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, 2023

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	☒	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	o
		Emerging growth company	o

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, 2023, there were 52,852,722 shares of the registrant's Class A common stock outstanding and 36,297,481 shares of the registrant's Class B common stock outstanding.

PART I. 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 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	24
Item 3. Quantitative and Qualitative Disclosures About Market Risk	42
Item 4. Controls and Procedures	43
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	45
Item 1A. Risk Factors	45
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Initial Public Offering	88
Item 3. Defaults Upon Senior Securities	88
Item 4. Mine Safety Disclosures	88
Item 5. Other Information	88
Item 6. Exhibits	89
Signatures	90

2

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 with respect to ongoing litigation;

•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.

3

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.

4

PART I – FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

FORGEROCK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In thousands, except par value)

	June 30, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	288,994	$	128,803
Short-term investments	32,716		207,248
Accounts receivable, net of allowance for credit losses of $667 and $444, respectively	50,904		71,439
Contract assets	25,596		25,117
Deferred commissions	9,877		9,936
Prepaid expenses and other assets	13,058		14,810
Total current assets	421,146		457,353
Deferred commissions	21,589		20,379
Property and equipment, net	2,720		2,850
Operating lease right-of-use assets	9,377		10,190
Contract and other assets	3,888		3,408
Total assets	$	458,720	$	494,180
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	6,154	$	4,587
Accrued compensation	17,029		24,836
Accrued expenses	7,924		9,475
Current portion of operating lease liability	1,927		1,902
Deferred revenue	82,016		82,036
Other liabilities	1,502		2,927
Total current liabilities	116,552		125,763
Long-term debt	39,675		39,611
Long-term operating lease liability	8,352		9,207
Deferred revenue	2,389		1,283
Other liabilities	2,838		2,150
Total liabilities	169,806		178,014
Commitments and contingencies (Note 8)
Stockholders’ equity
Class A common stock; $0.001 par value; 1,000,000 shares authorized as of June 30, 2023 and December 31, 2022, 52,798 and 49,872 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively	53		50
Class B common stock; $0.001 par value; 500,000 shares authorized as of June 30, 2023 and December 31, 2022, 36,297 and 37,195 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively	36		37
Additional paid-in capital	667,230		641,983
Accumulated other comprehensive income	5,909		4,193
Accumulated deficit	(384,314)		(330,097)
Total stockholders’ equity	288,914		316,166
Total liabilities and stockholders’ equity	$	458,720	$	494,180

See accompanying notes to condensed consolidated financial statements

5

FORGEROCK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(In thousands, except per share amounts)

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenue:
Subscription term licenses	$	16,488	$	15,527	$	42,045	$	35,185
Subscription SaaS, support & maintenance	38,110		29,562		72,211		55,748
Perpetual licenses	94		19		159		105
Total subscriptions and perpetual licenses	54,692		45,108		114,415		91,038
Professional services	3,592		2,569		7,012		4,731
Total revenue	58,284		47,677		121,427		95,769
Cost of revenue:
Subscriptions and perpetual licenses	9,527		6,415		17,849		12,268
Professional services	3,594		2,912		7,072		5,763
Total cost of revenue	13,121		9,327		24,921		18,031
Gross profit	45,163		38,350		96,506		77,738
Operating expenses:
Research and development	17,515		15,666		34,718		30,144
Sales and marketing	37,616		30,050		74,067		57,028
General and administrative	16,259		14,935		32,127		28,479
Acquisition-related costs	3,851		—		10,798		—
Total operating expenses	75,241		60,651		151,710		115,651
Operating loss	(30,078)		(22,301)		(55,204)		(37,913)
Foreign currency gain (loss)	(657)		1,026		(1,199)		1,461
Interest expense	(875)		(881)		(2,010)		(1,780)
Other income, net	3,198		275		5,034		343
Interest and other income (expense), net	1,666		420		1,825		24
Loss before income taxes	(28,412)		(21,881)		(53,379)		(37,889)
Provision for income taxes	369		489		838		951
Net loss	$	(28,781)	$	(22,370)	$	(54,217)	$	(38,840)
Net loss per share attributable to stockholders:
Basic and diluted	$	(0.32)	$	(0.26)	$	(0.62)	$	(0.46)
Weighted-average shares used in computing net loss per share attributable to stockholders:
Basic and diluted	88,757		84,445		88,114		84,107

See accompanying notes to condensed consolidated financial statements

6

FORGEROCK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

(In thousands)

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net loss	$	(28,781)	$	(22,370)	$	(54,217)	$	(38,840)
Other comprehensive income (loss), net of tax:
Net unrealized gain (loss) on available-for-sale securities	197		(481)		1,788		(2,167)
Net foreign currency translation gain (loss)	(111)		(1,153)		(72)		(1,445)
Total comprehensive loss	$	(28,695)	$	(24,004)	$	(52,501)	$	(42,452)

See accompanying notes to condensed consolidated financial statements

7

FORGEROCK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(UNAUDITED)

(In thousands, except share data)

For the Three and Six Months Ended June 30, 2023
	Class A and Class B common stock and Common stock			Additional paid-in capital		Accumulated other comprehensive income		Accumulated deficit		Total stockholders' equity
	Shares	Amount
Balances at March 31, 2023	88,229,000	$	88	$	654,600	$	5,823	$	(355,533)	$	304,978
Stock-based compensation expense	—	—		11,579		—		—		11,579
Issuance of common stock for stock plans, net	481,342	1		3,443		—		—		3,444
Releases of restricted stock, net of tax withholding	385,135	—		(2,392)		—		—		(2,392)
Unrealized gain (loss) on available-for-sale securities	—	—		—		197		—		197
Foreign currency translation adjustment	—	—		—		(111)		—		(111)
Net loss	—	—		—		—		(28,781)		(28,781)
Balances at June 30, 2023	89,095,477	$	89	$	667,230	$	5,909	$	(384,314)	$	288,914
Balances at December 31, 2022	86,977,070	$	87	$	641,983	$	4,193	$	(330,097)	$	316,166
Stock-based compensation expense	—	—		21,762		—		—		21,762
Issuance of common stock for stock plans, net	1,247,535	2		9,780		—		—		9,782
Releases of restricted stock, net of tax withholding	870,872	—		(6,295)		—		—		(6,295)
Unrealized gain (loss) on available-for-sale securities	—	—		—		1,788		—		1,788
Foreign currency translation adjustment	—	—		—		(72)		—		(72)
Net loss	—	—		—		—		(54,217)		(54,217)
Balances at June 30, 2023	89,095,477	$	89	$	667,230	$	5,909	$	(384,314)	$	288,914

