ForgeRock, Inc. Class A

Today, ladies and gentlemen, welcome to ForgeRock's first quarter earnings conference call. As a reminder, this call is being recorded. I would now like to turn the call over to Mark Kang, ForgeRock's head of investor relations. Please go ahead.

Hello, everyone. Welcome to ForgeRock's Q1 2022 earnings conference call. On the call with me today are Fran Roche, CEO of ForgeRock, and John Fernandez, our chief financial officer and EVP of Global Operations. Before we begin, I'd like to remind you that our discussion today includes forward-looking statements within the meaning of the federal securities laws. Forward-looking statements include statements related to our expected results for Q2 and full year 2022, our future offerings and enhancements to our current offerings, the market for our offerings, customer demand for our offerings, and other matters. Actual results could differ materially from those indicated by these forward-looking statements. We encourage you to review the risk factors that we included in our SEC filings, including our annual report on Form 10-K filed with the SEC on March 9, 2022, for some of the factors that could cause actual results to differ from those indicated by the forward-looking statements. All non-GAAP numbers referenced in today's call are reconciled in our press release and in slides available on our Investor Relations website. With that, I'll hand the call over to Fran.

Thanks, Mark. And thanks to everyone for joining us to discuss our first quarter 2022 results. We had a fantastic start to 2022, and once again, outperformed our guidance across all metrics, highlighted by ARR growth of 35% year-over-year for the second consecutive quarter. Our ARR growth accelerated year-over-year by five percentage points, and we delivered 10.1 million and sequential net new ARR in Q1 versus 7.2 million in the same quarter last year, representing a 41% growth year-over-year. We continue to see strong demand across our portfolio, particularly for our SAS offering, which continues to beat our expectations. The strength of our customer demand gives us confidence to raise our full year 2022 guidance for ARR and our expected SaaS adoption. John will discuss this further in his remarks. Recent cybersecurity events have reminded us again that identity is critical to both securing the enterprise and enhancing customer experience. The threat landscape remains as challenging as ever, And security spending in general, which includes identity, remains a top priority for CIOs and CISOs. But it's not just about security. Digital transformation initiatives are driving enterprises to enhance customer and employee experience and modernize their IT infrastructure, therefore heightening demand for both our SIAM and workforce solutions. We differentiate ourselves by approaching the market with an integrated platform across identity, access, and governance for SIAM workforce and IoT use cases that supports all identity types. We empower our customers to choose how they want to deploy our software in their heterogeneous environments, such as self-managed public and private cloud environments through our SaaS offering, the 4DRAC Identity Cloud, or hybrid deployments. Adoption of our SaaS offering among our customers is strengthening, representing 65% of ARR from new customers in Q1, a new record for us. In the past, you've heard us talk about our multi-tenant SaaS architecture, the tenant isolation, which is unique in the identity market. Our differentiated SaaS architecture has a few distinct advantages. First, we leave our performances unmatched. It's important to note that we designed our SaaS offerings from the ground up to support the largest enterprises during their busiest times, like Black Friday or Cyber Monday. Unlike a typical multi-tenant approach, our tenant isolation means we don't throttle traffic to guard against noisy neighbor issues, which is a de facto approach among other identity providers. Fordock has delivered an average of four nines of availability since the inception of our SaaS offering. We are now committing to this level of service in our agreements. But not everyone delivers four nines the same way. And four nines doesn't matter if it comes with heavy, throttling caveats, which are so common in the industry. Often, SaaS architectures put a large number of enterprise customers in a single shared pod, meaning that if one enterprise is a massive scale event, all other enterprises in the pod may get throttled to ensure the resilience of shared resources. Technically, that's still considered four nines, but it doesn't feel like it because the throttling activity causes service disruptions, creates latency, and hinders the experience of their end users. Second, We provide our SaaS customers with data isolation that meets the regulatory requirements. We enable our customers to choose where their data resides in the cloud. For example, for some customers, it's critical for the data to reside on a server located in their country or region. We don't share endpoints, something that's very important from a security and availability standpoint. Third, we believe we have the most modern SaaS platform among major identity providers today. We leverage technologies such as Kubernetes and elasticity that wasn't available 10 years ago to build our tenant isolation approach. Our approach enables us to offer our customers massive scale without the typical noisy neighbor or throttling issues, and it's also cost-effective for us. We believe we are extremely well positioned for the road ahead due to our SaaS offering, which has been purpose-built for the enterprise market. And we continue to evolve our platform with cutting-edge technologies. Our market opportunity is massive and continues to expand, driven