UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________
FORM 10-Q
_____________________________________
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 001-39056
_____________________________________________________________________________________________________________________________________
PING IDENTITY HOLDING CORP.
(Exact Name of Registrant as Specified in Its Charter)
_____________________________________________________________________________________________________________________________________
Delaware | 81-2933383 |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number) |
1001 17th Street, Suite 100 | |
Denver, Colorado | 80202 |
(Address of Principal executive offices) | (Zip Code) |
(303) 468-2900
(Registrant’s telephone number, including area code)
_______________________________________________________________________________________________________________________________________
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class: | Trading Symbol(s): | Name of each exchange on which registered: |
Common Stock, $0.001 par value per share | PING | New York Stock Exchange |
__________________________________________________________________________________________________________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes ⌧ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
On July 29, 2022, the Registrant had 85,924,844 shares of common stock, $0.001 par value, outstanding.
PING IDENTITY HOLDING CORP.
FORM 10-Q
For the Quarter Ended June 30, 2022
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PING IDENTITY HOLDING CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(unaudited)
June 30, | December 31, | |||||
| 2022 |
| 2021 | |||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 210,303 | $ | 220,607 | ||
Accounts receivable, net of allowances of $608 and $610 at June 30, 2022 and December 31, 2021, respectively |
| 78,329 |
| 82,969 | ||
Contract assets, current (net of allowance) | 46,945 | 67,540 | ||||
Deferred commissions, current | 11,464 | 10,460 | ||||
Prepaid expenses | 19,936 | 16,654 | ||||
Other current assets |
| 2,956 |
| 2,914 | ||
Total current assets |
| 369,933 |
| 401,144 | ||
Noncurrent assets: | ||||||
Property and equipment, net |
| 8,810 |
| 9,396 | ||
Goodwill |
| 526,045 |
| 528,548 | ||
Intangible assets, net |
| 176,131 |
| 190,077 | ||
Contract assets, noncurrent (net of allowance) | 5,688 | 3,457 | ||||
Deferred commissions, noncurrent | 20,595 | 19,380 | ||||
Deferred income taxes, net |
| 4,236 |
| 6,201 | ||
Operating lease right-of-use assets | 11,769 | 13,709 | ||||
Other noncurrent assets |
| 8,836 |
| 6,121 | ||
Total noncurrent assets |
| 762,110 |
| 776,889 | ||
Total assets | $ | 1,132,043 | $ | 1,178,033 | ||
Liabilities and stockholders' equity |
|
|
| |||
Current liabilities: |
|
|
| |||
Accounts payable | $ | 4,919 | $ | 4,528 | ||
Accrued expenses and other current liabilities |
| 10,439 |
| 10,305 | ||
Accrued compensation |
| 20,178 |
| 29,258 | ||
Deferred revenue, current | 81,159 | 71,957 | ||||
Operating lease liabilities, current | 4,305 | 4,330 | ||||
Current portion of long-term debt (net of issuance costs) |
| 1,882 |
| 1,132 | ||
Total current liabilities |
| 122,882 |
| 121,510 | ||
Noncurrent liabilities: |
|
|
| |||
Deferred revenue, noncurrent |
| 3,931 |
| 5,584 | ||
Long-term debt (net of issuance costs) |
| 290,208 |
| 291,154 | ||
Deferred income taxes, net |
| 1,919 |
| 4,240 | ||
Operating lease liabilities, noncurrent | 11,717 | 14,140 | ||||
Total noncurrent liabilities |
| 307,775 |
| 315,118 | ||
Total liabilities |
| 430,657 |
| 436,628 | ||
Commitments and contingencies (Note 15) |
|
|
| |||
Stockholders' equity: |
|
|
| |||
Preferred stock; $0.001 par value; 50,000,000 shares authorized at June 30, 2022 and December 31, 2021; no shares issued or outstanding at June 30, 2022 or December 31, 2021 | ||||||
Common stock; $0.001 par value; 500,000,000 shares authorized at June 30, 2022 and December 31, 2021; 85,785,493 and 83,754,449 shares and at June 30, 2022 and December 31, 2021, respectively | 86 | 84 | ||||
Additional paid-in capital |
| 855,968 |
| 824,455 | ||
Accumulated other comprehensive income (loss) |
| (2,776) |
| 652 | ||
Accumulated deficit |
| (151,892) |
| (83,786) | ||
Total stockholders' equity |
| 701,386 |
| 741,405 | ||
Total liabilities and stockholders' equity | $ | 1,132,043 | $ | 1,178,033 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
PING IDENTITY HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Revenue: |
|
|
|
| ||||||||
Subscription | $ | 66,308 | $ | 73,151 | $ | 146,508 | $ | 137,367 | ||||
Professional services and other |
| 5,719 |
| 5,753 |
| 10,210 |
| 10,481 | ||||
Total revenue |
| 72,027 |
| 78,904 |
| 156,718 |
| 147,848 | ||||
Cost of revenue: | ||||||||||||
Subscription (exclusive of amortization shown below) | 14,223 | 10,185 | 27,611 | 19,599 | ||||||||
Professional services and other (exclusive of amortization shown below) |
| 6,845 |
| 6,142 |
| 13,604 |
| 11,725 | ||||
Amortization expense |
| 8,743 |
| 6,077 |
| 17,259 |
| 11,886 | ||||
Total cost of revenue | 29,811 | 22,404 | 58,474 | 43,210 | ||||||||
Gross profit |
| 42,216 |
| 56,500 |
| 98,244 |
| 104,638 | ||||
Operating expenses: |
|
|
|
|
|
|
|
| ||||
Sales and marketing |
| 36,712 |
| 29,082 |
| 67,653 |
| 54,631 | ||||
Research and development |
| 22,086 |
| 18,692 |
| 42,553 |
| 40,394 | ||||
General and administrative |
| 19,882 |
| 19,545 |
| 36,113 |
| 34,000 | ||||
Depreciation and amortization |
| 4,448 |
| 4,327 |
| 8,836 |
| 8,692 | ||||
Total operating expenses |
| 83,128 |
| 71,646 |
| 155,155 |
| 137,717 | ||||
Loss from operations |
| (40,912) |
| (15,146) |
| (56,911) |
| (33,079) | ||||
Other income (expense): |
|
|
|
|
|
|
|
| ||||
Interest expense |
| (3,883) |
| (310) |
| (7,519) |
| (706) | ||||
Other income (expense), net |
| (2,860) |
| 430 |
| (3,664) |
| (442) | ||||
Total other income (expense) |
| (6,743) |
| 120 |
| (11,183) |
| (1,148) | ||||
Loss before income taxes |
| (47,655) |
| (15,026) |
| (68,094) |
| (34,227) | ||||
Benefit (provision) for income taxes |
| (193) |
| 4,047 |
| (12) |
| 7,314 | ||||
Net loss | $ | (47,848) | $ | (10,979) | $ | (68,106) | $ | (26,913) | ||||
Net loss per share: | ||||||||||||
Basic and diluted | (0.56) | (0.13) | (0.81) | (0.33) | ||||||||
Weighted-average shares used in computing net loss per share: | ||||||||||||
Basic and diluted |
| 85,295 |
| 82,025 |
| 84,562 |
| 81,684 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
PING IDENTITY HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
Net loss | $ | (47,848) | $ | (10,979) | $ | (68,106) | $ | (26,913) | ||||
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
| ||||
Foreign currency translation adjustments |
| (2,595) |
| 207 |
| (3,428) |
| 457 | ||||
Total other comprehensive income (loss) |
| (2,595) |
| 207 |
| (3,428) |
| 457 | ||||
Comprehensive loss | $ | (50,443) | $ | (10,772) | $ | (71,534) | $ | (26,456) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
PING IDENTITY HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
(unaudited)
Three Months Ended June 30, 2022:
Accumulated | ||||||||||||||||||
Additional | Other | Total | ||||||||||||||||
Common Stock | Paid-in | Comprehensive | Accumulated | Stockholders' | ||||||||||||||
| Shares |
| Amount |
| Capital |
| Loss |
| Deficit |
| Equity | |||||||
Balances at March 31, 2022 | 84,016,147 | $ | 84 | $ | 835,454 | $ | (181) | $ | (104,044) | $ | 731,313 | |||||||
Net loss | — | — | — | — | (47,848) | (47,848) | ||||||||||||
Stock-based compensation | — |
| — |
| 14,001 |
| — |
| — |
| 14,001 | |||||||
Exercise of stock options, net of tax withholding | 662,984 | 1 | 6,608 | — | — | 6,609 | ||||||||||||
Vesting of restricted stock, net of tax withholding | 1,106,362 |
| 1 |
| (95) |
| — |
| — |
| (94) | |||||||
Foreign currency translation adjustments, net of tax | — |
| — |
| — |
| (2,595) |
| — |
| (2,595) | |||||||
Balances at June 30, 2022 | 85,785,493 | $ | 86 | $ | 855,968 | $ | (2,776) | $ | (151,892) | $ | 701,386 |
Three Months Ended June 30, 2021:
Accumulated | ||||||||||||||||||
Additional | Other | Total | ||||||||||||||||
Common Stock | Paid-in | Comprehensive | Accumulated | Stockholders' | ||||||||||||||
| Shares |
| Amount |
| Capital |
| Income |
| Deficit |
| Equity | |||||||
Balances at March 31, 2021 | 81,475,176 | $ | 81 | $ | 759,645 | $ | 1,623 | $ | (35,329) | $ | 726,020 | |||||||
Net loss | — | — | — | — | (10,979) | (10,979) | ||||||||||||
Stock-based compensation | — |
| — |
| 17,167 |
| — |
| — |
| 17,167 | |||||||
Exercise of stock options, net of tax withholding | 22,377 | — | 30 | — | — | 30 | ||||||||||||
Vesting of restricted stock, net of tax withholding | 589,112 |
| 1 |
| (5,510) |
| — |
| — |
| (5,509) | |||||||
Foreign currency translation adjustments, net of tax | — | — | — | 207 | — | 207 | ||||||||||||
Balances at June 30, 2021 | 82,086,665 | $ | 82 | $ | 771,332 | $ | 1,830 | $ | (46,308) | $ | 726,936 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
PING IDENTITY HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
(unaudited)
Six Months Ended June 30, 2022:
Accumulated | ||||||||||||||||||
Additional | Other | Total | ||||||||||||||||
Common Stock | Paid-in | Comprehensive | Accumulated | Stockholders' | ||||||||||||||
| Shares |
| Amount |
| Capital |
| Income (Loss) |
| Deficit |
| Equity | |||||||
Balances at December 31, 2021 | 83,754,449 | $ | 84 | $ | 824,455 | $ | 652 | $ | (83,786) | $ | 741,405 | |||||||
Net loss | — | — | — | — | (68,106) | (68,106) | ||||||||||||
Stock-based compensation | — |
| — |
| 21,702 |
| — |
| — |
| 21,702 | |||||||
Reclassification of liability-classified awards upon settlement | — | — | 2,541 | 2,541 | ||||||||||||||
Exercise of stock options, net of tax withholding | 769,418 | 1 | 7,446 | — | — | 7,447 | ||||||||||||
Vesting of restricted stock, net of tax withholding | 1,261,626 |
| 1 |
| (176) |
| — |
| — |
| (175) | |||||||
Foreign currency translation adjustments, net of tax | — |
| — |
| — |
| (3,428) |
| — |
| (3,428) | |||||||
Balances at June 30, 2022 | 85,785,493 | $ | 86 | $ | 855,968 | $ | (2,776) | $ | (151,892) | $ | 701,386 |
Six Months Ended June 30, 2021:
Accumulated | ||||||||||||||||||
Additional | Other | Total | ||||||||||||||||
Common Stock | Paid-in | Comprehensive | Accumulated | Stockholders' | ||||||||||||||
| Shares |
| Amount |
| Capital |
| Income |
| Deficit |
| Equity | |||||||
Balances at December 31, 2020 | 81,163,896 | $ | 81 | $ | 739,051 | $ | 1,373 | $ | (19,395) | $ | 721,110 | |||||||
Net loss | — | — | — | — | (26,913) | (26,913) | ||||||||||||
Stock-based compensation | — | — | 33,467 | — | — | 33,467 | ||||||||||||
Reclassification of liability-classified awards upon settlement | — | — | 3,089 | 3,089 | ||||||||||||||
Exercise of stock options, net of tax withholding | 220,482 |
| — |
| 1,801 |
| — |
| — |
| 1,801 | |||||||
Vesting of restricted stock, net of tax withholding | 702,287 |
| 1 |
| (6,076) |
| — |
| — |
| (6,075) | |||||||
Foreign currency translation adjustments, net of tax | — |
| — |
| — |
| 457 |
| — |
| 457 | |||||||
Balances at June 30, 2021 | 82,086,665 | $ | 82 | $ | 771,332 | $ | 1,830 | $ | (46,308) | $ | 726,936 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
PING IDENTITY HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Six Months Ended | ||||||
| 2022 | 2021 | ||||
Cash flows from operating activities |
|
|
| |||
Net loss | $ | (68,106) | $ | (26,913) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
| ||||
Depreciation and amortization |
| 26,095 |
| 20,578 | ||
Stock-based compensation expense |
| 21,613 |
| 34,415 | ||
Amortization of deferred commissions | 6,618 | 4,674 | ||||
Amortization of deferred debt issuance costs | 640 | 124 | ||||
Operating leases, net | (507) | (346) | ||||
Deferred taxes |
| (204) |
| (7,624) | ||
Foreign currency transaction net unrealized loss | 996 |
| — | |||
Other |
| 279 |
| 63 | ||
Changes in operating assets and liabilities: |
|
| ||||
Accounts receivable |
| 3,729 |
| 17,621 | ||
Contract assets |
| 18,009 |
| 5,653 | ||
Deferred commissions |
| (8,837) |
| (8,209) | ||
Prepaid expenses and other current assets |
| (3,476) |
| 3,405 | ||
Other assets |
| (2,297) |
| (426) | ||
Accounts payable |
| 805 |
| 348 | ||
Accrued compensation | (6,903) | 4,280 | ||||
Accrued expenses and other |
| 315 |
| 1,338 | ||
Deferred revenue |
| 7,549 |
| (5,016) | ||
Net cash provided by (used in) operating activities |
| (3,682) |
| 43,965 | ||
Cash flows from investing activities |
|
|
|
| ||
Payments for business acquisitions, net of cash acquired | (4) | (39,875) | ||||
Purchases of investments | (500) | — | ||||
Purchases of property and equipment and other |
| (2,029) |
| (1,502) | ||
Capitalized software development costs |
| (9,611) |
| (8,582) | ||
Net cash used in investing activities |
| (12,144) |
| (49,959) | ||
Cash flows from financing activities |
|
|
|
| ||
Payment of acquisition-related holdbacks |
| — |
| (993) | ||
Proceeds from stock option exercises |
| 7,301 |
| 1,900 | ||
Payment for tax withholding on equity awards | (176) | (6,174) | ||||
Proceeds from long-term debt |
| — |
| 80,000 | ||
Payment of long-term debt |
| (750) |
| (110,000) | ||
Net cash provided by (used in) financing activities |
| 6,375 |
| (35,267) | ||
Effect of exchange rates on cash and cash equivalents and restricted cash |
| (831) |
| (130) | ||
Net decrease in cash and cash equivalents and restricted cash |
| (10,282) |
| (41,391) | ||
Cash and cash equivalents and restricted cash |
|
|
|
| ||
Beginning of period |
| 220,889 |
| 146,499 | ||
End of period | $ | 210,607 | $ | 105,108 | ||
Supplemental disclosures of cash flow information: |
|
|
|
| ||
Cash paid for interest | $ | 6,876 | $ | 584 | ||
Cash paid for taxes |
| 1,434 |
| 283 | ||
Noncash activities: |
|
|
|
| ||
Purchases of property and equipment, accrued but not yet paid | $ | 101 | $ | 40 | ||
Reclassification of liability-classified awards upon settlement | 2,541 | 3,089 | ||||
Reconciliation of cash and cash equivalents and restricted cash within the consolidated balance sheets to the amounts shown in the statements of cash flows above: | ||||||
Cash and cash equivalents | $ | 210,303 | $ | 104,342 | ||
| 304 |
| 766 | |||
Total cash and cash equivalents and restricted cash | $ | 210,607 | $ | 105,108 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
1. Overview and Basis of Presentation
Organization and Description of Business
Ping Identity Holding Corp. and its wholly owned subsidiaries, referred to herein as the “Company,” is headquartered in Denver, Colorado with international locations principally in Canada, the United Kingdom, France, Australia, Israel and India. The Company, doing business as Ping Identity Corporation (“Ping Identity”), provides customers, employees and partners with secure access to any service, application or application programming interface (“API”), while also managing identity and profile data at scale.
