RISK FACTORS
This offering and an investment in our common stock involve a high degree of risk. You should carefully consider the
risks described below, together with the financial and other information contained in this prospectus, before you decide to purchase shares of our common stock. If any of the following risks actually
occurs, our business, financial condition, results of operations, cash flows and prospects could be materially and adversely affected. As a result, the trading price of our common stock could decline
and you could lose all or part of your investment in our common stock.
Risks Relating to Our Business
If we fail to adapt to rapid technological change, evolving industry standards and changing customer needs,
requirements or preferences, our ability to remain competitive could be impaired.
The IAM market is characterized by rapid technological change, evolving industry standards and changing regulations, as well as changing
customer needs, requirements and preferences. The success of our business will depend, in part, on our ability to anticipate, adapt and respond effectively to these changes on a timely and
cost-effective basis. In addition, as our customers' technologies and business plans grow more complex, we expect them to face new and increasing challenges. Our customers require that our platform
effectively identify and respond to these challenges without disrupting the performance of our customers' IT systems or interrupting their business operations. As a result, we must continually modify
and improve our offerings in response to changes in our customers' IT infrastructures and operational needs or end-user preferences. The success of any enhancement to our existing offerings or the
deployment of new offerings depends on several factors, including the timely completion and market acceptance of our enhancements or new offerings. Any enhancement to our existing offerings or new
offerings that we develop and introduce involves significant commitment of time and resources and is subject to a number of risks and challenges including:
-
-
ensuring the timely release of new solutions, solution packages and solution enhancements;
-
-
adapting to emerging and evolving industry standards, technological developments by our competitors and customers and changing regulatory
requirements;
-
-
interoperating effectively with existing or newly-introduced technologies, systems or applications of our existing and prospective customers;
-
-
resolving defects, errors or failures in our platform, solutions or solution packages;
-
-
extending the operation of our offerings and services to new and evolving platforms, operating systems and hardware products, such as mobile
and IoT devices; and
-
-
managing new solution, solution packages and service strategies for the markets in which we operate.
If
we are not successful in managing these risks and challenges, or if our new solutions, solution upgrades and services are not technologically competitive or do not achieve market
acceptance, our business, results of operations and financial condition could be adversely affected.
If we are unable to enhance and deploy our cloud-based offerings while continuing to effectively offer our
on-premise offerings, our business and operating results could be adversely affected.
Historically, our revenue has been driven predominately by our on-premise offerings. For the year ended December 31, 2019,
$161.4 million, or 66%, of our total revenue was from subscription
15
Table of Contents
term
based licenses, whereas $63.9 million, or 26%, of our total revenue was from subscription SaaS and support and maintenance. For the year ended December 31, 2018,
$133.7 million, or 66%, of our total revenue was from subscription term-based licenses whereas $51.3 million, or 25%, of our total revenue was from subscription SaaS and support and
maintenance. For the year ended December 31, 2017, $122.1 million, or 71%, of our total revenue was from subscription term-based licenses, whereas $38.1 million, or 22%, of our
total revenue was from subscription SaaS and support and maintenance. The remainder of our revenue, or $12.3 million, $16.6 million and $17.6 million for the years ended
December 31, 2017, 2018 and 2019, respectively, was attributable to professional services and other. For the three months ended March 31, 2020, $38.1 million, or 62%, of our total
revenue was from subscription term based licenses, whereas $18.7 million, or 30%, of our total revenue was from subscription SaaS and support and maintenance. For the three months ended
March 31, 2019, $32.7 million, or 65%, of our total revenue was from subscription term-based licenses whereas $14.9 million, or 30%, of our total revenue was from subscription SaaS and
support and maintenance. The remainder of our revenue, or $2.8 million and $4.6 million for the three months ended March 31, 2019 and 2020, respectively, was attributable to professional
services and other. All of our revenue from support and maintenance and a portion of our revenue from professional services is associated with our on-premise offerings. As a result, for the periods
presented, the percentage of our total revenue from all revenue sources associated with on-premise offerings was significantly higher than the percentage of our total revenue based solely on
subscription term-based licenses and we expect this to remain true for the foreseeable future. We have responded to the increasing market shift toward cloud-based services by developing and
introducing additional cloud-based IAM offerings to our customers. While our customers are increasingly adopting our cloud-based offerings, we expect our customers to continue to require substantial
on-premise and hybrid offerings. To support hybrid deployment of our offerings, our developers and support team must be trained on and learn multiple environments in which our platform is deployed,
which is more expensive than supporting a cloud-only offering. Moreover, we must engineer our software for on-premise, cloud and hybrid deployments, which we expect will cause us additional research
and development expense that may impact our operating results. Furthermore, we cannot assure you that the market for cloud-based offerings will develop at a rate or in the manner we expect or that our
cloud-based offerings will be competitive with those of more established cloud-based providers or other new market entrants. We are directing a significant portion of our financial and operating
resources to implement a robust and secure cloud-based offering for our customers, but even if we continue to make these investments, we may be unsuccessful in growing or implementing our cloud-based
offerings in a way that competes successfully against our current and future competitors and in such event our business, results of operations and financial condition could be harmed. Customers may
require features and capabilities that our current solutions or solution packages do not have and that we may be unable to develop. If we are unable to develop and deploy cloud-based offerings
alongside on-premise offerings that satisfy customer preferences in a timely and cost-effective manner, it may harm our ability to renew subscriptions with existing customers and to create or increase
demand for our solutions or solution packages with new customers, and may adversely impact our financial condition and results of operations.
We face intense competition, especially from larger, well-established companies, and we may lack sufficient
financial or other resources to maintain or improve our competitive position.
The IAM market is intensely competitive, and we expect competition to increase in the future from established competitors and new market
entrants. We face competition from (1) legacy providers, (2) cloud-only providers and (3) homegrown solutions. Legacy providers include CA Technologies (now Broadcom), IBM
and Oracle, among others. We also compete with cloud-only providers, such as Okta and OneLogin that primarily focus on the workforce use case.
16
Table of Contents
Microsoft
also competes in our market and has tied its identity services to both its Azure and Office365 offerings. With the recent increase in large merger and acquisition transactions in the
technology industry, particularly transactions involving cloud-based technologies, there is a greater likelihood that we will compete with other large technology companies in the future. For example,
Amazon or Google could acquire or develop an IAM or identity security platform that competes directly with our solutions. These companies have significant name recognition, considerable resources and
existing IT infrastructures and powerful economies of scale and scope, which allow them to rapidly develop and deploy new solutions. Many of our existing competitors have, and some of our potential
competitors could have, substantial competitive advantages such as greater name recognition and longer operating histories, larger sales and marketing budgets and resources, broader distribution and
established relationships with channel partners and customers, greater customer support resources, greater resources to make acquisitions, lower labor and development costs, larger and more mature
intellectual property portfolios and substantially greater financial, technical and other resources.
In
addition, some of our larger competitors have substantially broader product offerings and leverage their relationships based on other products they offer or incorporate functionality
into existing products to gain business in a manner that discourages users from purchasing our solutions or solution packages, including through selling at zero or negative margins, product bundling
or closed technology platforms. Potential customers may also prefer to purchase from their existing suppliers rather than a new supplier regardless of product performance or features. Our larger
competitors often have broader product lines and market focus and are less susceptible to downturns in a particular market. Our competitors may also seek to repurpose their existing offerings to
provide identity solutions with subscription models. Additionally, start-up companies that innovate and large competitors that are making significant investments in research and development may invent
similar or superior products and technologies that compete with our solutions or solution packages.
Consolidation
in the markets in which we compete may affect our competitive position. This is particularly true in circumstances where customers are seeking to obtain a broader set of
solutions and services than we are currently able to provide. In addition, some of our competitors may enter into new alliances with each other or may establish or strengthen cooperative relationships
with system integrators, third-party consulting firms or other parties. Any such consolidation, acquisition, alliance or cooperative relationship could lead to pricing pressure and loss of market
share and could result in a competitor with greater financial, technical, marketing, service and other resources, all of which could harm our ability to compete. Furthermore, organizations may be more
willing to incrementally add solutions to their existing infrastructure from competitors than to replace their existing infrastructure with our solutions or solution packages. These competitive
pressures in our market or our failure to compete effectively may result in fewer orders and reduced revenue and gross margins. Any failure to meet and address these factors could adversely affect our
business, results of operations and financial condition.
The novel COVID-19 pandemic could materially adversely affect our business, operating results, financial
condition and prospects.
The novel Coronavirus Disease 2019, or COVID-19, was identified in China in late 2019 and has spread globally. The COVID-19 pandemic has
resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders and shutdowns. These measures have
impacted and may further impact all or portions of our facilities, workforce and operations, the behavior of our customers and consumers and the operations of our respective vendors and suppliers.
Concern over the impact of COVID-19 has delayed the purchasing decisions of prospective Ping Identity customers and caused certain
17
Table of Contents
existing
customers to opt for shorter renewal periods. While governmental authorities have taken measures to try to contain the COVID-19 pandemic, there is considerable uncertainty regarding such
measures and potential future measures. There is no certainty that measures taken by governmental authorities will be sufficient to mitigate the risks posed by the COVID-19 pandemic, and our ability
to perform critical functions could be harmed.
While
most of our operations can be performed remotely, there is no guarantee that we will be as effective while working remotely because our team is dispersed, many employees may have
additional personal needs to attend to (such as looking after children as a result of school closures or family who become sick), and employees may become sick themselves and be unable to work.
Decreased effectiveness of our team could adversely affect our results due to our inability to meet in person with potential customers, cancellation and inability to participate in conferences and
other
industry events that lead to sales generation, longer time periods to review and approve work product and a corresponding reduction in innovation, longer time to respond to platform performance
issues, or other decreases in productivity that could seriously harm our business. Significant management time and resources may be diverted from our ordinary business operations in order to develop,
implement and manage workplace safety strategies and conditions as we attempt to return to office workplaces. Further, we may decide to postpone or cancel planned investments in our business in
response to changes in our business as a result of the spread of COVID-19, or we may have to reduce headcount in certain areas of our business as a result of the economic impact of COVID-19, which may
impact our ability to respond to our customers' needs and fulfill contractual obligations. In addition, as a result of financial or operational difficulties, our suppliers, system integrators and
channel partners may experience delays or interruptions in their ability to provide services to us or our customers, if they are able to do so at all, which could interrupt our customers' access to
our services which could adversely affect their perception of our platform's reliability and result in increased liability exposure. We rely upon third parties for certain critical inputs to our
business and solutions, such as data centers and technology infrastructure. Any disruptions to services provided to us by third parties that we rely upon to provide our solutions, including as a
result of actions outside of our control, could significantly impact the continued performance of such solutions. This uncertain environment may also lead to increased cyber and fraud risk related to
COVID-19, as cybercriminals attempt to profit from the disruption, given the increase in online transaction activity. We could experience direct financial loss, or be exposed to contractual or
reputational liability, if we were affected by cyber security attacks.
The
COVID-19 pandemic has also significantly increased economic and demand uncertainty, and has led to disruption and volatility in the global capital markets, which can increase the
cost of capital and adversely impact access to capital. The COVID-19 pandemic has caused an economic slowdown, and it is possible that it could cause a global recession. The COVID-19 pandemic has
caused a general decrease in consumer spending and decrease in consumer confidence. Our revenue, results of operations and cash flows depend on the overall demand for our solutions and solution
packages. Concerns about the systemic impact of a potential widespread recession (in the United States or internationally), geopolitical issues or the availability and cost of credit have led to
increased market volatility, decreased consumer confidence and diminished growth expectations in the U.S. economy and abroad, which in turn could result in reductions in IT, IAM and identity security
spending by our existing and prospective customers, while also disrupting sales channels, marketing activities and supply chains for an unknown period of time until the outbreak is contained. Some of
our customers have experienced and may continue to experience financial hardship that may result in delayed or uncollectible payments. To add to the uncertainty, it is unclear when an economic
recovery could start and what a recovery will look like after this unprecedented shutdown of the economy. All of these factors are expected to have a negative impact on our revenue, cash flows and
results of operations.
18
Table of Contents
The
severity, magnitude and duration of the current COVID-19 pandemic is uncertain, rapidly changing and hard to predict and depends on events beyond our knowledge or control. These and
other impacts of the COVID-19 pandemic could have the effect of heightening many of the other
risks described in this "Risk Factors" section, such as those relating to our reputation, product sales, results of operations or financial condition. We might not be able to predict or respond to all
impacts on a timely basis to prevent near- or long-term adverse impacts to our results. As a result, we cannot at this time predict the impact of the COVID-19 pandemic, but it could have a material
adverse effect on our business, results of operations, financial condition and cash flows.
A network or data security incident may allow unauthorized access to our network or data or our customers'
data, harm our reputation, create additional liability and adversely impact our financial results.
Increasingly, companies are subject to a wide variety of attacks on their networks and systems. In addition to threats from traditional
computer hackers, malicious code (such as malware, viruses, worms and ransomware), employee theft or misuse, password spraying, phishing and distributed denial-of-service, or DDOS, attacks, we now
also face threats from sophisticated nation-state and nation-state supported actors who engage in attacks (including advanced persistent threat intrusions) that add to the risks to our internal
networks, our platform, our third-party service providers and our customers' systems and the information that they store and process. Despite significant efforts to create security barriers to
safeguard against such threats, it is virtually impossible for us to entirely mitigate these risks. As a well-known provider of IAM solutions, we pose an attractive target for such attacks. The
security measures we have integrated into our internal networks and platform, which are designed to detect unauthorized activity and prevent or minimize security breaches, may not function as expected
or may not be sufficient to protect our internal networks and platform against certain attacks. In addition, techniques used to sabotage or obtain unauthorized access to networks in which data is
stored or through which data is transmitted change frequently and generally are not recognized until launched against a target. As a result, we may be unable to anticipate these techniques or
implement adequate preventative measures to prevent an electronic intrusion into our networks.
If
a breach of customer data security or unauthorized access to customer systems through our platform were to occur, as a result of third-party action, employee error, malfeasance or
otherwise, and the confidentiality, integrity or availability of our customers' data or systems was disrupted, we could incur significant liability to our customers and to individuals or businesses
whose information we process, and our platform may be perceived as less desirable, which could negatively affect our business and damage our reputation. In such event, the potential liability exposure
to our customers under our contracts could significantly exceed the revenue associated with those contracts. Our ability to retain existing customers, expand use case and solution or solution package
penetration with existing customers and acquire new customers is dependent upon our reputation as a trusted intelligent security provider. The importance of our reputation in retaining existing
business and acquiring new business is heightened by our focus on enterprise customers. In addition, we have a number of customers that operate in highly-regulated industries where our customers' data
is particularly sensitive, such as financial services and healthcare. A network or security breach could damage our relationships with customers, result in the loss of customers across one or more use
case, solution or solution package and make it more challenging to acquire new customers and such damage would likely be heightened in the event a network or security breach occurred in the
highly-regulated industries we serve. Because techniques used to obtain unauthorized access to, or sabotage, systems change frequently and may not be recognized
until launched against a target, we and our customers may be unable to anticipate these techniques or implement adequate preventive measures.
19
Table of Contents
In
addition, security incidents impacting our platform or the systems of our third-party service providers could result in a risk of loss or unauthorized access to or disclosure of the
information we process on behalf of our customers. This, in turn, could require notification under applicable data privacy regulations, and could lead to litigation, governmental audits and
investigations and possible liability, damage our relationships with our existing customers, trigger indemnification and other contractual obligations, cause us to incur investigation, mitigation and
remediation expenses, and have a negative impact on our ability to attract and retain new customers. Furthermore, any such incident, including a breach of our customers' systems, could compromise our
networks or networks secured by our solutions, creating system disruptions or slowdowns and exploiting security vulnerabilities of our or our customers' networks, and the information stored on our or
our customers' systems could be accessed or disclosed without authorization, altered, lost or stolen, which could subject us to liability and cause us financial harm. An actual or perceived breach of
our networks, our customers' networks or other networks secured by our solutions, whether or not due to a vulnerability in our platform, may also undermine confidence in our platform or our industry
and result in expenditure of significant resources in efforts to analyze, correct, eliminate or work around errors or defects, delayed or lost revenue, delay in the development or release of new
solutions, solution packages or services, an increase in collection cycles for accounts receivable, damage to our brand and reputation, negative publicity, loss of channel partners, customers and
sales, increased costs to remedy any problem, increased insurance expense and costly litigation. In addition, if a high profile security incident occurs with respect to another IAM solution provider,
our customers and potential customers may lose trust in the value of the IAM solution business model generally, including the security of our solutions, which could adversely impact our ability to
retain existing customers or attract new ones, potentially causing a negative impact on our business. Any of these negative outcomes could adversely impact market acceptance of our solutions or
solution packages and could adversely affect our business, results of operations and financial condition.
Third
parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information or otherwise compromise
the security of our internal networks, electronic systems and/or physical facilities or those of our third-party service providers, in order to gain access to our data or our customers' data, which
could result in significant legal and financial exposure, a loss of confidence in the security of our platform, interruptions or malfunctions in our operations, and, ultimately, harm to our future
business prospects and revenue. We may be required to expend significant capital and financial resources to protect against such threats or to alleviate problems caused by breaches in security.
Our future revenue and operating results will be harmed if we are unable to acquire new customers, if our
customers do not renew their arrangements with us, or if we are unable to expand sales to our existing customers or develop new solutions and solution packages that achieve market acceptance.
To continue to grow our business, it is important that we continue to acquire new customers. Our success in adding new customers depends on
numerous factors, including our ability to (1) offer a compelling Intelligent Identity Platform and effective solutions and solution packages, (2) execute our sales and marketing
strategy, (3) attract, effectively train and retain new sales, marketing, professional services and support personnel in the markets we pursue, (4) develop or expand relationships with
channel partners, system integrators and technology partners, (5) expand into new geographies and vertical markets, (6) deploy our platform, solutions and solution packages for new
customers and (7) provide quality customer support once deployed.
It
is important to our continued growth that our customers renew their arrangements when existing contract terms expire. Our customers have no obligation to renew their subscription
agreements, and our customers may decide not to renew these agreements with a similar contract
20
Table of Contents
period,
at the same prices and terms or with the same or a greater number of identities, or at all. Our customer retention and expansion rates may decline or fluctuate as a result of a number of
factors, including our customers' satisfaction with our solutions or solution packages, our customer support and professional services, our prices and pricing plans, the competitiveness of other IAM
solutions and services, reductions in our customers' spending levels, user adoption of our solutions or solution packages, deployment success, utilization rates by our customers, new releases and
changes to our solutions and/or solution packages. Additionally, new consolidations, acquisitions, alliances or cooperative relationships involving one or more of our customers may lead such customers
not to renew their existing subscriptions with us.
Our
ability to increase revenue also depends in part on our ability to increase the number of identities managed by our platform and sell more use cases, solutions and solution packages
to our existing and new customers. Our ability to increase sales to existing customers depends on several factors, including their experience with implementing our solutions and solution packages and
using our platform and the existing solutions they have implemented, their ability to integrate our solutions and solution packages with existing technologies and our pricing model. As we expand our
market reach, we may experience difficulties in gaining traction and raising awareness among potential customers regarding the critical role that our solutions play in securing their businesses and we
may face more competitive pressure in such markets.
If
our new solutions and/or solution packages do not achieve adequate acceptance in the market or if we fail to effectively incorporate features and capabilities that our customers
expect, our competitive position could be impaired, and our potential to generate new revenue or to retain existing revenue could be diminished. The adverse effect on our financial results may be
particularly acute because of the significant research, development, marketing, sales and other expenses we will have incurred in connection with the new solutions and solution packages and our
ability to introduce compelling new solutions and solution packages that address the requirements of our customers in light of the dynamic IAM market in which we operate.
If
we are unable to successfully acquire new customers, retain our existing customers, expand sales to existing customers or introduce new solutions and solution packages, our business,
financial condition and operating results could be adversely affected.
If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high
levels of service and customer satisfaction or adequately address competitive challenges.
We have experienced, and may continue to experience, rapid growth and organizational change, which has placed, and may continue to place,
significant demands on our management and our operational and financial resources. Additionally, our organizational structure may become more complex as we improve our operational, financial and
management controls, as well as our reporting systems and procedures. We may require significant capital expenditures and the allocation of valuable management resources to grow and change in these
areas. If we fail to effectively manage our anticipated growth and change, the quality of our platform may suffer, which could negatively affect our brand and reputation and harm our ability to retain
and attract customers and employees.
We
currently have international operations in the United Kingdom, Canada, Australia, France, Germany, India, Israel, the Netherlands and Switzerland, and we may continue to expand our
international operations in these jurisdictions and/or other countries in the future. Our expansion has placed, and our expected future growth will continue to place, a significant strain on our
managerial, customer operations, research and development, sales and marketing, administrative, financial and other resources. If we are unable to manage our continued growth successfully, our
21
Table of Contents
business
and results of operations could suffer. In addition, as we expand our business, it is important that we continue to maintain a high level of customer service and satisfaction. As our customer
base continues to grow, we will need to expand our account management, customer service and other personnel, and our network of channel partners and system integrators, to provide personalized account
management and customer service. If we are not able to continue to provide high levels of customer service, our reputation, as well as our business, results of operations and financial condition,
could be adversely affected.
We depend on our senior management team and other key employees, and the loss of one or more of these
employees or an inability to attract and retain other highly skilled employees could harm our business.
Our success depends largely upon the continued services of our senior management team and other key employees. We rely on our leadership team
in the areas of research and development, operations, security, marketing, sales, customer support, general and administrative functions and on individual contributors in our research and development
and operations functions. From time to time, there may be changes in our executive management team resulting from the hiring or departure of executives, which could disrupt our business. We do not
have employment agreements with our executive officers or other key personnel that require them to continue to work for us for any specified period and, therefore, they could terminate their
employment with us at any time. The loss of one or more the members of our senior management team, or other key employees could harm our business. In particular, the loss of services of our founder
and Chief Executive Officer, Andre Durand, could significantly delay or prevent the achievement of our strategic objectives. Changes in our executive management team may also cause disruptions in, and
harm to, our business.
Failure to effectively develop and expand our sales and marketing capabilities could harm our ability to
increase our customer base and achieve broader market acceptance of our solutions and solution packages.
Our ability to increase our customer base and achieve broader market acceptance of our solutions and solution packages will depend on our
ability to expand our sales and marketing operations. Our business will be harmed if our business development efforts do not generate a corresponding increase in revenue. We may not achieve
anticipated revenue growth from expanding our direct sales force if we are unable to hire and develop talented direct sales personnel, if our new direct sales personnel are unable to achieve desired
productivity levels in a reasonable period of time, or if we are unable to retain our existing direct sales personnel. There is
significant competition for sales personnel with the advanced sales skills and technical knowledge we need. Selling our solutions and solution packages to sophisticated enterprise customers requires
particularly talented sales personnel with the ability to communicate the transformative potential of our platform.
We must attract and retain highly qualified personnel in order to execute our growth plan.
Competition for highly qualified personnel is intense, especially for engineers experienced in designing and developing software and SaaS
offerings and experienced sales professionals. In recent years, recruiting, hiring and retaining employees with expertise in our industry has become increasingly difficult as the demand for
cybersecurity and identity professionals has increased as a result of the recent cybersecurity attacks on global corporations and governments. We have, from time to time experienced, and we expect to
continue to experience, difficulty in hiring and retaining employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than
we have. If we hire employees from
22
Table of Contents
competitors
or other companies, their former employers may attempt to assert that these employees or we have breached certain legal obligations, resulting in a diversion of our time and resources. If
we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be harmed.
If there are interruptions or performance problems associated with our technology or infrastructure, our
existing customers may experience service outages, and our new customers may experience delays in the deployment of our platform.
Our continued growth depends on the ability of our existing and potential customers to access our platform 24 hours a day, seven days a
week, without interruption or degradation of performance. We have in the past and may in the future experience disruptions, outages and other performance problems with our infrastructure due to a
variety of factors, including infrastructure changes, introductions of new functionality, human or software errors, capacity constraints, DDOS attacks or other security-related incidents. In some
instances, we may not be able to identify the cause or causes of these performance problems immediately or in short order. We may not be able to maintain the level of service uptime and performance
required by our
customers, especially during peak usage times and as our solutions and solution packages become more complex and our user traffic increases. If our platform is unavailable or if our customers are
unable to access our solutions or deploy them within a reasonable amount of time, or at all, our business would be harmed. The adverse effects of any service interruptions on our reputation and
financial condition may be disproportionately heightened due to the nature of our business and the fact that our customers expect continuous and uninterrupted access to our solutions and have a low
tolerance for interruptions of any duration. Since our customers rely on our solutions to provide and secure access to their IT infrastructures and to support customer-facing applications, any outage
on our platform would impair the ability of our customers to operate their businesses, which would negatively impact our brand, reputation and customer satisfaction.
Moreover,
we depend on services from various third parties to maintain our cloud infrastructure and deploy our solutions, such as Amazon Web Services, or AWS, cloud infrastructure
services, which hosts our platform. If a service provider fails to provide sufficient capacity to support our platform or otherwise experiences service outages, such failure could interrupt our
customers' access to our services, which could adversely affect their perception of our platform's reliability and our revenue. Any disruptions in these services, including as a result of actions
outside of our control, would significantly impact the continued performance of our solutions. In the future, these services may not be available to us on commercially reasonable terms, or at all. Any
loss of the right to use any of these services could result in decreased functionality of our solutions until equivalent technology is either developed by us or, if available from another provider, is
identified, obtained and integrated into our infrastructure. If we do not accurately predict our infrastructure capacity requirements, our customers could experience service shortfalls. We may also be
unable to effectively address capacity constraints, upgrade our systems as needed and continually develop our technology and network architecture to accommodate actual and anticipated changes in
technology.
Our
platform is accessed by a large number of customers, often at the same time. As we continue to expand the number of our customers and solutions and solution packages available to
our customers, we may not be able to scale our technology to accommodate the increased capacity requirements, which may result in interruptions or delays in service. In addition, the failure of
third-party cloud infrastructure providers, third-party internet service providers or other third-party service providers whose services are integrated with our platform to meet our capacity
requirements could result in interruptions or delays in access to our platform or impede our ability to scale our operations. In the event that our service agreements are terminated with our cloud
infrastructure providers, or there is a lapse of service, interruption of internet service provider connectivity or damage to such providers' facilities, we could experience interruptions in access to
our platform as well as delays and additional expense in arranging new facilities and services.
23
Table of Contents
Any of the above circumstances or events may harm our reputation, cause customers to terminate their agreements with us, impair our ability to obtain
subscription renewals from existing customers, impair our ability to grow our customer base, result in the expenditure of significant financial, technical and engineering resources, subject us to
financial penalties and liabilities under our service level agreements, and otherwise could adversely affect our business, results of operations and financial condition.
The delivery of our platform depends on AWS cloud infrastructure services.
Our SaaS offerings are hosted solely in AWS and our other offerings utilize the cloud infrastructure offered by AWS. Our operations depend on
maintaining the configuration, architecture and interconnection specifications required by AWS. Although we have disaster recovery plans that utilize multiple AWS infrastructure locations, any
incident affecting this infrastructure that may be caused by fire, flood, severe storm, earthquake, power loss, telecommunications failures, unauthorized intrusion, computer viruses and disabling
devices, natural
disasters, war, criminal act, military actions, terrorist attacks and other similar events beyond our control could negatively affect our platform. A prolonged AWS service disruption affecting our
platform for any of the foregoing reasons could damage our reputation with current and potential customers, expose us to liability, cause us to lose customers or otherwise harm our business. In
addition, since all of our cloud-based offerings utilize AWS cloud infrastructure services, in the event of a prolonged AWS services disruption we may not be able to find an alternative provider on
commercially reasonable terms or in a timely manner, if at all. We may also incur significant costs for using alternative equipment or taking other actions in preparation for, or in reaction to,
events that damage the AWS services we use.
AWS
enables us to order and reserve server capacity in varying amounts and sizes distributed across multiple regions. AWS provides us with computing and storage capacity pursuant to an
agreement that continues until terminated by either party. AWS may terminate the agreement by providing 30 days prior written notice and may, in some cases, terminate the agreement immediately
for cause upon notice. If AWS terminates its agreement with us, we may be unable to deploy certain of our solutions and our business, results of operations and financial condition may be adversely
affected.
In
addition, since all of our cloud-based offerings utilize AWS cloud infrastructure resources, our customers' satisfaction with our cloud-based offerings is dependent in part upon
their perceptions and satisfaction with AWS cloud infrastructure services. Dissatisfaction with AWS cloud infrastructure services could damage our relationships with customers and/or result in the
loss of customers across one or more use case, solution or solution package.
Data privacy concerns, evolving regulations of cloud computing, cross-border data transfer restrictions and
other domestic and foreign laws and regulations may limit the use and adoption of, or require modification of, our solutions, solution packages and services, which could adversely affect our business.
Laws and regulations related to the provision of services on the Internet are increasing, as federal, state and foreign governments continue to
adopt new laws and regulations addressing data privacy and the collection, processing, storage and use of personal information. Internationally, many of the jurisdictions in which we operate have
established their own data security and privacy legal frameworks with which we, or our customers, must comply. We have implemented various features and processes intended to enable our customers to
better comply with applicable privacy and security requirements, but these features and processes do not guarantee compliance and may not guard against all potential privacy concerns.
24
Table of Contents
For
example, the European Union, or the EU, adopted the General Data Protection Regulation, or the GDPR, which became effective and enforceable across all then-current member states of
the EU on May 25, 2018. Following the U.K.'s withdrawal from the EU on January 31, 2020, pursuant to the transitional arrangements agreed between the U.K. and EU, the GDPR will continue
to have effect in U.K. law, until December 31, 2020, in the same fashion as was the case prior to that withdrawal as if the U.K. remained a member state of the EU for such purposes. Following
December 31, 2020, it is likely that the data protection obligations of the GDPR will continue to apply to U.K.-based organization's processing of personal data in substantially unvaried form
and fashion, for at least the short term thereafter. The GDPR applies to any company established in the EU as well as to those outside the EU if they process personal data in relation to the offering
of goods or services to individuals in the EU and/or the monitoring of their behavior. The GDPR enhances data protection obligations for both processors and controllers of personal data, including by
extending the rights available to affected data subjects, materially expanding the definition of what is expressly noted to constitute personal data, requiring additional disclosures about how
personal data is to be used, and imposing limitations on retention of personal data, creating mandatory data breach notification requirements in certain circumstances, and establishing onerous new
obligations on services providers who process personal data simply on behalf of others. Under the GDPR, fines of up to €20 million or up to 4% of an undertaking's total
worldwide annual turnover of the preceding financial year, whichever is higher, may be imposed. In addition to administrative fines, a wide variety of other potential enforcement powers are available
to competent authorities in respect of potential and suspected violations of the GDPR, including extensive audit and inspection rights, and powers to order temporary or permanent bans on all or some
processing of personal data carried out by noncompliant actors. Given the breadth and depth of changes in data protection obligations, complying with its requirements has caused us to expend
significant resources and such expenditures are likely to continue into the near future as we respond to new interpretations, additional guidance and potential enforcement actions and patterns, and as
we continue to negotiate data processing agreements with our customers and business partners. While we have taken steps to comply with the GDPR, and implementing legislation in applicable member
states, including by seeking to establish appropriate lawful bases for the various processing activities we carry out as a controller, reviewing our security procedures, and entering into data
processing agreements with relevant customers and business partners, we cannot assure you that our efforts to achieve and remain in compliance have been, and/or will continue to be, fully successful.
In
the United States, California enacted the California Consumer Privacy Act, or the CCPA, on June 28, 2018, which took effect on January 1, 2020. The CCPA gives
California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing and receive detailed information about how their personal
information is used. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may
increase our compliance costs and potential liability. Some observers have noted that the CCPA could mark the beginning of a trend toward more stringent privacy legislation in the U.S., which could
increase our potential liability and adversely affect our business.
Privacy
and data protections laws and regulations are subject to new and differing interpretations and there may be significant inconsistency in laws and regulations among the
jurisdictions in which we operate or provide our SaaS offerings. Legal and other regulatory requirements could restrict our ability to store and process data as part of our SaaS offerings, or, in some
cases, impact our ability to provide our SaaS offerings in certain jurisdictions. Our inability to provide our offerings in certain jurisdictions, particularly China and Russia, as a result of their
local data privacy frameworks may result in the loss of business opportunities from customers operating in, or seeking to expand into, those jurisdictions. In addition, we may seek to engage third
party
25
Table of Contents
support
providers in certain jurisdictions in order to comply with our customers' data privacy concerns and such engagements may be costly.
Privacy
and data protection laws and regulations may also impact our customers' ability to deploy certain of our solutions and solution packages globally, to the extent they utilize our
solutions and solution packages for storing personal information that they process. Additionally, if third parties that we work with violate applicable laws or our policies, such violations may also
put our customers' information at risk and could in turn have an adverse effect on our business. The costs of compliance with, and other burdens imposed by, data privacy laws, regulations and
standards may require resources to create new solutions or solution packages or modify existing solutions or solution packages, could lead to us being subject to significant fines, penalties or
liabilities for noncompliance, could lead to complex and protracted contract negotiations with respect to privacy and data protection terms, and may slow the pace at which we close sales transactions,
any of which could harm our business.
The
data protection landscape is rapidly evolving, and we expect that there will continue to be new proposed laws, regulations and industry standards concerning privacy, data protection
and information security. We cannot yet determine the impact that such future laws, regulations and standards may have on our business. Such laws and regulations are often subject to differing
interpretations and may be inconsistent among jurisdictions. Any failure or perceived failure by us to comply with federal, state or foreign laws or regulations, industry standards, contractual
obligations or other legal obligations, with respect to any security incident, whether or not resulting in unauthorized access to, or acquisition, release or transfer of personal data or other data,
may result in governmental enforcement actions and prosecutions, private litigation, fines and penalties, friction in our customer relationships or adverse publicity, and could cause our customers to
lose trust in us, which could have an adverse effect on our reputation and business.
Around
the world, there are numerous lawsuits in process against various technology companies that process personal data. If those lawsuits are successful, it could increase the
likelihood that we may be exposed to liability for our own policies and practices concerning the processing of
personal data and could hurt our business. Furthermore, the costs of compliance with, and other burdens imposed by, laws, regulations and policies concerning privacy and data security that are
applicable to the businesses of our customers may limit the use and adoption of our platform and reduce overall demand for it.
In
addition, if our platform is perceived to cause, or is otherwise unfavorably associated with, violations of privacy or data security requirements, it may subject us or our customers
to public criticism and potential legal liability. Existing and potential laws and regulations concerning privacy and data security and increasing sensitivity of consumers to unauthorized processing
of personal data may create negative public reactions to technologies, solutions, solution packages and services such as ours. Public concerns regarding personal data processing, privacy and security
may cause some of our customers' end users to be less likely to visit their websites or otherwise interact with them. If enough end users choose not to visit our customers' websites or otherwise
interact with them, our customers could stop using our platform. This, in turn, may reduce the value of our service and slow or eliminate the growth of our business.
Our
continued development of AI and ML is dependent, in part, on our customers' willingness to allow us to use their data to develop the necessary algorithms. Concerns about data
privacy may discourage customers from allowing us to use their data in this manner, which may limit our ability to continue to leverage AI and ML in our Intelligent Identity Platform.
26
Table of Contents
Our quarterly operating results and other metrics are likely to vary significantly and be unpredictable,
which could cause the trading price of our stock to decline.
Our operating results and other metrics have historically varied from period to period, and we expect that they will continue to do so as a
result of a number of factors, many of which are outside of our control and may be difficult to predict, including:
-
-
the level of demand for our solutions and solution packages, including our newly-introduced solutions and offering of solution packages, and
the level of perceived urgency regarding security threats and compliance requirements;
-
-
the timing and use of new subscriptions and renewals of existing subscriptions;
-
-
the mix of cloud and on-premise offerings sold and the associated contract term;
-
-
the extent to which customers subscribe for additional solutions or solution packages, or increase the number of identities or use cases;
-
-
significant security breaches of, technical difficulties with, or interruptions to, the delivery and use of our offerings;
-
-
customer budgeting cycles and seasonal buying patterns where our customers often time their purchases and renewals of our solutions or solution
packages to coincide with their fiscal year end, which is typically June 30 or December 31;
-
-
any changes in the competitive landscape of our industry, including consolidation among our competitors, customers, partners or resellers;
-
-
timing of costs and expenses during a quarter;
-
-
deferral of orders in anticipation of new solutions, solution packages or enhancements announced by us or our competitors;
-
-
price competition;
-
-
changes in renewal rates and terms in any quarter;
-
-
costs related to the acquisition of businesses, talent, technologies or intellectual property by us, including potentially significant
amortization costs and possible write-downs;
-
-
litigation-related costs, settlements or adverse litigation judgments;
-
-
any disruption in our sales channels or termination of our relationship with channel and other strategic partners;
-
-
general economic conditions, both domestically and in our foreign markets, and related changes to currency exchange rates;
-
-
insolvency or credit difficulties confronting our customers, affecting their ability to purchase or pay for our solutions and solution
packages; and
-
-
future accounting pronouncements or changes in our accounting policies.
Any
one of the factors above or the cumulative effect of some of the factors referred to above may result in significant fluctuations in our financial and other operating results,
including fluctuations in our key metrics. This variability and unpredictability could result in our failing to meet the expectations of securities analysts or investors for any period. If we fail to
meet or exceed such expectations for these or any other reasons, the market price of our shares could fall substantially and we could face costly lawsuits, including securities class action suits. In
addition, a significant percentage of our operating expenses are fixed in nature and based on forecasted revenue and
27
Table of Contents
cash
flow trends. Accordingly, in the event of revenue shortfalls, we are generally unable to mitigate the negative impact on margins or other operating results in the short term.
