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Edited Transcript of PING.N earnings conference call or presentation 6-May-20 9:30pm GMT

Q1 2020 Ping Identity Holding Corp Earnings Call

Jun 10, 2020 (Thomson StreetEvents) -- Edited Transcript of Ping Identity Holding Corp earnings conference call or presentation Wednesday, May 6, 2020 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andre Wong Durand

Ping Identity Holding Corp. - CEO & Director

* Raj M. Dani

Ping Identity Holding Corp. - CFO

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Conference Call Participants

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* Brad Alan Zelnick

Crédit Suisse AG, Research Division - MD

* Gray Wilson Powell

BTIG, LLC - Director

* Gregg Steven Moskowitz

Mizuho Securities USA LLC, Research Division - MD of Americas Research

* Gur Yehudah Talpaz

Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst

* Jonathan Frank Ho

William Blair & Company L.L.C., Research Division - Technology Analyst

* Matthew George Hedberg

RBC Capital Markets, Research Division - Analyst

* Michael Turits

Raymond James & Associates, Inc., Research Division - MD of Equity Research & Infrastructure Software Analyst

* Philip Alan Winslow

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Saket Kalia

Barclays Bank PLC, Research Division - Senior Analyst

* Walter Herbert Pritchard

Citigroup Inc, Research Division - MD & U.S. Software Analyst

* Caroline Liu

Goldman Sachs Group Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Ping Identity First Quarter 2020 Earnings Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions) I would now like to hand the conference over to your speakers today.

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Raj M. Dani, Ping Identity Holding Corp. - CFO [2]

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Thanks, everyone, for joining us today, and welcome to the Ping Identity conference call where we will discuss our results for the first quarter of fiscal year 2020 and provide our initial outlook for the second quarter of fiscal year 2020.

Before we begin, I would like to remind you that shortly after the market closed today, Ping Identity issued a press release announcing its first quarter 2020 financial results. Additionally, Ping Identity 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 Founder.

Today's discussion may include forward-looking statements. Please refer to our annual report for the year ending December 31, 2019, filed on Form 10-K and filed with the Securities and Exchange Commission, and our quarterly report for the quarter ended March 31, 2020, filed on Form 10-Q and filed with the Securities and Exchange Commission, where 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 a reconciliation of those measures to the nearest comparable GAAP measures in our quarterly financial statements.

Just one housekeeping item. To ensure that we can address as many analyst questions as possible during the call, we ask that you please limit your questions to one initial question and one follow-up.

And with that, I'll turn the call over to Andre Durand.

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Andre Wong Durand, Ping Identity Holding Corp. - CEO & Director [3]

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Thanks, Raj. I recognize we're all experiencing a lot of change, and our experiences are all different. For most, these are very challenging times.

As we all navigate COVID-19, our best wishes are with the individuals and families impacted by the current events. To do our part, we're adhering to all safety guidelines to ensure our employees are as safe and protected as possible. For customers, many of whom are facing the difficult task of transitioning their employees to a secure work-from-home environment, we're providing existing PingFederate customers our multifactor authentication solution for 6 months at no charge. For new customers, we're providing 6 months of free single sign-on and multifactor authentication. These offers are just a couple of ways Ping is championing our customers through this transition.

While COVID-19 has impacted many aspects of our world, and our near-term focus has shifted to helping customers secure their remote workforces, our long-term mission remains unchanged. We believe the importance of identity is rising to a new level of strategic imperative and will accelerate in the quarters ahead. Now more than ever, secure identity to enable Zero Trust anytime, anywhere work has become a necessity. In a matter of weeks, the world has come to appreciate that secure work and digital interaction must be enabled beyond the perimeter, and we believe this bodes well for the future of identity security.

Despite rapidly changing conditions near quarter end, typically our busiest few weeks of the quarter, we continued to close a lot of business. That activity has continued through April. As a result, Q1 marked a great start to the year, highlighted by strong top line growth, profitability, cash flow and early customer adoption of PingCloud, a new cloud offering for our advanced enterprise customers.

ARR grew 21% year-over-year, culminating in total ARR of $230 million. Q1 revenue was $61.4 million, representing a 22% year-over-year growth. And subscription revenue represented 93% of total revenue.

Before diving into the quarter's results, I would like to describe how COVID-19 has impacted our business and our plans going forward with color that may not be reflected in our numbers. Crisis can bring out the best and worst in companies. And we would like to take this opportunity to build on a foundation of trust and transparency, consistent with our values.

To begin, our subscription business model, enterprise market focus, diversified vertical customer base, strong balance sheet and focus on profitable growth places us in a strong position to weather the uncertainty that COVID-19 brings. Furthermore, we're in constant communication with our customers through our customer success and renewals teams as well as CISO and CIO roundtables. Insights from these interactions reaffirm the strategic role of identity security prior to and increasingly during and after COVID-19.

While we talk about identity being mission-critical or the new security perimeter or the foundation of Zero Trust in a hybrid and multi-cloud world, we could not have experienced the full truth in that statement until COVID-19. Several interactions over the past month have highlighted this reality, including quotes from customers such as, "All nonidentity security projects have been frozen while we double-down on identity," or "Digital is more important than ever and we see identity as the foundation."

Near the end of March, several of our larger customers either expanded or accelerated their time line for the use of multifactor authentication to a 100% remote workforce. We had 2 customers, in particular, who deployed multifactor authentication to over 100,000 people each in less than 10 days. These represent herculean efforts to achieve accelerated deployments of strong authentication on all digital applications and speak to the scalability, time to value and power of Ping solutions.