8

FORGEROCK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(UNAUDITED)

(In thousands, except share data)

For the Three and Six Months Ended June 30, 2022
	Class A and Class B common stock and Common stock			Additional paid-in capital		Accumulated other comprehensive income		Accumulated deficit		Total stockholders' equity
	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
Issuance of common stock for stock plans, net	454,267	1		1,142		—		—		1,143
Issuance of common stock under employee stock purchase plan	292,531	—		4,374		—		—		4,374
Unrealized gain (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
Issuance of common stock for stock plans, net	2,056,994	2		3,320		—		—		3,322
Issuance of common stock under employee stock purchase plan	292,531	—		4,374		—		—		4,374
Unrealized gain (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

See accompanying notes to condensed consolidated financial statements

9

FORGEROCK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

	Six Months Ended June 30,
	2023		2022
Operating activities:
Net loss	$	(54,217)	$	(38,840)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	503		549
Noncash operating lease expense	1,229		1,147
Stock-based compensation expense	21,762		14,431
Amortization of deferred commissions	7,749		7,202
Foreign currency remeasurement loss (gain)	1,093		(1,539)
Amortization of premium / discount on short-term investments	(1,117)		1,247
Other	688		50
Changes in operating assets and liabilities:
Deferred commissions	(8,900)		(7,928)
Accounts receivable	21,531		7,709
Contract and other non-current assets	(890)		2,458
Prepaid expenses and other current assets	2,090		(893)
Operating lease liabilities	(1,282)		(884)
Accounts payable	1,529		(45)
Accrued expenses and other liabilities	(10,781)		(4,265)
Deferred revenue	(190)		(5,130)
Net cash used in operating activities	(19,203)		(24,731)
Investing activities:
Purchases of property and equipment	(322)		(974)
Purchases of short-term investments	(18,974)		(64,971)
Maturities of short-term investments	54,763		43,048
Sales of short-term investments	141,053		11,792
Net cash provided by (used in) investing activities	176,520		(11,105)
Financing activities:
Proceeds from exercises of employee stock options	9,782		3,329
Payment of offering costs	—		(141)
Employee payroll taxes paid for net shares settlement of restricted stock units	(6,295)		—
Proceeds from issuance of common stock under employee stock purchase plan	—		4,374
Net cash provided by financing activities	3,487		7,562
Effect of exchange rates on cash and cash equivalents and restricted cash	(541)		(1,036)
Net increase (decrease) in cash, cash equivalents and restricted cash	160,263		(29,310)
Cash, cash equivalents and restricted cash, beginning of year	131,324		128,437
Cash, cash equivalents and restricted cash, end of period	$	291,587	$	99,127
Supplementary cash flow disclosure:
Short-term investments, end of period	$	32,716	$	248,128
Cash paid for interest	(1,609)		(1,333)
Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalents	$	288,994	$	99,083
Restricted cash included in prepaids and other current assets	2,593		44
Total cash and cash equivalents and restricted cash	$	291,587	$	99,127

See accompanying notes to condensed consolidated financial statements

10

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.

Pending Merger

On October 10, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Project Fortress Parent, LLC (“Parent”) and Project Fortress Merger Sub, Inc. (“Merger Sub”), pursuant to which Merger Sub will merge with and into ForgeRock (the “Merger”) and ForgeRock will continue as the surviving corporation in the Merger, as a wholly owned subsidiary of Parent. Parent and Merger Sub are entities affiliated with Thoma Bravo.

Under the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of the Company’s Class A common stock and Class B common stock (except for certain shares specified in the Merger Agreement) will be canceled and automatically converted into the right to receive cash in an amount equal to $23.25 per share, without interest.

On December 22, 2022, ForgeRock and Parent each received a request for additional information and documentary material (together, the “Second Request”) from the Department of Justice (the “DOJ”) in connection with the DOJ’s review of the Merger. In February 2023, ForgeRock and Parent entered into an agreement (the “Timing Agreement”) with the DOJ in connection with the proposed acquisition and the Second Request. Under the Timing Agreement, ForgeRock and Parent agreed not to consummate the proposed acquisition less than 75 days after compliance with the Second Request. ForgeRock continues to cooperate with the DOJ in connection with its review of the proposed acquisition.

Either ForgeRock or Parent may terminate the Merger Agreement under certain circumstances, including if (1) the effective time has not occurred by October 10, 2023 (the “Termination Date”), which may be extended to January 10, 2024 if certain closing conditions related to the receipt of required regulatory approvals have not been satisfied at such time, unless ForgeRock delivers written notice to Parent prior to 11:59 p.m., Pacific time, on October 10, 2023 specifying that the Termination Date shall not be so extended or (2) a governmental authority of competent jurisdiction has issued a final non-appealable governmental order preventing the Merger.

Upon consummation of the Merger, ForgeRock will cease to be a publicly traded company and its Class A common stock will be delisted from the New York Stock Exchange.

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.

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Unaudited Interim Condensed Consolidated Financial Information

The accompanying interim condensed consolidated balance sheet as of June 30, 2023, the condensed consolidated statements of operations, comprehensive loss, and stockholders’ equity for the three and six months ended June 30, 2023 and 2022 and the interim condensed consolidated statements of cash flows for the six months ended June 30, 2023 and 2022 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, 2022, 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, 2022 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, 2023, the results of operations for the three and six months ended June 30, 2023 and 2022 and cash flows for the six months ended June 30, 2023 and 2022. The results for the three and six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 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.

2. Summary of Significant Accounting Policies

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 and 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 (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

12

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, 2023. As of June 30, 2023 and December 31, 2022, no allowance for credit losses in short-term investments was recorded.

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

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”). 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.

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. Our customers rely on these third-party hosted services retaining a high level of uptime. Through June 30, 2023, the Company has not incurred any significant service level credits to its customers.

Collaborative Arrangements

The Company has entered into collaborative arrangements with three 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, 2023 and 2022, the Company recognized revenue of $1.3 million and $1.4 million and royalty expenses of $0.4 million and $0.2 million related to collaborative arrangements, respectively. In the six months ended June 30, 2023 and 2022, the Company recognized revenue of $3.4 million and $2.6 million and royalty expenses of $0.6 million and $0.6 million related to collaborative arrangements, respectively.