We
may fail to meet or exceed the expectations of securities analysts and investors, and the market price for our common stock could decline. If one or more of the securities analysts
who cover us change their recommendation regarding our stock adversely, the market price for our common stock could decline. Additionally, our stock price may be based on expectations, estimates or
forecasts of our future performance that may be unrealistic or may not be achieved. Further, our stock price may be affected by financial media, including press reports and blogs.
Our revenue recognition policy and other factors may distort our financial results in any given period and
make them difficult to predict.
Under accounting standards update No. 2014-09 (Topic 606), Revenue from Contracts with Customers, or ASC 606, we recognize revenue when
our customer obtains control of goods or services in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. Our subscription revenue includes
subscription term-based license revenue, which is recognized when we transfer control of the term-based license to the customer, and subscription SaaS and support and maintenance revenue, which is
recognized ratably over the contract period. Because subscription term-based license revenue is recognized
upfront, a single, large license in a given period may distort our operating results for that period. In contrast, the impact of agreements that are recognized ratably may take years to be fully
reflected in our financial statements. Consequently, a significant increase or decline in our subscription SaaS and support and maintenance contracts in any one quarter will not be fully reflected in
the results for that quarter, but will affect our revenue in future quarters. This also makes it challenging to forecast our revenue for future periods, as both the mix of solutions, solution packages
and services we will sell in a given period, as well as the size of contracts, is difficult to predict.
Furthermore,
the presentation of our financial results requires us to make estimates and assumptions that may affect revenue recognition. In some instances, we could reasonably use
different estimates and assumptions, and changes in estimates are likely to occur from period to period. See "Management's Discussion and Analysis of Financial Condition and Results of
Operations Critical Accounting Policies Revenue Recognition".
Given
the foregoing factors, our actual results could differ significantly from our estimates, comparing our revenue and operating results on a period-to-period basis may not be
meaningful, and our past results may not be indicative of our future performance.
If we fail to enhance our brand cost-effectively, our ability to expand our customer base will be impaired
and our business, results of operations and financial condition may be adversely affected.
We believe that developing and maintaining awareness of our brand in a cost-effective manner is critical to achieving widespread acceptance of
our existing and future solutions and solution packages and is an important element in attracting new customers. We believe that the importance of brand recognition will increase as competition in our
market increases. Successful promotion of our brand will depend largely on the effectiveness of our marketing efforts and on our ability to develop and deploy high-quality, reliable and differentiated
solutions and solution packages to customers. In the past, our efforts to build our brand have involved significant expense. Brand promotion activities may not yield increased revenue, and even if
they do, any increased revenue may not offset the expense we incur in building our brand. If we fail to successfully promote and maintain our brand, or incur substantial expense in an unsuccessful
attempt to promote and maintain our brand, we may fail to attract new customers or retain our existing customers to the
28
Table of Contents
extent
necessary to realize a sufficient return on our brand-building efforts, and our business, results of operations and financial condition could be adversely affected.
We are subject to anti-corruption, anti-bribery and similar laws, and non-compliance with such laws can
subject us to criminal penalties or significant fines and harm our business and reputation.
We are subject to anti-corruption and anti-bribery and similar laws, such as the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the
FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, the U.K. Bribery Act 2010 and other anti-corruption, anti-bribery and
anti-money laundering laws in countries in which we conduct activities. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly and prohibit
companies and their employees and agents from promising, authorizing, making, offering, soliciting, or accepting, directly or indirectly, improper payments or other improper benefits to or from any
person whether in the public or private sector. As we increase our international sales and business, our risks under these laws may increase. Noncompliance with these laws could subject us to
investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, adverse media
coverage and other consequences. Any investigations, actions or sanctions could adversely affect our business, results of operations and financial condition.
We are subject to governmental export and import controls and economic sanctions laws that could impair our
ability to compete in international markets and subject us to liability if we are not in full compliance with applicable laws.
Our business activities are subject to various restrictions under U.S. export and import controls and trade and economic sanctions laws,
including the U.S. Commerce Department's Export Administration Regulations, U.S. Customs regulations and various economic and trade sanctions regulations maintained by the U.S. Treasury Department's
Office of Foreign Assets Control. U.S. export control laws and U.S. economic sanctions laws include prohibitions on the sale or supply of certain products and services to U.S. embargoed or sanctioned
countries, governments, persons and entities. Changes in our solutions, solution packages or services or changes in applicable export or import regulations may create delays in the introduction and
sale of our solutions and solution packages in international markets, prevent our customers with international operations from deploying our solutions or solution packages or, in some cases, prevent
the export or import of our solutions or solution packages to certain countries,
governments, or persons altogether. Any decreased use of our solutions and solution packages or limitation on our ability to export or sell our solutions and solution packages would likely adversely
affect our business.
Furthermore,
we incorporate encryption technology into certain of our solutions. U.S. export control laws require authorization for the export of encryption items. In addition, various
countries regulate the import of certain encryption technology, including through import permitting and licensing requirements, and have enacted laws that could limit our ability to deploy our
solutions, solution packages and services or could limit our customers' ability to implement our offerings and services in those countries. Obtaining the necessary authorizations, including any
required license, for a particular transaction may be time-consuming, is not guaranteed, and may result in the delay or loss of sales opportunities.
Although
we take precautions to prevent our solutions and solution packages from being provided in violation of U.S. export control and economic sanctions laws, our solutions and
solution packages may have been in the past, and could in the future be, provided inadvertently in violation of such laws. If we fail to comply with U.S. export control and economic sanctions laws and
29
Table of Contents
regulations,
we and certain of our employees could be subject to civil or criminal penalties, including the possible loss of export privileges and monetary penalties. In addition, violations of such
laws could result in negative consequences to us, including government investigations, penalties and harm to our reputation.
We function as a HIPAA "business associate" for certain of our customers and, as such, are subject to strict
privacy and data security requirements. If we fail to comply with any of these requirements, we could be subject to significant liability, all of which can adversely affect our business as well as our
ability to attract and retain new customers.
The Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical
Health Act, or HITECH, and their respective implementing regulations, or HIPAA, imposes specified requirements relating to the privacy, security and transmission of individually identifiable health
information. Among other things, HITECH makes HIPAA's security standards directly applicable to "business associates". We function as a business associate for certain of our customers that are HIPAA
covered entities and service providers, and in that context we are regulated as a business associate for the purposes of HIPAA. If we are unable to comply with our obligations as a HIPAA business
associate, we could
face substantial civil and even criminal liability. HITECH imposes four tiers of civil monetary penalties and gives state attorneys general authority to file civil actions for damages or injunctions
in federal courts to enforce the federal HIPAA laws and seek attorneys' fees and costs associated with pursuing federal civil actions. In addition, many state laws govern the privacy and security of
health information in certain circumstances, many of which differ from HIPAA and each other in significant ways and may not have the same effect.
As
a business associate, we are required by HIPAA to maintain HIPAA-compliant business associate agreements with our customers that are HIPAA covered entities and service providers, as
well as our subcontractors that access, maintain, create or transmit individually identifiable health information on our behalf for the rendering of services to our HIPAA covered entity and service
provider customers. These agreements impose stringent data security and other obligations on us. If we or our subcontractors are unable to meet the requirements of any of these business associate
agreements, we could face contractual liability under the applicable business associate agreement as well as possible civil and criminal liability under HIPAA, all of which can have an adverse impact
on our business and generate negative publicity, which, in turn, can have an adverse impact on our ability to attract and retain customers.
We may be the subject of various legal proceedings which could have a material adverse effect on our
business, financial condition or results of operations.
In the ordinary course of business, we may be involved in various litigation matters, including but not limited to commercial disputes,
employee claims and class actions, and from time to time may be involved in governmental or regulatory investigations or similar matters arising out of our current or future business. Any claims
asserted against us, regardless of merit or eventual outcome, could harm our reputation and have an adverse impact on our relationship with our customers and other third parties and could lead to
additional related claims. Certain claims may seek injunctive relief, which could disrupt the ordinary conduct of our business and operations or increase our cost of doing business. Our insurance or
indemnities may not cover all claims that may be asserted against us, and any claims asserted against us, regardless of merit or eventual outcome, may harm our reputation and cause us to expend
resources in our defense. Furthermore, there is no guarantee that we will be successful in defending ourselves in future litigation or similar matters under various laws. Should the ultimate judgments
or settlements in any future litigation or
30
Table of Contents
investigation
significantly exceed our insurance coverage, they could adversely affect our business, results of operations and financial condition.
Our sales cycle is frequently long and unpredictable, and our sales efforts require considerable time and
expense.
Since we primarily focus on selling our solutions and solution packages to enterprises, the timing of our sales can be difficult to predict. We
and our channel partners are often required to spend significant time and resources to better educate and familiarize potential customers with the value proposition of our platform, solutions and
solution packages. Customers often view the purchase of our solutions and solution packages as a strategic decision and significant investment and, as a result, frequently require considerable time to
evaluate, test and qualify our platform, solutions and solution packages prior to purchasing our solutions and/or solution packages. In particular, for customers in highly-regulated industries, the
selection of a security solution provider is a critical business decision due to the sensitive nature of these customers' data, which results in particularly extensive evaluation prior to the
selection of information security vendors. During the sales cycle, we expend significant time and money on sales and marketing and contract negotiation activities, which may not result in a sale.
Additional factors that may influence the length and variability of our sales cycle include:
-
-
the discretionary nature of purchasing and budget cycles and decisions;
-
-
lengthy purchasing approval processes;
-
-
the industries in which our customers operate;
-
-
the evaluation of competing solutions and solution packages during the purchasing process;
-
-
time, complexity and expense involved in replacing existing solutions;
-
-
announcements or planned introductions of new solutions and solution packages, features or functionality by our competitors or of new
solutions, solution packages or offerings by us; and
-
-
evolving functionality demands.
If
our efforts in pursuing sales and customers are unsuccessful, or if our sales cycles lengthen, our revenue could be lower than expected, which would adversely affect our business,
results of operations or financial condition.
Our growth strategy includes the acquisition of other businesses or technologies, and we may not be able to
identify suitable acquisition targets or otherwise successfully implement our growth strategy.
In order to expand our business, we have made several acquisitions of businesses, products and technologies and expect to continue making
similar acquisitions and possibly larger acquisitions as part of our growth strategy. The success of our future growth strategy will depend in part on our ability to identify, negotiate, complete and
integrate the acquisition of businesses or technologies and, if necessary, to obtain satisfactory debt or equity financing to fund those acquisitions. We expect to continue evaluating potential
strategic acquisitions of businesses, assets and technologies. However, we may not be able to identify suitable candidates, negotiate appropriate or favorable acquisition terms, obtain financing that
may be needed to consummate such transactions or complete proposed acquisitions. Further, there is significant competition for acquisition and expansion opportunities in the IAM industry.
31
Table of Contents
Acquisitions
are inherently risky, and any acquisitions we complete may not be successful. Our past acquisitions and any acquisitions that we may undertake in the future involve
numerous risks, including, but not limited to, the following:
-
-
difficulties in integrating and managing the operations, personnel, procedures, IT systems, technologies and the systems and solutions of the
companies we acquire;
-
-
diversion of our management's attention from normal daily operations of our business;
-
-
potential loss of key employees, management and engineers of the companies we acquire;
-
-
our inability to maintain the key business relationships and the reputations of the businesses we acquire;
-
-
the price we pay for any business, asset or technology acquired may overstate the value of that business, asset or technology or otherwise be
too high;
-
-
uncertainty of entry into markets in which we have limited or no prior experience and in which competitors have stronger market positions;
-
-
our dependence on unfamiliar affiliates, resellers and partners of the companies we acquire;
-
-
our inability to increase sales from an acquisition for a number of reasons, including our failure to drive demand in our existing customer
base for acquired businesses, assets or technologies;
-
-
increased costs related to acquired operations and continuing support and development of acquired systems;
-
-
our responsibility for the liabilities of the businesses we acquire and the potential failure to properly identify an acquisition target's
liabilities, potential liabilities or risks;
-
-
potential goodwill and intangible asset impairment charges and amortization associated with acquired businesses;
-
-
failure to achieve acquisition synergies or to properly evaluate a target company's capabilities;
-
-
adverse tax consequences associated with acquisitions;
-
-
changes in how we are required to account for our acquisitions under GAAP, including arrangements that we assume from an acquisition;
-
-
potential negative perceptions of our acquisitions by customers, financial markets or investors;
-
-
failure to obtain any applicable required approvals from governmental authorities under competition and antitrust laws on a timely basis, if at
all, which could, among other things, delay or prevent us from completing a transaction, or otherwise restrict our ability to realize the expected financial or strategic goals of an acquisition;
-
-
potential increases in our interest expense, leverage and debt service requirements if we incur additional debt to pay for an acquisition, or
dilution to our shareholders if we issue shares as consideration for an acquisition; and
-
-
our inability to apply and maintain our internal standards, controls, procedures and policies to acquired businesses.
We
regularly evaluate potential acquisition candidates and engage in discussions and negotiations regarding potential acquisitions; however, even if we execute a definitive agreement
for
32
Table of Contents
an
acquisition, there can be no assurance that we will consummate the transaction within the anticipated closing timeframe, or at all. Further, acquisitions typically involve the payment of a premium
over book- and market-values and, therefore, some dilution of our tangible book value and earnings per common share may occur in connection with any future transaction.
Inherent
in any future acquisition is the risk of transitioning company cultures and facilities. The failure to efficiently and effectively achieve such transitions could increase our
costs and decrease our profitability. Although we expect that the realization of efficiencies related to the integration of
any acquired businesses will offset incremental transaction and acquisition-related costs over time, anticipated financial benefits may not be achieved in the near term, or at all.
Additionally,
acquisitions or asset purchases made entirely or partially for cash may reduce our cash reserves or require us to incur additional debt under our credit agreements or
otherwise. We may seek to obtain additional cash to fund an acquisition by selling equity or debt securities. We may be unable to secure the equity or debt funding necessary to finance future
acquisitions on terms that are acceptable to us. If we finance acquisitions by issuing equity or convertible debt securities, our existing shareholders will experience ownership dilution.
The
occurrence of any of these risks could have a material adverse effect on our business, results of operations or financial condition.
We may need to change our pricing models to compete successfully.
The intense competition we face in the sales of our solutions, solution packages and services and general economic and business conditions can
put pressure on us to change our prices. If our competitors offer deep discounts on certain solutions, solution packages or services or develop solutions and/or solution packages that the marketplace
considers more valuable than ours, we may need to lower prices or offer other favorable terms in order to compete successfully. Any such changes may reduce margins and could adversely affect operating
results. Additionally, the increasing prevalence of cloud and SaaS delivery models offered by us and our competitors may unfavorably impact pricing for both our on-premise and cloud-based offerings,
as well as overall demand for our on-premise software and service offerings, which could reduce our revenues and profitability. Our competitors may offer lower pricing on their support offerings,
which could put pressure on us to further discount our offering or support pricing. We also must determine the appropriate price of our offerings and services to enable us to compete effectively
internationally.
Any
broad-based change to our prices and pricing policies could cause our revenue to decline or be delayed as our sales force implements and our customers adjust to new pricing
policies. For example, we began providing solution packages that include combinations of our most commonly deployed solutions in March 2020. We or our competitors may bundle solutions in other ways
for promotional purposes or as a long-term go-to-market or pricing strategy or provide guarantees of prices and solution and solution package implementations. These practices could, over time,
significantly constrain the prices that we can charge for certain of our solutions and solution packages. If we do not adapt our pricing models to reflect changes in customer use of our solutions and
solution packages or changes in customer demand, our revenue could decrease.
Our failure to meet certain of our service level commitments could harm our business, results of operations
and financial condition.
Our customer agreements contain service level commitments, under which we guarantee specified availability and error resolution times with
respect to our solutions. Any failure of or disruption to our infrastructure could make our solutions unavailable to our customers. If we are unable to meet the stated service level commitments to our
customers or suffer extended periods of unavailability of our SaaS offerings, we may be contractually obligated to provide affected
33
Table of Contents
customers
with service credits, or customers could elect to terminate and receive refunds for prepaid amounts related to unused subscriptions. Our revenue, other results of operations and financial
condition could be harmed if we suffer unscheduled downtime that exceeds the service level commitments under our agreements with our customers, and any extended service outages could adversely affect
our business and reputation as customers may elect not to renew.
If we fail to offer high-quality customer support, our business and reputation will suffer.
Once our solutions and solution packages are deployed, our customers rely on our support services to resolve any issues that may arise.
High-quality customer education and customer support is important for the successful marketing and sale of our solutions and solution packages and for the renewal of existing customers. We must
successfully assist our customers in deploying our solutions and solution packages, resolving performance issues and addressing interoperability challenges with a customer's existing network and
security infrastructure. Many enterprises, particularly large enterprises, have complex networks and require high levels of focused support, including premium support offerings, to fully realize the
benefits of our solutions. Any failure by us to maintain the expected level of support could reduce customer satisfaction and hurt our customer retention, particularly with respect to our large
enterprise customers. To the extent that we are unsuccessful in hiring, training and retaining adequate support resources, our ability to provide adequate and timely support to our customers will be
negatively impacted, and our customers' satisfaction with our solutions could be adversely affected. Given our growth, we may in the future engage third parties to provide support services to our
customers. Any failure to properly train or oversee such contractors could result in a poor customer experience, which could have an adverse impact on our reputation and ability to renew subscriptions
or engage new customers. In addition, most of our contracts with our larger customers require consent in the event we subcontract the services we provide thereunder. The process of obtaining consent
to subcontract
support services with these customers could be lengthy and there can be no assurance such consent would be provided.
Furthermore,
as we sell our solutions and solution packages internationally, our support organization faces additional challenges, including those associated with delivering support,
training and documentation in languages other than English. Any failure to maintain high-quality customer support, or a market perception that we do not maintain high-quality support, could materially
harm our reputation, business, financial condition and results of operations, and adversely affect our ability to sell our solutions and solution packages to existing and prospective customers. The
importance of high-quality customer support will increase as we expand our business and pursue new customers.
Our growth is substantially dependent on the success of our strategic relationships with channel partners,
technology partners and other third parties.
As part of our business development efforts, we anticipate that we will continue to depend on relationships with third parties, such as our
channel partners and technology partners, to sell, market, build, operate and deploy our solutions and solution packages. Identifying these partners and maintaining these relationships requires
significant time and resources. Our competitors may be effective in providing incentives to channel partners and other third parties to favor their solutions or services over subscriptions to our
platform and a substantial number of our agreements with channel partners are non-exclusive such that those channel partners may offer customers the solutions of several different companies, including
solutions that compete with ours. Our channel partners may cease marketing or reselling our platform with limited or no notice and without penalty. Our channel partners may also choose to promote our
competitors' solutions versus our own solutions and solution packages. If our technology partners fail to build, deploy, or operate our
34
Table of Contents
solutions
and/or solution packages in a manner that satisfies our customers, or if we fail to adequately negotiate and document the underlying agreement with such technology partners, our customers
may seek direct recourse against us or we may be unable to properly support the solution if the relationship with the technology partner is terminated. In addition, given the competitive landscape,
acquisitions of our channel or technology partners by a competitor could adversely affect our customers, as these partners may no longer be in a position to sell, market, build, operate and/or deploy
our solutions and solution packages. Furthermore, some of these partners may themselves build competitive solutions that are or may become competitive with certain of our solutions and/or solution
packages and then elect to no longer support or integrate with our platform. If we are unsuccessful in establishing or maintaining our relationships with critical
third parties, our ability to compete in the marketplace or to grow our revenue could be impaired, and our results of operations may suffer. Even if we are successful, we cannot assure you that these
relationships will result in increased customer usage of our solutions or increased revenue.
Adverse general and industry-specific economic and market conditions and reductions in IT and identity
spending may reduce demand for our solutions and solution packages, which could harm our results of operations.
Our revenue, results of operations and cash flows depend on the overall demand for our solutions and solution packages. Concerns about the
systemic impact of a potential widespread recession (in the United States or internationally), geopolitical issues or the availability and cost of credit could lead to increased market volatility,
decreased consumer confidence and diminished growth expectations in the U.S. economy and abroad, which in turn could result in reductions in IT, IAM and identity security spending by our existing and
prospective customers. For the year ended December 31, 2019, 31% of our revenue was derived from the financial services industry, including banking. Negative economic conditions, including in the
financial services industry, may cause customers to reduce their IT spending. Prolonged economic slowdowns may result in customers delaying or canceling IT projects, choosing to focus on in-house
development efforts or seeking to lower their costs by requesting us to renegotiate existing contracts on less advantageous terms or defaulting on payments due on existing contracts or not renewing at
the end of the contract term.
Our
customers may merge with other entities who use alternative IAM solutions and, during weak economic times, there is an increased risk that one or more of our customers will file for
bankruptcy protection, either of which may harm our revenue, profitability and results of operations. We also face risk from international customers that file for bankruptcy protection in foreign
jurisdictions, particularly given that the application of foreign bankruptcy laws may be more difficult to predict. In addition, we may determine that the cost of pursuing any claim may outweigh the
recovery potential of such claim. As a result, broadening or protracted extension of an economic downturn could harm our business, revenue, results of operations and cash flows.
If our platform, solutions and solution packages do not effectively interoperate with our customers' existing
or future IT infrastructures, our business would be harmed.
Our success depends on the interoperability of our platform, solutions and solution packages with our customers' IT infrastructures, including
third-party operating systems, applications, data and devices that we have not developed and do not control. Any changes in such infrastructure, operating systems, applications, data or devices that
degrade the functionality of our platform, solutions or solution packages or give preferential treatment to competitive solutions could adversely affect the adoption and usage of our platform. We may
not be successful
in quickly or cost effectively adapting our platform, solutions or solution packages to operate effectively with these operating systems, applications, data or devices. If it is difficult for our
customers to access and use our platform, solutions or solution packages, or if our platform, solutions or solution
35
Table of Contents
packages
cannot connect a broadening range of applications, data and devices, then our customer growth and retention may be harmed, and our business, results of operations and financial condition
could be adversely affected. We rely on open standards for many integrations between our solutions and solution packages and third-party applications that our customers utilize, and in other instances
on such third parties making available the necessary tools for us to create interoperability with their applications. If application providers were to move away from open standards, or if a critical,
widely-utilized application provider were to adopt proprietary integration standards and not make them available for the purposes of facilitating interoperability with our platform, the utility of our
solutions and solution packages for our customers would be decreased.
Our ability to introduce new solutions and features is dependent on adequate research and development
resources and our ability to successfully complete acquisitions. If we do not adequately fund our research and development efforts or complete acquisitions successfully, we may not be able to compete
effectively and our business and results of operations may be harmed.
To remain competitive, we must continue to offer new solutions and enhancements to our platform. This is particularly true as we further expand
and diversify our capabilities. Maintaining adequate research and development resources, such as the appropriate personnel and development technology, to meet the demands of the market is essential.
If we elect not to or are unable to develop solutions internally due to certain constraints, such as high employee turnover, lack of management ability or a lack of other research and development
resources, we may choose to expand into a certain market or strategy via an acquisition for which we could potentially pay too much or fail to successfully integrate into our operations. Further, many
of our competitors expend a considerably greater amount of funds on their respective research and development programs, and those that do not may be acquired by larger companies that would allocate
greater resources to our competitors' research and development programs. Our failure to maintain adequate research and development resources or to compete effectively with the research and development
programs of our competitors would give an advantage to such competitors and our business, results of operations and financial condition could be adversely affected. Moreover, there is no assurance
that our research and development or acquisition efforts will successfully anticipate market needs and result in significant new marketable solutions or enhancements to our solutions, design
improvements, cost savings, revenues or other expected benefits. If we are unable to generate an adequate return on such investments, we may not be able
to compete effectively and our business and results of operations may be materially and adversely affected.
Our success depends, in part, on the integrity and scalability of our systems and infrastructures. System
interruption and the lack of integration, redundancy and scalability in these systems and infrastructures may result in our business, results of operations and financial condition being adversely
affected.
Our success depends, in part, on our ability to maintain the integrity of our systems and infrastructure, including websites, information and
related systems. System interruption and a lack of integration and redundancy in our information systems and infrastructure may adversely affect our ability to operate websites, process and fulfill
transactions, respond to customer inquiries and generally maintain cost-efficient operations. We may experience occasional system interruptions that make some or all systems or data unavailable or
prevent us from efficiently providing access to our platform. Fire, flood, power loss, telecommunications failure, hurricanes, tornadoes, earthquakes, other natural disasters, acts of war or terrorism
and similar events or disruptions may damage or interrupt computer, broadband or other communications systems and infrastructure at any time. Any of these events could cause system interruption,
delays and loss of critical data, and could prevent us from providing access to our platform.
36
Table of Contents
While we have backup systems for certain aspects of our operations, disaster recovery planning by its nature cannot be sufficient for all eventualities. In
addition, we may not have adequate insurance coverage to compensate for losses from a major interruption. If any of these events were to occur, our business, results of operations and financial
condition could be adversely affected.
We rely on software and services from other parties. Defects in or the loss of access to software or services
from third parties could increase our costs and adversely affect the quality of our solutions.
We rely on third-party computer systems, broadband and other communications systems and service providers in providing access to our platform.
Any interruptions, outages or delays in our systems and infrastructure, our business and/or third parties, or deterioration in the performance of these systems and infrastructure, could impair our
ability to provide access to our platform. Our business would be disrupted if any of the third-party software or services we utilize, particularly with respect to third-party software or services
embedded in our
solutions, or functional equivalents thereof, were unavailable due to extended outages or interruptions or because they are no longer available on commercially reasonable terms or prices or at all.
In
each case, we would be required to either seek licenses to software or services from other parties and redesign our solutions to function with such software or services or develop
these components ourselves, which would result in increased costs and could result in delays in our solution and solution package launches and the release of new solution and solution package
offerings until equivalent technology can be identified, licensed or developed, and integrated into our solutions. Furthermore, we might be forced to limit the features available in our current or
future solutions. If these delays and feature limitations occur, our business, results of operations and financial condition could be adversely affected.
Real or perceived errors, failures, vulnerabilities or bugs in our solutions, including deployment
complexity, could harm our business and results of operations.
Errors, failures, vulnerabilities or bugs may occur in our solutions, especially when updates are deployed or new solutions are rolled out. Our
platform is often used in connection with large-scale computing environments with different operating systems, system management software, equipment and networking configurations, which may cause
errors or failures of solutions. In addition, deployment of our solutions into complicated, large-scale computing environments may expose errors, failures, vulnerabilities or bugs in our solutions.
Any such errors, failures, vulnerabilities or bugs may not be found until after they are deployed to our customers. Real or perceived errors, failures, vulnerabilities or bugs in our solutions could
result in negative publicity, loss of customer data, loss of or delay in market acceptance of our solutions, loss of competitive position, or claims by customers for losses sustained by them, all of
which could adversely affect our business, results of operations and financial condition.
If we fail to adequately protect our proprietary rights, our competitive position could be impaired and we
may lose valuable assets, generate less revenue and incur costly litigation to protect our rights.
Our success is dependent, in part, upon protecting our proprietary information and technology. We rely on a combination of patents, copyrights,
trademarks, service marks, trade secret laws and contractual restrictions to establish and protect our proprietary rights. However, the steps we take to protect our intellectual property may be
inadequate. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Despite our
precautions, it may be possible for unauthorized third
37
Table of Contents
parties
to copy our solutions and use information that we regard as proprietary to create solutions that compete with ours. Some license provisions protecting against unauthorized use, copying,
transfer and disclosure of our solutions may be unenforceable under the laws of certain jurisdictions and foreign countries. Further, the laws of some countries do not protect proprietary rights to
the same extent as the laws of the United States, and mechanisms for enforcement of intellectual property rights in some foreign countries may be inadequate. In addition, certain countries into which
we may expand our business may require us to do business through an entity that is partially owned by a local investor, to make available our technologies to state regulators or to grant license
rights to local partners in a manner not required by the jurisdictions in which we currently operate. To the extent we expand our international activities, our exposure to unauthorized reverse
engineering of our technologies or copying and use of our solutions and proprietary information may increase. Accordingly, despite our efforts, we may be unable to prevent third parties from
infringing upon or misappropriating our technology and intellectual property.
We
rely in part on trade secrets, proprietary know-how and other confidential information to maintain our competitive position. Although we enter into confidentiality and invention
assignment agreements with our employees and consultants and enter into confidentiality agreements with the parties with whom we have strategic relationships and business alliances, no assurance can
be given that these agreements will be effective in controlling access to and distribution of our solutions and proprietary information. Further, these agreements do not prevent our competitors from
independently developing technologies that are substantially equivalent or superior to our solutions and solution packages.
To
protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation may be necessary in the future to enforce
our intellectual property rights and to protect our trade secrets. Such litigation could be costly, time consuming and distracting to management and could result in the impairment or loss of portions
of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of
our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management's attention
and resources, could delay further sales or the implementation of our solutions and solution packages, impair the functionality of our solutions, delay introductions of new solutions and solution
packages, result in our substituting inferior or more costly technologies into our solutions, or injure our reputation. In addition, we may be required to license additional technology from third
parties to develop and market new solutions and solution packages, and we cannot assure you that we could license that technology on commercially reasonable terms or at all, and our inability to
license this technology could harm our ability to compete.
Our results of operations may be harmed if we are subject to an infringement claim or a claim that results in
a significant damage award.
Other companies have claimed in the past, and may claim in the future, that we infringe upon their intellectual property rights. A claim may
also be made relating to technology that we acquire or license from third parties. Because of constant technological change in the segments in which we compete, the extensive patent coverage of
existing technologies, and the rapid rate of issuance of new patents, it is possible that the number of these claims may grow. If we were subject to a claim of infringement, regardless of the merit of
the claim or our defenses, the claim could:
-
-
require costly litigation to resolve and/or the payment of substantial damages or other amounts to settle such disputes;
-
-
require significant management time;
38
Table of Contents
-
-
cause us to enter into unfavorable royalty or license agreements, if such arrangements are available at all;
-
-
require us to discontinue the sale of some or all of our offerings, or to remove or reduce features or functionality of our solutions and
solution packages;
-
-
require us to indemnify our customers or third-party service providers; and/or
-
-
require us to expend additional development resources to redesign our solutions and/or solution packages.
Any
one or more of the above could adversely affect our business, results of operations and financial condition.
Our use of open source software in our offerings could negatively affect our ability to sell our solutions
and solution packages and subject us to possible litigation.
We use software modules licensed to us by third-party authors under "open source" licenses in our offerings. Some open source licenses require
that users of the applicable software make available source code for modifications or derivative works created using that open source software. If we were to combine our proprietary software with open
source software in a certain manner, we could, under certain open source licenses, be required to release or otherwise make available the source code of our proprietary software to the public. This
would allow our competitors to create similar products with lower development effort and time and ultimately could result in a loss of sales for us.
Although
we monitor our compliance with open source licenses and attempt to protect our proprietary source code from the effects stated above, we may inadvertently use open source
software in a manner we do not intend and that could expose us to claims for breach of contract and intellectual property infringement. In addition, the terms of many open source licenses have not
been interpreted by United States courts, and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize
our solutions and solution packages. If we are held to have breached the terms of an open source software license, we could be required to seek licenses from third parties to continue providing our
offerings on terms that are not economically feasible, to re-engineer our offerings, to discontinue the sale of our offerings if re-engineering cannot be accomplished on a timely basis, or to make
generally available, in source code form, a portion of our proprietary code, any of which could adversely affect our business, results of operations and financial condition. In addition to the risks
described above, usage of open source software typically exposes us to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or
assurance of title or controls on the functionality or origin of the software. Many of the risks associated with usage of open source software, such as the lack of warranties or assurances of title,
cannot be eliminated, and could, if not properly addressed, negatively affect our business. We have established processes to help alleviate these risks, including a review process for screening
requests from our development organizations for the use of open source software, but we cannot be sure that our processes for controlling our use of open source software in our offerings will be
effective. Use of open source software may also present additional security risks because the public availability of such software may make it easier for hackers and other third parties to determine
how to compromise our offerings.
39
Table of Contents
We rely on SaaS vendors to operate certain functions of our business and any failure of such vendors to
provide services to us could adversely impact our business and operations.
We rely on third-party SaaS vendors to operate certain critical functions of our business, including financial management, human resource
management and customer relationship management. If these services become unavailable due to extended outages or interruptions or because they are no longer available on commercially reasonable terms
or prices, our expenses could increase, our ability to manage our finances could be interrupted and our processes for managing sales of our solutions and solution packages and supporting our customers
could be impaired until equivalent services, if available, are identified, obtained and integrated, all of which could harm our business.
Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual
property infringement and other losses.
Our agreements with customers and other third parties may include indemnification or other provisions under which we agree to indemnify them
for losses suffered or incurred as a result of claims of intellectual property infringement, damage caused by us to property or persons, or other liabilities relating to or arising from the use of our
platform or other acts or omissions. The term of these contractual provisions often survives termination or expiration of the applicable agreement. As we continue to grow, the possibility of
infringement claims and other intellectual property rights claims against us may increase. For any intellectual property rights indemnification claim against us or our customers, we may incur
significant legal expenses and may have to pay damages, settlement fees, license fees and/or stop using technology found to be in violation of the third-party's rights. Large indemnity payments could
harm our business, results of operations and financial condition. We may also have to seek a license for the infringing or allegedly infringing technology. Such license may not be available on
reasonable terms, if at all, and may significantly increase our operating expenses or may require us to restrict our business activities and limit our ability to deploy certain offerings. As a result,
we may also be required to
develop alternative non-infringing technology, which could require significant effort and expense and/or cause us to alter our platform, solutions or solution packages, which could negatively affect
our business. In addition, we may be subject to increased risk of infringement claims as a result of our use of open source software given that our agreements with our customers generally do not
exclude open source software from the intellectual property indemnity we contractually agree to provide for our offerings.
From
time to time, customers require us to indemnify them for breach of confidentiality, violation of applicable law or failure to implement adequate security measures with respect to
their data stored, transmitted, or accessed using our platform. Although we normally contractually limit our liability with respect to such obligations, the existence of such a dispute may have
adverse effects on our customer relationship and reputation and we may still incur substantial liability related to them.
Any
assertions by a third party, whether or not successful, with respect to such indemnification obligations could subject us to costly and time-consuming litigation, expensive
remediation and licenses, divert management attention and financial resources, harm our relationship with that customer and other current and prospective customers, reduce demand for our platform and
result in our brand, business, results of operations and financial condition being adversely affected.
40
Table of Contents
We may be subject to liability claims if we breach our contracts and our insurance may be inadequate to cover
our losses.
We are subject to numerous obligations in our contracts with our customers and strategic partners. Despite the procedures, systems and internal
controls we have implemented to comply with our contracts, we may breach these commitments, whether through a weakness in these procedures, systems and internal controls, negligence or the willful act
of an employee or contractor.
Our
insurance policies, including our errors and omissions insurance, may be inadequate to compensate us for the potentially significant losses that may result from claims arising from
breaches of our contracts, disruptions in our services, including those caused by cybersecurity incidents, failures or disruptions to our infrastructure, catastrophic events and disasters or
otherwise. In addition, such insurance may not be available to us in the future on economically reasonable terms, or at all. Further, our insurance may not cover all claims made against us and
defending a suit, regardless of its merit, could be costly and divert management's attention.
Our customers may fail to pay us in accordance with the terms of their agreements, necessitating action by us
to compel payment.
If customers fail to pay us under the terms of our agreements, we may be adversely affected both from the inability to collect amounts due and
the cost of enforcing the terms of our contracts, including related litigation. Furthermore, some of our customers may seek bankruptcy protection or other similar relief and fail to pay amounts due to
us, or pay those amounts more slowly, either of which could adversely affect our business, results of operations and financial condition.
Because our long-term success depends, in part, on our ability to expand the sales of our solutions and
solution packages to customers located outside of the United States, our business will be susceptible to risks associated with international operations.
We currently have international operations in the United Kingdom, Canada, Australia, France, Germany, India, Israel, the Netherlands and
Switzerland. For the year ended December 31, 2019, our international revenue was 22% of our total revenue. Any efforts that we may undertake to increase our international revenue may not be
successful. In addition, continuing to expand our international footprint with our solutions and solution packages subjects us to new risks, some of which we have not generally faced in the United
States. These risks include, among other things:
-
-
unexpected costs and errors in the localization of our solutions and solution packages, including translation into foreign languages and
adaptation for local practices and regulatory requirements;
-
-
difficulties in developing and executing an effective go-to-market strategy in various locations;
-
-
lack of familiarity and burdens of complying with foreign laws, legal standards, privacy standards, regulatory requirements, tariffs and other
barriers;
-
-
laws and business practices favoring local competitors or commercial parties;
-
-
costs and liabilities related to compliance with foreign privacy, data protection and information security laws and regulations, including the
GDPR, and the risks and costs of noncompliance;
-
-
greater risk of a failure of foreign employees, partners, distributors and resellers to comply with both U.S. and foreign laws, including
antitrust regulations, anti-bribery laws, export and import control laws, and any applicable trade regulations ensuring fair trade practices;
41
Table of Contents
-
-
practical difficulties of enforcing intellectual property rights in countries with fluctuating laws and standards and reduced or varied
protection for intellectual property rights in some countries, and specific legal requirements in certain countries that might place us at a greater risk of our technologies being subject to reverse
engineering or copying;
-
-
unexpected changes in global, economic and political landscapes;
-
-
unexpected changes in regulatory requirements, taxes, trade laws, tariffs, export quotas, custom duties or other trade restrictions;
-
-
difficulties in managing system integrators and technology partners;
-
-
differing technology standards;
-
-
longer accounts receivable payment cycles and difficulties in collecting accounts receivable;
-
-
difficulties in managing and staffing international operations and differing employer/employee relationships and local employment laws;
-
-
political unrest, war, or terrorism, or regional natural disasters, particularly in areas in which we have facilities;
-
-
fluctuations in exchange rates that may increase the volatility of our foreign-based revenue; and
-
-
potentially adverse tax consequences, including the complexities of foreign value added tax (or other tax) systems and restrictions on the
repatriation of earnings.
