Ping Identity Holding Corp.

call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now hand the conference over to your speaker today, David Banks, VP of Investor Relations. Thank you. Please go ahead.

Thanks everyone for joining us today and welcome to the Ping Identity Conference Call, where we will discuss our results for the fourth quarter, the full year 2020, and provide our outlook for the first quarter and full year 2021. Before we begin, I would like to remind you that shortly after the market closed today, we issued a press release announcing our fourth quarter 2020 financial results. We also published a supplemental slide presentation to accompany this call. You may access the press release and presentation on the investor relations section of pingidentity.com. With me today is Andre Durand, our CEO, and Raj Dhani, our CFO. Today's call may include forward-looking statements. Please refer to our annual report for the year ending December 31, 2020, filed on Form 10-K with the Securities and Exchange Commission. There, you will see a discussion of factors that could cause the company's actual results to differ materially from these statements. I would also like to remind you that during the call, we will discuss some non-GAAP measures related to Ping Identity's performance. You can find the reconciliation of those measures to the nearest comparable GAAP measures in our annual financial statements and our fourth quarter press release. To ensure we can address as many analyst questions as possible during the call, We ask that you please limit your questions to one plus a follow-up. And with that, I'll turn the call over to Andre. Thanks, David, and welcome everyone who's tuned in today. We hope you're doing well, and like everyone, we're excited to welcome the promise of 2021. I'd like to also extend a heartfelt thanks to our Texas-based associates who, like millions of others, have endured days of difficulty related to the extreme cold and extended power outages there. We appreciate all you do and hope things can get back to normal quickly. I'm pleased to report we closed another strong quarter of annual recurring revenue and unlevered free cash flow. the key metric to gauge the health of the business amidst the challenging year of uncertainty living and adjusting with COVID. We finished the year with ARR of $259.1 million, up 15% for fiscal 2020. Q4 revenue was $63.3 million, and the full year revenue was $243.6 million, with subscription revenue representing 92% of both totals. We closed the year with $8.8 billion in unlevered free cash flow, a $10 million year-over-year improvement from 2019, and further evidence of the profitable growth model we've built. In reflecting on both the quarter and full year, a few key takeaways emerge. First, identity is now solidly recognized as the heart of security, something we've talked about for years, which has now been accelerated in the COVID era. Work from home is the norm. and the old paradigm of network security has finally given way to zero trust. In nearly every customer, prospect, and partner conversation, enterprises are laying plans to evolve their security model to zero trust with identity at the core. The second trend is a desire to accelerate all digital business initiatives, which include both cloud transformation and legacy identity modernization. Companies want frictionless user experiences And to this end, we continue to invest in our platform, making it easier to consume in the cloud, faster to integrate across hybrid IT, and more secure through identity intelligence, all while delivering a better passwordless user experience. This is important work, as our cyber adversaries are relentless, as exhibited by the recent SolarWinds breach. We feel fortunate that these attacks did not impact Ping's products nor corporate environment in any way. but it's clear that the bar continues to rise in terms of the security and care with which we build and deliver our services. So we continue to invest to ensure we deliver the gold standard and mission critical, highly scalable and highly secure identity solutions. Given the pervasiveness of work from home cloud acceleration and the desire to support digital business initiatives, we're focused on four core themes. First, we're focused on delivering the very best unified cloud platform for the hybrid enterprise. As enterprises embark on their cloud journeys, Ping provides unparalleled cloud flexibility we call Cloud Your Way. We're meeting enterprises where they are and fulfilling the requirements they demand to reach the cloud. Only with Ping can customers choose to consume identity in Ping's cloud, the public cloud, or their own private cloud. I recently heard of one such banking customer who deployed Ping in an IBM private cloud and two public clouds to maximize resiliency. Irrespective of where these enterprises consume their identity services, all of them have hybrid IT requirements. And for these enterprises, Ping offers a complete set of integrations across both cloud and legacy applications. Second, we're focused on our customer identity solution. providing a level of scalability and performance that's unique amongst identity providers. While we're trusted in our scale and protect billions of accounts, our performance is also unique, with some of our customers achieving peak volumes of over 50,000 transactions per second, a staggering statistic. In addition to being trusted for authentication, we're also increasingly the central user directory that enables unified profiles across the entire enterprise's digital properties. Consumers expect a level of personalization and ease of use without compromising their security. And as a result, companies looked at Ping to enable these experiences. More on that in a moment when I talk about our recent recognition from Gartner. Third, we're focused on helping companies rapidly migrate off legacy. Analyst estimates suggest there's between $3 and $4 billion of annual spend on legacy identity systems. Having completed hundreds of these migrations for enterprises, Ping has invested to make these projects easier and less costly through our self-service capabilities that allow application teams to integrate with the company's centralized Ping platform. Finally, We're expanding and bracing our partner network, which is core to our operations and vital to our customer success. Our expansive partner network consists of technology partners who collaborate alongside Ping in the most complex enterprise IT environments, as well as our integration and channel partners who provide invaluable expertise to our clients, both when selecting Ping and through the deployment and go-live process. Now I'd like to switch gears and highlight a few of our Q4 customer wins. On the new customer front, we had several notable competitive wins in Europe. The first of those was Deutsche Telekom, Europe's largest telecommunications provider, which signed a multi-year customer identity deal to create a single ID for their customers. The hybrid solution incorporates Ping's single sign-on, multi-factor authentication, directory, and self-service app onboarding capabilities. providing a single identity for all business and private customers in Germany as a replacement to their in-house product. While this was a notable long-term win, we see upside to layer in additional capabilities, including our growing suite of SaaS services, such as risk and verification. In another win, Three Island, One of Ireland's leading mobile telecommunications and internet service providers chose Ping's SaaS offering to replace their legacy identity system to deliver a complete, modern identity experience to customers. Closer to home, a leading television manufacturer selected Ping's SaaS solution to replace the legacy identity system and reinvent the way services and advertisements are delivered through smart TVs. As part of their desire to expand into mobile and subscription value-added services, they required an identity platform that would scale while providing the flexibility to create new and innovative customer experiences. This customer opted for Ping's SaaS solution for the entire authentication and user management system. These solutions will allow them to expand their reach into royalty-based services with video on-demand providers, food providers, and consumer entertainment partners. In another sizable win, a leading multinational healthcare provider selected Ping to help unify its digital experience for healthcare services. They had security concerns related to their legacy directory service that needed immediate attention and had a number of high-dollar legacy renewals coming due in 2021 that would have had multimillion-dollar budget impacts this year. This was yet another new SaaS win for Ping. were now the single provider of integrated authentication experiences for their customers across their hybrid IT landscape. Finally, one of the largest global airlines selected Ping to replace Siteminder and Oracle Directory services. With COVID having had a significant impact on the airline industry, the customer needed to modernize their IAM to enable more cost-effective solutions for the business. In phase one, they deployed Ping Directory to replace Oracle, They then expanded to cover not only their workforce, but their customers, replacing a homegrown system. In phase three, they plan to replace SiteMinder with PingAccess to secure access to all of their applications. This type of multi-phased customer implementation is very indicative of what we have seen through this COVID period. In addition to the great Q4 customer activity, we're particularly honored to have been recognized as one of the top performers by Gartner. In addition to moving up into the right in their 2020 magic quadrant for access management ahead of some of our chief competitors, Gardner ranked paying number one in all use cases for critical capabilities for access management. The report assessed 12 providers and how their services deliver on a range of capabilities and use cases, including both internal workforce and external customer use cases. Since inception, Ping's identity and