Q4 2020 Ping Identity Holding Corp Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and welcome to the Ping identity fourth quarter of 2020 earnings call.
At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
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Have you had the conference over to your Speaker today, David <unk> VP of Investor Relations. Thank you. Please go ahead.
Thanks to everyone for joining us today and welcome to the Ping identity Conference call, where we will discuss our results for the fourth quarter. The full year 2020, and provide our outlook for the first quarter and full year 2021, before we begin I would like to remind you that shortly after the market closed today, we issued a press release announced.
Our fourth quarter 2020 financial results. We also published a supplemental slide presentation to accompany this call you may access the press release and presentation on the Investor Relations section of Ping identity Dot com.
<unk> today is Andre Durand, our CEO and Raj Dani our CFO today's call May include forward looking statements. Please refer to our annual report for the year ending December 31, 2020 filed on form 10-K, with the Securities and Exchange Commission.
There you will see a discussion of factors that could cause the company's actual results to differ materially from these statements.
I would also like to remind you that during the call. We will discuss some non-GAAP measures related to Ping Identity's performance you can find the reconciliation of those measures to the nearest comparable GAAP measures in our annual financial statements and our fourth quarter press release to ensure we can address as many analyst questions as possible during the call.
We ask that you. Please limit your questions to one plus a follow up.
And with that I'll turn the call over to Andre.
Thanks, David and welcome everyone Who's tuned in today, we hope you're doing well and like everyone. We're excited to welcome the promise of 2021.
I'd like to also extend our heartfelt thanks to our Texas based associates, who like millions of others have endured days of difficulty related to the extreme cold and extended power outages there.
We appreciate all you do and hope things can get back to normal quickly.
I am pleased to report we closed another strong quarter of annual recurring revenue and Unlevered free cash flow.
The key metric to gauge the health of the business amidst the challenging Europe uncertainty living and adjusting with Covid.
We finished the year with <unk> of $259 1 million.
Up 15% for fiscal 2020, Q4 revenue was $63 $3 million and the full year revenue was $243 $6 million with.
Ascription revenue, representing 92% of both totals.
We closed the year with $8 $8 billion in Unlevered free cash flow of $10 million year over year improvement from 2019, and further evidence of the profitable growth model we built.
In reflecting on both the quarter and full year, a few key takeaways emerge first identity is now solidly recognized as the heart of security something we've talked about for years, which is now been accelerated in the Covid era.
Work from home is the norm and the old paradigm of network security is finally, given way to zero Trust.
In nearly every customer prospect and partner conversation enterprises are laying plans to evolve their security model to zero trust with identity at the core.
The second trend is a desire to accelerate all digital business initiatives, which include both cloud transformation and legacy identity modernization.
Companies want frictionless user experiences into this and we continue to invest in our platform, making it easier to consume the cloud faster to integrate across hybrid it.
And more secure through identity intelligence, all while delivering a better password list user experience.
This is important work as our cyber adversaries are relentless as exhibited by the recent solar winds breach we feel fortunate the visa tax did not impact <unk> products, nor corporate environment in any way, but it is clear that the bar continues to rise in terms of the security and care with which we build and deliver our services. So.
We continue to invest to ensure we deliver the gold standard in mission critical highly scalable and highly secure identity solutions.
Given the pervasiveness of work from home cloud acceleration and the desire to support digital business initiatives, we're focused on four core themes.
First we're focused on delivering the very best unified cloud platform for the hybrid enterprise.
As enterprises embark on their cloud journeys Ping provides unparalleled cloud flexibility we call cloud your way we're meeting.
Enterprises, where they are and fulfilling the requirements day demand to reach the cloud.
Only with pain can customers choose to consume identity and pins cloud the public cloud or their own private cloud.
Recently heard of one such banking customer, who deployed ping, an and IBM private cloud and to public clouds to maximize resiliency.
You respective of where these enterprises consume their identity services.
All of them have hybrid it requirements and for these enterprises Ping offers a complete set of integrations across both cloud and legacy applications.
Second we're focused on our customer identity solution, providing a level of scalability and performance that's unique amongst identity providers.
We're trusted in our scale and protect billions of accounts. Our performance is also unique with some of our customers achieving peak volumes of over 50000 transactions per second a staggering statistic.
In addition to being trusted for authentication. We're also increasingly the central user directory that enables unified profiles across the entire enterprise's digital properties.
Consumers expect a level of personalization and ease of use without compromising their security and as a result companies looked at ping to enable these experiences more on that in a moment when I talk about our recent recognition from Gartner.
Third we're focused on helping companies rapidly migrate off legacy.
Analyst estimates suggest there is between three and $4 billion of annual spend on legacy identity systems, having completed hundreds of these migrations for enterprises Ping has invested to make these projects easier and less costly through our self service capabilities that allow application teams to integrate with the company's centralized ping platform.
Finally, we're expanding embracing our partner network, which is core to our operations and vital to our customers' success. Our expansive partner network consists of technology partners, who collaborate alongside Ping in the most complex enterprise it environments as well as our integration and channel partners, who provide invaluable extra.
<unk> to our clients, both when selecting ping and through the deployment and go live process.
Now I'd like to switch gears and highlight a few of our Q4 customer wins on the new customer front. We had several notable competitive wins in Europe. The first of those was Deutsche Telekom, Europe's largest telecommunications provider, which signed a multiyear customer identity deal to create a single IV for their customers.
The hybrid solution incorporates ping single sign on Multifactor authentication directory and self service App onboarding capabilities, providing a single identity for all business and private customers in Germany as a replacement to their in house product.
While this was a notable long term when we see upside to layer in additional capabilities, including our growing suite of SaaS services, such as risk and verification.
In another win three island, one of Ireland's leading mobile telecommunications and Internet service providers chose <unk> SaaS offering to replace their legacy identity system to deliver a complete modern identity experience to customers.
Closer to home, a leading TV manufacturers selected Ping SaaS solution to replace the legacy identity system and reinvent the way services and advertisements are delivered through smart Tvs.