Basis of Presentation and Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated. The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). All amounts are reported in U.S. dollars.
Unaudited Interim Condensed Consolidated Financial Information
The accompanying interim condensed consolidated balance sheet as of June 30, 2022, the condensed consolidated statements of operations, of comprehensive loss and of stockholders’ equity for the three and six months ended June 30, 2022 and 2021, the condensed consolidated statements of cash flows for the six months ended June 30, 2022 and 2021 and the related footnote disclosures are unaudited. The condensed consolidated balance sheet data as of December 31, 2021 was derived from audited financial statements, but does not include all disclosures required by GAAP. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
These unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in management’s opinion, include all adjustments necessary to state fairly the consolidated financial position of the Company as of June 30, 2022, the results of operations for the three and six months ended June 30, 2022 and 2021 and cash flows for the six months ended June 30, 2022 and 2021. The results for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any future period.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, determining the fair values of assets acquired and liabilities assumed in business combinations, valuing stock-based compensation awards and assessing the probability of the awards meeting vesting conditions, recognizing revenue, establishing allowances for expected credit losses based on expected credit losses and the collectability of financial assets, determining useful lives for finite-lived assets, assessing the recoverability of long-lived assets, determining the value of right-of-use assets and lease liabilities, accounting for income taxes and related valuation allowances against deferred tax assets, determining the amortization period for deferred commissions and assessing the accounting treatment for commitments and contingencies. Management evaluates these estimates and
9
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
assumptions on an ongoing basis and makes estimates based on historical experience and various other assumptions that are believed to be reasonable. Actual results may differ from these estimates due to risks and uncertainties.
2. Summary of Significant Accounting Policies
The Company’s significant accounting policies are discussed in “Note 2 — Summary of Significant Accounting Policies” to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. There have been no significant changes to these policies that have had a material impact on the Company’s condensed consolidated financial statements and related notes for the three and six months ended June 30, 2022. The following describes the impact of certain policies.
Recent Accounting Pronouncements
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”). ASU 2022-03 clarifies the guidance in Topic 820 that a contractual restriction on the sale of an equity security should not be considered in measuring fair value, and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value. ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its condensed consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU No. 2021-08”). ASU No. 2021-08 will require companies to apply the definition of a performance obligation under ASC Topic 606 to recognize and measure contract assets and contract liabilities (i.e. deferred revenue) relating to contracts with customers that are acquired in a business combination. Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU No. 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its condensed consolidated financial statements. The impact is dependent on the size and frequency of future acquisitions and does not affect contract assets or contract liabilities related to acquisitions completed in years prior to the adoption date.
3. Revenue Recognition and Deferred Commissions
The Company recognizes revenue under Accounting Standards Codification Topic 606 (“ASC 606”), Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services.
10
Disaggregation of Revenue
The following table presents revenue by category:
Three Months Ended | Six Months Ended | |||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
(in thousands) | ||||||||||||
Subscription term-based licenses: | ||||||||||||
Multi-year subscription term-based licenses | $ | 15,992 | $ | 32,391 | $ | 48,774 | $ | 56,229 | ||||
1-year subscription term-based licenses | 9,164 | 15,464 | 20,692 | 32,808 | ||||||||
Total subscription term-based licenses | 25,156 | 47,855 | 69,466 | 89,037 | ||||||||
Subscription SaaS | 22,726 | 13,425 | 42,907 | 25,411 | ||||||||
Maintenance and support | 18,426 | 11,871 | 34,135 | 22,919 | ||||||||
Total subscription revenue | 66,308 | 73,151 | 146,508 | 137,367 | ||||||||
Professional services and other |
| 5,719 |
| 5,753 |
| 10,210 |
| 10,481 | ||||
Total revenue | $ | 72,027 | $ | 78,904 | $ | 156,718 | $ | 147,848 |
The following table presents revenue by geographic region, which is based on the delivery address of the customer, and is summarized by geographic area:
Other than the United States, no other individual country exceeded 10% of total revenue for the three months ended June 30, 2022 and 2021 or the six months ended June 30, 2022 and 2021.
Contract Balances
Contract assets represent amounts for which the Company has recognized revenue, pursuant to its revenue recognition policy, for contracts that have not yet been invoiced to customers where there is a remaining performance obligation, typically for multi-year arrangements. In multi-year agreements, the Company generally invoices customers on an annual basis on each anniversary of the contract start date. Amounts anticipated to be billed within one year of the balance sheet date are recorded as contract assets, current; the remaining portion is recorded as contract assets, noncurrent in the condensed consolidated balance sheets. The change in the total contract asset balance relates to entering into new multi-year contracts and billing on existing contracts. The opening and closing balances of contract assets were as follows:
11
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Contract liabilities consist of customer billings in advance of revenue being recognized. The Company primarily invoices its customers for subscription arrangements annually in advance, though certain contracts require invoicing for the entire subscription in advance. Amounts anticipated to be recognized within one year of the balance sheet date are recorded as deferred revenue, current; the remaining portion is recorded as deferred revenue, noncurrent in the condensed consolidated balance sheets. The opening and closing balances of contract liabilities included in deferred revenue were as follows:
The change in deferred revenue relates primarily to invoicing customers and recognizing revenue in conjunction with the satisfaction of performance obligations. Revenue recognized during the three and six months ended June 30, 2022 and 2021 that was included in the deferred revenue balances at the beginning of the respective periods was as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||
(in thousands) | ||||||||||||
Deferred revenue recognized as revenue | $ | 15,413 | $ | 12,101 | $ | 53,182 | $ | 38,036 |
Remaining Performance Obligations
Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and noncancelable amounts to be invoiced. As of June 30, 2022, the Company had $329.5 million of transaction price allocated to remaining performance obligations, of which 83.1% is expected to be recognized as revenue over the next 24 months, with the remainder to be recognized thereafter.
Deferred Commissions
The following table summarizes the account activity of deferred commissions for the three and six months ended June 30, 2022 and 2021:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
(in thousands) | ||||||||||||
Beginning balance | $ | 30,240 | $ | 16,534 | $ | 29,840 | $ | 15,929 | ||||
Additions to deferred commissions | 5,121 | 5,275 | 8,837 | 8,209 | ||||||||
Amortization of deferred commissions |
| (3,302) |
| (2,345) |
| (6,618) |
| (4,674) | ||||
Ending balance | $ | 32,059 | $ | 19,464 | $ | 32,059 | $ | 19,464 | ||||
Deferred commissions, current | $ | 11,464 | $ | 7,711 | $ | 11,464 | $ | 7,711 | ||||
Deferred commissions, noncurrent | 20,595 | 11,753 | 20,595 | 11,753 | ||||||||
Total deferred commissions | $ | 32,059 | $ | 19,464 | $ | 32,059 | $ | 19,464 |
12
4. Allowances for Expected Credit Losses
The following table presents the changes in allowance for expected credit losses for financial assets measured at amortized cost:
Accounts Receivable | Contract Assets | Accounts Receivable | Contract Assets |
| |||||||||
Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | ||||||||||||
(in thousands) | |||||||||||||
Beginning balance | $ | 526 | $ | 114 | $ | 610 | $ | 156 | |||||
Provision for credit losses, net of recoveries |
| 263 |
| (69) |
| 401 |
| (111) | |||||
Write-offs |
| (181) |
| — |
| (403) |
| — | |||||
Ending balance | $ | 608 | $ | 45 | $ | 608 | $ | 45 |
5. Fair Value of Financial Instruments
For financial assets and liabilities that are measured at fair value on a recurring basis at each reporting period, the Company uses a fair value hierarchy that prioritizes the use of observable inputs and minimizes the use of unobservable inputs. A financial instrument’s classification within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
The Company invests primarily in money market funds, which are measured and recorded at fair value on a recurring basis and are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. The fair value of these financial instruments were as follows:
June 30, 2022 | ||||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||
(in thousands) | ||||||||||||
Cash and cash equivalents: | ||||||||||||
Money market funds | $ | 166,279 | $ | — | $ | — | $ | 166,279 |
December 31, 2021 | ||||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||
(in thousands) | ||||||||||||
Cash and cash equivalents: | ||||||||||||
Money market funds | $ | 181,009 | $ | — | $ | — | $ | 181,009 |
The carrying amounts of the Company’s accounts receivable, accounts payable and other current liabilities approximate their fair values due to their short maturities. The carrying value of the Company’s long-term debt approximates its fair value based on Level 2 inputs as the principal amounts outstanding are subject to variable interest rates that are based on market rates (see Note 10).
13
6. Property and Equipment
Property and equipment consisted of the following:
June 30, | December 31, | |||||
2022 |
| 2021 | ||||
| (in thousands) | |||||
Computer equipment | $ | 8,515 | $ | 8,117 | ||
Furniture and fixtures | 4,420 | 4,331 | ||||
Purchased computer software | 785 | 785 | ||||
Leasehold improvements | 9,089 | 8,670 | ||||
Other | 448 | 448 | ||||
Property and equipment, gross | 23,257 | 22,351 | ||||
Less: Accumulated depreciation | (14,447) | (12,955) | ||||
Property and equipment, net | $ | 8,810 | $ | 9,396 |
Depreciation expense was $1.0 million and $0.9 million for the three months ended June 30, 2022 and 2021, respectively. Depreciation expense for the six months ended June 30, 2022 and 2021 was $1.9 million and $1.8 million, respectively.
7. Ping Venture Investments
In June 2022, the Company announced Ping Ventures, the name of the corporate venture brand under which Ping Identity intends to pursue equity investments in early stage, high-growth technology companies that align with the Company’s strategy and product roadmap. There are no legal commitments or restrictions on cash related to Ping Ventures as of June 30, 2022.
On June 23, 2022, Ping Identity acquired a 5.5% interest in Allthenticate, Inc. (“Allthenticate”), a unified access control and authentication company. The Company’s investment of $0.5 million in Allthenticate is included in other noncurrent assets in the condensed consolidated balance sheets as of June 30, 2022. The Company does not have the ability to exercise significant influence over the investee.
8. Business Combinations
Singular Key, Inc. Acquisition
On September 27, 2021, the Company acquired 100% of the voting equity interest in Singular Key, Inc. (“Singular Key”). Singular Key is a provider of no-code identity and security orchestration. Singular Key streamlines the integration of identity services, providing a no-code method of creating workflows across multiple identity platforms, including identity verification, fraud, risk, access management, privileged access and identity governance into a unified identity fabric. The purpose of this acquisition was to accelerate the Company’s entry into the identity orchestration arena.
The total purchase price was $73.2 million, net of cash acquired, which consisted of the following:
14
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The fair value of the 1,260,885 common shares issued as consideration was determined based on the lowest trading price of a Ping Identity common share on the New York Stock Exchange on the acquisition date of September 27, 2021.
The following table summarizes the allocation of the purchase price, based on the estimated fair value of the assets acquired and liabilities assumed at the acquisition date:
Goodwill is primarily attributable to the workforce acquired and the expected synergies arising from integrating Singular Key into the PingOne Cloud Platform. The integration of Singular Key capabilities is expected to enable customers to improve deployment speed, accelerate cloud migration, reduce costs and lower the risk associated with vendor lock-in. None of the goodwill is deductible for tax purposes.
SecuredTouch, Inc. Acquisition
On June 20, 2021, the Company acquired 100% of the voting equity interest in SecuredTouch, Inc. (“SecuredTouch”). SecuredTouch is a leader in fraud and bot detection and mitigation, which leverages behavioral biometrics, artificial intelligence, machine learning, and deep learning to provide identity, risk, and fraud teams early visibility into potential malicious activity happening across digital properties. The purpose of this acquisition was to accelerate the Company’s cloud-delivered intelligent-identity solutions that combat malicious behavior such as bots, emulators, and account takeover.
The total purchase price was $39.7 million, net of cash acquired and a $0.2 million post-closing purchase price adjustment. The purchase price required to be paid by Ping Identity was reduced by $0.2 million as a result of changes to SecuredTouch’s originally estimated working capital balances.
15
The following table summarizes the allocation of the purchase price, based on the estimated fair value of the assets acquired and liabilities assumed at the acquisition date:
| June 20, 2021 |
| Useful Life | ||
(in thousands) | |||||
Fair value of net assets acquired |
|
|
|
| |
Developed technology | $ | 8,300 |
| 4 years | |
Goodwill |
| 30,540 |
| Indefinite | |
Deferred tax asset | 1,480 | ||||
Other assets |
| 157 |
|
| |
Total assets acquired |
| 40,477 |
|
| |
Deferred revenue | (337) | ||||
Other liabilities |
| (483) |
|
| |
Total liabilities assumed |
| (820) |
|
| |
Net assets acquired | $ | 39,657 |
|
|
Goodwill is primarily attributable to the workforce acquired and the expected synergies arising from integrating SecuredTouch into the Ping Intelligent Identity Platform to provide customers a more comprehensive offering that extends past traditional workforce use case and accelerates Ping’s cloud-delivered intelligent identity solutions that combat malicious behavior. None of the goodwill is deductible for tax purposes.
Additional Acquisition Related Information
The operating results of Singular Key and SecuredTouch are included in the Company’s condensed consolidated statements of operations from their respective dates of acquisition and are not material to the condensed consolidated statements of operations for the three and six months ended June 30, 2021.
Pro Forma Financial Information (unaudited)
If SecuredTouch and Singular Key had been acquired on January 1, 2020 and included in our results for the three and six months ended June 30, 2021, there would not have been material impact to revenue, and Ping Identity’s net loss would have increased, on a pro forma basis, by $1.8 million and $4.4 million, respectively, inclusive of intangible amortization which would have been $1.9 million and $3.7 million, respectively.