access management solutions have served the customer, workforce, and partner use cases. Customer identity has been growing faster in recent quarters, and we ended 2020 with a greater percentage of our ARR in the customer use case. This positions us well going forward as the addressable market for the customer use case is growing faster and we believe will ultimately be larger and stickier than the workforce use case. As cloud transformation accelerates, so too has the adoption of Ping SaaS services. I'm pleased to report that over half of our customers now leverage at least one of Ping's SaaS service offerings. And our SaaS ARR is growing out of multiples of our overall ARR, now exceeding 15% of total ARR. We intend to provide more detail on this metric and other SaaS and cloud metrics, including longer-term ARR, revenue, and cash flow targets at our investor day in the second half of the year. With respect to Ping SaaS offerings, I'm pleased to report that we've added several new services to our Ping One SaaS platform in recent quarters, such as Ping One MFA, Ping One Risk, and Ping One Verify. Ping One MFA provides strong authentication of consumer identities. Ping One Risk detects threats in real time to strengthen authentication and reduce login fraud. And Penguin Verify, released earlier this month, makes it easy to verify the real identity of a user prior to enrolling them in its services or registering their phone for strong authentication. With Penguin Verify, we've leveraged the expertise and technology we acquired through ShowCard to blend facial recognition and government ID document validation to ensure enterprises are interacting with the right customers in a frictionless fashion. None of our accomplishments would be possible without an incredible team. And to that end, I'm pleased to announce the addition of two new board members. Earlier in January, we announced that CIO Hall of Famer Paul Martin would join the board. Paul is an IT visionary with international experience, boardroom acumen, and award-winning IT accolades. With IT security and identity in the spotlight more than ever, it's great to have Paul with us. I'm also pleased to announce that next week, Diane Garrison will join the board. Diane is widely recognized as a high impact technology savvy chief human resources officer who has redefined the HR profession in the digital era. She recently retired from IBM, where she served as chief human resource officer and was responsible for the people and culture of IBM's global workforce. She has won many accolades as a business and technology leader. We are thrilled to have both of these acclaimed individuals join the Ping board. In closing, while the pandemic has introduced challenges for our customers and a certain amount of uncertainty into our business, these are exciting times for Ping as we push harder than ever to invest in our future. None of this would be possible without the contributions of our team, and I'm honored to serve them and to have received the Glassdoor Employee's Choice Award recognizing Ping as the best place to work for 2021 by our employees. And on the topic of honoring people, I want to pass along my gratitude and congratulations to Dave Packer. Dave has been our head of sales for the past several years and has announced his intent to retire from Ping at the end of June. Dave has been a big part of our success over the years, and I want to thank him for his steady hand guiding our sales team through the COVID era. We wish him the best as he moves on to the next phase in his life. And with that, I'll now turn the call over to Raj to walk through the quarter results and outlook for 2021 in more detail. Raj. Thanks, Andre. I would echo Andre's comments that we are very pleased with our Q4 and fiscal year 2020 results and execution and our ability to drive seamless deployments and quick time to value for our customers. We closed the year with ARR of $259.1 million, representing year-over-year growth of 15%. Q4 net ARR of $16.5 million was up 23% compared with the midpoint of our guidance, a great outcome. Growth was driven by continued adoption of our SaaS solutions, solid international bookings, especially in EMEA, and other large customer transactions that are enabling businesses to accelerate their digital transformations. As Andre mentioned, our SaaS ARR now represents more than 15% of our total ARR, growing at multiples of our overall ARR growth rate, and more than half of our customers now leverage at least one ping capability in the cloud, up from just one-third at the end of 2018. We intend to provide more granularity on these metrics and others at an investor day later in the year. Fourth quarter total revenue was $63.3 million, of which 92% was subscription revenue. This was driven by a higher level of veritable revenue and somewhat shorter subscription term license contract durations. This points to the rapid acceleration of customer SaaS adoption with the accounting related to ASC 606, a natural byproduct. Our ratable subscription SAS and maintenance and support revenue grew 27% in Q4 and 24% for the full year. In Q4, our SAS and maintenance and support revenue represented 38% of our total subscription revenue, up 11 percentage points from the prior year. Also within the subscription category, our one-year term-based license revenue grew 22% in Q4 to $17.7 million, while our multi-year term-based license revenue declined by 43% in the quarter to $18.5 million. These metrics are continued evidence of the fast acceleration of our business. Given the impact that deployment mix and contract duration have on GAAP revenue, we continue to believe that ARR is the key growth metric of a subscription business. In Q4, our dollar-based net retention rate was 108%, calculated on trailing 12-month basis. Given the prevailing economic uncertainty driven by COVID-19, a number of enterprise customers continued to phase in their purchases of our solutions, resulting in slightly smaller deal sizes and a reduction in our dollar-based net retention rate. Net retention rate has historically tracked quite consistently with ARR growth. We ended 2020 with 1,411 customers, up 4% year over year. This growth belies the strength in specific categories of growth. We had 51 customers with more than $1 million in ARR at the end of the year, up 34%, including a number of existing customers who migrated upwards into this cohort from cohorts below $1 million in ARR. Customers with more than $250,000 in ARR numbered 260 at the end of the year, up 12%. The overall growth rate was muted by a drop in customer count from our non-regrettable churn category. This data supports our business model, which continues to appeal to the largest, most complex enterprises, which are hybrid by default. Unless otherwise stated, for the remainder of the P&L, I will refer to non-GAAP metrics. You can find a reconciliation of non-GAAP to GAAP numbers in the accompanying press release. Growth margin for the fourth quarter was 80%. And comparatively, our GAAP subscription gross margin was 86%. Our SaaS solutions continued to grow faster than the rate of the overall business. And as a result, we saw slightly lower subscription gross margins. Total operating expenses in the fourth quarter were $46.3 million. Unlevered free cash flow usage was $1.4 million during the quarter, better than expected, primarily due to strong cash collections. Unlevered free cash generation for the full year was $8.8 million, up approximately $10 million from full year 2019. We remain in a strong cash position at the end of the year, with $146 million of cash on hand, a reduction driven primarily by the acquisition of Symphonic. Earlier this month, we paid down $110 million of our revolver, leaving it drawn at only $40 million of the $150 million available. Recall that we drew down $98 million of our revolver in March 2020 to de-risk the business at the outset of COVID. We feel the financial risk associated with the pandemic has largely passed and are comfortable holding a smaller amount of cash on our balance sheet. Moving now to guidance. We are reinstating our annual guidance after having suspended it in May of last year. For 2021, we project ARR to be between 295.5 million and $298.5 million, growth of 15% at the midpoint, stabilizing at current levels. For the first quarter, we expect ARR of 263 to 264 million, also growth of 15% at the midpoint. We project four-year revenue of $255 to $265 million, growth of 7% at the midpoint, and reflective of our ongoing fast acceleration on new and renewing ARR. This impact for the full year is expected to be about $30 million. In the first quarter, we expect GAAP revenue to be impacted by about $5 million and are guiding to a range of $61.5 to $63.5 million in revenue. We currently expect a similar quarterly range for the second and third quarters with a typical seasonal uptick in Q4. We expect unlevered free cash flow for the year of $7 to $11 million, up slightly at the midpoint relative to our 2020 performance. Similar to last year, we expect our unlevered free cash flow to be materially higher in Q1 at approximately $12 to $14 million due to the timing of collections and payments. Our free cash generation in 2021 is reflective of accelerating investments. We paused non-critical investments in the middle of 2020 as a result of COVID, resumed them in the second half, and expect to continue investing in 2021. These investments will drive higher costs of revenue and R&D given our SaaS acceleration. We also expect to continue our go-to-market investments and expect a resumption of travel later in the year. We expect our total expense growth to track ARR growth as a result of these investments, which is also reflected in our unlevered free cash flow guidance. We feel encouraged as we move deeper into 2021. We believe the innovation we've been known for since our inception will accelerate this year as we invest to drive growth, especially with our SaaS products. We have the financial strength to execute that plan and look forward to reporting to you on it as the year progresses. With that, I'll turn it over to the operator for your questions.