by our culture of product innovation and the passion of our Ford Rock identity experts. Today, we are excited to announce Ford Rock Autonomous Access, another AI-driven solution that helps organizations prevent cyber attacks and fraud in real time. Many of us have had our identities stolen, or worse, we've had cyber criminals actually accessing our accounts. Attacks involving usernames and passwords increased state staggering 450% in the last year, translating into more than 1 billion compromised records in the U.S. alone. As companies digitally transform and expand their online presence, their attack surface also increases, and bad actors will attempt to take advantage of it. Autonomous access is a new threat protection solution that helps enterprises eliminate account takeovers and prevent fraud in real time using a powerful combination of artificial intelligence, machine learning, and advanced pattern recognition. It continuously evaluates access behavior and assigns risk scores to prevent known attacks and detect new threats. With today's announcement, 4DRAC continues to deliver on its AI strategy with a new solution that enables smarter access decisions, delivering better protection along with seamless experiences for trusted users. Delivered from the 4DRAC Identity Cloud, Autonomous access empowers teams to create any number of personalized user access journeys with a simple drag-and-drop, no-code interface. Autonomous access is applicable to both SIAM and workforce use cases, and our sales team will begin selling the solution by the end of this month. We have a great pipeline of product innovation, and we will share updates with you in future quarters. The momentum we are seeing across our business is being driven by broader adoption of our platform across both SIAM and workforce use cases for self-managed SaaS or hybrid deployments. We continue to see a diverse mix of customer wins across industry verticals. I'd like to take a few minutes to highlight five customer wins from the first quarter. All five of these wins are with the Forge Academic Cloud, and three of them are Fortune 100 companies. Our first customer one example is an Asia-based multinational insurance and finance corporation with over 30 million customers. This customer is revamping their customer loyalty platform in Australia and selected the ForgeRock Identity Cloud because, unlike ForgeRock, their existing identity provider could not provide full data residency in Australia. ForgeRock was also selected because of our ability to easily integrate with a large number of existing applications, and we can deliver customizable MFA through our identity trees. Our next customer win is a Fortune 100 leader in shipping. This customer is migrating 40 million users from CA SiteMinder to the 4DROC Identity Cloud to streamline the login and authentication process. 4DROC was selected because of our ability to deliver more than a dozen ways to improve the customer experience while also reducing costs and fraud for the company. Moving on, we had another Fortune 100 customer win, but in the energy sector. This customer has numerous brands and wants to ensure a consistent user experience across brands globally. To meet these requirements on a global scale, the customer is implementing the 4DRAC Identity Cloud to support multiple brands and languages on one platform, an important differentiator for us. For our next Fortune 100 win, Like many global investment banks and financial institutions, this customer has numerous IM systems throughout the world. They're consolidating many of these systems in order to better understand customers and improve the user experience. They selected 4DRAC Identity Cloud to achieve its customer goals as well as realize potentially hundreds of millions in cost savings. For our final customer one example, we had an existing customer who expanded on their existing Fordruck Identity Cloud deployment. This global manufacturing conglomerate experienced rapid success with our SaaS offering for one of its leading brands and is expanding to support another mass consumer application. They are expanding with the Fordruck Identity Cloud because our identity trees enable numerous authentication journeys, such as social media logins, and they're also looking to strengthen security and reduce costs. Our demand continues to be strong across both SIAM and workforce. We tend to land on the SIAM side, and as at the end of Q1, 43% of our customers use us for both SIAM and workforce, 37% for SIAM only, and 20% for workforce only. Our customers expand with us through more identities, more use cases, more product modules, and more deployments. This has resulted in our ability to drive sales productivity by double-digit increases year-over-year, grow ARR by 35% in 2021, when our non-GAAP sales and marketing expense grew only 15% in 2021, and deepen relationships and increase sales leverage with our alliances and partners. Before I conclude, I'm very excited about our upcoming user conference, ID Live. It kicks off on May 23rd in Austin before heading to London and Melbourne this summer. I love this event because it's a chance to exchange ideas with our customers and partners. We will welcome hundreds of attendees from a variety of industries. They will get a sneak peek at our new products and learn from identity leaders, from customers like U.S. Bank, Toyota, Humana, Navy Federal Credit Union, and alliance partners, Accenture, PwC, and Deloitte. Finally, we remain deeply concerned about the war in Ukraine. While Fordrock doesn't operate in Ukraine or Russia and our business is unaffected, it is a terrible situation and we are hoping for a peaceful resolution soon. With that, I'll turn the call over to John to walk through our financial results in more detail. John?