As part of their desire to expand into mobile and subscription value added services. They required an identity platform that would scale, while providing the flexibility to create new and innovative customer experiences.
This customer opted for Ping SaaS solution for the entire authentication and user management system.
These solutions will allow them to expand their reach into royalty based services with video on demand providers food providers and consumer Entertainment partners.
In another sizable with a leading multinational health care provider selected Ping to help unify its digital experience for health care services. They.
They had security concerns related to their legacy directory service that needed immediate attention and had a number of high dollar legacy renewals coming due in 2021 that would have had multibillion dollar budget impacts this year.
This was yet another new SaaS win for paying where now the single provider of integrated authentication experiences for their customers across their hybrid it landscape.
Finally, one of the largest global airlines selected Ping to replace site Minder and Oracle Directory services with.
With Covid, having had a significant impact on the airline industry the customer needed to modernize their iam to enable more cost effective solutions for the business in.
In phase one day deployed Ping directory to replace Oracle they've been expanded to cover not only their workforce, but their customers, replacing a homegrown system in phase III. They plan to replace site Minder with Ping access to secure access to all of their applications.
This type of multi phased customer implementation is very indicative of what we have seen through this COVID-19 period.
In addition to the great Q4 customer activity, where particularly honored to have been recognized as one of the top performers by Gardner in.
In addition to moving up into the right in their 2020 Magic quadrant for access management ahead of some of our chief competitors Gartner ranked Ping number one in all use cases for critical capabilities for access management.
The report assessed 12 providers and how their services deliver on a range of capabilities and use cases, including both internal workforce and external customer use cases.
Since inception Ping identity and access management solutions have served the customer work force and partner use cases customer identity has been growing faster than recent quarters, and we ended 2020 with a greater percentage of our <unk> in the customer use case.
This positions us well going forward as the addressable market for the customer use case is growing faster and we believe will ultimately be larger and stickier than the work force use case.
It's cloud transformation accelerates so too has the adoption of Ping SaaS services.
I am pleased to report that over half of our customers now leverage at least one of pings SaaS service offerings and.
And our SaaS <unk> is growing at multiples of our overall.
Now exceeding 15% of total IRR.
We intend to provide more detail on this metric and other SaaS and cloud metrics, including longer term.
<unk> revenue and cash flow targets at our Investor day in the second half of the year.
With respect to Ping SaaS offerings I'm pleased to report that we've added several new services to our <unk> SaaS platform in recent quarters, such as Ping, one MFA Penguin risk and Penguin verify.
Penguin MFA provides strong authentication of consumer identity Ping, one risk detect threats in real time to strengthen authentication and reduce logging fraud.
And <unk> verify released earlier this month makes it easy to verify the real identity of the user prior to enrolling them in a services or registering their phone for strong authentication.
With Penguin verify we've leveraged the expertise and technology, we acquired through show card to blend facial recognition and government I'd document validation to ensure enterprises are interacting with the right customers in a frictionless fashion.
None of our accomplishments would be possible without an incredible team and to that end I'm pleased to announce the addition of two new board members.
Earlier in January we announced that CIO Hall of Famer Paul Martin would join the board.
<unk> visionary with international experience boardroom acumen and award winning accolades.
With.
Security and identity in the spotlight more than ever it's great to have Paul with us.
Im also pleased to announce that next week Diane garrison will join the board Diane is widely recognized as a high impact technology savvy, Chief Human Resources Officer, who has redefined the HR profession in the digital era.
She recently retired from IBM, where she served as chief Human Resource Officer and was responsible for the people and culture of Ibm's Global work Force. She has won many accolades as a business and technology leader.
We are thrilled to have both of these are claimed individuals joined the Ping board.
In closing, while the pandemic has introduced challenges for our customers and a certain amount of uncertainty into our business. These are exciting times for pain, as we push harder than ever to invest in our future net.
None of this would be possible without the contributions of our team and I'm honored to serve them and to have received the Glassdoor employees Choice Award recognizing Ping is the best place to work for 2021 by our employees.
And on the topic of honoring people.
Want to pass along my gratitude and congratulations to Dave Packer, Dave has been our head of sales for the past several years and has announced his intent to retire from paying at the end of June.
Dave has been a big part of our success over the years and I want to thank him for his steady hand, guiding our sales team through the Covid era.
We wish him the best as he moves on to the next phase in his life.
And with that I'll now turn the call over to Raj to walk through the quarter results and outlook for 2021 in more detail Raj.
Thanks, Andre I would echo Andres comments that we are very pleased with our Q4 and fiscal year 2020 results and execution and our ability to drive seamless deployment and quick time to value for our customers.
We closed the year with a $259 1 million.
Representing year over year growth of 15% Q.
Q4, net IRR of $16 $5 million was up 23% compared with the midpoint of our guidance a great outcome.
Both was driven by continued adoption of our SaaS solutions solid international bookings, especially in EMEA and other large customer transactions that are enabling businesses to accelerate their digital transformations.
As Andre mentioned, our SaaS <unk> now represents more than 15% of our total IRR growing at multiples of our overall <unk> growth rate and more than half of our customers now leverage at least one ping capability in the cloud up from just one third at the end of 2018, we intend to provide more granularity on these <unk>.
Metrics and others at an Investor day later in the year.
Fourth quarter total revenue was $63 3 million of which 92% with subscription revenue.
This was driven by a higher level of ratable revenue and somewhat shorter subscription term license contract durations. This points to the rapid acceleration of customer SaaS adoption with the accounting related to ASC 606, a natural byproduct.
Our ratable subscription SaaS and maintenance and support revenue grew 27% in Q4 and 24% for the full year.
In Q4, our SaaS and maintenance and support revenue represented 38% of our total subscription revenue.
11 percentage points from the prior year.
Also within the subscription category, our one year term based license revenue grew 22% in Q4 to $17 7 million, while our multi year term based license revenue declined by 43% in the quarter to $18 5 million. These.
