; ForgeRock, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.21.2
Fair Value Measurements
9 Months Ended
Sep. 30, 2021
Fair Value Disclosures [Abstract]  
Fair Value Measurements 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 1 Level 2 Level 3 Total
Assets:
Money market funds $ 169,315  $ —  $ —  $ 169,315 
Total cash equivalents 169,315  —  —  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 1 Level 2 Level 3 Total
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 $ —  $ —  $ 9,968  $ 9,968 
The preferred stock warrants and preferred stock tranche option liability values were estimated using assumptions related to the remaining contractual terms, the risk-free interest rates, the volatility of comparable public companies over the remaining terms and the fair value of underlying shares. The significant unobservable inputs used in the fair value measurement included the fair value of the Company’s underlying preferred stock at the valuation date and the estimated terms. Increases (decreases) in the fair value were recognized in fair value adjustment on warrants and preferred stock tranche option on the condensed consolidated statements of operations.
The change in the fair value of the warrants was as follows (in thousands):
Nine Months Ended September 30, 2021
Beginning balance $ 2,401 
Increase in fair value of preferred stock warrants 5,871 
Balance at issuance of common stock upon exercise of warrants (8,272)
Ending balance $ — 
The change in fair value of the preferred stock tranche option was as follows (in thousands):
Nine Months Ended September 30, 2021
Beginning balance $ 7,567 
Increase in fair value of preferred stock tranche option 4,157 
Balance at reclassification to redeemable convertible preferred stock (11,724)
Ending balance $ — 
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 table above.