Additionally,
operating in international markets also requires significant management attention and financial resources. We cannot be certain that the investment and additional
resources required in establishing operations in other countries will produce desired levels of revenue or profitability.
In
addition, some of our business functions, such as research and development, may be siloed geographically, which may adversely affect the integration of our operations on a global
scale.
We
have limited experience in marketing, selling and supporting our platform abroad. Our limited experience in operating our business internationally increases the risk that any
potential future expansion efforts that we may undertake will not be successful. If we invest substantial time and resources to increase our international revenue and are unable to do so successfully
and in a timely manner, our business and results of operations will suffer.
We may face exposure to foreign currency exchange rate fluctuations.
Today, our international contracts are usually denominated in local currencies and the majority of our international costs are denominated in
local currencies. Over time, an increasing portion of our international contracts may be denominated in local currencies. Therefore, fluctuations in the value of the U.S. dollar and foreign currencies
may affect our results of operations when translated into U.S. dollars. We do not currently engage in currency hedging activities to limit the risk of exchange rate fluctuations. However, in the
future, we may use derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging
activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place. Moreover, the
use of hedging instruments may introduce additional risks if we are unable to structure effective hedges with such instruments.
42
Table of Contents
Exposure to political developments in the United Kingdom, including the exit from the EU, could harm us.
Following the result of a referendum in 2016, the United Kingdom, or the U.K., left the EU on January 31, 2020, commonly referred to as
Brexit. Pursuant to the formal withdrawal arrangements agreed between the U.K. and EU, the U.K. will be subject to a transition period until December 31, 2020, or the Transition Period, during
which EU rules will continue to apply. Negotiations between the U.K. and the EU are expected to continue in relation to the customs and trading relationship between the U.K. and the EU following the
expiry of the Transition Period.
The
uncertainty concerning the U.K.'s legal, political and economic relationship with the EU after the Transition Period may be a source of instability in the international markets,
create significant currency fluctuations, and/or otherwise adversely affect trading agreements or similar cross-border co-operation arrangements (whether economic, tax, fiscal, legal, regulatory or
otherwise). We may also face new regulatory costs and challenges as a result of Brexit (including potentially divergent national laws and regulations between the U.K. and EU) that could have an
adverse effect on our operations. For example, the U.K. could lose the benefits of global trade agreements negotiated by the EU on behalf of its members, which may result in increased trade barriers
that could make our doing business in the EU and the European Economic Area more difficult.
Our international operations may give rise to potentially adverse tax consequences.
Our corporate structure and associated transfer pricing policies anticipate future growth into the international markets. The amount of taxes
we pay in different jurisdictions may depend on the application of the tax laws of the various jurisdictions, including the United States, to our international business activities, changes in tax
rates, new or revised tax laws or interpretations of existing tax laws and policies and our ability to operate our business in a manner consistent with our corporate structure and intercompany
arrangements. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for pricing intercompany transactions, which are generally required to be computed on an
arm's-length basis pursuant to intercompany arrangements or disagree with our determinations as to the income and expenses attributable to specific jurisdictions. If such a challenge or disagreement
were to occur, and our position was not sustained, we could be required to pay additional taxes, interest and penalties, which could result in one-time tax charges, higher effective tax rates, reduced
cash flows and lower overall profitability of our operations. Our financial statements could fail to reflect adequate reserves to cover such a contingency.
Changes in tax laws or regulations in the various tax jurisdictions we are subject to that are applied
adversely to us or our customers could increase the costs of our solutions and solution packages and harm our business.
New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time. Those enactments could harm
our domestic and international business operations, and our business and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed,
modified or applied adversely to us. These events could require us or our customers to pay additional tax amounts on a prospective or retroactive basis, as well as require us or our customers to pay
fines and/or penalties and interest for past amounts deemed to be due. If we raise our prices to offset the costs of these changes, existing and potential future customers may elect not to purchase
our solutions and/or solution packages in the future. Additionally, new, changed, modified or newly interpreted or applied tax laws could increase our customers' and our compliance, operating and
other costs, as well as the costs of our solutions and solution packages. Further, these events could decrease the capital we
43
Table of Contents
have
available to operate our business. Any or all of these events could harm our business and financial performance.
Comprehensive tax reform legislation could adversely affect our business and financial condition.
On December 22, 2017, tax reform legislation known as the Tax Cuts and Jobs Act, or the Tax Act, was enacted in the United States. The
Tax Act, as amended by the CARES Act (defined below) among other things, included changes to U.S. federal tax rates, imposed significant additional limitations on the deductibility of interest and net
operating loss carryforwards and allowed for the expensing of capital expenditures. Accounting for the income tax effects of the Tax Act and subsequent guidance issued required complex new
calculations to be performed and significant judgments in interpreting the legislation. Additional guidance may be issued on how the provisions of the Tax Act will be applied or otherwise administered
that is different from our interpretation, which could result in adjustments to the income tax effects of the Tax Act that we have recorded at March 31, 2020. These adjustments could have a negative
impact on our business and financial condition.
We may not be eligible to participate in the relief programs provided under the recently adopted Coronavirus
Aid Relief, and Economic Security (CARES) Act and even if we are eligible we may not realize any material benefits from participating in such programs.
On March 27, 2020, legislation known as the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, was enacted in the
United States. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback
periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. We
are evaluating the applicability of the CARES Act to the Company, and the potential impacts on our business. Accounting for the income tax effects of the CARES Act and subsequent guidance issued will
require complex new calculations to be performed and significant judgments in interpreting the legislation. Additional guidance may be issued on how the provisions of the CARES Act will be applied or
otherwise administered that is different from our interpretation. While we may determine to apply for such credits or other tax benefits provided under the CARES Act, there is no guarantee that we
will meet any eligibility requirements to benefit from any of the tax relief provisions under the CARES Act or, even if we are able to participate, that such provisions will provide meaningful benefit
to our business.
If we cannot maintain our corporate culture as we grow, our business may be harmed.
We believe that our corporate culture has been a critical component to our success and that our culture creates an environment that drives and
perpetuates our overall business strategy. We have invested substantial time and resources in building our team and we expect to continue to hire aggressively as we expand, including with respect to
our international operations. As we grow and mature as a public company and grow internationally, we may find it difficult to maintain our corporate culture. Any failure to preserve our culture could
negatively affect our future success, including our ability to recruit and retain personnel and effectively focus on and pursue our business strategy.
44
Table of Contents
As a result of becoming a public company in September 2019, we are obligated to develop and maintain proper
and effective internal control over financial reporting in order to comply with Section 404 of the Sarbanes-Oxley Act. We may not complete our analysis of our internal control over financial
reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in us and, as a result, the value of our common stock.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over
financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. We are
in the very early stages of the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404 of the
Sarbanes-Oxley Act. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. If we are unable to assert that our internal control over financial
reporting is effective, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline, and we may be subject
to investigation or sanctions by the SEC.
We
will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over
financial reporting as of the year ending December 31, 2020. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over
financial reporting. We are required to disclose changes made in our internal control and procedures on a quarterly basis. However, our independent registered public accounting firm will not be
required to report on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act until the later of the year following our first annual
report required to be filed with the SEC, or the date we are no longer an "emerging growth company" as defined in the JOBS Act if we take advantage of the exemptions contained in the JOBS Act. At such
time, our independent registered public accounting firm may issue a report that is adverse in the event, in their opinion, that we have not maintained, in all material respects, effective internal
control over financial reporting based on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission, or COSO.
Additionally,
the existence of any material weakness or significant deficiency would require management to devote significant time and incur significant expense to remediate any such
material weaknesses or significant deficiencies and management may not be able to remediate any such material weaknesses or significant deficiencies in a timely manner. The existence of any material
weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet
our reporting obligations and cause shareholders to lose confidence in our reported financial information, all of which could materially and adversely affect our business and stock price. To comply
with the requirements of being a public company, we may need to undertake various costly and time-consuming actions, such as implementing new internal controls and procedures and
hiring accounting or internal audit staff, which may adversely affect our business, financial condition and results of operations.
As
was previously disclosed in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, we reported a material weakness in controls related to the
quarterly accounting for income taxes. During the year ended December 31, 2019, we completed the remediation measures related to our previously reported material weakness. However, completion
of remediation does not provide assurance that our remediated controls will continue to operate properly or that our financial statements will be free from error.
45
Table of Contents
Our management team has limited experience managing a public company.
Most members of our management team have limited experience managing a publicly-traded company, interacting with public company investors, and
complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage us as a public company that is subject to significant
regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents require
significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, results of operations
and financial condition.
We face risks associated with having operations and employees located in Israel.
We have an office and employees located in Israel. As a result, political, economic, and military conditions in Israel directly affect our
operations. The future of peace efforts between Israel and its Arab neighbors remains uncertain. There has been a significant increase in hostilities and political unrest between Hamas and Israel in
the past few years. The effects of these hostilities and violence on the Israeli economy and our operations in Israel are unclear, and we cannot predict the effect on us of further increases in these
hostilities or future armed conflict, political instability or violence in the region. Current or future tensions and conflicts in the Middle East could adversely affect our business, operating
results, financial condition and cash flows.
In
addition, many of our employees in Israel are obligated to perform annual reserve duty in the Israeli military and are subject to being called for active duty under emergency
circumstances. We cannot predict the full impact of these conditions on us in the future, particularly if emergency circumstances or an escalation in the political situation occurs. If many of our
employees in Israel are called for active duty for a significant period of time, our operations and our business could be disrupted and may not be able to function at full capacity. Any disruption in
our operations in Israel could adversely affect our business.
A portion of our revenue is generated by sales to government entities, which are subject to a number of
challenges and risks, such as increased competitive pressures, administrative delays and additional approval requirements.
A portion of our revenue is generated by sales to U.S. and foreign federal, state and local governmental agency customers, and we may in the
future increase sales to government entities. Selling to government entities can be highly competitive, expensive and time consuming, often requiring significant upfront time and expense without any
assurance that we will complete a sale or imposing terms of sale which are less favorable than the prevailing market terms. Government demand and payment for our solutions, solution packages and
services may be impacted by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our solutions and solution
packages. Governments routinely investigate and audit government contractors' administrative processes and any unfavorable audit could result in fines, civil or criminal liability, further
investigations, damage to our reputation and debarment from further government business.
Catastrophic events may disrupt our business.
Natural disasters, pandemics or other catastrophic events may cause damage or disruption to our operations, international commerce and the
global economy, and thus could harm our business. In the event of a major earthquake, hurricane or catastrophic event such as fire, power loss, telecommunications failure, cyberattack, pandemic, war
or terrorist attack, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in our
46
Table of Contents
application
development, lengthy interruptions in our solutions, breaches of data security and loss of critical data, all of which could adversely affect our business, results of operations and
financial condition. In addition, the insurance we maintain may not be adequate to cover our losses resulting from disasters or other business interruptions.
Certain estimates of market opportunity and forecasts of market growth included in this prospectus may prove
to be inaccurate.
This prospectus includes our internal estimates of the addressable market for identity solutions. Market opportunity estimates and growth
forecasts, whether obtained from third-party sources or developed internally, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The
estimates and forecasts in this prospectus relating to the size and expected growth of our target market, market demand and adoption, capacity to address this demand and pricing may prove to be
inaccurate. In particular, our estimates regarding our current and projected market opportunity is difficult to predict. In addition, our internal estimates of the addressable market for IAM solutions
reflects the opportunity available from all participants and potential participants in the market. The addressable market we estimate may not materialize for many years, if ever, and even if the
markets in which we compete meet the size estimates and growth forecasted in this prospectus, our business could fail to grow at similar rates, if at all.
Risks Relating to Our Indebtedness
Our existing indebtedness could adversely affect our business and growth prospects.
As of March 31, 2020, we had total current and long-term indebtedness outstanding of $150.7 million, including $150.0 million
outstanding under our revolving credit facility, or the 2019 Revolving Credit Facility, and $0.7 million of outstanding letters of credit. On December 12, 2019, we repaid all outstanding
borrowings under our then existing term loan facility, or our 2018 Term Loan Facility, and our then existing revolving credit facility, or our 2018 Revolving
Credit Facility, and together with the 2018 Term Loan Facility, our 2018 Credit Facilities, and in connection therewith we entered into a new credit agreement, or the 2019 Credit Agreement, providing
for our 2019 Revolving Credit Facility, with an initial $150.0 million in commitments for revolving loans. In addition, the 2019 Credit Agreement provides us with the ability to request
incremental term loan facilities, or our 2019 Term Loan Facility and, together with the 2019 Revolving Credit Facility, our 2019 Credit Facilities, in a minimum amount of $10 million for each
facility, subject to certain conditions. All obligations under the 2019 Credit Agreement are secured by first-priority perfected security interests in substantially all of our assets and the assets of
our subsidiaries, subject to permitted liens and other exceptions. On March 30, 2020, we drew down on the remaining $97.8 million available for borrowing under our 2019 Revolving Credit Facility.
Given the uncertainty in the global economy as result of the COVID-19 pandemic and out of an abundance of caution, we elected to draw down the remaining available balance to further strengthen our
cash position and maintain flexibility. If needed, the proceeds will be available for working capital and general corporate purposes, subject to compliance with the 2019 Credit Agreement. Our
indebtedness, or any additional indebtedness we may incur, could require us to divert funds identified for other purposes for debt service and impair our liquidity position. If we cannot generate
sufficient cash flow from operations to service our debt, we may need to refinance our debt, dispose of assets or issue equity to obtain necessary funds. We do not know whether we will be able to take
any of these actions on a timely basis, on terms satisfactory to us or at all.
47
Table of Contents
Our indebtedness, the cash flow needed to satisfy our debt and the covenants contained in our 2019 Credit Agreement have important consequences,
including:
-
-
limiting funds otherwise available for financing our capital expenditures by requiring us to dedicate a portion of our cash flows from
operations to the repayment of debt and the interest on this debt;
-
-
limiting our ability to incur additional indebtedness;
-
-
limiting our ability to capitalize on significant business opportunities;
-
-
making us more vulnerable to rising interest rates; and
-
-
making us more vulnerable in the event of a downturn in our business.
Our
level of indebtedness may place us at a competitive disadvantage to our competitors that are not as highly leveraged. Fluctuations in interest rates can increase borrowing costs.
Increases in interest rates may directly impact the amount of interest we are required to pay and reduce earnings accordingly. In addition, developments in tax policy, such as the disallowance of tax
deductions for interest paid on outstanding indebtedness, could have an adverse effect on our liquidity and our business, financial conditions and results of operations. Further, our 2019 Credit
Agreement contains customary affirmative and negative covenants and certain restrictions on operations that could impose operating and financial limitations and restrictions on us, including
restrictions on our ability to enter into particular transactions and to engage in other actions that we may believe are advisable or necessary for our business. We expect to use cash flow from
operations to meet current and future financial obligations, including funding our operations, debt service requirements and capital expenditures. The ability to make these payments depends on our
financial and operating performance, which is subject to prevailing economic, industry and competitive conditions and to certain financial, business, economic and other factors beyond our control.
Despite current indebtedness levels and restrictive covenants, we may still be able to incur substantially
more indebtedness or make certain restricted payments, which could further exacerbate the risks associated with our substantial indebtedness.
We may be able to incur significant additional indebtedness in the future. Although the financing documents governing our 2019 Credit
Facilities contain restrictions on the incurrence of additional indebtedness and liens, these restrictions are subject to a number of important qualifications and exceptions, and the additional
indebtedness and liens incurred in compliance with these restrictions could be substantial.
The
financing documents governing our 2019 Credit Facilities permit us to incur certain additional indebtedness, including liabilities that do not constitute indebtedness as defined in
the financing documents. We may also consider investments in joint ventures or acquisitions, which may increase our indebtedness. In addition, financing documents governing our 2019 Credit Facilities
do not restrict our Sponsor from creating new holding companies that may be able to incur indebtedness without regard to the restrictions set forth in the financing documents governing our 2019 Credit
Facilities. If new debt is added to our currently anticipated indebtedness levels, the related risks that we face could intensify.
48
Table of Contents
We may not be able to generate sufficient cash flow to service all of our indebtedness, and may be forced to
take other actions to satisfy our obligations under such indebtedness, which may not be successful.
Our ability to make scheduled payments or to refinance outstanding debt obligations depends on our financial and operating performance, which
will be affected by prevailing economic, industry and competitive conditions and by financial, business and other factors beyond our control. We may not be able to maintain a sufficient level of cash
flow from operating activities to permit us to pay the principal, fees, premium, if any, and interest on the our indebtedness. Any failure to make payments of interest and principal on our outstanding
indebtedness on a timely basis would likely result in a reduction of our credit rating, which would also harm our ability to incur additional indebtedness.
If
our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek additional
capital or seek to restructure or refinance our indebtedness. Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants. These
alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In the absence of such cash flows and resources, we could face substantial liquidity
problems and might be required to sell material assets or operations to attempt to meet our debt service obligations. The financing documents governing our 2019 Credit Facilities restrict our ability
to conduct asset sales and/or use the proceeds from asset sales. We may not be able to consummate these asset sales to raise capital or sell assets at prices and on terms that we believe are fair and
any proceeds that we do receive may not be adequate to meet any debt service obligations then due. If we cannot meet our debt service obligations, the holders of our indebtedness may accelerate such
indebtedness and, to the extent such indebtedness is secured, foreclose on our assets. In such an event, we may not have sufficient assets to repay all of our indebtedness.
The terms of the financing documents governing our 2019 Credit Facilities restrict our current and future
operations, particularly our ability to respond to changes or to take certain actions.
The financing documents governing our 2019 Credit Facilities contain a number of restrictive covenants that impose significant operating and
financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interests, including restrictions on our ability
to:
-
-
incur additional indebtedness;
-
-
pay dividends on or make distributions in respect of capital stock or repurchase or redeem capital stock;
-
-
prepay, redeem or repurchase certain indebtedness;
-
-
make loans and investments;
-
-
sell or otherwise dispose of assets, including capital stock of restricted subsidiaries;
-
-
incur liens;
-
-
enter into transactions with affiliates; and
-
-
consolidate, merge or sell all or substantially all of our assets.
You
should read the discussion under the heading "Description of Certain Indebtedness" for further information about these covenants.
49
Table of Contents
The
restrictive covenants in the financing documents governing our 2019 Credit Facilities require us to maintain specified financial ratios and satisfy other financial condition tests
to the extent applicable. Our ability to meet those financial ratios and tests can be affected by events beyond our control.
A
breach of the covenants or restrictions under the financing documents governing our 2019 Credit Facilities could result in an event of default under such documents. Such a default may
allow the creditors to accelerate the related debt, which may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In the event the holders of
our indebtedness accelerate the repayment, we may not have sufficient assets to repay that indebtedness or be able to borrow sufficient funds to refinance it. Even if we are able to obtain new
financing, it may not be on commercially reasonable terms or on terms acceptable to us. As a result of these restrictions, we may be:
-
-
limited in how we conduct our business;
-
-
unable to raise additional debt or equity financing to operate during general economic or business downturns; or
-
-
unable to compete effectively or to take advantage of new business opportunities.
These
restrictions, along with restrictions that may be contained in agreements evidencing or governing other future indebtedness, may affect our ability to grow in accordance with our
growth strategy.
We may be unable to refinance our indebtedness.
We may need to refinance all or a portion of our indebtedness before maturity. We cannot assure you that we will be able to refinance any of
our indebtedness on commercially reasonable terms or at all. There can be no assurance that we will be able to obtain sufficient funds to enable us to repay or refinance our debt obligations on
commercially reasonable terms, or at all.
A lowering or withdrawal of the ratings assigned to our debt securities by rating agencies may increase our
future borrowing costs and reduce our access to capital.
Our debt currently has a non-investment grade rating, and any rating assigned could be lowered or withdrawn entirely by a rating agency if, in
that rating agency's judgment, future circumstances relating to the basis of the rating, such as adverse changes, so warrant. Any future lowering of our ratings likely would make it more difficult or
more expensive for us to obtain additional debt financing.
Our failure to raise additional capital or generate cash flows necessary to expand our operations and invest
in new technologies in the future could reduce our ability to compete successfully and harm our results of operations.
We may need to raise additional funds, and we may not be able to obtain additional debt or equity financing on favorable terms or at all. If we
raise additional equity financing, our security holders may experience significant dilution of their ownership interests. If we
engage in additional debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness, force us to maintain specified liquidity or other ratios or restrict
our ability to pay dividends or make acquisitions. If we need additional capital and cannot raise it on acceptable terms, or at all, we may not be able to, among other
things:
-
-
develop and enhance our solutions and solution packages;
50
Table of Contents
-
-
continue to expand our solution and solution package development, sales and marketing organizations;
-
-
hire, train and retain employees;
-
-
respond to competitive pressures or unanticipated working capital requirements; or
-
-
pursue acquisition opportunities.
In
addition, our 2019 Credit Facilities also limit our ability to incur additional debt and therefore we likely would have to amend our 2019 Credit Facilities or issue additional equity
to raise capital. If we issue additional equity, your interest in us will be diluted.
Risks Relating to Our Common Stock and This Offering
Vista controls us, and its interests may conflict with ours or yours in the future.
Immediately following this offering, Vista will beneficially own approximately 68.9% of our common stock, or 67.3% if the underwriters exercise
in full their option to purchase additional shares from certain of the selling shareholders, which means that, based on its percentage voting power held after the offering, Vista controls the vote of
all matters submitted to a vote of our board of directors, or our Board, or shareholders, which will enable it to control the election of the members of the Board and all other corporate decisions. In
addition, our bylaws provide that Vista has the right to designate the Chairman of the Board for so long as Vista beneficially owns at least 30% or more of the voting power of the then outstanding
shares of our capital stock then entitled to vote generally in the election of directors. Even when Vista ceases to own shares of our stock representing a majority of the total voting power, for so
long as Vista continues to own a significant percentage of our stock, Vista will still be able to significantly influence the composition of our Board, including the right to designate the Chairman of
our Board, and the approval of actions requiring shareholder approval. Accordingly, for such period of time, Vista will have significant influence with respect to our management, business plans and
policies, including the appointment and removal of our officers, decisions on whether to raise future capital and amending our charter and bylaws, which govern the rights attached to our common stock.
In particular, for so long as Vista continues to own a significant percentage of our stock, Vista will be able to cause or prevent a change of control of us or a change in the composition of our
Board, including the selection of the Chairman of our Board, and could preclude any unsolicited acquisition of us. The concentration of ownership could deprive you of an opportunity to receive a
premium for your shares of common stock as part of a sale of us and ultimately might affect the market price of our common stock.
In
addition, in connection with our initial public offering, we entered into a Director Nomination Agreement with Vista that provides Vista the right to designate: (i) all of the
nominees for election to our Board for so long as Vista beneficially owns 40% or more of the total number of shares of our common stock it owned on the date of our initial public offering;
(ii) a number of directors (rounded up to the nearest whole number) equal to 40% of the total directors for so long as Vista beneficially owns at least 30% and less than 40% of the total number
of shares of our common stock it owned on the date of our initial public offering; (iii) a number of directors (rounded up to the nearest whole number) equal to 30% of the total directors for
so long as Vista beneficially owns at least 20% and less than 30% of the total number of shares of our common stock it owned on the date of our initial public offering; (iv) a number of
directors (rounded up to the nearest whole number) equal to 20% of the total directors for so long as Vista beneficially owns at least 10% and less than 20% of the total number of shares of our common
stock it owned on the date of our initial public offering; and (v) one director for so long as Vista beneficially owns at least 5% and less than 10% of the total
number of shares of our common stock it owned on the date of our initial public offering. The Director Nomination Agreement also provides that Vista may assign such right to a Vista affiliate.
51
Table of Contents
The
Director Nomination Agreement prohibits us from increasing or decreasing the size of our Board without the prior written consent of Vista. See "Certain Relationships and Related Party
Transactions Related Party Transactions Director Nomination Agreement" for more details with respect to the Director Nomination Agreement.
Vista
and its affiliates engage in a broad spectrum of activities, including investments in the information and business services industry generally. In the ordinary course of their
business activities, Vista and its affiliates may engage in activities where their interests conflict with our interests or those of our other shareholders, such as investing in or advising businesses
that directly or indirectly compete with certain portions of our business or are suppliers or customers of ours. Our certificate of incorporation provides that none of Vista, any of its affiliates or
any director who is not employed by us (including any non-employee director who serves as one of our officers in both his director and officer capacities) or its affiliates has any duty to refrain
from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. Vista also may pursue acquisition opportunities that may
be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. In addition, Vista may have an interest in pursuing acquisitions, divestitures and other
transactions that, in its judgment, could enhance its investment, even though such transactions might involve risks to you.
We are a "controlled company" within the meaning of the rules of the NYSE and, as a result, we qualify for,
and currently rely on, exemptions from certain corporate governance requirements. You will not have the same protections as those afforded to stockholders of companies that are subject to such
governance requirements.
After completion of this offering, the Vista Funds will continue to control a majority of the voting power of our outstanding common stock. As
a result, we will remain a "controlled company" within the meaning of the corporate governance standards of the NYSE. Under these rules, a company of which more than 50% of the voting power for the
election of directors is held by an individual, group or another company is a "controlled company" and may elect not to comply with certain corporate governance requirements,
including:
-
-
the requirement that a majority of our Board consist of independent directors;
-
-
the requirement that we have a nominating and corporate governance committee that is composed entirely of independent directors with a written
charter addressing the committee's purpose and responsibilities;
-
-
the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the
committee's purpose and responsibilities; and
-
-
the requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees.
Following
this offering, we intend to continue to utilize these exemptions. As a result, we may not have a majority of independent directors on our Board, our Compensation and
Nominating Committee may not consist entirely of independent directors and our Compensation and Nominating Committee may not be subject to annual performance evaluations. Accordingly, you will not
have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.
52
Table of Contents
For so long as we are an "emerging growth company", we will not be required to comply with certain public
company reporting requirements, which could make our common stock less attractive to investors.
We are an "emerging growth company", as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we are eligible
for certain exemptions from various public company reporting requirements. These exemptions include, but are not limited to, (i) not being required to comply with the auditor attestation
requirements of Section 404 of Sarbanes-Oxley, (ii) reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements,
(iii) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved and
(iv) not being required to provide five years of Selected Consolidated Financial Data, in this prospectus. We could be an emerging growth company for up to five years after the first sale of
our common stock in our IPO, which fifth anniversary will occur in 2024. However, if certain events occur prior to the end of such five-year period, including if we become a "large accelerated filer",
our annual gross revenue exceeds $1.07 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we would cease to be an emerging growth company prior
to the end of such five-year period. We have made certain elections with regard to the reduced disclosure obligations regarding executive compensation in this prospectus and may elect to take
advantage of other reduced disclosure obligations in future filings. As a result, the information that we provide to holders of our common stock may be different than you might receive from other
public reporting companies in which you hold equity interests. We cannot predict if investors will find our common stock less attractive as a result of our reliance on these exemptions. If some
investors find our common stock less attractive as a result of any choice we make to reduce disclosure, there may be a less active trading market for our common stock and the market price for our
common stock may be more volatile.
Under
the JOBS Act, emerging growth companies may also elect to delay adoption of new or revised accounting standards until such time as those standards apply to private companies. We
have elected to "opt-in" to this extended transition period for complying with new or revised accounting standards and, therefore, we will not be subject to the same new or revised accounting
standards as other public companies that comply with such new or revised accounting standards on a non-delayed basis.
The requirements of being a public company may strain our resources and distract our management, which could
make it difficult to manage our business, particularly after we are no longer an "emerging growth company".
As a public company, we incur legal, accounting and other expenses that we did not previously incur. We are subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the Sarbanes-Oxley Act, the listing requirements of the NYSE and other applicable securities rules and
regulations. Compliance with
these rules and regulations will continue to increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and
resources, particularly after we are no longer an "emerging growth company". The Exchange Act requires that we file annual, quarterly and current reports with respect to our business, financial
condition and results of operations. The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal controls and procedures for financial reporting.
Furthermore, the need to establish the corporate infrastructure demanded of a public company may divert our management's attention from implementing our growth strategy, which could prevent us from
improving our business, financial condition and results of operations. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting
systems to
53
Table of Contents
meet
our reporting obligations as a public company. However, the measures we take may not be sufficient to satisfy our obligations as a public company. In addition, these rules and regulations will
increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more
expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage. These additional obligations could have
a material adverse effect on our business, financial condition and results of operations. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure
are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to
varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing
bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest
resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of our management's time and
attention from sales-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing
bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and could have a material adversely effect on our business,
financial condition and results of operations.
Provisions of our corporate governance documents could make an acquisition of us more difficult and may
prevent attempts by our shareholders to replace or remove our current management, even if beneficial to our shareholders.
In addition to Vista's beneficial ownership of 68.9% of our common stock after this offering (or 67.3%, if the underwriters exercise in full
their option to purchase additional shares
from certain of the selling shareholders), our certificate of incorporation and bylaws and the Delaware General Corporation Law, or the DGCL, contain provisions that could make it more difficult for a
third party to acquire us, even if doing so might be beneficial to our shareholders. Among other things:
-
-
these provisions allow us to authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of
which may be issued without shareholder approval, and which may include supermajority voting, special approval, dividend, or other rights or preferences superior to the rights of shareholders;
-
-
these provisions provide for a classified board of directors with staggered three-year terms;
-
-
these provisions provide that, at any time when Vista beneficially owns, in the aggregate, less than 40% in voting power of the our stock
entitled to vote generally in the election of directors, directors may only be removed for cause, and only by the affirmative vote of holders of at least 662/3% in voting power of all
the then-outstanding shares of our stock entitled to vote thereon, voting together as a single class;
-
-
these provisions prohibit shareholder action by written consent from and after the date on which Vista beneficially owns, in the aggregate,
less than 35% in voting power of our stock entitled to vote generally in the election of directors;
-
-
these provisions provide that for as long as Vista beneficially owns, in the aggregate, at least 50% in voting power of our stock entitled to
vote generally in the election of directors, any amendment, alteration, rescission or repeal of our bylaws by our shareholders will require the affirmative vote of a majority in voting power of the
outstanding shares of our stock and at any time when Vista beneficially owns, in the aggregate, less than 50% in
54
Table of Contents
voting
power of all outstanding shares of our stock entitled to vote generally in the election of directors, any amendment, alteration, rescission or repeal of our bylaws by our shareholders will
require the affirmative vote of the holders of at least 662/3% in voting power of all the then-outstanding shares of our stock entitled to vote thereon, voting together as a single
class; and
-
-
these provisions establish advance notice requirements for nominations for elections to our Board or for proposing matters that can be acted
upon by shareholders at shareholder meetings; provided, however, at any time when Vista beneficially owns, in the aggregate, at least 10% in voting power of our stock entitled to vote generally in the
election of directors, such advance notice procedure will not apply to it.
Our
certificate of incorporation contains a provision that provides us with protections similar to Section 203 of the DGCL, and prevents us from engaging in a business
combination with a person (excluding Vista and any of its direct or indirect transferees and any group as to which such persons are a party) who acquires at least 15% of our common stock for a period
of three years from the date such person acquired such common stock, unless Board or shareholder approval is obtained prior to the acquisition. See "Description of Capital Stock
Anti-Takeover Effects of Our Certificate of Incorporation and Our Bylaws". These provisions could discourage, delay or prevent a transaction involving a change in control of our company. These
provisions could also discourage proxy contests and make it more difficult for you and other shareholders to elect directors of your choosing and cause us to take other corporate actions you desire,
including actions that you may deem advantageous, or negatively affect the trading price of our common stock. In addition, because our Board is responsible for appointing the members of our management
team, these provisions could in turn affect any attempt by our shareholders to replace current members of our management team.
These
and other provisions in our certificate of incorporation, bylaws and Delaware law could make it more difficult for shareholders or potential acquirers to obtain control of our
Board or initiate actions that are opposed by our then-current Board, including delay or impede a merger, tender offer or proxy contest involving our company. The existence of these provisions could
negatively affect the price of our common stock and limit opportunities for you to realize value in a corporate transaction.
For
information regarding these and other provisions, see "Description of Capital Stock".
Our certificate of incorporation designates the Court of Chancery of the State of Delaware as the exclusive
forum for certain litigation that may be initiated by our shareholders, which could limit our shareholders' ability to obtain a favorable judicial forum for disputes with us.
Pursuant to our certificate of incorporation, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of
the State of Delaware is the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty
owed by any of our directors, officers or other employees to us or our shareholders, (3) any action asserting a claim against us arising pursuant to any provision of the DGCL, our certificate
of incorporation or our bylaws or (4) any other action asserting a claim against us that is governed by the internal affairs doctrine; provided that for the avoidance of doubt, the forum
selection provision that identifies the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation, including any "derivative action", will not apply to suits to enforce
a duty or liability created by Securities Act, the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Our certificate of incorporation further provides that any
person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the provisions of our certificate of incorporation
55
Table of Contents
described
above. See "Description of Capital Stock Exclusive Forum". The forum selection clause in our certificate of incorporation may have the effect of discouraging lawsuits
against us or our directors and officers and may limit our shareholders' ability to obtain a favorable judicial forum for disputes with us.
An active, liquid trading market for our common stock may not develop, which may limit your ability to sell
your shares.
Our initial public offering occurred in September 2019. Therefore, there has been a public market for our common stock for a short period of
time. Although we have listed our common stock on the NYSE under the symbol "PING", an active trading market for our common stock may not be sustained. A public trading market having the desirable
characteristics of depth, liquidity and orderliness depends upon the existence of willing buyers and sellers at any given time,
such existence being dependent upon the individual decisions of buyers and sellers over which neither we nor any market maker has control. The failure of an active and liquid trading market to develop
and continue would likely have a material adverse effect on the value of our common stock. The market price of our common stock may decline below the public offering price, and you may not be able to
sell your shares of our common stock at or above the price you paid in this offering, or at all. An inactive market may also impair our ability to raise capital to continue to fund operations by
issuing shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.
Our operating results and stock price may be volatile, and the market price of our common stock after this
offering may drop below the price you pay.
Our quarterly operating results are likely to fluctuate in the future. In addition, securities markets worldwide have experienced, and are
likely to continue to experience, significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could subject the market price of our
shares to wide price fluctuations regardless of our operating performance. Our operating results and the trading price of our shares may fluctuate in response to various factors,
including:
-
-
market conditions in our industry or the broader stock market;
-
-
actual or anticipated fluctuations in our quarterly financial and operating results;
-
-
introduction of new solutions, solution packages or services by us or our competitors;
-
-
issuance of new or changed securities analysts' reports or recommendations;
-
-
sales, or anticipated sales, of large blocks of our stock;
-
-
additions or departures of key personnel;
-
-
regulatory or political developments;
-
-
litigation and governmental investigations;
-
-
changing economic conditions;
-
-
investors' perception of us;
-
-
events beyond our control such as weather and war; and
-
-
any default on our indebtedness.
These
and other factors, many of which are beyond our control, may cause our operating results and the market price and demand for our shares to fluctuate substantially. Fluctuations in
56
Table of Contents
our
quarterly operating results could limit or prevent investors from readily selling their shares and may otherwise negatively affect the market price and liquidity of our shares. In addition, in the
past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock. If any of our
shareholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business, which
could significantly harm our profitability and reputation.
A significant portion of our total outstanding shares are restricted from immediate resale but may be sold
into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the
market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. After this offering, we will have 79,987,614 outstanding shares of common
stock based on the number of shares outstanding as of March 31, 2020. This includes shares that the selling shareholders are selling in this offering, which may be resold in the public market
immediately.
Subject
to certain exceptions described in the section titled "Underwriting", we, our directors and executive officers, the Vista Funds and the other selling shareholders have entered
into or will enter into lock-up agreements with the underwriters of this offering pursuant to which we and they have agreed, or will agree, that, subject to certain exceptions, we will not issue, and
they will not directly or indirectly sell or dispose of any shares of common stock or any securities convertible into or exchangeable or exercisable for shares of common stock for a period of
90 days after the date of this prospectus. See "Underwriting" and "Shares Eligible for Future Sale" for more information.
All
of these shares will, however, be able to be resold after the expiration of the lock-up period, as well as pursuant to customary exceptions thereto or upon the waiver of the lock-up
agreement by Goldman Sachs & Co. LLC on behalf of the underwriters. We have registered shares of common stock that we may issue under our equity compensation plans. Such shares
can be freely sold in the public market upon issuance, subject to the lock-up agreements. As restrictions on resale end,
the market price of our stock could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them.
Because we have no current plans to pay regular cash dividends on our common stock for the foreseeable
future, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.
We do not anticipate paying any regular cash dividends on our common stock for the foreseeable future. Any decision to declare and pay
dividends in the future will be made at the discretion of our Board and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions
and other factors that our Board may deem relevant. In addition, our ability to pay dividends is, and may be, limited by covenants of existing and any future outstanding indebtedness we or our
subsidiaries incur, including under our 2019 Credit Facilities. Therefore, any return on investment in our common stock is solely dependent upon the appreciation of the price of our common stock on
the open market, which may not occur. See "Dividend Policy" for more detail.
57
Table of Contents
If securities or industry analysts do not publish research or reports about our business, if they adversely
change their recommendations regarding our shares or if our results of operations do not meet their expectations, our stock price and trading volume could decline.
The trading market for our shares is influenced by the research and reports that industry or securities analysts publish about us or our
business. We do not have any control over these analysts. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial
markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet
their expectations, our stock price could decline.
We may issue shares of preferred stock in the future, which could make it difficult for another company to
acquire us or could otherwise adversely affect holders of our common stock, which could depress the price of our common stock.
Our certificate of incorporation authorizes us to issue one or more series of preferred stock. Our Board has the authority to determine the
preferences, limitations and relative rights of the shares of preferred stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or
action by our shareholders. Our preferred stock could be issued with voting, liquidation, dividend and other rights superior to the rights of our common stock. The potential issuance of preferred
stock may delay or prevent a change in control of us, discouraging bids for our common stock at a premium to the market price, and materially adversely affect the market price and the voting and other
rights of the holders of our common stock.
