FORG - ForgeRock Announces Second Quarter 2022 Financial Results

• ARR grew 30% year-over-year to $201.6 million
• Revenue grew 8% year-over-year to $47.7 million
• SaaS as a percentage of ARR from new customers was 53% in Q2

ForgeRock (NYSE: FORG), a global leader in digital identity, today announced financial results for its second quarter ended June 30, 2022.

“Identity remains a top priority for every modern organization in today’s shifting threat landscape and macroeconomic environment, and we continue to see strong customer demand for our enterprise-grade identity platform,” said Fran Rosch, CEO of ForgeRock. “At the same time, this uncertain macro environment has presented us with challenges such as longer deal cycles and FX headwinds. We are confident we have the right platform and market fit for our identity solutions and can drive robust and durable long-term growth as we capitalize on our $71 billion addressable market.”

“We were pleased to deliver revenue, non-GAAP operating loss and non-GAAP EPS results above our guided ranges in the second quarter, while our ARR results were impacted primarily by unexpected lengthening of sales cycles for our larger enterprise deals,” said John Fernandez, CFO of ForgeRock. “We continued to see strong adoption of our SaaS offering, which represented 53% of ARR from new customers in the quarter and tracks well towards our goal of finishing the year with 22% to 27% of ARR from SaaS. We remain focused on making measured investments to drive robust and durable long-term growth as we march toward achieving non-GAAP operating margin profitability sometime in the back half of 2023.”

Second Quarter 2022 Financial Highlights:

• ARR : Annualized Recurring Revenue was $201.6 million, an increase of 30% year-over-year, marking the 6th consecutive quarter of ARR year-over-year growth of 30% or greater.
• Revenue : Total revenue was $47.7 million, an increase of 8% year-over-year. Subscription SaaS, support & maintenance revenue grew 46% year-over-year in Q2, up sequentially from 43% year-over-year growth in Q1.
• Operating Loss : GAAP operating loss was $22.3 million, or 47% of total revenue, compared to $4.6 million, or 11% of total revenue, in the second quarter of 2021. Non-GAAP operating loss was $14.3 million, or 30% of total revenue, compared to $2.9 million, or 7% of total revenue, in the second quarter of 2021.
• Net Loss : GAAP net loss was $22.4 million, compared to $10.1 million in the second quarter of 2021. GAAP net loss per share was $0.26 compared to $0.40 in the second quarter of 2021. Non-GAAP net loss was $14.5 million, compared to $8.3 million in the second quarter of 2021. Non-GAAP net loss per share was $0.17, compared to $0.33 in the second quarter of 2021. Weighted average shares outstanding used to calculate non-GAAP net loss per share in Q2 2022 and Q2 2021 was 84.4 million and 25.2 million, respectively.
• Cash Flow : Net cash used in operations was $20.3 million compared to $22.2 million in the second quarter of 2021. Free cash flow was $(20.7) million, or (44)% of total revenue, compared to $(22.4) million, or (51)% of total revenue, in the second quarter of 2021.
• Cash, cash equivalents and short-term investments were $347.2 million as of June 30, 2022.

ForgeRock uses certain non-GAAP financial measures, which are described further below and reconciled to the most comparable GAAP financial measure after the presentation of our GAAP financial statements.

Financial Outlook:

For the third quarter of 2022, ForgeRock expects:

• Total ARR of $208.0 million to $211.0 million, representing 28% year-over-year growth at the midpoint. Our Q3 and annual guidance is inclusive of estimated FX impact;
• Total revenue of $49.0 million to $52.0 million, representing 14% year-over-year growth at the midpoint;
• Non-GAAP operating loss of $12.0 million to $10.0 million, representing an operating margin range of negative 24% to negative 19%; and
• Non-GAAP net loss per share of $0.17 to $0.13, assuming weighted-average shares outstanding of approximately 84.7 million.

For the full year 2022, ForgeRock now expects:

• Total ARR of $225.0 million to $232.0 million, representing 25% year-over-year growth at the midpoint;
• Total revenue of $206.0 million to $212.0 million, representing 18% year-over-year growth at the midpoint;
• Non-GAAP operating loss of $35.0 million to $33.0 million, representing an operating margin range of negative 17% to negative 16%; and
• Non-GAAP net loss per share of $0.49 to $0.44, assuming weighted-average shares outstanding of approximately 84.5 million.

These statements are forward-looking and actual results may differ materially. Refer to the Forward-Looking Statements safe harbor below for information on the factors that could cause our actual results to differ materially from these forward-looking statements.

ForgeRock does not provide forward-looking guidance for certain financial data, such as depreciation, stock-based compensation, income (loss) from operations and net income (loss), and as a result, is not able to provide a reconciliation of GAAP to non-GAAP financial measures for forward-looking data without unreasonable effort. The impact of such adjustments could be significant.