At the same time, we have experienced some delays in our larger deals, leading us to believe that longer sales cycles will be the norm for larger projects until companies see a path to recovery or stabilization through the crisis. It's important to note that the large projects, which did not close in Q1, were primarily in industries heavily impacted by COVID but yet have continued to move forward in April, giving credence to the importance of identity in this new world.

On the renewals front, we found our solutions to be incredibly resilient. While a few customers in highly affected verticals are seeking flexibility in payment terms, renewing for 1-year terms rather than multiyear, or adjusting identities under license as a result of staff reductions, we are not experiencing anything that we would consider to be outside of the norm.

In the past month, we placed special focus on customers experiencing increased traffic, such as health care, and we've given our first responder clients priority in our support center. One customer, which leverages Ping in their teleconferencing service, reported that Ping infrastructure was fielding over 200 billion transactions per day and performing perfectly. Another customer who serves K-12 online learning also reported a severalfold surge in traffic, for which the Ping infrastructure performed without incident. Across the board, customers have reported that Ping has handled their surges in traffic flawlessly and that their investment in Ping has put them in a strong position to immediately shift to work-from-home. As a result of these interactions, we believe Ping is well positioned to weather COVID-19 and remain the enterprise leader in hybrid cloud identity.

While it's difficult to precisely forecast the long-term impact on our business, one thing is for certain: enterprises must be equipped to support their customers, employees and partners remotely; secure digital is no longer a nice-to-have, it's a requirement.

Now I would like to switch gears and highlight a few Q1 statistics and customer wins. To begin, we reached a notable milestone in Q1 and are proud to say we now secure 60 of the Fortune 100. Furthermore, 50% of our new customers are deploying Ping in the cloud, further validating the unique architectural advantages of the Ping solution and the flexibility we give enterprises as they manage their hybrid IT infrastructure.

On the new customer front, one of the largest providers of financial markets data chose PingCloud to act as the central identity service for their entire customer-facing landscape. This cloud solution leverages the full complement of Ping's advanced enterprise capabilities of single sign-on, multifactor authentication, access and directory. Ping was chosen for our advanced technology and our ability to provide superior flexibility, security and control in the cloud. This $1 million ARR deal is testament to our cloud investments and our continued support for large enterprise deployments.

In another example, a Big 4 accounting firm expanded from leveraging Ping for their workforce, into their customer identity use case. They are leveraging Ping to accelerate their migration off legacy identity systems. Before the expansion, the customer was already spending approximately $1 million in ARR with Ping.

In a third example, a large federal agency already leveraging Ping for the partner use case expanded into the customer use case. By utilizing Ping's platform for customer-facing applications, the agency will now provide secure access to citizen-facing applications as volume increases. The number of users for this deployment is expected to grow from 2 million in current state, to over 40 million within the next 3 years.

In addition to winning new customers and expanding with existing customers, we continue to see positive proof points with our new solutions. One of our existing financial services customers, spending over $1 million in ARR, expanded into our new identity data governance solution to assist in their privacy compliance efforts. The company is creating a single view of the customer and managing privacy and consent through Ping, allowing them to comply with strict legal and regulatory requirements at the same time. The transaction was a strong complement to their existing Ping implementation and will serve as the foundation for privacy and compliance going forward.

Our channel and technology partners are an integral part of our success and we built a strong ecosystem as part of our go-to-market and product strategies. In Q1, we expanded our partnership with Amazon by placing our cloud MFA solution into the AWS Marketplace. Customers can now procure and deploy Ping's strong authentication to secure work-from-home while adding an additional layer of security to their AWS infrastructure.

As we look to the future, expect us to continue our investment in innovation for the advanced hybrid enterprise. In Q1, we delivered an array of new capabilities, highlighted by offerings which simplify the deployment of the Ping platform in public, private or the PingCloud, new self-service capabilities which streamline the migration off legacy to Ping, new authentication APIs to secure mobile applications, new adaptive authentication and risk services for PingId MFA, new interactive dashboards to monitor usage of Ping services, new API security integrations with F5, IBM, Kong and Akana and new work-from-home integrations with Zoom, Slack and Zscaler. These enhancements continue to highlight Ping's commitment to building world-class solutions and meeting the needs of our customers.

In closing, we're pleased with our first quarter results, the sterling performance of the Ping platform at massive scale and the dedication and resiliency of our employees during this difficult time. Ping remains a vital component to enterprise security and digital transformation, 2 areas rendered even more imperative by COVID-19. Our track record in the enterprise market gives us confidence in the outlook of the business, and we remain bullish on our market opportunity. We gain comfort in knowing that our business is diversified along several important dimensions, including industries served, geography and solutions and use cases offered.

I would now like to turn the call over to Raj Dani to walk through the quarter's results in more detail. Raj?

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Raj M. Dani, Ping Identity Holding Corp. - CFO [4]

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Thanks, Andre. As mentioned, we are very pleased with our Q1 results and execution. Given our strong balance sheet, the subscription nature of our business model, enterprise customer base and the diversification of our business across industries and verticals, we feel well positioned to navigate the turbulent economy.

We ended the first quarter with ARR of $230 million, representing year-over-year ARR growth of 21%. Growth was driven by new customers from our growth team, cross-selling solutions into base customers and landing big with strategic accounts. First quarter total revenue was $61.4 million, representing 22% year-over-year growth.

In March, we experienced shorter contract durations on both new deals and renewals as customers sought to hedge against market uncertainty. In Q1, our dollar-based net retention rate was 114%, calculated on a trailing 12-month basis. While this represents a 1% sequential decrease from the prior quarter, it was a by-product of longer approval cycles on certain larger deals in process with existing customers. Engagement from these customers remains strong as Ping has been chosen as a go-forward partner. However, final purchase decision-making was postponed to after Q1, solely due to mounting macro uncertainty.