58
Table of Contents
Key Business Metrics
In addition to our GAAP financial information, we review a number of operating and financial metrics, including the following key metrics, to
evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.
Annual Recurring Revenue
ARR represents the annualized value of all subscription contracts as of the end of the period. ARR mitigates fluctuations due to seasonality,
contract term and the sales mix of subscriptions for term-based licenses and SaaS. ARR only includes the annualized value of subscription contracts. ARR does not have any standardized meaning and is
therefore unlikely to be comparable to similarly titled measures presented by other companies. ARR should be viewed independently of revenue and deferred revenue and is not intended to be combined
with or to replace either of those items. ARR is not a forecast and the active contracts at the end of a
reporting period used in calculating ARR may or may not be extended or renewed by our customers. The table below sets forth our ARR as of the end of the past nine fiscal quarters:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2018
|
|
June 30,
2018
|
|
September 30,
2018
|
|
December 31,
2018
|
|
March 31,
2019
|
|
June 30,
2019
|
|
September 30,
2019
|
|
December 31,
2019
|
|
March 31,
2020
|
|
(in thousands)
|
|
$
|
151,729
|
|
$
|
159,563
|
|
$
|
167,659
|
|
$
|
183,579
|
|
$
|
190,476
|
|
$
|
197,990
|
|
$
|
206,730
|
|
$
|
224,888
|
|
$
|
229,957
|
|
Dollar-Based Net Retention Rate
To further illustrate the land and expand economics of our customer relationships, we examine the rate at which our customers increase their
subscriptions for our
solutions. Our dollar-based net retention rate measures our ability to increase revenue across our existing customer base through expanded use of our platform, offset by customers whose subscription
contracts with us are not renewed or renew at a lower amount.
We
calculate our dollar-based net retention rate as of the end of a reporting period as follows:
-
-
Denominator. We measure ARR as of the last day of the prior reporting
period.
-
-
Numerator. We measure ARR as of the last day of the current reporting
period from customers with associated ARR as of the last day of the prior reporting period.
The
quotient obtained from this calculation is our dollar-based net retention rate. Our dollar-based net retention rates were 116%, 115% and 114% at December 31, 2018 and 2019
and March 31, 2020, respectively. We believe our ability to cross-sell our new solutions to our installed base, particularly MFA and API Intelligence, will continue to support our high
dollar-based net retention rates.
Large Customers
We believe that our ability to increase the number of customers on our platform, particularly the number of customers with ARR greater than
$250,000, demonstrates our focus on the large enterprise market and our penetration within those enterprises. Increasing awareness of our platform, further developing our sales and marketing expertise
and channel partner ecosystem, and continuing to build solutions that address the unique identity needs of large enterprises have increased our number of large customers across industries. We believe
there are significant upsell and cross-sell opportunities within our customer base by expanding the number of use cases, adding additional identities and selling new solutions.
74
Table of Contents
Our
customers with ARR over $250,000 increased from 202 at December 31, 2018 to 232 at December 31, 2019, representing a growth rate of 15%. Additionally, our customers
with ARR over $250,000 increased from 209 at March 31, 2019 to 240 at March 31, 2020, representing a year-over-year growth rate of 15%.
Components of Results of Operations
Revenue
We recognize revenue under ASC 606 when our customer obtains control of goods or services in an amount that reflects the consideration that we
expect to receive in exchange for those goods or services. See "Critical Accounting Policies Revenue Recognition".
We
derive revenue primarily from sales of subscriptions for our solutions to new and existing customers and, to a lesser extent, sales of professional services.
Subscription. Subscription revenue includes subscription term-based license revenue for solutions deployed on-premise
within the customer's IT
infrastructure or in a third-party cloud of their choice, subscription support and maintenance revenue from such deployments, and SaaS subscriptions, which give customers the right to access our
cloud-hosted software solutions. We typically invoice subscription fees annually in advance, though certain contracts require invoicing for the entire subscription in advance. Subscription term-based
license revenue is recognized upon transfer of control of the software, which occurs at delivery or when the license term commences, if later. All of our support and maintenance revenue and revenue
from SaaS subscriptions is recognized ratably over the term of the applicable agreement.
For
the years ended December 31, 2019, 2018 and 2017, 66%, 66% and 71%, respectively, of our revenue was from subscription term-based licenses. For the three months ended
March 31, 2020 and 2019, 62% and 65%, respectively, of our revenue was from subscription term based licenses. We expect that a majority of our revenue will be from subscription term-based
licenses for the foreseeable future. Changes in period-over-period subscription revenue growth are primarily impacted by the following factors:
-
-
the type of new and renewed subscriptions (i.e., term-based or SaaS); and
-
-
the duration of new and renewed term-based subscriptions.
While
the number of new and increased subscriptions during a period impacts our subscription revenue growth, the type and duration of those subscriptions has a significantly greater
impact on the amount and timing of revenue recognized in a period. Subscription revenue from term-based licenses is recognized at the beginning of the subscription term, while subscription revenue
from SaaS and support and maintenance is recognized ratably over the subscription term. As a result, our revenue may fluctuate due to the timing of term-based licensing transactions. In addition,
keeping other factors constant, when the percentage of subscription term-based licenses to total subscriptions sold or renewed in a period increases relative to the prior period, revenue growth will
increase. Conversely, when the percentage of subscription SaaS and support and maintenance to total subscriptions sold or renewed in a period increases, revenue growth will generally decrease.
Additionally, a multi-year subscription term-based license will generally result in greater revenue recognition up-front relative to a one-year subscription term-based license. Therefore, keeping
other factors constant, revenue growth will also trend higher in a period where the percentage of multi-year subscription term-based licenses to total subscription term-based licenses increases.
Professional Services and Other. Professional services and other revenue consists primarily of fees from professional
services provided to our
customers and partners to configure and optimize
75
Table of Contents
the
use of our solutions, as well as training services related to the configuration and operation of our solutions. Our professional services are generally priced on a time and materials basis, which
is generally invoiced monthly and for which revenue is recognized as the services are performed. Revenue from our training services and sponsorship fees is recognized on the date the services are
complete. Over time, we expect our professional services revenue to remain relatively stable as a percentage of total revenue.
Cost of Revenue
Subscription. Subscription cost of revenue consists primarily of employee compensation costs for employees associated with
supporting our
subscription arrangements and certain third-party expenses. Employee compensation and related costs include cash compensation and benefits to employees, including stock-based compensation, costs of
third-party contractors and associated overhead costs. Third-party expenses consist of cloud infrastructure costs and other expenses directly associated with our customer support. We expect our
subscription cost of revenue to increase in absolute dollars to the extent our subscription revenue increases.
Professional Services and Other. Professional services and other cost of revenue consists primarily of employee compensation
costs directly
associated with delivery of professional services and training, including stock-based compensation, costs of third-party contractors and facility rental charges and other associated overhead costs. We
expect our professional services and other cost of revenue to increase in absolute dollars relative to the growth of our business.
Amortization Expense. Amortization expense consists of amortization of developed technology and internal-use software.
Operating Expenses
Our operating expenses consist of sales and marketing, research and development and general and administrative expenses as well as depreciation
and amortization. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, payroll taxes and stock-based compensation expense.
Sales and Marketing. Sales and marketing expenses consist primarily of employee compensation costs, sales commissions,
costs of general marketing
and promotional activities, travel-related expenses and allocated overhead. Certain sales commissions earned by our sales force on subscription contracts are deferred and amortized over the period of
benefit, which is generally four years. We expect to continue to invest in our sales force domestically and internationally, as well as in our channel relationships. We expect our sales and marketing
expenses to increase on an absolute dollar basis and continue to be our largest operating expense category for the foreseeable future.
Research and Development. Research and development expenses consist primarily of employee compensation costs, allocated
overhead and software and
maintenance expenses. We will continue to invest in innovation and offer our customers new solutions to enhance our existing platform. See the section "Business Research and
Development" for more information. We expect such investment to increase on an absolute dollar basis as our business grows.
General and Administrative. General and administrative expenses consist primarily of employee compensation costs for
corporate personnel, such as
those in our executive, human resource, legal, facilities, accounting and finance, information security and information technology departments. In addition, general and administrative expenses include
third-party professional fees, as well as all other supporting corporate expenses not allocated to other departments. General and
76
Table of Contents
administrative
expense also includes acquisition related expenses, which primarily consist of third-party expenses related to business acquisitions, such as professional services and legal fees.
We
expect our general and administrative expenses to increase on an absolute dollar basis as our business grows. Also, we expect to incur additional general and administrative expenses
as a result of continuing to operate as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to
compliance and reporting obligations pursuant to the rules and regulations of the SEC, and increased expenses for insurance, investor relations and professional services.
Depreciation and Amortization. Depreciation and amortization expense consists primarily of depreciation of our fixed assets
and amortization of
finite-lived acquired intangible assets such as customer relationships, trade names and non-compete agreements.
Other Income (Expense)
Interest Expense. Interest expense consists primarily of interest payments on our outstanding borrowings under our credit
facilities as well as the
amortization of associated deferred financing costs. See " Liquidity and Capital Resources Senior Secured Credit Facilities".
Other Income (Expense), Net. Other income (expense), net primarily consists of gains and losses from transactions
denominated in a currency other
than the functional currency, interest income and other income (expense). As we have expanded our international operations, our exposure to fluctuations in foreign currencies has increased, and we
expect this to continue.
Benefit (Provision) for Income Taxes
Benefit (provision) for income taxes consists primarily of income taxes related to U.S. federal and state income taxes and income taxes in
foreign jurisdictions in which we conduct business.
77
Table of Contents
Results of Operations
The following table sets forth our consolidated statements of operations data for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Three Months
Ended
March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription
|
|
$
|
160,219
|
|
$
|
184,991
|
|
$
|
225,345
|
|
$
|
47,620
|
|
$
|
56,818
|
|
Professional services and other
|
|
|
12,320
|
|
|
16,571
|
|
|
17,553
|
|
|
2,818
|
|
|
4,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
172,539
|
|
|
201,562
|
|
|
242,898
|
|
|
50,438
|
|
|
61,412
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription (exclusive of amortization shown below)(1)
|
|
|
14,054
|
|
|
17,512
|
|
|
24,044
|
|
|
5,181
|
|
|
7,109
|
|
Professional services and other (exclusive of amortization shown below)(1)
|
|
|
9,155
|
|
|
12,703
|
|
|
15,322
|
|
|
3,241
|
|
|
4,013
|
|
Amortization expense
|
|
|
12,626
|
|
|
14,396
|
|
|
16,338
|
|
|
3,866
|
|
|
4,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
35,835
|
|
|
44,611
|
|
|
55,704
|
|
|
12,288
|
|
|
15,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
136,704
|
|
|
156,951
|
|
|
187,194
|
|
|
38,150
|
|
|
45,688
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing(1)
|
|
|
49,481
|
|
|
60,140
|
|
|
78,889
|
|
|
17,308
|
|
|
22,190
|
|
Research and development(1)
|
|
|
26,215
|
|
|
36,229
|
|
|
46,016
|
|
|
11,454
|
|
|
12,214
|
|
General and administrative(1)
|
|
|
20,202
|
|
|
28,355
|
|
|
38,293
|
|
|
7,084
|
|
|
11,389
|
|
Depreciation and amortization
|
|
|
16,526
|
|
|
16,341
|
|
|
16,639
|
|
|
4,121
|
|
|
4,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
112,424
|
|
|
141,065
|
|
|
179,837
|
|
|
39,967
|
|
|
50,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
24,280
|
|
|
15,886
|
|
|
7,357
|
|
|
(1,817
|
)
|
|
(4,354
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(19,277
|
)
|
|
(15,837
|
)
|
|
(12,914
|
)
|
|
(4,116
|
)
|
|
(506
|
)
|
Loss on extinguishment of debt
|
|
|
|
|
|
(9,785
|
)
|
|
(4,532
|
)
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
773
|
|
|
(335
|
)
|
|
363
|
|
|
(9
|
)
|
|
(1,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(18,504
|
)
|
|
(25,957
|
)
|
|
(17,083
|
)
|
|
(4,125
|
)
|
|
(1,756
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
5,776
|
|
|
(10,071
|
)
|
|
(9,726
|
)
|
|
(5,942
|
)
|
|
(6,110
|
)
|
Benefit (provision) for income taxes
|
|
|
13,185
|
|
|
(3,375
|
)
|
|
8,222
|
|
|
1,063
|
|
|
1,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
18,961
|
|
$
|
(13,446
|
)
|
$
|
(1,504
|
)
|
$
|
(4,879
|
)
|
$
|
(4,166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Includes stock-based compensation as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Three Months
Ended
March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Subscription cost of revenue
|
|
$
|
|
|
$
|
|
|
$
|
141
|
|
$
|
|
|
$
|
146
|
|
Professional services and other cost of revenue
|
|
|
|
|
|
|
|
|
80
|
|
|
|
|
|
84
|
|
Sales and marketing
|
|
|
626
|
|
|
726
|
|
|
1,407
|
|
|
222
|
|
|
797
|
|
Research and development
|
|
|
297
|
|
|
342
|
|
|
1,364
|
|
|
215
|
|
|
888
|
|
General and administrative
|
|
|
1,601
|
|
|
1,780
|
|
|
3,340
|
|
|
622
|
|
|
942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,524
|
|
$
|
2,848
|
|
$
|
6,332
|
|
$
|
1,059
|
|
$
|
2,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
Table of Contents
The
following table sets forth our consolidated statements of operations data expressed as a percentage of total revenue for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Three
Months
Ended
March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription
|
|
|
93
|
%
|
|
92
|
%
|
|
93
|
%
|
|
94
|
%
|
|
93
|
%
|
Professional services and other
|
|
|
7
|
|
|
8
|
|
|
7
|
|
|
6
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
100
|
|
|
100
|
|
|
100
|
|
|
100
|
|
|
100
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription (exclusive of amortization shown below)
|
|
|
8
|
|
|
9
|
|
|
10
|
|
|
10
|
|
|
12
|
|
Professional services and other (exclusive of amortization shown below)
|
|
|
5
|
|
|
6
|
|
|
6
|
|
|
6
|
|
|
7
|
|
Amortization expense
|
|
|
7
|
|
|
7
|
|
|
7
|
|
|
8
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
20
|
|
|
22
|
|
|
23
|
|
|
24
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
80
|
|
|
78
|
|
|
77
|
|
|
76
|
|
|
74
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
29
|
|
|
30
|
|
|
32
|
|
|
34
|
|
|
35
|
|
Research and development
|
|
|
15
|
|
|
18
|
|
|
19
|
|
|
23
|
|
|
20
|
|
General and administrative
|
|
|
12
|
|
|
14
|
|
|
16
|
|
|
14
|
|
|
19
|
|
Depreciation and amortization
|
|
|
10
|
|
|
8
|
|
|
7
|
|
|
8
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
66
|
|
|
70
|
|
|
74
|
|
|
79
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
14
|
|
|
8
|
|
|
3
|
|
|
(3
|
)
|
|
(7
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(11
|
)
|
|
(8
|
)
|
|
(5
|
)
|
|
(8
|
)
|
|
(1
|
)
|
Loss on extinguishment of debt
|
|
|
|
|
|
(5
|
)
|
|
(2
|
)
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(11
|
)
|
|
(13
|
)
|
|
(7
|
)
|
|
(8
|
)
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
3
|
|
|
(5
|
)
|
|
(4
|
)
|
|
(11
|
)
|
|
(10
|
)
|
Benefit (provision) for income taxes
|
|
|
8
|
|
|
(2
|
)
|
|
3
|
|
|
2
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
11
|
%
|
|
(7
|
)%
|
|
(1
|
)%
|
|
(9
|
)%
|
|
(7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison of the Three Months Ended March 31, 2019 and 2020
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription
|
|
$
|
47,620
|
|
$
|
56,818
|
|
$
|
9,198
|
|
|
19
|
%
|
Professional services and other
|
|
|
2,818
|
|
|
4,594
|
|
|
1,776
|
|
|
63
|
|
Total revenue
|
|
$
|
50,438
|
|
$
|
61,412
|
|
$
|
10,974
|
|
|
22
|
%
|
79
Table of Contents
Total
revenue increased by $11.0 million, or 22%, for the three months ended March 31, 2020 compared to the three months ended March 31, 2019. 84% of the increase
in total revenue was due to an increase in subscription revenue of $9.2 million. The remaining $1.8 million of the increase was attributable to an increase in professional services and
other revenue as a result of an increase in the provisioning of implementation and consulting services.
The
table below sets forth the components of subscription revenue for the three months ended March 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Subscription:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-year subscription term-based licenses
|
|
$
|
23,431
|
|
$
|
23,988
|
|
$
|
557
|
|
|
|
|
1-year subscription term-based licenses
|
|
|
9,294
|
|
|
14,149
|
|
|
4,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription term-based licenses
|
|
|
32,725
|
|
|
38,137
|
|
|
5,412
|
|
|
|
|
Subscription SaaS and maintenance and support
|
|
|
14,895
|
|
|
18,681
|
|
|
3,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subscription revenue
|
|
$
|
47,620
|
|
$
|
56,818
|
|
$
|
9,198
|
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription
revenue increased 19%, or $9.2 million, in the three months ended March 31, 2020 compared to the three months ended March 31, 2019. Total subscription
revenue increased as a result of a greater amount of subscriptions entered into or renewed in the three months ended March 31, 2020 compared to the three months ended March 31, 2019, as
evidenced by our ARR growth of 21%. Remaining changes to subscription revenue were primarily due to the following:
-
-
Change in subscription type. Subscription term-based license revenue as a
percentage of subscription revenue decreased from 69% in the three months ended March 31, 2019 to 67% in the three months ended March 31, 2020. Subscription SaaS and support and
maintenance as a percentage of total subscription revenue increased from 31% in the three months ended March 31, 2019 to 33% in the three months ended March 31, 2020. This resulted in
greater deferral of revenue from subscriptions entered into or renewed during the three months ended March 31, 2020 compared to the three months ended March 31, 2019. We expect
subscription SaaS and support and maintenance to continue to gradually increase as a percentage of total subscription revenue in future periods, resulting in greater deferral of revenue in the period
in which the subscription is contracted.
-
-
Change in term-based subscription duration. Multi-year subscription
term-based license revenue as a percentage of total subscription term-based license revenue decreased from 72% in the three months ended March 31, 2019 to 63% in the three months ended
March 31, 2020. This resulted in less upfront revenue recognition from multi-year subscriptions entered into or renewed during the three months ended March 31, 2020 compared to the three
months ended March 31, 2019. Given the impacts of COVID-19, we expect multi-year subscriptions as a percentage of total subscription term-based licenses to continue to decline through the year
ending December 31, 2020, resulting in less upfront revenue recognition from the corresponding license.
80
Table of Contents
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription (exclusive of amortization shown below)
|
|
$
|
5,181
|
|
$
|
7,109
|
|
$
|
1,928
|
|
|
37
|
%
|
Professional services and other (exclusive of amortization shown below)
|
|
|
3,241
|
|
|
4,013
|
|
|
772
|
|
|
24
|
|
Amortization expense
|
|
|
3,866
|
|
|
4,602
|
|
|
736
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
$
|
12,288
|
|
$
|
15,724
|
|
$
|
3,436
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription
cost of revenue increased by $1.9 million, or 37%, for the three months ended March 31, 2020 compared to the three months ended March 31, 2019.
$1.0 million of the increase was compensation-related and primarily attributable to an increase in headcount to support the growth of our subscription SaaS offerings and ongoing maintenance for
our expanding customer base. $0.8 million of the increase was attributable to an increase in cloud-based hosting costs largely associated with the increased adoption of our solutions.
Substantially all of the remaining increase in subscription cost of revenue was due to an increase in allocated overhead.
Professional
services and other cost of revenue increased by $0.8 million, or 24%, for the three months ended March 31, 2020 compared to the three months ended
March 31, 2019. The increase related to a $0.4 million increase in compensation-related costs primarily attributable to an increase in headcount to support the growth of our business as
well as a $0.4 million increase in consulting costs to aid in the development of our certification programs. The remaining portion of the increase was primarily attributable to allocated
overhead.
Amortization
expense increased by $0.7 million, or 19%, for the three months ended March 31, 2020 compared to the three months ended March 31, 2019. The increase
was attributable primarily to an increase in the amortization of our capitalized software.
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Sales and marketing
|
|
$
|
17,308
|
|
$
|
22,190
|
|
$
|
4,882
|
|
|
28
|
%
|
Research and development
|
|
|
11,454
|
|
|
12,214
|
|
|
760
|
|
|
7
|
|
General and administrative
|
|
|
7,084
|
|
|
11,389
|
|
|
4,305
|
|
|
61
|
|
Depreciation and amortization
|
|
|
4,121
|
|
|
4,249
|
|
|
128
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
39,967
|
|
$
|
50,042
|
|
$
|
10,075
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Marketing. Sales and marketing expenses increased by $4.9 million, or 28%, for the three months ended
March 31, 2020
compared to the three months ended March 31, 2019. $3.6 million of the increase was compensation-related and primarily the result of increased commissions related to the increase in
revenue, the increase in our sales force domestically and internationally and continued investment in our channel relationships. We also experienced an increase of $0.7 million related to
branding and marketing campaigns. Substantially all of the
81
Table of Contents
remaining
increase in sales and marketing expenses was the result of increased costs related to company events of $0.3 million and allocated overhead.
Research and Development. Research and development expenses increased by $0.8 million, or 7%, for the three months
ended March 31,
2020 compared to the three months ended March 31, 2019. $2.5 million of the increase was compensation-related and primarily the result of an increase in headcount to enhance and expand
our solutions. The increase in compensation-related expenses was partially offset by a decrease of $1.2 million attributable to contingent compensation and retention expense related to our
acquisition of Elastic Beam (as further discussed in Note 5 of our condensed consolidated financial statements included elsewhere in this prospectus) as well as decreased allocated overhead.
General and Administrative. General and administrative expenses increased by $4.3 million, or 61%, for the three months
ended
March 31, 2020 compared to the three months ended March 31, 2019. $0.4 million of the increase was compensation-related and primarily the result of an increase in corporate
headcount to support the growth and scale of the business. $2.5 million of the increase was attributable to an increase in administrative expenses related to operating as a public company.
$0.5 million of the increase was attributable to acquisition-related expenses from our acquisition of ShoCard, Inc., a Delaware corporation, or Shocard, that was consummated in March
2020 (as further discussed in Note 5 of our condensed consolidated financial statements included elsewhere in this prospectus). An additional $0.5 million of the increase was due to
increased rent expense related to variable lease payments. Substantially all of the remaining increase in general and administrative expenses related to an increase in allocated overhead.
Depreciation and Amortization. Depreciation and amortization expense remained substantially the same for the three months
ended March 31,
2020 compared to the three months ended March 31, 2019.
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Interest expense
|
|
$
|
(4,116
|
)
|
$
|
(506
|
)
|
$
|
3,610
|
|
|
(88
|
)%
|
Other income (expense), net
|
|
|
(9
|
)
|
|
(1,250
|
)
|
|
(1,241
|
)
|
|
13,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
$
|
(4,125
|
)
|
$
|
(1,756
|
)
|
$
|
2,369
|
|
|
(57
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense. Interest expense decreased by $3.6 million, or 88%, for the three months ended March 31, 2020
compared to the three
months ended March 31, 2019. The decrease was attributable primarily to the period-over-period decrease in total debt outstanding and the weighted average interest rate, from 6.3% for the three
months ended March 31, 2019 to 2.9% for the three months ended March 31, 2020, due to the refinancing of our debt in December 2019 as described in Note 7 of our condensed
consolidated financial statements includeded elsewhere in this prospectus.
Other Income (Expense), Net. Other income (expense), net increased by $1.2 million, to other expense, net of
$1.3 million for the
three months ended March 31, 2020 compared to other expense, net of $9 thousand for the three months ended March 31, 2019. The increase was primarily attributable to a change in
the amount of foreign currency losses, from a loss of $0.4 million in the three months ended March 31, 2019 compared to a loss of $1.4 million in the three months ended
March 31, 2020 driven by the strengthening of the U.S. dollar in relation to
82
Table of Contents
foreign
currencies. These losses were partially offset by interest income recognized during the three months ended March 31, 2020 and 2019.
Benefit for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Benefit for income taxes
|
|
$
|
1,063
|
|
$
|
1,944
|
|
$
|
881
|
|
|
83
|
%
|
For
the three months ended March 31, 2020 and 2019, we recorded a benefit for income taxes of $1.9 million and $1.1 million, respectively. The increase in our
benefit for income taxes for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 was primarily driven by a larger benefit for stock-based compensation
as well as an increase in R&D credits recorded in the three months ended March 31, 2020 as compared to the three months ended March 31, 2019.
Comparison of the Year Ended December 31, 2017, 2018 and 2019
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Change
|
|
|
Year Ended
December 31,
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
|
2018
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription
|
|
$
|
160,219
|
|
$
|
184,991
|
|
$
|
24,772
|
|
|
15
|
%
|
$
|
184,991
|
|
$
|
225,345
|
|
$
|
40,354
|
|
|
22
|
%
|
Professional services and other
|
|
|
12,320
|
|
|
16,571
|
|
|
4,251
|
|
|
35
|
|
|
16,571
|
|
|
17,553
|
|
|
982
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
172,539
|
|
$
|
201,562
|
|
$
|
29,023
|
|
|
17
|
%
|
$
|
201,562
|
|
$
|
242,898
|
|
$
|
41,336
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue increased by $29.0 million, or 17%, for the year ended December 31, 2018 compared to the year ended December 31, 2017. 85% of the increase in total
revenue was due to an increase in subscription revenue of $24.8 million. The remaining $4.3 million of revenue growth was attributable to an increase in professional services and other
revenue.
Total
revenue increased by $41.3 million, or 21%, for the year ended December 31, 2019 compared to the year ended December 31, 2018. 98% of the increase in total
revenue was due to an increase
in subscription revenue of $40.4 million. The remaining $1.0 million of revenue growth was attributable to an increase in professional services and other revenue.
83
Table of Contents
The table below sets forth the components of subscription revenue for the years ended December 31, 2017, 2018 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Change
|
|
|
Year Ended
December 31,
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
|
2018
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Subscription:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-year subscription term-based licenses
|
|
$
|
86,421
|
|
$
|
88,925
|
|
$
|
2,504
|
|
|
|
|
$
|
88,925
|
|
$
|
113,151
|
|
$
|
24,226
|
|
|
|
|
1-year subscription term-based licenses
|
|
|
35,678
|
|
|
44,743
|
|
|
9,065
|
|
|
|
|
|
44,743
|
|
|
48,255
|
|
|
3,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription term-based licenses
|
|
|
122,099
|
|
|
133,668
|
|
|
11,569
|
|
|
|
|
|
133,668
|
|
|
161,406
|
|
|
27,738
|
|
|
|
|
Subscription SaaS and maintenance and support
|
|
|
38,120
|
|
|
51,323
|
|
|
13,203
|
|
|
|
|
|
51,323
|
|
|
63,939
|
|
|
12,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subscription revenue
|
|
$
|
160,219
|
|
$
|
184,991
|
|
$
|
24,772
|
|
|
15
|
%
|
$
|
184,991
|
|
$
|
225,345
|
|
$
|
40,354
|
|
|
22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription
revenue increased 15%, or $24.8 million, in the year ended December 31, 2018 compared to the year ended December 31, 2017. Subscription revenue
increased 22%, or $40.4 million, in the year ended December 31, 2019 compared to the year ended December 31, 2018.
The
change in subscription revenue was primarily due to the following:
-
-
Change in subscription type. Subscription term-based license revenue as a
percentage of subscription revenue decreased from 76% to 72% in the years ended December 31, 2017 and 2018, respectively. Subscription SaaS and support and maintenance as a percentage of total
subscription revenue increased from 24% to 28% in the years ended December 31, 2017 and 2018, respectively. This resulted in greater deferral of revenue from subscriptions entered into or
renewed during the year ended December 31, 2018 compared to the year ended December 31, 2017. Subscription term-based license revenue as a percentage of subscription revenue was 72% in
the years ended December 31, 2018 and 2019. Subscription SaaS and support and maintenance as a percentage of total subscription revenue was 28% in the years ended December 31, 2018 and
2019. As the mix of subscription types stayed consistent between 2018 and 2019, the increase in total subscription revenue was attributable to a greater amount of subscriptions entered into or renewed
during the year ended December 31, 2019 compared to the year ended December 31, 2018.
-
-
Change in term-based subscription duration. Multi-year subscription
term-based license revenue as a percentage of total subscription term-based license revenue decreased from 71% to 67% in the years ended December 31, 2017 and 2018, respectively. This resulted
in less upfront revenue recognition from subscriptions entered into or renewed during the year ended December 31, 2018 compared to the year ended December 31, 2017. Multi-year
subscription term-based license revenue as a percentage of total subscription term-based license revenue increased from 67% in the year ended December 31, 2018 to 70% in the year ended
December 31, 2019. This resulted in more upfront revenue recognition from subscriptions entered into or renewed during the year ended December 31, 2019 compared to the year ended
December 31, 2018.
84
Table of Contents
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Change
|
|
|
Year Ended
December 31,
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
|
2018
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription (exclusive of amortization shown below)
|
|
$
|
14,054
|
|
$
|
17,512
|
|
$
|
3,458
|
|
|
25
|
%
|
$
|
17,512
|
|
$
|
24,044
|
|
$
|
6,532
|
|
|
37
|
%
|
Professional services and other (exclusive of amortization shown below)
|
|
|
9,155
|
|
|
12,703
|
|
|
3,548
|
|
|
39
|
|
|
12,703
|
|
|
15,322
|
|
|
2,619
|
|
|
21
|
|
Amortization expense
|
|
|
12,626
|
|
|
14,396
|
|
|
1,770
|
|
|
14
|
|
|
14,396
|
|
|
16,338
|
|
|
1,942
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
$
|
35,835
|
|
$
|
44,611
|
|
$
|
8,776
|
|
|
24
|
%
|
$
|
44,611
|
|
$
|
55,704
|
|
$
|
11,093
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription
cost of revenue increased by $3.5 million, or 25%, for the year ended December 31, 2018 compared to the year ended December 31, 2017.
$1.8 million of the increase was compensation-related and primarily attributable to an increase in headcount to support the growth of our subscription SaaS offerings and ongoing maintenance for
our expanding customer base. $1.0 million of the increase was attributable to our increased cloud-based hosting costs largely associated with the increased adoption of our solutions.
Substantially all of the remaining increase in subscription cost of revenue was due to an increase in travel costs and allocated overhead.
Subscription
cost of revenue increased by $6.5 million, or 37%, for the year ended December 31, 2019 compared to the year ended December 31, 2018.
$3.3 million of the increase was compensation related and primarily attributable to an increase in headcount to support the growth of our subscription SaaS offerings and ongoing maintenance for
our expanding customer base. $2.0 million of the increase was attributable to our increased cloud-based hosting costs largely associated with the increased adoption of our solutions.
Substantially all of the remaining increase in subscription cost of revenue was due to an increase in allocated overhead.
Professional
services and other cost of revenue increased by $3.5 million, or 39%, for the year ended December 31, 2018 compared to the year ended December 31,
2017. $2.8 million of the increase was compensation related and primarily attributable to an increase in headcount to support growth of our business. $0.5 million of the increase related
to consulting costs. The remaining portion of the increase was primarily attributable to travel costs as well as allocated overhead.
Professional
services and other cost of revenue increased by $2.6 million, or 21%, for the year ended December 31, 2019 compared to the year ended December 31,
2018. $3.4 million of the increase was compensation related and primarily attributable to an increase in headcount to support growth of our business, partially offset by a decrease in
consulting costs of $1.2 million. The remaining portion of the increase was primarily attributable to travel costs and allocated overhead.
85
Table of Contents
Amortization expense increased by $1.8 million, or 14%, for the year ended December 31, 2018 compared to the year ended December 31, 2017.
Amortization expense increased by $1.9 million, or 13%, for the year ended December 31, 2019 compared to the year ended December 31, 2018. The year-over-year increase were
attributable primarily to an increase in the amortization of our capitalized software.
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Change
|
|
|
Year Ended
December 31,
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
|
2018
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Sales and marketing
|
|
$
|
49,481
|
|
$
|
60,140
|
|
$
|
10,659
|
|
|
22
|
%
|
$
|
60,140
|
|
$
|
78,889
|
|
$
|
18,749
|
|
|
31
|
%
|
Research and development
|
|
|
26,215
|
|
|
36,229
|
|
|
10,014
|
|
|
38
|
|
|
36,229
|
|
|
46,016
|
|
|
9,787
|
|
|
27
|
|
General and administrative
|
|
|
20,202
|
|
|
28,355
|
|
|
8,153
|
|
|
40
|
|
|
28,355
|
|
|
38,293
|
|
|
9,938
|
|
|
35
|
|
Depreciation and amortization
|
|
|
16,526
|
|
|
16,341
|
|
|
(185
|
)
|
|
(1
|
)%
|
|
16,341
|
|
|
16,639
|
|
|
298
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
112,424
|
|
$
|
141,065
|
|
$
|
28,641
|
|
|
25
|
%
|
$
|
141,065
|
|
$
|
179,837
|
|
$
|
38,772
|
|
|
27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Marketing. Sales and marketing expenses increased by $10.7 million, or 22%, for the year ended
December 31, 2018 compared to
the year ended December 31, 2017. $6.0 million of the increase was the result of increased commissions related to the increase in revenue, the increase in our sales force domestically
and internationally and continued investment in our channel relationships. As our headcount increased, we also experienced a related increase in travel costs of $1.2 million and increased
promotional expenses of $1.5 million primarily related to tradeshows and event sponsorships for the year ended December 31, 2018 compared to the year ended December 31, 2017.
Substantially all of the remaining increase in sales and marketing expenses was the result of increased partner commissions and consulting costs, as well as allocated overhead.
Sales
and marketing expenses increased by $18.7 million, or 31%, for the year ended December 31, 2019 compared to the year ended December 31, 2018.
$11.7 million of the increase was related to compensation and was notably the result of increased commissions related to the increase in revenue, the increase in our sales force domestically
and internationally and continued investment in our channel relationships. As our headcount increased, we also experienced a related increase in travel costs of $0.8 million.
$1.8 million of the increase related to promotional expenses including advertising, tradeshows and event sponsorships. An additional $1.9 million of the increase was attributable to
increased partner commissions and consulting costs. Substantially all of the remaining increase in sales and marketing expenses was the result of an increase in allocated overhead.
Research and Development. Research and development expenses increased by $10.0 million, or 38%, for the year ended
December 31, 2018
compared to the year ended December 31, 2017. $4.0 million of the increase was compensation-related and primarily the result of an increase in headcount to enhance and expand our
solutions. Additionally, $5.2 million of the increase related to contingent compensation and retention expense that was payable on the first anniversary of our acquisition of Elastic Beam,
which we acquired in April 2018 (as further discussed in Note 5 of our consolidated financial statements appearing elsewhere in this prospectus). Substantially all of the remaining increase in
research and development expenses was the result of increased software and maintenance expenses, primarily cloud-based hosting costs to support our development efforts for our SaaS offerings,
consulting costs and allocated overhead.
86
Table of Contents
Research
and development expenses increased by $9.8 million, or 27%, for the year ended December 31, 2019 compared to the year ended December 31, 2018.
$10.2 million of the increase was compensation related and primarily the result of an increase in headcount to enhance and expand our solutions. This was offset by a decrease of
$1.9 million of contingent compensation and retention expense related to our acquisition of Elastic Beam (as further discussed in Note 5 of our consolidated financial statements
appearing elsewhere in this prospectus). Substantially all of the remaining increase in research and development expenses was the result of increased consulting
costs and cloud-based hosting costs to continue to support our development efforts for our SaaS offerings, as well as allocated overhead.
General and Administrative. General and administrative expenses increased by $8.2 million, or 40%, for the year ended
December 31,
2018 compared to the year ended December 31, 2017. $3.9 million of the increase was the result of an increase in corporate headcount to support the growth and scale of the business. An
additional $1.3 million of the increase resulted from an increase in consulting costs, driven primarily by the implementation of new accounting standards and our preparation for becoming a
public company. General and administrative expenses for the year ended December 31, 2018 also included $0.6 million of acquisition-related expenses related to our acquisition of Elastic
Beam. Substantially all of the remaining increase in general and administrative expenses related to increased accounting and legal fees driven by our preparation for becoming a public company.
General
and administrative expenses increased by $9.9 million, or 35%, for the year ended December 31, 2019 compared to the year ended December 31, 2018.
$9.1 million of the increase was the result of an increase in corporate headcount to continue to support the growth and scale of the business. This was offset by a decrease of
$0.6 million from acquisition-related expenses that we incurred during the year ended December 31, 2018 for our acquisition of Elastic Beam. Substantially all of the remaining increase
in general and administrative expenses related to increased legal fees and director and officer insurance expenses, both resulting from operating as a public company, as well as allocated overhead.
Depreciation and Amortization. Depreciation and amortization expense remained substantially the same for the year ended
December 31, 2019
compared to the year ended December 31, 2018 and for the year ended December 31, 2018 compared to the year ended December 31, 2017.