Thank you, Fran. I am pleased to announce our first quarter results exceeded our guidance across all metrics. As we look back over the past nine quarters, the first seven were consistent at 29% to 30% growth, and we saw acceleration to 35% for the last two quarters. We ended Q1 ARR at 193.2 million. We continue to see strong demand across our regions globally. As it pertains to seasonality, Q2 and Q4 were our strongest quarters last year for net new ARR, and we currently expect Q2 and Q4 of this year to experience similar seasonality. Q1 was a record SaaS quarter for us. 47% of our new customers in Q1 purchased our SaaS offerings. and 65% of ARR from new customers was SAS ARR. As a reminder, 25% and 40% of our new customers purchased SAS in Q3 and Q4 of last year, respectively, and our SAS ARR represented 50% and 38% of ARR from new customers in those respective periods. Average SAS ARR from new customers who purchased SAS in Q1 was greater than 350,000. Moving on to customers, we are extremely proud of the customer base we have built that includes many of the world's leading brands. We continue to experience very high retention and are seeing great results from our investments and customer success. We ended Q1 with 404 large customers, defined as customers with 100K of ARR or greater. Our large customer base grew 20% year over year, and they represented 91% of our ARR as of the end of Q1. Our net retention rate for Q1 was 111%. Over the last few quarters, the majority of our ARR acceleration has been driven by new logos. While we expect new product uptake from solutions such as autonomous access and existing customers adopting SaaS to increase our net retention rate over time, we believe it will stay in the 110% to 112% range for the remainder of this year. Moving to revenue. Revenue recognition for self-managed deals is significantly different than ratable revenue recognition for SAF deals under ASC 606. This is best explained through an example. Let's take a three-year 200,000 ARR self-managed deal. So that's 600,000 of total contract value. If the start date was on the last day of the quarter, we would recognize approximately 297,000 in that quarter. If we take the same three-year, 200,000 ARR deal of SAS, we would recognize approximately $550 in the quarter, or 1,365th of the ARR. This example shows why ARR best reflects our growth while GAAP revenue is reflecting a temporary deceleration due to SAS increasing as a percentage of the new ARR mix over time. Total revenue for Q1 was $48.1 million, an increase of 18% year-over-year. We ran a like-for-like comparison, and if we did the same dollars of new SAS ARR in Q1 2022 that we did in Q1 2021 with the difference made up with self-managed ARR, we estimate our total revenue growth would have been approximately 30% year-over-year, or approximately $5 million of impact. Professional services revenue grew from $850,000 in Q1 2021 to $2.2 million in Q1 of this year. Before turning to profitability and expense items, I'd like to point out that I will only be discussing non-GAAP results going forward. Non-GAAP results exclude stock-based compensation for all periods discussed. Our press release contains our GAAP results and reconciliations for our non-GAAP results. Q1 gross profit was $39.9 million, and gross margin was 83%. As we continue to scale our SaaS offering, we expect to see increasing investment in cloud infrastructure and incur higher hosting costs. Our professional services margin significantly improved year over year, driven by higher utilization and higher professional services revenue. Turning now to operating expenses. We remain focused on investing strategically for growth, while achieving our operating margin goals and our path to profitability. Sales and marketing expense for Q1 was $24.7 million compared to $19.8 million in Q1 last year. This represents 51% of total revenue for Q1 compared to 49% in Q1 of last year. R&D expense in Q1 was $13.1 million compared to $10.2 million in Q1 last year. This represents 27% of total revenue for Q1 versus 25% in Q1 of last year. G&A expense in Q1 was $11.3 million compared to $7.5 million in Q1 last year. G&A was 23% of revenue versus 18% of revenue last year. Operating loss was $9.2 million versus a loss of $3.1 million in Q1 last year, representing an operating margin of negative 19% versus negative 8% a year ago. It's important to note that the biggest impact to our operating margin year over year is our rapidly growing SaaS business and the resulting impact to revenue under ASC 606. Using the same analysis that I described earlier, if we did the same dollars of new SaaS ARR in Q1 2022 that we did in Q1 2021 with the difference made up with self-managed ARR, we estimate the impact to revenue would be approximately a positive $5 million delta, resulting in an operating margin that would have been approximately negative 8%. Please refer to the Q1 2022 investor presentation on our investor relations website for more information. Turning to the balance sheet, we ended the quarter with $364 million in cash, cash equivalents, and marketable securities. We have a rock solid balance sheet that has many multiples of what we need until we achieve a sustained positive non-gap operating margin. Before we turn to guidance, I'd like to provide some comments that should provide additional context for the remainder of this year. First, we continue to see strong demand from our pipeline, and we are raising our annual ARR guidance. SAS is significantly exceeding our expectations, and this is hugely positive for the future growth trajectory of our company, Accordingly, we are raising our expected ending SAS ARR range from 20% to 25% to 22% to 27% of total ARR for this year. Because SAS revenue is ratable and upfront revenue recognition for self-managed deals is materially different per the example I previously gave and thus contributes significantly less revenue in the near term, we are maintaining our full-year revenue guidance and revising our operating income slightly. Our full-year revenue guidance now has less upside due to our rapid SaaS adoption, and our P&L also contains some additional expenses with that higher SaaS adoption. Therefore, as you have heard us say previously, we run our business and focus its growth on ARR. It's the best metric by which to measure our business performance, especially as our SaaS offering experiences rapid growth. We expect Q2 to be the trough in terms of revenue growth in 2022. we expect revenue growth to begin meaningful reacceleration in Q3, with Q4 being our strongest seasonal quarter for growth. We remain confident in our ability to achieve non-gap operating margin profitability in the second half of 2023, though our progress between now and then may not be linear, primarily due to seasonality. And lastly, we've considered FX impact to ARR and revenues. Using April's FX rates, the impact is relatively small, and we have factored it into our quarterly and annual guidance. Now turning to guidance. For the second quarter of 2022, we expect total ARR of $203 million to $204 million, representing 31% year-over-year growth at the midpoint. Total revenue of $46.5 million to $47.5 million. Non-GAAP operating loss of $17.5 million to $16.5 million. a non-GAAP net loss per share of $0.23 to $0.21, assuming weighted average shares outstanding of approximately $84.3 million. For the full year 2022, we expect total ARR of $240 million to $243 million, representing 32% year-over-year growth at the midpoint. Total revenue of $212 million to $215 million, representing 21% year-over-year growth at the midpoint. Non-GAAP operating loss of $32 million to $28 million represented an operating margin range of negative 15% to negative 13%, and non-GAAP net loss per share of $0.45 to $0.41, assuming weighted average shares outstanding, of approximately $84.8 million. Q1 was a great start to the year, and I'll turn the call back to Fran for closing remarks. Fran? Thank you, John.