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):

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	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Americas	$	34,720	$	26,118	$	68,831	$	50,868
EMEA	18,713		16,687		42,885		33,789
APAC	4,851		4,872		9,711		11,112
Total revenue	$	58,284	$	47,677	$	121,427	$	95,769

The Company’s revenue from the United States was $32.0 million and $62.3 million for the three and six months ended June 30, 2023, respectively. 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 Kingdom was $6.2 million and $13.5 million for the three and six months ended June 30, 2023, 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. No other individual country exceeded 10% of the Company’s total 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,
	2023		2022		2023		2022
Revenue:
Multi-year term licenses	$	10,439	$	9,329	$	25,703	$	17,515
1-year term licenses	6,049		6,198		16,342		17,670
Total subscription term licenses	16,488		15,527		42,045		35,185
Subscription SaaS, support & maintenance	38,110		29,562		72,211		55,748
Perpetual licenses	94		19		159		105
Total subscriptions and perpetual licenses	54,692		45,108		114,415		91,038
Professional services	3,592		2,569		7,012		4,731
Total revenue	$	58,284	$	47,677	$	121,427	$	95,769

Contract Assets and Deferred Revenue

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

	June 30, 2023		December 31, 2022
Contract assets	$	25,779	$	25,242
Deferred revenue	84,405		83,319

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 $10.8 million and $9.5 million for the three months ended June 30, 2023 and 2022, respectively and $15.5 million and $14.7 million for the six months ended June 30, 2023 and 2022, respectively.

Deferred revenue is recorded when invoicing occurs before revenue is recognized. Revenue recognized that was included in the deferred revenue balance at the beginning of the period was $32.7 million and $25.7 million for the three months ended June 30, 2023 and 2022, respectively and $58.1 million and $46.3 million for the six months ended June 30, 2023 and 2022, respectively.

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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 & maintenance contracts for which the associated deferred revenue has not yet been recorded.

As of June 30, 2023, total remaining non-cancellable performance obligations under the Company’s subscriptions and perpetual license contracts with customers was approximately $238.8 million. Of this amount, the Company expects to recognize revenue of approximately $136.6 million, or 57%, 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, 2023 and 2022:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Beginning balance	$	30,220	$	24,152	$	30,315	$	24,058
Additions to deferred commissions	5,079		3,843		8,900		7,928
Amortization of deferred commissions	(3,833)		(3,211)		(7,749)		(7,202)
Ending balance	$	31,466	$	24,784	$	31,466	$	24,784

	June 30, 2023		December 31, 2022
Deferred commissions, current	$	9,877	$	9,936
Deferred commissions, non-current	21,589		20,379
Total deferred commissions	$	31,466	$	30,315

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

Major Customers

As of June 30, 2023 and December 31, 2022 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 six months ended June 30, 2023 and 2022, no single customer represented greater than 10% of revenue.                                            

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

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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):

	June 30, 2023
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	207,400	$	—	$	—	$	207,400
Total cash equivalents	207,400		—		—		207,400
U.S. treasury bonds	—		32,725		—		32,725
Total short-term investments	—		32,725		—		32,725
Total cash equivalents and short-term investments	$	207,400	$	32,725	$	—	$	240,125
	December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	91,376	$	—	$	—	$	91,376
Total cash equivalents	91,376		—		—		91,376
Commercial paper	—		47,840		—		47,840
Asset-backed securities	—		17,198		—		17,198
Corporate debt securities	—		98,798		—		98,798
U.S. treasury bonds	—		43,412		—		43,412
Total short-term investments	—		207,248		—		207,248
Total cash equivalents and short-term investments	$	91,376	$	207,248	$	—	$	298,624

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.

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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, 2023 and December 31, 2022 were as follows (in thousands):

	June 30, 2023
	Amortized Cost		Unrealized Gain		Unrealized Loss		Estimated Fair Value
Cash equivalents:
Money market funds	$	207,400	$	—	$	—	$	207,400
Total cash equivalents	207,400		—		—		207,400
Short-term investments
U.S. Treasury bonds	32,896		—		(171)		32,725
Short-term investments	32,896		—		(171)		32,725
Total	$	240,296	$	—	$	(171)	$	240,125

	December 31, 2022
	Amortized Cost		Unrealized Gain		Unrealized Loss		Estimated Fair Value
Cash equivalents:
Money market funds	$	91,376	$	—	$	—	$	91,376
Total cash equivalents	91,376		—		—		91,376
Short-term investments
Commercial paper	47,840		—		—		47,840
Asset-backed securities	17,623		—		(425)		17,198
Corporate debt securities	99,599		1		(802)		98,798
U.S. treasury bonds	44,154		—		(742)		43,412
Short-term investments	209,216		1		(1,969)		207,248
Total	$	300,592	$	1	$	(1,969)	$	298,624

All short-term investments were designated as available-for-sale securities as of June 30, 2023 and December 31, 2022.

The following table presents the contractual maturities of the Company’s short-term investments as of June 30, 2023 and December 31, 2022 (in thousands):

	June 30, 2023
	Amortized Cost		Estimated Fair Value
Due within one year	$	32,896	$	32,725
Due between one to five years	—		—
Total	$	32,896	$	32,725

	December 31, 2022
	Amortized Cost		Estimated Fair Value
Due within one year	$	209,216	$	207,248
Due between one to five years	—		—
Total	$	209,216	$	207,248

As of June 30, 2023, the Company did not have any unsettled purchases or unsettled maturities of short-term investments. The following table presents the breakdown of the short-term investments that have been in a continuous unrealized loss position aggregated by investment category, as of June 30, 2023.

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	June 30, 2023
	Less than 12 months				More than 12 months				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Cash equivalents:
Money market funds	$	207,400	$	—	$	—	$	—	$	207,400	$	—
Total cash equivalents	207,400		—		—		—		207,400		—
Short-term investments
U.S. Treasury bonds	12,866		(34)		19,859		(137)		32,725		(171)
Short-term investments	12,866		(34)		19,859		(137)		32,725		(171)
Total	$	220,266	$	(34)	$	19,859	$	(137)	$	240,125	$	(171)

The Company had short-term investments with a market value of $32.7 million in unrealized loss positions as of June 30, 2023. Gross unrealized losses from available-for-sale securities were $0.2 million as of June 30, 2023.

For available-for-sale debt securities that have unrealized losses, the Company evaluates whether (i) the Company has the intention to sell any of these investments, (ii) it is not more likely than not that the Company will be required to sell any of these available-for-sale debt securities before recovery of the entire amortized cost basis and (iii) the decline in the fair value of the investment is due to credit related factors.

6. Leases

The Company primarily has operating leases for office space. The leases expire on various dates between 2023 and 2029, some of which could include options to extend the lease. Options to extend the lease term are included in the lease term when it is reasonably certain that ForgeRock will exercise the extension option. Leases with a term of one year or less are not recognized on the Company’s condensed consolidated balance sheets, while the associated lease payments are recorded in the condensed consolidated statements of operations on a straight-line basis over the lease term. The Company’s leases do not contain material variable rent payments, residual value guarantees, covenants or other restrictions.

