Q2 2020 Ping Identity Holding Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Ping identity second quarter 2020 earnings Conference call.
At this time, all participants are in listen only mode.
For the speakers presentation, there will be a question and answer session.
Ask a question during the session you want me to press Star one on your telephone.
Please be advised that today's conference is being recorded.
Okay, requiring printer systems. Please press star Zero I would now like to him the conference over to your speaker today Raj Donny CFO. Thank you. Please go ahead Sir.
Thanks, everyone for joining us today and welcome to the Ping identity Conference call, where we will discuss our results for the second quarter fiscal year 2020, and provide our initial outlook for the third quarter fiscal year 2020.
Before we begin I would like to remind you that shortly after the market close today thing identity issued a press release announcing its second quarter 2020 financial results. Additionally, Ping identity published a supplemental slide presentation to accompany this call.
You may access the press release and presentation on the Investor Relations section of Ping identity Dotcom.
With me today is Henri Duran, our CEO and founder.
Today's discussion May include forward looking statements. Please refer to our annual report for the year ending December 31st 2019 filed on form 10-K, and filed with the Securities and Exchange Commission and our quarterly report for the quarter ended June Thirtyth 2020 filed on form 10.
Q and files with the Securities and Exchange Commission, where you will see a discussion of factors that could cause the company's actual results could differ materially from these statements I would also like to remind you that during the call. We will discuss some non-GAAP measures related to Ping identity performance you can find a record.
Police station up those measures to the nearest comparable GAAP measures in our quarterly financial statements.
To ensure we can addresses many analysts questions as possible during the call. We ask that you. Please limit your questions to one initial question and one follow up and with that I'll turn the call over 200 to brand.
Thanks, Raj and thank you all for joining US today, we hope you and your families are safe and our thoughts remained with those affected by cobot 19.
As a company, we continue to operate efficiently and a fully remote environment and as a result expect remain in this posture until the safety of our employees can be a shirt.
Having navigated the koby 19 environment for the past five months.
Proud of our continued support of our customers to the extension of our solutions to enterprises, beginning or evolving their identity security and digital transformation journeys.
As remote work and digital transformation trends accelerate the importance of identity security has never been greater and we are dedicated to advancing our mission.
Pink delivered another strong quarter with results exceeding expectations across the board.
Our performance demonstrates the resiliency of the identity and access management market and our ability to execute difficult circumstances.
They are grew 19% year over year, yielding $235.2 million.
Q2 revenue was $59 million with subscription revenue, representing 92% of total revenue.
An unlevered free cash flow totaled $4.7 million.
I would like to start by following up on a few trends we discussed during our Q1 earnings call. It also highlight new trends from the quarter.
Bob adoption increased in our new bookings, a testament to our R&D investment and hybrid cloud approach to enterprise identity.
Similarly, we have now experienced hundreds of customers utilizing our new devops capabilities to consume the pink platform in their private or public clouds.
The speed flexibility and control we provide these companies is unparalleled and it's why many of these large enterprises selecting as their strategic identity platform of choice.
Engagement with enterprise customers remains at an all time high as they look to paying for our advanced capabilities and thought leadership.
Customer renewals and retention remains strong.
And new customers are increasingly accelerating they're paying deployments to protect critical resources in this remote and digital environment.
In light of the sustained challenges within the macro environment and associated economic uncertainty, we continue to see some delays in larger deals. However, a number of customers are electing to phase in their purchases of our solutions.
Customers realize the importance of identity and starting their journey with paying but with heightened budgetary scrutiny. They are phasing their purchases and this is resulting in smaller initial deals.
For example.
Good deals from Q1 that we mentioned were delayed a majority have now closed in this phased approach.
The impact on air our of this phased approach was offset by a greater number of deals executed during the quarter than what we had originally anticipated.
As enterprises have recovered from their initial shock of cobot. They are beginning to prioritize identity security for both are employees and customers.
Our subscription business model enterprise market focus diversified vertical customer base and leadership in the identity market has allowed us to weather the beginning of this pandemic.
Now I'd like to switch gears and highlight a few Q2 customer wins.
On the new customer front, one of the largest health care providers chose paying to service its modern scalable and central authentication platform for both workforce and customer use case.
This hybrid cloud solution Leverages, the full complement of things advanced enterprise capabilities of single sign on access multifactor authentication and user directory.
He was chosen for its ability to seamlessly migrate all existing applications consolidate vendors and for its track record in performance.
The seven figure Air ordeal is another testament to our ability to go wall to wall in securing all primary use cases within the enterprise.
In another example, a multibillion dollar fast food chain purchased pings cloud solution in 30 days to accelerate the launch of a new mobile ordering application.
Six figure deal will allow the company to establish an enhanced customer experience to better operate and service customers in the current environment.
In the third example, a leading European hotel chain expanded with pain from the workforce to customer use case to serve as the identity provider behind their new brands and loyalty application.