These metrics are continued evidence of the SaaS acceleration of our business.
Given the impact that deployment mix and contract duration have on GAAP revenue. We continue to believe that <unk> is the key growth metric of a subscription business.
In Q4, our dollar based net retention rate was 108% calculated on a trailing 12 month basis, given the prevailing economic uncertainty driven by COVID-19, a number of enterprise customers continued to phase in their purchases of our solutions, resulting in slightly smaller deal sizes and a reduction.
<unk> and our dollar based net retention rate.
Net retention rate has historically tracked quite consistently with <unk> growth.
We ended 2020 with fortune 511 customers up 4% year over year.
This growth belies the strength in specific categories of growth, we had 51 customers with more than $1 million in <unk> at.
At the end of the year up 34%, including a number of existing customers, who migrated upwards into this cohort from cohorts below $1 million in IRR customers with more than $250000 and.
Number 260 at the end of the year up 12%. The overall growth rate was muted by a drop in customer accounts from our non regrettable churn category.
This data supports our business model, which continues to appeal to the largest most complex enterprises, which are hybrid by default.
Unless otherwise stated for the remainder of the P&L I will refer to non-GAAP metrics you can find a reconciliation of non-GAAP to GAAP numbers in the accompanying press release.
Gross margin for the fourth quarter was 80% and comparatively our GAAP subscription gross margin was 86% our SaaS solutions continued to grow faster than the rate of the overall business and as a result, we saw slightly lower subscription gross margins total operating expenses in the fourth quarter were $46 3 million.
<unk>.
Unlevered free cash flow usage was $1 4 million during the quarter better than expected primarily due to strong cash collections unlevered free cash generation for the full year was $8 8 million up approximately $10 million from full year 2019.
We remain in a strong cash position at the end of the year with $146 million of cash on hand, a reduction driven primarily by the acquisition of symphonic.
Earlier this month, we paid down $110 million of our revolver, leaving a drawn at only $40 million of the $150 million available.
Recall that we drew down $98 million of our revolver in March 2020 to Derisk the business at the outset of Covid, we feel the financial risk associated with the pandemic has largely passed and are comfortable holding a smaller amount of cash on our balance sheet.
Moving now to guidance, we are reinstating our annual guidance after having suspended it in may of last year.
For 2021, we project IRR to be between $295 5 million and $298 5 million growth of 15% at the midpoint stabilizing at current levels for the first quarter, we expect <unk> of $263 million to $264 million also growth of <unk>.
15% at the midpoint.
We project full year revenue of 255% to $265 million growth of 7% at the midpoint and reflective of our ongoing SaaS acceleration on new and renewing IRR.
This impact for the full year is expected to be about $30 million.
In the first quarter, we expect GAAP revenue to be impacted by about $5 million and are guiding to a range of $61 five to $63 $5 million in revenue. We currently expect a similar quarterly range for the second and third quarters with a typical seasonal uptick in Q4.
We expect Unlevered free cash flow for the year of $7 million to $11 million up slightly at the midpoint relative to our 2020 performance.
<unk> to last year, we expect our unlevered free cash flow to be materially higher in Q1 at approximately 12% to $14 million due.
Due to the timing of collections and payments our free cash generation in 2021 is reflective of accelerating investments, we paused noncritical investments in the middle of 2020 as a result of Covid resume them in the second half and expect to continue investing in 2021.
These investments will drive higher cost of revenue and R&D given our SaaS acceleration. We also expect to continue our go to market investments and expect a resumption of travel later in the year. We expect our total expense growth to track <unk> growth as a result of these investments which is also reflected in our unlevered free.
Cash flow guidance.
We feel encouraged as we move deeper into 2021, we believe the innovation we've been known force since our inception will accelerate this year as we invest to drive growth, especially with our SaaS products, we have the financial strength to execute that plan and look forward to reporting to you on it as the year progresses.
With that I'll turn it over to the operator for your questions.
As a reminder to ask a question you will need to press star one on your telephone to us.
Draw your question press, the pound or cash key please standby, while we compile the Q&A roster.
Your first question comes from Matt Hedberg from RBC capital markets.
Yeah. Thank you this is Matt.
No.
Could you touch a little bit on your expectations from the SaaS mix heading into the quarter.
And then if there's any more granularity on what that mix is kind of embedded in your guidance.
Obviously, though the breakout of the impact on top line revenue was really helpful.
Sure so in our hydro and our hybrid model.
GAAP revenue is highly variable due to the deployment mix and contract durations on software and going into Q4, we certainly anticipated some SaaS acceleration, but we actually saw more than than what we.
What we had originally anticipated so you saw some of that in the.
And the actuals for Q4, we also saw some shortening of contract durations dose vacillated throughout the year.
On software deal.
No.
And those are largely driven by budget and overall uncertainty around COVID-19. So.
Essentially if you think about the.
The confluence of those two factors, that's what drove sort of the delta between our guidance and the actuals.
But offsetting this our ratable revenue grew 27% year over year in Q4 so.
Just to kind of summarize our.
Our revenue.
While it's an important GAAP metric, that's just not a relevant growth metric for us.
Our other normalizes for all the noise created by deployment mix and contract duration.
Net.
Super helpful insight.
And then Andres there was really good to hear about the airline deal.
When you're replacing the Oracle systems are you starting to kind of see some of that legacy replacement opportunities start to open up again at least from like a pipeline perspective, as we start to kind of move through the vaccine periods here.
Matt It is opening up.
A lot of times the legacy replacement is driven by a renewal and companies back into an amount of time that they need to plan to ultimately replace and convert <unk> integrate all the applications that are in the legacy.
And so as renewals for the legacy come up we get introduced into the accounts all of that said I do think that there is an increased level of awareness.
That identity is the foundation of security in this now even more distributed world.
So I think that there is now an elevated and more strategic view of the role of identity and the role of the partner that they are choosing to not just displace legacy, but actually put the business on solid footing for where they want to go with customer experience and where they know they need to go in securing the workforce.