As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Your first question comes from Matt Hedberg from RBC Capital Markets.

Yeah, thank you. This is Matt from RBC Capital Markets. Raj, could you touch a little bit on your expectations for the SaaS mix heading into the quarter? And then if there's any more granularity on what that mix is kind of embedded in your guidance. Obviously, the breakout of the impact on top line revenue was really helpful.

Sure. So, you know, in our hybrid model, gap revenue is highly variable due to the deployment mix and contract durations on software. And going into Q4, we certainly anticipated some SaaS acceleration, but we actually saw more than what we had originally anticipated. So you saw some of that in the actuals for Q4. We also saw some shortening of contract durations. Those vacillated throughout the year on software deals. So, and those are largely driven by, you know, budget and overall uncertainty around COVID. So, essentially, if you think about the confluence of those two factors, that's what drove sort of the delta between our guidance and the actuals. But offsetting this, our ratable revenue grew 27% year-over-year in Q4. So, you know, just to kind of summarize our Our revenue, you know, while it's an important gap metric, it's just not a relevant growth metric for us as ARR normalizes for all the noise created by deployment mix and contract delays.

That's super helpful insight. And then, Anders, it was really good to hear about the airline deal when you were replacing the Oracle systems. Are you starting to kind of see some of that legacy replacement opportunity start to open up again, at least from like a pipeline perspective, as we start to kind of move through the vaccine period here?

Matt, it is opening up. A lot of times, the legacy replacement is driven by a renewal. and companies back into an amount of time that they need to plan to ultimately replace and convert and or integrate all the applications that are in the legacy. And so as renewals for the legacy come up, we get introduced into the account. All of that said, I do think that there is an increased level of awareness that identity is the foundation of security in this now even more distributed world. And so I think that there is now an elevated and more strategic view of the role of identity and the role of the partner that they are choosing to not just displace legacy, but actually put the business on solid footing for where they want to go with customer experience and where they know they need to go in securing the workforce in a zero trust world.