Specifically, they are leveraging pains cloud espresso m. essay and directory capabilities to manage unsecured there are millions of loyal customers.
Finally, one of the largest automotive technology and information companies expanded on their customer single sign on and directory implementation with pings customer multifactor authentication solution.
They plan to embed strong authentication into their customer care application for enhanced security and identity management.
Well newer and more emerging technologies tend to move down the priority list in difficult economic times, we continued to successfully deployed our Apiay security solution at three large global enterprises.
These include a top five pharmaceutical where we are now protecting 180 eyes in their cloud.
Another is a global 100 manufacturer from where we are protecting 3000 npis across both their cloud and data centers.
And finally at a large Asian bank seeking to track all apiay activity for every user across their entire hybrid cloud.
And these instances the solution is now identity aware and contract apiay activities across multiple clouds and applications on a per user basis.
As recognition of identity the associated attack vectors for security threats increase we continue to innovate across our platform to meet the needs of the world's most demanding enterprises.
In Q2, we delivered the largest array of new capabilities to support the themes enterprises care about the most such as cloud and hybrid I T.
Zero Trust and password list.
Customer identity solutions.
And leveraging intelligence for better security.
Furthermore, we delivered a wider wave of new integrations for identity proofing through I'd data web mobile device risk scores through threat metrics and single sign on for Zoo Z scalar and it last year.
We also enhanced our integrations for Microsoft Intune.
I think VIP and linked in social login.
I think that thousands of prebuilt integrations that speed time to production and value for our customers.
These enhancements highlight things innovative culture and strong partner ecosystem.
More and more thing is viewed as a strategic partner for the future of digital security and as a result, we're engaging more than ever with the C suite building the future of identity security together.
Speaking of building the future together I'm proud to announce released a newly revamped partner program and are engaging with GSK size more than ever. We've also just completed our largest adenoverse 2020 virtual conference ever with thousands of participants and hundreds of industry luminaries sharing.
Your insights best practice and visions for the future of identity.
Capitalizing on the opportunity of identity is no small feat and takes great vision and execution.
But it all starts with people and teams so I'm proud to welcome Candace Worley to paying as our chief product officer.
This brings over 25 years of enterprise strategy and product development experience from some of the largest technology companies such as Amazon Web services and Mcafee.
We're excited to have Kansas his leadership and expertise as she advances our global product vision.
In closing I'm pleased with our second quarter results amidst the backdrop of uncertainty related to covert 19.
Im thankful for the resiliency of our employees customers and partners. During this difficult time and I'm encouraged that identity remains one of the top priorities for Ceos and Csos.
I would now like to turn call over to Raj Donny to walk through the quarter results in more detail rush.
Thanks, Andre as mentioned, we're very pleased with our Q2 results and execution given our strong balance sheet. The subscription nature of our business model enterprise customer base and the diversification of our business across industries and verticals, we were able to navigate the initial impact of co bid and execute seamlessly.
And efficiently.
We ended the second quarter when they are a $235.2 million representing year over year area. Our growth of 19% growth was driven by continued expansion of capabilities by our large enterprise customers.
Adoption of our cloud solutions and our ability to land quickly in new enterprise accounts.
Second quarter total revenue was $59 million of which 92% with subscription revenue.
As Andres mentioned contract durations for both new bookings and renewals began to normalize closer to pre cobot levels faster than we had anticipated and what we had experienced in the first quarter.
We also had some larger three year renewals that resulted in higher revenue than expected.
In Q2, our daughter base net retention rate was 111% calculated on a trailing 12 month basis, we continue to experience overall strong engagement with enterprise customers in the second quarter as work from home and increased virtual customer engagement highlighted the need for.
Modernization of their identity security infrastructure.
However, given the economic uncertainty driven by Cobot 19 certain of these enterprise customers elected to face in their purchase of our solutions, resulting in smaller deal sizes and a reduction in our dollar base net retention rate for the second quarter of 2020 as compared to the second quarter of two.
The 19.
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 and the accompanying press release.
Gross margin for the second quarter was 81% and comparatively our gap subscription gross margin was 86%.
Total operating expenses in the second quarter were $40.5 million adjusted EBITDA in the second quarter was $7.9 million, representing a margin of 13%.
Unlevered free cash flow was $4.7 million during the quarter higher than expected primarily due to timing as we deferred several investments in the second half of 2020 due to the pandemic.
Note that this figure is burdened by the second and final elastic beam acquisition contingency payment of $4.2 million.
Similar to what we experienced in Q1, our new cloud solutions continued to gained significant traction in the market, particularly due to increasing adoption of pin cloud and our SaaS platform for the customer use case.
New customer acquisition with our growth team remains a strategic priority in generating pipeline and landing quickly in the enterprise.
As of the ended the quarter, we remained in a strong net cash position with $177.1 million of cash on hand.
Looking forward, while Q2 demonstrated the resiliency of identity and the strong execution of our business. We are mindful that the situation is constantly evolving and still prone to a higher than normal variance of outcomes not only as it relates to paying but to the entire large enterprise customer landscape.
