Q3 2021 Ping Identity Holding Corp Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the Ping identity third quarter earnings Conference call. At this time, all participants are in a listen only mode.

Later, we will conduct a question answer session and if he would like to ask a question during that time simply press star one on your telephone keypad.

And once you require assistance during the conference. Please press Star zero.

That could cause the companies actual results to differ materially from these statements.

I would also like to remind you that during the call we will discuss certain non-GAAP measures related depending identities performance.

You can find the reconciliation of those measures to the most closely comparable GAAP measures in our third quarter press release, and the slides were posting to our website.

To assure we can address as many analysts questions as possible during the call. We ask that you. Please limit your questions to one plus a follow up we will end the call. After 60 minutes with that I'll turn the call over to Andre.

Thank you David Q3 was another strong quarter of solid growth against all our key performance metrics.

Annual recurring revenue again grew by 19%.

Revenue of $76 $2 million grew 27% year over year, once again, reflecting solid sales results and contract durations.

SaaS revenue of $15.3 million grew 56% compared with Q3 of 2020.

And our dollar based net retention rate again increased up a percentage point from last quarter to 112%.

And also up year over year for the first time in several quarters.

Large will cover the financials in more detail and update our guidance in a moment.

I wanted to focus today on the first of four core themes, we focused on each quarter delivering our entire platform in the cloud to help companies secure their hybrid environments.

For starters I'd like to thank and congratulate our <unk> advanced services team as we continue to exceed all expectations with this new offering.

And just the past year, we brought 25 of the most sophisticated and complex global enterprises to Penguin advanced services.

Five of which were in our top 10 largest deals so far in 2021.

Nearly 70% of these 25 customers are leveraging paying for their customer use case.

A trend not dissimilar to the one we are experiencing more broadly across our base.

Speaking of the Penguin cloud platform.

Much of our investment over the past two years has been behind the scenes.

But these investments are now becoming a major driver of future growth.

During our 12th annual user's conference, which took place last month.

We announced several new Penguin cloud platform enhancements and services related to recent acquisitions. This includes the immediate availability of Penguin verify to validate the real identity of users Ping.

Penguin API intelligence to bring security to all API transactions paint.

<unk>, one fraud to detect malicious behavior in our customer solutions.

<unk>, one authorized to centralize authorization of any transaction coming in Q1 of next year.

Together with our existing Penguin offerings. These new services enable a comprehensive platform from which to secure customer and workforce identities and.

Ensuring access to any resource for application by verifying authenticating authorizing and monitoring any identity from a single intelligent cloud delivered identity platform.

But it gets better through a recent acquisition of singular key we can now not only integrate and orchestrate pings technologies without the need for custom coding, but we can integrate in order street identity technology into an extraordinary and user experience that spanned the entire life cycle of identity use cases.

And we can do all of this without the need for an army of developers.

As a cloud offering matures so to have the request to operate in different regions around the world with mission critical resiliency.

To meet these growing demands we've invested to expand our geographic coverage, while improving resiliency through investments aimed at providing active active redundancy across multiple regions around the globe.

Lastly, with regards our cloud platform.

I'm pleased to announce that we have officially received our fedramp sponsorship from the department of energy and as such expect to make Penguin for government broadly available in 2022.

Focusing on another one of our core themes embracing partners, we continue to make significant investments in our channel ecosystem.

Our investments and channel marketing and enablement resources supporting our partners is up nearly 50% this year.

Being support more than 125 customer and prospect facing programs.

Through and with our partners.

<unk> investment enabled increase sales technical and implementation training, including the sales certification of 125 partner Representatives.

This training along with an important shift in our professional services team to support partner led implementations.

Has helped to grow our delivery approved program now with more than 20 such delivery partners.

We continue to refine our framework for working with the global system integrators or Gsi's. These partners are eager to lead with pain in their key business portfolios, especially as we have increased the pace of our acquisition activity.

And now I would like to highlight a few of our recent customer stories.

Internationally, we landed a new logo with kasha economica federal or kasha.

This government owned company is one of Brazil's largest banks and the largest publicly held bank in Latin America, serving more than 30 million customers.

They signed the contract to start their Brazilian opened banking journey with pain, using our authentication and authorization capabilities.

Their plan is to extend the pink footprint in 2022, and this new sale was a great example of how we are going to market with partners internationally in this case net BR.

Also in the quarter, one of the leading East Coast Warehouse club operators became in new paying customer the company, which operates 215 warehouses in 16 states serving more than 600000 members.

Thought to protect their digital assets tied to their website and mobile applications. They.

They looked a ping to enhance their existing authentication capabilities by layering risk and evoking step up authentication to identify suspicious and fraudulent activity.