9. Goodwill and Intangible Assets
The changes in the carrying amount of the Company’s goodwill balance from December 31, 2021 to June 30, 2022 were as follows (in thousands):
16
The Company’s intangible assets as of June 30, 2022 were as follows:
June 30, 2022 | |||||||||
Gross | Accumulated | Net Carrying | |||||||
| Amount |
| Amortization |
| Value | ||||
(in thousands) | |||||||||
Developed technology |
| $ | 145,407 |
| $ | (80,293) |
| $ | 65,114 |
Customer relationships |
|
| 95,106 |
|
| (45,110) |
|
| 49,996 |
Trade names |
|
| 56,806 |
|
| (33,932) |
|
| 22,874 |
Product backlog | 570 | (368) | 202 | ||||||
Capitalized internal-use software |
| 58,694 |
|
| (21,551) |
|
| 37,143 | |
Other intangible assets |
|
| 1,489 |
|
| (687) |
|
| 802 |
Total intangible assets |
| $ | 358,072 |
| $ | (181,941) |
| $ | 176,131 |
The Company’s intangible assets as of December 31, 2021 were as follows:
The Company capitalized $5.3 million and $4.9 million of internal-use software costs during the three months ended June 30, 2022 and 2021, respectively, which included $0.6 million and $0.3 million of stock-based compensation costs, respectively. The Company capitalized $10.5 million and $9.1 million of internal-use software costs during the six months ended June 30, 2022 and 2021, respectively, which included $0.9 million and $0.5 million of stock-based compensation costs, respectively.
Amortization expense for the three months ended June 30, 2022 and 2021 was $12.2 million and $9.5 million, respectively. Amortization expense for the six months ended June 30, 2022 and 2021 was $24.2 million and $18.8 million, respectively.
17
As of June 30, 2022, expected amortization expense for intangible assets subject to amortization for the next five years is as follows:
Year Ending December 31, |
| June 30, 2022 | |
(in thousands) | |||
2022 (remaining six months) | $ | 24,533 | |
2023 |
| 47,142 | |
2024 |
| 43,644 | |
2025 |
| 31,290 | |
2026 |
| 12,229 | |
Thereafter |
| 17,293 | |
Total | $ | 176,131 |
10. Debt
2019 Credit Agreement
In December 2019, Roaring Fork Intermediate, LLC and Ping Identity Corporation, each a wholly-owned subsidiary of Ping Identity Holding Corp., and certain of their subsidiaries (together, the “Credit Parties”) entered into a credit agreement (the “2019 Credit Agreement”) with the financial institutions identified therein as lenders, including Bank of America, N.A., as administrative agent, and BofA Securities, Inc. and RBC Capital Markets as joint lead arrangers. Borrower and Holdings are wholly-owned indirect subsidiaries of the Company. The 2019 Credit Agreement provided for a senior revolving line of credit in a principal committed amount of $150.0 million (the “2019 Revolving Credit Facility”), with the option to request incremental term loan facilities in a minimum amount of $10 million for each facility if certain conditions are met. The 2019 Revolving Credit Facility had a maturity date of December 12, 2024. Obligations under the 2019 Credit Agreement were secured by substantially all of the assets of the Credit Parties.
The 2019 Revolving Credit Facility bore interest at the option of the Borrower at a rate per annum equal to either (i) a base rate, which is equal to the greater of (a) the prime rate, (b) the federal funds effective rate plus 0.5% and (c) the adjusted LIBO rate for a one month interest period plus 1%, or (ii) the adjusted LIBO rate equal to the LIBO rate for the interest period multiplied by the statutory reserve rate, plus in the case of each of clauses (i) and (ii), the Applicable Rate (as defined in the 2019 Credit Agreement), which ranges from (i) 0.25% to 1.0% per annum for base rate loans and (ii) 1.25% to 2.0% per annum for LIBO rate loans, in each case, depending on the senior secured net leverage ratio. The Borrower also paid a commitment fee during the term of the 2019 Credit Agreement ranging from 0.20% to 0.35% of the average daily amount of the available amount to be borrowed under the 2019 Credit Agreement per annum, based on the senior secured net leverage ratio.
2021 Credit Agreement
On November 23, 2021 (the “Closing Date”), the Credit Parties entered into a credit agreement (the “2021 Credit Agreement”) with the financial institutions party thereto as lenders and Bank of America, N.A., as administrative agent. Borrower and Holdings are wholly-owned indirect subsidiaries of the Company. The 2021 Credit Agreement provides for (a) a new term loan B facility with an aggregate principal amount of $300 million (the “2021 Term Loan Facility” and the loans thereunder, the “2021 Term Loans”) and (b) a new revolving line of credit facility in an aggregate principal amount of $150 million (the “2021 Revolving Facility” and together with the 2021 Term Loan Facility, the “2021 Credit Facilities”). Proceeds from the 2021 Term Loan Facility were used to repay in full paid all remaining balances under the 2019 Revolving Credit Facility. The 2021 Revolving Facility was undrawn at the Closing Date. Following the repayment of the 2019 Revolving Credit Facility, any remaining and future proceeds from
18
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
the 2021 Credit Facilities will be used for working capital purposes and general corporate purposes. The 2021 Credit Facilities are secured by substantially all of the assets of the Credit Parties.
The 2021 Term Loans mature on November 23, 2028. Amortization payments on the 2021 Term Loans are equal to 0.25% of the initial aggregate principal amount of the 2021 Term Loans, payable at the end of each fiscal quarter, commencing with the fiscal quarter ending June 30, 2022. The 2021 Term Loans bear interest at Term SOFR (as defined in the 2021 Credit Agreement and subject to a floor of 0.50%), plus the applicable SOFR Adjustment (as defined in the 2021 Credit Agreement), plus an applicable margin of 3.75%, or a base rate plus an applicable margin of 2.75%. The interest rate on the 2021 Term Loans was 4.88% as of June 30, 2022.
The 2021 Revolving Facility matures on November 23, 2026. Amounts drawn under the 2021 Revolving Facility denominated in U.S. dollars will bear interest at Term SOFR, subject to a floor of 0.00%, plus the applicable SOFR Adjustment, plus an applicable margin ranging from 1.25% to 2.00%, depending on the senior secured net leverage ratio (as calculated pursuant to the 2021 Credit Agreement) or (ii) a base rate plus an applicable margin ranging from 0.25% to 1.00%, depending on the senior secured net leverage ratio. Amounts drawn under the 2021 Revolving Facility denominated in available non-U.S. dollar currencies will bear interest at the applicable rate for such non-U.S. dollar currencies plus the applicable rate adjustment (if any) plus an applicable margin ranging from 1.25% to 2.00%, depending on the senior secured net leverage ratio. There were no amounts drawn under the 2021 Revolving Facility as of June 30, 2022.
Additionally, the Borrower will also pay a commitment fee ranging from 0.20% to 0.35% per annum on the actual daily unused amount of the 2021 Revolving Facility, based on the senior secured net leverage ratio, payable quarterly in arrears the last business day of each March, June, September and December.
After May 23, 2022, any borrowing under the 2021 Term Loans may be repaid, in whole or in part, at any time and from time to time without premium or penalty other than customary breakage costs. Amounts drawn under the 2021 Revolving Facility may be repaid, in whole or in part, at any time and from time to time without premium or penalty other than customary breakage costs, and, subject to the terms, conditions and limitations set forth in the 2021 Credit Agreement, any amounts repaid may be reborrowed. Additionally, the 2021 Credit Agreement contains customary mandatory prepayment provisions.
The 2021 Credit Agreement contains customary events of default (including an event of default upon a change of control), customary representations and warranties and affirmative and negative covenants, including customary restrictions on the ability of the Credit Parties and their restricted subsidiaries to, among other things, incur indebtedness, make investments, make dividends and incur liens.
Under the terms of the 2021 Credit Agreement, Holdings and its restricted subsidiaries are required to maintain a total net leverage ratio (as calculated pursuant to the 2021 Credit Agreement) (i) commencing with the fiscal quarter ending June 30, 2022 and through and including the fiscal quarter ending March 31, 2024, of no more than 5.00:1.00 and (ii) commencing with the fiscal quarter ending June 30, 2024 and each fiscal quarter thereafter, of no more than 4.00:1.00. As of June 30, 2022, the Credit Parties were in compliance with all financial covenants.
Under the 2021 Credit Agreement, Holdings, the Borrower and the Borrower’s restricted subsidiaries are limited in their ability to declare or pay a dividend or return any equity capital to its equity holders (including any direct or indirect parent company of Holdings) or to authorize or make any other distribution, payment or delivery of property to such equity holders (each such dividend, return, distribution, payment or delivery, as applicable, a “Dividend”), subject to certain exceptions, including, without limitation, (1) stock repurchases from current or former employees, officers or directors in an amount not to exceed the greater of $16,750,000 and 30% of consolidated EBITDA (as calculated
19
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
pursuant to the 2021 Credit Agreement) for the most recently ended four quarters; (2) other Dividends in an aggregate amount not to exceed the greater of $22,000,000 and 40% of consolidated EBITDA for the most recently ended four quarters; (3) unlimited additional Dividends provided that on the day of declaration of such Dividend there is no specified event of default (as defined in the 2021 Credit Agreement) and on a pro forma basis, the total net leverage ratio of Holdings and its restricted subsidiaries for the most recently ended four quarters is not greater than 3.50 to 1.00; (4) payment of certain overhead costs and expenses of Holdings or any direct or indirect parent of Holdings (including any direct or indirect parent company of Holdings) and (5) customary tax distributions.
The Company recognized $3.6 million and $0.3 million in interest expense related to the respective debt facilities during the three months ended June 30, 2022 and 2021. For the six months ended June 30, 2022 and 2021, the Company recognized $6.9 million and $0.6 million in interest expense related to the respective debt facilities.
As of June 30, 2022, the Company’s outstanding long-term debt balance was $290.2 million and the current portion of long-term debt was $1.9 million. These balances were net of debt issuance costs of $6.0 million and $1.1 million, respectively. As of December 31, 2021 the Company’s outstanding long-term debt balance was $291.2 million and the current portion of long-term debt was $1.1 million. These balances were net of debt issuance costs of $6.6 million and $1.1 million, respectively. The debt issuance costs are a direct deduction from the long-term debt liability and are amortized into interest expense over the contractual term of the borrowings using the effective interest method.
Costs associated with the 2021 Revolving Facility were capitalized to other assets in the condensed consolidated balance sheet and will be amortized into interest expense on a straight-line basis over the contractual term of the 2021 Revolving Facility. As of June 30, 2022 and December 31, 2021, deferred costs associated with the 2021 Revolving Facility were $0.8 million.
During the three months ended June 30, 2022 and 2021, the Company amortized $0.3 million and $0.1 million of debt issuance costs, respectively. During the six months ended June 30, 2022 and 2021, the Company amortized $0.6 million and $0.1 million of debt issuance costs, respectively.
Future principal payments on outstanding borrowings as of June 30, 2022 are as follows:
Year Ending December 31, |
| June 30, 2022 | |
(in thousands) | |||
2022 (remaining six months) | $ | 1,500 | |
2023 |
| 3,000 | |
2024 |
| 3,000 | |
2025 |
| 3,000 | |
2026 |
| 3,000 | |
Thereafter |
| 285,750 | |
Total | $ | 299,250 |
11. Income Taxes
For the three and six months ended June 30, 2022, the Company recorded $0.2 million and $12 thousand as its provision for income taxes, respectively. For the three and six months ended June 30, 2021, the Company recorded $4.0 million and $7.3 million as its benefit for income taxes, respectively. The Company’s calculation of its benefit for income taxes is dependent in part on forecasts of full-year results and key components of the Company’s (provision) benefit for income taxes primarily consist of state and federal income taxes, foreign income taxes and research and development (“R&D”) credits. The Company’s quarterly tax benefit calculation is also subject to variation due to several factors, including variability in loss before income taxes, the mix of jurisdictions to which such loss relates,
20
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
changes in how the Company conducts business and tax law developments. The increase in the tax provision for the three and six months ended June 30, 2022 as compared to the three and six months ended June 30, 2021 primarily relates to a valuation allowance recorded against our deferred tax assets in the six months ended June 30, 2022. This increase was partially offset by a larger expected pre-tax loss in 2022 as compared to 2021, along with an increase in R&D and other credits recorded in the three months ended June 30, 2022.
12. Stockholders’ Equity
Common stock
The Company’s Third Amended and Restated Certificate of Incorporation, which the Board of Directors approved on September 18, 2019 and the stockholders approved on September 23, 2019, authorizes issuance of up to 500,000,000 shares of common stock with a par value of $0.001 per share. The common stock confers upon its holders the right to vote on all matters to be voted on by the stockholders of the Company (with each share representing one vote) and to ratably participate in any distribution of dividends or payments in the event of liquidation or dissolution on a per share basis. The rights of the holders of common stock are subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future.
Preferred stock
The Company’s Third Amended and Restated Certificate of Incorporation authorizes, without stockholder approval but subject to any limitations prescribed by law, the issuance of up to an aggregate of 50,000,000 shares of preferred stock (in one or more series or classes), to create additional series or classes of preferred stock and to establish the number of shares to be included in such series or class. The Board of Directors is also authorized to increase or decrease the number of shares of any series or class subsequent to the issuance of shares of that series or class. Each series will have such rights, preferences and limitations, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences as determined by the Board of Directors. As of June 30, 2022 and December 31, 2021, the Company did not have any shares of preferred stock outstanding and currently has no plans to issue shares of preferred stock.
13. Stock-Based Compensation
On June 30, 2016, the Company established the 2016 Stock Option Plan (the ‘‘2016 Plan’’). The 2016 Plan provides for grants of restricted stock units and stock options to executives, directors, consultants, advisors and key employees which allow option holders to hold or purchase stock in Ping Identity Holding Corp. The Company has 6,800,000 shares of common stock reserved for issuance under the 2016 Plan. Following the Company’s initial public offering (“IPO”), no additional awards are granted under the 2016 Plan.
On September 23, 2019, the Company adopted the Ping Identity Holding Corp. Omnibus Incentive Plan (the “2019 Omnibus Incentive Plan”). The 2019 Omnibus Incentive Plan provides for grants of (i) stock options, (ii) stock appreciation rights, (iii) restricted shares, (iv) performance awards, (v) other share-based awards and (vi) other cash-based awards to eligible employees, non-employee directors and
21
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
consultants of the Company. At June 30, 2022, the maximum number of shares of common stock available for issuance under the 2019 Omnibus Incentive Plan was 18,319,271 shares.
Stock-based compensation expense for all equity arrangements for the three and six months ended June 30, 2022 and 2021 was as follows:
Stock-based compensation expense recorded to research and development in the condensed consolidated statements of operations excludes amounts that were capitalized in relation to internal-use software. Refer to Note 9 for additional details.
Long-Term Incentive Plan
In conjunction with the IPO, the Company amended its long-term incentive plan (“LTIP”) which provided for cash compensation to certain employees upon vesting of the related awards, and thus, these awards were liability-classified. Grants under the plan were expected to vest following both (i) the IPO and registration of shares of common stock of Ping Identity Holding Corp. and (ii) Vista Equity Partner’s (“Vista”) realized cash return on its investment in the Company equaling or exceeding $1.491 billion. In the first quarter of 2021, the Company offered employees with LTIP grants the opportunity to convert those awards into restricted stock units (“RSUs”) under the 2019 Omnibus Incentive Plan. Upon conversion, approximately half of the RSUs would solely be subject to time-based restrictions and would vest on April 1, 2021 and the remainder would be subject to performance and market conditions consistent with those of the LTIP grants outlined above. All employees elected to convert their outstanding LTIP grants to RSUs, resulting in grants totaling 948,250 shares.
The conversion of the previously outstanding LTIP grants into time-based vesting RSUs resulted in the recognition of $0.4 million and $12.8 million of stock-based compensation expense during the three and six months ended June 30, 2021, respectively. Expense recognized related to the RSUs subject to performance and market conditions is discussed in more detail below.