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.

Gross margin for the first quarter was 82%, and comparatively, our GAAP subscription gross margin was 87%. Total operating expenses in the first quarter were $43 million driven primarily by increases in sales and marketing. Adjusted EBITDA in the first quarter was $8.4 million, representing a margin of 14%.

Unlevered free cash flow was $9.6 million during the quarter, higher than expected primarily due to deferred capital expenditures and favorable cash collections.

We are excited to see our new solutions receive positive market feedback as well as measurably drive growth in Q1. These include our cloud and MFA solutions and continued growth in the customer use case. Enterprises are turning to Ping to help them with their growth and customer acquisition initiatives, where existing applications can no longer meet scale and security requirements. In addition, new customer acquisition with our growth team remains a strategic priority, and we are seeing positive signs of enterprises looking towards Ping's identity solutions to secure work-from-home even in these uncertain times.

While the current environment may prolong some legacy migrations, we are seeing projects continue to gain momentum through the end of April, particularly as the remote work environment has created yet another call to modernize. We can surmise from this activity that identity modernization is deemed not just strategic but vital to the business.

Looking forward, our visibility into the remainder of 2020 is far less than when we last spoke in early March, but Ping has weathered difficult times in the past. Our track record spans nearly 2 decades and has taught us the importance of investing prudently with ROI in mind. Our business model has demonstrated a high degree of operating leverage and thus, we continue to believe that our investments in key technologies and go-to-market initiatives will position us for strong growth when the economy recovers.

While Q1 demonstrates the elevated importance of identity, we are cognizant that the modern world has never experienced an event like COVID-19. The sheer magnitude of this pandemic and the historic uncertainty it has created for enterprises in every vertical and geography makes it difficult to predict the future. As a result, we believe it is prudent to withdraw our full year 2020 guidance until we have a better handle on the depth of impact and time line for recovery.

For the quarter ending June 30, 2020, we project ARR to be between $231.5 million and $234.5 million and revenue to be between $49 million and $53 million. This revenue range incorporates approximately $4 million in negative revenue impact from Identiverse sponsorship and registration fees as we convert the event to a virtual format in 2020. In addition, this anticipates shorter-term license subscriptions with our customers and faster growth in our ratable revenue relative to the overall business. This highlights the impact that contract duration and deployment mix have on GAAP revenue under ASC 606.

Under normal circumstances, with longer contract durations, we would have expected revenue to come in approximately $8 million higher. As a result, we continue to point to ARR as a key management metric for evaluating the growth of our subscription business. Please refer to the accompanying earnings presentation for more color on the impacts of year-over-year revenue variances.

Finally, we expect unlevered free cash flow to range from breakeven to $2 million. As a reminder, in Q2, we will have a $4.2 million contingent payment related to our 2018 acquisition of Elastic Beam which burdens unlevered free cash flow guidance. Our guidance ranges are wider than we would normally provide primarily because the majority of our ARR is booked in the last month of the quarter. We have been closely following the near-term impacts to our business and noticed that similar to our own internal protocols, existing customers are conducting longer reviews on expanding capabilities and some prospects are deferring large transformational initiatives until they feel confident in the stability of their own operations. Thus, our guidance for Q2 reflects those factors.

While we could see longer sales cycles on larger transformational deals relative to historic levels, we expect customer retention to remain high as enterprises continue to rely on Ping to secure their mission-critical applications. Our renewals team will work with customers on items such as payment terms, particularly those heavily impacted by COVID-19.

We remain extremely optimistic about the size and attractiveness of our market and the long-term growth potential of the business. It's going to take time before we have sufficient clarity into the longer-term impact of COVID-19 on the global economy and an increased confidence in our ability to fully model enterprise-purchasing cycles.

Throughout the year, we will continue to make prudent investments to grow in our market, further support our customers and augment our solutions. These will manifest in continuing to enable quota-carrying sales reps, hire product engineers and invest in customer support.

In closing, we're pleased with our first quarter results, the resiliency of our enterprise customer base and the positive proof points we're seeing from our product and sales and marketing investments. Ping remains positioned to be the premier security choice for large and global enterprises, with respect to their digital transformation journeys, providing scalable, modern and secure solutions.

With that, I'll turn it over to the operator for your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Heather Bellini with Goldman Sachs.

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Caroline Liu, Goldman Sachs Group Inc., Research Division - Research Analyst [2]

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This is Caroline on for Heather. First off, I do hope that you and your families are doing well and staying healthy in this environment. My first question is really more about your investments. I'm just curious if you can give us an update about how the current environment impacts your sales and marketing investments and specifically, the hiring cadence and your ability to hire reps and also get these reps ramped.

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Andre Wong Durand, Ping Identity Holding Corp. - CEO & Director [3]

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Hi, Caroline. This is Andre, and I'll take that question. So we continue to make investments in the company. We have, as many companies have, deferred some of our new hires, except for the most critical hires. We entered the year in a good position with respect to our existing sales capacity in planning not just for this year but for next year. And so we feel good about that. We have monitored closely our ability to essentially operate in a remote work environment with our prospects and customers. And it turns out Ping was largely remote before COVID, so we've actually had fairly insignificant interruption with respect to how we do business or engage with either prospects or customers.

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Caroline Liu, Goldman Sachs Group Inc., Research Division - Research Analyst [4]

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Got it. That's helpful. And then my follow-up is more on the net retention rate. I'm kind of curious if you're seeing any changes in terms of churn. And then how much of it is -- how much of the downtick is attributed to COVID-19 versus, perhaps, customers just landing with a larger set of products, which might make it a little bit harder to expand later?

