Q4 2019 Earnings Call

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Ladies and gentlemen, thank you for standing by and welcome to the Ping identity fourth quarter 2019 earnings Conference call.

At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session. Please press star one on your telephone if you acquire any further assistance. Please press star zero. Please be advised that today's conference is being recorded.

I would now like to hand, the conference over to your Speaker today, Hugo Deutsche Vice President of Finance strategy and corporate development. Thank you. Please go ahead.

Thanks, everyone for joining us today and welcome to the P. Mobility conference call, where we will discuss our results for the fourth quarter fiscal year 29 team and provider initial outlook for fiscal year 2020, before we begin I would like to remind you that shortly after the merger closed today 'cause identity issued a press release announcing its.

Fourth quarter and full year 29, future financial results. Additionally, Ping identity publishes supplemental slide presentation to accompany this call.

The press release presentation on the Investor Relations section of the Mckenzie Dot com.

With me today, Andre Grand our CEO and Raj Donnie our CFO today's discussion may include forward looking statements.

Please refer to our final initial public offering perspective days in September 18, 29 team and filed with the Securities and Exchange Commission, where you'll see a discussion of factors that could cause the companys actual results to differ materially from these statements I would also like to remind you that during the call. We will discuss the non-GAAP measures related to.

Identities performance you can find a reconciliation of those measures to the nearest comparable GAAP measures in our quarterly financial statement.

Just one housekeeping item to ensure we can addresses many analysts questions as possible during the call. We ask that you. Please limit your questions. The one initial question and one follow up and with that I'll turn the call over to Andre veranda, founder and Chief Executive Officer Ping identity. Andre. Please go ahead.

Thanks, you go good afternoon, everyone and thank you for joining our second earnings call with a publicly traded company before I begin I'd like to thank my team our partners and our customers for their support and dedication to making the world a safer place through identity.

And now onto our Q4 results.

We had a record fourth quarter highlighted by strong topline growth profitability continued success in the enterprise market tremendous new customer wins and further innovation across our platform.

Annual recurring revenue grew 23% year over year, culminating in a total here are a $224.9 billion.

Q4 revenue was $68.2 million.

Given the continued impacts of 86, so six to our GAAP revenue when we sell our hybrid identity platform. We believe that they are provides an important representation in measure of our topline growth.

And as the key metric we used to evaluate the business.

Since this is only our second earnings call and a number of today's participants are relatively new Sipping story I will briefly review our offerings and the prevailing market drivers.

Things intelligent identity platform helps enterprises manage their customer workforce and partner identities, while enabling the seamless access of applications and resources across the most complex hybrid IP enterprise infrastructures.

With the rising importance of identity, one fortune 100 customer recently cited pain as the heart because of the company and another told me. We're now one of the most important infrastructure is in the company protecting tens of millions of users and several hundred mission critical applications as a result of identities rising importance pains relation.

In shift with the C suite is growing.

And we are often called upon to meet with Ceos, because our partnership is viewed as strategic to their digital transformation efforts.

This rising tide of identity bodes well for the future of the being platform, which is comprised of six solutions for enabling mission critical identity security functions.

Such as multifactor authentication single sign on access security Directory identity data governance in a pie security.

Each solution is built upon open standards and can be deployed standalone or in conjunction with other paying solutions in our cloud the customers cloud or in their datacenter.

Taken as a whole the pain platform provides a powerful foundation for the digital transformation of customer engagement and workforce security.

Our platform is differentiated through intelligence deployment flexibility turnkey integrations with hundreds of hybrid cloud environments and an ability to address all primary identity use cases with one platform.

As a result enterprises are able to provide an enhanced user experience an increase security to their customers employees and partners.

A common theme among many of our enterprise customers is that identity and the pain platform are absolutely mission critical we frequently hear from our customers that planes won't fly surgeries won't happen and money will move with the pain platform does not perform to the higher standards of security and resiliency.

Even many of today's first responders rely on pain technology day in India to ensure public safety. The approximate 25 billion dollar market, we serve can be broken down into two large opportunities.

The first as a replacement of legacy identity solutions that have reached their end of life and our inhibiting b adoption of cloud mobile and Apiay first architectures.