And a zero Trust world.
Thank you Bob.
Thank you Matt.
Your next question comes from <unk> <unk> from Barclays.
Hey, guys. Thanks for taking my questions here.
Andre maybe maybe first for you.
Just given the shift that we're seeing to Ping cloud Ping SaaS. The question is how do you feel about that SaaS solution to your more traditional ping on Prem solution and maybe Relatedly, how do you feel about the cloud solution. How do you feel like cloud solution competes against.
Perhaps other cloud native competitors does it makes sense.
Yes, it makes sense and thank you for that question.
As I've reported before we have hundreds of enterprises now deploying ping in their cloud we referred to this as cloud your way and this will continue I think for the largest most regulated customers and ones that have a cloud first mandate, but want a certain level of control and ping is fairly unique in our ability to deploy.
In one or more public clouds or the private cloud as I reported in my earnings script.
But for companies wanting pure SaaS, we have a very strong offering now built on the most recent architectures are SaaS <unk> is growing at multiples of our over overall IRR now represents greater than 15% of our overall <unk>.
And as we've also noted and you've seen in the press releases, we've accelerated the pace of our SaaS offerings, introducing three new services in three quarters.
And we're seeing good traction from the early introduction, perhaps what you're referring to.
I'm also very excited about.
In recent developments, our SaaS offering now has the ability for companies to consume our most advanced capabilities as SaaS and what we refer to as a no compromise best of all worlds scenario. This is a 100% feature parity with the software that companies have been deploying for.
For years in mission critical environments, and we are seeing really good traction.
In that solution. So we've been investing aggressively in our cloud in our cloud platform and now having the ability to to offer SaaS, our most advanced services and capabilities.
Is making us very competitive.
Got it that's really helpful.
Roger maybe for my follow up for you.
Can you just talk a little bit about the pipeline of multiyear renewals this quarter.
Maybe maybe.
Related to that.
Did some of those multiyear renewals.
Haps renew for shorter durations.
I know you talked about duration being being a little bit lower broadly, but specific on renewals I am curious if you sold those renewal durations, maybe maybe decrease a little bit and did some of those renewals that maybe were previously term on premise, perhaps changed deployment to SaaS.
Hey, Thanks for the question.
So typically for Q4, we had a significant amount of typical for Q4, we had a significant amount of renewal volume in Q4 of 'twenty.
And I'm pleased to say that we had great retention as usual.
Just to answer your second question first because thats top of mind, we did see some customers choose SaaS over software in their renewals, but I wouldn't call. It overly significant as we saw with.
Perhaps more SaaS acceleration on new <unk> booked in the quarter.
Just wanted to kind of address that second question first and then going back to your first question on.
On the pipeline of multiyear renewals Theres, just a confluence of factors right that impact revenue and especially when it comes to renewals not all initial multiyear deals renew for multiple years, if that makes sense.
There's typically there's renewals of all different durations and so so I think youre seeing some of that in.
And your question that I think you are asking.
Specific to Q4, we did see a higher degree of SaaS as I as I mentioned and some shortening of <unk>.
Contract durations, but really on.
On our renewals there was nothing of.
Note that we're.
Where we had a whole bunch of multiyear renewals slated and and they came in shorter pretty much tracked according to schedule.
Got it very helpful. Thanks, guys.
If I could.
Your next question comes from Adam Tindle from Raymond James.
Okay. Thanks, Good afternoon, I just wanted to touch on that.
Comments about how over 15% of total <unk> coming from SaaS at this point I'm curious if you're seeing this as net new <unk> or is there some aspect of cannibalization of the non SaaS ALR because that shifts seems poised to continue its probably good for valuation, but it'd be helpful to understand whether this is additive or cannibalistic.
Because it should push up growth rates as well, if that's becoming a bigger part of the mix.
Adam most of it is new and obviously everything related to SaaS and our SaaS growth in our SaaS offering as we noted will be discussed in our Investor day in the second half of this year.
We do anticipate that some of our customers.
Over time that we will we will journey our customers to the cloud if that's what they wish to do.
We do see an opportunity for significant upsell.
As they move into our cloud offering.
We have several services offered as SaaS in the cloud that are not available as software for them to run on Prem So as customers make the commitment to ping in their cloud journey moved into our cloud platform.
We do see opportunity for expansion.
But most of what Youre seeing is new.
Okay. That's helpful and maybe as a follow up Raj New IRR $16 5 million. This quarter. It was a source of upside it looks like the year over year declines are bottoming out and actually should see low double digit growth year over year in this metric based on your guidance, maybe just touch on the key drivers of that new <unk> improvement over the course of the year.
And any assumptions embedded whether its new versus existing customers or additional color you can give on what's embedded in that thank you.
Okay. Thanks, Adam are you talking about for 2021, specifically.
Yes for 2021, so Q4, it was $16 5 million the year over year decline is bottoming out and improving and if we look at 2021 I think it is going to grow low double digits.
Just curious on that trajectory and what's embedded in the new <unk> assumption.
Sure. So we've we've typically had a fairly stable.
Mix of base versus new.
And our net retention sort of.
Tracks to our overall IRR growth pretty steadily to within about seven or 800 basis points. So we don't really anticipate that mix changing a whole lot.
View kind of a.
Two thirds, one thirds base versus new as pretty healthy and with the investments, we're making in channel and in our.
And in our growth team, which has shown a lot of early traction. We are encouraged that we can we can continue that trend.
Got it thanks for the color and good luck in 'twenty one.
Sure. Thanks, Adam.
Your next question comes from Brian Essex from Goldman Sachs.
Hi, good afternoon, and thank you for taking the question maybe I was wondering if we could start with.
A little bit of color around customer buying patterns and I know in previous periods, you said youre seeing a return to more normal.
Buying patterns.
How can we maybe reconcile that with deals still being phased in is that changing at all and maybe your outlook.