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Raj M. Dani, Ping Identity Holding Corp. - CFO [5]

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Yes. So Caroline, this is Raj. I'll take that one. Basically, retention remains incredibly high, right? The Ping platform has proven to be incredibly resilient, and we expect retention to be high going forward as well as it has historically. I would say that the slight downtick in net retention rate in Q1 was directly attributable to a couple of base deals that just went into a longer procurement cycle, to be honest. So I think, in the past, we have had larger lands that would have impacted your net retention rate. But specific to Q1, it was these deals. And as Andre mentioned, those deals are continuing to progress. And even in highly impacted industries, we're seeing a ton of customer engagement and contracts going into -- deep into the legal process in Q2.

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Operator [6]

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Your next question comes from the line of Matt Hedberg with RBC.

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Matthew George Hedberg, RBC Capital Markets, Research Division - Analyst [7]

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Maybe, Raj, thanks for the clarity in your prepared remarks and in your slide deck about the, really, the differences between ARR and revenue for you guys. That was super helpful. And obviously, ASC 606 can make your revenue a lot more volatile than ARR, which was effectively in line with our Q2 estimate. That said, I'm wondering, can you frame up sort of what your assumptions are for the high and low end of your guidance in terms of some form of a recovery?

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Raj M. Dani, Ping Identity Holding Corp. - CFO [8]

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Sure. So really, the high and low end are really related to the duration and deployment mix, right? So we're also assuming, like we said, about $8 million of it is from the duration and deployment mix, part of the 606 equation. And on a duration-normalized basis, we would have about an $8 million higher revenue. I would say there's a couple of factors in terms of just being prudent in terms of when the deals -- when larger deals close. So in affected industries, we're just assuming that -- in highly impacted industries, I should say, we're assuming that deals may slip a quarter or 2. And with -- in nonimpacted, not as highly impacted industries, we may see a 30- to 60-day slip. So that's where we sort of have been a little cautious and prudent around when those deals, from a timing perspective, hit the quarter. But these are all deals where we have significant engagement, whether they're in highly impacted industries or not. The customer engagement remains super high. It just underpins the importance of identity security in the digital world. And really, it's just a matter of when, not if, they close.

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Matthew George Hedberg, RBC Capital Markets, Research Division - Analyst [9]

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That's super helpful, Raj. And then, Andre, half of new customers choosing PingCloud is super impressive. Is there any way for you to think about how COVID impacted that mix? And might this be a new normal for even post-COVID that you see a majority of customers choosing PingCloud?

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Andre Wong Durand, Ping Identity Holding Corp. - CEO & Director [10]

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Yes. So we've actually been seeing a growing trend for quarters. And to be clear, customers can deploy Ping in public or private cloud under their control. They can also choose to consume a Ping platform in the PingCloud. And I know that maybe that gets a little bit confusing, but that choice or "cloud your way," as we describe it, is one of the kind of the unique flexibility and control options that we offer large enterprises. What I was saying there was that as we look forward, and as I queried our sales engineers on the deployment preference of customers going forward, what he reported was that north of 50% of our customers are either consuming Ping or SaaS offerings or they are deploying the Ping platform in Amazon or Azure or Google Cloud under their control, in their tenets. We believe that that is a long-lived trend. We are doing a lot to enable our customers to do that and really pleased that the investments that we've made in the last year is accelerating in the market adoption of our offerings in the cloud.

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Operator [11]

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Your next question comes from the line of Saket Kalia with Barclays Capital.

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Saket Kalia, Barclays Bank PLC, Research Division - Senior Analyst [12]

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It's Saket Kalia from Barclays. Andre, maybe first for you. You touched on this a little bit in your prepared remarks. But just to ask it expressly, can you just talk about what your prospective customers are saying about their desire to modernize some of their legacy identity systems in light of COVID? Meaning, for those customers that are still using a CA SiteMinder or an Oracle Identity Manager, do you feel like they're more or less willing to explore that type of project in the new environment?

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Andre Wong Durand, Ping Identity Holding Corp. - CEO & Director [13]

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Well, I'll speak from the half a dozen or so conversations I've had maybe over the course of the last 30 days. I've held at least a couple of CISO roundtables and I've had another half a dozen to a dozen conversations with CIOs. Universally, they have -- they've reflected the quote that they recognize identity is more critical than ever to the new digital world and to the foundation of security where clearly the perimeter as defined by the corporate network has kind of fundamentally accelerated in this work-from-home environment. So there seems to be a clear logic path, if you will, between the current events, the current environment and the importance of connection to an identity foundation that gets them to Zero Trust, that gets them to better interactions, digital or mobile interactions, with customers.

Now inside of that, I think it is probably best understood by the purchasing behavior of these companies. We've had several fairly large projects that are -- had been started months ago in the general realm of modernizing legacy identity infrastructure. As I reported and Raj reported, towards the end of Q1, those projects went through, call it, an additional level of scrutiny inside the company that temporarily delayed their closure. We were all extremely interested, obviously, in whether or not they would resume, and with the level of urgency or priority with which they would resume, whether or not they would shrink.

And we've been really pleasantly surprised, I guess, the reinforcement, if you will, of what we've been saying about the mission-critical nature of identity, that those projects are continuing. Now I have not necessarily heard, oh, as a result of COVID, we're going to go directly accelerate this one project, and maybe those conversations have yet to occur and are coming. I would expect that they are, frankly, and I just haven't been privy to them yet. It's only been about 4, maybe 5 weeks in total. And so many companies were absorbed in the first 3 or 4 weeks, just executing the tactics of getting their workforce remote.