In a third story, we both expanded and extended our relationship with a Canadian based multinational media conglomerate.

To secure 25000 employees leveraging <unk> advanced services.

We are currently nearing completion of a second agreement to extend the relationship to the customer use case.

And another expansion story, the state of Colorado, which leverages paying for both their state employees and for Colorado citizens has expanded the relationship based upon the success of their Ping deployment.

More than 350000, Colorado, and now leveraged paying for their digital driver's licenses proofs of vaccination and other state issue Ids.

With regard successful deployment, we went live with links to provide open banking to Canada.

<unk> in Montreal, Slinks provides financial institutions, the complete open banking ready environment to empower those organizations to drive new business.

Joining us in this implementation with <unk>, a longtime partner who is managing the ping solution for links in Canada to adhere to candidates strict residency standards.

We were also pleased to celebrate or go live with SCL health a.

A nonprofit healthcare organization, serving several western states.

Our solution streamline authentication and workflows for hospital staff and physicians, while adhering to strict patient data confidentiality SCL health was also recognized as our 2021 identity innovation champion along with other award winners Euro fins TIAA old mutual.

And Banco at Tao.

We also recognize notable partners, including Altron security proof Ivy and net B R and other significant finalists Schneider electric Trans Union and a core hotels.

Thank you to all of our customers and partners for another great quarter, expanding the boundaries of identity security.

In closing Q3 was a solid quarter for growth across all key metrics and we're pleased to see a healthy return of larger deals.

We're also excited to see years of hard work and our recent acquisitions start to reach a critical mass on are paying one cloud platform.

We believe the Cingular key acquisition is a game changer, and there's no code orchestration will drastically simplify identity integration and the developer experience.

I'd like to take this opportunity to thank the pain team for their dedication and hard work, helping our customers succeed in identity and.

And welcome Jason Keys, as our new Chief Information Security Officer.

Jason has a long track record of enhancing cyber security strategies for large enterprises and managing security teams. Most recently a C. So at Groupon, but also with Mcafee Siebel Oracle and CBS interactive.

Finally, I'd like to invite you all to our upcoming virtual Investor day on December 1st.

We will go into greater depth on our strategy envision our product roadmap and provide key metrics, while hearing from a number of our senior leaders.

Please look for an official invite from our Investor Relations team.

And with that I will now turn the call over to Raj to walk through the Q3 results in more detail.

And provide an outlook for Q4 and the full year Raj.

Thanks, Andre we're pleased to have delivered above are guided ranges for all key metrics. We ended Q3 with a 289 $6 million up 19% year over year Q3, net IRR of $10 million was up 36% compared with the seven 4 million.

A net RR.

Added in Q3 of 2020.

This quarter's performance reflects a continued returned to a more normalised activity with some solid large deals and average durations that are more consistent with historic averages third.

Third quarter total revenue grew by 27% to $76 2 million of which 94% with subscription based growth was driven by SaaS and multiyear term license revenue.

SaaS revenue grew 56% in the quarter and acceleration from Q2, as we generated $15.3 million SaaS revenue primarily from increase adoption of are paying one cloud platform. We now have more than 780 customers using at least one SaaS solution up more than 20% year over year.

Subscription term base license revenue grew by 25% year over year in Q3.

Given the impact that deployment mix in contract duration have on gap revenue. We continue to believe that <unk> is the key growth metric of the subscription vestments.

R Q3 dollar based on that retention rate was 112% calculated on a trailing 12 month basis, and again tracking consistently with accelerating growth.

We ended the quarter with 288 customers with more than $250000 and ER are up.

14% year over year.

Unless otherwise stated for the remainder of the P&L I will refer to non-GAAP metrics you can find the reconciliation of non-GAAP the gap numbers and the accompanying press release.

Gross profit margin for the third quarter was 78% and comparatively are gap subscription gross margin was 84%.

Total operating expenses in the third quarter were $55.1 million.

Year to date operating cash flow is $38 $1 million due to the usage of $6 million of cash in Q3, reversing last quarter strong cash generation as expected due to the timing of collections.

This led to Unlevered free cash flow of negative $11.1 million for the quarter with $23.4 million a positive unlevered free cash flow year to date.

We ended Q3 with $51 million of cash on hand to $53 million quarter over quarter cash reduction was driven partially by working capital changes the cheaply by the acquisition of singular key to $73.2 million price tag for Cingular key add acquisition included $43 million of cash consider.

Or Asian, and 1.26 million shares of <unk> stock valued at $32.9 million, even with our continued investments to drive innovation and growth we remain in the strong cash position as we enter the fourth quarter.

