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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, 2022
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


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 October 31, 2022, there were 47,666,366 shares of the registrant's Class A common stock outstanding and 37,692,159 shares of the registrant's Class B common stock outstanding.


Table of Contents







Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Initial Public Offering
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 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 proposed acquisition by entities affiliated with Thoma Bravo, L.P. (“Thoma Bravo”);
our expectations regarding the timing and completion of the proposed acquisition by entities affiliated with Thoma Bravo;
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 military conflict in Ukraine and related sanctions against Russia and Belarus 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 related to our proposed acquisition by entities affiliated with Thoma Bravo and those 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.
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PART I – FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

FORGEROCK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
September 30,
2022
December 31,
2021
Assets
Current assets:
Cash and cash equivalents$138,542 $128,381 
Short-term investments203,971 241,411 
Accounts receivable, net of allowance for credit losses of $155 and $34, respectively
33,307 55,999 
Contract assets22,778 19,670 
Deferred commissions8,697 8,457 
Prepaid expenses and other assets12,899 9,787 
Total current assets420,194 463,705 
Deferred commissions17,891 15,601 
Property and equipment, net2,800 2,463 
Operating lease right-of-use assets10,272 12,626 
Contract and other assets3,495 2,783 
Total assets$454,652 $497,178 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$1,511 $2,039 
Accrued expenses8,961 5,016 
Accrued compensation19,214 22,359 
Current portion of operating lease liability1,562 1,820 
Deferred revenue57,923 67,222 
Other liabilities1,331 2,258 
Total current liabilities90,502 100,714 
Long-term debt39,579 39,483 
Long-term operating lease liability9,519 11,037 
Deferred revenue1,377 8,172 
Other liabilities1,909 1,646 
Total liabilities142,886 161,052 
Commitments and contingencies (Note 8)
Stockholders’ equity:
Class A common stock; $0.001 par value; 1,000,000 shares authorized as of September 30, 2022 and December 31, 2021, 47,504 and 28,892 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
47 29 
Class B common stock; $0.001 par value; 500,000 shares authorized as of September 30, 2022 and December 31, 2021, 37,726 and 53,761 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
38 54 
Additional paid-in capital623,671 593,196 
Accumulated other comprehensive income1,613 6,672 
Accumulated deficit(313,603)(263,825)
Total stockholders’ equity311,766 336,126 
Total liabilities and stockholders’ equity$454,652 $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 September 30,Nine Months Ended September 30,
2022202120222021
Revenue:
Subscription term licenses$23,904 $19,364 $59,089 $62,949 
Subscription SaaS, support & maintenance31,282 22,940 87,029 61,543 
Perpetual licenses91 183 197 885 
Total subscriptions and perpetual licenses55,277 42,487 146,315 125,377 
Professional services2,943 1,739 7,674 3,652 
Total revenue58,220 44,226 153,989 129,029 
Cost of revenue:
Subscriptions and perpetual licenses6,635 4,517 18,903 12,312 
Professional services2,929 3,977 8,692 10,658 
Total cost of revenue9,564 8,494 27,595 22,970 
Gross profit48,656 35,732 126,394 106,059 
Operating expenses:
Research and development15,554 10,827 45,699 31,214 
Sales and marketing28,973 22,509 86,001 64,795 
General and administrative14,551 11,188 43,030 28,091 
Acquisition-related costs2,364  2,364  
Total operating expenses61,442 44,524 177,094 124,100 
Operating loss(12,786)(8,792)(50,700)(18,041)
Foreign currency gain (loss)2,173 (2,684)3,634 (3,003)
Fair value adjustment on warrants and preferred stock tranche option (2,729) (10,068)
Interest expense(894)(1,195)(2,674)(3,572)
Other income (expense), net721 339 1,065 (66)
Interest and other expense, net2,000 (6,269)2,025 (16,709)
Loss before income taxes(10,786)(15,061)(48,675)(34,750)
Provision for income taxes152 205 1,103 660 
Net loss$(10,938)$(15,266)$(49,778)$(35,410)
Net loss per share attributable to common stockholders:
Basic and diluted$(0.13)$(0.44)$(0.59)$(1.26)
Weighted-average shares used in computing net loss per share attributable to common stockholders:
Basic and diluted85,085 34,680 84,488 28,124 
See accompanying notes to condensed consolidated financial statements
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FORGEROCK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Net loss$(10,938)$(15,266)$(49,778)$(35,410)
Other comprehensive loss, net of tax:
Net change in unrealized gain (loss) on available-for-sale securities(7)20 (2,174)24 
Foreign currency translation adjustment(1,440)2,804 (2,885)2,045 
Total comprehensive loss$(12,385)$(12,442)$(54,837)$(33,341)
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 Months Ended September 30, 2022 and 2021
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, 2022 $ 84,998,350 $85 $615,321 $3,060 $(302,665)$315,801 
Stock-based compensation expense— — — — 7,725 — — 7,725 
Issuance of common stock for stock plans, net— — 232,464 — 625 — — 625 