Thank you both. Thank you, Matt.

Your next question comes from from Barclays.

Hey, guys. Thanks for taking my questions here. Andre, maybe first for you, just given the shift that we're seeing to ping cloud, ping SaaS, the question is, how do you feel about that SaaS solution to your more traditional ping on-prem solution? And maybe relatedly, how do you feel about the cloud solution? How do you feel that cloud solution competes against, you know, perhaps other cloud native competitors? Does that make sense? Yeah, it makes sense. Thank you for that question. As I've reported before, we have hundreds of enterprises now deploying ping in their cloud. We refer to this as cloud your way, and this will continue, I think, for the largest, most regulated customers and ones that have a cloud-first mandate but want a certain level of control. And Ping is fairly unique in our ability to deploy in one or more public clouds or the private cloud, as I reported in my earnings script. But for companies wanting pure SaaS, we have a very strong offering now built on the most recent architectures. Our SAS ARR is growing at multiples of our overall ARR, now represents greater than 15% of our overall ARR. And as we've also noted and you've seen in the press releases, we've accelerated the pace of our SAS offerings, introducing three new services in three quarters. And we're seeing good traction from the early introduction. Perhaps what you're referring to, which I'm also very excited about, In recent developments, our SaaS offering now has the ability for companies to consume our most advanced capabilities as SaaS in what we refer to as a no-compromise, best-of-all-worlds scenario. This is 100% feature parity with the software that companies have been deploying for years in mission-critical environments. And we are seeing really good traction in that solution. So we've been investing aggressively in our cloud, in our cloud platform, and now having the ability to offer, as SaaS, our most advanced services and capabilities is making us very competitive. Got it. That's really helpful. Raj, maybe for my follow-up for you, Can you just talk a little bit about the pipeline of multi-year renewals this quarter? Maybe related to that, did some of those multi-year renewals perhaps renew for shorter durations? I know you talked about duration being a little bit lower broadly, but specific on renewals, I'm curious if you saw those renewal durations maybe decrease a little bit. And did some of those renewals that maybe were previously termed on-premise perhaps change deployment to SaaS? Hey, Saket. Thanks for the question. So typically for Q4, we had a significant amount of renewal volume in Q4 of 20. And I'm pleased to say that we had great retention as usual. And just to answer your second question first, because that's top of mind, we did see some customers choose SaaS over software in their renewals, but I wouldn't call it overly significant, as we saw with perhaps more SaaS acceleration on new ARR booked in the quarter. So I just wanted to kind of address that second question first. And then going back to your first question on the pipeline of multi-year renewals, there's just a confluence of factors, right, that impact revenue, especially when it comes to renewals. Not all initial multi-year deals renew for multiple years, if that makes sense. typically there's renewals of all different durations. And so I think you're seeing some of that in your question that I think you're asking. Specific to Q4, we did see a higher degree of SAS, as I mentioned, and some shortening of contract durations. But really on On our renewals, there was nothing of note where we had a whole bunch of multi-year renewals slated and they came in shorter, pretty much tracked according to schedule. Got it. Very helpful. Thanks, guys. Sure, Zach.

Your next question comes from Adam Tyndall from Raymond James.

Okay, thanks. Good afternoon. I just wanted to touch on the comments about how over 15% of total ARR is coming from SAS at this point. Curious if you're seeing this as net new ARR or if there's some aspect of cannibalization of the non-SAS ARR because that shift seems poised to continue. It's probably good for valuation, but it'd be helpful to understand whether this is additive or cannibalistic because it should push up growth rates as well if it's becoming a bigger part of the mix. Adam, most of it is new, and obviously everything related to SaaS and our SaaS growth and our SaaS offering, as we noted, will be discussed in our investor day in the second half of this year. We do anticipate that some of our customers, over time, that we will journey our customers to the cloud if that's what they wish to do. We do see an opportunity for significant upsell as they move into our cloud offering. We have several services offered as SaaS in the cloud that are not available as software for them to run on-prem. So as customers make the commitment to ping in their cloud journey, move into our cloud platform, we do see opportunity for expansion. But most of what you're seeing is new. Okay, that's helpful. And maybe as a follow-up, Raj, new ARR, $16.5 million this quarter was a source of upside. Looks like the year-over-year declines are bottoming out and actually should see low double-digit growth year-over-year in this metric based on your guidance. Maybe just touch on the key drivers of that new ARR improvement over the course of the year and any assumptions embedded, whether it's new versus existing customers or additional color you can give on what's embedded in that.

Thank you.

Thanks, Adam. Are you talking about for 2021 specifically? Yes, for 2021. So Q4, it was $16.5 million. The year-over-year decline is bottoming out and improving. And if we look at 2021, I think it's going to grow low double digits. Just curious on that trajectory and what's embedded in the new ARR assumption. Sure. So we've typically had a fairly stable decline mix of base versus new. And, you know, our net retention sort of tracks to our overall ARR growth pretty steadily to within about 700 or 800 basis points. So we don't really anticipate that mix changing a whole lot. You know, we view kind of a two-thirds, one-thirds base versus new as pretty healthy. And with the investments we're making in channel and in our – and in our growth team, which has shown a lot of early traction, we're encouraged that, you know, we can continue that trend. Got it. Thanks for the call, and good luck in 21. Sure. Thanks, Adam.

Your next question comes from Brian Essex from Goldman Sachs. Hi, good afternoon. Thank you for taking the question.