Moving now to guidance for the full year, we're raising our AOR projection to $306 million to $308 million growth of 18.5% at the midpoint compared with 2020.

We expect queue for revenue growth of 11% at the midpoint of a $67 million to $73 million range with full year revenue expectation of $291 million to $297 million or 21% growth at the midpoint.

We expect to end the year with Unlevered free cash flow of $10 million to $12 million slightly lower than prior levels with negative $13 for to negative $11.4 million expected for queue for.

This includes the impact of both secure touch and singular key acquisitions.

In closing, we feel great about our year to date performance and are optimistic about the continued growth trajectory for the balance of this year and longer term. We're looking forward to sharing more with you at our December 1st Investor day with that I'll turn it over to the operator for your questions.

Thank you at this time I would like to remind everyone in order to ask a question. Please press the star one on your telephone keypad.

He had your first question from and during the the ski with Wells Fargo Your lines open.

Great. Thank you and congrats on a great quarter.

Let's start off with your clearly seeing an inflection subscription growth. This is the second consecutive quarter U or.

Over 30% growth on the <unk>.

Year over year basis. So can you talk about how you are products of your ball.

You're driving on a budget and growth.

Andy This is Andre thanks for the question.

Our product.

Platform. The Ping one cloud platform is reaching a level of maturity now it's a combination of our advanced services coming online Q4 of last year.

Combined with several new services some acquired some built organically.

Like risk fraud.

Verification and those services coming on line as well so.

The story here really is the maturation of the teen cloud platform.

Being offered to existing customers as well as new customers.

Okay, Great and then I wanted to ask about.

Some of the recent acquisitions, including secured touch in June and then they'll say your key here in September.

How do you think those acquisitions that into this product evolution.

With your platform's headland, how should we think about the inorganic contribution from those acquisitions in 2000.

Q.

We've always had a vision that identity needs to be intelligent informed by risk and fraud signals to make.

Better authentication and authorization decisions.

So secured touches consistent with that we had introduced Ping, one risk, which was a risk service for our workforce use case earlier in the year.

Secured touch completes that by offering riskin fraud signals now for the customer and consumer use case.

So the entire notion that we're building a virtuous cycle, we're risking fraud signals inform the identity control plane how to behave.

It's also instrumental towards our password list vision is no way to achieve a password lists experience without leveraging the implicit signals that are available to us such that if risk is low.

And trust as high we just let the user in so to speak. So so that acquisition was was part of our strategy around and intelligent identity control clean.

The.

Singular or this singular key acquisition is a little bit different if you step back identity is integration game.

We're trying to connect every one to everything.

Speed of integration time to value and the flexibility with which companies can actually integrate not just the basic but the more advanced identity technologies is critical to all of these large enterprises.

Singular key allows us to achieve a tenex on the time to value and the speed to integration and it does so because.

Much of the historical coding.

As we say the point to point hard coding.

Has all been done in now Cingular T. So it allows the business to design user experiences without coding.

So identity as an integration game time to value speed to integrate really matters singular key allows us to August straight all of these identity experiences without coding.

That's great any any color on how we should think about their contribution in 2022 is that still too early.

Yeah, Hey, Andy this is Raj.

It is a little early where we're just.

A couple of weeks in a couple of months into the into these integration. So our first order of business right now is to integrate them with our.

With our own SaaS platform and continue to build pipe what I will tell you is that there's a ton of excitement from our customers from.

From our sales force.

And just generally in the marketplace around these solutions. So so just watch this space.

Good thank you very much.

Thanks, Andy Thanks.

We have your next question from Adam <unk> Raymond gains your lines open.

Okay. Thanks, Good afternoon, I wanted to start on.

Last year, you had just over $250 million and based on guidance. This year, it's going to be just over 300 million. So if I look at the new car that you're adding about $50 million, which I think would mark the highest level ever just wondering if you could maybe break down some of the composition of new AOR and as we think on afford basis to put some.

Six to adding this sort of level and they are on a go forward basis.

Sure a adam so.

So no surprise rate based on what we've been talking about Saturday or has been growing and multiples of the overall rate of growth of the business.

We've introduced several new SaaS services over the past three or four quarters, including Penguin advanced services, which has.

A tremendous amount of of type building and.

Interest in adoption frankly within our customer base, so when I think about.

This year, it's really kind of that inflection point in our SaaS delivery is Andre mentioned.

That feature function parity along with these independent services on our platform are really sort of changing the game for us in terms of SaaS competitiveness, so and we're seeing that.

Translate into wins in the market. So that's driving a lot of our success there and overall growth in fact in Q3, we actually.

Saw the majority of our overall bookings for the quarter come from SAS services. So we're really excited to see that.

Okay that sounds sustainable okay.

