	$	615,321	$	3,060	$	(302,665)	$	315,801


Balances at December 31, 2021	—	$	—	82,648,825	$	83	$	593,196	$	6,672	$	(263,825)	$	336,126
Stock-based compensation expense	—	—		—	—		14,431		—		—		14,431
Exercise of common stock options	—	—		2,056,994	2		3,320		—		—		3,322
Issuance of common stock under employee stock purchase plan	—	—		292,531	—		4,374		—		—		4,374
Unrealized loss on available-for-sale securities	—	—		—	—		—		(2,167)		—		(2,167)
Foreign currency translation adjustment	—	—		—	—		—		(1,445)		—		(1,445)
Net loss	—	—		—	—		—		—		(38,840)		(38,840)
Balances at June 30, 2022	—	$	—	84,998,350	$	85	$	615,321	$	3,060	$	(302,665)	$	315,801

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FORGEROCK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK

AND STOCKHOLDERS' EQUITY (DEFICIT)

(In thousands, except share data)

(Unaudited)


For the Three and Six Months Ended June 30, 2021
	Redeemable convertible preferred stock			Common stock			Additional paid-in capital		Accumulated other comprehensive income		Accumulated deficit		Total stockholders' equity (deficit)
	Shares	Amount		Shares	Amount
Balances at March 31, 2021	40,842,619	$	231,503	24,776,622	$	25	$	23,783	$	4,543	$	(226,143)	$	(197,792)
Stock-based compensation expense	—	—		—	—		1,763		—		—		1,763
Series E-1 redeemable convertible preferred stock issuance, net of issuance costs	1,935,789	19,951		—	—		—		—		—		—
Reclassification of preferred stock tranche option liability upon issuance of Series E-1 redeemable convertible preferred stock	—	11,724		—	—		—		—		—		—
Exercise of common stock options	—	—		644,515	—		812		—		—		812
Unrealized gain on available-for-sale securities	—	—		—	—		—		19		—		19
Foreign currency translation adjustment	—	—		—	—		—		(64)		—		(64)
Net loss	—	—		—	—		—		—		(10,058)		(10,058)
Balances at June 30, 2021	42,778,408	$	263,178	25,421,137	$	25	$	26,358	$	4,498	$	(236,201)	$	(205,320)


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	—	—		—	—		3,287		—		—		3,287
Series E-1 redeemable convertible preferred stock issuance, net of issuance costs	1,935,789	19,951		—	—		—		—		—		—
Reclassification of preferred stock tranche option liability upon issuance of Series E-1 redeemable convertible preferred stock	—	11,724		—	—		—		—		—		—
Exercise of common stock options	—	—		1,235,515	1		2,469		—		—		2,470
Unrealized gain on available-for-sale securities	—	—		—	—		—		4		—		4
Foreign currency translation adjustment	—	—		—	—		—		(759)		—		(759)
Net loss	—	—		—	—		—		—		(20,144)		(20,144)
Balances at June 30, 2021	42,778,408	$	263,178	25,421,137	$	25	$	26,358	$	4,498	$	(236,201)	$	(205,320)

See accompanying notes to condensed consolidated financial statements

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FORGEROCK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Six Months Ended June 30,
	2022		2021
Operating activities:
Net loss	$	(38,840)	$	(20,144)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	549		536
Noncash operating lease expense	1,147		937

Stock-based compensation expense	14,431		3,287
Amortization of deferred commissions	7,202		7,233
Foreign currency remeasurement gain	(1,539)		(668)
Change in fair value of redeemable convertible preferred stock warrant liability	—		4,157
Change in fair value of preferred stock tranche option liability	—		3,182
Amortization of premium / discount on short-term investments	1,247		371
Other	50		142
Changes in operating assets and liabilities:
Deferred commissions	(7,928)		(9,577)
Accounts receivable	7,709		(3,213)
Contract and other non-current assets	2,458		(9,176)
Prepaid expenses and other current assets	(893)		(6,776)
Operating lease liabilities	(884)		(1,200)
Accounts payable	(45)		(411)
Accrued expenses and other liabilities	(4,265)		1,907
Deferred revenue	(5,130)		93
Net cash used in operating activities	(24,731)		(29,320)
Investing activities:
Purchases of property and equipment	(974)		(341)
Purchases of short-term investments	(64,971)		(63,283)
Maturities of short-term investments	43,048		—
Sales of short-term investments	11,792		4,260
Net cash used in investing activities	(11,105)		(59,364)
Financing activities:

Payment of offering costs	(141)		—
Proceeds from exercises of employee stock options	3,329		2,470
Proceeds from issuance of common stock under employee stock purchase plan	4,374		—