We saw this cut both ways during Q2 as a larger than expected number of long term renewals provided upside in revenue, but this was offset by a lower than expected net dollar retention rate as more customers decided to phase and their purchases of our solutions.
Because of this we're maintaining our pragmatic outlet regarding the uncertain global macroeconomic backdrop and as a result believed that it's prudent to keep our full year 2020 guidance withdrawn until we have an increased understanding of the recovery timeline.
For the quarter ending September Thirtyth 2020, we project a are to be between $240.2 million and $242.2 million and revenue to be between 54 million and $57 million. This revenue range anticipates.
Faster growth in our ratable revenue relative to the overall business as well as some expected impact from shorter term license subscriptions with our customers.
Given the impact that deployment mix and contract duration have on GAAP revenue management continues to believe that A.R.R. is the key growth metric the subscription business.
Finally, we expect Unlevered free cash flow to range from negative $10 million to negative $8 million driven primarily by timing of prepayments of annual hosting costs insurance expenses and other miscellaneous items as well as approximately $2 million a fees and expenses related to follow.
On equity offerings in Q2 and Q3.
In addition, given our success navigating the coded macro environment, we are looking to resume sales and marketing and R&D operating investments in the second half of the year that were put on pause in Q2 as a result of cobot 19.
In the absence of the prepayments an equity offering expense, we would be roughly breakeven for the quarter and still expect to be profitable on an unlevered free cash flow basis for the full year 2020.
We would also like to bring specific attention to footnote 10 of the latest 10-Q.
This is the disclosure we have provided in past filings and it outlines performance plans for select employees tied to this does realized cash on cash return on its investment in paying.
Given our share price appreciation since IPO and Vista successes in further monetizing its long term investment and paying we believe the probability threshold to accrue approximately $19 million for the long term incentive plan and approximately $6 million of additional stuff.
Based compensation expense will be met in 2020.
We do expect that these will be non cash charges in 2020.
While we took a temporary pause in Q2 on hiring a new investments given our performance. During Q2, we have resumed investing in our go to market initiatives and in platform innovations and expect to continue to do so during the second half of the year.
In closing we remain focused on building, a durable business with sustainable growth and compelling margins, along with providing enterprise customers. The best identity platform and service in the market scaling the business efficiently remains a top priority our strong balance sheet subscription business model and true.
Back record, a balancing growth and profitability provide us with great confidence as we continue to operate in unprecedented circumstances with that I'll turn it over to the operator for your questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key please standby, while we compile the Q and a roster.
Your first question comes from the line of Jonathan Ho with William Blair and company. Your line is open.
Hi.
Just wanted to start out.
And just to get a better sense from you around I guess, the multiyear renewal activity you could you talk a little bit about how much of a benefit you saw here and on why the decision by the customers to sort of increased the duration of the skills.
Yeah, Thanks, Jonathan the surprise I'll take that so so when we when we provided guidance back in May we were really looking at our experience that we had in the in the first quarter in terms of durations and and model the businesses such what.
We saw was.
A bounce back across not quite to pre covered levels are pretty healthy bounce back in durations.
Two.
You know to little bit more of a normal operating environment and with that we we also saw two large.
Renewals that decided to go with three year deals on renewal so.
That impact was.
Was about four and a half million dollars and then I would say there it was.
About 800000 also on some.
Duration related revenue on on newer ACB.
We do have that broken out in our and our earnings presentation on the website too.
Got it and then just as a follow up how do you think about your maybe the continuation of trends that you saw it towards the under the quarter. What are you seeing so far in July just trying to get a sense for whether on that visibility contain continues to improve or what that that trend looks like.
Yes, so what we saw I think what we saw in Q1, Jonathan was was this paralysis that took over and everybody sort of.
Retrans and then as we started to get better visibility in Q2 are I think our customers also we're living in a in an environment, where things became a little bit more normal and things bounce back to to little bit more of a normal quote unquote environment now.
In in Q3, we have seen that a contract durations have been.
I've been similar to or to what we saw in Q2.
And.
And we do still see though that larger deals are going through more scrutiny and are going through longer procurement.
Cycles.
Your next question comes from the line of curtail pads with Stifel. Your line is open.
Okay, great. Thanks for taking my questions and Andres you talked about customers embarking on a on a phased approach to their deployments can you elaborate a bit on that can you walk us through what a typical approach might look like year and does that change. The way you think about long term lifetime customer value within that cohort.
Yes, thanks, Kurt so.
On these larger enterprises.
I would say the character of the larger either lands or larger expands.
Our where they anticipate using the pain platform multiple ping capabilities.
For multiple use cases, so we might see a customer use 234 of our products.
For both customer use case, and the workforce use case and that would typically in body fairly significant deal whether that was a land or an expand.