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Saket Kalia, Barclays Bank PLC, Research Division - Senior Analyst [14]

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Got it. That makes a lot of sense, Andre. Maybe for my follow-up for you, Raj. You mentioned in the prepared remarks that some new contracts and renewals opted for shorter durations, which clearly has more of an impact on revenue. So I guess, as you think about the Q2 revenue guide, how are you thinking about the multiyear, I guess, how do you forecast the multiyear component? And maybe just connected to that, how are you sort of thinking about the term subscription revenue versus cloud subscription revenue in Q2? Does that make sense?

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Raj M. Dani, Ping Identity Holding Corp. - CFO [15]

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Yes, definitely. Hi, Saket. So from a revenue perspective, this is exactly why we've been fairly consistent all along in saying that ARR is the go-to metric for us and the best measure for the health and growth of the subscription business. Our revenue wasn't -- in Q1, was also impacted by shorter terms. And we sort of used that as a guide for how we modeled Q2. So we saw more customers going to 1-year deals, knowing that identity security is super important, this is like on the top 3 priorities of every CIO and CISO, so the deals were moving forward. We did see some contract duration contraction just to get deals approved internally at customers as the visibility got higher, right, and everybody started to -- as the procurement cycle started to get more scrutinized. So we're assuming that there's more -- that there just will be a continued tilt towards 1-year deals. And that mix is what's causing that revenue drop in Q2.

Now as I mentioned earlier, on a duration-normalized basis, we would expect revenue to be about $8 million higher. And that -- most of that is duration, and a small part of that is the -- just a more ratable revenue that we're seeing, the growth in the ratable revenue and the pace at which it's growing as you'll see in the SEC filings.

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Operator [16]

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And your next question comes from the line of Walter Pritchard with Citi.

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Walter Herbert Pritchard, Citigroup Inc, Research Division - MD & U.S. Software Analyst [17]

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2 questions. Just one, as it relates to -- it's sort of already been asked on cloud, but just if you think -- if you look at the deal cycles, the propensity to get pushed and customers able to sort of bite off pieces of the projects in cloud versus on-prem, was there any difference there in the propensity for those deals to be pushed or put on hold, on-prem versus cloud?

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Andre Wong Durand, Ping Identity Holding Corp. - CEO & Director [18]

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Yes, this is Andre speaking here, Walter. I don't think we've seen any difference in behavior around a preference for deployment models. I mean we've been building ahead of the journey of the adoption of cloud in large complex hybrid enterprises now for years. And the shift has been gradual. I can't say as if we've seen an acceleration in one deployment type over another. Many times in our large enterprises, they will take months, if not quarters, to plan the modernization of a legacy system that might have been in place for 15, 20 years, and they've got very legitimate reasons for where and how they want to consume the identity authority capabilities that we give them. And so yes, I don't -- we haven't noticed -- or certainly, I have not seen anything that would drastically change what we're experiencing on deployment preference.

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Walter Herbert Pritchard, Citigroup Inc, Research Division - MD & U.S. Software Analyst [19]

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Got it. And then just an update, if anything, around -- if you have anything around the MFA penetration in your base. I know you're not giving specific numbers, but any sort of order of magnitude or general sense as to what we've seen here has driven in terms of MFA pickup.

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Andre Wong Durand, Ping Identity Holding Corp. - CEO & Director [20]

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MFA has been -- certainly are one of our most successful SaaS offerings that companies have added to their identity capabilities or their Ping platform. And we've -- so we're not giving numbers or percentages. But suffice it to say, we've got really good penetration. There's still a ways to go. But we're talking hundreds and hundreds of enterprises now are leveraging PingID.

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Walter Herbert Pritchard, Citigroup Inc, Research Division - MD & U.S. Software Analyst [21]

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Maybe just to ask it a different way, have you seen a big uptick with COVID or not necessarily that was already sort of underway and in place?

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Andre Wong Durand, Ping Identity Holding Corp. - CEO & Director [22]

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It was underway long before COVID. I think if there's one thing we saw, it's that deployments that were scheduled for maybe months, if not quarters, accelerated into weeks. And I reported on 2 of those. We had 2 customers in particular who deployed each over 100,000 PingID MFAs to their remote workforce, and both of them did it in roughly less than 10 days. So we saw a massive acceleration of that. Now we have offered a free 6 months of our MFA, and we've had hundreds of companies register for that offering and I would say hundreds as well now that are kind of in open trials, if that makes sense. Now it's not really a trial per se. This was our way of offering to the industry an ability to get their remote workforce productive and secure. And so we offered that 6 months free of any strings. It was an unlimited user, unlimited applications, usage of the PingID MFA solution. But we've seen good adoption of that.

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Operator [23]

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And your next question comes from the line of Phil Winslow with Wells Fargo.

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Philip Alan Winslow, Wells Fargo Securities, LLC, Research Division - Senior Analyst [24]

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Once again, I just want to echo, I hope you and your families and the whole Ping Identity team is doing well. I just wanted to focus on some of the pushouts you talked about in the affected industries. Obviously, you came in towards the high end of your ARR guidance despite that. Wondering if you could give us a sense of sort of just the size of the pushout. And when you think about the affected industries, energy, retail, hospital and transportation, what percentage of your customer base does that represent? And I just have one follow-up to that.

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Andre Wong Durand, Ping Identity Holding Corp. - CEO & Director [25]

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Well, we're -- as you know, Phil, we're very well-diversified across all end markets, so we don't have concentration in customers or geos or anything like that. So we -- and the platform is completely vertically agnostic, which helps with that diversification. So in terms of the pushout, there was -- there were a couple that were more in kind of travel- and entertainment-related. But there were also a couple that were just larger deals in maybe not-so impacted industries that just had to go through multiple cycles.