Proceeds from issuance of redeemable convertible preferred stock	—		19,951
Principal repayments on debt	—		(46)
Net cash provided by financing activities	7,562		22,375
Effect of exchange rates on cash and cash equivalents and restricted cash	(1,036)		(249)
Net decrease in cash, cash equivalents and restricted cash	(29,310)		(66,558)
Cash, cash equivalents and restricted cash, beginning of year	128,437		100,042
Cash, cash equivalents and restricted cash, end of period	$	99,127	$	33,484


Supplementary cash flow disclosure:
Cash paid for interest	$	(1,333)	$	(1,571)



Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalents	$	99,083	$	33,431
Restricted cash included in prepaids and other current assets	44		53
Total cash and cash equivalents and restricted cash	$	99,127	$	33,484

Short-term investments, end of period	$	248,128	$	47,311

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. (“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”). Organizations adopt the ForgeRock Identity Platform as their digital identity system of record to enhance data security and sovereignty as well as improve performance. 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.

Basis of Presentation and Principles of Consolidation

The accompanying interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The accompanying interim condensed consolidated financial statements include the accounts of ForgeRock and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.

Unaudited Interim Condensed Consolidated Financial Information

The accompanying interim condensed consolidated balance sheet as of June 30, 2022, the condensed consolidated statements of operations, comprehensive loss, and redeemable convertible preferred stock and stockholders’ equity (deficit) for the three and six months ended June 30, 2022 and 2021 and the interim condensed consolidated statements of cash flows for the six months ended June 30, 2022 and 2021 and the related footnote disclosures are unaudited. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K on file with the SEC (“Annual Report”).

The interim condensed consolidated financial statements are presented in accordance with the rules and regulations of the SEC and do not include all disclosures normally required in annual consolidated financial statements prepared in accordance with U.S. GAAP. The condensed consolidated balance sheet as of December 31, 2021 included herein was derived from the audited financial statements as of that date. 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 (consisting only of normal recurring adjustments) that are necessary to state fairly the consolidated financial position of the Company as of June 30, 2022, the results of operations for the three and six months ended June 30, 2022 and 2021 and cash flows for the six months ended June 30, 2022 and 2021. The results for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any future period.

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 allowance on deferred taxes, (iii) valuation of stock-based compensation and (iv) valuation of the Company’s common stock prior to the Company’s initial public offering of common stock (IPO) in September 2021. 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.

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The COVID-19 pandemic has resulted in a sustained global slowdown of economic activity that has decreased demand for certain goods and services, including possibly from the Company’s customers. While we have not experienced significant disruptions from the COVID-19 pandemic, we are unable to accurately predict the extent to which the ongoing COVID-19 pandemic may impact our business, results of operations and financial condition going forward. Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment. 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 policies for credit losses and income taxes that were updated below as a result of the Company adopting the FASB Accounting Standards Updates (“ASU”) 2016-13, Financial Instruments—Credit Losses (“Topic 326”) and ASU 2019-12, Income Taxes (Topic “740”): Simplifying the Accounting for Income Taxes, respectively, on January 1, 2022, there have been no significant changes from the significant accounting policies disclosed in in “Note 2 — Summary of Significant Accounting Policies” to the consolidated financial statements included in Part II, Item 8 of the Annual Report.

Cash Equivalents

Cash consists primarily of cash on deposit with banks. Cash equivalents include highly liquid investments purchased with an original maturity date of 90 days or less from the date of purchase.

The Company monitors its credit risk by considering factors such as historical experience, credit ratings, current economic conditions, and reasonable and supportable forecasts.

Short-term Investments

Short-term investments consist primarily of money market funds, U.S. treasury bonds, 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) in the condensed consolidated balance sheets until realized. Unrealized gains and losses for any short-term investments that management intends to sell or it is more likely than not that management will be required to sell prior to their anticipated recovery are recorded in other income, net. The Company segments its portfolio based on the underlying risk profiles of the securities and has a zero-loss expectation for U.S. treasury and U.S. government agency securities. The Company regularly reviews the securities in an unrealized loss position and evaluates the current expected credit loss by considering factors such as credit ratings, issuer-specific factors, current economic conditions, and reasonable and supportable forecasts. The Company did not record any material credit losses during the three and six months ended June 30, 2022. As of June 30, 2022 and December 31, 2021, no allowance for credit losses in short-term investments was recorded.

Interest income is reported within Other, net in the condensed consolidated statements of operations. Realized gains and losses are determined based on the specific identification method and are reported in Other, net in the consolidated statements of operations.