Maybe I was wondering if we could start with a little bit of color around customer buying patterns. And I know in previous periods, you've said you're seeing a return to more normal buying patterns. I mean, how can we maybe reconcile that with, you know, deals still being phased in? Is that changing at all? And maybe your outlook, you know, maybe what's embedded in your assumptions for 2021 is, as you kind of look at the pipeline and speak with customers around their buying intentions in terms of what we can expect there? Yeah, thanks, Brian. This is Andre speaking. We have seen, you know, what we refer to as a lockdown and hold in the enterprise through COVID. Budgets and cost savings do remain a focus, but RFP activity has absolutely picked up. And so we are experiencing now a healthy deal volume and pipeline generation. To be clear, we do anticipate that phasing will continue to occur. So I don't think we're entirely out of the woods from what we experienced pre-COVID. However, things are starting to feel more normal. And we saw some of that with a solid ARR beat in Q4. which is really the first sign of a stabilizing environment. So we do anticipate, and I think we are embedding in our guidance, we guide to what we see and what we experience, and what we are seeing is still some conservatism in budgeting and cost pressures that does lead to phasing appeals. Great. Maybe just to follow up, could you provide an example of maybe how a company may think about phasing a deal and perhaps some factors that we might see in 2021 that might lead them to reconsider the way that they're phasing deals and right-size the deal to what they would normally purchase? Well, in two or three of the examples that I gave in my early remarks, it is very common for customers to focus on centralizing authentication and strong authentication or MFA services for either their workforce or their customer. That tends to be the typical land and the low-hanging fruit as companies embark on modernizing their identity. They are looking to consolidate several different authentication systems. They're looking to retire multiple hard tokens that we've seen in the past for MFA. Those are the RSA secure ID tokens that we all had on our key chains. That tends to be a very typical land for either workforce or for customer. And then from there, they begin to think about, for example, are all of my identities in one directory? Or do I have identity information in multiple directories? Let's unify and consolidate that around a single instance of customer profile information in ping directory. So that will be a project. And then we also tend to see a project of retiring the legacy web access management that we've reported many times of SiteMinder and Oracle Access Manager and IBM Access Manager. All of those products are not adhering to many of the new open standards. They've all become a little long in the tooth and are hard to support, and they look to modernize that around our ping access product. very common for us to see the phasing of deals and the modernization of their and consolidation of their entire identity platform along those three dimensions.

Got it. That's helpful. Thank you.

Our next question comes from Gray Powell from BTIG.

Oh, great. Thanks for taking the question. Yeah, so maybe starting off, just roughly speaking, how much did the macro environment and the phasing of deal activity impact your ARR growth in 2020? And then just kind of following up on a prior question, how should we think about the pace of recovery as those deals that were delayed last year coming back into the fold? We definitely did see an impact to what we had experienced prior to COVID. And as we've reported, and really things have not changed, largely attributable to the phasing of deals, which as I've also said, as we look to guidance going forward, we won't change the guidance until we experience a return of actual buying behavior where phasing is not occurring. So it did have an impact. in 2020, we are projecting that impact into the foreseeable future. And you see that kind of embedded in our guidance. That is our philosophy, to guide to what we see and experience in front of us. We are seeing early indications, as I've also reported, of more RFPs. There is some evidence of pent-up demand returning. Projects that were put on hold in 2020 are now entering the pipeline as active here in Q1 and in Q2 of this year. It is a little too early to call this normal, but the signs are encouraging. Got it. Okay, that's really helpful. And then just a totally different topic. You kind of talked about this in the prepared remarks, but how are you thinking about the relative growth opportunity in customer identity versus workforce identity in 2021? We've been leading into the customer use case now for the better part of the last couple of years. As we've reported now, it is a larger piece of our overall ARR snowball, and it is growing faster than the workforce use case. It turns out our solution is uh is really strong both on scale and performance but also across the growing dimension of security and privacy regulation we have a very strong product portfolio that allows companies that are under scrutiny of ensuring that they enforce consent around privacy that all of their infrastructure can actually support those uh those regulatory requirements so It is a faster-growing segment of the market. It is smaller than workforce, but we believe ultimately will become larger, and we have a very differentiated product. Understood. Thank you very much.

Thank you. Your next question comes from Jonathan Ho from William Blair.

Hi, good afternoon. I just wanted to maybe start with your investment comment for 2021. Can you give us a sense of where you're going to be making the bulk of these and where you maybe see an opportunity to either catch up more or to accelerate investments?

Yeah, absolutely. Jonathan, this is Raj. So we've talked a lot about our SaaS acceleration. We're really excited about that. This is an area where We have been making investments, and as you've seen over the last few quarters, we've been able to roll out some really unique products there. And so we're really excited about that and the adoption there. In 2020, keep in mind we paused investment for a good portion of 2020, especially around the onset of COVID. And now with returning visibility, we're going to start leaning back into investments for growth. Actually, we started back in the second half of last year, but we'll continue that trend. Those will primarily, I'd say, impact cost of revenue and R&D as we lean into the SaaS opportunity ahead of us. From an OpEx perspective, we'll continue to, as I mentioned, that growth will track overall ARR growth as we lean into quota-carrying reps, channel investments, and then just overall, as I mentioned, an R&D to engineering and overall hosting costs to support our SaaS initiatives.

Got it. And as you think about sort of some changes with the executive leadership around the sales side of things, can you talk a little bit about the search process and maybe what you're looking for, either areas of improvement or things that you can continue doing on a best-in-class basis? Thank you.

Jonathan, through the years, we've been fortunate to have many great leaders at Pink. each of them critical to our success at different stages of our growth. And as you noted, Dave has been one of those leaders for us. Companies more than doubled during his tenure in the last several years. We're thankful for everything Dave contributed to our success. He built an incredible team. We have an incredible team. We do have an active search underway, and Dave will stay through the transition. So I don't expect any disruption there, frankly. We're excited to cheer him on to the next chapter of his career. And what was that? Sorry. Raj was talking to me. All right. Was there another piece of that question, Jonathan, I missed? My apology.