The second opportunity is greenfield expansion driven by the adoption of new technologies, such as multifactor authentication CPI security and a growing demand for our customer identity solutions.

We've chosen to our direct our solutions at the enterprise market with a need for control security performance scale integration and advanced capabilities Max our platform strength in our DNA as a company.

We solve the most mission critical requirements for our enterprise customers. These enterprises require solutions that can not only secure hybrid infrastructures. They require solution that can be deployed wherever the enterprise requires cloud private cloud hybrid or on premise based upon the needs for control security and compliance.

Increasingly we've invested in Dev ops, and containerization technologies to enable the rapid deployment of the pain platform in the customers cloud of choice.

Pain as an industry leader in offering this hybrid cloud deployment flexibility and the ability to secure the enterprise end to end.

Many of our larger more regulated customers choose to deploy pain within their datacenter for maximum security.

Customer is undergoing a cloud transformation, but requiring the same level of control they have within their datacenter choose to deploy paying in their cloud.

Others choose to leverage our identity as a service for rapid deployment when the need for customization and control our secondary irrespective of where our customers choose to consume the pain platform that leverage our prebuilt integrations to connect on premise applications and leverage open standards to connect to cloud applications.

Taken as a whole things flexibility and advanced hybrid solutions are unmatched.

As is our ability to deploy wherever the enterprise chooses.

As a result pain has become the identity industry standard for large enterprises globally with our solutions deployed at 1300 61 companies.

These include over 50% of the Fortune 100, all 12 of the 12 largest us banks eight of the 10 largest biopharmaceuticals.

Seven of the 10 largest healthcare plans and five of the seventh largest us retailers.

They've chosen paying for our advanced hybrid cloud solutions ease of integration deployment flexibility and proven ability to scale without compromising a fundamental emphasis on security.

During the fiscal year 2019, we delivered the broadest array of enhancements to our platform in our history.

These enhancements include.

The new self service capability with speeds migration from legacy systems by allowing application teams to integrate their applications with the pain platform without assistance from IP.

A new cloud offerings for developers of customer facing applications, who wants to simply consume identity as a service.

The new cloud offering for enterprises with advanced hybrid requirements and need for additional security and control.

Enhancements with streamline deployment of the pain platform in our customers cloud of choice, but just azure ADW us and Google cloud.

And new integrations for our API security solution.

Visibility in protection of CPI, leveraging AI and machine learning.

And lastly, we released a new offering for enabling privacy and compliance of identity data sharing which is of growing importance in the age of privacy legislation and regulation.

Taken as a whole these enhancements strengthen pings position as a strategic partner of identity security, serving the enterprise market.

To underscore our competitive advantage I wanted to take a moment and share some Q4 wins.

We added a new fortune 500 customer and satellite television provider, who is looking to eliminate their home grown identity solution for their customer authentication in single sign on.

The platform was selected to provide a single central authentication service.

To drive revenue an increase security over 5 million users the customer chose pain because of our proven scalability and is being deployed in their Amazon cloud.

Further testament to the cloud your way flexibility that only paying can deliver in another example, one of our long time Fortune 500 customers in the insurance industry expanded upon pains existing workforce solutions to modernize their customer identity, replacing a home grown solution that lack the flexibility and features of the.

Paying platform building upon our existing success they expanded their use of pain to include single sign on access security and multifactor authentication for the customer use case and at the same time expand their workforce use case by adding pains access security solution.

Painless selected because of our maturity and comprehensiveness of our offering.

Successful track record and overall projected cost savings to the company.

We are now the cornerstone of their digital modernization and customer experience initiatives as a testament to our remarkable scalability. The pain directory was selected by a top three SaaS Titan to service the repository for all customer identities.

Replacing a legacy vendor and scaling into the hundreds of millions of users. This seven figure air our deal with cemented after an exhaustive review of the competitive landscape in pain is unmatched ability to prove our scalability performance and security.

You bet highlight our strong position in the customer use case this quarter, a leading healthcare provider with all in with pain to provide a comprehensive customer solution.

This customer was already successful using paying to secure over 300000 workforce identities.

But their new purchase expanded on that success by licensing our single sign on multifactor authentication access security user directory data governance, and CPI security to better secure over 10 million customer identities.