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Accounts Receivable, Contract Assets and Allowances

Accounts receivable are recorded at the invoiced amount, net of allowances for expected credit losses. Effective January 1, 2022, the Company reports accounts receivable and contract assets net of an allowance for expected credit losses in accordance with Accounting Standards Codification Topic 326, Financial Instruments – Credit Losses (“ASC 326”), while prior period amounts continue to be reported in accordance with previously applicable GAAP. These allowances are based on the Company’s assessment of the collectability of accounts by considering the age of each outstanding invoice, the collection history of each customer, and an evaluation of current expected risk of credit loss based on current conditions and reasonable and supportable forecasts of future economic conditions over the life of the receivable. We assess collectability by reviewing accounts receivable on an aggregated basis where similar characteristics exist and on an individual basis when we identify specific customers with known disputes or collectability issues. Amounts deemed uncollectible are recorded as an allowance for expected credit losses in the condensed consolidated balance sheets with an offsetting decrease in deferred revenue or a charge to sales and marketing expense in the condensed consolidated statements of operations.

Collaborative Arrangements

The Company has entered into collaborative arrangements with two partners in order to develop future versions of and enhance the features and functionality of its identity software and SaaS services. These arrangements have been determined to be within the scope of ASC 808, Collaborative Arrangements, as the parties are active participants and exposed to the risks and rewards of the collaborative activity. These arrangements also include research, development and commercial activities. The terms of the Company’s collaborative arrangements include (i) revenue on sales of licensed products, (ii) royalties on net sales of licensed products and (iii) reimbursements for research and development expenses. In the three months ended June 30, 2022 and 2021, the Company recognized revenue of $1.4 million and $1.4 million and royalty expenses of $0.2 million and $0.2 million related to collaborative arrangements, respectively. In the six months ended June 30, 2022 and 2021, the Company recognized revenue of $2.6 million and $2.2 million and royalty expenses of $0.6 and $0.5 related to collaborative arrangements, respectively.

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 has elected to use this extended transition period under the JOBS Act until such time as the Company is no longer considered to be an EGC or affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. Effective December 31, 2022, the Company will no longer meet the definition of an EGC. Accordingly, as of December 31, 2022, the Company will be required to comply with the effective accounting standards applicable to public companies, which the Company is currently evaluating.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326) (“ASU 2016-13”), which changes the existing incurred loss impairment model for financial assets held at amortized cost. The new model uses a forward-looking expected loss method to calculate credit loss estimates. ASU 2016-13 also modified the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. In February 2020, the FASB issued ASU No. 2020-02, Financial Instruments – Credit Losses (Topic 326), which amends the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13 and its amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, though early adoption is permitted. The Company adopted the requirements of ASU 2016-13 as of January 1, 2022 on a modified retrospective basis. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

In December 2019, the FASB issued ASU No 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 removes certain exceptions to the general principles in Topic 740. ASU 2019-12 is effective for fiscal years beginning January 1, 2022, with early adoption permitted. The Company adopted ASU 2019-12 on January 1, 2022. The adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements.

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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 June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Americas	$	26,118	$	24,240	$	50,868	$	45,566
EMEA	16,687		14,086		33,789		28,890
APAC	4,872		5,627		11,112		10,347
Total Revenue	$	47,677	$	43,953	$	95,769	$	84,803

The Company’s revenue from the United States was $23.1 million and $45.6 million for the three and six months ended June 30, 2022, respectively. The Company’s revenue from the United States was $22.9 million and $42.3 million for the three and six months ended June 30, 2021, respectively. The Company’s revenue from the United Kingdom was $5.3 million and $10.1 million for the three and six months ended June 30, 2022, respectively. The Company’s revenue from the United Kingdom did not exceed 10% of the Company’s total revenue for the three and six months ended June 30, 2021. No other individual country exceeded 10% of the Company’s total quarterly revenue during the periods presented.

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 June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenue:
Multi-year term licenses	$	9,329	$	15,481	$	17,515	$	27,612
1-year term licenses	6,198		7,023		17,670		15,973
Total subscription term licenses	15,527		22,504		35,185		43,585
Subscription SaaS, support and maintenance	29,562		20,239		55,748		38,603

Perpetual licenses	19		147		105		702
Total subscriptions and perpetual licenses	45,108		42,890		91,038		82,890
Professional services	2,569		1,063		4,731		1,913
Total Revenue	$	47,677	$	43,953	$	95,769	$	84,803

Contract Assets and Deferred Revenue

Contract assets and deferred revenue from contracts with customers were as follows (in thousands):


	June 30, 2022		December 31, 2021
Contract assets	$	16,345	$	20,508
Deferred revenue	66,397		75,394

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Generally, the Company invoices its customers at the time a customer enters into a binding contract. However, the Company may offer invoicing and payment installments for certain multi-year arrangements. In these instances, timing of revenue recognition may differ from the timing of invoicing to customers. 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 $9.5 million and $2.9 million for the three months ended June 30, 2022 and 2021, respectively and $14.7 million and $6.4 million for the six months ended June 30, 2022 and 2021, respectively.