Now those are all going through those cycles of approvals. And as we mentioned earlier, we have a really strong traction in the month of April and through today on some of those as they come down the pike. But just given that most of our business is done in line with enterprise procurement cycles, which tend to be more in the last month of the quarter, we're sort of being cautious about when we're projecting the timing of those getting signed. Raj?

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Raj M. Dani, Ping Identity Holding Corp. - CFO [26]

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The directly impacted verticals, the ones that you would expect, like travel, for example, and/or hospitality, it turns out that those are actually a smaller piece of our overall ARR customer base.

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Philip Alan Winslow, Wells Fargo Securities, LLC, Research Division - Senior Analyst [27]

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Great. And then just to follow up on that. When you think about your pipeline, obviously, we've talked about this in the past. You've got the B2C business, but also the employee, partner-oriented business. Any sort of -- anything you would call out in sort of the relative -- just the outlook for those 2? Did anything change in the B2C world or call it, the B2B land?

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Andre Wong Durand, Ping Identity Holding Corp. - CEO & Director [28]

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One of the things we immediately did outside of kind of assess our own plans for the year and any adjustments or changes we felt were prudent given what we were seeing, we also took a look at our priorities for the year. And I'm happy to report, really nothing changed in our priorities. All the priorities that were important to us in September and October and December when we were going into the planning cycle remained intact once we had an assessment of both the short- and long-term implications of COVID, both to our business and to the industry and macro environment at large. I would say near term, there has been more emphasis on immediate productivity of workforce in remote environments. I would say, long term, there is an emphasis on identity as a foundation for digital engagement of customers. The desire to provide identity controls for partners that have access to corporate resources, that has always been a remote user use case. So there's nothing about that use case that changes as a result of what we've experienced in the last month or 2.

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Operator [29]

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Your next question comes from the line of Jonathan Ho with William Blair.

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Jonathan Frank Ho, William Blair & Company L.L.C., Research Division - Technology Analyst [30]

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Can you talk a little bit about perhaps the professional services side? And are you running into any challenges around on-site deployments? Or can most of this really be done remotely at this point?

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Andre Wong Durand, Ping Identity Holding Corp. - CEO & Director [31]

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Professional services has been a key strength for Ping for some time. And I'm also happy to report here that COVID has not changed either the utilization rates, the engagements in professional services or frankly, our ability to perform services. Many of our professional services have been providing service to customers remotely or really from work-from-home environments for some time. And it's actually kind of one of the key strengths. We just recently did almost kind of a top to bottom of any impact of COVID to ProServe, and we haven't seen any loss of productivity there. It's really business as usual.

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Jonathan Frank Ho, William Blair & Company L.L.C., Research Division - Technology Analyst [32]

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Got it. And then just in terms of -- I guess you talked about a new customer initiative to offer free single sign-on and MFA. Can you talk a little bit about the initial customer response there and maybe what this could do for both new customer pipeline build as well as win rates?

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Andre Wong Durand, Ping Identity Holding Corp. - CEO & Director [33]

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Well, we launched that effort kind of mid-March. And since then, as I said, we've had several hundred sign-ups, and over -- we've got over 150 open trials at this time. So this was a global campaign. Now we only ran that actively, probably, for the first 3 or 4 weeks. We wanted to get something out there that customers and/or prospects could immediately take advantage of. I think we've probably seen the wave of interest. Everyone had to respond so quickly to changing conditions. But we were really pleased that: a, we had something that we could offer companies that could help them in their rapid adoption of work-from-home; and we're pleased with the number of companies that have taken us up on it. How that translates beyond the 6 months is TBD. Frankly, it wasn't done really as a free trial. If it turns out that those -- that our technology provides value to those customers long term, we'll be happy to serve them beyond the 6 months. But we're just as happy if we get a resolution to COVID and things kind of go back to some semblance of normal. And if they didn't need us beyond that period of time, we would be happy with that as well.

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Operator [34]

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Your next question comes from the line of Michael Turits with Raymond James.

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Michael Turits, Raymond James & Associates, Inc., Research Division - MD of Equity Research & Infrastructure Software Analyst [35]

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Andre, first, for you. Employees go to work-from-home and they need to log in or authenticate. So simply put, the demand for access has to have gone up. And a lot of the channel has said they're seeing strong demand for that in general. Why wouldn't you and some of your direct competitors be more of an immediate beneficiary? Is it -- are they just deploying more old-fashioned second factor, 2-factor tokens? Or why is it not accruing to you more quickly?

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Andre Wong Durand, Ping Identity Holding Corp. - CEO & Director [36]

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I think a lot of these larger -- as I reported, the enterprises that have deployed Ping all reported that when this occurred, they were in a really good position to quickly shift. And many of them had already enabled what I'll call kind of part-time work-from-home initiatives, where they would have employees maybe 1 day a week work from home. So they had already addressed the issue of provisioned computers and trusted devices, and they already had strong authentication and single sign-on in place.

I think in the enterprise market or the large enterprise market, providing secure access is not as simple as, say, turning on a conferencing service such as Zoom. And so at least for us, what we saw was validation that identity enables Zero Trust and work from anywhere on any device. We saw customers immediately experience en masse the benefit of having deployed and integrated the Ping platform across their hybrid infrastructure. We've seen a recognition of older systems that need to be modernized, that were somewhere in the pipeline, impacted by COVID, but then subsequently evolved to the top of the priority queue and those deals continue.