Conference Call Information:

ForgeRock will host a conference call and webcast at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time) on Thursday, August 11, 2022 to discuss its financial results and business highlights. To access this conference call, dial 1-800-437-2398 or 1-323-289-6576 and use the conference ID 9878662. The live webcast and a webcast replay of the conference call can be accessed from the investor relations page of ForgeRock's website at investors.forgerock.com .

Supplemental Financial and Other Information:

Supplemental financial and other information can be accessed through ForgeRock's investor relations website at investors.forgerock.com .

As of June 30, 2022, we had 11,968,482 options outstanding (vested and unvested) with a weighted-average exercise price of $5.65 and 3,898,053 RSUs outstanding. As of July 31, 2022, there were 37,845,089 shares of the registrant's Class A common stock outstanding and 47,184,236 shares of the registrant's Class B common stock outstanding. For more information, please refer to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022.

Non-GAAP Financial Measures and Key Metrics:

Besides financial results prepared in accordance with generally accepted accounting principles (“GAAP”), ForgeRock believes that evaluating its ongoing operating results may be difficult if limited to reviewing only GAAP financial measures. Accordingly, ForgeRock uses non-GAAP financial measures to evaluate its operations. 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.

ForgeRock presents non-GAAP gross profit, non-GAAP gross margin, non-GAAP research and development, non-GAAP sales and marketing, non-GAAP general and administrative, non-GAAP operating loss, non-GAAP operating margin and non-GAAP net loss per share, all of which exclude stock-based compensation expense and certain of which exclude the tax effect on the provision for (benefit from) income taxes. ForgeRock excludes stock-based compensation expense as it can vary significantly from period to period based on share price and the timing, size and nature of equity awards. As such, ForgeRock and many investors and analysts exclude stock-based compensation expense to better evaluate its operating performance and cash spending levels relative to its industry sector and competitors.

ForgeRock presents adjusted EBITDA, which is also a non-GAAP financial measure. We define adjusted EBITDA as GAAP operating loss, adjusted for depreciation and stock-based compensation expense. ForgeRock excludes certain items that it believes are not good indicators of ForgeRock’s current or future operating performance. These items are depreciation and stock-based compensation (as discussed above). ForgeRock excludes depreciation given its standard exclusion in EBITDA and adjusted EBITDA results. In addition, the frequency and amount of such charges can vary significantly based on the size and timing of the transactions.

ForgeRock also presents free cash flow, which is a non-GAAP financial measure. We define free cash flow as net cash used in operating activities less cash used for purchases of property and equipment. ForgeRock provides free cash flow as it is a commonly used non-GAAP financial measure to indicate the amount of cash needed to fund its operations and capital expenditures.

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 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.

ForgeRock also uses the key metric Annualized Recurring Revenue (“ARR”), to evaluate its operations. We believe that ARR is a key metric 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 remaining performance obligations 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, has the effect of normalizing the impact of revenue recognition for term-based subscription license agreements. ARR is calculated based upon annualized contract value and not actual GAAP revenue. Under ASC 606, for term-based subscription license agreements, we recognize approximately half of the total contract value upfront as license revenue, with the remainder attributable to maintenance and support that is recognized ratably over the license term. Annualizing actual GAAP revenue for any particular period could result in a meaningful difference from our ARR calculation, particularly when we are experiencing increases or decreases in the mix of multi-year term licenses. 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.

Forward-Looking Statements:

This press release contains forward-looking statements within the meaning of the federal securities laws. 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," "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 in this release include, but are not limited to the quotations of management, the section titled “Financial Outlook,” and statements regarding our strategy and the market for our products and services. Forward-looking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond our control. Our actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to our ability to attract new customers and retain and sell additional functionality and services to our existing customers, our ability to sustain and manage our growth, our ability to successfully add new features and functionality to our platform, our ability to compete effectively in an increasingly competitive market, and general market, political, economic, and business conditions, including the impact of COVID-19, and other risks detailed in our filings with the Securities and Exchange Commission ("SEC"), including our Annual Report on Form 10-K filed with the SEC on March 9, 2022 and in our Quarterly Report on Form 10-Q that will be filed with the SEC on or about August 12, 2022.

Past performance is not necessarily indicative of future results. The forward-looking statements included in this press release represent our views as of the date of this press release. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date of this press release. We anticipate that subsequent events and developments could cause our views to change. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

About ForgeRock

ForgeRock®, a global leader in digital identity, delivers modern identity and access management solutions for consumers, employees and things to simply and safely access the connected world. Using ForgeRock, more than 1,300 organizations around the world orchestrate, manage, and secure the complete lifecycle of identities from dynamic access controls, governance, APIs, and storing authoritative data – consumable in cloud or hybrid environments.

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Investor Relations Contacts:

Mark Kang, ForgeRock
Nicole Borsje, The Blueshirt Group
investors@forgerock.com

Media Contacts:

Kristen Batch, ForgeRock
kristen.batch@forgerock.com

Stacey Hurwitz, ForgeRock
stacey.hurwitz@forgerock.com

Edelman on behalf of ForgeRock
Evgenia Sinopidou, Edelman
evgenia.sinopidou@edelman.com