In this environment, what we're seeing companies really forced to do under the budgetary constraints. They still have the same vision of where they want to go they are still selecting paying as a strategic vendor a bit they're being forced to in essence phase the projects and the Roland so it might not be uncommon for them to say well.
On to start with one use case or the other use case.
Where we might start with a project for single sign on and MFS and we might postponed the unification of all of our identities into a single Ping identity store or Ping directory.
And so there you know, they're getting creative to work within the constraints of the business.
But they are still choosing to start the journey with pain.
That's a that's very helpful. And then Rob maybe one for you you talked about a pickup in investment in the back half of the year certainly could elaborate a bit on what that might entail and where you are most likely to put money to work here. Thank you.
Yeah for sure so.
So you know as we've been talking about sales and marketing continues to be a a keen focus for us as well as continued continued innovation.
On the R&D side. So so we do feel good about the investments. We've made in 2019, we are starting to see some pretty good early results from that and so we expect to continue to to double down in those areas in the second half.
Your next question comes from the line Saket Kalia with Barclays. Your line is open.
Okay, Great Hey, guys. Thanks for taking my questions here.
Hey, Andre maybe maybe first for you.
Can you just talk a little bit about customers desire to start deploying products like single sign on and and other products in the cloud specifically hosted by paying something cloud for example, and Relatedly how does that may be impacting your competitive win rates if at all.
Good question, we are seeing.
Upwards of 60% of our newer deployments are deploying in the cloud today.
And that is a combination of public private indoor pain cloud.
So the cloud your way flexibility as part of our architecture, it's part of our deployment flexibility as part of our.
You know kind of scale that we provide and control that we provide to large enterprises. So I would say that that buying that we are seeing a majority of our newer deployments take place in the cloud.
And I would say that we're becoming increasingly competitive.
There as well.
Got it that's helpful. Maybe for my follow up for you Raj.
Can you just remind us how different if it's possible how different is sort of the average paying cloud deal versus for example, a pink fed deal on an A.R.R. basis.
Well I guess, what I'm trying to get there as if the business moves more to Hsas are those deals similar on an air our basis, the term deals or the different and how.
Does it make sense.
Yes, actually there they are very similar and and both in deal size as well as deal duration socket.
Very helpful. Thanks, guys.
Thanks.
Your next question comes from the line of Catharine Trebnick with Colliers Securities. Your line is open.
Oh, Thank you for taking my question one other things could you elaborate on his during the course.
Done very well victory I designer and your from some interesting partnerships with like a fine and then do a lot of EPA work.
Maybe give a finer point to what you do it in respect to going after these apiay opportunities. Thank you.
Thanks Catherine.
We have a number of partners that we are working with on our Apiay security Epi intelligence product.
So most of the Gateway <unk> management and gateway vendors have now worked with us to build.
Essentially integrations.
To the Ping intelligent for Apiay product.
Five is one of several companies, where we have essentially endorsed and partnership integrations with those companies.
If you step back the goal of a large enterprise with respect to their Apiay security is to first and foremost gain complete visibility into all apiay traffic.
And many of these large enterprises run between divisions and over many generations of purchases.
They have npis managed and protected or gated if you will behind multiple epi gateway products.
So it's very important for paying in our value proposition to be able to go into those large global enterprises and be able to tell them that they can integrate with all of their apiay.
Management tools.
And then as a catch all.
To work with five in engine X and other technologies that can give us complete visibility into all the pie traffic. So that we can apply our AI and machine learning.
To then determine whether or not there is an almost traffic. So you have seen in will continue to see partnerships with companies like a five.
I B M and a whole slew of others that we partnered with to make sure that we can offer that promise to these large enterprises and the deployments that I recently spoke about.
Some of these are extremely large global deployments.
To span thousands of a pie is across multiple infrastructures the value that we're giving is the completeness of that visibility in protection.
Alright, thank you so much.
Your next question comes from the line of Matt Hedberg with RBC your lines open.
Hi, guys. Thanks for taking my questions.
Hi, Raj Your Q3 Air Our guide was above street expectations I'm wondering if you could provide a little bit more context on how you're thinking about the macro assumptions that at other the high or low into the guide and then when you think about the Q3 revenue guide in light of some of those large Q2 renewals.
How should we think about that relative to Q3 in or are there perhaps more of that more of these larger multi year renewals. It could kind of continue to show up here.
I'm sure.
So with respect to to the air our guide.
We.
It's it's essentially our philosophy is the same which as you know it's more determined by.
What we have good visibility too at the moment. So the macro is kind of if you will baked into that visibility were.
You know, we're constantly looking at pipeline and checking in with the with the field and so we feel pretty good about where were Arrangers right now and then with respect to to durations as I mentioned durations for new and renewals.
Bounce back you know relatively well I'm not quite the precluded levels.
Right now, we don't have visibility to any kind of surprises like that where where customers would.
We just have.
Multi year renewals, where we're expecting single year, but you know as well as with what happened in Q2.
There's always a possibility of something like that happening.
Sure and then and then Andre.