The following table summarizes the components of lease expense, which are included in operating expenses in the Company’s condensed statements of operations and comprehensive loss (in thousands):

	Three Months Ended June 30, 2023		Six Months Ended June 30, 2023
Operating lease expense	$	650	$	1,357
Variable lease expense	207		395
Total lease expense	$	857	$	1,752

Variable lease payments include amounts relating to common area maintenance, real estate taxes and insurance and are recognized in the condensed consolidated statements of operations and comprehensive loss as incurred.

The following table summarizes supplemental information related to leases:

	Six Months Ended June 30, 2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases (in thousands)	$	1,270
Weighted-average remaining lease term (years)
Operating leases	5.9
Weighted-average discount rate
Operating leases	5.4		%

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The following table summarizes the maturities of lease liabilities as of June 30, 2023 (in thousands):

2023 (6 months remaining)	$	1,268
2024	2,157
2025	1,930
2026	1,763
2027	1,779
Thereafter	3,070
Total future minimum lease payments	11,967
Less: Imputed interest	(1,688)
Present value of future minimum lease payments	10,279
Less: Current portion of operating lease liability	1,927
Non-current portion of operating lease liability	$	8,352

7. Debt

The following table presents total debt outstanding (in thousands, except interest rates):

	June 30, 2023				December 31, 2022
	Amount		Interest Rate		Amount		Interest Rate
$10.0 million March 2019	$	10,000	8.00	%	$	10,000	8.00	%
$10.0 million September 2019	10,000		8.00	%	10,000		8.00	%
$10.0 million December 2019	10,000		8.00	%	10,000		8.00	%
$10.0 million March 2020	10,000		8.00	%	10,000		8.00	%
Less: debt discount	(325)				(389)
Total debt, net of debt discount	39,675				39,611
Less: current portion	—				—
Total long-term debt	$	39,675			$	39,611

In September 2021, the Company executed an amendment to the Amended Restated Plain English Growth Capital Loan and Security Agreement with TriplePoint Venture Growth BDC Corp. (“TriplePoint”) and TriplePoint Capital LLC (the “A&R Loan Agreement”), which amends and restates the Loan and Security Agreement entered into in March 2016 with TriplePoint. The payments on all cash advances are interest only. The A&R Loan Agreement became effective once the registration statement in connection with the initial public offering was declared effective on September 16, 2021. The key provisions of the amendment include: (1) a covenant requiring the maintenance of a $20.0 million cash balance when an event of default exits, (2) change in the interest rate for outstanding term loan to be eight percent (8.00%) per annum on the existing loans, (3) extension of the maturity dates by twenty-four months, (4) change in the prepayment penalties and (5) and a change in the end-of-term interest payments. The principal will be due at the end of the term of the respective advance. The A&R Loan Agreement is secured by substantially all the Company’s assets, excluding its intellectual property, which was subject to a negative pledge. The A&R Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to the Company, including, among other things, restrictions on indebtedness, liens, investments, dividends and other distributions.

The A&R Loan Agreement was accounted for as a modification and not an extinguishment as the terms of the Company’s outstanding debt were not substantially different from the original terms. The Company amortizes the debt issuance costs as interest expense using the effective interest method over the remaining term of the loan.

As of June 30, 2023 and December 31, 2022, accrued interest for the end-of term payments was $2.5 million and $2.0 million, respectively. The annualized effective interest rate on debt was 9.70% and 8.70% for the six months ended June 30, 2023 and year ended December 31, 2022, respectively. As of June 30, 2023, the Company was in compliance with the covenants set forth in the A&R Loan Agreement.

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Future principal payments on outstanding borrowings as of June 30, 2023 are as follows:

Years ending:
2023 (6 months remaining)	$	—
2024	—
2025	30,000
2026	10,000
Total	$	40,000

8. Commitments and Contingencies

Letters of Credit

As of June 30, 2023 and December 31, 2022, the Company had outstanding letters of credit under an office lease agreement that totaled $0.6 million, which primarily guaranteed early termination fees in the event of default. The letters of credit are not collateralized.

Purchase Commitments

In the ordinary course of business, the Company enters into various purchase commitments primarily related to third-party cloud hosting and data services, information technology operations and marketing events. Total noncancellable purchase commitments as of June 30, 2023 were approximately $37.7 million as follows:

2023	$	12,729
2024	25,000
	$	37,729

Acquisition-Related Costs and Contingencies

The completion of the Merger with entities affiliated with Thoma Bravo remains subject to customary closing conditions. As part of the Merger, the Company has incurred $17.0 million in Merger-related expenses through June 30, 2023 and expects to incur additional costs through the closing of the transaction, including approximately $28.8 million that are primarily contingent on the consummation of the Merger. These liabilities include banker fees, legal fees and other third-party professional fees.

Employee Benefit Plans

The Company has a 401(k) Savings Plan (“the 401(k) Plan”) which qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. The 401(k) Plan and other pension plans that the Company provides or is mandated to provide are all defined contribution plans. During the three months ended June 30, 2023 and 2022, the Company’s 401(k) and other pension plan contributions were $1.2 million and $1.1 million, respectively. During the six months ended June 30, 2023 and 2022, the Company’s 401(k) and other pension plan contributions were $2.6 million and $2.2 million, respectively.

Warranties and Guarantees

The Company’s software and software-as-a-service (“SaaS”) offerings are generally warrantied to perform materially in accordance with the Company’s documentation under normal use and circumstances. To date, the Company has not incurred significant costs and has not accrued a liability in the accompanying condensed consolidated financial statements as a result of these obligations.

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The Company has entered into service-level agreements with a majority of its customers defining levels of support response times and SaaS uptimes, as applicable. In a very small percentage of the Company's arrangements, the Company allows customers to terminate their agreements if the Company fails to meet those levels. In such instances, the customer would be entitled to a refund of prepaid unused subscription or support & maintenance fees. To date, the Company has not experienced any significant failures to meet defined support response times or SaaS uptimes pursuant to those agreements and has not accrued any liabilities related to these agreements in the condensed consolidated financial statements.

The Company has not been obligated to make any payments for contingent indemnification obligations in respect to third-party claims, and no liabilities have been recorded for these obligations as of June 30, 2023 and December 31, 2022.

Legal Matters

From time to time, the Company may be a party to various legal proceedings and claims that arise in the ordinary course of business. The Company makes a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company maintains insurance to cover certain actions and believes that resolution of such claims, charges, or litigation will not have a material impact on the Company’s financial position, results of operations, or liquidity.