Unrealized loss on available-for-sale securities— — — — — (7)— (7)
Foreign currency translation adjustment— — — — — (1,440)— (1,440)
Net loss— — — — — — (10,938)(10,938)
Balances at September 30, 2022 $ 85,230,814 $85 $623,671 $1,613 $(313,603)$311,766 
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 
Common stock issued upon vesting of restricted stock units, net of tax withholding— — 179,763 — (3,528)— — (3,528)
Exercise of common stock options— — 328,417 — 718 — — 718 
Unrealized gain 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 
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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 Nine Months Ended September 30, 2022 and 2021
Redeemable convertible
preferred stock
Common stockAdditional
paid-in
capital
Accumulated
other
comprehensive
income
Accumulated
deficit
Total
stockholders'
equity (deficit)
SharesAmountSharesAmount
Balances at December 31, 2021 $ 82,648,825 $83 $593,196 $6,672 $(263,825)$336,126 
Stock-based compensation expense— — — — 22,155 — — 22,155 
Issuance of common stock for stock plans, net— — 2,289,458 2 3,946 — — 3,948 
Issuance of common stock under employee stock purchase plan— — 292,531 — 4,374 — — 4,374 
Unrealized loss on available-for-sale securities— — — — — (2,174)— (2,174)
Foreign currency translation adjustment— — — — — (2,885)— (2,885)
Net loss— — — — — — (49,778)(49,778)
Balances at September 30, 2022 $ 85,230,814 $85 $623,671 $1,613 $(313,603)$311,766 
Balances at December 31, 202040,842,619 $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)$343,308 
See accompanying notes to condensed consolidated financial statements
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FORGEROCK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
20222021
Operating activities:
Net loss$(49,778)$(35,410)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation812 795 
Noncash operating lease expense1,865 1,186 
Stock-based compensation expense22,155 6,396 
Amortization of deferred commissions10,652 10,436 
Foreign currency remeasurement (loss) gain(3,636)1,972 
Change in fair value of redeemable convertible preferred stock warrant liability 5,871 
Change in fair value of preferred stock tranche option liability 4,157 
Amortization of premium / discount on short-term investments 1,690 608 
Other28 157 
Changes in operating assets and liabilities:
Deferred commissions(13,182)(14,366)
Accounts receivable22,094 (2,170)
Contract and other non-current assets(3,416)(13,500)
Prepaid expenses and other current assets(3,291)(3,696)
Operating lease liabilities(1,301)(1,614)
Accounts payable(506)272 
Accrued expenses and other liabilities509 3,244 
Deferred revenue(15,699)4,306 
Net cash used in operating activities(31,004)(31,356)
Investing activities:
Purchases of property and equipment(1,474)(459)
Purchases of short-term investments(139,149)(201,415)
Maturities of short-term investments133,615  
Sales of short-term investments39,110 19,960 
Net cash provided by (used in) investing activities32,102 (181,914)
Financing activities:
Proceeds from initial public offering, net of underwriting discounts and commissions 295,694 
Payment of offering costs(145)(4,076)
Proceeds from exercises of employee stock options4,150 3,189 
Proceeds from issuance of common stock under employee stock purchase plan4,374  
Employee payroll taxes paid for net shares settlement of restricted stock units(188)(3,528)
Proceeds from issuance of redeemable convertible preferred stock 19,951 
Principal repayments on debt (120)
Net cash provided by financing activities8,191 311,110 
Effect of exchange rates on cash and cash equivalents and restricted cash857 (638)
Net increase in cash, cash equivalents and restricted cash10,146 97,202 
Cash, cash equivalents and restricted cash, beginning of year128,437 100,042 
Cash, cash equivalents and restricted cash, end of period$138,583 $197,244 
Supplementary cash flow disclosure:
Cash paid for interest$2,426 $2,536 
Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalents$138,542 $197,221 
Restricted cash included in prepaids and other current assets41 23 
Total cash and cash equivalents and restricted cash$138,583 $197,244 
Short-term investments, end of period$203,971 $180,872 
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 September 30, 2022, 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, 2022 and 2021 and the interim condensed consolidated statements of cash flows for the nine months ended September 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 September 30, 2022, the results of operations for the three and nine months ended September 30, 2022 and 2021 and cash flows for the nine months ended September 30, 2022 and 2021. The results for the three and nine months ended September 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 “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 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 (expense), 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 nine months ended September 30, 2022. As of September 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 September 30, 2022 and 2021, the Company recognized revenue of $1.3 million and $1.3 million and royalty expenses of $0.2 million and $0.1 million related to collaborative arrangements, respectively. In the nine months ended September 30, 2022 and 2021, the Company recognized revenue of $3.9 million and $3.5 million and royalty expenses of $0.8 million and $0.6 million 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:

The Company operates in a single operating segment. An operating segment is defined as a component of an enterprise for which discrete financial information is available and is regularly reviewed by the chief operating decision maker (CODM). The Company’s CODM is its Chief Executive Officer as he is responsible for making decisions regarding resource allocation and assessing the Company’s performance.

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,
2022202120222021
Americas$34,102 $21,123 $84,970 $66,689 
EMEA17,053 16,194 50,842 45,084 
APAC7,065 6,909 18,177 17,256 
Total Revenue $58,220 $44,226 $153,989 $129,029 

The Company’s revenue from the United States was $29.0 million and $74.6 million for the three and nine months ended September 30, 2022, respectively. 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 Kingdom did not exceed 10% of the Company’s total revenue for the three and nine months ended September 30, 2022; 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. 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 September 30,Nine Months Ended September 30,
2022202120222021
Revenue:
Multi-year term licenses$16,569 $10,222 $34,083 $37,834 
1-year term licenses
7,335 9,142 25,006 25,115 
Total subscription term licenses23,904 19,364 59,089 62,949 
Subscription SaaS, support and maintenance31,282 22,940 87,029 61,543 
Perpetual licenses91 183 197 885 
Total subscriptions and perpetual licenses55,277 42,487 146,315 125,377 
Professional services2,943 1,739 7,674 3,652 
Total Revenue$58,220 $44,226 $153,989 $129,029 
Contract Assets and Deferred Revenue
Contract assets and deferred revenue from contracts with customers were as follows (in thousands):
September 30,
2022
December 31,
2021
Contract assets$23,212 $20,508 
Deferred revenue59,300 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 $3.1 million and $3.1 million for the three months ended September 30, 2022 and 2021, respectively and $16.2 million and $8.0 million for the nine months ended September 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 $30.2 million and $24.2 million for the three months ended September 30, 2022 and 2021, respectively and $59.9 million and $45.5 million for the nine months ended September 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 and support and maintenance contracts for which the associated deferred revenue has not yet been recorded.

As of September 30, 2022, total remaining non-cancellable performance obligations under the Company’s subscriptions and perpetual license contracts with customers was approximately $176.9 million. Of this amount, the Company expects to recognize revenue of approximately $103.0 million, or 58%, 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 nine months ended September 30, 2022 and 2021:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Beginning balance$24,784 $17,055 $24,058 $14,748 
Additions to deferred commissions5,254 4,656 13,182 14,197 
Amortization of deferred commissions(3,450)(3,202)(10,652)(10,436)
Ending balance$26,588 $18,509 $26,588 $18,509 
September 30,
2022
December 31,
2021
Deferred commissions, current$8,697 $8,457 
Deferred commissions, non-current17,891 15,601 
Total deferred commissions$26,588 $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 September 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 and nine months ended September 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):
September 30, 2022
Level 1Level 2Level 3Total
Assets:
Money market funds$107,201 $ $ $107,201 
     Total cash equivalents 107,201   107,201 
Commercial paper 27,049  27,049 
Asset-backed securities 17,367  17,367 
Corporate debt securities 91,543  91,543 
U.S. treasury bonds 68,012  68,012 
     Total short-term investments  203,971  203,971 
     Total cash equivalents and short-term investments $107,201 $203,971 $ $311,172 
December 31, 2021
Level 1Level 2Level 3Total
Assets:
Money market funds$98,333 $ $ $98,333 
Total cash equivalents98,333   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 $