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
|
2018
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Interest expense
|
|
$
|
(19,277
|
)
|
$
|
(15,837
|
)
|
$
|
3,440
|
|
|
(18
|
)%
|
$
|
(15,837
|
)
|
$
|
(12,914
|
)
|
$
|
2,923
|
|
|
(18
|
)%
|
Loss on extinguishment of debt
|
|
|
|
|
|
(9,785
|
)
|
|
(9,785
|
)
|
|
N/M
|
|
|
(9,785
|
)
|
|
(4,532
|
)
|
|
5,253
|
|
|
(54
|
)
|
Other income (expense), net
|
|
|
773
|
|
|
(335
|
)
|
|
(1,108
|
)
|
|
(143
|
)
|
|
(335
|
)
|
|
363
|
|
|
698
|
|
|
208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
$
|
(18,504
|
)
|
$
|
(25,957
|
)
|
$
|
(7,453
|
)
|
|
40
|
%
|
$
|
(25,957
|
)
|
$
|
(17,083
|
)
|
$
|
8,874
|
|
|
(34
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense. Interest expense decreased by $3.4 million, or 18%, for the year ended December 31, 2018
compared to the year ended
December 31, 2017. The decrease was attributable primarily to the refinancing of our debt in January 2018, through which we increased our borrowings of long-term debt from a principal amount of
$170.0 million to $250.0 million but were able to obtain more favorable interest rates, from a weighted average interest rate of 10.4% for
87
Table of Contents
the
year ended December 31, 2017 to 5.8% for the year ended December 31, 2018, resulting in reduced interest expense for the year ended December 31, 2018.
Interest
expense decreased by $2.9 million, or 18%, for the year ended December 31, 2019 compared to the year ended December 31, 2018. The decrease was attributable
primarily to the repayment of $170.3 million and $26.1 million of outstanding principal on our 2018 Term Loan Facility in September 2019 and October 2019, respectively. The decrease also
partially relates to the refinancing of our debt in December 2019, as our 2019 Revolving Credit Facility bears interest at a lower rate than our 2018 Term Loan Facility. The decrease was partially
offset by a period-over-period increase in the weighted average interest rate, from 5.8% for the year ended December 31, 2018 to 6.1% for the year ended December 31, 2019.
Loss on Extinguishment of Debt. In conjunction with the refinancing of our debt in January 2018, we recorded a loss on
extinguishment of debt for
the year ended December 31, 2018 of $9.8 million. There was no similar loss during the year ended December 31, 2017. During the year ended December 31, 2019, we recorded a
loss on extinguishment of debt of $4.5 million. $3.6 million of the loss related to the write off of a portion of our deferred debt issuance costs in conjunction with the repayment of
$196.4 million of outstanding principal on our 2018 Term Loan Facility using the proceeds from our IPO. The remaining $0.9 million of the loss related to the refinancing of our debt in
December 2019.
Other Income (Expense), Net. Other income (expense), net decreased by $1.1 million, or 143%, for the year ended
December 31, 2018
compared to the year ended December 31, 2017. The decrease was attributable primarily to a change in the amount of foreign currency gains and losses, from a gain of $0.7 million in the
year ended December 31, 2017 compared to a loss of $2.0 million in the year ended December 31, 2018.
Other
income (expense), net increased by $0.7 million, or 208%, from other expense of $0.3 million in the year ended December 31, 2018 to other income of
$0.4 million in the year ended December 31, 2019. The increase was attributable primarily to a change in the amount of foreign currency gains and losses, from a loss of
$2.0 million in the year ended December 31, 2018 compared to a loss of $0.9 million in the year ended December 31, 2019. These foreign currency losses were offset by
interest and other income of $1.7 million and $1.3 million during the years ended December 31, 2018 and 2019, respectively.
Benefit (Provision) for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
|
2018
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Benefit (provision) for income taxes
|
|
$
|
13,185
|
|
$
|
(3,375
|
)
|
$
|
(16,560
|
)
|
|
(126
|
)%
|
$
|
(3,375
|
)
|
$
|
8,222
|
|
$
|
11,597
|
|
|
(344
|
)%
|
For
the year ended December 31, 2017, we recorded a benefit for income taxes of $13.2 million. For the year ended December 31, 2018, we recorded a provision for
income taxes of $3.4 million. Our effective tax rates for the years ended December 31, 2017 and 2018 were (228.2)% and (33.5)%, respectively. The increase in our effective tax rate for
2018 compared to 2017 was primarily driven by the enactment of the Tax Act in 2017. As a result of the Tax Act, we remeasured our deferred tax assets and liabilities at the lower U.S. federal tax
rate, which resulted in a one-time tax benefit during the year ended December 31, 2017 of $17.0 million. This one-time tax benefit was partially offset by the one-time transition tax
expense on certain unremitted earnings of our foreign subsidiaries during the year ended December 31, 2017 of $1.2 million. Additionally,
88
Table of Contents
there
were changes to our state tax rates which resulted in tax expense of $1.9 million and $4.2 million during the years ended December 31, 2017 and December 31, 2018,
respectively. During the year ended December 31, 2018, we recorded tax expense of $1.0 million for contingent deal consideration related to the Elastic Beam acquisition (as further
discussed in Note 5 of our consolidated financial statements included elsewhere in this prospectus).
For
the year ended December 31, 2018, we recorded a provision for income taxes of $3.4 million. For the year ended December 31, 2019, we recorded a benefit for
income taxes of $8.2 million. Our effective tax rates for the years ended December 31, 2018 and 2019 were (33.5)% and 84.5%, respectively. The increase in our effective tax rate for 2018
compared to 2019 was primarily driven by the finalization of a research and development study in the third quarter of 2019 that generated a tax benefit of $4.6 million, of which the Company
partially offset with an unrecognized tax benefit reserve of $0.9 million. Additionally, for the year ended December 31, 2018, we recorded tax expense of $4.2 million related to
an increase in the state tax rates compared to a tax benefit of $2.7 million for the year ended December 31, 2019.
Quarterly Results of Operations and Other Data
The following tables set forth selected unaudited consolidated quarterly statements of operations data for each of the nine fiscal
quarters ended March 31, 2020, as well as the percentage of revenue that each line item represents for each quarter. The information for each of these quarters has been prepared on the same
basis as the audited annual consolidated financial statements included elsewhere in this prospectus and, in the opinion of management, includes all adjustments, which consist only of normal recurring
adjustments, necessary for the fair statement of the results of operations for these periods. This data should be read in conjunction with our consolidated financial statements and related notes
included elsewhere in this prospectus. These
89
Table of Contents
quarterly
results are not necessarily indicative of our results of operations to be expected for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
June 30, 2018
|
|
|
September 30, 2018
|
|
|
December 31, 2018
|
|
|
March 31, 2019
|
|
|
June 30, 2019
|
|
|
September 30, 2019
|
|
|
December 31, 2019
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share amounts)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription
|
|
$
|
46,173
|
|
$
|
44,403
|
|
$
|
38,481
|
|
$
|
55,934
|
|
$
|
47,620
|
|
$
|
56,272
|
|
$
|
57,495
|
|
$
|
63,958
|
|
$
|
56,818
|
|
Professional services and other
|
|
|
3,774
|
|
|
5,100
|
|
|
4,138
|
|
|
3,559
|
|
|
2,818
|
|
|
6,188
|
|
|
4,270
|
|
|
4,277
|
|
|
4,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
49,947
|
|
|
49,503
|
|
|
42,619
|
|
|
59,493
|
|
|
50,438
|
|
|
62,460
|
|
|
61,765
|
|
|
68,235
|
|
|
61,412
|
|
Cost of Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription (exclusive of amortization shown below)(1)
|
|
|
3,918
|
|
|
4,341
|
|
|
4,526
|
|
|
4,727
|
|
|
5,181
|
|
|
5,652
|
|
|
5,995
|
|
|
7,216
|
|
|
7,109
|
|
Professional services and other (exclusive of amortization shown below)(1)
|
|
|
3,151
|
|
|
2,686
|
|
|
3,347
|
|
|
3,519
|
|
|
3,241
|
|
|
3,675
|
|
|
4,086
|
|
|
4,320
|
|
|
4,013
|
|
Amortization expense
|
|
|
3,478
|
|
|
3,586
|
|
|
3,549
|
|
|
3,783
|
|
|
3,866
|
|
|
3,956
|
|
|
4,159
|
|
|
4,357
|
|
|
4,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
10,547
|
|
|
10,613
|
|
|
11,422
|
|
|
12,029
|
|
|
12,288
|
|
|
13,283
|
|
|
14,240
|
|
|
15,893
|
|
|
15,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
39,400
|
|
|
38,890
|
|
|
31,197
|
|
|
47,464
|
|
|
38,150
|
|
|
49,177
|
|
|
47,525
|
|
|
52,342
|
|
|
45,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing(1)
|
|
|
12,623
|
|
|
15,498
|
|
|
13,690
|
|
|
18,329
|
|
|
17,308
|
|
|
20,026
|
|
|
17,819
|
|
|
23,736
|
|
|
22,190
|
|
Research and development(1)
|
|
|
7,026
|
|
|
9,367
|
|
|
9,634
|
|
|
10,202
|
|
|
11,454
|
|
|
10,857
|
|
|
11,283
|
|
|
12,422
|
|
|
12,214
|
|
General and administrative(1)
|
|
|
7,380
|
|
|
5,699
|
|
|
6,411
|
|
|
8,865
|
|
|
7,084
|
|
|
8,664
|
|
|
10,984
|
|
|
11,561
|
|
|
11,389
|
|
Depreciation and amortization
|
|
|
4,174
|
|
|
4,182
|
|
|
3,976
|
|
|
4,009
|
|
|
4,121
|
|
|
4,153
|
|
|
4,060
|
|
|
4,305
|
|
|
4,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
31,203
|
|
|
34,746
|
|
|
33,711
|
|
|
41,405
|
|
|
39,967
|
|
|
43,700
|
|
|
44,146
|
|
|
52,024
|
|
|
50,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
8,197
|
|
|
4,144
|
|
|
(2,514
|
)
|
|
6,059
|
|
|
(1,817
|
)
|
|
5,477
|
|
|
3,379
|
|
|
318
|
|
|
(4,354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(3,956
|
)
|
|
(3,835
|
)
|
|
(3,959
|
)
|
|
(4,087
|
)
|
|
(4,116
|
)
|
|
(4,133
|
)
|
|
(3,818
|
)
|
|
(847
|
)
|
|
(506
|
)
|
Loss on extinguishment of debt
|
|
|
(9,785
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,150
|
)
|
|
(1,382
|
)
|
|
|
|
Other income (expense), net
|
|
|
396
|
|
|
(1,308
|
)
|
|
(131
|
)
|
|
708
|
|
|
(9
|
)
|
|
234
|
|
|
(992
|
)
|
|
1,130
|
|
|
(1,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(13,345
|
)
|
|
(5,143
|
)
|
|
(4,090
|
)
|
|
(3,379
|
)
|
|
(4,125
|
)
|
|
(3,899
|
)
|
|
(7,960
|
)
|
|
(1,099
|
)
|
|
(1,756
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(5,148
|
)
|
|
(999
|
)
|
|
(6,604
|
)
|
|
2,680
|
|
|
(5,942
|
)
|
|
1,578
|
|
|
(4,581
|
)
|
|
(781
|
)
|
|
(6,110
|
)
|
Benefit (provision) for income taxes
|
|
|
1,086
|
|
|
(695
|
)
|
|
983
|
|
|
(4,749
|
)
|
|
1,063
|
|
|
178
|
|
|
3,986
|
|
|
2,995 q
|
|
|
1,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(4,062
|
)
|
$
|
(1,694
|
)
|
$
|
(5,621
|
)
|
$
|
(2,069
|
)
|
$
|
(4,879
|
)
|
$
|
1,756
|
|
$
|
(595
|
)
|
$
|
2,214
|
|
$
|
(4,166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.06
|
)
|
$
|
(0.03
|
)
|
$
|
(0.09
|
)
|
$
|
(0.03
|
)
|
$
|
(0.08
|
)
|
$
|
0.03
|
|
$
|
(0.01
|
)
|
$
|
0.03
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.06
|
)
|
$
|
(0.03
|
)
|
$
|
(0.09
|
)
|
$
|
(0.03
|
)
|
$
|
(0.08
|
)
|
$
|
0.03
|
|
$
|
(0.01
|
)
|
$
|
0.03
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Includes
stock-based compensation as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
June 30, 2018
|
|
|
September 30, 2018
|
|
|
December 31, 2018
|
|
|
March 31, 2019
|
|
|
June 30, 2019
|
|
|
September 30, 2019
|
|
|
December 31, 2019
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Subscription cost of revenue
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
141
|
|
$
|
146
|
|
Professional services and other cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
|
84
|
|
Sales and marketing
|
|
|
169
|
|
|
182
|
|
|
184
|
|
|
191
|
|
|
222
|
|
|
188
|
|
|
283
|
|
|
714
|
|
|
797
|
|
Research and development
|
|
|
71
|
|
|
37
|
|
|
76
|
|
|
158
|
|
|
215
|
|
|
218
|
|
|
225
|
|
|
706
|
|
|
888
|
|
General and administrative
|
|
|
386
|
|
|
435
|
|
|
444
|
|
|
515
|
|
|
622
|
|
|
634
|
|
|
1,190
|
|
|
894
|
|
|
942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
626
|
|
$
|
654
|
|
$
|
704
|
|
$
|
864
|
|
$
|
1,059
|
|
$
|
1,040
|
|
$
|
1,698
|
|
$
|
2,535
|
|
$
|
2,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
June 30, 2018
|
|
|
September 30, 2018
|
|
|
December 31, 2018
|
|
|
March 31, 2019
|
|
|
June 30, 2019
|
|
|
September 30, 2019
|
|
|
December 31, 2019
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription
|
|
|
92
|
%
|
|
90
|
%
|
|
90
|
%
|
|
94
|
%
|
|
94
|
%
|
|
90
|
%
|
|
93
|
%
|
|
94
|
%
|
|
93
|
%
|
Professional services and other
|
|
|
8
|
|
|
10
|
|
|
10
|
|
|
6
|
|
|
6
|
|
|
10
|
|
|
7
|
|
|
6
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
100
|
|
|
100
|
|
|
100
|
|
|
100
|
|
|
100
|
|
|
100
|
|
|
100
|
|
|
100
|
|
|
100
|
|
Cost of Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription (exclusive of amortization shown below)
|
|
|
8
|
|
|
9
|
|
|
11
|
|
|
8
|
|
|
10
|
|
|
9
|
|
|
9
|
|
|
11
|
|
|
12
|
|
Professional services and other (exclusive of amortization shown below)
|
|
|
6
|
|
|
5
|
|
|
8
|
|
|
6
|
|
|
6
|
|
|
6
|
|
|
7
|
|
|
6
|
|
|
7
|
|
Amortization expense
|
|
|
7
|
|
|
7
|
|
|
8
|
|
|
6
|
|
|
8
|
|
|
6
|
|
|
7
|
|
|
6
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
21
|
|
|
21
|
|
|
27
|
|
|
20
|
|
|
24
|
|
|
21
|
|
|
23
|
|
|
23
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
June 30, 2018
|
|
|
September 30, 2018
|
|
|
December 31, 2018
|
|
|
March 31, 2019
|
|
|
June 30, 2019
|
|
|
September 30, 2019
|
|
|
December 31, 2019
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
79
|
|
|
79
|
|
|
73
|
|
|
80
|
|
|
76
|
|
|
79
|
|
|
77
|
|
|
77
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
25
|
|
|
31
|
|
|
32
|
|
|
31
|
|
|
34
|
|
|
32
|
|
|
29
|
|
|
35
|
|
|
35
|
|
Research and development
|
|
|
14
|
|
|
19
|
|
|
23
|
|
|
17
|
|
|
23
|
|
|
17
|
|
|
18
|
|
|
18
|
|
|
20
|
|
General and administrative
|
|
|
15
|
|
|
12
|
|
|
15
|
|
|
15
|
|
|
14
|
|
|
14
|
|
|
18
|
|
|
17
|
|
|
19
|
|
Depreciation and amortization
|
|
|
8
|
|
|
8
|
|
|
9
|
|
|
7
|
|
|
8
|
|
|
7
|
|
|
7
|
|
|
6
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
62
|
|
|
70
|
|
|
79
|
|
|
70
|
|
|
79
|
|
|
70
|
|
|
72
|
|
|
76
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
17
|
|
|
9
|
|
|
(6
|
)
|
|
10
|
|
|
(3
|
)
|
|
9
|
|
|
5
|
|
|
1
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(8
|
)
|
|
(8
|
)
|
|
(9
|
)
|
|
(7
|
)
|
|
(8
|
)
|
|
(6
|
)
|
|
(6
|
)
|
|
(1
|
)
|
|
(1
|
)
|
Loss on extinguishment of debt
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
(2
|
)
|
|
|
|
Other income (expense), net
|
|
|
1
|
|
|
(3
|
)
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
1
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(27
|
)
|
|
(11
|
)
|
|
(9
|
)
|
|
(6
|
)
|
|
(8
|
)
|
|
(6
|
)
|
|
(12
|
)
|
|
(2
|
)
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(10
|
)
|
|
(2
|
)
|
|
(15
|
)
|
|
5
|
|
|
(11
|
)
|
|
3
|
|
|
(7
|
)
|
|
(1
|
)
|
|
(10
|
)
|
Benefit (provision) for income taxes
|
|
|
2
|
|
|
(1
|
)
|
|
2
|
|
|
(8
|
)
|
|
2
|
|
|
|
|
|
6
|
|
|
4
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(8
|
)%
|
|
(3
|
)%
|
|
(13
|
)%
|
|
(3
|
)%
|
|
(9
|
)%
|
|
3
|
%
|
|
(1
|
)%
|
|
3
|
%
|
|
(7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly Revenue Trends
Our quarterly revenue increased in each of the periods presented when compared to the results of the same quarter in the prior year due
primarily to increases in the number of new customers as well as retention within existing customers and sales of new products year-over-year. We typically experience seasonality in terms of when we
receive orders from our customers. We generally receive a greater number of orders from new customers, as well as renewal or upsell orders from existing customers, in our second and fourth quarter
because of purchasing patterns of our enterprise customers. Our customers often time their purchases and renewals of our solutions to coincide with their fiscal year end, which is typically
June 30 or December 31. However, due to the economic environment resulting from COVID-19, we may not see our historical trends in seasonality continue through the year ending
December 31, 2020. Our subscription term-based license revenue is recognized up front at the later of delivery or commencement of the license term, thus creating fluctuations in subscription
revenue quarter-over-quarter depending on the number and size of term-based licenses sold each quarter. Conversely, our subscription SaaS and support and maintenance revenue is recognized on a
straight-line basis over the contract term. For our subscription SaaS and support and maintenance revenue, a portion of the revenue that we report in each period may be attributable to the recognition
of deferred revenue recorded in prior periods. As such, increases or decreases in new sales or renewals in any one period may not be immediately reflected in our revenue for that period and may
instead affect future periods.
Quarterly Operating Expense Trends
Our operating expenses have generally increased sequentially due to our growth and are primarily related to increases in personnel-related
costs and related overhead in order to support our expanding operations and our continued investments in our solutions and service capabilities.
Liquidity and Capital Resources
General
As of March 31, 2020, our principal sources of liquidity were cash and cash equivalents totaling $169.0 million, which were held
for working capital purposes. As of March 31, 2020, our cash equivalents were comprised of money market funds. During the years ended December 31, 2017, 2018 and 2019 and the three
months ended March 31, 2019 and 2020, our positive cash flows from operations have enabled us to make continued investments in supporting the growth of
91
Table of Contents
our
business. We expect that our operating cash flows, in addition to our cash and cash equivalents, will enable us to continue to make such investments in the future.
We
have financed our operations primarily through cash received from operations and proceeds from our debt and equity financings. On March 30, 2020, we drew down on the remaining
$97.8 million available for borrowing under our 2019 Revolving Credit Facility (described further below). Given the uncertainty in the global economy as result of the COVID-19 pandemic and out
of an abundance of caution, we elected to draw down the remaining available balance to further
strengthen our cash position and maintain flexibility. If needed, the proceeds will be available for working capital and general corporate purposes, subject to compliance with the 2019 Credit
Agreement. We believe our existing cash and cash equivalents, our 2019 Revolving Credit Facility and cash provided by sales of our solutions and services will be sufficient to meet our working capital
and capital expenditure needs for at least the next 12 months. We also believe that these financial resources will allow us to manage the impact of COVID-19 on our business operations for the
foreseeable future, including mitigating potential reductions in revenue and delays in payments from our customers and partners. Our future capital requirements will depend on several factors,
including but not limited to our obligation to repay any amounts outstanding under our 2019 Credit Facilities, our subscription growth rate, subscription renewal activity, billing frequency, the
timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced solutions and the continuing market adoption of our
platform. In the future, we may enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights.
We
may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms
acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies, this could reduce our ability to
compete successfully and harm our results of operations.
A
majority of our customers pay in advance for annual subscriptions, a portion of which is recorded as deferred revenue. Deferred revenue consists of the unearned portion of billed fees
for our subscriptions, which is later recognized as revenue in accordance with our revenue recognition policy. As of March 31, 2020, we had deferred revenue of $38.3 million, of which
$35.2 million was recorded as a current liability and is expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met.
Senior Secured Credit Facilities
On December 12, 2019, in connection with the refinancing of our 2018 Credit Facilities, we entered into the 2019 Credit Agreement
providing for the 2019 Revolving Credit Facility with an initial $150.0 million in commitments for revolving loans, which amount may be increased or decreased under specific circumstances, with
a $15.0 million letter of credit sublimit and a $50.0 million alternative currency sublimit. In addition, the 2019 Credit Agreement provides for the ability of Ping Identity Corporation
to request incremental term loan facilities in a minimum amount of $10 million for each facility, if, among other things, the Senior Secured Net Leverage Ratio (as defined in the 2019 Credit
Agreement), calculated giving pro forma effect to the requested term loan facility, is no greater than 3.50 to 1.00.
The
interest rates applicable to revolving borrowings under the 2019 Credit Agreement are, at the borrower's option, either (i) a base rate, which is equal to the greater of
(a) the Prime Rate, (b) the Federal Funds Effective Rate plus 0.5% and (c) the Adjusted LIBO Rate for a one month Interest Period (each term as defined in the 2019 Credit
Agreement) plus 1%, or (ii) the Adjusted LIBO Rate equal to the LIBO Rate for the Interest Period multiplied by the Statutory Reserve Rate
92
Table of Contents
(each
term as defined in the 2019 Credit Agreement), plus in the case of each of clauses (i) and (ii), the Applicable Rate. The Applicable Rate
(i) for base rate loans ranges from 0.25% to 1.0% per annum and (i) for LIBO Rate loans ranges from 1.25% to 2.0% per annum, in each case, based on the Senior Secured Net Leverage Ratio
(as defined in the 2019 Credit Agreement). The Adjusted LIBO Rate cannot be less than zero. Base rate borrowings may only be made in dollars. The 2019 Credit Agreement also includes a fallback
provision, which, subject to certain terms and conditions, provides for a replacement of the LIBO Rate with (x) one or more SOFR-based rates or (y) any other alternative benchmark rates
giving consideration to any evolving or then existing conventions for similar U.S. dollar denominated syndicated credit facilities. The borrower will pay a commitment fee during the term of the 2019
Credit Agreement ranging from 0.20% to 0.35% of the available revolving commitments per annum based on the Senior Secured Net Leverage Ratio (as defined in the 2019 Credit Agreement).
Any
borrowing under the 2019 Credit Agreement may be repaid, in whole or in part, at any time and from time to time without premium or penalty other than customary breakage costs, and
any amounts repaid may be reborrowed. No mandatory prepayments will be required other than when borrowings or letter of credit usage exceed the aggregate commitment of all lenders.
The
2019 Credit Agreement contains customary representations and warranties, affirmative covenants, reporting obligations, negative covenants and events of default. See "Description of
Certain Indebtedness".
Cash Flows
The following table presents a summary of our consolidated cash flows from operating, investing and financing activities for the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Net cash provided by operating activities
|
|
$
|
3,423
|
|
$
|
22,886
|
|
$
|
5,795
|
|
$
|
3,801
|
|
$
|
13,485
|
|
Net cash used in investing activities
|
|
|
(5,961
|
)
|
|
(26,661
|
)
|
|
(19,756
|
)
|
|
(3,432
|
)
|
|
(9,096
|
)
|
Net cash provided by (used in) financing activities
|
|
|
101
|
|
|
67,102
|
|
|
(2,020
|
)
|
|
(632
|
)
|
|
97,632
|
|
Effect of exchange rate changes on cash and cash equivalents and restricted cash
|
|
|
274
|
|
|
(653
|
)
|
|
224
|
|
|
133
|
|
|
(645
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents and restricted cash
|
|
$
|
(2,163
|
)
|
$
|
62,674
|
|
$
|
(15,757
|
)
|
$
|
(130
|
)
|
$
|
101,376
|
|
Cash and cash equivalents and restricted cash at beginning of period
|
|
|
23,632
|
|
|
21,469
|
|
|
84,143
|
|
|
84,143
|
|
|
68,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and restricted cash at end of period
|
|
$
|
21,469
|
|
$
|
84,143
|
|
$
|
68,386
|
|
$
|
84,013
|
|
$
|
169,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities
Our largest source of operating cash is cash collections from our customers for subscriptions and professional services. Our primary uses of
cash from operating activities are for employee-related expenditures, marketing expenses and third-party hosting costs.
During
the three months ended March 31, 2019, net cash provided by operating activities was $3.8 million due to our net loss of $4.9 million that was adjusted for
non cash charges of $9.5 million and net cash outflows of $0.8 million provided by changes in our operating assets and
93
Table of Contents
liabilities.
Non cash charges primarily consisted of stock based compensation, amortization of deferred commissions, depreciation and amortization of property and equipment and intangible assets and
deferred income taxes. The primary drivers of the changes in operating assets and liabilities related to a decrease in accrued compensation of $5.3 million related to the timing of cash
disbursements to our employees, a $2.8 million increase in contract assets offset by an increase in deferred revenue of $2.6 million, both driven by the timing of our revenue recognition
under ASC 606, as well as an increase in deferred commissions of $1.3 million and a $1.2 million decrease in accrued expenses and other. These were also partially offset by a
$6.1 million decrease in accounts receivable due to the timing of receipt of payment from our customers and a $1.3 million decrease in prepaid expenses and other current assets.
For
the three months ended March 31, 2020, net cash provided by operating activities was $13.5 million, reflecting our net loss of $4.2 million, adjusted for non
cash charges of $12.0 million and net cash inflows of $5.7 million provided by changes in our operating assets and liabilities. Non cash charges primarily consisted of stock based
compensation, amortization of deferred commissions, depreciation and amortization of property and equipment, intangible assets, operating leases and deferred income taxes. The primary drivers of the
changes in operating assets and liabilities related to a $13.0 million decrease in accounts receivable due to the timing of collection of
payment from our customers, a $4.8 million decrease in prepaid expenses and other current assets primarily related to a reduction in our prepaid expenses during the three months ended
March 31, 2020, and a $2.7 million increase in accounts payable due to the timing of cash disbursements. These were partially offset by a $9.2 million decrease in deferred revenue
driven by the timing of revenue recognition, a $6.2 million decrease in accrued compensation related to the timing of cash disbursements to our employees and a $1.5 million increase in
deferred commissions.
For
the year ended December 31, 2017, net cash provided by operating activities was $3.4 million, reflecting our net income of $19.0 million, adjusted for non-cash
charges of $23.3 million and net cash outflows of $38.8 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based
compensation, amortization of deferred commissions, depreciation and amortization of property and equipment and intangible assets and deferred income taxes. The primary drivers of the changes in
operating assets and liabilities related to a $22.2 million increase in contract assets, a $7.7 million increase in deferred commissions and a $6.2 million increase in deferred
revenue, primarily driven by the increase in subscription sales in the fourth quarter of 2017 and the associated recognition of revenue, as well as a $10.0 million increase in accounts
receivable due to the timing of receipt of payment from our customers and a $3.8 million decrease in accrued compensation due to the timing of cash disbursements.
During
the year ended December 31, 2018, net cash provided by operating activities was $22.9 million due to our net loss of $13.4 million that was adjusted for
non-cash charges of $52.2 million and net cash outflows of $15.9 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based
compensation, amortization of deferred commissions, depreciation and amortization of property and equipment and intangible assets, loss on extinguishment of debt and deferred income taxes. The primary
drivers of the changes in operating assets and liabilities related to a $6.8 million increase in contract assets, a $10.0 million increase in deferred commissions and a
$5.8 million increase in prepaid expenses and other current assets due to the timing of payments, and a $1.5 million increase in accounts receivable due to the timing of receipt of
payment from our customers, offset by a $1.4 million increase in deferred revenue resulting from the timing of when we recognize revenue, as well as a $6.1 million increase in accrued
compensation and a $1.1 million increase in accrued expenses and other due to the timing of payments.
94
Table of Contents
For
the year ended December 31, 2019, net cash provided by operating activities was $5.8 million, reflecting our net loss of $1.5 million, adjusted for non-cash
charges of $41.7 million and net cash outflows of $34.4 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based
compensation, amortization of deferred commissions, depreciation and amortization of property and equipment and intangible assets, loss on extinguishment of debt and deferred income taxes. The primary
drivers of the changes in operating assets and liabilities related to an $18.0 million increase in accounts receivable due to the timing of receipt of payment from our customers, an
$18.5 million increase in contract assets due to a large
number of multi-year deals being signed in the fourth quarter of 2019, a $9.1 million increase in deferred commissions and a $6.6 million increase in prepaid expenses and other current
assets due to the timing of cash disbursements. These were partially offset by a $12.1 million increase in deferred revenue related to the upfront invoicing of certain customers in accordance
with their subscription agreements as well as a $6.3 million increase in accrued expenses and other due to the timing of payments.
Investing Activities
Net cash used in investing activities was $3.4 million and $9.1 million during the three months ended March 31, 2019 and
2020, respectively, representing an increase of $5.7 million. The net increase is primarily attributable to $4.7 million paid for the acquisition of ShoCard in March as well as an
increase in the capitalization of internal use software costs of $1.3 million associated with the development of additional features and functionality of our hosted platform.
Net
cash used in investing activities was $6.0 million and $26.7 million during the years ended December 31, 2017 and 2018, respectively, an increase of
$20.7 million. The net increase is primarily attributable to the acquisition of Elastic Beam for $17.4 million in cash as well as an increase in the capitalization of internal-use
software costs of $2.9 million associated with the development of additional features and functionality of our hosted platform.
Net
cash used in investing activities was $26.7 million and $19.8 million during the years ended December 31, 2018 and 2019, respectively, a decrease of
$6.9 million. The net decrease is primarily attributable to the acquisition of Elastic Beam for $17.4 million in cash that occurred in the year ended December 31, 2018, partially
offset by an increase in the capitalization of internal use software costs of $4.2 million associated with the development of additional features and functionality of our hosted platform, as
well as an increase in purchases of property and equipment of $5.3 million related to continued expansion of our business.
Financing Activities
Net cash provided by financing activities was $(0.6) million and $97.6 million during the three months ended March 31,
2019 and 2020, respectively, representing an increase of $98.3 million. The net increase primarily relates to the draw down on our 2019 Revolving Credit Facility of $97.8 million that
occurred in March 2020.
Net
cash provided by financing activities was $0.1 million and $67.1 million during the years ended December 31, 2017 and 2018, respectively, an increase of
$67.0 million. The net increase primarily relates to the receipt of proceeds from our new term loan of $250.0 million, partially offset by issuance costs of $6.0 million and the
repayment of our previous term loan and revolving credit facility and payment of the associated debt extinguishment costs of $170.0 million and $5.1 million, respectively. This is offset
by an additional $1.3 million related to quarterly principal payments on our 2018 Term Loan Facility that began in September 2018.
95
Table of Contents
Net cash provided by financing activities was $67.1 million during the year ended December 31, 2018 whereas net cash used in financing activities
was $2.0 million during the year ended December 31, 2019. During the year ended December 31, 2019, our primary cash inflows related to the receipt of proceeds from our initial
public offering of $200.5 million, proceeds from the refinancing of our long-term debt of $52.2 million, and receipt of proceeds from stock option exercises of $1.6 million,
offset by the payment of long-term debt, issuance costs of long-term debt and deferred offering costs of $248.8 million, $1.2 million and $5.2 million, respectively, as well as
the payment of Elastic Beam contingent compensation of $1.1 million. Conversely, during the year ended December 31, 2018, we received proceeds from long-term debt of
$250.0 million, partially offset by issuance costs of $6.0 million and the repayment of our previous term loan and revolving credit facility and payment of the associated debt
extinguishment costs of $170.0 million and $5.1 million, respectively.
Contractual Obligations and Commitments
Our principal commitments consist of obligations under operating leases for office space and repayments of long-term debt.
The
following table summarizes our contractual obligations as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
|
Total
|
|
|
1 year
|
|
|
1 - 3 years
|
|
|
3 - 5 years
|
|
|
5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Operating lease obligations
|
|
$
|
22,535
|
|
$
|
3,819
|
|
$
|
7,559
|
|
$
|
7,551
|
|
$
|
3,606
|
|
Long-term debt principal
|
|
|
52,177
|
|
|
|
|
|
|
|
|
52,177
|
|
|
|
|
Long-term debt interest(1)
|
|
|
8,083
|
|
|
1,636
|
|
|
3,263
|
|
|
3,184
|
|
|
|
|
Other obligations(2)
|
|
|
29,645
|
|
|
14,528
|
|
|
15,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
112,440
|
|
$
|
19,983
|
|
$
|
25,939
|
|
$
|
62,912
|
|
$
|
3,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Interest
payments that relate to long-term debt are calculated and estimated for the periods presented based on the expected principal balance for
each period and the interest rate at December 31, 2019 of 3.0%, given that our debt is at floating interest rates. Excluded from these payments is the amortization of debt issuance costs
related to our indebtedness.
-
(2)
-
Comprised
of future minimum payments under noncancelable purchase commitments primarily related to third-party cloud hosting and data services, IT
operations and marketing events.
The
contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding. Obligations under contracts that we can cancel without a
significant penalty are not included in the table above. Purchase orders issued in the ordinary course of business are not included in the table above, as our purchase orders represent authorizations
to purchase rather than binding agreements.
As
of December 31, 2019, we had $52.2 million outstanding under our 2019 Revolving Credit Facility. On March 30, 2020, we drew down on the remaining
$97.8 million available for borrowing under our 2019 Revolving Credit Facility. Given the uncertainty in the global economy as result of the COVID-19 pandemic and out of an abundance of
caution, we elected to draw down the remaining available balance to further strengthen our cash position and maintain flexibility. If needed, the proceeds will be available for working capital and
general corporate purposes, subject to compliance with the 2019 Credit Agreement.
Additionally,
effective January 1, 2020, we adopted the new leasing standard, ASU No. 2016-02, Leases (Topic 842), under which operating leases are recorded as liabilities
on our
96
Table of Contents
condensed
consolidated balance sheet with a corresponding right-of-use asset. See "Note 12Operating Leases" to our condensed consolidated financial statements included elsewhere in
this prospectus for the maturities of remaining lease payments included in the measurement of our operating leases.
Outside
of the above and routine transactions made in the ordinary course of business, there have been no material changes to the contractual obligations as disclosed in our Annual
Report on Form 10-K for the year ended December 31, 2019.
Indemnification Agreements
In the ordinary course of business, we enter into agreements of varying scope and terms pursuant to which we agree to indemnify customers,
vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by us
or from intellectual property infringement claims made by third parties. In addition, we previously entered into indemnification agreements with our directors and certain officers and employees that
require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon us
to provide indemnification under such agreements and there are no claims that we are aware of that could have a material effect on our consolidated balance sheets, consolidated statements of
operations and comprehensive income (loss), or consolidated statements of cash flows.
Off-Balance Sheet Arrangements
As of March 31, 2020, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structure
finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes.
JOBS Act Accounting Election
We qualify as an emerging growth company pursuant to the provisions of the JOBS Act.
The
JOBS Act permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public
companies. We have elected to use the extended transition period until we are no longer an emerging growth company or until we choose to affirmatively and irrevocably opt out of the extended
transition period. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements applicable to public companies. See "Risk
Factors Risks Relating to Our Common Stock and This Offering For as long as we are an 'emerging growth company', we will not be
required to comply with certain reporting requirements, which could make our common stock less attractive to investors".
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which
have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and
liabilities, revenue and expenses and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different
assumptions or conditions, impacting our reported results of operations and financial condition.
97
Table of Contents
Certain
accounting policies involve significant judgments and assumptions by management, which have a material impact on the carrying value of assets and liabilities and the recognition
of income and expenses. Management considers these accounting policies to be critical accounting policies. The estimates and assumptions used by management are based on historical experience and other
factors, which are believed to be reasonable under the circumstances. The significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating our
reported financial results are described below. Refer to "Note 2 Summary of Significant Accounting Policies" to the consolidated financial statements included elsewhere in
this prospectus for more detailed information regarding our critical accounting policies.
Revenue Recognition
We recognize revenue under ASC 606. In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or
services. The amount of revenue recognized reflects the consideration that we expected to be entitled to receive in exchange for those goods or services. To adhere to the requirements of the new
standard, we determine revenue recognition through the following steps:
-
(1)
-
Identification of the contract, or contracts, with a customer: We primarily contract with our customers
through order forms, which in some cases are governed by master sales agreements. We determine that we have a contract with a customer when (i) the contract is approved, (ii) we can
identify each party's rights and obligations under the contract, (iii) we can identify the payment terms, (iv) we determine the customer has the ability and intent to pay, and
(v) we conclude that the contract has commercial substance. We are required to use judgment to determine whether the customer has the ability and intent to pay, which is based on a variety of
factors including the customer's historical payment experience or, when the contract is with a new customer, the credit, reputation and financial information of that customer. At contract inception we
evaluate whether two or more contracts should be combined and accounted for as a single contract and whether the combined or single contract includes more than one performance obligation.
-
(2)
-
Identification of the performance obligations in the contract: We identify performance obligations in a
contract based on the goods and services that will be transferred to the customer. Those goods or services must (i) be capable of being distinct, so the customer can benefit from a good or
service either on its own or together with readily available resources (either from third parties or from us) and (ii) be distinct in the context of the contract, where the transfer of control
is separately identifiable from other promises in the contract.