9. Income Taxes

For the three months ended June 30, 2023 and 2022, the Company recorded a tax provision of $0.4 million and $0.5 million, respectively. For the six months ended June 30, 2023 and 2022, the Company recorded a tax provision of $0.8 million and $1.0 million, respectively. The effective tax rate differs from the U.S. federal statutory income tax rate of 21% primarily as a result of not recognizing deferred tax assets for domestic and certain foreign jurisdictions due to a full valuation allowance against deferred tax assets.

10. Stock-based Compensation

A summary of the Company’s stock-based compensation expense as recognized on the condensed consolidated statements of operations is presented below (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Cost of revenue	$	1,015	$	615	$	2,020	$	1,132
Research and development	2,216		1,653		4,226		3,053
Sales and marketing	4,383		2,803		8,323		5,061
General and administrative	3,965		2,900		7,193		5,185
Total stock-based compensation expense	$	11,579	$	7,971	$	21,762	$	14,431

2021 Equity Incentive Plan

In September 2021, the Company’s board of directors adopted the Company’s 2021 Equity Incentive Plan (the “2021 Plan”) as a successor to the 2012 Equity Incentive Plan (the “2012 Plan”) with the purpose of granting stock-based awards to employees, directors, officers and consultants such as stock options, restricted stock awards and restricted stock units (RSUs). The Company’s compensation committee administers the 2021 Plan. A total of 7,276,000 shares of Class A common stock were initially available for issuance under the 2021 Plan. In addition, the shares reserved for issuance under the 2021 Plan will also include a number of shares of Class A common stock equal to the number of shares of Class B common stock subject to awards granted under the 2012 Plan that, on or after the termination of the 2012 Plan, expire or otherwise terminate without having been exercised in full or are forfeited to or repurchased by the Company (provided that the maximum number of shares that may be added to the 2021 Plan pursuant to this sentence is 14,913,309 shares). The number of shares of the Company’s Class A common stock available for issuance under the 2021 Plan is subject to an annual increase on the first day of each fiscal year beginning on January 1, 2022, equal to the lesser of: (i) 8,085,000 shares; (ii) 5% of the outstanding shares of all classes of the Company’s common stock as of the last day of the immediately preceding year; or (iii) such other amount as the Company’s board of directors may determine. As of June 30, 2023, there were 7,182,983 stock-based awards issued and outstanding and 8,234,118 shares available for issuance under the 2021 Plan.

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2012 Equity Incentive Plan

The 2012 Plan, which was amended in March 2021, was terminated in September 2021, in connection with the adoption of the 2021 Plan, and stock-based awards are no longer granted under the 2012 Plan. However, the 2012 Plan will continue to govern the terms and conditions of the outstanding awards previously granted thereunder. As of June 30, 2023, the Company has not issued any stock appreciation rights.

2021 Employee Stock Purchase Plan

In September 2021, the Company’s board of directors adopted and the stockholders approved the 2021 Employee Stock Purchase Plan (the “2021 ESPP”), which became effective concurrent with the completion of the IPO, and established an initial reserve of 1,617,000 shares of common stock. The 2021 ESPP provides for annual increases in the number of shares available for issuance on the first day of each fiscal year beginning on January 1, 2022, equal to the lesser of: (i) 1,617,000 shares; (ii) 1% of the outstanding shares of all classes of the Company’s common stock as of the last day of the immediately preceding year; or (iii) such other amount determined by the plan administrator. No shares were purchased in the six months ended June 30, 2023 and 292,531 shares were purchased in the six months ended June 30, 2022 under the 2021 ESPP.

Except for the initial offering period, the ESPP provides for a 12-month offering period beginning November 15 and May 15 of each year, and each offering period will consist of two six-month purchase periods. The initial offering period began on October 1, 2021 and ended on November 15, 2022. On each purchase date, eligible employees will purchase the shares at a price per share equal to 85% of the lesser of (1) the fair market value of the Company’s common stock on the offering date, or (2) the fair market value of its common stock on the purchase date. If such fair market value decreases from the offering date to the applicable purchase date, the offering period will terminate after the purchase of shares and all participants will be automatically enrolled in the next offering period (a “rollover event”). The first purchase period of the initial offering period began on October 1, 2021 and ended on May 15, 2022 after the first purchase was completed as a result of a rollover event.

As per the Merger Agreement, the last purchase under the 2021 ESPP occurred on November 15, 2022.

Restricted Stock Units

The Company grants RSUs that generally vest over one to four years. The total grant-date fair value of RSUs granted was $33.8 million and $34.0 million during the six months ended June 30, 2023 and 2022, respectively.

A summary of the Company’s unvested RSUs and activity for the six months ended June 30, 2023 is as follows:

	Shares	Weighted Average Grant Date Fair Value
Balance at December 31, 2022	6,100,343	$	20.16
Granted	1,656,307	20.42
Vested	(870,872)	17.33
Canceled	(170,348)	20.33
Balance at June 30, 2023	6,715,430	20.58

As of June 30, 2023, there was $125.0 million of total unrecognized compensation, which will be recognized over the remaining weighted-average vesting period of 3.2 years using the straight-line method.

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Stock Options

A summary of the Company’s stock option activity and related information for the six months ended June 30, 2023 is as follows:

	Number of Awards Outstanding	Weighted- Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Balance at December 31, 2022	10,194,694	$	5.81	6.2	$	173,953
Exercised	(1,126,854)	3.12
Forfeited	(55,753)	10.82
Balance at June 30, 2023	9,012,087	6.11		6.0	132,089
As of June 30, 2023:
Vested and exercisable	7,464,269	5.08		5.7	116,318

As of June 30, 2023, there was $10.1 million of unrecognized compensation expense related to non-vested stock options granted under the Plan. That expense is expected to be recognized over a weighted-average period of 1.5 years. No stock options were granted during the six months ended June 30, 2023.

11. Stockholders’ Equity

Preferred Stock

In connection with the IPO, the Company amended and restated its certificate of incorporation, which became effective immediately prior to the closing of the Company’s offering and authorized 100,000,000 shares of undesignated preferred stock, with a par value of $0.001. As of June 30, 2023, there were 100,000,000 shares of preferred stock authorized and zero shares of preferred stock outstanding.

Common Stock

The Company has two classes of common stock: Class A common stock and Class B common stock. In connection with the IPO, the Company amended and restated its certificate of incorporation and authorized 1,000,000,000 shares of Class A common stock and 500,000,000 shares of Class B common stock. The shares of Class A common stock and Class B common stock are identical, except with respect to voting rights. Each share of Class A common stock is entitled to one vote. Each share of Class B common stock is entitled to ten votes. Class A and Class B common stock have a par value of $0.001 per share, and are referred to collectively as the Company’s common stock throughout the notes to the condensed consolidated financial statements, unless otherwise noted. Holders of common stock are entitled to receive any dividends as may be declared from time to time by the board of directors.