Other Liability-Classified Awards
In conjunction with the Company’s acquisition of Symphonic Software Limited in October 2020, the Company issued liability-classified awards to certain individuals with a stated value of $0.4 million and $0.6 million that vest on December 31, 2021 and December 31, 2022, respectively. Half of these awards are subject to continuous service conditions and half are subject to continuous service and other performance conditions. The liability-classified awards will be settled with a variable number of shares of the Company’s common stock at each vesting date based on the satisfaction of such conditions. On December 31, 2021, the Company settled $0.3 million of the first tranche of these liability-classified awards, net of $0.1 million of forfeitures due to employee terminations, resulting in the issuance of 14,664 shares. Upon issuance, the associated $0.3 million liability was reclassified from accrued compensation to additional paid-in capital and common stock on the condensed consolidated balance sheets. As of June 30, 2022, $0.4 million of the second tranche of these liability-classified awards, net of $0.2 million of forfeitures due to employee terminations, remains.
22
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Additionally, in conjunction with the Company’s acquisition of ShoCard, Inc. in March of 2020, the Company issued liability-classified awards to certain individuals with a stated value of $3.1 million and $2.5 million that vest on the first and second anniversary of the acquisition, respectively, and are subject to continuous service and other conditions. The liability-classified awards were to be settled with a variable number of shares of the Company’s common stock at each anniversary date based on the satisfaction of such conditions. On March 2, 2021 and 2022, the Company settled the first and second tranche of these liability-classified awards, resulting in the grant and vest of 123,192 and 119,836 shares, respectively, within the periods. Upon issuance, the associated $3.1 million and $2.5 million liabilities were reclassified from accrued compensation to common stock and additional paid-in capital on the condensed consolidated balance sheets.
During the three months ended June 30, 2022 and 2021, the Company recognized $0.1 million and $0.7 million of stock-based compensation expense, respectively, related to these awards. During the six months ended June 30, 2022 and 2021, the Company recognized $0.8 million and $1.5 million of stock-based compensation expense, respectively, related to these awards.
Restricted Stock Units
The Company grants RSUs that generally vest over
to four years. Additionally, the Company granted time-based vesting RSUs converted from the previously outstanding cash-based LTIP grants and those issued in connection with the ShoCard acquisition. The weighted-average grant-date fair value of RSUs granted during the three months ended June 30, 2022 and 2021 was $27.00 and $22.24, respectively. The weighted-average grant-date fair value of RSUs granted during the six months ended June 30, 2022 and 2021 was $23.41 and $23.45, respectively. The total intrinsic value of RSUs that vested during the three months ended June 30, 2022 and 2021 was $17.9 million and $18.5 million, respectively. The total intrinsic value of RSUs that vested during the six months ended June 30, 2022 and 2021 was $21.1 million and $22.0 million, respectively. As of June 30, 2022, there was $121.2 million of total unamortized compensation, which will be recognized over the remaining weighted-average vesting period of 2.6 years using the straight-line method. A summary of the status of the Company’s unvested RSUs and activity for the six months ended June 30, 2022 is as follows:Performance Stock Units
Awards Subject to Performance and Market Conditions
As previously discussed, during the first quarter of 2021, the Company granted 948,250 restricted stock units in connection with the conversion of previously outstanding LTIP grants, with 474,155 of these restricted stock units subject to performance and market conditions. These market-based performance stock units (“PSUs”) were expected to vest following both (i) registration of shares of common stock of Ping Identity Holding Corp. and (ii) Vista’s realized cash return on its investment in the Company equaling or exceeding $1.491 billion. These awards were valued at the date of grant at $19.94 per share using a Monte Carlo simulation. In the second quarter of 2021, these market-based PSUs were determined to be probable of vesting, resulting in the recognition of $4.0 million in stock-based compensation during
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PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
the three and six months ended June 30, 2021. In the first quarter of 2022, the market condition associated with these awards was modified such that the awards were deemed earned and fully vested as of March 31, 2022. This modification did not have a material impact on the Company’s condensed consolidated financial statements.
Awards Subject to Performance Conditions
Additionally, during the second quarter of 2021, the Company granted 208,806 PSUs under the 2019 Omnibus Incentive Plan, which will be earned only if the Company meets specific internal performance targets within a two-year period. The number of awards that ultimately vest could be 50% or 100% of shares granted, depending on the Company’s achievement of internal performance targets. The grant-date fair value of these PSUs was $21.93. As of June 30, 2022, there was $0.3 million of total unamortized compensation associated with these awards, which is expected to be recognized over the remaining estimated weighted-average vesting period of 0.5 years.
During the first quarter of 2022, the Company granted 207,164 PSUs under the 2019 Omnibus Incentive Plan to certain employees, which will be earned only if those individuals meet specific internal performance goals. The number of awards that ultimately vest for each individual could be 0% if the minimum hurdle is not achieved, or approximately 59% or 100% of awards granted, depending on the individual’s achievement of internal performance targets. The grant-date fair value of these PSUs was $20.79. As of June 30, 2022, there was $2.1 million of total estimated unamortized compensation associated with these awards, which is expected to be recognized over the remaining estimated weighted-average vesting period of 2.7 years.
During the second quarter of 2022, the Company granted 705,106 PSUs under the 2019 Omnibus Incentive Plan to certain employees, which will be earned only if the Company meets specific internal financial performance targets. The number of awards that ultimately vest could be 0% if the minimum hurdles are not achieved, or 50%, or 100% of awards granted, depending on the Company’s achievement of internal performance targets. The weighted-average grant date fair value of these PSUs was $27.38. As of June 30, 2022, there was $8.4 million of total unamortized compensation associated with these awards based upon estimated target, or 50%, achievement, which is expected to be recognized over the remaining estimated weighted-average vesting period of 1.8 years.
The total intrinsic value of the PSUs that vested during the six months ended June 30, 2022 was $11.7 million. No PSUs vested during the three months ended June 30, 2022 and 2021, or the six months ended June 30, 2021.
A summary of the status of the Company’s unvested PSUs and activity for the six months ended June 30, 2022 is as follows:
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Stock Options
No stock options were granted during the three or six months ended June 30, 2022 or 2021. A summary of the Company’s stock option activity and related information for the six months ended June 30, 2022 is as follows:
Weighted | ||||||||||
Weighted | Average | |||||||||
Average | Remaining | Aggregate | ||||||||
Exercise | Contractual | Intrinsic | ||||||||
| Options |
| Price |
| Term | Value | ||||
(in years) | (in thousands) | |||||||||
Outstanding as of December 31, 2021 |
| 3,331,782 | $ | 9.57 |
| 5.5 | $ | 44,355 | ||
Forfeited/canceled |
| — | — |
|
| |||||
Exercised |
| (769,418) |
| 9.68 |
| 10,823 | ||||
Outstanding as of June 30, 2022 |
| 2,562,364 | $ | 9.53 |
| 4.9 | $ | 22,053 | ||
As of June 30, 2022: |
|
|
|
|
|
| ||||
Vested and exercisable |
| 2,562,364 | $ | 9.53 | 4.9 | $ | 22,053 |
Time-based options were to vest over four years with 25% vesting one year after grant and the remainder vesting ratably on a quarterly basis thereafter. In conjunction with the IPO, the Company modified the vesting conditions of these awards to provide for the options to vest and become exercisable following both (i) an IPO and registration of shares of common stock of Ping Identity Holding Corp. and (ii) Vista realizing a cash return on its investment in the Company equaling or exceeding $1.491 billion. In the second quarter of 2021, achievement of these conditions was determined to be probable. In the first quarter of 2022, the acceleration clause associated with these options was modified such that the options were deemed earned and fully vested as of March 31, 2022. This modification did not have a material impact on the Company’s condensed consolidated financial statements.
The vesting conditions of the options subject to performance and market conditions provided for the options to vest and become exercisable following both (i) an IPO and registration of shares of common stock of Ping Identity Holding Corp. and (ii) Vista’s realized cash return on its investment in the Company equaling or exceeding $1.491 billion. In the second quarter of 2021, these awards were determined to be probable of vesting, resulting in the recognition of $5.4 million in stock-based compensation expense during the three and six months ended June 30, 2021. In the first quarter of 2022, the market condition associated with these options was modified such that the options were deemed earned and fully vested as of March 31, 2022. This modification did not have a material impact on the Company’s condensed consolidated financial statements.
Deferred Stock Units (“DSUs”)
Ping Identity compensates its independent, non-employee directors with annual equity compensation in the form of RSUs, and with annual cash retainers (“Board Compensation”). On November 1, 2021, the Company established a deferred compensation plan whereby the Company’s independent, non-employee directors may elect to receive some or all of their annual Board Compensation in DSUs, beginning in fiscal year 2022. Each DSU is equivalent to one share of common stock of the Company. The DSUs will be settled in shares of Ping Identity common stock (or, if determined by the Board of Directors, in cash) at the date of the non-employee director’s choosing. During the three and six months ended June 30, 2022, there were 6,626 DSUs granted at a grant date fair value of $18.90. There were no DSUs granted during the three and six months ended June 30, 2021.
Employee Stock Purchase Plan
25
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
On May 3, 2022, following approval of the Company’s shareholders at the Annual Meeting, the Company adopted the 2022 Employee Stock Purchase Plan (the “2022 ESPP”). 5,000,000 of the Company’s previously authorized shares of common stock were allocated for issuance under the 2022 ESPP. The 2022 ESPP provides for six month offering periods beginning July 1 and January 1 of each year, with the initial offering period beginning on July 1, 2022.
14. Related Party Transactions
Vista is a U.S.-based investment firm that controlled the funds which previously owned a majority of the Company. During the year ended December 31, 2020, Vista sold a portion of its investment in the Company such that its funds no longer owned a majority of the Company as of December 31, 2020. However, Vista is deemed a related party in accordance with ASC 850 as it continues to be a principal owner of the Company. There were no material transactions with Vista, or any other related party, during the three and six months ended June 30, 2022 and 2021.
15. Commitments and Contingencies
Letters of Credit
As of June 30, 2022 and December 31, 2021, the Company had outstanding letters of credit under an office lease agreement that totaled $0.3 million, which primarily guaranteed early termination fees in the event of default. The Company collateralizes the letters of credit with restricted cash balances which were classified in other noncurrent assets at June 30, 2022 and December 31, 2021.
Purchase Commitments
In the ordinary course of business, the Company enters into various purchase commitments primarily related to third-party cloud hosting and data services, IT operations and marketing events. Total noncancelable purchase commitments as of June 30, 2022 were approximately $175.6 million for periods through 2026.
Employee Benefit Plans
The Company established a defined contribution savings plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”) in which full-time U.S. employees are eligible to participate on the first day of the subsequent month of his or her date of employment. The 401(k) Plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a percentage of their annual compensation as defined in the 401(k) Plan. Employees in the United Kingdom and Canada are covered by defined contribution savings arrangements that are administered based upon the legislative and tax requirements of the respective countries.
The Company made contributions to its employee benefit plans of $1.1 million and $1.0 million during the three months ended June 30, 2022 and 2021, respectively. The Company made contributions to its employee benefit plans of $2.4 million and $1.9 million during the six months ended June 30, 2022 and 2021, respectively.
Litigation
From time to time, the Company may be subject to various claims, charges and litigation. The Company records a liability when it is both probable that a liability will be incurred and the amount of the loss can be reasonably estimated. The Company maintains insurance to cover certain actions and believes that resolution of such claims, charges, or litigation will not have a material impact on the Company’s financial position, results of operations, or liquidity. The Company has evaluated all pending litigation and determined that the probability of loss is remote, therefore no liabilities have been accrued.
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16. Net Loss Per Share
The following table provides a reconciliation of the numerator and denominator used in the Company’s calculation of basic and diluted net loss per share:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
(in thousands, except per share amounts) | ||||||||||||
Numerator: | ||||||||||||
Net loss |
| $ | (47,848) |
| $ | (10,979) | $ | (68,106) |
| $ | (26,913) | |
Denominator: | ||||||||||||
Weighted-average common stock outstanding - basic and diluted | 85,295 | 82,025 | 84,562 | 81,684 | ||||||||
Net loss per share: | ||||||||||||
Basic and diluted | (0.56) | (0.13) | (0.81) | (0.33) |
The following shares were excluded from the computation of diluted net loss per share for the periods presented, as their effect would have been antidilutive:
17. Subsequent Events
On August 2, 2022, Ping Identity entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Project Polaris Holdings, LP, a Delaware limited partnership (“Parent”), and Project Polaris Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”). Parent and Merger Sub are affiliates of Thoma Bravo Fund XV, L.P., a Delaware limited partnership and private equity fund managed by Thoma Bravo, L.P. (“Thoma Bravo”). Pursuant to the Merger Agreement, Merger Sub will be merged with and into the Company, with the Company surviving as a wholly owned subsidiary of Parent (the “Merger”). If the Merger is consummated, the Company’s common stock will be delisted from the New York Stock Exchange and deregistered under the Exchange Act.
The Merger Agreement provides, among other things, that upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of common stock of the Company that is issued and outstanding as of immediately prior to the Effective Time (other than any shares of common stock that may be held by the Company as treasury stock or that are owned by Parent, Merger Sub or any other subsidiaries thereof, or any shares of common stock as to which appraisal rights have been properly exercised in accordance with Delaware law), will be automatically cancelled, extinguished and converted into the right to receive $28.50, without interest thereon.
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PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
In connection with the Merger, the Company expects to incur significant expenses such as transaction, professional services and other costs. An estimate of those expenses cannot be made at this time.
The closing of the proposed Merger is subject to certain conditions, including the adoption of the Merger Agreement by stockholders representing a majority of the outstanding shares of common stock of the Company and the receipt of applicable regulatory approvals. The proposed Merger is expected to close in the fourth quarter of 2022.