Before we open for questions, I'd like to close with the fact that our business is firing on all cylinders. We have confidence in our ability to execute to our plan and to meet our growth targets. Our SaaS offering continues to exceed our expectations. We continue to deliver world-class innovation to the market, highlighted by today's announcement of autonomous access. We continue to help the world's largest enterprises with the most strategic identity initiatives and we had a fantastic first quarter, and we look forward to reporting on our continued success. And thanks to all the Ford Rockers who helped us deliver a fantastic quarter, and we look forward to welcoming new Ford Rockers into the family to help us keep the momentum going. Operator, you may now open the call for questions.

Thank you. Ladies and gentlemen, if you'd like to ask a question, you may do so by pressing star 1 on your telephone keypad. Star 1 for questions. Please make sure the mute function on your phone is turned off so the signal can be read by our equipment. Star 1 for questions. We'll pause a moment to assemble the phone queue. We'll take our first question from Rob Owens with Piper Sandler. Please go ahead.

Great. Good afternoon. Thanks for taking my questions. Just one for me today. If you were to decompose the strength you saw in ARR this quarter between SIAM and Workforce, Can you give us a sense of how much of the base of SIAM in the aggregate ARR and in the net new ARR, what kind of trends are you seeing? Thanks.

Hey, Rob, yes. So we saw really strong demand for both SIAM and workforce. That's evidenced by that we continue to have 43% of our customers leverage a platform for both consumer and workforce, 30% consumer only, and 20%. for workforce. So we see strong demand across both. Now, we do continue to land with SIAM most often. We think that SIAM is the largest part of the identity market, kind of the most exciting one, the one that's growing the fastest. So, again, this quarter, most of our lands, most of our new customers came into SIAM, and we have now our opportunity to cross-sell the workforce portfolio into those customers. Now, of course, we still have some good workforce lands, but generally we're seeing the strongest market demand in the SIAM space, but with good general market demand for all of it.

And relative to competition and pricing, anything changing on that front as you look between the two discrete markets?

Yeah, no, I think we haven't seen any big dramatic changes in competition, and we continue to hold pricing and don't see a lot of pricing pressure at this time. And when we really think about this market demand, whether it's driven by increasing cyber threats and everything that's going on in the world or the continued digital transformation with more and more companies looking to develop better identity relationships, even in these challenging times, digital identity is really going to the top of the queue for investments in these companies. And from a competitive position, I think the investments that we've made, especially in that cloud product, the Project Identity Cloud, you know, that's really continuing to help us, you know, improve our traction and accelerate that growth in the market. I mean, 65% of that new AR, new logos came in on SaaS. That's a new record for us. So that's really helping us to improve our competitive position in the market. I think the new innovation we launched today, with autonomous access will contribute to that. So no big changes in dynamics, no big changes in pricing, just responding to really strong market demand.

