ForgeRock, Inc. Class A

Welcome to the Forge Rocks second quarter earnings conference call. As a reminder, this call is being recorded. I would like to turn the call over to Mr. Mark Kang, Forge Rocks Head of Investors Relations. Please go ahead, sir.

Hello, everyone. Welcome to Forge Rocks Q2 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 Q3 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 related Actual results could differ materially from those indicated by these forward-looking statements. We encourage you to review the risk factors that we have included in our SEC filings, including our quarterly report on Form 10-Q, Files with the SEC, on May 12, 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 second quarter 2022 results. Our ARR grew 30% year-over-year in Q2, marking the sixth consecutive quarter of ARR growth of 30% or greater. While we experienced record growth of 35% in Q4 of 2021 and Q1 of 2022, Our ARR in Q2 was below the low end of our guidance by $1.4 million. The primary reason that our ARR results were below our expectation was that we did not close the larger deals in our pipeline as expected. In the latter part of June, we began to experience lengthening sales cycles, especially for our larger enterprise deals. It is important to note that some of these deals have already closed in the first part of July, which has resulted in a strong start to Q3. Other deals are still in our pipeline. We are engaged with our customers on these opportunities. We believe the changing macro and business climate materially contributed to these lengthening sales cycles. We also saw more FX impact than we anticipated for Q2, primarily due to the dollar strengthening against the British pound and the euro. But by and large, our AR results were impacted primarily by by the unexpected lengthening of sales cycles for our larger enterprise deals. Given that the challenging economic environment will likely continue to drive companies to take a harder look at IT spending, we are already taking action within ForgeRock to address the challenges. We are focused on the following. Efficient pipeline growth. We continue to focus on increasing the size and improving the quality of our pipelines. keeping the focus on generating opportunities from our named accounts in our enterprise and large enterprise target market. We generated a record amount of high-quality pipeline in Q2. We're on track to create the necessary pipeline to achieve our growth targets, which John will discuss in a bit. Optimizing sales capacity. We continue to focus on cost-effectively scaling our go-to-market organization to ensure that we have the capacity and courage to support our growing business. customer-centric business model. The investments we made in our customer success organization and culture has resulted in another record quarter of customer retention. This provides us with a strong foundation to increase expansion opportunities within our install base. Driving platform innovation. We are driving more product releases and partnerships. On our last call, we announced the release of autonomous access, and we have quickly built a significant pipeline for this offering. Even factoring in a challenging macro and business climate, we are confident we can deliver on our ARR growth targets discussed on this call. ForgeRock is a growth company with a huge opportunity, and we remain focused on making measured investments to drive robust and durable long-term growth in the range of 30% as we march towards achieving our non-gap operating margin profitability sometime in the back half of 2023. A key driver of our growth continues to be our market-leading technology and our continued innovation. In the past, you may have heard us mention the Triple Crown. How ForgeRock continues to be the only identity provider recognized as a leader by Gartner for Access Management and Forrester and Coverture Coal for SIAM. Also, in Q4 of last year, Gartner published a report called Critical Capabilities for Access Management, which is a deep technical review of 12 identity companies. When you combine our scores across all three categories in the report, which are SIAM, workforce, and application development, ForgeRec is the highest-ranked platform. I'm excited to provide the following product updates. First, we released a series of major enhancements to our market-leading identity orchestration capability called Intelligent Access Trees that make it easier than ever for enterprises to deliver and measure world-class customer and employee experience while accelerating time to develop user journeys. Key enhancements include new out-of-the-box journey themes, custom UI theming, localized language for end-user UI in terms of conditions, and improved accessibility compliance. Key enhancements for administrators include a new analytics dashboard that measures the success and failure rates of user journeys and new organization features to enable tagging and searching journeys. All of these improvements make our already market-leading trees stand even further apart from the competition and enable our customers to deliver outstanding digital experiences. Identity is the on-ramp to digital customer journey, and done well, it's a force multiplier for businesses. Next, we released our 7.2 version of self-managed 4DRAC Identity Platform. leveraging our single code base, this release provides our self-managed customers with all the new innovation that has already been delivered to ForgeRock Identity Cloud, including all of the advancements to our trees that I just covered a moment ago. Key additional features include significant updates to our access token capabilities, including token exchange and enrichment, and new OAuth 2.0 features, which allow customers to tailor the user experience and increase security. the addition of several new tree nodes that accelerate time to value, and improvements to scalability and resiliency of our directory services and data synchronization in elastically scaled environments. These new areas of innovation provide additional differentiation between ForgeRock and our competitors. We win in the market because we empower our customers to create better identity experiences without compromising on security. offer a full suite and unified identity platform, our enterprise-grade performance and scalability, the extensibility of our platform, AI and innovation leadership, and our proprietary SaaS architecture. Our SaaS offering has been a key accelerator of our growth since its inception. SaaS now represents 17% of our ARR, and we are tracking well towards our goal of finishing this year with 22% to 27% of ARR from SAS. We're still in the early innings of migrating our existing customer base to SAS, with 83% of our ARR still self-managed. Our existing customers who migrate to SAS represent larger average ARR, and more importantly, we've seen a two to three times expansion of ARR after they begin their migration to SAS. We had some fantastic customer wins during Q2 across both our SAS and self-managed offerings that I'd like to share. Our first customer one example is a health insurer serving more than 7 million people nationwide. Their legacy Oracle solution was nearing end of life. It was complex, costly, and limited in its capabilities. This customer selected ForgeRock Identity Cloud to help rebuild its portal for providers and customers. The new solution aims to reduce cost while providing a more secure and enhanced user experience. Next is European-based IWG, the world's largest provider of hybrid work solutions, with over 3,500 locations in more than 120 countries. 