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Forward-Looking Statements
In addition to historical consolidated financial information, this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that involve substantial risks and uncertainties. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q are forward-looking statements. These statements may include words such as ‘‘anticipate’’, ‘‘estimate’’, ‘‘expect’’, ‘‘project’’, ‘‘plan’’, ‘‘intend’’, ‘‘believe’’, ‘‘may’’, ‘‘will’’, ‘‘should’’, ‘‘can have’’, ‘‘likely’’ and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected costs, expenditures, cash flows, growth rates and financial results or our plans and objectives for future operations, growth initiatives, or strategies are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected. Specific factors that could cause such a difference include, but are not limited to, those set forth under Item 1A. “Risk Factors” of our most recent Annual Report on Form 10-K and other important factors disclosed previously in our other filings with the Securities and Exchange Commission (“SEC”) which include, but are not limited to:
● | uncertainties associated with the proposed Merger with an affiliate of a fund advised by Thoma Bravo; |
● | the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement; |
● | the inability to complete the proposed Merger due to the failure to satisfy conditions to completion of the proposed Merger, including the adoption of the Merger Agreement by the stockholders representing a majority of the outstanding shares of the Company’s common stock and receipt of applicable regulatory approvals; |
● | risks related to disruption of management’s attention from our ongoing business operations due to the proposed Merger; |
● | the effect of the announcement of the proposed Merger on our relationships with our customers, operating results and business generally; |
● | the risk that the proposed Merger will not be consummated in a timely manner or at all; |
● | the costs of the proposed Merger if the proposed Merger is not consummated; |
● | restrictions imposed on our business during the pendency of the proposed Merger; |
● | potential litigation instituted against us or our directors challenging the proposed Merger; |
● | our ability to recruit, retain and develop our senior management team and key employees, including in light of the proposed Merger; |
● | our ability to adapt to rapid technological change, evolving industry standards and changing customer needs, requirements or preferences; |
● | our ability to enhance and deploy our cloud-based offerings while continuing to effectively offer our on-premise offerings; |
● | our ability to maintain or improve our competitive position; |
● | the impact of adverse general and industry-specific economic and market conditions as well as geopolitical events, including inflation, slower growth or recession, new or increased tariffs, changes to fiscal and monetary policy, higher interest rates, currency fluctuations, the ongoing conflict in Ukraine and Russia, geopolitical issues in Hong Kong and Taiwan and reductions in IT and identity spending; |
● | the ongoing impact of the novel COVID-19 pandemic; |
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● | the impact on our business of a network or data security incident or unauthorized access to our network or data or our customers’ data; |
● | the effects on our business if we are unable to acquire new customers, if our customers do not renew their arrangements with us, or if we are unable to expand sales to our existing customers or develop new solutions or solution packages that achieve market acceptance; |
● | our ability to manage our growth effectively, execute our business plan, maintain high levels of service and customer satisfaction or adequately address competitive challenges; |
● | our ability to enhance and expand our sales and marketing capabilities; |
● | our ability to attract and retain highly qualified personnel to execute our growth plan; |
● | the risks associated with interruptions or performance problems of our technology, infrastructure and service providers; |
● | our dependence on Amazon Web Services cloud infrastructure services; |
● | the impact of data privacy concerns, evolving regulations of cloud computing, cross-border data transfer restrictions and other domestic and foreign laws and regulations; |
● | the impact of volatility in quarterly operating results; |
● | the risks associated with our revenue recognition policy and other factors may distort our financial results in any given period; |
● | the effects on our customer base and business if we are unable to enhance our brand cost-effectively; |
● | our ability to comply with anti-corruption, anti-bribery and similar laws; |
● | our ability to comply with governmental export and import controls and economic sanctions laws; |
● | our ability to comply with the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”); |
● | the potential adverse impact of legal proceedings; |
● | the impact of our frequently long and unpredictable sales cycle; |
● | our ability to identify suitable acquisition targets or otherwise successfully implement our growth strategy; |
● | the impact of a change in our pricing model; |
● | our ability to meet service level commitments under our customer contracts; |
● | the impact on our business and reputation if we are unable to provide high-quality customer support; |
● | our dependence on strategic relationships with third parties; |
● | the ability of our platform, solutions and solution packages to interoperate with our customers’ existing or future IT infrastructures; |
● | our dependence on adequate research and development resources and our ability to successfully complete acquisitions; |
● | our dependence on the integrity and scalability of our systems and infrastructures; |
● | our reliance on software and services from other parties; |
● | the impact of real or perceived errors, failures, vulnerabilities or bugs in our solutions; |
● | our ability to protect our proprietary rights; |
● | the impact on our business if we are subject to infringement claim or a claim that results in a significant damage award; |
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● | the risks associated with our use of open source software in our solutions, solution packages and subscriptions; |
● | our reliance on software as a service (“SaaS”) vendors to operate certain functions of our business; |
● | the risks associated with indemnity provisions in our agreements; |
● | the risks associated with liability claims if we breach our contracts; |
● | the impact of the failure by our customers to pay us in accordance with the terms of their agreements; |
● | our ability to expand the sales of our solutions and solution packages to customers located outside of the United States; |
● | the risks associated with exposure to foreign currency fluctuations; |
● | the impact of potentially adverse tax consequences associated with our international operations; |
● | the impact of changes in tax laws or regulations; |
● | our ability to maintain our corporate culture; |
● | our ability to develop and maintain proper and effective internal control over financial reporting; |
● | our management team’s limited experience managing a public company; |
● | the risks associated with having operations and employees located in Israel; |
● | the risks associated with doing business with governmental entities; |
● | the impact of catastrophic events on our business; and |
● | other factors disclosed in the section entitled ‘‘Risk Factors’’ in our most recent Annual Report on Form 10-K. |
Given these factors, as well as other variables that may affect our operating results, you should not rely on forward-looking statements, assume that past financial performance will be a reliable indicator of future performance, or use historical trends to anticipate results or trends in future periods. The forward-looking statements included in this Quarterly Report on Form 10-Q relate only to events as of the date hereof. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unless the context requires otherwise, references in this report to "Ping Identity," the “Company,” “we,” “us” and “our” refer to Ping Identity Holding Corp. and its consolidated subsidiaries. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2021.
Overview
Ping Identity’s mission is to secure the digital world through intelligent identity. We deliver on this mission by providing intelligent identity solutions for the enterprise, leveraging AI and ML to provide real-time authentication. We are built to scale for 3 billion-plus individual and machine identities globally at speeds that allow for up to 50,000 unique authentications per second. We enable companies to achieve zero trust security by making identity frictionless, giving our customer the ability to go faster, get to the cloud, and reduce costs, all while improving their end-user experiences.
We solve big problems for the world’s largest enterprises. We serve more than half of the Fortune 100, and we have partnerships with companies such as Microsoft and Amazon. We serve a broad range of vertical markets with particular strength in financial services, healthcare, technology, aerospace, and retail especially among the Global 5000.
Ping Identity’s platform enables a range of use cases for workforces, for partners, and for a wide variety of consumer-facing applications. Our solutions and solution packages can be deployed as SaaS, as on premises software, or a hybrid. We also provide flexibility to deploy our SaaS solutions in Ping Identity’s cloud, the customer’s private cloud, or in a public cloud.
The Ping Intelligent Identity Platform is comprised of multiple solutions that can be purchased individually or integrated as a more complete set of solutions for the customer, workforce, partner or IoT use case: Single Sign-On (“SSO”), Multi-Factor Authentication (“MFA”), Access Security, Directory, Dynamic Authorization, Risk Management, Identity Verification, API Intelligence, Orchestration and Fraud Detection.
Our offerings are predominantly priced based on the solution, use case and number of identities. We sell our platform through subscription-based contracts, and substantially all of our customers pay annually in advance. We sell our solutions primarily through direct sales, which are enhanced by collaboration with our channel partners, resellers, system integrators and technology partners. This includes sourcing new leads, aiding in pre-sale processes (such as proof of concepts, demos or requests for proposals) and reselling our solutions to customers. We also leverage a number of our channel partners and system integrators to provide the implementation services for some of our larger and more complex deployments, significantly increasing the time-to-value for our customers and maximizing the efficiency of our go-to-market efforts.
Proposed Merger Transaction
On August 2, 2022, Ping Identity entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Project Polaris Holdings, LP, a Delaware limited partnership (“Parent”), and Project Polaris Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”). Parent and Merger Sub are affiliates of Thoma Bravo Fund XV, L.P., a Delaware limited partnership and private equity fund managed by Thoma Bravo, L.P. Pursuant to the Merger Agreement, Merger Sub will be merged with and into the Company, with the Company surviving as a wholly owned subsidiary of Parent (the “Merger”). If the Merger is consummated, the Company’s common stock will be delisted from the New York Stock Exchange and deregistered under the Exchange Act.
The Merger Agreement provides, among other things, that upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of common stock of the Company that is issued and outstanding as of immediately prior to the Effective Time (other than
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certain shares), will be automatically cancelled, extinguished and converted into the right to receive $28.50, without interest thereon. The closing of the proposed Merger is subject to certain conditions, including the adoption of the Merger Agreement by stockholders representing a majority of the outstanding shares of the Company’s common stock and the receipt of applicable regulatory approvals. The proposed Merger is expected to close during the fourth quarter of 2022. See Note 17 of our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.
Impact of COVID-19, Macroeconomic and Geopolitical Conditions
While the impact of the COVID-19 pandemic is lessening, challenges resulting from the pandemic persist. To date, we have seen limited effects on the Company’s annual results of operations and overall financial performance as a result of COVID-19. As noted below in “Key Factors Affecting Our Performance—Seasonality,” typical seasonal fluctuations in our revenue have changed as a result of the COVID-19 pandemic. However, the effects of the continued outbreak of COVID-19 may include disruptions of sales channels, marketing activities and supply chains, and we cannot fully predict the effects of the continuing pandemic on our business and our financial performance in future periods.
Additionally, adverse macroeconomic conditions, including but not limited to inflation, slower growth or recession, new or increased tariffs, changes to fiscal and monetary policy, higher interest rates and currency fluctuations could adversely affect demand for our products. In addition, the Russian invasion of Ukraine has resulted in, among other things, economic sanctions imposed by the international community, which have impacted the global economy and given rise to potential global security issues that may adversely affect international business and economic conditions. Although we have no direct operations in Russia or Ukraine, certain of our customers and third-party service providers have been negatively impacted by the war in Ukraine. To date, the impact on these parties has not had a material impact on our operations. In the first quarter of 2022, we indefinitely ceased all sales to Russia, which sales were not material to our results.
Our condensed consolidated financial statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management evaluates these estimates and assumptions on an ongoing basis and makes estimates based on historical experience and various other assumptions that are believed to be reasonable. Actual results may differ from these estimates.
Key Factors Affecting our Performance
We believe that our future performance will depend on many factors, including the following:
Generating Additional Sales to Existing Customers
A customer journey often begins with the purchase of one of our solutions for one use case. Once customers realize the value of that solution, their spend with us expands by (i) adopting another identity use case, (ii) deploying additional solutions and solution packages and/or (iii) adding more identities over time.
Our future revenue growth is dependent upon our ability to continue to expand our customers’ use of our platform. Our ability to increase sales to existing customers will depend on a number of factors, including satisfaction or dissatisfaction with our solutions, competition, pricing, economic conditions and spending by customers on our solutions. We have adopted a customer success strategy and implemented processes across our customer base to drive revenue retention and expansion.
Increasing the Size of our Customer Base
We believe there is significant opportunity to increase market adoption of our platform by new customers. Our SSO, Access Security and Directory solutions often replace legacy and homegrown systems. We also have significant greenfield opportunities with our MFA, Dynamic Authorization, Risk Management, Identity Verification, API Intelligence, Orchestration and Fraud Detection solutions and the IoT use case. To increase
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our customer base, we plan to continue to expand our sales force and channel partner network, both domestically and internationally, enhance our marketing efforts and target new buyers. For example, we have extended our cloud-based offering to target developers, who represent a new potential buyer for us. Over time, we believe sales to developers could increase the size of our customer base.
Maintaining our Technology Differentiation and Product Leadership
The Ping Intelligent Identity Platform is designed for large enterprises with complex, hybrid IT requirements. We have spent over a decade building a standards-based platform with turnkey integrations designed to ensure that large enterprises can easily and rapidly deploy our platform within their complex infrastructures. We intend to continue making investments in research and development to extend our platform and technology capabilities while also expanding our solutions to address new use cases.
Investing for Growth
We believe Identity and Access Management represents a large market opportunity, and we plan to invest in order to support further growth. During 2018, we accelerated investments in our business to expand our footprint within this large and growing market. Specifically, we invested in new cloud-based offerings to broaden the Ping Intelligent Identity Platform and the scope of our solutions to cover new identity security threats, such as APIs. We also invested in deploying our platform as a single tenant cloud-based offering, managed by us, to help extend the reach of our solutions within our customers’ infrastructures, while providing them with the level of control and configuration they require. Since 2018, we have seen progress with these investments and expect to continue to invest in these areas. Additionally, we plan to invest in increased marketing efforts, expanding our sales force, and growing our network of channel partners, resellers, system integrators and technology partners. However, we are not expecting these investments to provide our business with meaningful increases to annual recurring revenue (“ARR”) growth in the immediate term as we expect natural purchasing cycles will affect the speed of market adoption.
Additionally, we have a large and growing international presence and intend to grow our customer base in various international regions by making investments in our sales team globally. For the quarter ended June 30, 2022, our international revenue was 29% of our total revenue. We expect international sales to be a meaningful revenue contributor in future periods.
Seasonality
Given the purchasing patterns of our enterprise customers, we typically experience seasonality in terms of when we receive orders from our customers. Our customers often time their purchases and renewals of our solutions to coincide with their fiscal year end, which is typically June 30 or December 31. Because of these purchasing patterns, a greater percentage of our annual subscription revenue from term-based licenses, the revenue from which is recognized up front at the later of delivery or commencement of the license term, has come from our second and fourth quarters, rather than from other quarters. However, due to fluctuations in the economic environment resulting from COVID-19, we did not see our historical trends in seasonality for the year ended December 31, 2021, where 26% and 25% of our annual revenue was in our second and fourth quarters, respectively.
Key Business Metrics
In addition to our GAAP financial information, we review a number of operating and financial metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.
Annual Recurring Revenue
ARR represents the annualized value of all subscription contracts as of the end of the period. ARR neutralizes fluctuations due to seasonality, contract term and the sales mix of subscriptions for term-based licenses and SaaS. ARR only includes the annualized value of subscription contracts. ARR does not have any standardized
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meaning and is therefore unlikely to be comparable to similarly titled measures presented by other companies. ARR should be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace either of those items. ARR is not a forecast and the active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers.
The table below sets forth our ARR as of the end of June 30, 2022 and 2021, respectively.
June 30, | Change | |||||||||||
| 2022 |
| 2021 |
| $ |
| % | |||||
(dollars in thousands) | ||||||||||||
ARR | $ | 340,988 | $ | 279,630 | $ | 61,358 |
| 22 | % |
Dollar-Based Net Retention Rate
To further illustrate the land and expand economics of our customer relationships, we examine the rate at which our customers increase their subscriptions for our solutions. Our dollar-based net retention rate measures our ability to increase revenue across our existing customer base through expanded use of our platform, offset by customers whose subscription contracts with us are not renewed or renew at a lower amount.
We calculate our dollar-based net retention rate as of the end of a reporting period as follows:
● | Numerator. We measure ending ARR for the current reporting period from customers with associated ending ARR for the same period last year. |
● | Denominator. We measure ending ARR for the same period last year. |
The quotient obtained from this calculation is our dollar-based net retention rate. Our dollar-based net retention rate was 114% at June 30, 2022. We believe our ability to cross-sell our new solutions to our installed base, particularly MFA, API Intelligence, Fraud Detection, Orchestration, Risk Management, Dynamic Authorization and Identity Verification, will continue to support our high dollar-based net retention rate.
Large Customers
We believe that our ability to increase the number of customers on our platform, particularly the number of customers with ARR greater than $250,000, demonstrates our focus on the large enterprise market and our penetration within those enterprises. Historically, increasing awareness of our platform, further developing our sales and marketing expertise and channel partner ecosystem, and continuing to build solutions that address the unique identity needs of large enterprises have increased our number of large customers across industries. We believe there are significant upsell and cross-sell opportunities within our customer base by expanding the number of use cases, adding additional identities and selling new solutions.
Our customers with ARR over $250,000 increased from 279 at June 30, 2021 to 331 at June 30, 2022, representing a year-over-year growth rate of 19%.
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results. The non-GAAP financial information is presented for supplemental informational purposes only, and should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related
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GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.
Free Cash Flow
Free Cash Flow is a supplemental measure of liquidity that is not made under GAAP and that does not represent, and should not be considered as, an alternative to cash flow from operations, as determined by GAAP. We define Free Cash Flow as net cash provided by (used in) operating activities less cash used for purchases of property and equipment and capitalized software development costs.
We use Free Cash Flow as one measure of the liquidity of our business. We believe that Free Cash Flow is a useful indicator of liquidity that provides information to management and investors about the amount of cash generated from our core operations that, after the purchases of property and equipment and capitalized software development costs, can be used for strategic initiatives, including investing in our business and selectively pursuing acquisitions and strategic investments. We further believe that historical and future trends in Free Cash Flow, even if negative, provide useful information about the amount of cash generated (or consumed) by our operating activities that is available (or is not available) to be used for strategic initiatives. For example, if Free Cash Flow is negative, we may need to access cash reserves or other sources of capital to invest in strategic initiatives. We also believe that the use of Free Cash Flow enables us to more effectively evaluate our liquidity period-over-period and relative to our competitors.