Great. Thanks for the color.

We'll take our next question from Hamza Fadarwala with Morgan Stanley. Please go ahead.

Hey, guys. Thank you for taking my question. I will try to keep it to one question, too. John, I wanted to ask about the mechanics around the revenue acceleration later this year. So you're obviously seeing a higher mix of SaaS, which is what you want, and I believe that's generally a 2 to 3x uplift versus your self-managed offering. So eventually that upside gets reflected in your revenue. At the same time, I don't think you want to stop at just 27% of your ARR being from SaaS. I imagine you eventually want to get to the majority. So how do you think about the puts and takes there between, yes, you'll recognize that upside on the revenue eventually, but then, you know, maybe that's also offset by the fact that you have a growing mix of fast ARR for net new deals?

Yeah. Yeah, that's a great question. You know, I think a couple of things. With every quarter, obviously, we get a lot better visibility. We saw really strong SaaS, obviously, as we were standing at this point last quarter and guided accordingly. And where we sit today, we see that strength to guide to 22 to 27. There is variability. And if you look to our IR website, we've trended out the last three quarters of the dollars of SaaS in every period. You can see there's quite variable period to period. That said, as we look out over the next several quarters, it is growing quite substantially and quite fast. And so we know that all the variable will continue to grow quite fast. And so we have raised those percentages of SAS in the mix for each of the quarters Q2, Q3, and Q4 for this year, and thus the guidance. As we continue to get closer quarter to quarter, if we see that variability reducing and the fact that growing even faster, we'll continue to raise that range as appropriate at a future period in time. I think where we sit today as it relates to the reacceleration and importantly, we have the visibility into the fact that this is the trough for us We believe here with Q2 in revenue because we can see that revenue waterfall. All the staffs we've been doing and all of the support and maintenance from our existing business that falls into Q3 and Q4 for the rest of this year give us a very high level of confidence in that revenue reacceleration. And again, when we think about driving and what mix, I just want to say really importantly, and especially for those that are joining the call, maybe for the first time for ForgeHawk, Why is SaaS so great? Well, first of all, it gives our customers another option. We go to them with choice. So they can go self-managed or SaaS. That's powerful. Remembering, though, that Also, SaaS, there are companies out there who have mandated cloud only. So that's opening up our TAM. We have shorter sales cycles on average for SaaS, strong close rates, as you mentioned, 2 to 3X on converting customers, but 2 to 5X increase in price per user for identities on new customers. So higher ASPs, it's just a great business for us. We want to give customers choice. We're not going to try and steer it in that direction, but our sales reps, And our customers, you know, they're coming first in many circumstances with a cloud-first strategy. So that's how we're looking at the re-acceleration for the year, the linearity, and our mix of SaaS.

And, you know, just add to that, you know, as we raise this guidance, you know, of ending year ARR to 22% to 27%. I mean, just remember, this is only our second year of having our SaaS offering in the market. And it's really a very rapid adoption, really driven by that differentiation in that architecture. That ability to give our enterprise customers the confidence in scale and performance and no throttling of performance due to noisy neighbors. The ability to be able to ensure that their data resides in their country. These are real differentiators than other cloud products on the market. And that's why we're really seeing that rapid growth. And we're, as you said, over the long term, that is the right thing. That's why we continue to focus on ARR is a key growth metric for the company. Thank you, Hamza.

We'll take our next question from Gray Powell with BTIG. Please go ahead.

Okay, great. Thank you very much, and congratulations on the strong results. It's really good to see the improved or the accelerated mix shift to the fast side of things. So, yeah, on that point, it was really helpful how you disclosed the impact of the mixed shifts to Q1 operating income. Can you just help us think through how that's impacting the full-year operating loss guidance or just any directional color? There would be really helpful.

Yeah. Yeah, so, yeah, and thank you. You know, Q1 was a great quarter, again, really exciting on all levels, and I think indicative of the trends of the business. As it relates to, you know, the operating loss on the year, you know, I think first and foremost, we look at the fact we raised the ARR guide, right? So now on the years, we think about it 240 to 243 and at 32%, the best metric by which to measure the growth of the businesses. Obviously, this transition to SAS, 65% in Q1, and we're raising it in each of the periods, Q2 through Q4, is going to obviously have a level of more ratable rev rec, and so then putting that pressure on revenue. And yet we feel incredibly confident in our revenue guide for the year. So I think that's just that top-line narrative, looking at ARR, raising that, and then noting more SaaS in our top-line revenue. As it relates to the rest of the P&L, I think importantly with more SaaS, we have incorporated a level of higher hosting costs. So as we think about that, as that flows through, also importantly, and as you look at Q1 gross margins as well as we're doing more SaaS, we really got a hold on those costs per tenant, costs per customer in SaaS. So we've added more hosting costs. We've also realized reduced costs on a per customer basis for our SaaS business. I'd say a little bit earlier than we probably thought. We think there's still a lot of opportunity in the year for that. At the end of the day, we're going to manage our P&L to that negative 15% to negative 13% operating margin on the year and really focused on delivering that top-line ARR and that resulting revenue as a result of what we're predicting, much higher SaaS mix.