Deferred revenue is recorded when invoicing occurs before revenue is recognized. Deferred revenue recognized that was included in the deferred revenue balance at the beginning of the period was $25.7 million and $19.1 million for the three months ended June 30, 2022 and 2021, respectively and $46.3 million and $31.0 million for the six months ended June 30, 2022 and 2021, 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 June 30, 2022, total remaining non-cancellable performance obligations under the Company’s subscriptions and perpetual license contracts with customers was approximately $163.1 million. Of this amount, the Company expects to recognize revenue of approximately $98.1 million, or 60%, over the next 12 months, with the balance to be recognized as revenue thereafter.

The Company excludes the transaction price allocated to RPOs that have original expected durations of one year or less such as professional services and training.

Contract Costs

The following table summarizes the account activity of deferred commissions for the three and six months ended June 30, 2022 and 2021:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Beginning balance	$	24,152	$	15,001	$	24,058	$	14,748
Additions to deferred commissions	3,843		5,962		7,928		9,540
Amortization of deferred commissions	(3,211)		(3,909)		(7,202)		(7,233)
Ending balance	$	24,784	$	17,054	$	24,784	$	17,054


	June 30, 2022		December 31, 2021
Deferred commissions, current	$	8,343	$	8,457
Deferred commissions, non-current	16,441		15,601
Total deferred commissions	$	24,784	$	24,058

Concentrations of Credit Risk, Significant Customers and Third Party Hosted Services

Credit Risk

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 two financial institutions and, at times, may exceed federally insured limits.

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Major Customers

As of June 30, 2022 and December 31, 2021 no single customer represented greater than 10% of accounts receivable. The Company does not require collateral to secure trade receivable balances. For the three months ended June 30, 2022, no single customer represented greater than 10% of revenue. For the three months ended June 30, 2021, one customer represented greater than 10% of revenue. For the six months ended June 30, 2022 and 2021, no single customer represented greater than 10% of revenue.

Third Party Hosted Services

The Company relies on the technology, infrastructure, and software applications, including software-as-a-service offerings, of third parties in order to host or operate certain key products and functions of its business.

4. Fair Value Measurements

ASC 820, Fair Value Measurements (“ASC 820”), 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.

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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):


	June 30, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	70,039	$	—	$	—	$	70,039



Total cash equivalents	70,039		—		—		70,039
Commercial paper	—		65,573		—		65,573
Asset-backed securities	—		39,075		—		39,075
Corporate debt securities	—		87,951		—		87,951
U.S. treasury bonds	—		55,529		—		55,529
Total short-term investments	—		248,128		—		248,128
Total cash equivalents and short-term investments	$	70,039	$	248,128	$	—	$	318,167

	December 31, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	98,333	$	—	$	—	$	98,333
Total cash equivalents	98,333		—		—		98,333
Commercial paper	—		78,448		—		78,448
Asset-backed securities	—		51,587		—		51,587
Corporate debt securities	—		85,084		—		85,084
U.S. treasury bonds	—		26,292		—		26,292
Total short-term investments	—		241,411		—		241,411
Total cash equivalents and short-term investments	$	98,333	$	241,411	$	—	$	339,744

All of the Company’s money market funds are classified as Level 1 in the fair value hierarchy as the valuation is based on observable inputs that reflect quoted prices for identical assets or liabilities in active markets. For certain of the Company’s financial instruments, including cash held in banks, accounts receivable, accounts payable and accrued expense, the carrying amounts approximate fair value due to their short maturities, and are, therefore, excluded from the fair value tables above.

5. Cash Equivalents and Short-Term Investments

The amortized cost, unrealized loss and estimated fair value of the Company’s cash equivalents and short-term investments as of June 30, 2022 and December 31, 2021 were as follows (in thousands):


	June 30, 2022
	Amortized Cost		Unrealized Gain		Unrealized Loss		Estimated Fair Value
Cash Equivalents:
Money market funds	$	70,039	$	—	$	—	$	70,039



Total cash equivalents	70,039		—		—		70,039
Short-term investments
Commercial paper	65,573		—		—		65,573
Asset-backed securities	39,600		—		(525)		39,075
Corporate debt securities	89,193		—		(1,242)		87,951
U.S. Treasury bonds	56,522		—		(993)		55,529
Short-term investments	250,888		—		(2,760)		248,128
Total	$	320,927	$	—	$	(2,760)	$	318,167