A reconciliation of Free Cash Flow to net cash provided by operating activities, the most directly comparable GAAP measure, is as follows:
Free Cash Flow has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. For example, Free Cash Flow does not represent the total increase or decrease in our cash balance for a given period. Because of these limitations, Free Cash Flow should not be considered as a replacement for cash flow from operations, as determined by GAAP, or as a measure of our profitability. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP measures only for supplemental purposes.
Non-GAAP Gross Profit
Non-GAAP Gross Profit is a supplemental measure of operating performance that is not made under GAAP and that does not represent, and should not be considered as, an alternative to gross profit, as determined by GAAP. We define Non-GAAP Gross Profit as gross profit, adjusted for stock-based compensation expense and certain amortization expense of acquired intangible assets and software developed for internal use.
We use Non-GAAP Gross Profit to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget, and to develop short-term and long-term operating plans. We believe that Non-GAAP Gross Profit is a useful measure to us and to our investors because it provides consistency and comparability with our past financial performance and between fiscal periods, as the metric generally eliminates the effects of the variability of amortization of acquired intangibles and internal-use software and
36
stock-based compensation expense from period to period, which may fluctuate for reasons unrelated to overall operating performance. We believe that the use of this measure enables us to more effectively evaluate our performance period-over-period and relative to our competitors.
A reconciliation of Non-GAAP Gross Profit to gross profit, the most directly comparable GAAP measure, is as follows:
Non-GAAP Gross Profit has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, Non-GAAP Gross Profit should not be considered as a replacement for gross profit, as determined by GAAP, or as a measure of our profitability. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP measures only for supplemental purposes.
Components of Results of Operations
Revenue
We recognize revenue under ASC 606. Under ASC 606, we recognize revenue when our customer obtains control of goods or services in an amount that reflects the consideration that we expect to receive in exchange for those goods or services.
We derive revenue primarily from sales of subscriptions for our solutions to new and existing customers and, to a lesser extent, sales of professional services.
Subscription. Subscription revenue includes subscription term-based license revenue for solutions deployed on-premise within the customer’s IT infrastructure or in a third-party cloud of their choice, subscription support and maintenance revenue from such deployments, and SaaS subscriptions, which give customers the right to access our cloud-hosted software solutions. We typically invoice subscription fees annually in advance. Subscription term-based license revenue is recognized upon transfer of control of the software, which occurs at delivery or when the license term commences, if later. All of our support and maintenance revenue and revenue from SaaS subscriptions is recognized ratably over the term of the applicable agreement.
For the three months ended June 30, 2022 and 2021, 35% and 61%, respectively, of our revenue was from subscription term-based licenses. For the six months ended June 30, 2022 and 2021, 44% and 60%, respectively, of our revenue was from subscription term-based licenses. Changes in period-over-period subscription revenue growth are primarily impacted by the following factors:
● | the type of new and renewed subscriptions (i.e., term-based or SaaS); and |
● | the duration of new and renewed term-based subscriptions. |
While the number of new and increased subscriptions during a period impacts our subscription revenue growth, the type and duration of those subscriptions has a significantly greater impact on the amount and timing of revenue recognized in a period. Subscription revenue from term-based licenses is recognized at the beginning of the subscription term, while subscription revenue from SaaS and support and maintenance is recognized ratably over the subscription term. As a result, our revenue may fluctuate due to the timing of term-based
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licensing transactions. In addition, keeping other factors constant, when the percentage of subscription term-based licenses to total subscriptions sold or renewed in a period increases relative to the prior period, revenue growth will increase. Conversely, when the percentage of subscription SaaS and support and maintenance to total subscriptions sold or renewed in a period increases, revenue growth will generally decrease. Additionally, a multi-year subscription term-based license will generally result in greater revenue recognition up-front relative to a one-year subscription term-based license. Therefore, keeping other factors constant, revenue growth will also trend higher in a period where the percentage of multi-year subscription term-based licenses to total subscription term-based licenses increases.
Professional Services and Other. Professional services and other revenue consists primarily of fees from professional services provided to our customers and partners to configure and optimize the use of our solutions, as well as training services related to the configuration and operation of our solutions. Our professional services are generally priced on a time and materials basis, which is generally invoiced monthly and for which revenue is recognized as the services are performed. Revenue from our training services and sponsorship fees is recognized on the date the services are complete. Over time, we expect our professional services revenue to remain relatively stable as a percentage of total revenue.
Cost of Revenue
Subscription. Subscription cost of revenue consists primarily of employee compensation costs for employees associated with supporting our subscription arrangements and certain third-party expenses. Employee compensation and related costs include cash compensation and benefits to employees, stock-based compensation, costs of third-party contractors and associated overhead costs. Third-party expenses consist of cloud infrastructure costs and other expenses directly associated with our customer support. We expect our subscription cost of revenue to increase in absolute dollars to the extent our subscription revenue increases.
Professional Services and Other. Professional services and other cost of revenue consists primarily of employee compensation costs directly associated with delivery of professional services and training, including stock-based compensation, costs of third-party contractors, facility rental charges and other associated overhead costs. We expect our professional services and other cost of revenue to increase in absolute dollars relative to the growth of our business.
Amortization Expense. Amortization expense consists of amortization of developed technology and internal-use software.
Operating Expenses
Our operating expenses consist of sales and marketing, research and development and general and administrative expenses as well as depreciation and amortization. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, payroll taxes and stock-based compensation expense.
Sales and Marketing. Sales and marketing expenses consist primarily of employee compensation costs, sales commissions, costs of general marketing and promotional activities, travel-related expenses and allocated overhead. Certain sales commissions earned by our sales force on subscription contracts are deferred and amortized over the period of benefit, which is generally four years. We expect to continue to invest in our sales force domestically and internationally, as well as in our channel relationships. We expect our sales and marketing expenses to increase on an absolute dollar basis and continue to be our largest operating expense category for the foreseeable future.
Research and Development. Research and development expenses consist primarily of employee compensation costs, allocated overhead and software and maintenance expenses. We will continue to invest in innovation and offer our customers new solutions to enhance our existing platform and expect such investment to increase on an absolute dollar basis as our business grows.
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General and Administrative. General and administrative expenses consist primarily of employee compensation costs, for corporate personnel, such as those in our executive, human resource, legal, facilities, accounting and finance, information security and information technology departments. In addition, general and administrative expenses include third-party professional fees, as well as all other supporting corporate expenses not allocated to other departments. General and administrative expense also includes acquisition-related expenses, which primarily consist of third-party expenses related to business acquisitions, such as professional services and legal fees.
We expect our general and administrative expenses to increase on an absolute dollar basis as our business grows. Also, we expect to incur additional general and administrative expenses as a result of continuing to operate as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, and increased expenses for insurance, investor relations and professional services.
Depreciation and Amortization. Depreciation and amortization expense consists primarily of depreciation of our fixed assets and amortization of finite-lived acquired intangible assets such as customer relationships, trade names and non-compete agreements.
Other Income (Expense)
Interest Expense. Interest expense consists primarily of interest payments on our outstanding borrowings under our credit facilities as well as the amortization of associated deferred financing costs. See “— Liquidity and Capital Resources — Senior Secured Credit Facilities.”
Other Income (Expense), Net. Other income (expense), net primarily consists of gains and losses from transactions denominated in a currency other than the functional currency, interest income and other income (expense). As we have expanded our international operations, our exposure to fluctuations in foreign currencies has increased, and we expect this to continue.
Benefit (Provision) for Income Taxes
Benefit (Provision) for income taxes consists primarily of income taxes related to U.S. federal and state income taxes and income taxes in foreign jurisdictions in which we conduct business.
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Results of Operations
The following table sets forth our condensed consolidated statements of operations data for the periods indicated:
Three Months Ended | Six Months Ended | |||||||||||
| 2022 |
| 2021 | 2022 |
| 2021 | ||||||
(in thousands) | ||||||||||||
Revenue: |
|
|
|
|
|
|
| |||||
Subscription | $ | 66,308 | $ | 73,151 | $ | 146,508 | $ | 137,367 | ||||
Professional services and other |
| 5,719 |
| 5,753 |
| 10,210 |
| 10,481 | ||||
Total revenue |
| 72,027 |
| 78,904 |
| 156,718 |
| 147,848 | ||||
Cost of revenue: |
|
|
|
|
|
|
|
| ||||
Subscription (exclusive of amortization shown below)(1) |
| 14,223 |
| 10,185 |
| 27,611 |
| 19,599 | ||||
Professional services and other (exclusive of amortization shown below)(1) |
| 6,845 |
| 6,142 |
| 13,604 |
| 11,725 | ||||
Amortization expense |
| 8,743 |
| 6,077 |
| 17,259 |
| 11,886 | ||||
Total cost of revenue |
| 29,811 |
| 22,404 |
| 58,474 |
| 43,210 | ||||
Gross profit |
| 42,216 |
| 56,500 |
| 98,244 |
| 104,638 | ||||
Operating expenses: |
|
|
|
|
|
|
|
| ||||
Sales and marketing(1) |
| 36,712 |
| 29,082 |
| 67,653 |
| 54,631 | ||||
Research and development(1) |
| 22,086 |
| 18,692 |
| 42,553 |
| 40,394 | ||||
General and administrative(1) |
| 19,882 |
| 19,545 |
| 36,113 |
| 34,000 | ||||
Depreciation and amortization |
| 4,448 |
| 4,327 |
| 8,836 |
| 8,692 | ||||
Total operating expenses |
| 83,128 |
| 71,646 |
| 155,155 |
| 137,717 | ||||
Loss from operations |
| (40,912) |
| (15,146) |
| (56,911) |
| (33,079) | ||||
Other income (expense): |
|
|
|
|
|
|
|
| ||||
Interest expense |
| (3,883) |
| (310) |
| (7,519) |
| (706) | ||||
Other income (expense), net |
| (2,860) |
| 430 |
| (3,664) |
| (442) | ||||
Total other income (expense) |
| (6,743) |
| 120 |
| (11,183) |
| (1,148) | ||||
Loss before income taxes |
| (47,655) |
| (15,026) |
| (68,094) |
| (34,227) | ||||
Benefit (provision) for income taxes |
| (193) |
| 4,047 |
| (12) |
| 7,314 | ||||
Net loss | $ | (47,848) | $ | (10,979) | $ | (68,106) | $ | (26,913) |
(1) | Includes stock-based compensation as follows: |
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The following table sets forth our condensed consolidated statements of operations data expressed as a percentage of total revenue for the periods indicated:
Comparison of the Three and Six Months Ended June 30, 2022 and 2021
Revenue
Three Months Ended |
| Six Months Ended |
| |||||||||||||||||||||
June 30, | Change | June 30, | Change | |||||||||||||||||||||
| 2022 |
| 2021 |
| $ |
| % |
| 2022 |
| 2021 |
| $ |
| % | |||||||||
(dollars in thousands) |
| |||||||||||||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Subscription | $ | 66,308 | $ | 73,151 | $ | (6,843) |
| (9) | % | $ | 146,508 | $ | 137,367 | $ | 9,141 |
| 7 | % | ||||||
Professional services and other |
| 5,719 |
| 5,753 |
| (34) |
| (1) |
| 10,210 |
| 10,481 |
| (271) |
| (3) | ||||||||
Total revenue | $ | 72,027 | $ | 78,904 | $ | (6,877) |
| (9) | % | $ | 156,718 | $ | 147,848 | $ | 8,870 |
| 6 | % |
Total revenue decreased by $6.9 million, or 9%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The decrease in revenue was primarily attributable to a decrease in subscription revenue of $6.8 million, discussed further below.
Total revenue increased by $8.9 million, or 6%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The revenue growth was attributable to an increase of $9.1 million in subscription revenue, discussed further below.
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The table below sets forth the components of subscription revenue for the three and six months ended June 30, 2022 and 2021.
Subscription revenue decreased by 9%, or $6.8 million in the three months ended June 30, 2022 compared to the three months ended June 30, 2021. Total subscription revenue decreased primarily as a result of changes to the relative value ascribed to our maintenance and support obligations as compared to license obligations in contracts with multiple performance obligations, resulting in an increase in maintenance and support revenue that will be deferred to future periods and a decrease in term-based license revenue recognized in the period, as discussed further below.
Subscription revenue increased by 7%, or $9.1 million, in the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Total subscription revenue increased as a result of a greater amount of new and renewing SaaS subscriptions in the six months ended June 30, 2022, compared to the six months ended June 30, 2021. Remaining changes to subscription revenue were primarily due to the following:
Change in subscription type. The following table sets forth the components of subscription revenue expressed as a percentage of total subscription revenue:
Subscription term-based license revenue as a percentage of subscription revenue decreased from 65% for each of the three and six months ended June 30, 2021, to 38% and 47% for the three and six months ended June 30, 2022, respectively. Subscription SaaS as a percentage of total subscription revenue increased from 18% in each of the three and six months ended June 30, 2021 to 34% and 30% in the three and six months ended June 30, 2022, respectively. Maintenance and support as a percentage of total subscription revenue increased from 17% for each of the three and six months ended June 30, 2021 to 28% and 23% for the three and six months ended June 30, 2022, respectively.
Additionally, subscription SaaS revenue increased by 69%, or $9.3 million, and 69%, or $17.5 million, in the three and six months ended June 30, 2022, compared to the three and six months ended June 30, 2021. Maintenance and support revenue increased by 55%, or $6.6 million, and 49%, or $11.2 million, in the three and six months ended June 30, 2022, compared to the three and six months ended June 30, 2021. As our business moves increasingly to SaaS, our investments have followed, with a higher percentage of investment shifting to SaaS as well as maintenance and support of our software. Subscription SaaS and maintenance have increased as a percentage of total subscription revenue as adoption of our SaaS solutions has increased, as well as to reflect an increase in the relative value attributable to our software maintenance and support obligations, resulting in greater deferral of revenue in the period in which the subscription is contracted. We expect this trend to continue in future periods.
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Change in term-based subscription duration. The following table sets forth the components of subscription term-based licenses expressed as a percentage of total subscription term-based licensed revenue:
Multi-year subscription term-based license revenue as a percentage of total subscription term-based license revenue decreased from 68% in the three months ended June 30, 2021 to 64% in the three months ended June 30, 2022. This decrease is attributable to additional value ascribed to our software maintenance and support obligations as compared to license obligations in contracts with multiple performance obligations, resulting in a decrease in term-based license revenue recognized.
Multi-year subscription term-based license revenue as a percentage of total subscription term-based license revenue increased from 63% in the six months ended June 30, 2021 to 70% in the six months ended June 30, 2022. Despite this increase in the percentage of multi-year subscriptions, multi-year subscription term-based license revenue deceased for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021 as a result of additional value ascribed to our software maintenance and support obligations as compared to license obligations in contracts with multiple performance obligations, resulting in a decrease in term-based license revenue recognized.