I was just asking for what characteristics you were looking for in sort of a new sales leader as well.

Yeah, so I think the thing that we're looking forward to is the channel is becoming increasingly important to us. When we look to penetrate the Fortune 1000 and the Global 3000, there's many ways to enter those companies. If you look at both the customer and the workforce use case, Many of the advisory firms, the GSIs, and the implementers of both identity and security projects have visibility and insight into what these large enterprises are doing. So we are making a very concerted effort to partner with the channel to provide both the advisory services up front as well as the deployment and implementation services after the fact. So I do think that we will look for strengths in channel, and in particular, strengths in the GSI and the companies that provide advisory services.

Great. Thank you.

Your next question comes from Brad Zelnick from Credit Suisse.

Excellent. Thanks so much for getting to me. It's actually as if Jonathan Ho is telepathic because he asked flavors of the two questions that I wanted to ask, and I'm going to maybe touch on them a little bit differently.

Maybe just on the change in sales leadership, how should we think about transition risk and overall sales capacity and headcount plans at this point? Why are we not going to come back in a quarter or two and find that more salespeople turned over or

there's just some more unexpected consequences of his transition.

We have a lot of great leaders here at Brad. We have a lot of great salespeople here. I think the sales force recognizes the investments that we've made in our product, in our cloud offering, the investments that we've made in new companies and capabilities. And as I said, there is a lot of activity. right now. So I think we lived with a certain amount of depressed activity through kind of the COVID era. I feel as if it's not entirely behind us, but things do begin. Things are beginning to emerge. I think also, if you look at the more subtle points of the culture that we've built here at King, we have a very, very strong culture. We look after our own. I do view it leadership's role to look out for and after our employees. I think that we are both rewarded and recognized by our employees for the caring that leadership has towards their success and growth and opportunity. So I don't anticipate any major changes that would disrupt this year. You never know what is going to happen. But we put employees first here at Ping. This is not the first change that we've navigated, and as we've become larger, we've become more resilient. Got it. And any update on headcount plans, just in capacity in the field? I can take that. I mean, Brad, I think the short answer is we feel good about the capacity we've invested over the last year or so and have gotten quota carrying reps up to the levels that we need to support our plan. And in areas which are outperforming, we're going to double down on those. And so we may have some tweaks around the edges around that plan, but for the most part, it's baked. Okay. And Rajen, I hope you won't count that as my second question. But my other follow-up to Jonathan Ho's question, which he asked in terms of areas in which you're investing, I'll maybe ask also a little bit differently. Your comments in your prepared remarks said that expense growth should track ARR growth.

And especially with an outlook for steady growth against easier and easier comps, I guess the question is, when do we see the acceleration in growth or the leverage which is natural in this type of subscription business?

Right. You know, Brad, the big gotcha in 2020 was the pausing of these investments, right? What you're seeing in 2021 is the result of about a six-month push of 2020 investments into 21. Now, we continue to make the critical investments. We hired our channel leader. We hired our new EMEA leader. We've invested in all the critical quota carrying reps that we needed to. Part of it is just that four-year impact of those investments that we made later in the year, which is which is why you don't see the immediate leverage. But we're confident in the model. If you go back a couple of years, you've seen, you know, tremendous operating leverage in this model. We continue to deliver on our profitable growth model, even through COVID. And, you know, there's no reason to think that we won't return to that. It's just, you know, we had a bump in the road in COVID, and, you know, we think that that's now – you know, hopefully for the most part behind us, especially later this year. I hope so, too. All right. Thank you so much for taking the questions. Sure, Brad.

Thanks, Brad. Your next question comes from Greg Moskowitz from Zoom.

All right. Thank you very much, guys, for taking the question. I guess, first off, I know it's not always easy to draw a straight line, but, Andre, just based on your customer conversations, I'm wondering what impact, if any, you think solar storm has had on your pipeline thus far?

Well, I'll start by saying we're fortunate that the attacks did not impact our products or corporate environment in any way. I believe near term, the solar winds, aka sunburst vulnerability, is a tailwind to both privileged access management, we don't participate in that, as well as MFA. So near-term, people look at the vulnerabilities of password only, and they are looking to shore up those weak links. I believe long-term, the SolarWinds attack is going to be a tailwind to all things related to identity-based security and zero trust. As you know, Ping is at the forefront, has invested for years, in our platform to be the centerpiece, if you will, of strongly authenticated users, strongly authorized users coming in on trusted devices where identity is the new control plane. So I believe long-term it's going to be a tailwind. Short-term, I believe a lot of companies have just been busy assessing the posture and their vulnerability. And I certainly have had a lot of conversations with customers about that. short of the PAM and MFA as being short-term moves, I think most of them are just saying that they really need to pay attention now to their infrastructure and to the supply chain and their choice of partners.

Okay. Thanks, Andre. That makes a lot of sense. And then, you know, secondly, I know you're very excited and have been for a while about your API security product. I know there also have been some puts and takes in 2020 because of COVID and and the economic environment. So we'd love to hear an update just kind of how that product has been doing for you over the past few months.

Yeah, Greg, the future of digital business, as we've said, is wholly dependent on secure APIs. It's just incredibly important, and it's foundational to all enterprises that now, and really all businesses that find themselves competing on technology. We are building a very, very strong API story where API intelligence is just one part of our API security story. As I reported before, this market is nascent and still emerging. And during COVID, other firefighting priorities took over for many of the pilots that we had underway in March when that hit. The pipeline and the interest remained strong throughout the entirety, say, of the back half of last year. And in 2020, we leveraged the time while there was kind of a pause in what had been the POC and buying behavior of that emerging product to deploy several enterprise-wide large-scale deployments. I mean, these are at massive multinationals. Those deployments have now successfully gone live, and the customers and champions in those companies are now starting to hit the speaking circuit for us. So in many ways, we are beginning to resume a little bit conversations more on the buying front of that. We've also taken the time, kind of the lull in the buying behavior for that emerging product. We're taking that time to move the entire capability to our cloud and SaaS offering. It is my belief when that market hits, it is going to hit fast and furious. And I want to make sure we're in a position to capture as much of it as possible.