But again, I don't think that identity or single sign or MFA in the large enterprise space, you don't deploy those technologies at the scale and breadth of these hybrid enterprises in a week. And so if you're referring to why would you see like an immediate bump, I think what I would expect is that all things digital transformation, all things mobile experiences, all things Zero Trust, which is about work from anywhere on any device and gain access to appropriate resources wherever those resources reside in the cloud or on-prem and legacy, all of those initiatives, I believe, once we -- these companies are kind of through their near-term pain points, I believe all of those will accelerate. And those initiatives...

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Michael Turits, Raymond James & Associates, Inc., Research Division - MD of Equity Research & Infrastructure Software Analyst [37]

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Yes. Yes. Sorry. That makes a lot of sense to me that that would -- the bigger transformation products would be yet to come. And then Raj, if I could get a follow-up with you. Can you talk about the -- I know you obviously don't have the -- any guide for the year. But can you talk about the puts and takes in terms of impacts on cash flow? First, I just want to clarify that as you go to shorter-term deals, I think you're billing annually, so I would assume there's no impact to cash flow there. And then is there any impact in terms of extension of payment terms or bad debt or anything in terms of accommodating weaker customer finances?

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Raj M. Dani, Ping Identity Holding Corp. - CFO [38]

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So far, there hasn't been a material amount, Michael. It's been -- we've had a handful of requests of customers that are really hurting, and they're our partners, and we're working with them to see them through this on a short-term basis until they regain their footing. But it's not material to us, and we are fortunate to have a strong balance sheet to be able to help our partners out in that regard.

In terms of cash flow overall, yes, we're not commenting on full year. But I think what you'll see here is we're taking a temporary pause, like all responsible companies have done, to sort of assess priorities and figure out where the highest ROI and nearest time to value is for all our investments. And so we're doing that. Our management team is all over that, and we've sort of done that and we're off and running. So after this sort of temporary pause, which will likely cause our cash flows to increase slightly in the near term, we will -- we fully expect to go back to our -- to leaning into our sales and marketing investments to take advantage of the large market opportunity ahead of us.

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Operator [39]

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Your next question comes from the line of Brad Zelnick with Crédit Suisse.

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Brad Alan Zelnick, Crédit Suisse AG, Research Division - MD [40]

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I've got 2, one for Andre and one for Raj. Andre, a lot of what we're hearing out there suggests customers are leaning into the cloud, even more so during these crazy times and cloud-based identity solutions. So how does that impact your competitive positioning and perhaps what you're leading with when you're going into opportunities now?

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Andre Wong Durand, Ping Identity Holding Corp. - CEO & Director [41]

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Well, as you've heard, we've been making significant investments for several years in our cloud offerings. Our "cloud your way" allows our enterprise customers to consume our SaaS offering or deploy the Ping platform in their tenet of Amazon, Google Cloud or Azure. And as I also kind of commented earlier, we are now seeing -- whereas we have a number of customers, if you look in the rearview mirror, who have deployed identity in their data center, as we look through the windshield, we have north of 50% of our customers deploying the Ping platform in the cloud. And that's some combination of our SaaS or the DevOps capability of our platform deployed on the public cloud.

So I anticipate that -- it's not like we've seen a rapid shift to that. We've seen a gradual shift to that. We've been investing in our DevOps offering for the better part of the last year pretty aggressively and into the PingCloud offering that builds upon that offering, of which I reported that large financial services customer that just selected the PingCloud.

It might just be the nature of the customers that I talked to, but they've got really complex challenges. They tend to focus on the problems that they're looking to solve primarily. And even when they lean into a preference on a deployment model, our flexibility is proving out to be kind of a key differentiating asset for Ping.

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Brad Alan Zelnick, Crédit Suisse AG, Research Division - MD [42]

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That makes sense. And maybe just if I could, for Raj. Raj, I appreciate you're operating with limited visibility right now, like the rest of the world, but as you do your own scenario analysis, how should we think about the lower bounds on net expansion and the factors and sensitivity in moving the needle one way or the other on that metric?

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Raj M. Dani, Ping Identity Holding Corp. - CFO [43]

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So Brad, the reason why we -- why the NRR ticked slightly lower, as I mentioned earlier, was just because of a handful of base deals that were -- that went back into approval cycles and are sort of being worked through here in Q2. We continue to close business, and the retention of our customers and engagement remains really high. So I just think that it's difficult to predict deal timing. But the retention aspect of that is really solid, and we're seeing extremely high retention rates. So it's all going to be a matter of timing of when these deals close. Like I said, seeing a lot of momentum, a lot of engagement, deals deep in the legal process. So we're hopeful that we've sort of seen -- can see some stabilization there. But it's just -- it's really a timing issue.

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Operator [44]

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Your next question comes from the line of Gur Talpaz with Stifel.

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Gur Yehudah Talpaz, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [45]

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Andre, based on some of the commentary in the prepared remarks, I wanted to see if you were seeing a pickup in discussions around CIAM and IAM convergence just based on some of the deals you had talked about.

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Andre Wong Durand, Ping Identity Holding Corp. - CEO & Director [46]

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Well, we've -- as we've reported before, our business and our belief system is that one platform should serve all identity types. That's been part of our belief system since the beginning of the company. And our ARR has roughly reflected the balance in our business between the workforce and the customer use case, what you refer to as a customer identity and access management use case.

Now we believe that our platform and our -- is ideally suited to address some of the new demands around privacy or the existing demands of extreme scale that many of our large customers have deployed Ping for in the customer use case. So as a result of that, we've been leaning into that. And as we reported in the 4 customers that we report, I think 3 of them at least were CIAM or customer-related expansions and/or new deals. So we're very bullish on it. Our platform is really robust, proven at scale that is really kind of uncontested, if you will. As I reported, we had one customer report to us during kind of the COVID height that Ping platform was servicing and I mean, well over 200 billion, I've been very conservative, that well over 200 billion transactions a day. That sort of scale is fairly unique, our ability to service that, fairly unique to Ping.