Maybe what's embedded in your assumptions for 2021 is as you kind of look at the pipeline and speak with speak with customers around their buying intentions in terms of what we can expect there.
Yes. Thanks, Brian This is Andre speaking we have seen.
What we referred to as a locked down and hold in the enterprise through Covid.
Budgets and cost savings do remain a focus.
But RFP activity has absolutely picked up and.
And so we are experiencing now a healthy deal volume and pipeline generation.
To be clear, we do anticipate that phasing.
We'll continue to incur.
To occur so I don't think were entirely out of the woods from what we experienced pre COVID-19.
However, things are starting to feel more normal.
And we saw some of that with a solid beat in Q4, which is really the first sign of a stabilizing environment.
So we do anticipate and I think we are embedding.
Our guidance.
We guide to what we see and what we experience and what we are seeing is still some conservatism in budgeting and cost pressures that does leave to phasing of deals.
Great and maybe just a follow up could you provide an example of.
Maybe how a company may think about phasing of deal and perhaps some factors that we might see in 2021 net debt Mike.
Lead them to reconsider the read it they are phasing deals.
And right size the deal to what they would normally normally purchase.
Well in two or three of the examples that I gave in my in my early remarks, it is very common for customers.
To focus on centralizing authentication and strong authentication, our MFA services for either their workforce or their customer that tends to be the typical land and the low hanging fruit as companies embark on modernizing their identity. They are looking to consolidate several different authentication systems there.
Going to retire multiple hard tokens that we've seen in the past for MFA. Those are the RSA secure I'd tokens that that we all had on our key change that tends to be a very typical land for either workforce or for customer.
And then from there they begin to think about for example are all of my identities in one directory or do I have identity information in multiple directories lets unify and consolidate that around a single instance of customer profile information and Ping directory, so that will be a project.
And then we also tend to see a project of.
Retiring the legacy web access management that we've reported many times of site Minder in Oracle access manager and IBM access manager.
All of those products are not adhering to many of the new open standards.
All.
Become a little long in the tooth and are hard to support and they look to modernize that around our ping access product.
Very common for us to see the phasing of deals and the modernization of their and consolidation of their entire identity platform along those three dimensions.
Got it that's helpful. Thank you.
Your next question comes from Gray Powell from BTG.
Oh, great. Thanks, Thanks for taking the question. So maybe starting off just roughly speaking how much did the macro environments and the phasing of deal activity impacts your AOR growth in 2020, and then just kind of following up on a prior question, but how should we think about the pace of recovery.
Coverage as those deals that were delayed.
Last year coming back into the fold.
We definitely did see an impact.
To what we had experienced prior to Covid and as we've reported and really things have not changed largely attributable to the phasing of deals.
Which as I've also said as we look to guidance going forward, we won't change the guidance until we experience a return of actual buying behavior, we're phasing as non occurring.
So it did have an impact in 2020, we are projecting that impact into the foreseeable future and.
And you see that kind of embedded in our guidance that is our philosophy to guide to what we see and experience in front of us.
We are seeing early indications as I have also reported of more rfps. There is some evidence of pent up demand returning projects that were put on hold in 2020 are now entering the pipeline is active here in Q1 and in Q2 of this year.
It is a little too early to call.
Call this normal but the signs are encouraging.
Got it Okay. That's really helpful. And then just a totally different topic.
Kind of talked about this from the prepared remarks, but how are you thinking about the relative growth opportunity.
And customer identity versus workforce identity in 2021.
We've been leading into the customer use case now for the better part of the last couple of years as we've reported now it is a larger piece of our overall <unk>.
Snowball.
And it is growing faster than the work force use case.
Turns out our solution.
Is really strong both on scale and performance, but also across the growing dimension of security and privacy regulation, we have a very strong product portfolio that allows companies that are under scrutiny of insuring.
That they enforce consent.
Around privacy.
All of their infrastructure can actually support those those regulatory requirements.
So it is a faster growing segment of the market. It is smaller than workforce, but we believe ultimately will become larger and we have a very differentiated product.
Understood. Thank you very much.
Thank you.
Your next question comes from Jonathan Ho from William Blair.
Hi, good afternoon.
Wanted to maybe start with your investments comment for 2021 can you give us a sense of where you are going to be making the bulk of these and where you maybe see an opportunity to either catch up more or to accelerate investments.
Yes, absolutely Jonathan this is Raj so.
We've talked a lot about our SaaS acceleration, we're really excited about that this is an area, where we have been making investments in and as you've seen over the last few quarters. We've.
We've been able to rollout some really unique.
Some really unique products there and so we're really excited about that and the adoption there.
In 2020, you keep in mind, we paused investment for a good portion of 20th especially around the onset of Covid and now with returning visibility we're going to start leaning back into investments for growth that actually we started back in the second half of last year, but we will continue that that trend.
Those will primarily I'd say impact cost of revenue in R&D as we lean into the SaaS opportunity ahead of us.
And.
From an Opex perspective, we'll continue to as I mentioned that that growth will track overall AUR growth as we as we lean into quota carrying reps.
Channel investments and.
Then just overall as I mentioned in R&D.
Engineering.
And overall hosting costs two to.
To support our SaaS initiatives.
Got it and you know as you think about sort of some changes with the executive leadership around the sales side of things can you talk a little bit about the search process and maybe what youre looking for either other areas of improvement or things that you can continue doing on a on a best in class basis. Thank you.
Jonathan through the years, we've been fortunate to have many great leaders at Ping.
Each of them critical to our success at different stages of our growth and as you noted Dave has been one of those leaders for US company has more than doubled during his tenure in the last several years, we're thankful for everything they've contributed to our success.
He built an incredible team we have an incredible team.
We do have an active search underway.
And Dave will stay through the transition.
So I don't expect any disruption there frankly.
We're excited to cheer them on to the next chapter of his career.
And.
And what.
What was that.
Sorry.
Okay.
Raj was talking debate, okay alright.