We
sell our software using a subscription model. Our subscriptions for solutions deployed on-premise within the customer's IT infrastructure are comprised of a term-based license and an obligation to
provide support and maintenance, where the term-based license and the support and maintenance constitute separate performance obligations. Our SaaS subscriptions provide customers the right to access
cloud-hosted software and support for the SaaS service, which we consider to be a single performance obligation. Additionally, we renew subscriptions for support and maintenance, which we consider to
be a single performance obligation.
We
have also identified services-related performance obligations that relate to the provisioning of consulting and training services. These services are distinct from subscriptions and do not result
in significant customization of the software.
-
(3)
-
Determination of the transaction price: We determine the transaction price based on the consideration to
which we expect to be entitled in exchange for transferring goods or
98
Table of Contents
services
to the customer in accordance with the contract. Our transaction price excludes amounts collected on behalf of third parties, such as sales tax and value-added tax. Because we typically do
not offer refunds, rebates, or credits to customers in the normal course of business, the impact of variable consideration has not been material.
In
instances where the timing of revenue recognition differs from the timing of invoicing, we have determined that our contracts generally do not contain a significant financing component. The primary
purpose of our invoicing terms is to provide our customers with simple and predictable ways to purchase our subscriptions and not to provide them with financing.
-
(4)
-
Allocation of the transaction price to the performance obligations in the contract: If the contract
contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Conversely, some of our contracts with customers contain multiple performance
obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a
relative standalone selling price, or SSP, basis.
We
determine SSP based on an observable standalone selling price when it is available. In situations where SSP is not available, for example where software licenses are not sold separately, we
determine SSP using information such as market conditions and other observable inputs that may require significant judgment. There is typically a range of standalone selling prices for individual
products and services due to a stratification of those products and services by quantity and other circumstances. If a performance obligation is outside the SSP range, we determine the SSP to be the
nearest endpoint of the range.
-
(5)
-
Recognition of revenue when, or as, we satisfy a performance obligation: Revenue is recognized at the
time the performance obligation is satisfied by transferring control of the promised good or service to a customer.
Our
subscription term-based license revenue is recognized upfront at the later of delivery or commencement of the license term. Support and maintenance revenue is recognized ratably over
the contract period based on the stand-ready nature of those subscription elements. Our SaaS subscription revenue is recognized ratably over the contract period as we satisfy the performance
obligation.
Professional
services revenue is recognized on a time and materials basis as the services are performed. Revenue from training services and sponsorship fees is recognized on the date the services are
complete.
Channel Partner Sales. We generate sales directly through our sales team as well as through our channel partners. Where
channel partners are
involved, we have determined that we are generally the principal in these arrangements. Sales to channel partners are generally made at a discount, and revenues are recorded at the discounted price
once the revenue recognition criteria above have been met. In certain instances, we pay referral fees to our partners, which we have determined to be commensurate with our internal sales commissions,
so we record these payments as sales commissions. Channel partners generally receive an order from an end customer prior to placing an order with us, and payment from channel partners is not
contingent on the partner's collection from end customers.
99
Table of Contents
Deferred Commissions
Sales commissions earned by our internal and external sales force are considered incremental and recoverable costs of obtaining a contract with
a customer. Sales commissions for new revenue contracts and additional sales to existing customers are deferred and recorded in deferred commissions, current and noncurrent in the consolidated balance
sheets. Deferred commissions are amortized over the period of benefit, which we have determined to be generally four years. We determined the period of benefit by taking into consideration our
customer contracts, technology, and other factors. Deferred commissions are amortized consistent with the pattern of revenue recognition for each performance obligation for contracts for which the
commissions paid were earned. We include amortization of deferred commissions in sales and marketing expense in the consolidated statements of operations. We periodically review the carrying amount of
deferred commissions to determine whether events or changes in circumstances have occurred that could impact the period of benefit of these deferred costs.
Capitalized Software Costs
For software products sold to customers, we expense costs for the development of new software products and substantial enhancements to existing
software products as incurred until technological feasibility has been established. Once technological feasibility has been established, we capitalize certain costs during the application development
stage as part of intangible assets. We believe our current process for developing software sold to customers will be essentially completed concurrently with the establishment of technological
feasibility and thus, no costs have been capitalized to date. Additionally, maintenance and training costs are expensed as incurred.
For
software used internally, we capitalize qualifying costs during the application development stage and amortize those costs on a straight-line basis over the software's estimated
useful life, which is generally three to four years. Costs related to preliminary project activities and post implementation activities, however, are expensed as incurred.
Acquisitions, Goodwill and Identifiable Intangible Assets
We account for acquired businesses using the acquisition method of accounting, which requires that the assets acquired and liabilities assumed
be recorded at the date of acquisition at their respective fair values. The fair value of identifiable intangible assets is based on significant judgments and estimates made by management. We
typically engage third-party valuation appraisal firms to assist in determining the fair values and useful lives of the assets acquired. Such valuations and useful life determinations require us to
make significant estimates and assumptions. These estimates and assumptions are based on historical experience and information obtained from the management of the acquired companies, and also include,
but are not limited to, future expected cash flows earned from the product-related technology and discount rates applied in determining the present value of those cash flows. Unanticipated events and
circumstances may occur that could affect the accuracy or validity of such assumptions, estimates or actual results.
Goodwill
represents the excess of the purchase price over the fair value of net assets acquired in business combinations using the acquisition method of accounting, which requires that
the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. We evaluate goodwill for impairment at least annually in the fourth quarter of each
year, and as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Our test for goodwill impairment starts with a
qualitative
assessment to determine whether it is necessary to perform a quantitative goodwill impairment test. If qualitative factors indicate that the fair value of the reporting unit is more likely than not
less than its carrying amount, then a quantitative goodwill impairment test is performed. Under the
100
Table of Contents
quantitative
impairment test, if the carrying amount of the reporting unit exceeds its fair value, then an impairment loss is recognized in an amount equal to that excess, not to exceed the total
amount of goodwill.
We
record acquired in-process research and development as indefinite-lived intangible assets. Purchased intangible assets with indefinite lives are not amortized but assessed for
potential impairment annually and when events or circumstances indicate that their carrying amounts might be impaired.
We
review long-lived assets, including property and equipment and finite-lived intangible assets, for impairment whenever events or changes in business circumstances indicate that the
carrying amount of the assets may not be fully recoverable. Such events and changes may include significant changes in performance relative to expected operating results, significant changes in asset
use, significant negative industry or economic trends and changes in our business strategy. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the
use of the asset and its eventual disposition are less than its carrying amount.
Stock-Based Compensation
We recognize stock-based compensation expense in accordance with the provisions of Accounting Standards Codification 718, Compensation
Stock Compensation, or ASC 718. ASC 718 requires compensation expense for all stock-based compensation
awards made to employees and directors to be measured and recognized based on the grant date fair value of the awards. Stock-based compensation expense for time-based awards is determined based on the
grant-date fair value and is recognized on a straight-line basis over the requisite service period of the award, which is typically the vesting term of the award. Stock-based compensation expense for
awards subject to market and performance conditions is determined based on the grant-date fair value and is recognized on a graded vesting basis over the term of the award once it is probable that the
performance conditions will be met.
Stock-based
compensation expense is recognized net of forfeitures. On January 1, 2018, we elected to adopt Accounting Standards Update No. 2016-09, Compensation Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting, or ASU 2016-09. Prior to the
adoption of ASU 2016-09, we estimated forfeiture rates annually using our historical experience of forfeited awards and subsequently adjusted for actual forfeitures at each vesting date. After the
adoption of ASU 2016-09, we recognize forfeitures as they occur. Adoption of this provision on January 1, 2018 resulted in a cumulative-effect adjustment to retained earnings of
$38 thousand.
To
estimate the grant date fair value of our time-based awards, we utilize the Black-Scholes option pricing model. For awards subject to performance and market conditions, we use a
Monte Carlo simulation model, which utilizes multiple inputs to estimate the probability that market conditions will be achieved. Both models involve inherent uncertainties and require the following
highly subjective assumptions as inputs:
-
-
Risk-free rate: We base the risk-free interest rate on the implied yield
currently available on U.S. Treasury securities with a remaining term commensurate with the estimated expected term.
-
-
Expected term: For time-based awards, the estimated expected term of
options granted is generally calculated as the vesting period plus the midpoint of the remaining contractual term, as we do not have sufficient historical information to develop reasonable
expectations surrounding future exercise patterns and post-vesting employment termination behavior. For awards subject to market and performance conditions, the expected term represents the period of
time that the options granted are expected to be outstanding.
101
Table of Contents
-
-
Dividend yield: We estimate the dividend yield at zero, as we do not
currently issue dividends and have no plans to issue dividends in the foreseeable future.
-
-
Volatility: Since we do not have a trading history of our common stock,
expected volatility is estimated based on the historical volatility of peer companies over the period commensurate with the estimated expected term.
-
-
Fair value: Prior to our initial public offering in September 2019, our
common stock was not yet publicly traded, and thus, the fair value of the shares of common stock was established by the Board using various inputs, including an independent valuation. Following our
initial public offering, our common stock is traded in the public market, and accordingly we use the applicable closing price of our common stock to determine fair value.
The
following assumptions were used for the time-based options that we granted during the years ended December 31, 2017, 2018 and 2019 and the three months ended March 31,
2019 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free rate
|
|
2.0% - 2.2%
|
|
2.6% - 3.0%
|
|
|
|
|
|
|
|
|
|
|
Expected term
|
|
6.1 years
|
|
6.1 years
|
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volatility
|
|
38% - 42%
|
|
39% - 42%
|
|
|
|
|
|
|
|
|
|
|
Weighted-average grant date fair value of options granted during the period
|
|
$3.43
|
|
$4.84
|
|
|
|
|
|
|
|
|
|
|
The
following assumptions were used for the awards subject to performance and market conditions that we granted during the years ended December 31, 2017, 2018 and 2019 and the
three months ended March 31, 2019 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free rate
|
|
1.5% - 1.9%
|
|
2.5% - 2.8%
|
|
|
|
|
|
|
|
|
|
|
Expected term
|
|
3.8 - 4.5 years
|
|
1.7 - 3.3 years
|
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volatility
|
|
57% - 62%
|
|
45% - 55%
|
|
|
|
|
|
|
|
|
|
|
Weighted-average grant date fair value of options granted during the period
|
|
$2.29
|
|
$2.29
|
|
|
|
|
|
|
|
|
|
|
For
our RSUs we calculate the fair value of each unit based on the estimated fair value of our common stock on the date of grant and subsequently record compensation expense over the
vesting period using a straight-line method. Prior to the adoption of ASU 2016-09, we factored an estimated forfeiture rate in calculating compensation expense on RSUs and adjusted for actual
forfeitures upon the vesting of each tranche of RSUs. After the adoption of ASU 2016-09, we account for forfeitures as they occur.
102
Table of Contents
Long-Term Incentive Plan
Our long-term incentive plan, or LTIP, could provide cash compensation to certain employees upon vesting if certain market and performance
conditions are met and are thus liability-classified awards. Accordingly, we will remeasure the fair value of the LTIP awards at each reporting period until the awards are settled, which includes an
evaluation of the probability of whether the awards meet vesting conditions.
Income Taxes
We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for
temporary differences between the financial statement basis and the income tax basis of assets and liabilities that will result in taxable or deductible amounts in the future. Our temporary
differences result primarily from net operating losses, stock-based compensation, deferred revenue, intangible assets and accrued expenses. Deferred income tax asset and liability computations are
based on enacted tax laws and rates anticipated to be in effect when these differences reverse. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income
and, to the extent we believe that it is more likely than not that all or a portion of the deferred tax assets will not be realized, we establish a valuation allowance to reduce deferred income tax
assets to the amounts expected to be realized.
We
evaluate our tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are more likely than not of being sustained
by the applicable tax authority. Tax positions not deemed to meet the more likely than not threshold would not be recorded as a tax benefit or expense in the current period. We include interest and
penalties related to income tax liabilities in our benefit (provision) for income taxes.
Recent Accounting Pronouncements
For a description of our recently adopted accounting pronouncements and recently issued accounting standards not yet adopted, see Note 2
to our consolidated financial statements: "Summary of Significant Accounting Policies Recent Accounting Pronouncements" appearing elsewhere in this prospectus.
Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. As
we have operations in the United States and internationally, our market risk exposure is primarily a result of exposure due to potential changes in inflation or interest rates. We do not hold
financial instruments for trading purposes.
Foreign Currency Exchange Risk
Our revenues and expenses are primarily denominated in U.S. dollars. For the three months ended March 31, 2019 and 2020, we recorded
losses of $0.4 million and $1.4 million on foreign exchange transactions, respectively. To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other
derivative financial instruments, but we may do so in the future if our exposure to foreign currency should become more significant. For business conducted outside of the United States, we may have
both revenue and costs incurred in the local currency of the subsidiary, creating a partial natural hedge. Changes to exchange rates therefore have not had a significant impact on the business to
date. However, we will continue to reassess our foreign exchange exposure as we continue to grow our business globally. During the three months ended March 31, 2019 and 2020, a hypothetical 10%
change in foreign currency exchange
103
Table of Contents
rates
applicable to our business would not have had a material impact on our consolidated financial statements.
Interest Rate Risk
Our primary market risk exposure is changing LIBO-based interest rates. Interest rate risk is highly sensitive due to many factors, including
U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond our control. The interest rates applicable to revolving borrowings under the 2019 Credit Agreement are,
at the borrower's option, either (i) a base rate, which is equal to the greater of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus 0.5% and (c) the Adjusted
LIBO Rate for a one month Interest Period (each term as defined in the 2019 Credit Agreement) plus 1%, or (ii) the Adjusted LIBO Rate equal to the LIBO Rate for the Interest Period multiplied
by the Statutory Reserve Rate (each term as defined in the 2019 Credit Agreement), plus in the case of each of clauses (i) and (ii), the
Applicable Rate. The Applicable Rate (i) for base rate loans ranges from 0.25% to 1.0% per annum and (i) for LIBO Rate loans ranges from 1.25% to 2.0% per annum, in each case, based on
the Senior Secured Net Leverage Ratio (as defined in the 2019 Credit Agreement). The Adjusted LIBO Rate cannot be less than zero. Base rate borrowings may only be made in dollars. The 2019 Credit
Agreement also includes a fallback provision, which, subject to certain terms and conditions, provides for a
replacement of the LIBO Rate with (x) one or more SOFR-based rates or (y) any other alternative benchmark rates giving consideration to any evolving or then existing conventions for
similar U.S. dollar denominated syndicated credit facilities.
At
March 31, 2020, we had total outstanding debt of $150.0 million under our 2019 Revolving Credit Facility. Based on the amounts outstanding, a 100 basis point increase
or decrease in market interest rates over a twelve month period would result in a change to interest expense of $1.5 million.
Inflation Risk
Based on our analysis of the periods presented, we believe that inflation has not had a material effect on our operating results. There can be
no assurance that future inflation will not have an adverse impact on our operating results and financial condition.
104
Table of Contents
BUSINESS
Our Mission
Our mission is to secure the digital world through Intelligent Identity.
Overview
Ping Identity is the Intelligent Identity solution for the enterprise. We enable companies to achieve Zero Trust identity-defined security and
more personalized, streamlined user experiences. The Ping Intelligent Identity Platform provides customers, workforce and partners with access to cloud, mobile, SaaS and on-premise applications across
the hybrid enterprise. We leverage AI and ML to analyze device, network, application and user behavior data to make real-time authentication and security control decisions, enhancing the user
experience. Our platform is designed to detect anomalies and automatically insert additional security measures, such as multi-factor authentication, only when necessary. We built our platform to meet
the requirements of the most demanding enterprises, including over half of the Fortune 100. Our platform can be deployed across cloud, hybrid and on-premise infrastructures, offers a comprehensive
suite of turnkey integrations and is able to scale to millions of identities and thousands of cloud and on-premise applications in a single deployment.
Enterprises
are undergoing digital transformation as they seek to create new revenue streams, transition business models and increase customer engagement. Concurrently, enterprises are
becoming more distributed as the adoption of cloud, mobile and IoT, moves data, applications and access requirements beyond the traditional network perimeter. These enterprises must contend with an
evolving cyber-threat landscape, new privacy directives and stringent regulatory requirements. As a result, enterprises require Intelligent Identity solutions that proactively ensure the right user
has authorized access to resources at the appropriate time.
The
Ping Intelligent Identity Platform can secure all primary use cases, including customer, workforce, partner and, increasingly, IoT. For example, enterprises can use our platform to
enhance their customers' user experience by creating a single ID and login across web and mobile properties. For the year ended December 31, 2019, 42% of our subscription revenue was derived
from the customer use case. Enterprises can also use our platform to provide their employees and commercial partners with secure, seamless access from any device to the applications, data and APIs
they need to be productive. Enterprises are increasingly using our platform to manage and authenticate IoT devices, such as connected vehicles and consumer devices.
The
Ping Intelligent Identity Platform is comprised of six solutions that can be purchased individually or as a set of integrated offerings for the customer, workforce, partner or IoT
use case:
-
-
secure single sign-on, or SSO;
-
-
adaptive multi-factor authentication, or MFA;
-
-
security control for applications and APIs, or Access Security;
-
-
personalized and unified profile directories, or Directory;
-
-
data governance to control access to identity data, or Data Governance; and
105
Table of Contents
-
-
AI and ML powered API security, or API Intelligence.
We
have spent over a decade building a comprehensive suite of turnkey integrations designed to ensure that enterprises can use our platform to secure their applications wall-to-wall,
facilitating easier deployment and rapid time-to-value.
We
sell our solutions via a subscription model through a direct sales force, with increasing influence from our channel partners. We also utilize channel partners and system integrators
to assist our customers in the implementation process. Our SSO, Access Security and Directory solutions typically replace legacy and homegrown systems. We also have significant greenfield
opportunities with our MFA, Data Governance and API Intelligence solutions and, increasingly, the IoT use case.
Our
land and expand strategy targets enterprises with a specific use case and solution or solution package, and then seeks to grow our footprint with additional use cases, identities,
solutions and solution packages. The success of our strategy is validated by our strong dollar-based net retention rates, which were 116%, 115% and 114% at December 31, 2018 and 2019 and
March 31, 2020, respectively, and our growing number of large customers. At December 31, 2019, we had 38 customers with greater than $1,000,000 in ARR, an increase of 52% from 25
customers at December 31, 2018. Additionally, our customers with ARR over $250,000 increased from 202 at December 31, 2018 to 232 at December 31, 2019, representing a
year-over-year growth rate of 15%. The increase of 30 net customers with ARR greater than $250,000 for the 2019 fiscal year is comprised of 13 new customers and 17 existing customers that had ARR grow
to exceed $250,000
106
Table of Contents
in
2019. Our customers with ARR over $250,000 increased from 209 at March 31, 2019 to 240 at March 31, 2020, representing a year-over-year growth rate of 15%. Our total customers
increased from 1,284 at December 31, 2018 to 1,361 at December 31, 2019. We have seen strong market demand for our cloud-based offerings and from enterprises deploying our solutions
across the customer use case. A number of our customers deploy a combination of our solutions across multiple business units, functions and use cases in their initial purchase. For definitions of ARR
and dollar-based net retention rate and descriptions of how we calculate these metrics, see "Management's Discussion and Analysis of Financial Condition and Results of Operations".
Our
customers include many of the world's largest enterprises, including over 50% of the Fortune 100. These customers are security-focused, and typically operate in regulated
industries, have hybrid IT infrastructures, require turnkey integrations and have demanding scalability requirements. Our solutions secure 12 of the 12 largest U.S. banks (measured by assets), 8 of
the 10 largest bio-pharmaceutical companies (measured by revenue), 7 of the 10 largest healthcare plans (measured by revenue) and 5 of the 7 largest U.S. retailers (measured by revenue). Our customer
base is diversified, with no one customer or reseller accounting for more than 5% of our total revenue for the year ended December 31, 2019.
Since
our inception, we have been an innovator in identity. We pioneered the concept of Intelligent Identity, which leverages AI and ML to analyze device, network, application and user
behavior data to secure access and enhance the user experience. We founded Ping Identity with the vision of enabling enterprise security in a highly-connected world, replacing legacy security controls
such as web gateways, virtual private networks, or VPNs, and firewalls. We contributed to or co-authored many of the open identity standards such as SAML, OAuth, SCIM and OpenID Connect, which form
the foundation of our industry. We have consistently been recognized as a leader in the IAM industry by Gartner and KuppingerCole. We founded Identiverse, the leading identity industry conference,
which brought together more than 1,800 thought leaders in 2019.
We
sell our solutions via a subscription model typically billed annually in advance. Our ARR was $190.5 million and $230.0 million at March 31, 2019 and 2020, respectively,
representing period-over-period growth of 21%. Our ARR was $183.6 million and $224.9 million at December 31, 2018 and 2019, respectively, representing year-over-year growth of
23%. We have grown revenue from $50.4 million for the three months ended March 31, 2019 to $61.4 million for the three months ended March 31, 2020, representing period-over-period growth of
22%. We have grown revenue from $201.6 million for the year ended December 31, 2018 to $242.9 million for the year ended December 31, 2019, representing year-over-year
growth of 21%. We had net losses of $4.9 million and $4.2 million for the three months ended March 31, 2019 and 2020, respectively. We had net losses of $13.4 million and $1.5 million
for the years ended December 31, 2018 and 2019, respectively. Our net cash provided by operating activities was $3.8 million and $13.5 million for the three months ended March 31, 2019
and 2020, respectively. Our net cash provided by operating activities was $22.9 million and $5.8 million for the years ended December 31, 2018 and 2019, respectively. Our Free
Cash Flow was $0.4 million and $9.1 million for the three months ended March 31, 2019 and 2020, respectively. Our Free Cash Flow was $13.1 million and $(13.4) million for the years ended
December 31, 2018 and 2019, respectively. Free Cash Flow is a supplemental measure that is not calculated and presented in accordance with GAAP. See "Selected Consolidated Financial
Data Non-GAAP Financial Measures" for a definition of Free Cash Flow and a reconciliation to its most directly comparable GAAP financial measure.
107
Table of Contents
Industry Background
IAM is the foundation for maximizing security and enhancing user experience in a distributed and highly-connected digital world, where the
traditional network perimeter has dissolved and the attack surface has expanded. In this digital world, legacy IAM solutions are
proving ill-suited to address cloud, mobile, IoT and API requirements. Similarly, cloud-only IAM vendors are unable to meet the requirements of large enterprises that have hybrid IT infrastructures.
Enterprises are Undergoing Digital Transformations and Embracing Technology Trends
Digital Transformation is Critical to Driving Competitive Differentiation. Enterprises are investing in technology to grow
their digital presence,
create new revenue streams, transition business models and increase customer engagement. In order to accomplish this, enterprises must engage with their customers across digital channels. As consumers
have become accustomed to seamless access and high-quality experiences from companies such as Amazon, Google and Netflix, all enterprises are under pressure to meet rising expectations or risk being
disrupted by competitors.
Enterprises are Embracing Cloud Computing, SaaS and Mobility. Enterprises are transitioning a portion of their IT budgets
to invest in cloud
computing to build new services, shorten time-to-value and drive cost efficiency. The adoption of SaaS applications and mobility is empowering business users and partners to increase productivity,
facilitate collaboration, reengineer business processes and drive new opportunities for growth. The consumerization of IT and shift towards a distributed workforce has caused employees and partners to
demand seamless access to cloud and on-premise applications from any device.
APIs and IoT Devices are Dramatically Expanding the Number of New Connections. APIs have become critical to software
development and act as gateways
to other digital services by facilitating the connection and data sharing between heterogeneous systems and applications. APIs have become the building blocks of the web and will help drive the future
of software by powering new applications, enabling communications and automating business processes.
Enterprises
are also deploying IoT devices embedded with software and sensors to connect with their customers, collect streaming data and analyze endpoint performance. According to IDC,
the worldwide installed base of IoT devices is expected to grow from 23 billion in 2018 to more than 41 billion in 2025, representing a CAGR of 9%. APIs and IoT will continue drive
innovation for enterprises, creating a myriad of new digital channels, connections and identities.
Digital Transformation Initiatives have Created Challenges and Complexity for Enterprises
Cloud, Mobile and IoT Have Expanded the Attack Surface. The rapid adoption of cloud-based offerings and the proliferation of
mobile and IoT devices
have expanded the attack surface for cyber threats, moving users, devices, applications and data outside the traditional network perimeter. As a result of this shift, identity has become the most
common vulnerability that hackers seek to exploit. According to a 2017 Verizon report, 81% of hacking-related breaches leveraged stolen and/or weak passwords. Once cyber attackers have gained access
to an enterprise's systems, they have the ability to move laterally for months, even years, escalating access privileges, performing recognizance and stealing sensitive data while going undetected.
New Technology Adoption has Created Complex Hybrid and Multi-Cloud IT Challenges. Enterprises are increasingly reliant on
both cloud and on-premise
applications, which is creating complex hybrid IT infrastructures. According to IDC, public cloud spending is projected to grow from 33% of worldwide IT infrastructure spend in 2018 to 38% in 2023. A
significant portion of IT budgets, however, will continue to be allocated to on-premise IT infrastructure. As a result,
108
Table of Contents
enterprises
increasingly require solutions capable of spanning both cloud and on-premise infrastructures to support their hybrid realities.
As
the adoption of cloud matures, enterprises are focused on optimizing for performance, cost and security while also maintaining flexibility to operate across multiple clouds. IDC
expects by 2020, 70% of enterprise IT organizations will deploy unified VMs, Kubernetes, and multicloud management processes and tools to support robust multi-cloud management and governance across
on-premise and public clouds. Enterprises facing this complexity and fragmentation need independent and vendor-agnostic solutions capable of scaling across multi-cloud environments.
The Rise of APIs has Created New Security Vulnerabilities. The rapid proliferation of APIs has created new security
vulnerabilities due to their
connectivity with critical systems and access to data. Breaches associated with API gateways can remain undetected for extended periods of time because of a lack of visibility into API traffic and an
inability to monitor anomalies or abuse.
The Identity Landscape is Large and Evolving
Identity is a vast landscape, comprised of three distinct established markets that each require different solutions. Our Intelligent Identity
Platform focuses on the largest of these markets, IAM. We partner with leading companies in the adjacent markets, PAM and IGA. The objectives, workflows and interfaces of these three markets remain
distinct and have little overlap.
-
-
Identity and Access Management. Solutions that store user information and
enable the authentication of a user and the subsequent access management and security control of that user as the user attempts to access applications, data and APIs. IAM ensures that the right user
has authorized access to resources at the appropriate time.
Within
IAM, CIAM represents a large and growing opportunity and includes solutions that provide a consistent, modern, omni-channel customer experience through personalized access to all digital
services. Historically, large corporations often managed customer identities in silos using homegrown solutions. However, the landscape has changed dramatically for this use case as enterprises now
recognize the value of centralized CIAM.
-
-
Privileged Access Management. Solutions that help organizations secure,
control, manage and monitor privileged accounts or privileged rights. Privileged accounts and rights are pervasive throughout large enterprises and can provide a user with impactful and potentially
dangerous access to databases, production code, robotics, firewalls, load balancers, DNS and network equipment that are beyond the rights granted to them through IAM solutions.
-
-
Identity Governance and Administration. Solutions designed to encapsulate
the governance and policies that a company uses to meet its identity management related audit and compliance obligations. IGA solutions aggregate users into groups, roles and responsibilities to
efficiently provide new users with appropriate access when joining companies or changing positions within a company. In addition, IGA is helpful for ensuring that access is removed when users are
terminated. Typically, IGA solutions require the presence of IAM and PAM solutions for security because IGA solutions are designed to address specific access or privilege but cannot ensure that the
user has been authenticated or authorized to use that access or privilege.
Existing IAM Solutions are Limited
Legacy Providers. Legacy IAM solutions generally do not meet enterprises' evolving requirements because of these inherent
limitations:
-
-
not being designed for cloud environments, mobile and IoT devices or APIs;
109
Table of Contents
-
-
being cumbersome and expensive to deploy;
-
-
providing poor administrative and user experience;
-
-
being built with closed, proprietary and siloed architectures;
-
-
being designed for access administration, not access security;
-
-
having a tendency to experience stability problems; and
-
-
being at or near end of life.
Cloud-Only Vendors. Cloud-only IAM solutions generally do not meet enterprises' evolving requirements because of these
inherent
limitations:
-
-
lacking in-depth enterprise features and robust integrations across on-premise applications;
-
-
primarily being focused on the workforce use case;
-
-
having an unproven ability to scale;
-
-
only meeting minimal security requirements;
-
-
being unable to provide off-line authentication when cloud services are unavailable; and
-
-
having manual, policy-driven decision-making.
Intelligent Identity is Needed Now More than Ever
Enterprises are under pressure to innovate faster, improve productivity and deliver exceptional user experiences through digitalization, all
while maximizing security. The question "Who are you?" must be asked and satisfactorily answered as a precondition to every digital interaction. Intelligent Identity asks and answers the question by
leveraging AI and ML to analyze device, network, application and user behavior data to make real-time authentication and security control decisions. Additional security measures, which impose friction
on the user experience, are only utilized if anomalies in behavior or data are detected or in high-value transactions. This optimizes the balance between securing access and providing an enhanced user
experience.
Our Market Opportunity
According to IDC, the worldwide market for IAM is expected to grow from $6.6 billion in 2018 to $9.0 billion in 2023,
representing a CAGR of approximately 6%. Based on
management's internal analysis, we estimate that our market opportunity is greater than $25 billion across our use cases. We quantify this opportunity by identifying the total number of global
companies above $500 million in annual revenue as identified by D&B Hoovers as of June 30, 2019, which was approximately 19,900 companies, and segmenting these companies into four
revenue bands. We then multiply the number of companies within each revenue band by our internal ARR data for that revenue band, assuming deployment of all our solutions and use cases.
We
believe our market opportunity has the potential to expand in the future as the proliferation of IoT and APIs increases connections, complexity and the number of identities, in the
enterprise. According to IDC, the worldwide installed base of IoT devices is expected to grow from 23 billion in 2018 to more than 41 billion in 2025, representing a CAGR of 9%. Our
Intelligent Identity Platform is built to address the scale and complexity that will arise from IoT and API proliferation.
Our
market includes opportunities for both greenfield expansion and replacement of legacy and homegrown solutions. We believe security budgets are shifting from network-centric to
identity-centric solutions because the adoption of cloud, mobile and IoT has led to a disappearing network perimeter. We believe the focus of cybersecurity will continue to shift to the user as
targeted attacks
110
Table of Contents
against
users and their credentials increase. As a result, we believe that IAM will represent a larger portion of future security budgets, which we are well positioned to capture.
Our Growth Strategy
The key elements of our growth strategy include:
-
-
Increase Sales to Existing Customers. We believe there are significant
upsell and cross-sell opportunities within our existing customer base by adding identities and use cases and selling new solutions and solution packages. We have a strong track record of growing sales
to our existing customers, as evidenced by our dollar-based net retention rates, which were 116%, 115% and 114% at December 31, 2018 and 2019 and March 31, 2020, respectively.
-
-
Innovate and Enhance our Offerings. We intend to continue investing in
research and development to enhance our existing solutions, add new solution packages and deployment options and expand use cases, such as IoT. We believe these emerging devices present a significant
opportunity for us as the number of IoT identities and human-to-machine and machine-to-machine connections continue to increase. Additionally, we may from time to time assess acquisition opportunities
to supplement our organic development of new solutions or capabilities.
-
-
Expand our Customer Base by Investing in Sales and our Partner Network. We
continue to make investments in sales and marketing to grow our customer base and drive broader awareness of our Intelligent Identity Platform. We plan to deepen and expand our joint go-to-market
efforts with our channel partners, system integrators and technology partners.
-
-
Expand our Customer Base by Targeting New Buyers. We focus our selling
efforts on executives such as CIOs and CISOs who are often making strategic top-down decisions to purchase our platform. We recently extended our cloud-based offering to target developers who
represent a new addressable customer base for us. The ability for developers to directly integrate identity into their applications accelerates the adoption of identity within the enterprise.
-
-
Continue to Expand our Global Presence. We have a large and growing
international presence and intend to grow our customer base in various international regions by making investments in our sales team globally. For the year ended December 31, 2019, our
international revenue was 22% of our total revenue. We expect international sales to be a meaningful revenue contributor in future periods.
Our Intelligent Identity Platform
We enable secure access to any service, application or API from any device. Our Intelligent Identity Platform can leverage AI and ML to analyze
device, network, and user behavior data to make real-time authentication and security control decisions, enhancing the user experience. Our platform is designed to detect anomalies and automatically
insert additional security measures, such as MFA, only when necessary. Our Intelligent Identity Platform provides the following key benefits:
-
-
intelligent authentication of users based on contextual signals and risk attributes;
-
-
one platform for all primary use cases;
-
-
flexible hybrid deployment options;
-
-
turnkey integrations across cloud and on-premise applications;
-
-
high standards for critical security and resiliency; and
-
-
scalable to billions of identities.
111
Table of Contents
Our Intelligent Identity Platform Supports All Primary Use Cases
-
-
Customer. Our platform helps enterprises better engage with their customers
by providing a consistent, modern, omni-channel user experience through personalized access to all digital services. This enhanced digital experience improves brand loyalty and drives additional
revenue, while also strengthening security.
-
-
Workforce. Our platform allows enterprises to provide their workforce with
seamless and secure access to all of their cloud and on-premise applications and APIs to enable better employee productivity.
-
-
Partner. Our platform helps enterprises rapidly connect with partners and
manage their access privileges when onboarding and offboarding users.
-
-
IoT. Our platform is increasingly being used to manage IoT identities, such
as connected vehicles and consumer devices, and authenticate machine-to-machine and human-to-machine interactions.
Deployment Flexibility
We have designed our solutions and solution packages for flexible deployment because every enterprise has different customization, control,
security and privacy needs. Our deployment options include:
-
-
Cloud. Cloud-first enterprises can consume our Intelligent Identity
Platform as SaaS or deploy our Intelligent Identity Platform in their cloud
-
-
Hybrid. For hybrid enterprises, our Intelligent Identity Platform can be
consumed both in the cloud and on-premise.
-
-
On-Premise. For enterprises seeking the highest degree of control over
security and privacy, our Intelligent Identity Platform can be deployed in the customer's data center.
Our Solutions and Solution Packages
Our Intelligent Identity Platform is comprised of six solutions (SSO, MFA, Access Security, Directory, Data Governance and API Intelligence)
that can be purchased individually or as a set of integrated offerings for the customer, workforce, partner or IoT use case. Our modular design allows customers to easily integrate with existing
applications and infrastructures and does not require an all-or-nothing rip and replace. All of our solutions use open standards for maximum interoperability and extensibility.
We
also provide solution packages that include combinations of our most commonly deployed solutions along with Ping Identity professional services. These solution packages enhance our
land strategy by accelerating the deployment of large initial purchases in the customer and workforce use cases. We have designed our solution packages based on market demand and the most popular
combination of Ping Identity solution deployments. For example, our Customer360 and Workforce360 solution packages include our SSO, MFA, Directory solutions and Ping Identity professional services and
represent a combination of solutions commonly found in our customer base.
Single Sign-On. Our SSO solution allows users to sign on using one set of secure credentials, giving them one-click access
to their applications and
resources regardless of location. Our SSO solution provides turnkey integrations for a wide range of applications, cloud services, IT infrastructures and directory solutions, including third
party directories, as well as our Directory solution. Within our SSO solution, our adaptive authentication policies enable organizations to
112
Table of Contents
predictively
authenticate users in real-time based on device, network, application and user behavior data. Our advanced SSO features include:
-
-
utilization of open-standards such as SAML, OAuth, OIDC, WS-*, SCIM, FIDO2;
-
-
support for identity, OpenID Connect Token, and service providers;
-
-
advanced protocol translation to maximize interoperability with partners;
-
-
flexible authentication mechanisms (Adapters, Policy Tree and SDK);
-
-
advanced user identity attribute aggregation (LDAP, JDBC and SDK);
-
-
inbound and outbound SaaS user provisioning; and
-
-
advanced enterprise SIEM and audit logging.
Multi-Factor Authentication. Our adaptive MFA solution helps optimize the balance between security and user experience by
enforcing additional
authentication factors as necessary when accessing sensitive resources, conducting high-value transactions and engaging in other elevated risk scenarios. Adaptive MFA allows users to conduct low-value
transactions from trusted devices without interruption, while prompting MFA during high-value transactions, activity from untrusted devices and networks or in response to anomalous behavior. Our MFA
solution works across use cases with personal or corporate-owned mobile devices and integrates with enterprise mobility management and mobile device management solutions. Our advanced MFA features
include:
-
-
multiple authentication factors: one-time passwords that are sent via SMS, email or voice call; secure key; smartwatch; mobile applications for
iOS/Android (including biometrics or swipe); and desktop applications;
-
-
advanced adaptive authentication policies;
-
-
off-line use cases;
-
-
FIDO2 compatible devices;
-
-
mobile SDK to embed MFA functionality directly within an enterprise's mobile application; and
-
-
support for SSH applications, Windows login/RDP or any RADIUS-compliant VPN server or remote access system.
Access Security. Our Access Security solution allows enterprises to apply a greater depth of security control over their
web applications and APIs
in any domain for users on any device. We offer a comprehensive policy engine down to the URL level that is designed to ensure only an authorized user can access resources. Our solution evaluates
access decisions in real-time based on network, browser and authentication attributes, while continuously validating the risk profile of the user or device. Our advanced Access Security features
include:
-
-
security for web and API-based resources, either in gateway or agent mode;
-
-
integrations with any OpenID Connect identity provider;
-
-
Attribute-Based Access Control or Role-Based Access Control;
-
-
advanced HTTP header or JSON Web Token identity mappings;
-
-
open-standards web session management;
-
-
flexible step-up authentication rules;
-
-
site authenticators, load-balancing and failover;
113
Table of Contents
-
-
access rules (i.e., network range, time range), processing rules (i.e., URL rewriting) or custom rules (Groovy or Java SDK); and
-
-
enterprise SIEM and audit logging.