Want to ask me to follow up on cloud.

He talks about the active active coverage expansion and different geographies I'm wondering kind of a two parter.

Benefits from this any way to kind of comment on the size and scale of incremental opportunity with maybe the U S is central precedent and then secondly that cost I wanted to clarify our investments already in place for this order is gonna be incremental investment's needed. As you do this is raj can help with size level of that thank you.

All of our customers.

Many of them most of them tree authentication is a tier zero or mission critical service if their own users of our customers cannot authenticate transactions basically don't occur if people don't access the network they can't work.

So resiliency is a is a very big part of what we need to do when we deliver identity services. This is more than application. It really is.

Mission critical infrastructure.

Active active in the cloud is one of the ways in which we achieve our four nine of availability in our <unk>.

And.

And so the investments there obviously are critical to the credibility.

Acceptance of our cloud offering to our large enterprises.

A lot of the investments now are behind us to be clear, we do run our services in AWS. So these are not large capital outlays, but really just bringing a new region within AWS online.

There is work that we have to do obviously to bring a second region in a territory online.

There is data residency as as we know that is driving a lot of decisions about where companies are able to put customer data or even their employee data in the cloud.

So in order to offer for ninth of availability.

And the level of resiliency customers are demanding you really want to get to an active active state in country or in territory. As best you can most of the investments and our geographic expansion are literally just saved many of them now are behind us. So I don't expect there will be continued investment going forward, but all the.

Major regions that Ping now operates in the U S premiere, Australia and now Canada are now covered under our.

Under really are cloud active active program.

Very helpful. Thanks, and congrats on the results.

Thank you.

We have your next question from Great Powell, we had that BT Icke your lines open.

Great. Thanks for taking the questions and congratulations on the good numbers.

Thank you Greg.

So yeah I just wanted to follow up announced question I was cutting some back of the envelope math roughly speaking it looks like your SaaS product drove.

About two thirds of the net new AOR in Q3.

Versus more like 50 or 55% in the first half of the year.

That seem about right to you and then do you see a point where more like I don't know, 90% plus a new business, it's coming from SaaS or is there sort of like.

A natural point, where the on prom.

Fast mix stabilizes.

Is Raj noted.

This was it important quarter in the inflection of our business and really the validation. If you will be investments we've made over several years in our cloud platform and our SAS platform Ping. One this was the first quarter, where SaaS outstripped the bookings outstripped the software bookings.

We do expect it to continue now that the product is reaching a level of maturity. Obviously, we continue to invest in it.

We are a cloudier way company to be clear many of our largest customers continue to maintain a run ping either on premise or some of the newer deployments in the public cloud, but leveraging our Devops program. So they're running our software in our Devops program, but they are managing it in their public cloud one or more of their public clouds.

We don't do anything to.

Tip to tip, the table, one direction or another.

It is advantageous for us that we give these customers the choice of how they want to consume identity, whether it's on prem in their public cloud or is SaaS from pain.

So.

I would expect that that would continue you made a statement about 90% at some future point I do think that there is a resting point in the future where there is a healthy balance.

SaaS dominated AOR.

It is a faster growing part of our business, we expect that to continue into the future I don't know if the balance point ends up at 90, 10, 80 20 $25 75 for example, but I think you are directionally correct in assuming that the transition to SaaS.

Four Ping is now well underway.

Okay. That's that that was really helpful. And then just my follow up businesses would be that some in the past is clearly seen good traction how can you think about the products that potential to drive.

Better headline customer growth matrix is that something you should be looking for over the next 12 months.

It hasn't been the primary focus we've been very focused on bringing our entire platform to the cloud number one introducing the new services that are building into the future. These are the risk and fraud services the API security.

Focused on the customer use case, so product differentiation has been very important.

And now focusing on how companies will integrate our platform into everything through No-code orchestration. That's been the primary focus and a lot of a lot of the air our growth has been customers expanding into paying as a strategic platform for both the workforce and the customer use case I do.

Believe that going forward is the platform can be consumed all from the cloud.

And his orchestration.

Reaches some level of maturity over the course of the next year.

I do think that more focus and attention will come back to the customer count, but much of the focus has been on making sure. We have the right platform that is differentiated that is focused in the right places.

And that we acquire through these technology tuck ins, the acquisitions, which complete our story.

That makes sense, okay. Thank you very much.

Thanks, Greg.

We have your next question from Adam Berg with Stifel. Your line is open.

Hi, This is often gave John for Adam Bork and thank you for taking the question maybe for Andres upon SaaS onto your sweet spot has been in the upper end of the market that we could talk more about one the receptivity by our largest customers and prospects to adopt staffing Annie and to the opportunity for SaaS, how can move down market more.