Yeah, our CIO thinking about the importance of and buffet versus Esa So post called World and and are you seeing higher attach of of M.S.A. in either existing accounts or net new business.
We've seen a trend of higher attach of MFS to Esa so.
Frankly for probably a few years.
Yes, My phase is on its way too ubiquity in a co bid landscape.
We as I've reported before we had several customers who had purchased that drastically accelerated their deployment some in the case.
We had several companies deploy tens of thousands if not hundreds of thousands in a matter of.
A few short weeks.
So we are seeing we do believe that there is a coupling now of single sign on and strong authentication.
It is represented in the success of our MSR product within our product line in the penetration that we've had in our customer base I don't expect that to turnaround I think M.S.A.
These days is simply a requirement.
For companies you don't want to be the company that hasnt deployed to factor MSA with as much social engineering around fishing, which is going on so I do believe that it is becoming the baseline or table Stakes for any responsible company looking to protect their users from these phishing attacks.
I expect that to continue.
Your next question comes from the line of Phil Winslow with Wells Fargo. Your line is open.
Hi, guys. This is rich hilliker on for Phil. Thanks for taking my question Andre 90 days ago, you'd mentioned that identity budgets were holding up well and project prioritization was shifting and pinks Favre and I think we've heard a bit about today, but I'm just wondering what you'd say about each of those today.
I think what I said a quarter ago stands today as well.
And with the exception of larger deal timing and larger deals being phased.
I think everything that we spoke to in the early weeks of our experience of co bid.
I have largely continue to manifest here in month five identity continues to be resilient.
The some of them some some of the acid test of that resiliency is in some of the deals that weve reported in highly impacted industries. For example that European hotel that just expanded with us as I reported the event ticketing company that expanded with us.
So I feel as if.
The identity is being resilient in co bid.
Month, five continues to hold true.
But as we've also reported.
I Havent seen a change in posture.
Around larger deals and the scrutiny of larger deals and the requirements of teams to.
Initially phase their purchases of paying now that said, we have closed some large deals, but not the pre cobot levels.
So I think its status quo sitting here at month five as it was within the first couple of weeks.
Great. That's that's really helpful and then as a follow up here.
I'm wondering if you guys can comment on the mix of of employee versus customer facing projects in the quarter and in any any trends you're seeing on that side and in light of this prioritization that we've been talking about thanks.
We are seeing our customer solution is growing faster than the overall rate of the business of the workforce solution.
And as I've said before we have leaned into that we think we have an ideal solution for many of these large enterprises.
And especially these large modernizations and consolidations of in some cases 15, 20 years of Sai load legacy or home grown products in those in those circumstances the complexity of the consolidation.
It is really kind of runs right into our wheelhouse.
And I am noticing a difference between what I'll call them Modernizations of the customer use case with these large enterprises and or a line of business.
Indoor development or App team going out just wanting to procure identity for their app or for their website or for their particular solution Theres, a big difference between that line of business or developer purchase.
With a really only looking out for their own application or web site.
And the large enterprise that has a strategic mandate.
Under the digital transformation to create a single identity for all products and services.
Fortunately, we're well positioned in both now we have.
We have an ideal solution for the large modernizations and we have now a new solution in our Ping one for customer and as we reported here. This this recent.
When with this fast food franchise that was a 25 days sales cycle for six figure deal. They were looking to deploy a new ordering app, a new mobile ordering app in a quarter for what was originally anticipated to be a 2021 project.
So that was an example of a single app going out under a rapid deployment timeline and they selected our SaaS platform for it.
Your next question comes from the line of Heather Bellini with Goldman Sachs. Your line is open.
Great. Thank so much for taking the questions I appreciate it I just had a couple if you don't mind just wanted to get a sense from a competitive landscape.
Yes, any rifenburgh rip and replace update on kind of who you're seeing most often in terms of replacement and then also on the back at some of those large.
Deals that you mentioned just any you know anything you can share with us on how much you think that expands your addressable market. How quickly do you think that can that can ramp. Thank you.
Okay.
Heather on the Rip and replace.
You know maybe the good and bad of this is that the infrastructure that we are replacing probably has been there for upwards of 15 years, maybe 20 years at the longest so the landscape the landscape for the opportunity in the modernization of legacy.
Has not changed for us significantly frankly for years.
We are we've done hundreds of those.
We have we really are the default go to for large hybrid enterprise in those modernizations and we continue to win those deals as at the same rate as we have in the past.
Now you have to wait until those deals come up.
So to actually be modernized and we've seen some acceleration of that modest as companies have announced as the legacy vendors have announced the end of life of some of their products. We do to tend to see a lot of activity around renewal times of those legacy products, but they are staggered and it's not as if there.
As a whole massive them all at once so I feel as if the modernization of legacy both the competitive landscape and the rate at which we've seen it.
Is roughly the same and has been for several quarters two liter question about apiay and the market opportunity for expansion.