Directory. Our Directory solution securely stores and manages sensitive identity and device data at scale. It includes
real-time, bidirectional
synchronization capabilities to migrate or sync data from multiple sources into a secure, scalable and unified profile. This single source of data is designed to provide a consistent experience across
digital business interactions, no matter where the applications and services are deployed. Our advanced Directory features include:
-
-
scalability to millions of identities;
-
-
millisecond response times;
-
-
advanced data modeling and access features for structured and unstructured data;
-
-
real-time data synchronization for easy migration from legacy LDAP directories;
-
-
developer-friendly REST APIs;
-
-
encryption for maximum security of all data "at rest" (database files, database indexes, log files, backups and exports) and "in transit"
(network connections from clients and peer servers);
-
-
encryption keys that can be stored independent of encrypted data using enterprise password vaults and hardware security modules;
-
-
flexible plugin architecture; and
-
-
advanced multi-region and multi-master replication for low latency data access.
Data Governance. Our Data Governance solution provides centralized, fine-grained control over access to sensitive identity
and device data across
use cases. This enables organizations to restrict internal and external applications from accessing specific identity attributes such as social security numbers, credit card numbers, billing addresses
or the entire user profile. Data access policies can evaluate attributes and preferences of the profile being requested, data from other repositories and information about the application and user
making the request. Our Data Governance solution enables enterprises to comply with a broad range of regulatory requirements, such as GDPR, by restricting data that a user has not consented to share
and denying access to personal information that applications and users do not need to perform their tasks. Our advanced Data Governance features include:
-
-
centralized policy controls via XACML and JEXL to govern data access;
-
-
customer management of opt-in/opt-outs and preferences;
-
-
support for LDAP v3 and various other data sources for user and data backend stores; and
-
-
support for other OpenID Connect providers as identity providers.
API Intelligence. Our API Intelligence solution can apply AI and ML to continuously inspect, report and act on all API
activity. Our solution is
purpose-built to recognize and respond to attacks that are designed to exploit the unique vulnerabilities of individual APIs. These attacks often go undetected by traditional security tools, such as
application firewalls and API gateways. Our advanced API Intelligence features include:
-
-
API traffic monitoring, visibility and security using AI and ML;
-
-
automated API discovery;
114
Table of Contents
-
-
API deception and honeypot;
-
-
API threat detection and blocking; and
-
-
deployment in-line or to the side of API gateways.
Our Technology
Our technology has been developed to the highest standards for security, performance, scale and interoperability. Our platform is built on the
following core tenets:
-
-
Open Standards. We pioneered open identity standards that reduce the cost
and complexity of interoperability and integration between IT vendors and partners. We also participated in the creation of many of the Internet Engineering Task Force standards in the identity space
and continue to support the evolution and creation of new standards.
-
-
Turnkey Integrations. We provide a broad range of out-of-the-box adapters
for "first-mile" and "last-mile" integration to cloud and on-premise applications and other systems. For example, we integrate with major enterprise identity systems, such as Broadcom, IBM, Oracle and
Microsoft, as well as environments and application platforms such as Apache, Java, IIS, NGINX and WebSphere. In addition, we provide an extensive set of SaaS and social identity connectors that
provide full integration with API functions. For example, our ServiceNow integration leverages over 20 user attributes. We also have out-of-the-box integrations with a variety of cloud-based and
on-premise data sources, adaptive authentication providers and security and intelligence service providers.
-
-
Artificial Intelligence and Machine Learning. Our API Intelligence solution
utilizes our proprietary AI/ML capabilities to continuously inspect, report and act on all API activity. We are in the process of leveraging and expanding these AI/ML capabilities across our broader
platform to deliver Intelligent Identity security based on device, network, application and user behavior data instead of manual rules and policies. Currently, our core identity and access management
solutions can be deployed with AI and ML capabilities that we license from a third party. However, we do not actively market or sell the AI and ML capabilities of these solutions. Our platform's
ultimate goal is to deliver password-less, zero-login capabilities to secure access and enhance user experience. See "Risk Factors Risks Related to our
Business We rely on software and services from other parties. Defects in or the loss of access to software or services from third parties could increase our costs and adversely
affect the quality of our solutions".
-
-
Uptime and Availability. We provide critical uptime and offer advanced
redundancy features such as off-line modes to ensure services are available even when internet connectivity is lost. Our multi-tenant cloud-based offering is hosted in multiple regions around the
world for redundancy and continuity. Our maintenance windows do not require any downtime, and our platform has delivered over 99.9% uptime across our customer base over the past 12 months.
-
-
Scalability and Performance. Our platform can scale to millions of
identities and thousands of cloud and on-premise applications in a single deployment.
-
-
Self-service. Self-service is becoming increasingly important as IT and IAM
teams with limited resources seek to provide centralized IAM to the entire enterprise. The ability for developers to directly integrate identity into their applications accelerates the adoption of
identity within the enterprise.
-
-
Security by Design. We integrate security into all of our solutions. Our
security analysts maintain the security of our solutions by monitoring core services, both corporate and
115
Table of Contents
customer-facing,
for indications of attack or compromise. We partner with trusted third party security firms to perform full-scope assessments and additional architectural reviews of our solutions. We
also engage with third-party audit firms to perform SOC2 Type II audits, and ISO 27001-2013 certification of our security program.
Sales and Marketing
Sales
We sell our solutions primarily through direct sales. We have a stratified direct sales organization that is organized by customer size and the
type of solution and deployment. Within our sales organization, our strategic account executives focus on the largest and most complex enterprises that typically purchase multiple products or
deployment options. In addition, we have account executives that target less complex enterprise customers that typically purchase a single solution or deployment option initially.
Our
direct sales are enhanced by collaboration with our channel partners in sourcing new leads, aiding in pre-sale processes such as proof of concepts, demos or requests for proposals
and reselling our solutions to customers, as well as collaboration with our system integrators and technology partners. We also leverage a number of our channel partners and system integrators to
provide the implementation services for some of our larger and more complex deployments, significantly increasing the time-to-value for our customers and maximizing the efficiency of our go-to-market
efforts. For the year ended December 31, 2019, 55% of our new business was influenced by channel partners.
Marketing
We focus our marketing strategy on building brand recognition through thought leadership and differentiated messaging that communicates the
business value of our platform. Our efforts include content marketing, social media, SEO, events and public and analyst relations. We convert this brand awareness into our pipeline through campaigns
that integrate digital, social, web and field marketing tactics aimed at adding new customers and cross-marketing our solutions into our existing customer base. We host user conferences in select
cities around the globe to tap into the power of our passionate customer base and our broader ecosystem. We also founded and host the leading identity industry conference called Identiverse.
Identiverse is held annually and attendees include architects, IAM professionals, IT administrators, developers, security professionals and CISOs, as well as technology vendors, system integrators,
industry analysts and thought leaders.
Our Customers
At December 31, 2019, we had 1,361 customers. We define a customer as a separate legal entity with an individual subscription agreement
and include in our customer count entities to which we have sold directly and entities that have purchased one or more of our solutions from a reseller. Our customer base is comprised of over 50% of
the Fortune 100. As of March 31, 2020, our customer base included 12 of the 12 largest U.S. banks (measured by assets), 8 of the 10 largest bio-pharmaceutical companies (measured by revenue), 7
of the 10 largest healthcare plans (measured by revenue) and 5 of the 7 largest U.S. retailers (measured by revenue). Our customer base is diversified, with no one customer or reseller accounting for
more than 5% of our total revenue for the year ended December 31, 2019. We have a highly satisfied customer base, as evidenced by our Net Promoter Score of 61 in 2019.
116
Table of Contents
Partnerships and Strategic Relationships
The PingPartner Network is comprised of key partnerships across our solution provider and technology alliance programs. This global network
delivers expertise, value-added services and technology that are critical to the success of our customers.
Solution Provider Program
We have built strong relationships with channel partners, system integrators and technology partners that have allowed us to generate new
business opportunities and enhance existing practices such as strategic planning, program management, architecture, design, implementation, ongoing change management and support.
Technology Alliance
We have built a broad ecosystem of over 100 technology partners. Our Technology Alliance Partner ecosystem spans the landscape of IAM and
related technologies, giving our customers access to comprehensive, cross-application, integrated solutions. Our technology partners expand and extend the value of their solutions, and our solutions,
by integrating their technology with our Intelligent Identity Platform. Additionally, our partners provide us with complementary technology and sales and marketing collateral that help us to more
effectively sell together.
We
partner with Microsoft, and this partnership has led to key product integrations. Through our collaboration, customers can leverage our platform to connect to the Microsoft Azure or
Office365 services and enjoy rapid deployments via our integrations. We also enable non-Microsoft applications and environments to be easily integrated into the Microsoft ecosystem. Lastly, our
MFA solution works directly with Microsoft ADFS and AzureAD to provide enterprise-grade adaptive authentication to Microsoft's cloud-based offerings.
We
also partner with AWS to provide provisioning and deployment of our solutions to our customers through this collaboration. We offer AWS single sign-on integration for a leading
enterprise cloud experience. We also offer a hybrid deployment that can scale across AWS for enterprise applications.
Professional Services and Customer Support
Professional Services
Our professional services organization helps customers architect, deploy, configure, extend and integrate our platform into their IT
environments. We offer a variety of packaged and configured offerings and expert guidance that leverage our best practices and experience, all of which are available for our robust partner community
to use or resell. We complement our professional services with formal instructor-led and web-based on-demand training courses.
Customer Support
We offer three tiers of support, each building on the previous tier to most closely align with a customer's requirements. Support is included
for our cloud and on-premise offerings during the term of a customer's subscription. All support tiers offer maintenance releases, patches and access to our support services and portal. Our support
portal offers customers documentation, how-to guides, videos and a community where our customers can ask questions and find answers. Our customer support organization includes experienced, trained
personnel and engineering resources located around the world to provide 24x7x365 support for critical issues.
117
Table of Contents
Research and Development
Innovation is at the core of what we do. Approximately one-third of our employees are devoted to research and development. Our research and
development efforts are focused on building industry leading solutions, addressing all primary use cases, enhancing deployment flexibility and providing seamless integration across cloud and
on-premise applications. We believe that the ongoing and timely development of new solutions and features is imperative to maintaining our competitive position. We continue to invest in our solutions
across our development centers in: Denver, Colorado; Austin, Texas; Tel Aviv, Israel; Vancouver, Canada; and Bangalore, India.
Intellectual Property
Our success depends in part on our ability to protect our intellectual property. We rely on copyrights and trade secret laws, confidentiality
procedures, employment agreements and proprietary information and invention assignment agreements, trademarks and patents to protect our intellectual property rights.
We
control access to, and use of, our solutions and other confidential information through the use of internal and external controls, including contractual protections with employees,
contractors, customers and partners, and our software is protected by U.S. and international copyright and trade secret laws. Despite our efforts to protect our trade secrets and proprietary rights
through intellectual property rights, licenses and confidentiality agreements, unauthorized parties may still copy or otherwise obtain and use our software and technology, and such risks may increase
as we attempt to expand into jurisdictions where such rights are less easily enforced, or are more subject to reverse engineering or misappropriation due to local legal requirements.
As
of December 31, 2019, we had 16 issued United States patents and 8 patent applications pending in the United States relating to certain aspects of our technology. Our issued
United States patents expire between December 14, 2031 and July 31, 2036. We cannot assure you whether any of our patent applications will result in the issuance of a patent or whether
the examination process will require us to narrow our claims. Any of our existing patents and any that are issued in the future may be contested, circumvented, found unenforceable or invalidated, and
we may not be able to prevent third parties from infringing them. In addition, we have international operations and intend to continue to expand these operations, and effective patent, copyright,
trademark and trade secret protection may not be available or may be limited in foreign countries.
Competition
We face competition from (1) legacy providers, (2) cloud-only providers and (3) homegrown solutions.
Legacy
providers include Broadcom, IBM and Oracle, among others. These providers generally designed their solutions when enterprise applications were monolithic and on-premise. Their
solutions utilize proprietary architectures, which require customized features and integrations to scale. Today, these solutions have the reputation of being complex, costly and increasingly fragile.
Thus, legacy providers often struggle to offer a single comprehensive solution that spans all IT environments, including cloud and on-premise.
We
also compete with cloud-only providers, such as Okta and OneLogin that primarily focus on the workforce use case. These providers have solutions that are generally geared towards
small and medium-sized businesses that have IT infrastructures hosted entirely in the cloud. Large enterprises typically do not have cloud-only infrastructures, and while many are moving components of
their IT environments to the cloud, we believe the majority of applications and workloads will continue to reside on-premise. Thus, a cloud-only IAM solution cannot deliver a
118
Table of Contents
single
comprehensive solution to enterprises that provides wall-to-wall coverage across their complex hybrid IT environments.
Microsoft
also competes in our market and has tied its identity services to both Azure and its Office365 offerings. However, we partner with Microsoft to provide SSO, security control
and adaptive MFA where non-Microsoft environments require integration or independence is preferred. Microsoft's integration and interoperability with our solutions benefits enterprises while providing
optionality and choice.
We
believe the principal competitive factors in the IAM market include: (1) the ability to address all primary use cases from one platform; (2) the ability to deploy in
large, complex hybrid IT environments; (3) the ability to integrate easily with all applications (cloud and on-premise); (4) technology uptime, reliability, scalability and performance;
(5) the ability to support open
standards; and (6) customer, technology and platform support. We believe we compete favorably on these factors.
Employees
As of December 31, 2019, we had a total of 953 full time employees, of which approximately one-third were in research and development.
We have a strong corporate culture, high employee engagement and are consistently ranked by third parties as one of the best places to work.
Facilities
Our corporate headquarters are in Denver, Colorado, where we lease 108,761 square feet of office space as of March 31, 2020. We also
have domestic offices in Boston, Massachusetts, Austin, Texas and San Francisco, California and international offices in the United Kingdom, Australia, Canada, India, Israel, France, the Netherlands
and Switzerland.
We
lease all of our facilities. We believe that our facilities are adequate for our current needs and anticipate that suitable additional space will be readily available to accommodate
any foreseeable expansion of our operations.
Legal Proceedings
We are not currently a party to any material legal proceedings.
119
Table of Contents
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act to register our common stock being offered in
this prospectus. This prospectus, which forms part of the registration statement, does not contain all of the information included in the registration statement and the attached exhibits. You will
find additional information about us and our common stock in the registration statement. References in this prospectus to any of our contracts, agreements or other documents are not necessarily
complete, and you should refer to
the exhibits attached to the registration statement for copies of the actual contracts, agreements or documents.
The
SEC maintains a website that contains reports, proxy statements and other information about companies like us, who file electronically with the SEC. The address of that website is
http://www.sec.gov. This reference to the SEC's website is an inactive textual reference only and is not a hyperlink.
We
are subject to the reporting, proxy and information requirements of the Exchange Act, and are required to file periodic reports, proxy statements and other information with the SEC.
These periodic reports, proxy statements and other information are available at the website of the SEC referred to above, as well as on our website, https://www.pingidentity.com. This reference to our
website is an inactive textual reference only and is not a hyperlink. The contents of our website are not part of this prospectus, and you should not consider the contents of our website in making an
investment decision with respect to our common stock. We will furnish our shareholders with annual reports containing audited financial statements and quarterly reports containing unaudited interim
financial statements for each of the first three quarters of each year.
162
Table of Contents
Ping Identity Holding Corp.
Index
|
|
|
|
|
|
|
Page(s)
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
Consolidated Financial Statements
|
|
|
|
|
Consolidated Balance Sheets as of December 31, 2019 and 2018
|
|
|
F-3
|
|
Consolidated Statements of Operations for the Years Ended December 31, 2019, 2018 and 2017
|
|
|
F-4
|
|
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2019, 2018 and 2017
|
|
|
F-5
|
|
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2019, 2018 and 2017
|
|
|
F-6
|
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017
|
|
|
F-7
|
|
Notes to Consolidated Financial Statements
|
|
|
F-8
|
|
Unaudited Condensed Consolidated Financial Statements
|
|
|
|
|
Unaudited Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019
|
|
|
F-45
|
|
Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019
|
|
|
F-46
|
|
Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2020 and
2019
|
|
|
F-47
|
|
Unaudited Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2020 and
2019
|
|
|
F-48
|
|
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019
|
|
|
F-49
|
|
Notes to Unaudited Condensed Consolidated Financial Statements
|
|
|
F-50
|
|
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
To
the Board of Directors and Stockholders of Ping Identity Holding Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Ping Identity Holding Corp. and its subsidiaries (the "Company") as of
December 31, 2019 and 2018, and the related consolidated statements of operations, of comprehensive income (loss), of stockholders' equity and of cash flows for each of the three years in the
period ended December 31, 2019, including the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our
audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
/s/
PricewaterhouseCoopers LLP
Denver, Colorado
March 4, 2020
We
have served as the Company's auditor since 2016.
F-2
Table of Contents
PING IDENTITY HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
December 31,
2018
|
|
Assets
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
67,637
|
|
$
|
83,499
|
|
Accounts receivable, net of allowances of $873 and $455 at December 31, 2019 and December 31, 2018, respectively
|
|
|
67,642
|
|
|
50,108
|
|
Contract assets, current
|
|
|
70,031
|
|
|
53,435
|
|
Deferred commissions, current
|
|
|
5,814
|
|
|
3,746
|
|
Prepaid expenses
|
|
|
12,768
|
|
|
8,508
|
|
Other current assets
|
|
|
3,774
|
|
|
2,136
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
227,666
|
|
|
201,432
|
|
|
|
|
|
|
|
|
|
Noncurrent assets:
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
11,183
|
|
|
5,630
|
|
Goodwill
|
|
|
417,696
|
|
|
417,696
|
|
Intangible assets, net
|
|
|
187,868
|
|
|
207,043
|
|
Contract assets, noncurrent
|
|
|
15,979
|
|
|
14,033
|
|
Deferred commissions, noncurrent
|
|
|
7,856
|
|
|
7,287
|
|
Deferred income taxes, net
|
|
|
2,755
|
|
|
1,829
|
|
Other noncurrent assets
|
|
|
1,808
|
|
|
2,073
|
|
|
|
|
|
|
|
|
|
Total noncurrent assets
|
|
|
645,145
|
|
|
655,591
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
872,811
|
|
$
|
857,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders' equity
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,118
|
|
$
|
1,766
|
|
Accrued expenses and other current liabilities
|
|
|
9,302
|
|
|
7,906
|
|
Accrued compensation
|
|
|
18,126
|
|
|
18,394
|
|
Deferred revenue, current
|
|
|
45,446
|
|
|
31,493
|
|
Current portion of long-term debt
|
|
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
73,992
|
|
|
62,059
|
|
|
|
|
|
|
|
|
|
Noncurrent liabilities:
|
|
|
|
|
|
|
|
Deferred revenue, noncurrent
|
|
|
2,061
|
|
|
3,874
|
|
Long-term debt, net of current portion
|
|
|
50,941
|
|
|
241,051
|
|
Deferred income taxes, net
|
|
|
30,571
|
|
|
39,112
|
|
Other liabilities, noncurrent
|
|
|
4,775
|
|
|
1,822
|
|
|
|
|
|
|
|
|
|
Total noncurrent liabilities
|
|
|
88,348
|
|
|
285,859
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
162,340
|
|
|
347,918
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 12)
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
Preferred stock; $0.001 par value; 50,000,000 and 34,000,000 shares authorized at December 31, 2019 and December 31, 2018, respectively; no shares issued or outstanding at December 31, 2019 or December 31, 2018
|
|
|
|
|
|
|
|
Common stock; $0.001 par value; 500,000,000 and 85,000,000 shares authorized at December 31, 2019 and December 31, 2018, respectively;
79,632,500 and 65,000,816 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively
|
|
|
80
|
|
|
65
|
|
Additional paid-in capital
|
|
|
718,446
|
|
|
515,979
|
|
Accumulated other comprehensive loss
|
|
|
(399
|
)
|
|
(787
|
)
|
Accumulated deficit
|
|
|
(7,656
|
)
|
|
(6,152
|
)
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
710,471
|
|
|
509,105
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
872,811
|
|
$
|
857,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Table of Contents
PING IDENTITY HOLDING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
Subscription
|
|
$
|
225,345
|
|
$
|
184,991
|
|
$
|
160,219
|
|
Professional services and other
|
|
|
17,553
|
|
|
16,571
|
|
|
12,320
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
242,898
|
|
|
201,562
|
|
|
172,539
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
Subscription (exclusive of amortization shown below)
|
|
|
24,044
|
|
|
17,512
|
|
|
14,054
|
|
Professional services and other (exclusive of amortization shown below)
|
|
|
15,322
|
|
|
12,703
|
|
|
9,155
|
|
Amortization expense
|
|
|
16,338
|
|
|
14,396
|
|
|
12,626
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
55,704
|
|
|
44,611
|
|
|
35,835
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
187,194
|
|
|
156,951
|
|
|
136,704
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
78,889
|
|
|
60,140
|
|
|
49,481
|
|
Research and development
|
|
|
46,016
|
|
|
36,229
|
|
|
26,215
|
|
General and administrative
|
|
|
38,293
|
|
|
28,355
|
|
|
20,202
|
|
Depreciation and amortization
|
|
|
16,639
|
|
|
16,341
|
|
|
16,526
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
179,837
|
|
|
141,065
|
|
|
112,424
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
7,357
|
|
|
15,886
|
|
|
24,280
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(12,914
|
)
|
|
(15,837
|
)
|
|
(19,277
|
)
|
Loss on extinguishment of debt
|
|
|
(4,532
|
)
|
|
(9,785
|
)
|
|
|
|
Other income (expense), net
|
|
|
363
|
|
|
(335
|
)
|
|
773
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(17,083
|
)
|
|
(25,957
|
)
|
|
(18,504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(9,726
|
)
|
|
(10,071
|
)
|
|
5,776
|
|
Benefit (provision) for income taxes
|
|
|
8,222
|
|
|
(3,375
|
)
|
|
13,185
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,504
|
)
|
$
|
(13,446
|
)
|
$
|
18,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.02
|
)
|
$
|
(0.21
|
)
|
$
|
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.02
|
)
|
$
|
(0.21
|
)
|
$
|
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in computing net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
68,906
|
|
|
65,002
|
|
|
64,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
68,906
|
|
|
65,002
|
|
|
64,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Table of Contents
PING IDENTITY HOLDING CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Net income (loss)
|
|
$
|
(1,504
|
)
|
$
|
(13,446
|
)
|
$
|
18,961
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
388
|
|
|
(901
|
)
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)
|
|
|
388
|
|
|
(901
|
)
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
(1,116
|
)
|
$
|
(14,347
|
)
|
$
|
19,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Table of Contents
PING IDENTITY HOLDING CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
Other
Comprehensive
|
|
|
Retained
Earnings
(Accumulated
|
|
|
Total
Stockholders'
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Income (Loss)
|
|
Deficit)
|
|
Equity
|
|
Balances at December 31, 2016
|
|
|
64,978,418
|
|
$
|
65
|
|
$
|
510,544
|
|
$
|
(219
|
)
|
$
|
(11,629
|
)
|
$
|
498,761
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,961
|
|
|
18,961
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
2,524
|
|
|
|
|
|
|
|
|
2,524
|
|
Exercise of stock options
|
|
|
12,920
|
|
|
|
|
|
101
|
|
|
|
|
|
|
|
|
101
|
|
Vesting of restricted stock
|
|
|
5,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
333
|
|
|
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2017
|
|
|
64,996,651
|
|
|
65
|
|
|
513,169
|
|
|
114
|
|
|
7,332
|
|
|
520,680
|
|
Cumulative-effect adjustment for adoption of ASU 2016-09
|
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
(38
|
)
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,446
|
)
|
|
(13,446
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
2,848
|
|
|
|
|
|
|
|
|
2,848
|
|
Vesting of restricted stock
|
|
|
10,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
(6,460
|
)
|
|
|
|
|
(76
|
)
|
|
|
|
|
|
|
|
(76
|
)
|
Foreign currency translation adjustments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
(901
|
)
|
|
|
|
|
(901
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2018
|
|
|
65,000,816
|
|
|
65
|
|
|
515,979
|
|
|
(787
|
)
|
|
(6,152
|
)
|
|
509,105
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,504
|
)
|
|
(1,504
|
)
|
Issuance of common stock upon initial public offering, net of underwriting discounts and commissions and offering costs
|
|
|
14,375,000
|
|
|
15
|
|
|
194,564
|
|
|
|
|
|
|
|
|
194,579
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
6,332
|
|
|
|
|
|
|
|
|
6,332
|
|
Exercise of stock options
|
|
|
199,522
|
|
|
|
|
|
1,571
|
|
|
|
|
|
|
|
|
1,571
|
|
Vesting of restricted stock
|
|
|
57,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
388
|
|
|
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2019
|
|
|
79,632,500
|
|
$
|
80
|
|
$
|
718,446
|
|
$
|
(399
|
)
|
$
|
(7,656
|
)
|
$
|
710,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Table of Contents
PING IDENTITY HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,504
|
)
|
$
|
(13,446
|
)
|
$
|
18,961
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
4,532
|
|
|
9,785
|
|
|
|
|
Depreciation and amortization
|
|
|
32,977
|
|
|
30,737
|
|
|
29,152
|
|
Stock-based compensation expense
|
|
|
6,332
|
|
|
2,848
|
|
|
2,524
|
|
Amortization of deferred commissions
|
|
|
6,423
|
|
|
5,302
|
|
|
3,460
|
|
Amortization of deferred debt issuance costs
|
|
|
679
|
|
|
889
|
|
|
1,372
|
|
Deferred taxes
|
|
|
(9,379
|
)
|
|
3,073
|
|
|
(13,286
|
)
|
Other
|
|
|
166
|
|
|
(440
|
)
|
|
61
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(18,046
|
)
|
|
(1,465
|
)
|
|
(9,967
|
)
|
Contract assets
|
|
|
(18,542
|
)
|
|
(6,806
|
)
|
|
(22,171
|
)
|
Deferred commissions
|
|
|
(9,060
|
)
|
|
(9,981
|
)
|
|
(7,693
|
)
|
Prepaid expenses and other current assets
|
|
|
(6,586
|
)
|
|
(5,770
|
)
|
|
(218
|
)
|
Other assets
|
|
|
373
|
|
|
(763
|
)
|
|
(31
|
)
|
Accounts payable
|
|
|
(624
|
)
|
|
298
|
|
|
(34
|
)
|
Accrued compensation
|
|
|
(404
|
)
|
|
6,070
|
|
|
(1,087
|
)
|
Accrued expenses and other
|
|
|
6,318
|
|
|
1,113
|
|
|
(3,824
|
)
|
Deferred revenue
|
|
|
12,140
|
|
|
1,442
|
|
|
6,204
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
5,795
|
|
|
22,886
|
|
|
3,423
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment and other
|
|
|
(8,696
|
)
|
|
(3,437
|
)
|
|
(2,519
|
)
|
Capitalized software development costs
|
|
|
(10,460
|
)
|
|
(6,310
|
)
|
|
(3,442
|
)
|
Acquisition of Elastic Beam, net of cash acquired of $0
|
|
|
|
|
|
(17,414
|
)
|
|
|
|
Other investing activities
|
|
|
(600
|
)
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(19,756
|
)
|
|
(26,661
|
)
|
|
(5,961
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
Payment of Elastic Beam consideration and holdbacks
|
|
|
(1,136
|
)
|
|
|
|
|
|
|
Proceeds from initial public offering, net of underwriting discounts and commissions
|
|
|
200,531
|
|
|
|
|
|
|
|
Payment of offering costs
|
|
|
(5,164
|
)
|
|
(493
|
)
|
|
|
|
Proceeds from stock option exercises
|
|
|
1,571
|
|
|
|
|
|
101
|
|
Repurchase of common stock
|
|
|
|
|
|
(76
|
)
|
|
|
|
Proceeds from long-term debt
|
|
|
52,177
|
|
|
250,000
|
|
|
|
|
Issuance costs of long-term debt
|
|
|
(1,249
|
)
|
|
(5,994
|
)
|
|
|
|
Payment of long-term debt
|
|
|
(248,750
|
)
|
|
(171,250
|
)
|
|
|
|
Payment of debt extinguishment costs
|
|
|
|
|
|
(5,085
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(2,020
|
)
|
|
67,102
|
|
|
101
|
|
Effect of exchange rates on cash and cash equivalents and restricted cash
|
|
|
224
|
|
|
(653
|
)
|
|
274
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents and restricted cash
|
|
|
(15,757
|
)
|
|
62,674
|
|
|
(2,163
|
)
|
Cash and cash equivalents and restricted cash
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
84,143
|
|
|
21,469
|
|
|
23,632
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
68,386
|
|
$
|
84,143
|
|
$
|
21,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
12,169
|
|
$
|
13,598
|
|
$
|
20,758
|
|
Cash paid for taxes
|
|
|
1,073
|
|
|
284
|
|
|
198
|
|
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment, accrued but not yet paid
|
|
$
|
218
|
|
$
|
77
|
|
$
|
367
|
|
Accruals related to the acquisition of Elastic Beam
|
|
|
|
|
|
1,560
|
|
|
|
|
Offering costs, accrued but not yet paid
|
|
|
295
|
|
|
833
|
|
|
|
|
Reconciliation of cash and cash equivalents and restricted cash within the consolidated balance sheets to the amounts shown in the statements of cash flows above:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
67,637
|
|
$
|
83,499
|
|
$
|
20,969
|
|
Restricted cash included in other noncurrent assets
|
|
|
749
|
|
|
644
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents and restricted cash
|
|
$
|
68,386
|
|
$
|
84,143
|
|
$
|
21,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Overview and Basis of Presentation
Organization and Description of Business
Ping Identity Holding Corp. and its wholly owned subsidiaries, referred to herein as the "Company," is headquartered in Denver, Colorado with
international locations principally in Canada, Australia, France, the United Kingdom, Israel and India. The Company, doing business as Ping Identity Corporation ("Ping Identity"), provides customers,
employees and partners with secure access to any service, application or API, while also managing identity and profile data at scale.
Basis of Presentation and Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and
transactions have been eliminated. The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). All amounts are
reported in U.S. dollars. Certain amounts as of and for the year ended December 31, 2017 have been reclassified to conform with current period presentation.
Initial Public Offering
On September 23, 2019, the Company closed its initial public offering ("IPO") through which it issued and sold 12,500,000 shares of
common stock at a price per share of $15.00. Additionally, the Company registered 1,875,000 shares of common stock in connection with the underwriters' overallotment option to purchase additional
shares on the same terms and conditions. The underwriters' overallotment option was exercised in full and closed on October 22, 2019.
In
connection with the IPO, the Company raised $194.6 million in net proceeds, after deducting underwriting discounts and commissions of $15.1 million and offering
expenses of $5.9 million. On September 23, 2019, the Company used the net proceeds from the IPO to repay $170.3 million of its outstanding debt and after the closing of the
underwriters' overallotment option to purchase additional shares, the Company repaid an additional $26.1 million of its outstanding debt, as discussed in Note 7.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, establishing allowances for doubtful accounts,
determining useful
lives for finite-lived assets, assessing the recoverability of long-lived assets, determining the fair values of assets acquired and liabilities assumed in business combinations, accounting for income
taxes and related valuation allowances against deferred tax assets, valuing stock option awards and assessing the probability of the awards meeting vesting conditions, recognizing revenue, determining
the amortization period for deferred commissions and assessing the accounting treatment for commitments and contingencies. Management evaluates these estimates and assumptions on an ongoing basis and
makes estimates based on historical experience and various other assumptions that are believed to be reasonable. Actual results may differ from these estimates.
F-8
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies
Stock Split
On September 5, 2019, the Company effected a 170-for-1 stock split of its issued and outstanding shares of common stock and made
comparable and equitable adjustments to its equity awards in accordance with the terms of the awards. The par value of the common and preferred stock was not adjusted as a result of the stock split.
Accordingly, all share and per share amounts for the periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted retrospectively, where applicable, to
reflect this stock split. In connection with the stock split, the Company's Board of Directors (the "Board") and stockholders
approved the Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 85,000,000 shares (after giving
effect to the stock split) to 500,000,000 shares and to increase the number of authorized shares of preferred stock from 34,000,000 shares (after giving effect to the stock split) to 50,000,000
shares.
Offering Costs
Prior to the IPO, the Company capitalized offering costs incurred in connection with the anticipated sale of common stock in the IPO, including
legal, accounting, printing and other IPO-related costs. The balance of offering costs included within prepaid expenses and other current assets at December 31, 2018 was $1.3 million.
Upon completion of the IPO and the exercise of the underwriters' option to purchase additional shares, $5.5 million and $0.4 million, respectively, of offering costs were reclassified to
stockholders' equity and recorded against the proceeds received by the Company.
Segment and Geographic Information
The Company operates in a single operating segment. Operating segments are defined as components of an enterprise for which discrete financial
information is available and is regularly reviewed by the chief operating decision maker in order to make decisions regarding resource allocation and performance assessment. The Company has determined
that its chief operating decision maker is its Chief Executive Officer. The Company's chief operating decision maker reviews the Company's financial information on a consolidated basis for purposes of
allocating resources and evaluating financial performance. Since the Company operates in one operating segment, all required financial segment information can be found in the consolidated financial
statements.
Revenue
by geographic region is based on the delivery address of the customer, and is summarized by geographic area as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
United States
|
|
$
|
188,283
|
|
$
|
154,609
|
|
$
|
130,135
|
|
International
|
|
|
54,615
|
|
|
46,953
|
|
|
42,404
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
242,898
|
|
$
|
201,562
|
|
$
|
172,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-9
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
Other
than the United States, no other individual country exceeded 10% of total revenue for the years ended December 31, 2019, 2018 or 2017.
The
Company's long-lived assets are composed of property and equipment, net, and are summarized by geographic area as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
United States
|
|
$
|
10,015
|
|
$
|
4,388
|
|
International
|
|
|
1,168
|
|
|
1,242
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
$
|
11,183
|
|
$
|
5,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outside
of the United States and Canada, no other individual country held greater than 10% of total long-lived assets at December 31, 2019 or 2018.
Foreign Currency
The reporting currency of the Company is the U.S. dollar. The functional currency of each subsidiary is the applicable local currency. For the
subsidiary where the U.S. dollar is the functional currency, foreign currency denominated monetary assets and liabilities are remeasured into U.S. dollars at current exchange rates and foreign
currency denominated nonmonetary assets and liabilities are remeasured into U.S. dollars at historical exchange rates.
Transactions denominated in currencies other than the subsidiaries' functional currencies are recorded based on the exchange rates at the time such transactions arise. Resulting gains and losses are
recorded in other income (expense), net in the consolidated statements of operations in the period of occurrence.
The
Company's foreign subsidiaries are translated from the applicable functional currency to the U.S. dollar using the average exchange rates during the reporting period, while assets
and liabilities are translated at the period-end exchange rates. Resulting gains or losses from translating foreign currency are included in accumulated other comprehensive income (loss).
Cash and Cash Equivalents
Cash consists of deposits with financial institutions whereas cash equivalents primarily consist of money market funds. The Company considers
all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable represent amounts owed to the Company by its customers that are recorded at the invoiced amount. The Company reports
accounts receivable net of allowance for doubtful accounts. Management makes judgments and estimates of the probable loss related to uncollectible accounts receivable considering a number of factors
including collection trends, prevailing and anticipated economic conditions, and specific customer credit risk. The Company's allowance for doubtful accounts activity has historically not been
significant. Probable losses are recorded in general and administrative expense in the accompanying consolidated statements of
F-10
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
operations.
Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents
on deposit at several financial institutions as well as accounts receivable. The Company deposits cash with high-credit-quality financial institutions, which, at times, may exceed federally insured
amounts. The Company invests its cash equivalents in highly-rated money market funds. Additionally, the Company performs ongoing credit evaluations of its customers' financial condition and will limit
the amount of credit as deemed necessary, but currently does not require collateral from customers.
As
of December 31, 2019 and 2018, no single customer represented greater than 10% of accounts receivable.
For
the years ended December 31, 2019, 2018 and 2017, no single customer represented greater than 10% of revenue.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. GAAP establishes a three-level valuation hierarchy for the disclosure of fair value measurements. The determination of the applicable level within the
hierarchy of a particular asset or liability depends on the inputs used in its valuation as of the measurement date, and notably the extent to which the inputs are market-based (observable) or
internally determined (unobservable). The three levels are defined as follows:
-
-
Level 1: Observable inputs that reflect quoted prices (unadjusted)
for identical assets or liabilities in active markets.
-
-
Level 2: Observable inputs, other than Level 1 inputs, such
as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities.
-
-
Level 3: Unobservable inputs reflecting the Company's own
assumptions used to measure assets and liabilities at fair value and which require significant management judgment or estimation.
Property and Equipment
Property and equipment are stated at historical cost less accumulated depreciation. Maintenance, repairs and minor renewals are expensed as
incurred.
F-11
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
Depreciation
is computed using the straight-line method based on the following estimated useful lives:
|
|
|
Asset Type
|
|
Useful Life
|
|
|
|
Computer equipment
|
|
3 years
|
Purchased computer software
|
|
1 - 3 years
|
Furniture and fixtures
|
|
3 - 5 years
|
Leasehold improvements
|
|
Lesser of the lease term or 10 years
|
Other
|
|
3 - 5 years
|
Capitalized Software Costs
Costs for the development of new software products sold to customers and substantial enhancements to existing software products sold to
customers are expensed as incurred until technological feasibility has been established, at which time any additional costs are capitalized during the development stage and until the software is
generally released. The Company believes its current process for developing software will be essentially completed concurrently with the establishment of technological feasibility; hence, no costs
have been capitalized to date.