Below the global 3000 Max.

I think some of the success of advanced services amongst some of the larger enterprises speaks well to some of the large enterprises willingness to adopt cloud in the solution that we're giving them and being on advanced services. So I think that begins to speak for itself, we expect a lot more of that.

I think down market it is the.

The down market tends to focus on different things than the larger enterprise market.

There's a lot of hybrid integration, there's a lot of legacy integration not just cloud or SaaS app integration for large enterprises, it's an area where pain tends to be very very strong.

So everything related to.

A large enterprise it wants to put identity in the cloud consume it as fast but reach back into the hybrid enterprise for all of those legacy and on from use cases, I think we're very differentiated there and foresee we will continue to be very differentiator for some time.

That use case or that level of sophistication hybrid specification as is.

Is not paralleled by the by the down market the SMB market. So they do tend to focus on some different things.

Our intention is not necessarily to go down markets. They below the global 5000 saw extended a little bit beyond the 3000, there I will say however, as the maturity Ping one continues.

And as we introduce new services like orchestration that are new to the market and help as I said tenex.

The speed and simplification with which identity services multiple identity services and platforms can be integrated that I would not preclude the opportunity that some of our new services have down market appeal stories open to it but from a go to market point of view, it's not our primary focus.

Great. Thank you.

We have your next question from Cattering, that's Redneck, we had colors securities your lines open.

Thank you for taking my question I'm not sure if you can quantify that but.

With many of the CIL.

The first piece that they are looking at when they're looking at a zero Trust architecture is identity and can you explain to me are all of US know how you fit in how soon you fit into that practice when they start that architecture decision and then how long it takes to really drive near use cases. Thank you.

Good question, Katherine So zero trust as an awfully big word it's been commandeered by the Mark endures marketers as of the last six seven months to stretched to mean a lot of different things, but at its foundation.

We're moving from.

Essentially perimeter security, where there was high trust, meaning if you were inside the perimeter you were very trusted.

To a world, where we neither one of trust the user the network there on or the device. They are on so zero Trust is an embodiment of what do we do.

When the.

The network the users and the applications don't reside within our control and we need to presume that we cannot trust them. However, we need to somehow let them in.

So the reason why identity is foundational to zero Trust is is or really the cornerstone of zero trust as we move from perimeter based security to identity being the perimeter, we only want to let the right users in who are appropriately authorized and on a device that we either trust or we are managing thinking and.

A laptop or a cell phone for example, neither of which are necessarily in the building on the network they could be anywhere vis-a-vis at home.

Zero Trust is fairly synonymous at its most foundational level with the notion of identity based security or identity as being the new perimeter that we're creating.

There are two major pieces of identity, both of which are central to our platform and zero Trust. One is authentication, making sure you are talking to the right user we need to strongly authenticate every user and the second is authorization what can the user do what can they see what are we going to allow them access to.

So the cornerstone to the Ping platform really are both authentication and authorization, which is why the second accompany begin to zero Trust journey, the focus and attention begins to move from firewalls, and vpns and all of the traditional layers of perimeter security and it begins to move towards how do we how are we going.

To authenticate everybody how are we going to do that Frictionlessly, a K a password list of possible and then what are we going to allow them into.

So that that connection tends to happen within the first day.

K as you said.

And to support that one of our.

Our largest deal in the history of the company advanced services DLA announced this a quarter or two ago. The initiative that they are looking to achieve as both a cloud transformation, one and number two a zero trust transformation now for them. It is going to be a five year journey I want to be clear. This is a very very large global enterprise tend to <unk>.

<unk> of users hundreds of thousands of customers and they are moving from a perimeter based security to Israel Trust. This is a company that makes significant weaponry and other big machinery that you would want to make sure that you need to maintain security on so this mood is happening it's a secular shift it's not going to happen over.

Right.

Identity is central.

Alright, Thank you very much.

We have your next question from Matt Hedberg, we'd RBC capital markets to your line is open.

Okay, Great I think Andre.

As we as we kind of.

In a period of a bit more reopening.

Covid scenario.

How do you think about the large.

<unk> replaced legacy solutions I mean, do you think some of those things.

Could come up a bit more frequently now and I guess to what extent can partners help with either the timing of understanding when some of these renewals come up or ultimately helping to to replace some of these were paying.

I'll start with the last part partners are instrumental in helping us understand when these.

When the terms are essentially up on that infrastructure. So you're right in honing in on the importance of the channel and partners to identify that it is.

It is a bit of a waiting game right. This is critical infrastructure, they don't necessarily rush to replace it until a term is up and then they look to modernise.

We are seeing a return of legacy modernization.