He was chosen because our platform enables extraordinary end to end experiences.

His proven in a security and scalability.

And as extremely flexible.

With pain, this customer will be able to better meet its compliance security and customer experience objectives, while we're still in the early innings and our production implementations are relatively new we're beginning to hear examples of where our investments in AI and machine learning are helping customers protect their eyes and provides much.

Needed visibility into apiay traffic across the entire enterprise as a result of this feedback and a growing amount of press on the importance of securing npis. We remain bullish on the long term growth prospects of our new Apiay security offerings.

Switching gears to talk about our partners.

We completed several important integrations with Amazon Cyberark and I ovation and we continue to invest in our Microsoft partnership for example in Cyberark jointly developed multiple integrations between Cyberark Central policy manager and Pings single sign on and Directory solutions.

We also enhanced our support for new ADW US identity features so the customers can simplify fine grained access to AAMC resources.

This integration was demonstrated at the AAMC Reinvent conference this past December.

Some of our partner enablement efforts, we launched a formal certification program to better trained channel partners on paying solutions. While the program is relatively new we certified over 200 security professionals in the second half of 2019 in clothing, we're extremely proud of our 2019 fourth quarter and full year results.

The enhancements delivered across our platform and our ability to contribute to the continued success of our enterprise customers.

We remain bullish on our market opportunity and the continued tailwinds that identity and security broadly.

We gain comfort in knowing that our business is diversified along several important dimensions, including market server solutions and use cases offered I would now like to turn the call over to Raj Donny CFO of Ping identity to walk through the quarter and full year results in more detail as well as provide our financial outlook for 2020 Raj.

Thanks, Andre and everyone for joining today's call as Andre highlighted earlier, we're extremely pleased with our Q4 and full year results before going to our financial results in detail, we would like to reiterate that pins intelligent identity platform is offered on a subscription basis, primarily under multi year car.

Contracts with an average contract term of two years, regardless of the subscription contract term almost all of our customers are billed annually and advance our subscription pricing model is based on a number of identities licensed by solution and by use case customer workforce partner.

And Aiotv.

As a reminder, under assay success six subscription term based license revenue is recognized upfront with the associated maintenance and support recognized ratably over the subscription term.

SaaS based revenue continues to be recognized ratably over the subscription term.

This is an important dynamic given the nature of our revenues, which can be impacted by our hybrid cloud deployment model and contract duration.

As a result under FC success, six our quarterly revenue May exhibit a high degree of variability from period to period based upon the deployment decisions of our customers to normalize for this we believe that focusing on our our or the annualized value of our subscription contracts and.

Unlevered free cash flow, which are both unaffected by FC success six are important in assessing pins growth and operational performance.

Now I'll turn to our fourth quarter results. We ended the year with air our of $224.9 million, which represents strong year over year ANRR growth of 23% growth was driven by a healthy distribution of base expansion and new logos across solutions and use cases.

And the continued drive by customers to leverage pains deployment flexibility wall to wall across the enterprise.

Fourth quarter total revenue was $68.2 million, representing 15% year over year growth.

Subscription revenue accounted for 94% of total revenue or $64 million.

In the fourth quarter, our dollar based net retention rate was 115% calculated on a trailing 12 month basis.

While this rate can vary from period to period, we have consistently achieve very strong dollar base net retention rates of at least 150%.

Unless otherwise stated for the remainder of the piano I will refer to non-GAAP metrics you can find a reconciliation of non-GAAP to GAAP numbers in the accompanying press release gross margin for the fourth quarter was 83% and our GAAP subscription gross margin was 89% our strong gross margins enabled.

Yes, the continued to invest in innovation and growth of the business without sacrificing profitability and cash flow.

Total operating expenses in Q4, 19 were $45.9 million driven primarily by year over year growth in both research and development as well as sales and marketing as we made incremental investments focused on innovation, especially in our growing hybrid cloud offerings and in our go to market activity.

Please.

Adjusted EBITDA in the fourth quarter was $12 million, representing a margin of 18%.

Unlevered free cash flow was the use of $9.3 million during the fourth quarter better than expected primarily due to strong cash collections.

Quickly touching on full year 2019 highlights.

Fiscal year 2019 total revenue was 242.9.