So looking forward, I think, as I've said, work-from-home probably is a near-term focus for a lot of companies. I think longer term, all things digital and mobile engagement of customers is going to hit the boardrooms and the strategic priorities around -- that we believe is going to accelerate digital transformation. So we think our timing there and our investments historically and the success that we've seen historically and the acceleration around CIAM is going to place us in a nice position going forward.

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Gur Yehudah Talpaz, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [47]

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That's really helpful. And then just more broadly in terms of the environment. Have you seen any sort of shift in competition here? We've seen a few stand-alone vendors kind of go out to the market and raise some capital here in the past few weeks. Just curious to see if you saw any sort of changes there.

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Andre Wong Durand, Ping Identity Holding Corp. - CEO & Director [48]

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Nothing major. The competitive landscape has been largely formed now for several years. People know where they're strong. And Ping continues to be really the gold standard for large enterprises with either hybrid IT or multi-cloud environments that have sophisticated integration challenges and are looking for a technology proven at scale with the flexibility that we provide. So -- and markets are smart. They figure out, pretty quick, which partners and which technologies and which approaches are appropriate for them to evaluate.

This is very much kind of a -- we live in a self-service world in the evaluation of what solutions and approaches are. And there, I think, our reputation precedes us and the success and hard work that we've had with a lot of customers, in partnering with them, for many of them over a decade, as they've gone through this journey, continues to put us in a really strong position. I mean if anything, I think those boundaries are probably becoming more solidified, if you will.

And certainly, we continue to be very focused on our large enterprises as we reported. Really proud to now serve over 60 -- well, 60% of the Fortune 100. And look, we'll continue to focus on those global accounts.

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Operator [49]

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And your next question comes from the line of Gregg Moskowitz with Mizuho.

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Gregg Steven Moskowitz, Mizuho Securities USA LLC, Research Division - MD of Americas Research [50]

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I'll keep it to one, just given the time constraints. So you spoke earlier, Andre, about the growing demand for MFA. But I'm wondering if you could elaborate on what you're seeing in terms of overall multiproduct adoption rates and how this is changing -- or could change in the current environment.

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Andre Wong Durand, Ping Identity Holding Corp. - CEO & Director [51]

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We introduced -- we became a multiproduct company several years back. And it has now -- selling multiple products and/or solutions has become more the norm than the exception inside of Ping. And we saw that 2 or 3 years ago as the products matured, we started not simply expanding or cross-selling new products into the base. We started landing big with multiple product solutions on day 1. Nothing in the character and nature of that multiproduct land or the multiproduct expand has changed. If anything, we're probably getting better at it. I think the sales team, with every seller as they kind of get underneath some successes that sell multiple products and how the products integrate and how they solve problems for customers, I mean, if anything, we've become better at selling multiple products.

We did launch 2 new solutions to really accelerate that. The Customer360 and Workforce360 solutions are really a combination of our most successful products, packaged together, pre-integrated to solve the centralized authentication challenge for many of these large enterprises, for what some of our enterprises call the global authentication authority. This is the one place that all customers or all partners or all employees will authenticate to that then gives them secure access to all applications across their hybrid environment.

This solution deploys in the customer's cloud or in Ping's cloud, and it's the solution that has been already proven at hundreds of global and Fortune 1000 enterprises over the course of the last several years. We're just making it easier for them to start out with our, really, kind of our most popular products and capabilities and deploy those solutions much quicker on day 1.

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Operator [52]

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Your final question comes from the line of Gray Powell with BTIG.

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Gray Wilson Powell, BTIG, LLC - Director [53]

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I don't want to focus on -- too much on the MFA side, but I just have a couple of quick follow-ups there. What kind of uplift do you see to a customer's bill when they add on MFA if they weren't using it before? And then just to follow up with some of the other questions, like was there a significant benefit to ARR in Q1 from the acceleration in MFA? Or with the promotions that you were doing, is that something that you feel like it's more on the come?

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Andre Wong Durand, Ping Identity Holding Corp. - CEO & Director [54]

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I think that the -- while we don't give out the relative price points between the products, it's fair to say that MFA is relatively -- it's valued, call it, in the same realm as our single sign-on solution. And so it would not be uncommon that if a customer is leveraging us just for single sign-on and they then upgrade or we cross-sell our MFA solution, that their ARR materially increases as a result of MFA. Raj, do you have something to add there?

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Raj M. Dani, Ping Identity Holding Corp. - CFO [55]

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Yes. Hey, Gray. So just in terms of the pace, I mean, we've talked before about in our SaaS products, including MFA, growing at a significantly faster clip than the overall ARR of the business. We actually saw that same trend continue in Q1. So that product has always done really well relative to the overall pace of the business, and we just saw it continue to do that.

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Andre Wong Durand, Ping Identity Holding Corp. - CEO & Director [56]

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I think as a result, I think the free trial, it's still TBD on the impact of the free trial in Q1 to future business, MFA business. Really, what we saw initially in the first few weeks was rapid deployment of pre-existing licenses that they had planned to roll out over a quarter or 2, they rolled out in a matter of days.

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Operator [57]

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And I will now turn the call back over to management.

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Andre Wong Durand, Ping Identity Holding Corp. - CEO & Director [58]

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Thank you. So I want to thank everyone for joining today's earnings call, particularly given the times. We wish you all the best in health and safety, and we'll continue to provide updates on the business as the year progresses. Thank you.

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Operator [59]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.