Alright.
Was there another piece of that question, Jonathan I missed my apology.
I was just asking for what characteristics you are looking for and sort of a new sales leader as well.
Yes, so I think the thing that we're looking forward to.
Two is the channel is becoming increasingly important to us.
When we look to penetrate the fortune 1000, and the global 3000.
There's many ways to enter those companies.
If you look at both the customer and the workforce use case.
Many of the advisory firms the Gsi's in the Implementers of both identity and security projects have visibility and insight into what these large enterprises are doing.
So we are making a very concerted effort to partner with the channel.
To provide both the advisory services upfront as well as the deployment and implementation services. After the fact.
So I do think that we will look for strength in channel and in particular strength in the GSI and the and the companies that provide advisory services.
Great. Thank you.
Your next question comes from Brad Zelnick from Credit Suisse.
Excellent. Thanks, so much for getting to me.
It's actually as if Jonathan Ho as telepathic because yes flavors of the two questions that I wanted to ask on when it may be touch on them a little bit differently, maybe just on on the change in sales leadership, how should we think about transition risk and overall sales capacity and head count plans at this point.
No.
Why are we not going to come back in a quarter or two and find that.
More salespeople turn Dover or.
There's just some more unexpected consequences of this transition.
We have a lot of great leaders here at Brad we have a lot of great sales people here.
I think the sales force recognizes the investments that we've made.
In our product and our cloud offering the investments that we've made in new companies and capabilities and as I said there is a lot of activity right. Now. So I think we lived with a certain amount of <unk>.
Depressed activity through kind of the Covid era I.
I feel as if it's not entirely behind us.
But things do begin things are beginning to emerge.
I think also if you look at the more subtle point of the culture that we've built here at Ping.
We have a very very strong culture, we look after our own I do view it leadership role.
To look out for and after our employees I think that we are both rewarded and recognized by our employees for the carrying that leadership has towards their success and growth and opportunity.
So I don't anticipate.
Any major changes that would disrupt this year you never know what is going to happen, but we put employees first here at Ping. This.
This is not the first change that we've navigated and as we've become larger we become more resilient.
Got it and any update on head count plans just in capacity in the field.
I can take that.
Brad I think the.
The short answer is we feel good about the capacity we invest.
<unk> invested over the last year, or so and I've gotten quota carrying reps up to the levels that we need to support our plan.
And.
In areas, which are <unk>.
Which are outperforming we're going to double down on those and so we will we may have some tweaks around the edges around that plan, but for the most part it's baked.
Okay, and Raj and I Hope you won't count that as my second question.
But by my other follow up for Jonathan Hose question, which he asked in terms of areas in which you're investing I'll, maybe ask also a little bit differently. Your comments in your prepared remarks said that expense growth should track <unk> growth.
And especially with an outlook for steady growth against easier and easier comps I guess the question is when do we see the acceleration in growth or the leverage which is natural in this type of subscription business.
Right.
At the.
The Big Gotcha, and 2020 was the deposits. These investments right. So what youre seeing in 2021 is as the result of about a six month push right of 2020 investments into 'twenty. One now we continue to make the critical investments.
We hired our channel leader, we hire new EMEA leader.
We.
<unk>.
We've invested in all the critical quota carrying reps that we needed to so so part of it is just that that full year impact of those investments that we made later in the year, which is.
Which is why you don't see the immediate leverage but we're confident in the model. If you go back a couple of years you've seen.
Tremendous operating leverage in this model, we continue to deliver on our profitable growth model, even through Covid and theirs.
There is no reason to think that we won't return to that it's just.
We had.
We had a bump in the road and Covid.
That that's now.
Hopefully for the most part behind US, especially later this year.
I hope so too alright. Thank you so much for taking the questions.
Sure. Thanks, Brad.
Your next question comes from Gregg Moskowitz from Mizuho.
Alright, Thank you very much guys for taking the question.
I guess first off I know, it's not always easy to draw a straight line, but Andre just based on your customer conversations I'm wondering what impact if any you think solar storm has had on your pipeline thus far.
Well I'll start by saying we are fortunate that the attacks did not impact our products are corporate environment in any way.
I believe near term.
Solar winds AK Sun burst vulnerability.
Is a tailwind to both privileged access management, we don't participate in that.
As well as MSA, so near term people look at the vulnerabilities of password only.
And they are looking to shore up those weak links I.
I believe long term.
The the.
The solar winds attack is going to be a tailwind to all things are related to identity based security and zero Trust as you know Ping is at the forefront has invested for years.
In our platform to be the centerpiece of you will have strongly authenticated users strongly authorized users coming in on trusted devices, where identity is the new control plane. So I believe long term. It's give me a tailwind short term I believe a lot of companies have just been busy assessing the path.
Oster and their vulnerability and I certainly have had a lot of conversations with customers about that.
Short of the Pam and MFA is being short term moves I think most of them are just saying that they really need to pay attention now to their infrastructure into the supply chain and their choice of partners.
Okay. Thanks that makes a lot of sense and then secondly, I know you're very excited and have been for a while about your API security product I know there also have been some puts and takes in 2020 because of Covid and the economic environment. So I would love to hear an update just kind of how that product has been doing for you over the past few months.
Yes, Greg the future of digital business as we've said is wholly dependent on secure Apis.
It's just incredibly important and it's foundational to all enterprises that now and really all businesses that find themselves competing on technology.
We are building a very very strong API story, where API intelligence is just one part of our API security story.
As I reported before this market is nascent and still emerging and during Covid other fire fighting.
Priorities took over from many of the pilots that we had underway in March when that hit.
The pipeline and the interest remained strong throughout the entirety say of the back half of last year.
And in 2020, we leveraged the time, while there was kind of a pause in what had been the POC and buying behavior of that emerging product.
To deploy several enterprise wide large scale deployments I mean these are at massive multinationals.