As we've said before this is this really is a brand new market.
And so putting any projections for us and creating expectations for you were just still too early in that.
In the Q2, we did see some projects that you know were slated to kind of kick off into Q2 in the queue in the cobot environment. Some of those projects got delayed but as we reported we had signed several customers in Q4 in Q1, and we really put our attention and focus into getting those early.
The customers deployed and deployed.
Globally, and that's what I reported in the earnings report, we're really excited about those global deployments because those are the proof points that the rest of the industry will look towards to gain comfort that this solution is now maturing.
Turning to the level to where they actually could deploy.
All that said it is our belief that apiay wise are the door way to all things of value. All services data is being exposed through a pie is increasingly through public or internet facing npis I cannot foresee a future.
They are the protection of those Apiay size does not involve a product like paying intelligence for a pie.
Any more than you and I would use email without email filtering I mean would just be untenable and so the historical state of art for HP eyes, which as identity based security through a walk is the first step in defense of Npis paying intelligence for you guys is the second layer of defense, so very often.
Mystic on it but we're still in very early innings, and I would hope that in the future I can give you better answers as and certainly as we get more visibility into the growth of that product we will share it.
Great. Thank you.
Your next question comes from the line of Rob Owens with Piper Sandler your lines open.
Great and thanks for taking my question Wonder you painted a picture of relatively consistent demand of you talked about.
No that legacy landscape is starting to evolving I know, there's a lot of puts and takes around deals, but with all the discussion around digital transformation. We're hearing is there any sense in terms of the velocity that business or anything else that theres acceleration coming on the horizon.
Rob I feel that the customer use case is experiencing.
Some real focus in enterprises and as you know that's part of the digital transformation. So if I step back think Theres, a digital transformation of the identity security control plane for workforce, it's really kind of manifest around zero Trust, which is the network is no longer the perimeter, let's take an identity based approach, but when you switch over to the customer side of the equation.
Ian.
What's really driving it is a need for a better end user digital experience oftentimes around a mobile application or oftentimes around a single identity for the customer to gain access to all resources.
That part of the digital transformation I don't I don't know if it's totally cobot inspired because we had seen acceleration of that prior to coated I think in a coated environment all things digital engagement with customers versus physical all things contact list.
Everything seems like all of those are taking on an acceleration and maybe to go back to my prior example, the mobile ordering app that I described that was part of a digital transformation for that fast food chain. They were scheduled to roll that out in 2021.
And then all of a sudden they needed to roll it out in Q3.
So therein lies an example, I also do believed that the hotel that we announced the European hotel that that was inspired the timing of that especially given the impact to their business.
The timing of that was inspired by we need better digital experiences for our hotel participants in hotel and there's a lot of innovation that's going on there right now around kind of physical touch that makes sense. So yes, I I think if there's one beneficiary that we're seeing it's that there is some urgency around customer.
Great and then second can you give a little color around the majority of your newer deployments.
Being across cloud, whether that's privates, we're paying or public and then you and your comment was saying you're getting increasingly competitive there can you maybe double click on that a little bit for us is that in terms of functionality is that the breadth of your offering relative to being in a hybrid fashion.
We've always been the enterprise full functioned or hybrid flexibility.
Leader I think what's maybe a little bit different here is we lean into our investments in our cloud offerings, maybe in scenarios, where we might have been not considered.
Or you know we're a cloud first mandate was the priority and maybe some of the deep or rich enterprise functionality, we provide was a secondary requirement.
Think we're entering a position to where we could be considered.
A first a first class citizen if you will in first class solution in a cloud environment.
So I think that that's probably what's changing and you know its natural as we've been investing there for years.
Great. Thanks for the color.
Your next question comes from the line of town Liani with Bank of America Your lines open.
Hey, guys. This is Dan Bardas Sun for tell thanks for taking our questions.
The first one for you Andre I think it's kind of piggybacking off last one but.
What I'm hearing is you guys are doing quite well with pain cloud, but I was wondering if you could talk more specifically about success with paying one.
And because my understanding is paying ones much more of a plug and play offering and I'm curious if in this environment new customers are deployments are opting for that product.
Well, we have a number of solutions that we offer through paying one.
And our paying idea my face solution has only ever been offered on paying one and it is our kind of our largest offering on our paying one platform that makes sense. We have oh, we have a number of new services that we've introduced and paying one over the years. The most recent one is our paying one for customer.
And as I've reported the fast food chain selected paying one for customer to deploy their mobile app. We're seeing good traction of that platform now there's several things about that that are new to us.
We we cater to the developer in ways that we had not historically done developers come and basically consume identity as a service by wiring in paying one for customer into their app or into their web site, we're seeing really good traction there the pink cloud offering.
Is more catered to the large more complex or hybrid enterprises that want to use the flexibility and kind of rich capabilities of our full platform, but then want paying to offer it as a SaaS offerings. So when we say run it in your private cloud run it in Azure or AAMC.