Some up many of those projects were put on hold for the first year of Covid now we are seeing those projects begin to return.

We do anticipate.

We've been asked for years, whether or not there is a accelerated tipping point, where everyone just rushes to get rid of that legacy.

We have not seen that we see this as a as a large almost steady state replacement of legacy now the truth is every year it becomes a little bit more brittle.

We are really the go to company.

Has.

Migrated hundreds of large very large very complex enterprises wholesale from legacy to a modern identity stack her modern identity platform.

So we're in a very very good position to fit in essentially wait until these modernizations occur we are working with partners to identify them as they happen.

Got it that that's helpful. Super helpful. And then I know you guys have you have had a little bit of hybrid work activity corporate officer or sales and marketing both out in the field.

We think forward to 2022, I guess I guess, it's somewhat related question, but.

Do you anticipate salespeople getting out and seeing clients more face to face meetings, all next year and if that's the case.

That could have a positive impact on pipeline generation as well.

We do I am yes.

I am pleased with the pipeline pipeline generation, we'd be able to create through COVID-19 without traveling but.

But the truth is in large enterprises relationships do matter seen people.

II does matter so while we have been able to operate effectively through it I think the team and our customers are looking forward to getting back together, whether it's wakeboarding sessions, whether it's kickoff of implementations, where the first two or three days you want to get the team together. So I do anticipate that there is going to be more face.

To face I do believe it will have a positive impact on pipeline.

Great. Thanks, a lot congrats on the Gulf Coast.

Hey, Matt.

We have your next question from Brian <unk> needed Steven your lines open.

Hey, guys. Thanks for taking the questions.

So I'm curious can you just talk about the competitive environment and kind of how it trended during three Q and also an artist paying any any change in when rates against Kenneth.

Pure place Ias vendors like Octan officer.

We are seeing improved when rates as.

As a result of the Mitch really the maturity and differentiation of some of our cloud cloud capabilities of recent we have not noticed an overall.

There is no there's been no rapid necessarily change in a competitive environment.

We watched whether or not the after or at zero would have any material impact on where they showed up or how they showed up.

I would say that our own cloud maturity is.

Made us more aware if you will of those deals I think were included where we might not have been included before.

But generally speaking where we were historically strong we continue to be historically strong. This is in large enterprise hybrid deployments cloud your way.

And in the areas, where we might not have been considered in prior years because of the maturity of our own SaaS platform Ping one.

That has that is absolutely improving in our world.

Got it.

So I mean, just thinking about the channel.

Vestments, you've made there I'm curious if you are saying.

Male partners dark.

Have more meaningful impact on the pipeline now.

It's been.

A year or two since you've been investing there.

Yes, Brian the surprise I can take that.

So we are deeply committed to to our channel partners and and are working with channel partners now and almost all our deals or at least.

Really pushing to do that and that's just the manifestation of just going all in with the channel and I think they are feeling that.

We've always been a good channel partner.

To folks but.

But I think we've this year, we've really sort of amped up that commitment as we've talked about in in previous quarters and it's not.

Engaging in the channel is not something that is a flip you just sort of switch and now you're 100% channel company overnight, but we're seeing the kind of steady improvements that we expected to see at the beginning of the year.

And it's all starting to come together, so we're really pleased with with our team and how they are doing and how channel partners are.

Are reacting.

Those investments we have.

125.

Channel partners out there, we're investing in them in terms of certifications around sales and enablement and all sorts of other training and marketing activity. So we would expect that trend to continue.

Great.

Appreciate the time.

Thanks, Brian.

We have your next question from my account Romanelli with a miserable security lines open.

Yes, Hi, guys just one from from me actually touch on this bit earlier, but was there any shift this quarter in the customer identity business.

Workforce identity.

Customer has been trending at an accelerated pace relative to workforce for several quarters now this quarter was no different.

So the majority of our new AOR now is being generated from customer use case.

That is by design, where we've been leaning heavily into the customer use case many of our acquisitions have been focused on our platform solution capabilities around the customer use case.

So we're very committed to be clear our our vision of the platform is one platform both use cases.

25% of our customers use us for both use cases that is increasing I've signaled that before we.

We do see a desire from large enterprises to consolidate where they can.

To gain leverage from both the partner that they have for identity, but as well as the platform that they're using for both customer more purse identity.

All of that said.

The customer use case, we believe to be a ultimately a larger it is today and we expect in the future a faster growing use case in our platform.

Has been differentiated for some time now on scale and performance some of the largest systems in the world run off of pain.

But in the future, we believe will be differentiated in the speed with which we can generate incredible user experiences without coding visa visa singular key acquisition that is focused on the the user journey, enabling a user journey through identity, that's both frictionless and do so with the minimal amount of coding.