83% of Fortune 500 companies are IWG customers. Furthermore, IWG is a leading provider when it comes to the safety and security of its customers. and today's security spans both the physical and digital domains. Physical refers to building and office access, visitor logs, and convenient vending using one mobile key. Digital refers to providing companies with the ability to manage their own security, related to bookings and managing services such as the collaboration of hybrid teams. IWG needs to automate the synchronization of new starters and leavers. add multi-factor authentication, and introduce passwordless login, all with seamless integrations with third-party systems. As such, IWG has selected Ford Rocket's platform to meet these requirements, support their complex use cases of its business, and to provide enterprise-grade security and scalability. Our third example is a North American mall retailer with several hundred locations in the United States and Canada. This retailer recently purchased ForgeRock Identity Cloud to replace a legacy IAM system that could not keep pace with modern demands. They will use ForgeRock to improve the speed and security of employee onboarding, featuring capabilities including SSO, multi-path login for associates, MFA, custom URLs, self-registration, self-service password reset, employee validation, and provisioning of users. Our fourth example is a statewide system that will use 4DROC to help make access easier and safer for millions of citizens applying for assistance programs. As part of this win, 4DROC is also providing secure access to hundreds of thousands of state employees. They were previously handling audits manually, which was resource and time intensive. With 4DROC, they're able to automate and streamline their quarterly audits with 4DROC's IGA module, saving significant time and costs. Our last example is a global designer and manufacturer of household appliances. This customer purchased our self-managed offering six years ago for a SIAM use case. They're in the process of transitioning to our SAS offering for greater simplicity, ease of use, and cost reduction for tens of millions of consumer identities. This shift now makes them one of our top five SaaS customers by ARR. Even in a challenging macro environment, we believe ForgeRock is well-positioned for growth because we are at the intersection of three powerful value drivers for our customers. First is cybersecurity. Identity is critical to securing the enterprise, an increasing threat landscape, and ForgeRock enables greater security without sacrificing end-user experience. we recently released our 2022 Consumer Identity Breach Report, revealing that unauthorized access was a leading cause of breaches for the fourth consecutive year, steadily increasing to account for 50% of all records compromised during 2021. Breaches involving usernames and passwords increased by 35% during 2021, accounting for more than 2 billion records compromised. Second is driving revenue growth. Every company with a digital presence needs a frictionless, personalized, user-friendly identity experience to drive digital product adoption and, in turn, revenue. Our platform is mission critical in enabling enterprises to achieve superior customer experience, security, and privacy for new lines of business, such as a digital bank. Our market-leading identity orchestration capabilities are a key enabler of this. Third is cost reduction. our customers are able to achieve significant cost reductions in two primary ways. First, by migrating off legacy or homegrown solutions to our enterprise-related platform, and second, by leveraging AI to automate governance processes such as managing entitlements and detecting over-provisioned access that pose security and compliance risks. In July, we announced that Forrester Consulting performed a total economic impact study that examined the ROI enterprises could realize by deploying ForgeRock's SCIEN platform. Forrester interviewed seven representatives at five organizations with experience using ForgeRock and aggregated the results into a single composite organization. These results show that the composite organization saw 186% ROI in less than nine months and a net present value of $28.5 million over three years. According to the study, the composite organization realized significant cost savings over three years, over $8 million in savings from transforming their legacy environment to 4TRAC, $1.3 million in savings from avoiding IT development costs, almost $6 million in savings for more efficient rollout and deployment of new functionality, reduced instances of fraud, resulting in $4.7 million in savings, and a 40% reduction in security-related calls to the call center, resulting in a benefit of $24 million. These value drivers that I just discussed are reasons why identity remains a top priority for every modern organization and why we continue to see strong customer demand for our enterprise-grade identity platform. We built an incredible business at ForgeRock with world-class customer base, a market-leading identity platform, and over 860 ForgeRockers worldwide who are passionate about modernizing identity for enterprises. We are confident that we can drive robust and durable long-term growth in the range of 30% as we capitalize on our $71 billion addressable market. Looking ahead to the second half of the year, we remain encouraged by the underlying drivers of our momentum, which remain strong despite macroeconomic challenges. Our integrated platform across identity, access, and governance for SCI and workforce and IoT use cases that supports all identity types continues to be a differentiator for us. And our ability to empower our customers to choose how they want to deploy our software, whether it be self-managed or SaaS, maximizes the market opportunity for us. With that, I'll turn the call over to John to walk through our financial results in more detail. John?