Cost of Revenue
Three Months Ended |
| Six Months Ended |
| |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, | Change | June 30, | Change | |||||||||||||||||||||
| 2022 |
| 2021 |
| $ |
| % |
| 2022 |
| 2021 |
| $ |
| % | |||||||||
(dollars in thousands) |
| |||||||||||||||||||||||
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Subscription (exclusive of amortization shown below) | $ | 14,223 | $ | 10,185 | $ | 4,038 |
| 40 | % | $ | 27,611 | $ | 19,599 | $ | 8,012 |
| 41 | % | ||||||
Professional services and other (exclusive of amortization shown below) |
| 6,845 |
| 6,142 |
| 703 |
| 11 |
| 13,604 |
| 11,725 |
| 1,879 |
| 16 | ||||||||
Amortization expense |
| 8,743 |
| 6,077 |
| 2,666 |
| 44 |
| 17,259 |
| 11,886 |
| 5,373 |
| 45 | ||||||||
Total cost of revenue | $ | 29,811 | $ | 22,404 | $ | 7,407 |
| 33 | % | $ | 58,474 | $ | 43,210 | $ | 15,264 |
| 35 | % |
Subscription cost of revenue increased by $4.0 million, or 40%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. $1.5 million of the increase was primarily attributable to an increase in headcount to support the growth of our subscription SaaS offerings and ongoing maintenance for our expanding customer base. $1.3 million of the increase was attributable to an increase in cloud-based hosting and management costs largely associated with the increased adoption of our solutions. $1.2 million of the increase was primarily due to an increase in software costs incurred to support our expanding SaaS offerings.
Subscription cost of revenue increased by $8.0 million, or 41%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. $3.2 million of the increase was primarily attributable to an increase in headcount to support the growth of our subscription SaaS offerings and ongoing maintenance for our expanding customer base. $3.1 million of the increase was attributable to an increase in cloud-based hosting and management costs largely associated with the increased adoption of our solutions. $1.6 million of the increase was primarily due to an increase in software costs incurred to support our expanding SaaS offerings.
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Professional services and other cost of revenue increased $0.7 million, or 11%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. $0.7 million of the increase was primarily attributable to an increase in headcount and an increase in partner-related costs to support the growth in our business.
Professional services and other cost of revenue increased by $1.9 million, or 16%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. $2.0 million of the increase was primarily attributable to an increase in headcount and an increase in partner-related costs to support the growth in our business.
Amortization expense increased by $2.7 million, or 44%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. Amortization expense increased by $5.4 million, or 45%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The increase was attributable primarily to increases in the amortization of developed technology resulting from our acquisitions in 2021 of $1.8 million and $3.6 million for the three and six months ended June 30, 2022, as compared to the three and six months ended June 30, 2021, respectively. The remaining increase in amortization expense was primarily related to an increase in the amortization of our capitalized software of $1.1 million and $2.1 million for the three and six months ended June 30, 2022, as compared to the three and six months ended June 30, 2021, respectively. The increase in capitalized software was driven by an increase in employee costs capitalized as software development costs as a result of our ongoing investment in developing our SaaS services.
Operating Expenses
Three Months Ended |
| Six Months Ended |
| |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, | Change | June 30, | Change | |||||||||||||||||||||
| 2022 |
| 2021 |
| $ |
| % |
| 2022 |
| 2021 |
| $ |
| % | |||||||||
(dollars in thousands) |
| |||||||||||||||||||||||
Sales and marketing | $ | 36,712 | $ | 29,082 | $ | 7,630 |
| 26 | % | $ | 67,653 | $ | 54,631 | $ | 13,022 |
| 24 | % | ||||||
Research and development |
| 22,086 |
| 18,692 |
| 3,394 |
| 18 |
| 42,553 |
| 40,394 |
| 2,159 |
| 5 | ||||||||
General and administrative |
| 19,882 |
| 19,545 |
| 337 |
| 2 |
| 36,113 |
| 34,000 |
| 2,113 |
| 6 | ||||||||
Depreciation and amortization |
| 4,448 |
| 4,327 |
| 121 |
| 3 |
| 8,836 |
| 8,692 |
| 144 |
| 2 | ||||||||
Total operating expenses | $ | 83,128 | $ | 71,646 | $ | 11,482 |
| 16 | % | $ | 155,155 | $ | 137,717 | $ | 17,438 |
| 13 | % |
Sales and Marketing. Sales and marketing expenses increased by $7.6 million, or 26%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. $4.7 million of the increase was primarily attributable to an increase in headcount related to the expansion of our sales force and our marketing department. $1.6 million of the increase was due to an increase in partner and consulting costs related to marketing campaigns and initiatives. $1.4 million of the increase was due to an increase in travel and other event-related costs as COVID-19 restrictions continued to ease. The increase in event-related costs was partially offset by a decrease in expense incurred to host the Identiverse conference in the second quarter of 2021. The conference was sold by Ping Identity in the fourth quarter of 2021, so no comparable costs were incurred in 2022.
Sales and marketing expenses increased by $13.0 million, or 24%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. $9.5 million of the increase was primarily attributable to an increase in headcount related to the expansion of our sales force and our marketing department. $3.2 million of the increase was due to an increase in travel and other event-related costs as COVID-19 restrictions continued to ease. The increase in event-related costs was partially offset by a decrease in expense incurred to host the Identiverse conference in the second quarter of 2021. The conference was sold by Ping Identity in the fourth quarter of 2021, so no comparable costs were incurred in 2022. $1.7 million of the increase was due to an increase in partner and consulting costs related to marketing campaigns and initiatives. These increases were partially offset by a $2.5 million decrease in stock-based compensation expense primarily related to expense recognized for the conversion of previously outstanding LTIP awards into RSUs in the first quarter of 2021, and options and restricted stock units subject to performance and market conditions determined to be probable of vesting in the second quarter of 2021 (“market-based options” and “market-based PSUs”), as further described in Note 13 of our condensed consolidated financial statements included in Part I, Item 1 of
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this Quarterly Report on Form 10-Q. The decrease in stock-based compensation expense was partially offset by expense recognized for equity awards granted after June 30, 2021.
Research and Development. Research and development expenses increased by $3.4 million, or 18%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. $2.8 million of the increase was primarily attributable to an increase in headcount to enhance and expand our solutions. $1.6 million of the increase was related to an increase in cloud-based hosting costs largely associated with the development and configuration of our cloud-based solutions. These increases were partially offset by a $1.8 million decrease in stock-based compensation expense primarily related to expense recognized for market-based PSUs in the second quarter of 2021. The decrease in stock-based compensation expense was partially offset by expense recognized for equity awards granted after June 30, 2021. The remaining increase was primarily due to an increase in partner and consulting costs to support the design and growth of our SaaS offerings.
Research and development expenses increased by $2.2 million, or 5%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. $6.3 million of the increase was primarily attributable to an increase in headcount to enhance and expand our solutions, and an increase of $2.4 million in cloud-based hosting costs largely associated with the development and configuration of our cloud-based solutions. $1.0 million of the increase was primarily attributable to an increase in partner and consulting costs to support the design and growth of our SaaS offerings. These increases were offset by a $7.1 million decrease in stock-based compensation expense primarily related to expense recognized for the conversion of previously outstanding LTIP awards into RSUs in the first quarter of 2021, and market-based PSUs in the second quarter of 2021. The decrease in stock-based compensation expense was partially offset by expense recognized for equity awards granted after June 30, 2021. The increase in research and development expense was also offset by an increase of $1.1 million related to employee costs that were capitalized as software development in the six months ended June 30, 2022 as compared to June 30, 2021.
General and Administrative. General and administrative expenses increased by $0.3 million, or 2%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. $1.9 million of the increase was primarily attributable to an increase in headcount to support growth in our business. This increase was partially offset by a $1.5 million decrease in stock-based compensation expense primarily related to expense recognized for market-based options and PSUs in the second quarter of 2021. The decrease in stock-based compensation expense was partially offset by expense recognized for equity awards granted after June 30, 2021.
General and administrative expenses increased by $2.1 million, or 6%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. $4.6 million of the increase was primarily attributable to an increase in headcount to support growth in our business. This increase was partially offset by a $2.6 million decrease in stock-based compensation expense primarily related to expense recognized for the conversion of previously outstanding LTIP awards into RSUs in the first quarter of 2021, and market-based options and PSUs in the second quarter of 2021. The decrease in stock-based compensation expense was partially offset by expense recognized for equity awards granted after June 30, 2021.
Depreciation and Amortization. Depreciation and amortization expense remained substantially the same during the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021.
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Other Income (Expense)
Three Months Ended |
| Six Months Ended |
| |||||||||||||||||||||
June 30, | Change | June 30, | Change | |||||||||||||||||||||
| 2022 |
| 2021 |
| $ |
| % |
| 2022 |
| 2021 |
| $ |
| % | |||||||||
(dollars in thousands) |
| |||||||||||||||||||||||
Interest expense | $ | (3,883) | $ | (310) | $ | (3,573) |
| 1,153 | % | $ | (7,519) | $ | (706) | $ | (6,813) |
| 965 | % | ||||||
Other income (expense), net |
| (2,860) |
| 430 |
| (3,290) |
| (765) |
| (3,664) |
| (442) |
| (3,222) |
| 729 | ||||||||
Total other income (expense) | $ | (6,743) | $ | 120 | $ | (6,863) |
| (5,719) | % | $ | (11,183) | $ | (1,148) | $ | (10,035) |
| 874 | % |
Interest Expense. Interest expense increased by $3.6 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The increase was attributable primarily to the increase in our average debt outstanding during the second quarter of 2022 as compared to 2021. An increase in the weighted average interest rate, from 1.4% for the three months ended June 30, 2021 to 4.6% for the three months ended June 30, 2022, also contributed to the increase in interest expense during the period.
Interest expense increased by $6.8 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The increase was attributable primarily to the increase in our average debt outstanding during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021. An increase in the weighted average interest rate, from 1.4% for the six months ended June 30, 2021 to 4.4% for the six months ended June 30, 2022, also contributed to the increase in interest expense during the period.
Other Income (Expense), Net. Other income (expense), net decreased by $3.3 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The increase was attributable primarily to a change in the amount of foreign currency gains and losses, from a gain of $0.4 million in the three months ended June 30, 2021 to a loss of $3.1 million in the three months ended June 30, 2022. The foreign exchange loss in the three months ended June 30, 2022 was primarily driven by the strengthening US dollar against our mix of foreign currencies.
Other income (expense), net decreased by $3.2 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The increase was attributable primarily to a change in the amount of foreign currency gains and losses, from a loss of $0.5 million in the six months ended June 30, 2021 compared to a loss of $3.9 million in the six months ended June 30, 2022. The foreign exchange loss in the six months ended June 30, 2022 was primarily driven by the strengthening US dollar against our mix of foreign currencies.
Benefit for Income Taxes
Three Months Ended |
| Six Months Ended |
| |||||||||||||||||||||
June 30, | Change | June 30, | Change | |||||||||||||||||||||
| 2022 |
| 2021 |
| $ |
| % |
| 2022 |
| 2021 |
| $ |
| % | |||||||||
(dollars in thousands) |
| |||||||||||||||||||||||
Benefit (provision) for income taxes | $ | (193) | $ | 4,047 | $ | (4,240) |
| (105) | % | $ | (12) | $ | 7,314 | $ | (7,326) |
| (100) | % |
Our provision for income taxes was $0.2 million and our benefit for income taxes was $4.0 million for the three months ended June 30, 2022 and 2021, respectively. For the six months ended June 30, 2022 and 2021, our provision for income taxes was $12 thousand and our benefit for income taxes was $7.3 million, respectively. The increase in the tax provision for the three and six months ended June 30, 2022 as compared to the three and six months ended June 30, 2021 primarily relates to a valuation allowance recorded against our deferred tax assets in the six months ended June 30, 2022. This increase was partially offset by a larger expected pre-tax loss in 2022 as compared to 2021, along with an increase in R&D and other credits recorded in the three months ended June 30, 2022.
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Liquidity and Capital Resources
General
As of June 30, 2022, our principal sources of liquidity were cash and cash equivalents totaling $210.3 million, which were held for working capital purposes, and borrowing availability under our 2021 Revolving Credit Facility as described below. As of June 30, 2022, our cash equivalents were comprised of money market funds. We expect our operating cash requirements to increase in the near future as we continue to invest in key initiatives to drive the Company’s growth toward the cloud. However, we expect our long-term operating cash flows to improve as we increase our operational efficiency and realize benefits from cash investments.
We have financed our operations primarily through cash received from operations and proceeds from our debt and equity financings. We believe our existing cash and cash equivalents, our 2021 Credit Facilities and cash provided by sales of our solutions and services will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months and beyond. Our future capital requirements will depend on several factors, including but not limited to our obligation to repay any amounts outstanding under our 2021 Credit Agreement, our subscription growth rate, subscription renewal activity, billing frequency, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced solutions, the continuing market adoption of our platform, the effects of the macroeconomic environment and geopolitical events, and the continuing effects of the COVID-19 pandemic. In the future, we may enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights.
We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies, this could reduce our ability to compete successfully and harm our results of operations.
A majority of our customers pay in advance for annual subscriptions, a portion of which is recorded as deferred revenue. Deferred revenue consists of the unearned portion of billed fees for our subscriptions, which is later recognized as revenue in accordance with our revenue recognition policy. As of June 30, 2022, we had deferred revenue of $85.1 million, of which $81.2 million was recorded as a current liability and is expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met.
Senior Secured Credit Facilities
On November 23, 2021, in connection with the refinancing of our 2019 Credit Facilities, we entered into the 2021 Credit Agreement providing for (a) a new term loan B facility consisting of an aggregate principal amount of $300 million (the “2021 Term Loan Facility” and the loans thereunder, the “2021 Term Loans”) and (b) a new revolving line of credit facility in an aggregate principal amount of $150 million (the “2021 Revolving Facility” and together with the 2021 Term Loan Facility, the “2021 Credit Facilities).
The 2021 Term Loans mature on November 23, 2028. Amortization payments on the 2021 Term Loans are equal to 0.25% of the initial aggregate principal amount of the 2021 Term Loans, payable at the end of each fiscal quarter, commencing with the fiscal quarter ending June 30, 2022. The 2021 Revolving Facility matures on November 23, 2026. There were no amounts drawn under the 2021 Revolving Facility as of June 30, 2022.
Under the terms of the 2021 Credit Agreement, Holdings and its restricted subsidiaries are required to maintain a total net leverage ratio (as calculated pursuant to the 2021 Credit Agreement) (i) commencing with the fiscal quarter ending June 30, 2022 and through and including the fiscal quarter ending March 31, 2024, of no more than 5.00:1.00 and (ii) commencing with the fiscal quarter ending June 30, 2024 and each fiscal quarter thereafter, of no more than 4.00:1.00. As of June 30, 2022, we were in compliance with all financial covenants.
See additional discussion of the 2021 Credit Facilities in Note 10 of our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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Cash Flows
The following table presents a summary of our condensed consolidated cash flows from operating, investing and financing activities for the periods indicated:
Six Months Ended June 30, | ||||||
| 2022 | 2021 | ||||
(in thousands) | ||||||
Net cash provided by (used in) operating activities | $ | (3,682) | $ | 43,965 | ||
Net cash used in investing activities |
| (12,144) |
| (49,959) | ||
Net cash provided by (used in) financing activities |
| 6,375 |
| (35,267) | ||
Effect of exchange rate changes on cash and cash equivalents and restricted cash |
| (831) |
| (130) | ||
Net decrease in cash and cash equivalents and restricted cash | $ | (10,282) | $ | (41,391) | ||
Cash and cash equivalents and restricted cash at beginning of period |
| 220,889 |
| 146,499 | ||
Cash and cash equivalents and restricted cash at end of period | $ | 210,607 | $ | 105,108 |
Operating Activities
Our largest source of operating cash is cash collections from our customers for subscriptions and professional services. Our primary uses of cash from operating activities are for employee-related expenditures, marketing expenses and third-party hosting costs.