Perfect. Thanks.

Thank you Mike.

We have your next question from Mike sequels that with me have need him and company your lines open.

Hi, Thanks for taking my question guys, just a real quick one for Raj to kick things off but could you talk to the return of these large deals that you're seeing and maybe if we're trying to quantify what that.

Impact voice to Q3.

And in addition to that anything you can talk to regarding the decline in gross margins. We saw this year there was a slight decline in the subscription, but I'm more looking at the the compression we saw on the professional services side as we're looking at the the future of the business.

Yeah, let me.

Take that one at a time so so in terms of deal activity, where we are seeing.

A return to what I would call more normalized buying behavior, which is in contrast to the the COVID-19 quarters I'll call them, where we saw.

Deals not go away budgets not go away, but really get sort of phase phase and jumped up into smaller deals that sort of culminated into the.

The original deal size over a period of time, that's largely now behind US we're seeing now in a onesie twosies basis, but.

For the most part.

That has.

That has largely sort of come back to more normal levels were what we were seeing pre COVID-19, which is a bunch of transactional run rate activity coupled with a.

Couple of large sort of high six figure a seven figure deals and we're starting to see that come back we saw that in queue too as we talked about last quarter.

That one that was probably an anomaly the other way [laughter].

If I'm recalling correctly, but in Q3, we saw a more normalized.

Quarters similar to what we saw on.

And pre Covid quarters.

From a margin standpoint.

We have a.

We are investing in an.

In our cloud right and we've been talking about that for for several quarters now we've introduced several new services, including thing on advanced services, and we're seeing a lot of traction there, but we are building or.

Are kind of entire infrastructure in advance of that so we will see operating leverage on that one.

Once we hit more scale, but we're we're certainly.

Sort of building out the our support and cloud infrastructure and hosting infrastructure and advanced that.

On the <unk>.

Proserv side, it's largely a function of.

Timing of hiring it's also.

A a function of enablement for for our channel partners versus us directly may be billing, we think that's healthier in the long run for our business I'd say those are probably some of the factors that come to mind.

Thanks for that and then just one real quick one for Andre.

I'm curious because we did talk to global 3000 or maybe.

Answering my own question here with the commentary that you had earlier about the global five but by my sense is that with this maturing and growing number of SaaS.

Have.

It is in a sense expanding pains market opportunity and what I mean by that is do you see the services is making pink.

More consumable as we think about Patel.

Potential to expand down market is that a fair characterization and can you can you extrapolate on that.

It is 100% accurate.

The skills to maintain infrastructure down market are not present.

Those companies essentially are required to consume identity capabilities. However, they can get them, but they don't have the skill sets.

Ploy and maintain mission.

Mission critical infrastructure, the same way that the large enterprises do.

So as our capabilities now.

Our consumable SaaS you can go in create an account and all of the services which were.

Historically only available in software for companies to run are now available as a fast or cloud offering in addition to all of the new <unk>.

Things that we have either built indoor acquired which are very fast focused.

That is going to inherently increase the acceptance and the opportunity for companies without the same level of sophistication to consume them.

Now many of the services that we provide.

Probably do cater to Dell marketing the down market has those problems like single sign on for example, and MSA almost every company has those needs.

But some of the more advanced capabilities that we offer like data governance and authorization, an API security it might be that those services.

Our address problems or issues that only large enterprises have so we're cognizant that our product portfolio.

Has been optimized they'd be complete portfolio, let's just say that is optimized to tackle the source of challenges that large enterprises tend to have.

But you are right that offering at all in the cloud is going to improve our ability to move down market should we choose.

Thanks again, guys appreciate the color.

You have your next question from Patrick Caulfield Deutsche Bank your lines open.

Hey, Thank you so much for squeaky clean.

Potential about E guidance.

Will be 21, but.

Two weeks.

Kind of contribution sink Mckee.

And I guess, it's so is any framework you can kind of get bust help quantify it.

Or any kind of metrics you can share in terms of the outbreak singular key was.

You know like as a as a kind of.

Private company was it.

Employees will.

Things to kind of help us shape.

<unk>.

I'm, sorry about that acquisition.

Yes, Patrick this is raj that can take that so.

Seniority is a relatively small company probably.

Just over a dozen folks between.

Employees and.

Between employees and contractors and.

They didn't have much in the way of.

Are are acquired so it's really insignificant.

And we're spending the time now rather than.

Simply rush to roll it out there were taken our time to to integrated into our pin Penguin cloud platform and.

So the fiscal 21 guidance really doesn't have much of anything.

On coming from that.

That's very cool.

Can you skip over the cube margins.

Looking a modem now I'd say one of the most important things fiscal 21.