Okay. I think that makes sense. And then I guess this might be a tough one, but is it safe to say that if your SaaS mix were unchanged relative to prior guidance? that your operating loss guidance would have been also unchanged or maybe even slightly better?

Yeah, I think that is very fair because we have raised that mix considerably. And so, yes, that is a very, very statement. The other way I put that statement is, Effectively, across our business, things have remained the same outside of the one very large change that SAS is much, much more successful much earlier and much stronger in our pipeline than we had thought originally.

Understood. Okay, great. Thank you very much.

We'll take our next question from Patrick Colville with Deutsche Bank. Please go ahead.

Thank you so much for taking my question. Um, my question is about ARR. I mean, the, the print this quarter was very impressive. Um, and I'm not mistaken. You guys beat the midpoint of your guidance by 6 million bucks, um, which is, yeah, which is very impressive. And, you know, you also lifted the fiscal 22 guidance. Um, I, if I calculate it correctly, you lifted the midpoint by about $2 million. Just, I guess, help me understand, um, why by that amount? You know, given the kind of six million beat, it's very encouraging that you listed fiscal 22 guides, but how come it was that level that was chosen?

You know, I think what we look at it is We printed, as you said, a very strong Q1. And when we look at our annual plan, we raise that guidance based on what we think the full year will deliver. Now, that's a modestly conservative guidance. And obviously, as we look at our pipeline and our sales capacity, you know, we're going to look to overachieve that. I'm going to continue to execute the plan. But we felt at this time, it's early in the year. We're still building pipeline. We're still releasing new technology that we felt this was the prudent race to do at this time. We'll continue to evaluate the business as we go forward.

Great, thank you. And I guess my follow-up is just about fiscal first quarter. I mean, the print is so healthy. Were there any large deals that closed this quarter? Were there any kind of dynamics that we should be aware of just so we got the whole picture about the 1Q ARR number. Thank you so much.

It's a great question, and really we looked a lot into all the data, into all the results through our QBRs, and it's really consistent performance across all areas versus any one thing. We had great strong in the Americas, Europe, APJ. The one thing that obviously really stands out is the SAS adoption became even stronger than we thought. But we saw good growth in financial services, some great public sector wins, some strong healthcare growth continues. So it's very vertical spread. We continue to see strong ASPs that continue to grow and stay strong, healthy growth in our large customer count. So it's really a very balanced quarter that I really execute across all elements of the business without any one thing shifting it. And that's what I think has given us confidence to raise that guide in ARR this year, both in total and SAS. And as we said to the first part of your question, that is a modest increase. We have modestly conservative guidance, and we're going to look to overachieve throughout the year. So it was really a well-balanced quarter all around.

Nice. Thank you so much.

We'll take our next question from Jonathan Ho with William Blair. Please go ahead.

Hi, good afternoon. I just wanted to, I guess, understand a little bit more about the new AI-driven autonomous access capability, and can you maybe give us a sense of how much this could maybe help your differentiation as well as potentially what that upsell opportunity looks like?

Absolutely, and I think we did this really to continue to drive customer value and differentiation. And, you know, many of you have heard me talk about the importance of bringing AI to the entire identity journey so we can have a more intelligent identity system that can help recognize a legitimate user and give them easy access while using signals to block potential malicious actors. We launched autonomous identity a couple years ago, and now autonomous access continues to build on that foundation across the full identity life cycle. Autonomous access is targeted at bringing that intelligence through the authentication part of the identity journey. Many companies are dealing with identity theft, with account takeover, with fraud that really happens through user impersonation at that authentication process. So the value that we're focused on delivering for our customers here is to really reduce that account takeover, reduce that authentication-related fraud. Now, the product has three ways that it really differentiates. from what other things out in the market. First, it has a really powerful heuristics or rules-based engine where we can help our customers protect in real time from known fraud capabilities like credential stuffing or IP reputation. All of that helps really block those known threats. The AI part of the component really helps with unknown threats. things you can't predict. So by looking at signals of user and device behavior, we can bring intelligence to say, wait, this looks like a strange transaction or a strange user behavior. Let's go ahead and put up a higher level of authentication or block that access. So it's really a unique combination of both rules-based or heuristics and this AI-driven model. But I think the other really important thing about this is all of this technology, of course, is homegrown here at Fortrax Engineering Department. So it's already fully integrated as an add-on module to the ForgeRock Identity Cloud. So it's part of our identity trees. Customers can turn on very easily and start taking advantage of this. Right in line as part of that developer interface are identity trees. So it's different as it's more powerful across both heuristics and AI, and it's different because it's already integrating through those identity journeys. So we've been talking to a lot of our customers They're really struggling with this account takeover due to the weakness of usernames and passwords, obviously. This brings that intelligence to really solve a big problem for our customers right in line with the platform. So a lot of excitement, a lot of great pipeline building, and so we think this can really help continue to drive that acceleration ARR growth for the rest of the year.