All right. That's very interesting. Thanks for the call, Aaron. I'll just look forward to tracking that progress. Thank you. Thanks, Craig.

Our next question comes from Catherine Trepnick from Collier Securities.

Thank you for taking my question. You know, the last couple of quarters, you've been investing more in the channel. Could you give us some more details around how that's actually working? And is there a possibility to give us, like, the number of deals or percentage of deals that are influenced by the channel? Thank you.

Raj, I don't know if we've disclosed either sourced or influenced business. I want to make sure. We haven't, Catherine. I mean, you know, The channel team has just been really launched in earnest in the second half. We hired a new leader and she built out her team. So we feel like we're in really good shape entering the year and look forward to big things there. But, you know, it's probably something we'll report on a little bit down the line. I think I can say a significant portion of our business, however, is influenced by the channel. We've been strong there. We're beginning to track now sourced business also as a result. And this year, the commitment to the channel, we had the channel participate in our SKO. We made several commitments both to the channel and to the employees here at Ping, bringing focus to our desire to be really a partner and channel-first company in the way that we partnered with partnered with our partners to both discover, close, and deploy new business.

All right, I guess I was a little early on the question. A follow-up would be, which of your solutions do you think best fit Channel Motion? Thank you.

Well, I think we've had good activity from the Channel. If I think about use cases, you know, where about half of our business is the workforce use case, the other half is the customer use case, growing faster, maybe slightly larger now than workforce. We've had good partner and channel activity on both use cases. Now with respect to specific capabilities for products or services, Ping is a solution company. We are a strategic partner to the IT departments of large complex enterprises to modernize and essentially build a platform from the ground up for all of their identity security activities. While we do have some consistent lands, if you will, that tend to focus on authentication or strong authentication or single sign-on, many times where the partners are strong and we're training them on this is on selling both the vision of the platform, and Ping is the strategic partner, as well as the platform as the foundation for broader solutions. So there's no one product that I would want to pick out of our solution and say that's the product the channel is endeared to. We're a solution company selling a platform. We are selling and behaving that way ourselves, and we are training and educating our partners to do the same thing.

All right, thank you very much.

Your next question comes from Rob Owens from Piper Sandler.

Can I read the wire? Great. Thanks for taking my question, guys. First off, can you touch a little bit on customer acquisition? I know obviously there were some challenges to this year. Some of the puts and takes, is that all organic as we look at that customer number? Was there anything inorganic from some smaller acquisitions? And the relative flatness, I think he's mentioned 4% growth. Is there any churn issues going on within there, or is that just some softness on the new customer acquisition as a result of the environment you've been in?

Hi, Rob. This is Raj. I'll take that. In 2020, we saw a slow first half in new customer ads, and a large part of that was COVID-related. as the world learned to deal with the pandemic. The second half was much stronger. So if you look at the trending there, the second half was much stronger, and Q4 was stronger than Q3 even. And we saw healthy traction in the larger cohorts, right, with the greater than million dollar ARR customers growing up 34%. I'd say if there was an area of softness, it was international, where we had fewer new logos, given some of the more stringent lockdowns that they had there. But the ads that they had there were significant. Andre mentioned a couple, and some of our larger deals that we had in the quarter were from our international business. So a little bit of a mixed bag there. I think you hit the nail on the head at the end of your question, which is, is there some some non-regrettable churn, and there still is, you know, some of that. You know, we have a cohort of customers that maybe, you know, a long time ago bought one product and didn't really grow with us. They weren't in our ideal customer profile and, therefore, never expanded. So, you know, it's still TBD going forward to say, you know, whether some of our newer SaaS products will – you know, will appeal to them or if they fall into our ideal customer profile because of that. But in Q4 and in 2020, we did see some of those smaller customers. Most of them do not take much ARR with them. So most of them are in that sub-50K category. So for us, it's really more of an ARR metric as opposed to a customer count metric that's important.

Okay. And then I guess secondarily, just drilling down into collections. Can you, can you touch on ARR this quarter, your, your James Billings outstanding spike to a level that I guess we saw during the, the first COVID quarter in March, but was it very backend rated or was there something unique in the quarter from a collections perspective? Thanks.

Uh, not really. Uh, we, um, you know, we had a decent collections quarter, all things considered. Uh, we, uh, you know, like most companies have been working with our customers on, on collection terms, especially those in highly impacted industries. So, you know, we have those, but those were few and far between. For the most part, you know, we were in really good shape. Thank you.

Your next question comes from Talian from Bank of America. Your line is open.

There you go. Now you can hear me. Sorry. The beauty of muting and unmuting. I have probably my question is not a proper question for the end of the call. It's probably for the beginning, but I want to go over some very basic stuff so I can understand the new disclosure that you have. A few questions on it. Last year, the subscription of term-based licenses, you see the level is kind of 28, 28, and then goes up to 32. And we finished 2019 on the high note. And suddenly, it starts to go down. And it goes down almost every quarter if I look at the longer term. And I don't want to break it down between long term and one year. It doesn't really matter. Can you go over what suddenly changed, meaning cloud and SaaS-based solutions, these were always around, Okta always existed. What suddenly happened that the term-based licenses are declining so much? And then what's the outlook for next year? Is the outlook that term-based licenses are going to continue to decline, or is it because of the easy comps, is it actually going to turn up?