[noise] or Google cloud or run it in the pin cloud that offering is designed to cater to our larger more complex hybrid enterprises.
Having the two in our Arsenal is actually pretty interesting.
One of those as I said is being new the SaaS offering both are receiving a lot of interest.
But both cater to kind of different parts of the of of the enterprise market.
Got it got it Thats really helpful. In Russia, just quickly sorry to beat a dead horse here, but could you talk about the net retention rate just a bit more in some of the basics of what pushes that up well over 100% what exactly has been headwind because I guess, what I'm struggling with is I understand why phasing in.
Lead to some smaller new deal sizes, but I don't really get why it customer that is renewing would be phasing in that renewal. Thanks.
So so the net retention yell has two components one is as new HCV that are or new air are that you book from from an existing customer less what you are less what you turn our I would say on the latter point, our our retention has been Ics.
Optional right so.
So then it goes back to your.
Your your net our our that you're generating from that base customer and.
Those customers where in the pipeline, we may have had much larger deals like expanding either to new solutions or.
Or their workforce customer.
Expanding to the customer use case side or vice versa, and what we're seeing there is that that net new deal with that existing customer coming in.
Is just as just being phased in as opposed to.
Like a big seven figure deal. So so the I mean those are the two components essentially.
Your next question comes from the line of Gray Powell with BTI Gene Your line so.
Great. Thanks for taking the questions. So yes, just a couple of my side.
So it's just circling back.
On purchase behavior. So you guys had been talking about larger enterprise customers, taking longer decisions and buying things more on shocks versus all at once for a few months now so it's not really surprising but you do you think those buying patterns have stabilized and again, how do you feel the potential for things to normalizing.
And get back to sort of normal levels over the next six or 12 months or what timeframe do you think what happens.
Well I would hope to see a return to normal when the world does return to normal [laughter].
And.
Hi, yes.
Yes, I think what I think what we're seeing now.
Yeah, I think I think we've seen enough to expect that we.
You know that what we are experiencing will continue as long as we are in this environment.
I think from a tailwind headwinds perspective.
Tailwinds, we're seeing a real focus on zero trust in MF pay and that customer use case around digital customer engagement. The headwinds as you've identified are the larger deals both the procurement cycle itself and the size of the deal being phased.
I think we are we're encouraged by the fact that our pipeline is intact.
That on customer engagement is high even in those impacted industries.
And and so I think what you're seeing is what we expect.
Provided the conditions that were experiencing continue as they are.
When conditions return to a better semblance of pre co bid. It is our expectation that our business would return to something more in line with frequently.
Got it Okay. That's helpful. And then just one other quick one so so you guys had pretty strong.
Contribution from multi year deals in both Q4 17 Q4 80.
Just trying to figure out like how we should think about that this year right, Mike what a three year deal that was trying to Q4 17 renew for another three years. It sounds like you've hit on that before I Shouldnt make shrunk thinking about it correctly works or should we expect any significant shorter duration.
No I don't think that there's on well for one theres not really a correlation between.
The initial term and the renewal terms so.
So what we had been seeing.
Hey, pre Cove, Ed was longer longer duration deals. So say a three year deal on when it came up for renewal they could they could renew for one two or three years right.
Now.
Yeah.
Pre covered we were seeing a trend towards longer term renewals just because the the product and solution was tried and true and and the customers and made a commitment and there were getting great value out of it so.
So I think if they if they were.
You know I I'd say that there's there's probably just a normalization that's occurring and it's we're getting closer to those pre covered levels, but not quite there yet.
Next question comes from the line of Walter Pritchard with Citibank. Your line is open.
Hi, Thanks, two questions just about what you're seeing in terms of smaller deals on the upfront side first what are you doing to your sales training or sales compensation just to account to account for that I'd imagine that harder for those folks make make their make their quotas than just just had a follow up related to that.
So if I understood Walter correctly, you were asking it with the with the smaller.
Deal sizes and shorter durations.
Correct, Yes, salesperson I'm, probably getting less of an upfront commitment even on any our basis and have you. Adjusted quotas are done something from a training perspective to try to drive more velocity in terms of more deals as opposed to get into bigger commitment upfront. Yeah. We haven't women chains, the comp philosophy, a whole lot, but certainly have of invest.
And in sales enablement across the board and we have a grow team that is highly focused on on higher velocity lands with especially with some of our newer cloud products. So so we are seeing the yet you know the transaction side of the the transactions increase even though they may be of.
Smaller value upfront, but the land and expand model has been our bread and butter for a lot of year. So we're quite used to living in this space.
And how are you thinking about the in ARR metric being impacted by that behavior and have you started to see some of those customers.
Maybe in Q1 is it a smaller deals come back and do follow ups already or what do you expect in terms of timing a follow up behavior on on those purchases.
Yeah, we're seeing.
We're continuing to see the land and expand work out pretty well.