Shares of Class B common stock may be converted to Class A common stock at any time at the option of the stockholder. Shares of Class B common stock automatically convert to Class A common stock at the earlier of (i) the 7th anniversary of the filing and effectiveness of the Company’s amended and restated certificate of incorporation in connection with the IPO, (ii) when the outstanding shares of the Company’s Class B common stock represent less than 5% of the combined voting power of the Company’s Class A common stock and Class B common stock, and (iii) the affirmative vote of the holders of 66 2/3% of the voting power of the Company’s outstanding Class B common stock.

Immediately prior to the completion of the IPO, all shares of common stock then outstanding were reclassified into Class B common stock.

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12. Net Loss Per Share

Since the Company was in a loss position for the periods presented, basic net loss per share is the same as diluted net loss per share, as the inclusion of all potential common shares outstanding would have been anti-dilutive.

The following outstanding potentially dilutive ordinary shares were excluded from the computation of diluted net loss per share attributable to ordinary stockholders for the periods presented, as their effect would have been anti-dilutive:

	Three Months Ended June 30,		Six Months Ended June 30,
	2023	2022	2023	2022
	(In thousands)		(In thousands)
Stock options	6,159	8,284	6,515	8,347
Restricted stock units	818	654	971	387
Total anti-dilutive shares	6,977	8,938	7,486	8,734

    In the event of liquidation, dissolution, distribution of assets or winding-up of the Company, the holders of all classes of common stock have equal rights to receive all the assets of the Company. We have not presented net loss per share under the two-class method for our Class A common stock and Class B common stock because it would be the same for each class due to equal dividend and liquidation rights for each class.

13. Related Party Transactions

KKR & Co. Inc. (“KKR”) is a U.S.-based investment firm. Funds controlled by KKR held approximately 5.0% and 5.3% of the Company’s capital stock as of June 30, 2023 and June 30, 2022, respectively. KKR has representation on the Company’s board of directors. During the three and six months ended June 30, 2023, the Company recognized revenue of $1.1 million and $1.8 million with KKR affiliates, respectively. During the three and six months ended June 30, 2022, the Company recognized revenue of $1.2 million and $1.8 million with KKR affiliates, respectively. The Company had $0.7 million and $0.3 million in aggregate accounts receivable recorded related to these agreements at June 30, 2023 and June 30, 2022, respectively.

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

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, including information with respect to our plans and strategy for our business and forward-looking statements that involve risks and uncertainties. You should review the sections titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors” for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Note numbers refer to “Notes to Condensed Consolidated Financial Statements” in Item 1. Unaudited Financial Statements.

Overview

Our vision is a world where you never log in again.

We help make the digital economy possible. ForgeRock supports billions of identities to help people simply and safely access the connected world—from shopping and banking to accessing company networks to get their work done. We make this possible through a unified and extensive identity platform to enable enterprises to provide exceptional digital user experiences without compromising security and privacy. This allows enterprises to deepen their relationships with customers and increase the productivity of their workforce and partners, while at the same time providing better security and regulatory compliance.

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Our platform is purpose-built for the enterprise and provides mission-critical capabilities, including performance and scale, rich identity functionality, deployment flexibility, and extensive integration and interoperability. Our platform includes a full suite of identity functionality across Customer Identity Access Management (CIAM), Access Management (AM), Identity Governance Administration (IGA), and Autonomous Identity and Access and a differentiated identity object modeling approach that supports all identity types. We enable enterprises to rapidly integrate and secure thousands of applications across types, deployments, and operating environments such as SaaS, mobile, microservices, web, and legacy, running in public and private cloud, and on-premise. Together, these deep capabilities enable us to provide enterprises with a single view of all their identities in one unified platform and position us as a leader in digital identity for the enterprise market.

We Generate Substantially All of Our Revenue From Subscriptions

Our revenue includes recurring revenue from term licenses, SaaS, and maintenance and support (which we refer to collectively as our subscription revenue). We generate substantially all of our revenue from the sale of subscriptions (which excludes perpetual licenses), which accounted for 94% and 95% of our total revenue for the three months ended June 30, 2023 and 2022, respectively. We have significantly reduced our percentage of revenue from perpetual licenses to less than 1% for each of the three months ended June 30, 2023 and 2022. The remainder of our revenue is from professional services, which represented 6% and 5% of our revenue for the three months ended June 30, 2023 and 2022, respectively. We enable our customers to choose how they want to deploy our software in their heterogeneous environments, including self-managed environments such as public and private cloud environments, and through our SaaS offering, ForgeRock Identity Cloud, or a combination of both. Our subscription contracts are typically non-cancelable and non-refundable, and are largely billed annually upfront. Our pricing is generally based on the deployment method (SaaS or self-managed), products purchased, identity type (consumer, workforce, or IoT and services), and number of identities managed.

We Focus on Global Enterprises and Large Organizations, Who are Prioritizing Investments in Identity

Our go-to-market strategy is primarily focused on selling to large global enterprises, who are consistently investing in identity as a top priority. We focus our sales efforts on decision makers with a purview across the enterprise such as Chief Information Officers, or CIOs, Chief Information Security Officers, or CISOs, Chief Digital Officers, or CDOs, and Chief Technology Officers, or CTOs. We are also increasing our focus on line-of-business owners and developers as core stakeholders. We have been operating globally since our founding and 40.4% of our revenue for the three months ended June 30, 2023 was generated from customers located in Europe, the Middle East and Africa, or EMEA, and the Asia-Pacific, or APAC, region, demonstrating the global demand for our offerings. Our customers are based in approximately 50 countries and across a diverse set of industries such as financial services, public sector, technology, telecom and media, medical, services, retail, and manufacturing. Many of our customers are recognized as leaders in their respective industries or public sectors.

Our Go-to-Market Strategy is Driven by Close Collaboration Between Our Sales and Marketing Organizations and Our Partners

We primarily sell subscriptions through our direct sales teams located in geographic regions near our customers. Our sales and marketing organizations work closely to attract and drive awareness and engagement with prospective customers to help them understand our leadership in identity and our product differentiation, and to convert prospects into customers. Our marketing organization engages with prospective customers across physical and digital channels and provides them with solution guides, whitepapers, webinars, presentations, and other content to accelerate their understanding of our platform and drive greater adoption. We are highly focused on embracing and supporting our customers with the implementation of and utilization of our platform through dedicated customer success managers.