Got it. And then just relative to the 11% net retention and the revised sort of range or or current range around net retention, how should we think about this trending over time, especially as your SaaS customers start to come up for renewal? When do we maybe start to see that tick up a bit? Thank you.

Yeah. Yeah, I think importantly, and just for the context of why we are where we are when we talk about the future is, In this period, we look at the 111%. Our customer retention is really strong and remains at record highs. So that's just a continuous result of this customer success investment we've made. We're incredibly pleased with that level of customer retention. We don't see that changing. we are seeing this skewing of our new ARR toward new local acquisition. And that's really been this function of SaaS. So we've seen that opportunity. We're taking that market share. And I think over time, that balances out more as we look toward the future, Jonathan. But I think there's some things that are in the wings right now. So we talk about autonomous access. That product coming out is going to help us get to the future state I'll talk about in a moment. I think as it relates to governance, continuing to upsell that. One of the big things we've talked about in the past was the software to SaaS opportunity, which is that conversion of our install base on self-managed over to SaaS, which we've experienced is about a 2 to 3x of ARR. We think that's a multi-hundred million dollar opportunity. We are still in the early days. We've developed the tooling. We've developed all the paths and journeys that they go through and all the things we need to do. And we've gotten out there and we've seen a great interest from our customers. We are building that pipeline quite quickly. Enterprises take time, though. This level of decision at the level we play out at the enterprise is It can be a multi-quarter decision and then a multi-quarter launch process to figure out how to get there. So I think in the end for this year, we still think through the end of this year we'll be in that 110 to 112 range. Obviously, we have goals and targets. to get that expansion of those items, really the software to SaaS initiative, more governance, more autonomous access. That just lets us get that out there really through our customer success mechanism and drive that north of 112 in the future, likely outside of this fiscal year.

Thank you.

Ladies and gentlemen, as a reminder, star one for questions, star one. We'll take our next question from Shaw Eel. With Cowan, please go ahead.

Thank you. Good afternoon, Fran, John, Mark. Great progress with the SaaS offering indeed. How would you characterize the sales cycle associated with this product? And I have a follow-up.

Sure. So I think what I would say is the first, our sales cycle doesn't start with cloud or self-managed. It starts with understanding the customer needs related to identity. what challenges they're trying to solve around whether it's consumer or workforce or IoT. And that's the way we start the conversation with our customers. And then as we go through understanding what they want to try to accomplish, then we talk about how they want to do it. And we give them choice on whether they want to go self-managed or SaaS. So typically that ends up later in the sales cycle. But overall, we do see that the sales cycles with SaaS are shorter. And that goes down to, you know, when we deliver a sentence, ForgeRock takes on a lot of the work, right? The run, the operate, the security. So customers don't have to deal with like planning about building all of that infrastructure because they can just take advantage of ForgeRock's rich functionality as a service. So we are seeing shorter sales cycle with our sentence. We are seeing higher ASPs, significantly higher ASPs as we really deliver more value So we're seeing not only strong demand from our customers, but internally, our sales team really sees the benefits of positioning SaaS and the benefits of that to the customers. So shorter sales cycle, higher ASPs, more differentiation. I think that's what's driving that accelerated adoption of the SaaS. And you had a follow-up.

Sure. So here we are sitting. We're getting really close to midway through the quarter. Have you detected any changing demand patterns? Are we tracking to similar levels like to Q21? And I know, you know, last year you were preparing to go public on the one hand, but then, you know, quarter was absolutely fine. So just maybe some color along these lines.