The increase in profitability, obviously catch the line.

Huckabee this correctly.

Conjectural margin.

Five last year.

Two two years ago.

I understand I guess.

That dynamic whether it's coming from.

Clearly conquered like to mix it with just give us a pretty markers.

That's how we should think about the moslem per call them here.

Q.

Absolutely Patrick I'll take that too. So we are as you know where our financial ethos is to be a profitable growth company.

As you mentioned, we were close to break even a couple of years ago and cash flow positive last.

Last year and again expect could be this year. So that's not by accident we were.

We're very efficient and very disciplined and everything that we undertake and the business model has a lot of operating leverage in it.

It's.

I'd say that we've been an investment mode last year and this year again, not sort of looking too far ahead, but we will continue to lean into investments, where they're paying off but we're not.

We don't sort of peanut butter spread our investments around and hope for the best we're pretty surgical in what we invest in how we invest.

And and and measuring those things and and pivoting quickly from.

From initiatives that may be arm, delivering the highest roy to doubling down and those that are.

That's really cool. Thank you so much.

We have your next question from <unk> Lillian Blair your lines open.

Hi, Good afternoon, I, just wanted to maybe start out with I guess the improvement in terms of the pink cloud capabilities.

You've had this for a little bit of time now and I'm just wondering.

If I could add all your relationship with Microsoft which is oftentimes been a large partner on that side.

There's been no change in relationship as a result of the maturation of our cloud.

Platform our capabilities Jonathan we've.

We've enjoyed a good relationship with Microsoft as you'd imagine nearly every if not all of our large enterprises have strong Microsoft relationships.

We're looking to provide identity services that integrate not just with their own Microsoft consumed technologies.

But they're on from their legacy and.

And there are other cloud capabilities are other cloud deployment. So I didn't ping is pretty instrumental.

And providing a neutral.

Identity of services that allow those large enterprises to integrate identity across all of their clouds their legacy in there on prep.

That's always been the case.

I do believe that there will be an emerging set of opportunities between ping and Microsoft relative to some of our new orchestration capabilities of singular we haven't explored those yet.

We do anticipate exploring those in the years to come.

Got it and then just in terms of I guess the U S government opportunity can you talk a little bit about how.

How big of an opportunity Penguin for government could be in 2022, and maybe some of the rationale for why now too.

Kind of pushed into that vertical thank you.

We've had a number of government customers for some time that have run us on Prem.

We've had growing demand from those and new customers for Fedramp certified offering, but I would suggest that the federal have certified we're offering isn't limited to simply federal government.

New or existing opportunities.

There is a good swath of our private sector enterprises that do business with the government and it is a requirement that there solutions that interface with the government also be fedramp certified so the federal Amp opportunity Federal certification is larger than simply an opportunity to sell the federal government. It's.

It's to allow the large private enterprises, who are running ping to also interface with the federal government. So we're very bullish on where this goes.

We we have been wanting a fedramp solution for some time.

Getting a sponsor for federal certification is non trivial.

We've got a very very strong sponsor in the department of energy, who has been in pink customer for some time and they have agreed to sponsor us for multiple levels of Fedramp certification some of the higher levels of which will allow us to move into some highly secure.

Environments with our existing customers, who who who do business with the federal government.

Great. Thank you.

We have your next question from entering the Winski widow Sargo your lines open.

Oh, great. Thank you for screaming for one more I know you talked about came on and the maturity of your cloud solution, bringing you into more deals, but I was wondering if the recent cyber attacks like the one that Microsoft protected.

Or creating new demand or do you think the impact from those attack will be felt.

More than 2022, when companies reset their priorities and their budgets.

I think all of these cyber attacks.

Are putting essentially more focus on what is already a secular shift.

From traditional security methods and paradigms to an identity based.

Security paradigm. So I don't see that there is any one attack necessarily pointing to you must do this so to speak but what I am seeing as the nature and the persistence of the tax and the nature of the attacks themselves are essentially exposing identity weaknesses indoor IDENT.

Immaturity.

And all of that combined with.

The notions of Zero Trust, which is basically moving from the notion of perimeter based security firewalls, and vpns and trusted users on company issued computers in the building to a world where everybody is distributed yet we still need to secure it and we're going to need to carry it through the identity capabilities. So.

I don't see it as an immediate and pending change from anyone cyber attack, but every one of these attacks adds to the argument that they need to invest in identity.

Okay. Thank you.

So that concludes today's earnings call I want to thank everyone for joining us we look forward to providing you with additional updates that are December 1st Investor day, Thank you and good evening.

Ladies and gentlemen days concludes today's conference call. Thank you for your participation you may now disconnect.

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