We also have a strong network of strategic global channel partners that both source and influence opportunities for us —providing leverage and execution capabilities across the globe. These strategic global channel partnerships not only provide us with a significant source of lead generation but also a global network of certified and trained implementation professionals. Our alliances, including global strategic consulting firms and global systems integrators, or GSIs, such as Accenture, Deloitte, and PwC, often promote our platform as part of large-scale digital transformation projects they drive by identifying opportunities in which our platform can help accelerate business initiatives and improve user experience. We also partner with leading regional consulting firms and implementation partners. These highly-skilled regional partners not only provide subject-matter expertise in the implementation of specific use cases, but they also act as an extension of our direct sales force by identifying and referring opportunities to us.

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Our Customer Base Includes Many of the World’s Leading Brands

Our global customer base includes direct and indirect customers, of which direct customers are those we contract with directly (whether sourced by us or through a partner or reseller), and indirect customers include customers that receive the benefit of using components of our software by contracting with certain third parties, such as resellers, system integrators, managed service providers, or other channel partners, as well as with original equipment manufacturers, or OEMs.

We focus on the number of large customers because it represents our ability to land-and-expand with large enterprises and the number of large customers is a key indicator of our ability to grow our business and revenue in future periods. We define a large customer as a customer with $100,000 or greater ARR as of a measurement date. As of June 30, 2023 and 2022, we had 471 and 414 large customers with $100,000 of ARR or greater, respectively, representing 94% and 91% of our total ARR as of such dates. No single customer accounted for more than 10% of our total revenue or 3% of our total ARR for the three months ended June 30, 2023 and 2022.

We Have a Robust Land & Expand Model Enabled in Part by Our Flexible Purchasing Options

The breadth of our platform enables many entry points for new customers, and we enable them to purchase one or more product modules for their initial deployment and expand into new modules for additional functionality over time. We believe there is a significant opportunity for revenue expansion across our customer base as our customers increase the number of identities managed through our platform, expand across consumer, workforce and IoT and services use cases, subscribe to additional product offerings, and expand into additional deployments, such as our SaaS offering.

Our Business Has Experienced Strong Growth

We have experienced strong growth from a combination of internal drivers and external drivers. Internal drivers include the continuous innovation of our platform, resulting in new technology, products and deployment offerings, a loyal customer base that continues to increase their spend with us over time, and the acquisition of new customers. For example, we have developed and released our SaaS offering (ForgeRock Identity Cloud), Autonomous Identity and Access in the past three years and both new and existing customers have adopted these offerings. Our effective go-to-market model has also been a driver of our growth, aided by recent leadership recognition by industry analysts. We believe external drivers such as the increasing importance of identity to enterprises, identity being a key enabler of digital transformation, the growing cyber threat landscape and constantly evolving regulatory and compliance requirements are also driving our growth.

For the three months ended June 30, 2023 and 2022, our ARR was $251.3 million and $201.6 million, respectively, representing a year-over-year growth rate of 25%. We generate substantially all of our revenue from subscriptions, with 94% and 95% of our total revenue coming from subscriptions for the three months ended June 30, 2023 and 2022, respectively. For the three months ended June 30, 2023 and 2022 our total revenue was $58.3 million and $47.7 million, respectively, representing a year-over-year growth rate of 22%. In the same periods, we incurred net losses of $28.8 million and $22.4 million, respectively.

Pending Merger

On October 10, 2022, we entered into the Merger Agreement with Parent and Merger Sub, pursuant to which Merger Sub will merge with and into ForgeRock and ForgeRock will continue as the surviving corporation in the Merger, as a wholly owned subsidiary of Parent. Parent and Merger Sub are entities affiliated with Thoma Bravo.

Under the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of our Class A common stock and Class B common stock (except for certain shares specified in the Merger Agreement) will be canceled and automatically converted into the right to receive cash in an amount equal to $23.25 per share, without interest. Upon consummation of the Merger, we will cease to be a publicly traded company and our Class A common stock will be delisted from the New York Stock Exchange.

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Factors Affecting Our Performance

We believe that our future performance will depend on many factors, including the following:

Acquiring New Customers

Our results of operations and growth depends in part on our ability to attract new customers and we believe there is a significant opportunity to grow our customer base.

Expanding Usage by Existing Customers

Our business depends, in part, on the degree to which our land-and-expand strategy is successful. Our customers often initially adopt our platform for a specific use case, such as consumer identity, and subsequently increase their adoption as they realize the benefits and flexibility of our platform.

Innovating and Advancing Our Platform

We intend to continue to invest in our research and development to extend the capabilities of our digital identity platform. Our investments in research and development drive core technology innovation and bring new products to market.

Expanding Strategic Partnerships and Alliances

Our growth depends in part on our ability to expand our strategic partnerships. We have four types of strategic alliances and partners: (1) Global Strategic Integrators and implementation partners, (2) OEM partners or customers who utilize components of our platform to deliver services, (3) strategic alliance partners such as Google Cloud where ForgeRock is a premier partner for digital identity, and (4) Trust Network partners who provide complementary technologies that plug into our platform such as Duo and LexisNexis ThreatMetrix.

Mix of Multi-Year Subscription Licenses and SaaS

Subscription term licenses are often deployed by our customers in public cloud environments such as Amazon Web Services (AWS), Google Cloud Platform (GCP) or Azure. Under ASC 606, Revenue from Contracts with Customers, for self-managed term-based subscription licenses, we recognize approximately half of the total contract value of the portion upfront as license revenue, with the remainder attributable to maintenance and support that is recognized ratably over the license term. If the total contract value of our subscription term licenses increases as a percentage of total contract value of all our subscriptions, more revenue would be recognized upfront.

For our SaaS offering, the ForgeRock Identity Cloud, 100% of revenue is recognized ratably over the subscription term. If the total contract value of our SaaS subscriptions increases as a percentage of total contract value of all our subscriptions, less revenue would be recognized upfront. Consequently, the recognition of lower revenue will result in a higher operating loss.

For the reasons stated above, our revenue is affected by the overall growth in our business and changes in our revenue mix of self-managed subscriptions and SaaS subscriptions. As a result, our year-over-year growth rates for total revenue may not be comparable due to changes in revenue mix.

Seasonality

We experience seasonality in our business and believe seasonality will continue to affect our financial results. The purchasing patterns of our customers may coincide with their fiscal year end. Historically, a greater percentage of our annual subscription revenue from term-based licenses, which is recognized up front at the later of delivery or commencement of the license term, has been generated in the fourth quarter compared to other quarters.