For the six months ended June 30, 2022, net cash used in operating activities was $3.7 million, reflecting our net loss of $68.1 million, adjusted for non-cash charges of $55.5 million and net cash inflows of $8.9 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation, amortization of deferred commissions, depreciation and amortization of property and equipment and intangible assets and deferred income taxes. The primary drivers of the changes in operating assets and liabilities related to a $18.0 million decrease in contract assets due to the issuance of invoices and timing of revenue recognition, a $7.5 million increase in deferred revenue driven by the timing of revenue recognition, and a $3.7 million decrease in accounts receivable due to the timing of collection of payment from our customers. These were partially offset by a $8.8 million increase in deferred commissions, a $6.9 million decrease in accrued compensation due to the timing of cash disbursements to our employees, a $3.5 million increase in prepaid expenses and other current assets, and a $2.3 million increase in other assets primarily due to the timing of payment of long-term prepaid balances.
For the six months ended June 30, 2021, net cash provided by operating activities was $44.0 million, reflecting our net loss of $26.9 million, adjusted for non-cash charges of $51.9 million and net cash inflows of $19.0 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation, amortization of deferred commissions, depreciation and amortization of property and equipment and intangible assets and deferred income taxes. The primary drivers of the changes in operating assets and liabilities related to a $17.6 million decrease in accounts receivable due to the timing of collection of payment from our customers, a $5.7 million decrease in contract assets due to the issuance of invoices and timing of revenue recognition, a $4.3 million increase in accrued compensation due to the timing of cash disbursements to our employees, a $3.4 million decrease in prepaid expenses and other current assets, and an increase of $1.3 million in accrued expenses and other liabilities due to the timing of cash disbursements. These were partially offset by an $8.2 million increase in deferred commissions, and a $5.0 million decrease in deferred revenue driven by the timing of revenue recognition.
Investing Activities
Net cash used in investing activities was $12.1 million and $50.0 million during the six months ended June 30, 2022 and 2021, respectively, representing a decrease of $37.8 million. The net decrease is primarily attributable to the acquisition of SecuredTouch in 2021 for a total of $39.9 million in cash. There was no
48
comparable activity during the six months ended June 30, 2022. The remaining increase was primarily related to an increase in the capitalization of internal-use software costs of $1.0 million in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.
Financing Activities
Net cash provided by financing activities was $6.4 million during the six months ended June 30, 2022 whereas net cash used in financing activities was $35.3 million during the six months ended June 30, 2021, representing an increase of $41.6 million. During the six months ended June 30, 2022, we made a principal payment of $0.8 million on our 2021 Term Loan Facility. This compares to cash outflows related to long-term debt of $30.0 million during the six months ended June 30, 2021, due to the repayment of $110.0 million and draw down of $80.0 million on our 2019 Revolving Credit Facility. The remaining increase relates to an increase of $5.4 million in proceeds received from option exercises and a decrease of $6.0 million in payments for tax withholding on equity awards for the six months ended June 30, 2022 as compared to June 30, 2021.
Indemnification Agreements
In the ordinary course of business, we enter into agreements of varying scope and terms pursuant to which we agree to indemnify customers, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by us or from intellectual property infringement claims made by third parties. In addition, we previously entered into indemnification agreements with our directors and certain officers and employees that require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon us to provide indemnification under such agreements and there are no claims that we are aware of that could have a material effect on our condensed consolidated balance sheets, condensed consolidated statements of operations and comprehensive loss, or condensed consolidated statements of cash flows.
Off-Balance Sheet Arrangements
As of June 30, 2022, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structure finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenue and expenses and related disclosures of contingent assets and liabilities at the date of our financial statements. We evaluate our estimates and assumptions on an ongoing basis. The estimates and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, impacting our reported results of operations and financial condition.
There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the year ended December 31, 2021. For more information, please refer to “Note 2—Summary of Significant Accounting Policies” to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Recent Accounting Pronouncements
For a description of our recently adopted accounting pronouncements and recently issued accounting standards not yet adopted, see “Note 2—Summary of Significant Accounting Policies—Recent Accounting
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Pronouncements” to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. As we have operations in the United States and internationally, our market risk exposure is primarily a result of exposure due to potential changes in inflation or interest rates. We do not hold financial instruments for trading purposes.
Foreign Currency Exchange Risk
Our revenues and expenses are primarily denominated in U.S. dollars. For the three months ended June 30, 2022 and 2021, we recorded a loss of $3.1 million and a gain of $0.4 million on foreign exchange transactions, respectively. For the six months ended June 30, 2022 and 2021, we recorded a loss of $3.9 million and a loss of $0.5 million on foreign exchange transactions, respectively. To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative financial instruments, but we may do so in the future if our exposure to foreign currency should become more significant. For business conducted outside of the United States, we may have both revenue and costs incurred in the local currency of the subsidiary, creating a partial natural hedge. Changes to exchange rates therefore have not had a significant impact on the business to date. However, we will continue to reassess our foreign exchange exposure as we continue to grow our business globally. During the three and six months ended June 30, 2022 and 2021, a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have had a material impact on our condensed consolidated financial statements.
Interest Rate Risk
Our primary market risk exposure is changing SOFR-based interest rates. Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond our control.
The 2021 Term Loans bear interest at Term SOFR (as defined in the 2021 Credit Agreement and subject to a floor of 0.50%), plus the applicable SOFR Adjustment (as defined in the 2021 Credit Agreement), plus an applicable margin of 3.75%, or a base rate plus an applicable margin of 2.75%.
Amounts drawn under the 2021 Revolving Facility denominated in U.S. dollars will bear interest at Term SOFR, subject to a floor of 0.00%, plus the applicable SOFR Adjustment, plus an applicable margin ranging from 1.25% to 2.00%, depending on the senior secured net leverage ratio (as calculated pursuant to the 2021 Credit Agreement) or (ii) a base rate plus an applicable margin ranging from 0.25% to 1.00%, depending on the senior secured net leverage ratio. Amounts drawn under the 2021 Revolving Facility denominated in available non-U.S. dollar currencies will bear interest at the applicable rate for such non-U.S. dollar currencies plus the applicable rate adjustment (if any) plus an applicable margin ranging from 1.25% to 2.00%, depending on the senior secured net leverage ratio. There were no amounts drawn under the 2021 Revolving Facility as of June 30, 2022.
At June 30, 2022, we had total outstanding debt of $299.3 million under our 2021 Term Loan Facility. Based on the amounts outstanding, a 100-basis point increase or decrease in market interest rates over a twelve-month period would result in a change to interest expense of $3.0 million.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rule 13a–15(e) and Rule 15d–15(e) under the Exchange Act that are designed to provide reasonable assurance that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of June 30, 2022, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control
There have been no changes in internal control over financial reporting during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are involved in various claims and legal actions that arise in the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, we do not believe that the ultimate resolution of these actions will have a material adverse effect on our financial position, results of operations, liquidity and capital resources.
Future litigation may be necessary to defend ourselves and our partners by determining the scope, enforceability and validity of third-party proprietary rights or to establish our proprietary rights. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 1A. Risk Factors
In addition to the information set forth in this Form 10-Q, you should carefully consider the risk factors disclosed under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021. Except as described below, there have been no material changes to the risk factors from those included in our Annual Report on Form 10-K for the year ended December 31, 2021.
Risks Related to the Proposed Merger
Uncertainties associated with the Merger with an affiliate of a fund advised by Thoma Bravo could adversely affect our business, results of operations, stock price and financial condition.
On August 2, 2022, Ping Identity entered into the Merger Agreement with Parent and Merger Sub. Pursuant to the Merger Agreement Ping Identity will merge with and into Merger Sub, with Ping Identity continuing as the surviving corporation and a wholly-owned subsidiary of Parent (the “Merger”). If the Merger is consummated, the Company’s common stock will be delisted from the New York Stock Exchange and deregistered under the Exchange Act. Parent and Merger Sub are affiliates of Thoma Bravo Fund XV, L.P., a private equity fund managed by Thoma Bravo, L.P. Completion of the Merger is subject to various closing conditions, including, but not limited to, the receipt of required regulatory clearances, including the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the receipt of certain other approvals and clearances by government authorities. The regulatory agencies from which certain of these clearances will be sought have broad discretion in administering the governing regulations. As a condition to their clearance of the Merger, agencies may impose requirements, limitations or costs or require divestitures or place restrictions on the conduct of the parties’ business. These requirements, limitations, costs, divestitures or restrictions could jeopardize or delay the consummation of the Merger. Further, the completion of the Merger is subject to the approval of Ping Identity’s stockholders holding a majority of Ping Identity’s outstanding common stock. The parties to the Merger Agreement may not receive the necessary approvals for the transaction or receive them within the expected timeframe. There’s no guarantee that all closing conditions will be satisfied (or waived, if permitted by the Merger Agreement and applicable law). Many of the conditions to completion of the Merger are not within our control, and we cannot predict when or if these conditions will be satisfied (or waived, if permitted by the Merger Agreement and applicable law). In addition, the Merger may fail to close for other reasons.
The announcement and pendency of the Merger, as well as any delays in the expected timeframe, could cause disruption in and create uncertainties, which could have an adverse effect on our business, results of operations, stock price and financial condition, regardless of whether the Merger is completed, and could cause us not to realize some or all of the benefits that we expect to achieve if the Merger is successfully completed within its expected timeframe. These risks include, but are not limited to:
• | an adverse effect on our relationship with vendors, customers, and employees, including if our vendors, customers or others attempt to negotiate changes in existing business relationships, consider entering |
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into business relationships with parties other than us, delay or defer decisions concerning their business with us, or terminate their existing business relationships with us during the pendency of the Merger; |
• | a diversion of a significant amount of management time and resources towards the completion of the Merger; |
• | being subject to certain restrictions on the conduct of our business; |
• | impacts on the price of our common stock; |
• | the requirement that we pay a termination fee of $78.0 million to Parent if the Merger Agreement is terminated under certain circumstances; |
• | developments beyond our control, including, but not limited to, changes in domestic or global economic conditions that may affect the timing or success of the Merger; |
• | stockholder litigation that could prevent or delay the Merger or otherwise negatively impact our business and operations; |
• | possibly foregoing certain business opportunities that we might otherwise pursue absent the pending Merger; and |
• | difficulties attracting and retaining key employees. |
Failure to complete the Merger could adversely affect our business and the market price of our shares of common stock.
The closing of the Merger may not occur on the expected timeline or at all. The Merger Agreement contains certain termination rights for us and Parent, including (i) if the Merger is not consummated on or before the “termination date” of March 2, 2023, (subject to an extension until August 2, 2023 under certain circumstances for the purpose of obtaining certain regulatory approvals), (ii) if the other party breaches its representations, warranties or covenants in a manner that would cause the conditions to the closing of the Merger set forth in the Merger Agreement to not be satisfied and fails to cure such breach, (iii) if any law or order prohibiting the Merger or the transactions contemplated thereby has become final and non-appealable, or (iv) if the required approval by a majority of Ping Identity’s stockholders is not obtained. If the Merger Agreement is terminated and the Merger is not consummated, the price of our common stock may decline and you may not recover your investment or receive a price for your shares similar to what has been offered pursuant to the Merger.
In addition, if the Merger Agreement is validly terminated by Parent under the circumstances set forth in the Merger Agreement, Ping Identity will be required to pay Parent a termination fee equal to $78.0 million. If Ping Identity is required to pay this termination fee, such fee, together with costs incurred to execute the Merger Agreement and pursue the Merger, could have a material adverse effect on Ping Identity’s financial condition and results of operations.
The Merger Agreement contains provisions that limit our ability to pursue alternatives to the Merger.
Under the Merger Agreement, we are restricted from soliciting, initiating, proposing or encouraging or facilitating alternative acquisition proposals from third parties and/or providing non-public information to third parties in response to any inquiries regarding, or the submission of any proposal or offer that constitutes, or would reasonably be expected to lead to, any Acquisition Proposal (as defined in the Merger Agreement). These provisions could discourage a third party that may have an interest in acquiring all or a significant part of our
53
business from considering or proposing that acquisition, even if such third party were prepared to pay consideration with a higher value than the value of the consideration in the Merger.
We are subject to certain restrictions on the conduct of our business under the terms of the Merger Agreement.
Under the terms of the Merger Agreement, we have agreed to certain restrictions on the operations of our business. We have agreed to limit the conduct of our business to those actions undertaken in the ordinary course of business and to refrain from, among other things, subject to certain specified exceptions (as set forth in the Merger Agreement): incurring debt; entering into, adopting, amending, modifying or terminating any employee plans (as defined in the Merger Agreement); materially increasing the compensation of any director, officer or employee or hiring or terminating any employee (other than for “cause”); settling, releasing, waiving or compromising certain legal proceedings; materially changing our methods, principles or practices of financial accounting; and incurring certain capital expenditures. Because of these restrictions, we may be prevented from undertaking certain actions with respect to the conduct of our business that we might otherwise have taken if not for the Merger Agreement. Such restrictions could prevent us from pursuing certain business opportunities that arise prior to the effective time of the Merger and are outside the ordinary course of business, and could otherwise adversely affect our business and operations prior to completion of the Merger.
Lawsuits may be filed against us relating to the Merger, which could adversely affect our business, financial condition and operating results.
Lawsuits relating to the Merger could be filed against Ping Identity. Such litigation is common in connection with acquisitions of public companies, regardless of any merits related to the underlying acquisition. The outcome of any lawsuits filed against Ping Identity would be uncertain, and we may not be successful in defending against any such claims. While we will defend against any lawsuits filed against Ping Identity in connection with the Merger, the costs of the defense of such actions and other effects of such litigation could have an adverse effect on our business, financial condition and operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosure
None.
Item 5. Other Information
None.
Item 6. Exhibits
We have filed the exhibits listed on the accompanying Exhibit Index, which is incorporated herein by reference.
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Exhibit Index
Exhibit Number | Exhibit Description | ||
2.1+ | |||
10.1 | |||
31.1 | |||
31.2 | |||
32.1* | Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, furnished herewith. | ||
32.2* | Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, furnished herewith. | ||
101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||
101.SCH | Inline XBRL Taxonomy Extension Schema Document. | ||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | ||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | ||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | ||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | ||
104 | Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, and 101.PRE). |
+ All schedules to the Merger Agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted schedule to the SEC upon request.
*The certifications furnished in Exhibit 32.1 and Exhibit 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.
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Exhibit 31.1
Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002
I, Andre Durand, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Ping Identity Holding Corp.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 3, 2022 | | /s/Andre Durand |
| | Andre Durand Director and Chief Executive Officer |
Exhibit 31.2
Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002
I, Raj Dani, certify that:
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 3, 2022 | | /s/Raj Dani |
| | Raj Dani Chief Financial Officer |
Exhibit 32.1
Certification of the Chief Executive Officer
Pursuant to Rule 18 U.S.C. Section 1350
In connection with the Quarterly Report on Form 10-Q of Ping Identity Holding Corp. (the “Company”) for the quarter ended June 30, 2022, as filed with the U.S. Securities and Exchange Commission (the “Report”), I, Andre Durand, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 3, 2022 | | /s/Andre Durand |
| | Andre Durand Director and Chief Executive Officer |
Exhibit 32.2
Certification of the Chief Financial Officer
Pursuant to Rule 18 U.S.C. Section 1350
In connection with the Quarterly Report on Form 10-Q of Ping Identity Holding Corp. (the “Company”) for the quarter ended June 30, 2022, as filed with the U.S. Securities and Exchange Commission (the “Report”), I, Raj Dani, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 3, 2022 | | /s/ Raj Dani |
| | Raj Dani Chief Financial Officer |