So, Tal, this is Raj. I'll take that. In terms of what happened in 2020 and specifically towards the end of 2020, we actually had a roller coaster, if you will, of the actual contract durations during the year. And what you saw in Q4 is actually a spike up in terms of single-year term-based licenses. but a significant drop in multi-year term-based licenses. Now, some of that is because of a transition to more SaaS, the SaaS acceleration in the business. And keep in mind that we introduced a lot of new SaaS products in the second half of the year and into the first part of this year as well. So it makes sense to us that you would see that more of the mixed shift towards SAS and away from term-based licenses. So that's one part of it. The other one is just as we saw a dip in Q1 and a spike in durations in Q2 and Q3, we saw a dip in contract durations in Q4, and we think a good amount of that was It was just customer budget and COVID-related, to be honest.

So the second part of my question, if I look at total, right, without the short-term, long-term, there's still a significant decline this year versus next year. And the question is, is this the trend because of the SaaS migration to SaaS that we should model also continue decline for the following year and the following year, kind of one of the longer-term trends, or is Is there something specific to 2020 because of COVID or anything else that now you have a low base and easy comp and next year we could actually see growth?

Well, in 2021, we are projecting a slight uptick in revenue. But again, revenue isn't the key indicator for us in terms of the health and growth of our business. As a 100% subscription model, we're keenly focused on the ARR growth. But in terms of term-based licenses, I think you will see a pretty, at least we're expecting, a healthy shift towards SaaS because that's what we've been investing in and that's what we've been introducing over the last few quarters. Maybe post-COVID you may see some duration bumps, but, again, it's not something that's a key indicator for our business.

Right. But you still missed the numbers on revenues. I understand it's not a matrix and ARR is the point. ARR, guidance, kind of in-line-ish. It's okay. It's good. There's no surprises there. It's good for the quarter, good for the year. But you did miss the revenues, and you are guiding revenues below. So what changed that now the revenue projection is lower than what we thought before? What changed on the revenue side?

On the revenue side, it is deployment mix for the most part, but we have also baked in some prudency into our contract durations for term-based licenses just because we saw what happened last year. We're not completely on the other side of COVID. COVID had a duration impact in certain quarters, and And so we have baked that in. So it's a combination of the two, but what we're really excited about is our SaaS acceleration and the fact that it's now greater than 15% of the overall ARR mix and growing much faster than the overall rate of the business.

Got it. Thank you.

Sure.

Your next question comes from Patrick Colville from Deutsche Bank.

Thank you so much for taking my question. So most of the questions have been asked. I guess the one that I wanted to just touch back on was the AR linearity. So the growth of 15% this quarter, if I'm not mistaken, guidance in first quarter fiscal 21 implies 14 spot five, and for fiscal 21 in total, 15% growth. So it's suggested that actually throughout next fiscal year, trends will improve as we go through the year. Just remind me why that is.

Well, as we talked about, Patrick, we guide to what we see in front of us. We're looking at various bottoms-up and top-down models across across all the quarters, and, you know, obviously we have the best visibility to what's right in front of us for Q1. So that's what you see reflected in our Q1 guidance. We, you know, we certainly look at the full-year guidance in a variety of different ways, and we feel that, you know, the stabilization that we're feeling now in the macro is largely what we've built into our full-year guidance as well.

Nice. Okay. Thank you. And I guess my second question is about the customer identity management. I just saw the 10K. 45% of subject revenue is from customer identity management, which, if I'm not mistaken, is up three points year on year. So clearly that business is not only – it's just trending very well. So just help me understand your expectations qualitatively. for that business over the next couple of years, just so you can frame your thinking.

I think you've noticed that it has been a focus for us. We're seeing the results of that focus. We've got a very strong solution and platform, and I would expect that that trend will continue by design.

Is that principally from replacement of DIY homegrown software?

You do run into a lot of DYI in the customer use case. So it's more prevalent in the customer use case than it has been in the workforce use case. Now, we will find legacy directories sitting underneath homegrown authentication systems, for example. You will find legacy access management in some of those customer use cases. So, excuse me. There is some legacy replacement, but there is a lot of homegrown. Understood.

Thank you for taking the time to ask my question.

Your last question comes from Andy Kellen from Wells Fargo.

Oh, this is Phil Winslow. I think Andy dialed in under his name. Just have a question about the Greenfield expansion and how you're thinking about that for 21. Obviously, you talked strategically about MFA, dynamic authentication, API security. But as you think about 21 here, how do you sort of expect the spending to come back online, so to speak, in those? Do one of those subsets sort of take priority over the others?

Let me make sure I fully understand that question, because I think you covered a few things. Is there a particular focus?

Just of the products, yeah, the products that you have. And from a customer perspective, do you think, as we call it, reopening starts, refresh, you have systems that one product starts to see more uptake before the other is just in a recovery scenario? Thanks.

I think what I expect to see is that we're making it easier for customers to buy Ping and to consume Ping and deploy Ping. Everything that we've done on our Cloud Your Way deployment offering and all the investments that we've made in our SaaS offerings. Keep in mind, when a company selects Ping, whereas maybe if you go back 10 years and every company started with single sign-on, Now it's pretty rare for a company to carve off something that small and select a vendor. So we tend to focus on being a strategic platform and a solution provider for the use cases that we solve. And most of the focus is on how can they get started and knock down the first X number of application integrations or get X number of customers deployed on MFA, that tends to cover multiple products. And so I would say to answer your question, it's not a single product that comes online. It is an acceleration in our cloud and SaaS offerings around the solutions that typically include multiple products and services. It's not a single product, is my point.

Got it. Thanks.

I will now turn the call back over to the presenters.

So that concludes today's earnings call. I want to thank everyone for joining. I wish you all the best in 2021. We look forward to providing updates as the year progresses, including our H2 Investor Day. Thank you.

ladies and gentlemen this concludes today's conference call thank you for participating you may now disconnect