Those deployments have now successfully gone live and the customers and champions and those companies are now starting to hit the speaking circuit for us. So in many ways. We are beginning to resume a little bit conversations more on the buying front of that.
We've also taken the time kind of the lull in the buying behavior for that emerging product we're.
We're taking that time to move the entire capability to our cloud and SaaS offerings.
It is my belief when that market hits, it is going to hit fast and furious and I want to make sure. We're in a position to capture as much of it as possible.
Alright, that's very interesting thanks for the color and obviously look forward to tracking their progress. Thank you. Thanks, Greg.
Your next question comes from Katherine Xu from <unk> Securities.
Thank you for taking my question you know the last couple of quarters, you've been investing more in the channel could you give us some more details around how that's actually working and is there a possibility to give us like the number of deals or percentage of deals that are influenced by the channel. Thank you.
Yeah.
Raj I don't know, if we've disclosed either sourced or.
Or influenced business I want to make sure we Havent GAAP tournament.
No.
The channel team has just been really launched in earnest in the second half, we we hired a new leader and we.
And she built out her team. So we feel like we're in really good shape entering the year and look forward to big things there but.
It's probably something we'll report on a.
A little bit down the line I think I can say a significant portion of our business. However is influenced by the channel we have we've been strong there.
We're beginning to track now sourced business also as a result.
And this year the commitment to the channel.
We had the channel participate in our S. Kayo, we made several commitments both to the channel and to the employees here at Ping, bringing focus to our desire to be a really a partner and channel first company in the way that we partnered with.
<unk> partnered with our partners to both discover close and deploy new business.
Alright, I guess, that's the law.
Early on the question a follow up would be which of your solutions do you think best fit.
Now motion thank you.
Well I think we've had good activity from the channel if I think about use cases.
Yeah.
There were about half of our business as the work force use case.
The other half is the customer use case growing faster maybe slightly larger now than workforce. We've had good partner and channel activity on both use cases.
Now with respect to specific capabilities or products or services Ping has a solution company, we are a strategic partner to the it departments.
Departments of large complex enterprises.
To modernize.
And essentially build a platform from the ground up for all of their identity security activities, while we do have.
Some consistent lands, if you will that tend to focus on authentication or strong authentication or single sign on.
Many times, where the partners are strong and we're training them on this.
Is on selling both the vision of the platform and Ping is the strategic partner as well as the platform as the foundation for broader solutions. So there's no one product that I would want to pick out of our solution and say that's the product that the channel is in dear to where our solution company.
Selling a platform we are educating we are selling and behaving that way ourselves and we are training and educating our partners to do the same thing.
Alright, Thank you very much.
Your next question comes from Rob Owens from Piper Sandler.
And then Neil Weiner, great. Thanks for taking my question guys.
First off could you talk a little bit on customer acquisition and I know, obviously there was some chat.
Challenges to true this year.
From the puts and takes since then.
Because we looked at that customer number or was there anything getting interest from the smaller acquisitions.
There will be some flatness in that you just mentioned is 4% growth.
Is there any churn issues going on within there or is that just from some softness on the new customer acquisition as a result of the environment.
Hi, Rob This is Raj I'll take that in 2020, we saw.
Low first half in net new customer adds in a large part of that was COVID-19 related as the world learn to deal with the pandemic. The second half was was much stronger. So if you look at the trending there. The second half was was much stronger in Q4 was stronger than Q3, even.
And we saw healthy traction in the larger cohorts right with with the greater than $1 million.
Our customers growing.
Up 34%.
I would say if there was an area of softness it was international where we had fewer new logos given some of the more stringent lockdowns that they had their.
But the adds that they had there were significant the Henri mentioned a couple and.
Some of our larger deals that we had in the quarter were were from our international business. So a little bit of a mixed bag there.
<unk>.
You hit the nail on the head at the end of your question, which is is there a son.
Non regrettable churn and there still is.
Some of that there is.
We have a cohort of customers that maybe.
Long time ago bought one product it really grow with us they weren't in our ideal customer profile and therefore never expanded so.
It's still TBD going forward to say, whether our SaaS.
Well, there's some of our.
Newer SaaS products well.
We will appeal to them or if they fall.
Fall into our ideal customer profile because of that but but in Q in Q4 and in 2020, we did see some of those smaller customers most of them do not take much <unk> with them. So most of them are in that sub 50 K category.
So for US, it's really more of an IRR metric as opposed to a customer account metric that's important.
Okay, and then I guess the strength in New Orleans is tooling.
<unk> can you touch on air this quarter Youre, James Doings outstanding spectra.
Thanks to a level of interest we saw during the first quarter in March.
Going back engaged or was there something unique in the quarter from a collections perspective. Thanks.
Not really.
We had a decent collections quarter all things considered we.
Like most companies have been working with our customers on.
On collection terms, especially those in highly impacted industries. So.
We have those but those were few and far between for the most part were we werent really good shape.
Thank you.
Sure.
Your next question comes from Talion from Bank of America.
Polyone Your line is open.
Here you go now we can hear me sorry.
The beauty of from using an unyielding.
I have.
Probably my question is not a proper question April for a question for the end of the call. It's tough at the beginning but I want to go over some.
Very basic stuff, so I can understand that the new disclosure that you have.
A few questions on it.
Last year.
The subscription of term based licenses.
You see a a.
Got it.
The level is kind of 28 28, and then goes up to 32, and we finished 2019 on the high note.
And suddenly it starts to go down and it goes down almost every quarter if.
If I look at the longer term and I don't want to break it down between long term and in one year it doesn't really matter.
Can you go over what suddenly changed meaning.
Cloud and SaaS based solutions. These are always surround oct that always existed what suddenly happened that the term based licenses are declining so much.
And then what's the outlook for next year is the outlook that the term based licenses are going to continue to decline or is it because of the easy comps is it actually going to start up.
So it's all of this is Raj I'll take that in terms of what happened in 2020, and specifically towards the end of 2020.
We actually had a.
A roller coaster if you will.