Yeah, we see, you know, if I look back a year ago, we're seeing increasing demand in Ford Rock for sure. I think some of that's driven externally, the market, as cyber threats and identities become more important, even in challenging times. These are the things that CISOs and CIOs are prioritizing their business because it protects the company, it reduces costs, and it proves the top line of their business. So externally, we've seen increasing demand from this time last year. And so we've changed the law as a company. We've gone public, obviously. which gives us good, you know, additional market recognition. We maintain, you know, top grades from the analysts like Gartner, Forrester, and Coventry Cold. And we're doing more to kind of hone our go-to-market engine around creating awareness and demand for offering. So we're seeing, you know, increasing pipeline at this time, obviously much bigger than it was last year to help continue to support our scaling and growing business. So overall feeling in a good position I'm here to achieve the growth targets for the company. Thank you, guys. Thank you.

Our last question will be from Eric Hayes with KeyBank. Please go ahead.

Great. Thanks for taking the question, and congrats on the strong results and continued acceleration in ARR. So, Fran, I guess just to start with you, you usually land with SIAM, and most of the ARR acceleration soonly is. coming from net new customers. So I'm just curious what's happening in the market that might be tipping these large companies to adopt Siam and are those mostly replacements of homegrown solutions?

Yeah, I think that the science space is really hot right now. Now workforces as well. Um, but I do think there's a lot of energy in the science space and it is driven by these demands. I think that the technology professionals are under from the business line. to create these better, more efficient experience without putting security or fraud or compliance at risk. So, you know, there's really strong demand in that area. Many SIAM deals that we win are companies who have a homegrown identity platform that's not able to scale, not able to have the functionality to create a self-service or easy experience or have customer dashboards for them to manage their own privacy settings. So these homegrown solutions you know, are really ripe for replacement. So that's like where we see a lot of our growth. But second, we definitely see some of the legacy platforms. I talked about in the script, you know, one of the transportation companies that were looking to replace a legacy CA site-minder identity solution for 40 million identities. Talked about Q4, one of the largest global banks replaced the CA site-minder solution. So we see that as a lot of opportunities. But definitely we see when we focus at this enterprise, large enterprise level, many of our customers just haven't prioritized identity like they should have over the past several years. So they find themselves with like dozens of point solutions, maybe for different divisions or different parts of the identity lifecycle. And we talked about one of our financial services customers that went to FortDoc Identity Cloud in Q1. They're going to consolidate literally dozens of different identity point solutions all on this comprehensive platform. So, you know, it's really about, you know, the homegrown, the legacy platforms, and a lot of these point solution players who really prefer a single solution across all the identity lifecycle, you know, a single platform for all their identities, consumer, workforce, partners, supply chain, physical things and services, and really that enterprise grade of the platform. So that's kind of what we see is really driving, but there's definitely the consumer space is hot, as you point out.

Great. Yeah, that's helpful. And then just given the strong momentum in SaaS, I'm just curious if there's any update on the competitive standpoint side of things or on the win rates. Have you seen any change there?

You know, I think generally we consider there's not been a dramatic change in the competitive environment at this point. We're going to continue to make some exciting investments across ForgeRock this year. We're going to continue to invest in our cloud maturity. We announced this past quarter the four nines reliability. We'll be scaling the service to go to 50 to 100 million identities. We're continuing to focus on the authentication throughput from a performance standpoint. So as we continue to focus on the enterprise-grade nature of the cloud, that's going to continue to help our win rates so we win more. We're focusing more on some vertical specific solutions. Healthcare has been a really growing part of our portfolio as a lot of people have gone to telemedicine and they have some unique requirements around patient privacy and data. We launched our HIPAA certification last year. We're now working on bringing out some unique capabilities to help healthcare keep information private. But we're also making good investments on the workforce side as we continue to bring that full offering to the Fortrack Identity Cloud. Because I think most customers today, you know, want this convergence. You know, Fordruck was really a pioneer in this converged model of having identity access, MSA, SSO governance in a single platform for all identities. So we've got a lot of cool things coming out this year that I think will continue to help us position competitively and continue to accelerate that growth, which is why we want to raise that guidance in ARR this year.

Great, I appreciate that and congrats on the quarter. Thank you.

Ladies and gentlemen, this concludes today's question and answer session. At this time for closing remarks, I'd like to turn the conference back to Frank Roche.

Great, thanks everybody again for joining the call. Thanks for helping us, you know, talk about our fantastic Q1. Our business is really firing on all cylinders. We have strong confidence in our ability to execute on our plan to meet these growth targets, even with our accelerated ARR guidance. We continue to exceed our expectations on SaaS, and that's not by accident. We've got the toughest enterprise customers in the world are taking a deep look at our architecture compared to what other things are on the market, and they're choosing Ford Rock. We continue to deliver world-class innovation to the market, highlighted again today by Economist Access, which we think is going to be a great accelerator of our business in the latter half of the year. So again, congratulations to all the ForgeRockers who helped make this a great quarter, and we look forward to continued dialogue in the weeks and months ahead. So thanks so much.

Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now