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Key Business Metrics

Annual Recurring Revenue (ARR)

We believe that ARR is a key metric to measure our business performance because it is driven by our ability to acquire new customers and to maintain and expand our relationship with existing customers. We define ARR as the annualized value of all contractual subscription agreements as of the end of the period. To the extent that we are negotiating a renewal with a customer after the expiration of the subscription, we continue to include that revenue in ARR if we are actively in discussion with such an organization for a new subscription or renewal, or until such organization notifies us that it is not renewing its subscription. We perform this calculation on an individual customer basis by dividing the total dollar amount of the customer’s contract by the total contract term stated in months and multiplying this amount by 12 to annualize. Calculated ARR for each individual customer is then aggregated to arrive at total ARR.

ARR does not have a standardized meaning and therefore may not be comparable to similarly titled measures presented by other companies. ARR should be viewed independently of revenue, deferred revenue and RPOs computed and/or disclosed in accordance with GAAP and is not intended to be combined with or to replace any of those items. Specifically, ARR, as calculated under the definition herein, does not adjust for the timing impact of revenue recognition for specific performance obligations identified within a contract. ARR is not a forecast and the active contracts at the date used in calculating ARR may or may not be extended by our customers.

The table below sets forth our ARR as of June 30, 2023 and 2022.

	As of June 30,				Change
	2023		2022		Amount		Percent
	(in millions, except percentage)
ARR	$	251.3	$	201.6	$	49.7	25	%

Dollar-Based Net Retention Rate

Our ability to drive growth and generate incremental revenue depends, in part, on our ability to maintain and grow our relationships with customers. An important way in which we track our performance in this area is by measuring the dollar-based net retention rate (our Net Retention Rate). We calculate our Net Retention Rate by first identifying customers (the Base Customers) in a particular quarter (the Base Quarter). We then divide the ARR in the same quarter of the subsequent year attributable to the Base Customers (the Comparison Quarter) by the ARR attributable to those Base Customers in the Base Quarter. Our Net Retention Rate captures any increase or decrease in ARR from the Base Customers from the Base Quarter to the Comparison Quarter. We expand our relationships with customers as they purchase more identities, add more use cases across consumer, workforce, and IoT and services, subscribe to additional product offerings, and add additional deployment options such as our SaaS offering.

Our Net Retention Rate for the three months ended June 30, 2023 was 112%.

The following table sets forth our Net Retention Rate for the three months ended June 30, 2023 and 2022.

	Three Months Ended June 30,
	2023		2022		Change
Net Retention Rate	112	%	112	%	—	%

Number of Large Customers

We focus on the number of large customers because it represents our ability to land-and-expand with large enterprises and the number of large customers is a key indicator of our ability to grow our business and revenue in future periods. We define a large customer as a customer with $100,000 or greater ARR as of a measurement date. We had 471 large customers as of June 30, 2023, which represents a 14% increase compared to our large customer count of 414 as of June 30, 2022.

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We believe that our ability to increase the number of large customers on our platform is an indicator of our market penetration, the growth of our business, and our potential future business opportunities. Over time, large customers have constituted a greater share of our revenue, which has contributed to an increase in average revenue per customer. We define a customer as a separate and distinct buying entity, such as a company, an educational or government institution, or a distinct business unit of a large company that has an active contract with us or one of our partners to access our platform.

Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we believe the following non-GAAP financial measures are useful to investors in evaluating our operating performance and liquidity. We use non-GAAP financial measures to understand and evaluate our core operating performance and trends, to prepare our annual budget, to monitor and assess our liquidity, and to develop short-term and long-term operating plans. We believe that the non-GAAP financial measures we review are each a useful measure to us and to our investors because they provide consistency and comparability with our past performance and between periods, as these metrics generally eliminate the effects of the variability of certain charges and expenses that may not reflect our overall operating performance and liquidity. We believe that non-GAAP financial measures, when taken collectively with GAAP financial information, can be helpful to us and to investors because it provides consistency and comparability with past performance and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results.

The non-GAAP financial information is presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with GAAP and may be different from similarly-titled non-GAAP measures used by other companies. The principal limitation of these non-GAAP financial measures is that they exclude expenses that are required by GAAP to be recorded in our condensed consolidated financial statements. In addition, they are subject to inherent limitations as they reflect the exercise of judgment by our management about which expenses are excluded or included in determining these non-GAAP financial measures. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.

Non-GAAP Gross Profit and Non-GAAP Gross Margin

Gross profit is defined as GAAP revenue less cost of revenue and gross margin is GAAP gross profit as a percentage of total revenue. We define non-GAAP gross profit and non-GAAP gross margin as GAAP gross profit and GAAP gross margin, in each case adjusted to exclude stock-based compensation expense.

A reconciliation of non-GAAP gross profit to GAAP gross profit, and non-GAAP gross margin to GAAP gross margin, is as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
	(in thousands, except percentages)
Gross profit	$	45,163		$	38,350		$	96,506		$	77,738
Add: Stock-based compensation	1,015			615			2,020			1,132
Non-GAAP gross profit	$	46,178		$	38,965		$	98,526		$	78,870
Gross margin	77		%	80		%	79		%	81		%
Non-GAAP gross margin	79		%	82		%	81		%	82		%

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Non-GAAP Operating Loss and Non-GAAP Operating Margin

We define non-GAAP operating loss and non-GAAP operating margin as GAAP operating loss and GAAP operating margin, adjusted for stock-based compensation expense and acquisition-related costs.

A reconciliation of non-GAAP operating loss and non-GAAP operating margin to GAAP operating loss and GAAP operating margin, the most directly comparable GAAP measures, is as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
	(in thousands, except percentages)
Operating loss	$	(30,078)		$	(22,301)		$	(55,204)		$	(37,913)
Add: Stock-based compensation	11,579			7,971			21,762			14,431
Add: Acquisition-related costs	3,851			—			10,798			—
Non-GAAP operating loss	$	(14,648)		$	(14,330)		$	(22,644)		$	(23,482)
Operating margin	(52)		%	(47)		%	(45)		%	(40)		%
Non-GAAP operating margin	(25)		%	(30)		%	(19)		%	(25)		%

Adjusted EBITDA

We define Adjusted EBITDA as operating loss, adjusted for depreciation, stock-based compensation expense and acquisition-related costs.

A reconciliation of Adjusted EBITDA to operating loss, the most directly comparable GAAP measure, is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands)
Operating loss	$	(30,078)	$	(22,301)	$	(55,204)	$	(37,913)
Add: Depreciation	247		269		503		549
Add: Stock-based compensation	11,579