The actual contract durations during the year and what you saw in Q4 is actually a spike up in terms of.
Single year term based licenses and a significant drop in multi year term based licenses now some of that is because.
Of a of a <unk>.
Transition to more SaaS to SaaS acceleration in the business.
And keep in mind.
That we introduced a lot of new SaaS products from the second half of the year and into the first part of this year as well. So so it makes sense to us that you would see that.
The mix shift towards towards SaaS and away from term based licenses. So that's one part of it. The other one is just as we saw.
Dip in Q1, and a spike in durations in Q2 and Q3, we saw a dip in contract durations in Q4 and.
We think a good amount of that was.
Just customer budget, and and COVID-19 related to be honest.
So the second part of my question, if I look at total right without the short term long term there is still a.
Significant declines this year versus next year and the question is is this the trend because of the SaaS migration to SaaS that we should model also continued decline for the following year and the following year kind of what are the longer term trends or is there something specific to 2020 because of COVID-19 or anything else that now do you have a low base and easy comp next year.
We could actually see growth.
Well in 2021, we are projecting a slight uptick in revenue, but again revenue isn't it isn't the key indicator for us in terms of the health and growth of our business.
100% subscription model, where we are.
<unk> focus on the IRR growth.
But in terms of term based licenses I think you will see a pretty at least we're expecting a healthy shift towards.
Towards SaaS, because that's what we've been investing in and that's what we've been introducing over the last few quarters.
So maybe just maybe post Covid you may.
See some some duration bumps, but again, it's not something that.
That's a key indicator for our business right.
But you're still missed the numbers on revenues I understand its sort of matrix and <unk> to the point, where our guidance kind of in line ish. It's okay. It's good theres no no surprises there it's good for the quarter growth for the year, but you didn't Miss the revenues and you are guiding revenues below so what change that now the revenue projection is.
Lower than what we thought before what what changed on the revenue side.
On the revenue side. It is deployment mix for the most part and then but we have also.
Baked in some.
Some prudency into our contract duration for term based licenses just because we saw what happened last year, we're not through the.
We're not completely on the other side of Covid Covid had a duration impact in certain quarters and.
And so we have baked that in so it's a combination of the two but we really what we're really excited about is.
As our SaaS acceleration and the.
The fact that it is now greater than 15% of the overall mix and growing much faster than the overall rate of the business got it. Thank you.
Sure.
Your next question comes from Patrick Colville from Deutsche Bank.
Hey, Thank you so much for taking my question.
So most of the questions I guess, the kind of the one that I wanted to just touch back on was the a O.
Linearity, so growth, 15% this quarter, if I'm not mistaken guidance in first quarter of fiscal 'twenty, one that implies full teams book five into fiscal 'twenty one.
In total 15% growth suggested that actually throughout next fiscal year trends will improve as we go through the year just remind me why that is.
Well, we as we talked about Patrick we are we guide to what we see in front of US we're looking at various.
Bottoms up and top down models across.
Across all the quarters and obviously, we have the best visibility to what's right in front of us for Q1. So so that's what you see reflected in our Q1 guidance.
<unk>.
We've certainly.
Looked at the full year guidance and a variety of different ways and we feel that the the stabilization that we're feeling now in the macro is is largely what we built what we've built into our full year guidance as well.
Nice Okay. Thank you and then I guess my second question is about the cash.
Identity management.
So the 10-K.
45% of Subsys revenues from customer identity management, which I'm not mistaken is up three points year on year, So clearly that businesses.
Not really.
It's just trending very well.
So just help me understand.
Your expectations.
Coincidentally.
For that business over the next kind of couple of years, just some kind of frame your thinking.
Well I think you've noticed that we it has been a focus for us we're seeing the results of that focus we've got a very strong solution and platform.
And I would expect that that trend will continue by design.
Is that right.
Principally from replacement of kind of DIY homegrown software.
You do run into a lot of day yi in the customer use case.
Got it so that it's more prevalent in the customer use case than it has been in the work force use case.
Okay.
Now we will find legacy directories sitting underneath homegrown authentication systems for example.
You will find.
<unk> access management.
And some of those customer use cases.
So.
Excuse me there.
There is some legacy replacement, but there is a lot of homegrown.
Understood. Thank you for taking the time to answer my question.
Your last question comes from Andy Cohen from Wells Fargo.
Oh from wins.
I think Andrew other isn't it just have a question about the about the greenfield expansion and how youre thinking about that for 'twenty. One obviously you talked.
Strategic about MFA dynamic authentication API security, but as you think about about 'twenty. One here, what's your how do you sort of expect the spending to come back on line.
Speaking those do one other subsets sort of take priority over the others.
Let me make sure I fully understand that question because I think you've covered a few things is there is there a particular interest.
Rob good products the products that you have in from a customer perspective, do you think as recall of reopening stores refreshes.
From one product or do you see more uptake.
Before the others.
Recovery scenario. Thanks.
I think what I expect to see is that we're making it easier for customers to buy ping and to consume Ping and deploy ping everything that we've done on our cloud your way deployment offering and all the investments that we've made in our SaaS offerings.
Keep in mind, when accompanies selects ping, whereas when.
Maybe if you go back 10 years and every company started with single sign on.
Now, it's pretty rare for a company to carve off something that's small and select.
A vendor.
So we tend to focus on being a strategic platform and a solution provider for the use cases that we that.
We solved.
And most of the focus is on how can they get started and knocked down the first X number of <unk>.
<unk> integrations or get X number of customers deployed on MFA.
That tends to cover multiple products.
And so it.
I would say to answer your question, it's not a single product that comes online it is an acceleration.
In our cloud and SaaS offerings around the solutions that they typically include multiple products and services.
Alright, Thanks, Rob it's not it's not a single product is my point.
Got it.
Yeah.
I will now turn the call back over to the presenters.
So that concludes today's earnings call I want to thank everyone for joining I wish you all the best in 2021, we look forward to providing updates as the year progresses, including our H two investor day.
Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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