Like I said, you know that some of the lands are smaller, but and some of the expands our also in phases. So I think we'll we'll probably wind up on staying in this range for for a little while longer until I think customers have more visibility into their own businesses and.
Some of their budgets resumed to or revert to normalized levels.
Again, if you would like to ask a question press star one on your telephone.
Next question comes from the line of Gregg Moskowitz with Mizuho. Your line is open.
Okay. Thank you and thanks for taking the questions I guess first I just wanted to get back to the 60% of newer deployments being in the cloud curious if you're seeing any changes in the mix by which customers are running.
In other words Ping cloud versus private cloud versus deploying it themselves with any of us or in Azure.
There's a pretty good mix, there, but I would say that the bulk of the of the interest there.
Least early because our ping cloud offering as early has been paying going into Amazon web services and into increasingly into Microsoft Azure think those are the two predominant public clouds and so I would expect that that would continue.
As our as the maturity around our Ping cloud offering continues we are starting to see more and more interest in the pain cloud offering why because it has all of the advanced capabilities.
That they have become accustomed to and.
And so making it easy for companies to consume paying in the cloud and take advantage of our most advanced capabilities as a no compromise kind of cloud your way offering, but again, that's a newer offering and so I think the bulk of the deployments when we when we speak to that is paying going into the public cloud.
Okay.
Okay, Great and then Andres you mentioned in your prepared remarks, you recently hired a new chief product officer. He is a very strong background, what will her focus areas be coming forward and how might that potentially represent an incremental opportunity for paying.
Well we have a.
Fairly.
Large set of capabilities platform now.
Making it easier for companies to consume the advanced hybrid capabilities in their cloud of choice.
Providing a better user experience for those companies that deploy the entire paying platform.
Accelerating the things that we are the cloud service offerings that we have like our MSP and new service offerings that are coming out.
We have a kind of a well documented roadmap multiyear roadmap, we have a lot of things that we're focused on that we started before candice started with us.
Having candace now come help us accelerate that and fine tune our thoughts based upon her prior cloud experience and security experience that Mcafee is what we're focused on let's say she's probably about 90 days in so still getting her legs underneath us, but just a fantastic addition to the.
Team brings a lot of commercial insight.
And kind of a commercial market outside in perspective.
And in some ways I think we locked here, so I'm really pleased and I work with her daily She's fantastic.
Next question comes from the line of HIFU Lee with Oppenheimer. Your line is open.
Thank you for taking my question.
He is healthy and say just two quick ones, maybe Andreas can you.
Give us a little more color on the identifiers, Oh actually identi industry that has.
How did they set the pipeline building as a result, this mochi conference.
Maybe a little bit early for that we did as I noted before switched the conferences everyone did to an all virtual conference. It was free we had our largest registration ever as a result of that I think the on demand nature of the way in which we delivered the content I heard many.
The people really appreciate the fact that all of a sudden all of Adenoverse was now available to them, whereas in the physical event, we run six to seven tracks Ron Wyden people really felt stressed about missing great content on a four day event.
So I think our experience has been it was it was a good transition under the circumstances to something that probably will stick I would imagine when we can go back to a physical event.
We will will probably be we'll probably always from here on forward be hybrid in some manner with respect to the exact pipeline build these many times in the physical event use the opportunities to relationship build I think all of us have figured out how to relationship building the absence of the physical events so really.
I don't know if there is a material impact as a result of of our Big annual users conference. All that said I will say the absence of physical gatherings.
Early there was a negative impact to our pipeline, but weve cents adjusted.
And we are hosting a number of smaller virtual events and I feel as if we've largely adjusted now to that reality.
And ER and have largely recovered from what was an immediate impact where nobody was allowed to travel and go face to face.
That makes sense. Thanks for that Entrees and then just really quick one follow Raj Oh, the international side, we see some great drove year over year, Oh rock can you help us understand whats Jive one of the region, that's driving that growth and autos targeted beaches recovery.
Actually at the open.
And that's it for me, Jeff, Yes, yes, absolutely. So so our major markets are are in EMEA and.
In Australia, and we had 24% of our revenue from international markets for the second quarter.
Which is.
Which has been fairly typical over the last few quarters.
I'd say the.
They were seeing some of the same behavior right and in all regions I think all large enterprises are.
Our little bit cautious on spend but but we're certainly seeing seeing traction and given our positioning as an enterprise leader in in those markets.
There are no further questions at this time I will now turn the call back over to management for closing remarks.
Thank you.
Well look this concludes our our Q2 report I want to thank everyone, including my team. This worked so hard remote I know a in conversation with one of them. He said, it's weird, but it's weird everywhere and it's tough and it's tough everywhere I think we're in an environment where.
We just put our head down and we do our work our team has been working exceptionally hard and I'm very very proud of them I want to wish everyone, a happy and healthy time.
And I'm hopeful for a speedy recovery, but we'll we'll see.
Thanks, everyone for joining ticker.
Ladies and gentlemen. This concludes today's conference call. Thank you for participation you may now disconnect.
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