For
development costs related to software to be used internally, the Company follows guidance of Accounting Standards Codification Topic 350-40, Internal Use
Software ("ASC 350-40"). ASC 350-40 set forth the guidance for costs incurred for computer software developed or obtained for internal use and requires companies to capitalize
qualifying computer software costs that are incurred during the application development stage. These capitalized costs are included in intangible assets
in the consolidated balance sheets and are amortized on a straight-line basis over the expected useful life of the software, which is estimated to be between three and four years. Costs related to
preliminary project activities and post-implementation activities are expensed as incurred. For the years ended December 31, 2019, 2018 and 2017, the Company capitalized $10.5 million,
$6.3 million and $3.4 million, respectively, related to internal-use software costs.
The
Company capitalizes the cost of software purchased from third-party vendors and has classified such costs as property and equipment in the consolidated balance sheets. These costs
are amortized over their useful lives, which are primarily estimated to be three years.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations using the acquisition
method of accounting, which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. The Company evaluates goodwill for
impairment annually in the fourth quarter of each year and as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
The Company's test for goodwill impairment starts with a qualitative assessment to determine whether it is necessary to perform a quantitative goodwill impairment test. If qualitative factors indicate
that the fair value of the reporting unit is more likely than not less than its carrying amount, then a quantitative goodwill impairment test is performed. Under the quantitative impairment test, if
the carrying amount of the reporting unit exceeds its fair value, then an impairment loss is recognized in an amount equal to that excess, not to exceed the
F-12
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
total
amount of goodwill. For purposes of the annual impairment test, the Company has determined it has one reporting unit. There was no impairment of goodwill recorded during the years ended
December 31, 2019, 2018 or 2017.
Intangible Assets
Intangible assets with finite lives arising from business combinations are initially recorded at fair value and amortized over their useful
lives using the straight-line method. The estimated useful life for each acquired intangible asset class is as follows:
|
|
|
Asset Type
|
|
Useful Life
|
|
|
|
Developed technology
|
|
4 - 9 years
|
Customer relationships
|
|
9 - 13 years
|
Trade names
|
|
10 years
|
Product backlog
|
|
2 - 3 years
|
Non-compete agreements
|
|
3 years
|
The
Company records acquired in-process research and development as indefinite-lived intangible assets. Purchased intangible assets with indefinite lives are not amortized but assessed
for potential impairment annually and when events or circumstances indicate that their carrying amounts might be impaired. There was no impairment of indefinite-lived intangible assets recorded during
the years ended December 31, 2019, 2018 or 2017. On completion of the related development projects, the in-process research and development assets are reclassified to developed technology and
amortized over their estimated useful lives.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including property and equipment and finite-lived intangible assets, for impairment whenever events or
changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Such events and changes may include significant changes in performance relative to
expected operating results, significant changes in asset use, significant negative industry or economic trends and changes in the Company's business strategy. An impairment loss is recognized when
estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. There were no events or changes in circumstances
that indicated the Company's long-lived assets were impaired during the years ended December 31, 2019, 2018 or 2017.
Deferred Debt Issuance Costs
Issuance costs incurred to obtain debt financing are deferred and amortized to interest expense using the effective interest method over the
contractual term of the debt. Total deferred debt issuance costs incurred by the Company were $1.2 million, $6.0 million and $6.8 million related to the 2019 Credit Facilities,
the 2018 Credit Facilities, and the 2016 Credit Facilities respectively (discussed in Note 7). The carrying value of deferred debt issuance costs was $1.2 million and $5.2 million
at December 31, 2019 and 2018, respectively, which is included as a reduction to long-term debt in the accompanying consolidated balance sheets.
F-13
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
Deferred Rent
Certain of the Company's operating leases contain credits for tenant improvements, rent holidays and rent escalation clauses. For these leases,
the Company recognizes the related rent expense on a straight-line basis. The difference between the amounts charged to expense and the rent paid is recorded as deferred lease costs and amortized over
the lease term.
Revenue Recognition
The Company recognizes revenue under Accounting Standards Codification Topic 606, Revenue from Contracts with
Customers ("ASC 606"). Under ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the
consideration that the Company expects to receive in exchange for those goods or services. To determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of
its agreements, the Company performs the following steps:
1. Identification of the contract with a customer
The Company contracts with its customers through order forms, which in some cases are governed by master sales agreements. The Company
determines that it has a contract with a customer when the order form has been approved, each party's rights regarding the products or services to be transferred can be identified, the payment terms
for the products or services can be identified, the Company has determined the customer has the ability and intent to pay and the contract has commercial substance. The Company applies judgment in
determining the customer's ability and intent to pay, which is based on a variety of factors, including the customer's historical payment experience or, in the case of a new customer, credit,
reputation and financial or other information pertaining to the customer. At contract inception, the Company evaluates whether two or more contracts should be combined and accounted for as a single
contract and whether the combined or single contract includes more than one performance obligation.
2. Determination of whether the goods or services in a contract comprise performance obligations
Performance obligations promised in a contract are identified based on the products and services that will be transferred to the customer that
are both (i) capable of being distinct, whereby the customer can benefit from a product or service either on its own or together with other resources that are readily available from third
parties or from the Company, and (ii) are distinct in the context of the contract, whereby the transfer of certain products or services is separately identifiable from other promises in the
contract.
The
Company sells its solutions through subscription-based contracts. The Company's subscriptions for solutions deployed on-premise within the customer's technology infrastructure are
comprised of a term-based license and an obligation to provide support and maintenance, where the term-based license and the support and maintenance constitute separate performance obligations. The
Company's SaaS subscriptions provide customers the right to access cloud-hosted software and support for the SaaS service, which the Company considers to be a single performance obligation. The
Company also renews subscriptions for support and maintenance, which the Company considers to be a single performance obligation.
F-14
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
Professional
services consist of consulting and training services. These services are distinct performance obligations from subscriptions and do not result in significant customization
of the software.
3. Measurement of the transaction price
The Company determines the transaction price based on the consideration that the Company expects to receive in exchange for transferring the
promised goods or services to the customer. This transaction price is exclusive of amounts collected on behalf of third parties, such as sales tax and value-added tax. The Company does not offer
refunds, rebates or credits to customers in the normal course of business, so the impact of variable consideration has not been material.
In
instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that its contracts generally do not include a significant financing
component. The primary purpose of the Company's invoicing terms is to provide customers with a simple and predictable way to purchase the Company's subscriptions, not to provide customers with
financing.
4. Allocation of the transaction price to separate performance obligations
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. For
contracts that contain multiple performance obligations, the Company allocates the transaction price to each performance obligation based on each obligation's relative standalone selling price
("SSP").
The
SSP is determined based on the prices at which the Company separately sells the product, assuming the majority of these fall within a pricing range. In instances where SSP is not
directly observable, such as when the Company does not sell the software license separately, the Company determines the SSP using information that may include market conditions and other observable
inputs that can require significant judgment. There is typically a range of standalone selling prices for individual products and services based on a stratification of those products and services by
quantity and other circumstances. If one of the performance obligations is outside of the SSP range, the Company determines SSP to be the nearest endpoint of the range.
5. Recognition of revenue when or as the Company satisfies each performance obligation
Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised product or service to the
customer. The Company's software subscriptions include both upfront revenue recognition when the Company transfers control of the term-based license to the customer, as well as revenue recognized
ratably over the contract period for support and maintenance based on the stand-ready nature of these subscription elements. Revenue for the Company's SaaS products is recognized ratably over the
contract period as the Company satisfies the performance obligation.
Professional
services revenue provided on a time and materials basis is recognized as these services are performed. Revenue from training services and sponsorship fees is recognized on
the date the services are complete.
F-15
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
The Company generates sales directly through its sales team as well as through its channel partners. Where channel partners are involved, the Company has determined that it is the
principal in these arrangements. Sales to channel partners are generally made at a discount, and revenues are recorded at the discounted price once the revenue recognition criteria above have been
met. In certain instances, the Company pays referral fees to its partners, which the Company has determined to be commensurate with internal sales commissions and thus records these payments as sales
commissions. Channel partners generally receive an order from an end customer prior to
placing an order with the Company, and payment from channel partners is not contingent on the partner's collection from end customers.
Disaggregation of Revenue
The following table presents revenue by category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Subscription term-based licenses:
|
|
|
|
|
|
|
|
|
|
|
Multi-year subscription term-based licenses
|
|
$
|
113,151
|
|
$
|
88,925
|
|
$
|
86,421
|
|
1-year subscription term-based licenses
|
|
|
48,255
|
|
|
44,743
|
|
|
35,678
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subscription term-based licenses
|
|
|
161,406
|
|
|
133,668
|
|
|
122,099
|
|
Subscription SaaS and support and maintenance
|
|
|
63,939
|
|
|
51,323
|
|
|
38,120
|
|
Professional services and other
|
|
|
17,553
|
|
|
16,571
|
|
|
12,320
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
242,898
|
|
$
|
201,562
|
|
$
|
172,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Balances
Contract assets represent amounts for which the Company has recognized revenue, pursuant to its revenue recognition policy, for contracts that
have not yet been invoiced to customers where there is a remaining performance obligation, typically for multi-year arrangements. In multi-year agreements, the Company generally invoices customers on
an annual basis on each anniversary of the contract start date. Amounts anticipated to be billed within one year of the balance sheet date are recorded as contract assets, current; the remaining
portion is recorded as
contract assets, noncurrent in the consolidated balance sheets. The change in the total contract asset balance relates to entering into new multi-year contracts and billing on existing contracts.
F-16
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
The
opening and closing balances of contract assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Beginning balance
|
|
$
|
67,468
|
|
$
|
60,662
|
|
$
|
38,491
|
|
Ending balance
|
|
|
86,010
|
|
|
67,468
|
|
|
60,662
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
$
|
18,542
|
|
$
|
6,806
|
|
$
|
22,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
liabilities consist of customer billings in advance of revenue being recognized. The Company primarily invoices its customers for subscription arrangements annually in advance,
though certain contracts require invoicing for the entire subscription in advance. Amounts anticipated to be recognized within one year of the balance sheet date are recorded as deferred revenue,
current; the remaining portion is recorded as deferred revenue, noncurrent in the consolidated balance sheets.
The
opening and closing balances of contract liabilities included in deferred revenue were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Beginning balance
|
|
$
|
35,367
|
|
$
|
33,810
|
|
$
|
27,606
|
|
Ending balance
|
|
|
47,507
|
|
|
35,367
|
|
|
33,810
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
$
|
12,140
|
|
$
|
1,557
|
|
$
|
6,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
change in deferred revenue relates primarily to invoicing customers and recognizing revenue in conjunction with the satisfaction of performance obligations. Revenue recognized
during the years ended December 31, 2019, 2018 and 2017 that was included in the deferred revenue balances at the beginning of the respective periods was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Deferred revenue recognized as revenue
|
|
$
|
33,100
|
|
$
|
31,391
|
|
$
|
26,332
|
|
Remaining Performance Obligations
Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred
revenue and noncancelable amounts to be invoiced. As of December 31, 2019, the Company had $135.6 million of transaction price allocated to remaining performance obligations, of which
89% is expected to be recognized as revenue over the next 24 months, with the remainder to be recognized thereafter.
F-17
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
Deferred Commissions
Sales commissions earned by the Company's internal and external sales force are considered incremental and recoverable costs of obtaining a
contract with a customer. Sales commissions for new contracts and additional sales to existing customers are deferred and recorded in deferred commissions, current and noncurrent in the Company's
consolidated balance sheets. Deferred commissions are amortized over the period of benefit, which the Company has determined to be generally four years. The Company determined the period of benefit by
taking into consideration its customer contracts, its technology and other factors. Deferred commissions are amortized consistent with the pattern of revenue recognition for each performance
obligation for contracts for which the commissions were earned. The Company includes amortization of deferred commissions in sales and marketing expense in the consolidated statements of operations.
The Company periodically reviews the carrying amount of deferred commissions to determine whether events or changes in circumstances have occurred that could impact the period of benefit of these
deferred costs. The Company did not recognize an impairment of deferred commissions during the years ended December 31, 2019, 2018 or 2017.
The
following table summarizes the account activity of deferred commissions for the years ended December 31, 2019, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Beginning balance
|
|
$
|
11,033
|
|
$
|
6,354
|
|
$
|
2,121
|
|
Additions to deferred commissions
|
|
|
9,060
|
|
|
9,981
|
|
|
7,693
|
|
Amortization of deferred commissions
|
|
|
(6,423
|
)
|
|
(5,302
|
)
|
|
(3,460
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
13,670
|
|
$
|
11,033
|
|
$
|
6,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred commissions, current
|
|
$
|
5,814
|
|
$
|
3,746
|
|
$
|
1,858
|
|
Deferred commissions, noncurrent
|
|
|
7,856
|
|
|
7,287
|
|
|
4,496
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred commissions
|
|
$
|
13,670
|
|
$
|
11,033
|
|
$
|
6,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and Development
Research and development costs include direct and allocated expenses. Other than software development costs that qualify for capitalization as
discussed above, research and development costs are expensed as incurred.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense is included within sales and marketing expense in the consolidated
statements of operations. For the
years ended December 31, 2019, 2018 and 2017, advertising expenses were $1.9 million, $1.5 million and $1.2 million, respectively.
F-18
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
Stock-Based Compensation
Stock-based compensation expense for time-based awards is determined based on the grant-date fair value, net of forfeitures, and is recognized
on a straight-line basis over the requisite service period of the award, which is typically the vesting term of the award. Prior to the adoption of ASU 2016-09 on January 1, 2018, the Company
estimated the forfeiture rate annually using its historical experience of forfeited awards. The Company then adjusted for actual forfeitures at each vesting date. After the adoption of ASU 2016-09,
forfeitures are accounted for as they occur.
Stock-based
compensation expense for awards subject to both performance and market conditions is determined based on the grant-date fair value and is recognized on a graded vesting
basis over the term of the award once it is probable that the performance conditions will be met.
The
fair value of each time-based option grant is estimated on the date of the grant using the Black-Scholes option pricing model. For awards subject to performance and market
conditions, the Company uses a Monte Carlo simulation model, which utilizes multiple inputs to estimate the probability that market conditions will be achieved. Both models require highly subjective
assumptions as inputs, including the following:
-
-
Risk-free rate: The risk-free interest rate is based on the implied yield
currently available on U.S. Treasury securities with a remaining term commensurate with the estimated expected term.
-
-
Expected term: For time-based awards, the estimated expected term of
options granted is generally calculated as the vesting period plus the midpoint of the remaining contractual term, as the Company does not have sufficient historical information to develop reasonable
expectations surrounding future exercise patterns and post-vesting employment termination behavior. For awards subject to market and performance conditions, the expected term represents the period of
time that the options granted are expected to be outstanding.
-
-
Dividend yield: The Company uses a dividend yield of zero, as it does not
currently issue dividends and has no plans to issue dividends in the foreseeable future.
-
-
Volatility: Since the Company does not have substantive trading history of
its common stock, expected volatility is estimated based on the historical volatility of peer companies over the period commensurate with the estimated expected term.
-
-
Fair value: Prior to the IPO, there was no public market for the Company's
common stock, so the fair value of the shares of common stock was established by the Board using various inputs, including an independent valuation. Following the IPO, the Company's shares are traded
in the public market, and accordingly the Company uses the applicable closing price of its common stock to determine fair value.
F-19
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
The
following assumptions were used for time-based options granted during the years ended December 31, 2019, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
Risk-free rate
|
|
|
|
|
2.6% - 3.0%
|
|
2.0% - 2.2%
|
Expected term
|
|
|
|
|
6.1 years
|
|
6.1 years
|
Dividend yield
|
|
|
|
|
|
|
|
Volatility
|
|
|
|
|
39% - 42%
|
|
38% - 42%
|
Weighted-average grant date fair value of options granted during period
|
|
|
|
|
$4.84
|
|
$3.43
|
The
following assumptions were used for awards subject to performance and market conditions that were granted during the years ended December 31, 2019, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
Risk-free rate
|
|
|
|
|
2.5% - 2.8%
|
|
1.5% - 1.9%
|
Expected term
|
|
|
|
|
1.7 - 3.3 years
|
|
3.8 - 4.5 years
|
Dividend yield
|
|
|
|
|
|
|
|
Volatility
|
|
|
|
|
45% 55%
|
|
57% 62%
|
Weighted-average grant date fair value of options granted during period
|
|
|
|
|
$2.29
|
|
$2.29
|
The
Company calculates the fair value for restricted stock units ("RSUs") based on the estimated fair value of the Company's common stock on the date of grant and records compensation
expense over the vesting period using a straight-line method. Prior to the adoption of ASU 2016-09, the Company factored an estimated forfeiture rate in calculating compensation expense on RSUs and
adjusted for actual forfeitures upon the vesting of each tranche of RSUs. After the adoption of ASU 2016-09, forfeitures are accounted for as they occur.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are computed annually for
temporary differences between the financial statement basis and the income tax basis of assets and liabilities that will result in taxable or deductible amounts in the future. The Company's temporary
differences result primarily from net operating losses, stock compensation, deferred revenue, intangible assets and accrued expenses. Deferred income tax asset and liability computations are based on
enacted tax laws and rates
applicable to the years in which the differences are expected to affect taxable income. A valuation allowance is established when necessary to reduce deferred income tax assets to the amounts expected
to be realized.
The
Company evaluates the tax positions taken or expected to be taken in the course of preparing the Company's tax returns to determine whether the tax positions are more likely than
not of being sustained by the applicable tax authority. Tax positions not deemed to meet the more likely
F-20
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
than
not threshold would not be recorded as a tax benefit or expense in the current year. Interest and penalties related to income tax liabilities are included in the benefit (provision) for income
taxes.
Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock
outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period,
plus the dilutive effects of RSUs and stock options. Dilutive shares of common stock are determined by applying the treasury stock method.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU
2016-02"), which supersedes the guidance in topic ASC 840, Leases. The new standard requires lessees to apply a dual approach, classifying
leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease
expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for
all leases with a term of greater than 12 months regardless
of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The FASB has also issued several ASUs to provide
implementation guidance relating to ASU 2016-02, including ASU 2017-13, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01, all of which the Company will consider when evaluating the impact of ASU
2016-02. The new leasing guidance is effective for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021. Early
adoption is permitted. The Company expects to adopt ASU 2016-02 on January 1, 2020 using the modified retrospective transition approach through a cumulative-effect adjustment in the first
quarter of 2020. Based on the Company's current operating lease portfolio, it estimates that it will recognize right-of-use assets of approximately $15 million and lease liabilities of
approximately $19 million. The Company is continuing to evaluate the impact of ASU 2016-02, so the estimates are subject to change. The Company does not believe that ASU 2016-02 will have a
material impact on its consolidated statements of operations and cash flows.
In
June 2016, the FASB issued ASU No. 2016-13, Financial Instruments Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments ("ASU 2016-13") and a subsequent amendment to the initial guidance (ASU 2018-19), which change the impairment model for most financial assets. The new
model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. ASU 2016-13 is effective for fiscal years beginning after
December 15, 2022, including interim periods within those fiscal years, though early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard on
its consolidated financial statements.
In
August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework Changes to the
Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"), which improves the disclosure requirements for fair value measurements. The
F-21
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
updated
guidance is effective for all entities for fiscal years beginning after December 15, 2019 and interim periods therein. Early adoption is permitted. Further, an entity is permitted to
early adopt any removed or modified disclosures upon the issuance of ASU 2018-13 while delaying the adoption of the additional disclosures until their effective date. The Company will adopt ASU
2018-13 in the first quarter of 2020 and does not expect it to have a material impact on its consolidated financial statements.
In
August 2018, the FASB issued ASU No. 2018-15, Intangibles Goodwill and Other Internal-Use Software
(Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"), which requires
implementation costs incurred by customers in a cloud computing arrangement to be deferred over the noncancelable term of the cloud computing arrangement plus any optional renewal periods that
(1) are reasonably certain to be exercised by the customer, or
(2) for which exercise of the renewal option is controlled by the cloud service provider. The effective date of this pronouncement is for fiscal years beginning after December 15, 2020
and interim periods within annual periods beginning after December 15, 2021, though early adoption is permitted. The Company is currently evaluating the impact of this pronouncement on its
consolidated financial statements.
In
December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
("ASU 2019-12"), which simplifies the accounting for income taxes, eliminates certain exceptions to the general principles in Topic 740 and clarifies certain aspects of the current guidance to
improve consistent application among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2021 and interim periods within annual periods beginning after
December 15, 2022, though early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. The Company is currently evaluating the
impact of ASU 2019-12 on its consolidated financial statements.
3. Fair Value of Financial Instruments
The Company invests primarily in money market funds, which are measured and recorded at fair value on a recurring basis and are classified within Level 1 of the fair value
hierarchy because they are valued based on quoted market prices in active markets. The fair value of these financial instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
47,858
|
|
$
|
|
|
$
|
|
|
$
|
47,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
57,974
|
|
$
|
|
|
$
|
|
|
$
|
57,974
|
|
F-22
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Fair Value of Financial Instruments (Continued)
The carrying amounts of the Company's accounts receivable, accounts payable and other current liabilities approximate their fair values due to their short maturities. The carrying value
of the Company's long-term debt approximates its fair value based on Level 2 inputs as the principal amounts outstanding are subject to variable interest rates that are based on market rates
(see Note 7).
4. Property and Equipment
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Computer equipment
|
|
$
|
5,729
|
|
$
|
4,218
|
|
Furniture and fixtures
|
|
|
3,757
|
|
|
1,920
|
|
Purchased computer software
|
|
|
785
|
|
|
450
|
|
Leasehold improvements
|
|
|
7,086
|
|
|
2,868
|
|
Other
|
|
|
448
|
|
|
363
|
|
|
|
|
|
|
|
|
|
Property and equipment, gross
|
|
|
17,805
|
|
|
9,819
|
|
Less: Accumulated depreciation
|
|
|
(6,622
|
)
|
|
(4,189
|
)
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
11,183
|
|
$
|
5,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense for the years ended December 31, 2019, 2018 and 2017 was $3.1 million, $2.2 million and $1.9 million, respectively.
5. Business Combinations
On April 5, 2018, Ping Identity Corporation acquired 100% of the voting equity interest in Elastic Beam Inc., a Delaware
Corporation ("Elastic Beam"). Elastic Beam is a machine learning/artificial intelligence API behavioral security software which detects, reports and stops cyberattacks on data and applications via
APIs. The purpose of this acquisition was to expand the Company's capabilities in identity security, particularly with regard to artificial intelligence.
The
total purchase price was $19.0 million, which includes up-front cash consideration of $17.4 million that was funded with existing cash resources, and
$1.6 million, of which $1.1 million and
$0.5 million is payable on the first and second anniversary of the acquisition, respectively. During the year ended December 31, 2019, the Company paid the first anniversary payment of
$1.1 million.
$4.8 million
and $4.2 million of contingent compensation is payable on the first and second anniversary of the acquisition, respectively, contingent on certain individuals
remaining employed as of those dates. As these payments are subject to the continued employment of those individuals, they will be recognized through compensation expense as incurred. During the year
ended December 31, 2019, the Company paid the first anniversary payment of $4.8 million.
F-23
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Business Combinations (Continued)
The
following table summarizes the allocation of the purchase price, based on the estimated fair value of the assets acquired and liabilities assumed at the acquisition date:
|
|
|
|
|
|
|
|
|
April 5, 2018
|
|
Useful Life
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
Fair value of net assets acquired
|
|
|
|
|
|
In process research and development
|
|
$
|
3,006
|
|
Indefinite
|
Goodwill
|
|
|
15,972
|
|
Indefinite
|
Deferred tax asset
|
|
|
108
|
|
|
Other assets
|
|
|
3
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
19,089
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
(115
|
)
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(115
|
)
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
18,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
is primarily attributable to the workforce acquired and the expected synergies arising from integrating Elastic Beam's behavioral security software with the Company's existing
security platform. None of the goodwill is deductible for tax purposes. The Company incurred $0.6 million of acquisition-related expenses in conjunction with the Elastic Beam acquisition which
are included in general and administrative expenses on the consolidated statements of operations for the year ended December 31, 2018.
Additional Acquisition Related Information
The operating results of Elastic Beam are included in the Company's consolidated statements of operations from the date of acquisition. Revenue
and earnings of Elastic Beam since the date of acquisition and pro forma results of operations have not been prepared because the effect of the acquisition was not material to the consolidated
statements of operations.
6. Goodwill and Intangible Assets
The changes in the carrying amount of the Company's goodwill balance were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Beginning balance
|
|
$
|
417,696
|
|
$
|
401,724
|
|
Additions to goodwill related to acquisitions
|
|
|
|
|
|
15,972
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
417,696
|
|
$
|
417,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Goodwill and Intangible Assets (Continued)
The
Company's intangible assets as of December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Developed technology
|
|
$
|
107,938
|
|
$
|
(42,260
|
)
|
$
|
65,678
|
|
Customer relationships
|
|
|
94,875
|
|
|
(26,205
|
)
|
|
68,670
|
|
Trade names
|
|
|
56,640
|
|
|
(19,754
|
)
|
|
36,886
|
|
Capitalized internal-use software
|
|
|
21,881
|
|
|
(6,375
|
)
|
|
15,506
|
|
Other intangible assets
|
|
|
1,077
|
|
|
(535
|
)
|
|
542
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets subject to amortization
|
|
|
282,411
|
|
|
(95,129
|
)
|
|
187,282
|
|
In-process research and development
|
|
|
586
|
|
|
|
|
|
586
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
282,997
|
|
$
|
(95,129
|
)
|
$
|
187,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company's intangible assets as of December 31, 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Developed technology
|
|
$
|
107,938
|
|
$
|
(29,433
|
)
|
$
|
78,505
|
|
Customer relationships
|
|
|
94,875
|
|
|
(18,702
|
)
|
|
76,173
|
|
Trade names
|
|
|
56,436
|
|
|
(14,084
|
)
|
|
42,352
|
|
Product backlog
|
|
|
2,185
|
|
|
(2,117
|
)
|
|
68
|
|
Capitalized internal-use software
|
|
|
11,422
|
|
|
(2,995
|
)
|
|
8,427
|
|
Non-compete agreements
|
|
|
1,224
|
|
|
(1,014
|
)
|
|
210
|
|
Other intangible assets
|
|
|
1,055
|
|
|
(333
|
)
|
|
722
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets subject to amortization
|
|
|
275,135
|
|
|
(68,678
|
)
|
|
206,457
|
|
In-process research and development
|
|
|
586
|
|
|
|
|
|
586
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
275,721
|
|
$
|
(68,678
|
)
|
$
|
207,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
expense for the years ended December 31, 2019, 2018 and 2017 was $29.9 million, $28.6 million and $27.2 million, respectively. During each of
the years ended December 31, 2018 and 2017, $3.0 million of in-process research and development was reclassified to developed technology when ready for intended use.
F-25
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Goodwill and Intangible Assets (Continued)
As
of December 31, 2019, expected amortization expense for intangible assets subject to amortization for the next five years is as follows:
|
|
|
|
|
Year Ending December 31,
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2020
|
|
$
|
31,420
|
|
2021
|
|
|
30,643
|
|
2022
|
|
|
28,788
|
|
2023
|
|
|
26,445
|
|
2024
|
|
|
24,512
|
|
Thereafter
|
|
|
45,474
|
|
|
|
|
|
|
Total
|
|
$
|
187,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. Debt
In 2016, the Company entered into credit facilities with a consortium of lenders comprised of (a) a term loan in an initial principal amount of $150.0 million, which was
borrowed on June 30, 2016 and subsequently increased on August 3, 2016 by $20.0 million (the "2016 Term Loan Facility"), and (b) a revolving line of credit in a principal
committed amount of $10.0 million (the "2016 Revolving Credit Facility" and, collectively with the 2016 Term Loan Facility, the "2016 Credit Facilities"). The 2016 Credit Facilities had a
maturity date of June 30, 2021.
The
2016 Term Loan Facility bore interest at the option of the Company at a rate per annum equal to (a) an adjusted LIBO rate (with a floor of 1.00% per annum) plus an applicable
margin of 9.25%, payable on the last day of the applicable interest period applicable thereto, or (b) the alternate base rate (with a floor of 2.00% per annum) plus an applicable margin of
8.25%, payable quarterly in arrears the last business day of each March, June, September and December. The 2016 Term Loan Facility was borrowed as a LIBO rate loan.
In
conjunction with the 2016 Credit Facilities, the Company was required to comply with various financial debt covenants, including a recurring revenue leverage ratio of 2.1 to 1.0
beginning September 30, 2016 and decreasing quarterly to 1.3 to 1.0 on September 30, 2018, and a total leverage ratio of 8.3 to 1.0 beginning December 31, 2018 and decreasing
quarterly to 2.4 to 1.0 on
and after June 30, 2021. As of December 31, 2017, the Company was in compliance with all financial covenants.
In
January 2018, the Company refinanced its outstanding debt. In connection with the refinancing, the Company entered into new credit facilities with a consortium of lenders comprised
of (a) a term loan with a principal amount of $250.0 million (the "2018 Term Loan Facility"), and (b) a revolving line of credit in a principal committed amount of
$25.0 million (the "2018 Revolving Credit Facility" and, collectively with the 2018 Term Loan Facility, the "2018 Credit Facilities"). The 2018 Term Loan Facility and 2018 Revolving Credit
Facility had maturity dates of January 25, 2025 and January 25, 2023, respectively. Borrowings under the 2018 Credit Facilities were collateralized by substantially all of the assets of
the Company.
F-26
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Debt (Continued)
There
were no significant financial covenants to which the Company was required to comply in relation to the 2018 Term Loan Facility. The wholly owned indirect subsidiary, Ping Identity
Corporation, as borrower under the 2018 Credit Facilities, was limited to declare dividends or make any payment on account of its capital stock to, directly or indirectly, fund a dividend or other
distribution to Ping Identity Holding Corp. (the "Parent"), subject to limited exceptions, including (1) stock repurchases in an amount not to exceed the greater of $1.5 million per year
or 3.75% of consolidated EBITDA, with any unused amount being carried forward to future periods, (2) unlimited amounts subject to compliance with a 4.25 to 1.00 total leverage ratio giving pro
forma effect to any distribution, (3) unlimited amounts up to 7% of the Parent's market capitalization and (4) payment of the Parent's overhead expenses.
In
conjunction with entering into the 2018 Credit Facilities, the Company paid the remaining balance of the 2016 Term Loan Facility and terminated the 2016 Revolving Credit Facility,
which resulted in a loss on extinguishment of debt of $9.8 million, included in the consolidated statements of operations for the year ended December 31, 2018.
The
2018 Term Loan Facility bore interest at the option of the Company at a rate per annum equal to (a) an adjusted LIBO rate (with a floor of 1.00% per annum) plus an applicable
margin of 3.75%, payable on the last day of the applicable interest period applicable thereto ("Eurodollar" loan), or (b) the alternate base rate (with a floor of 2.00% per annum) plus an
applicable margin of 2.75%, payable quarterly in arrears the last business day of each March, June, September and December. The 2018 Term Loan Facility was borrowed as a Eurodollar loan.
Beginning
September 2018, 0.25% of the principal amount of the 2018 Term Loan Facility was payable quarterly. In connection with the closing of the IPO and the underwriters' exercise of
the
overallotment option as described in Note 1, the Company repaid $196.4 million of the principal amount of the 2018 Term Loan Facility using the proceeds. Prior to paying down a portion
of the 2018 Term Loan Facility, the Company had remaining deferred debt issuance costs of $4.6 million. In connection with the debt repayments, the Company elected to proportionately write off
a portion of its deferred debt issuance costs based on the percentage of the loan that was repaid. Accordingly, the Company incurred a loss on extinguishment of debt of $3.6 million for the
proportionate write off of deferred debt issuance costs, included in the consolidated statements of operations for the year ended December 31, 2019.
In
December 2019, the Company refinanced its outstanding debt. In connection with the refinancing, Roaring Fork Intermediate, LLC and Ping Identity Corporation, each a
wholly-owned subsidiary of Ping Identity Holding Corp., and certain of their subsidiaries, entered into a credit agreement (the "2019 Credit Agreement") with the financial institutions identified
therein as lenders, including Bank of America, N.A., as administrative agent, and BOFA Securities, Inc. and RBC Capital Markets as joint lead arrangers. The 2019 Credit Agreement provides for a
senior revolving line of credit in a principal committed amount of $150.0 million (the "2019 Revolving Credit Facility"), with the option to request incremental term loan facilities in a
minimum amount of $10 million for each facility if certain conditions are met. The Company's obligations under the 2019 Credit Agreement are secured by substantially all of the assets of the
Company, and borrowings under the 2019 Revolving Credit Facility may be used for working capital and other general corporate purposes, including for acquisitions permitted under the 2019 Credit
Agreement.
F-27
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Debt (Continued)
The
2019 Credit Agreement contains certain customary events of default and customary representations and warranties and affirmative and negative covenants, including certain
restrictions on the ability of the Company to incur additional indebtedness or guarantee indebtedness of others, to create liens on properties or assets, and to enter into certain asset and
stock-based transactions. In addition, under the terms of the 2019 Credit Agreement, the Company must adhere to certain financial covenants, including (i) a senior secured net leverage ratio,
which shall not be more than 3.50 to 1.00, provided that the maximum ratio shall be increased to 4.00 to 1.00 during a fiscal year in which a Material Acquisition (as defined in the 2019 Credit
Agreement) has been consummated, and (ii) a consolidated interest coverage ratio, which shall not be less than 3.50 to 1.00. As of December 31, 2019, the Company was in compliance with
all financial covenants.
The
wholly owned indirect subsidiary, Ping Identity Corporation, as borrower under the 2019 Credit Agreement, is limited in its ability to declare dividends or make any payment on
account of its capital stock to, directly or indirectly, fund a dividend or other distribution to Ping Identity Holding Corp. (as the Parent), subject to limited exceptions, including (1) stock
repurchases from current or former employees, officers or directors in an amount not to exceed $5 million, (2) unlimited amounts subject to compliance with its financial covenants for
the most recently ended four quarters as well as a 6.00 to 1.00 total net leverage ratio for the most recently ended four quarters, both after giving pro forma effect to any distribution,
(3) unlimited amounts up to the greater of $19.5 million in the
aggregate or 15% of EBITDA for the most recently ended four quarters, and (4) payment of certain of the Parent's overhead expenses.
The
2019 Revolving Credit Facility matures on December 12, 2024 and bears interest at the option of the Company at a rate per annum equal to either (i) a base rate, which
is equal to the greater of (a) the prime rate, (b) the federal funds effective rate plus 1/2 of 1% and (c) the adjusted LIBO rate for a one month interest period
plus 1%, or (ii) the adjusted LIBO rate equal to the LIBO rate for the interest period multiplied by the statutory reserve rate, plus in the case of each of clauses (i) and (ii), the
Applicable Rate (as defined in the 2019 Credit Agreement), which ranges from (i) 0.25% to 1.0% per annum for base rate loans and (ii) 1.25% to 2.0% per annum for LIBO rate loans, in each
case, depending on the senior secured net leverage ratio. The Company will also pay a commitment fee during the term of the 2019 Credit Agreement ranging from 0.20% to 0.35% of the average daily
amount of the available amount to be borrowed under the 2019 Credit Agreement per annum, based on the senior secured net leverage ratio.
Any
borrowing under the 2019 Credit Agreement may be repaid, in whole or in part, at any time and from time to time without premium or penalty other than customary breakage costs, and
any amounts repaid may be reborrowed. No mandatory prepayments will be required other than when borrowings and letter of credit usage exceed the aggregate commitment of all lenders.
In
conjunction with entering into the 2019 Revolving Credit Facility, the Company paid all remaining balances of the 2018 Term Loan Facility and terminated the 2018 Revolving Credit
Facility, which resulted in a loss on extinguishment of debt of $0.9 million, included in the consolidated statements of operations for the year ended December 31, 2019.
F-28
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Debt (Continued)
The Company recognized $12.2 million, $14.9 million and $17.9 million in interest expense in the years ended December 31, 2019, 2018 and 2017, respectively.
As
of December 31, 2019 and 2018, the Company's outstanding long-term debt balance was $50.9 million and $241.1 million, respectively (net of the current portion of
long-term debt of $0.0 million and $2.5 million, and debt issuance costs of $1.2 million and $5.2 million, respectively),
which was included in long-term debt. Debt issuance costs are a direct deduction from the long-term debt liability and are amortized into interest expense over the contractual term of the borrowings
using the effective interest method. During the years ended December 31, 2019, 2018 and 2017, the Company amortized $0.7 million, $0.9 million and $1.4 million of debt
issuance costs, respectively.
Future
principal payments on outstanding borrowings as of December 31, 2019 are as follows:
|
|
|
|
|
Year Ending December 31,
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2020
|
|
$
|
|
|
2021
|
|
|
|
|
2022
|
|
|
|
|
2023
|
|
|
|
|
2024
|
|
|
52,177
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
52,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. Income Taxes
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the "Tax Act") was signed into law. The Tax Act significantly changed U.S. income tax law by, among other things, reducing
the U.S. federal income tax rate from 35 percent to 21 percent, transitioning from a global tax system to a modified territorial tax system, and limiting the tax deduction for interest
expense. The Company has included the impact of the Tax Act in its benefit (provision) for income taxes.
-
-
Reduction of U.S. federal corporate tax rate: During the year ended
December 31, 2017, the Company recorded an increase to its tax benefit of $17.0 million for the estimated impact of revaluing its net deferred tax liability position in the U.S. at the
new 21 percent corporate tax rate.
-
-
Transition tax: During the year ended December 31, 2017, the Company
recorded tax expense of $1.2 million to reflect the impact of the tax on accumulated untaxed earnings and profits ("E&P") of certain foreign affiliates.
With
regard to the new provisions for global intangible low-taxed income ("GILTI"), the Company is allowed to make an accounting policy choice of either (1) treating taxes due
for GILTI as a current-period expense when incurred or (2) factoring such amounts into the Company's measurement of its deferred taxes. The Company has elected to treat the taxes due for GILTI
as a current-period expense when incurred.
F-29
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Income Taxes (Continued)
The
amounts of income (loss) from continuing operations before income taxes was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
United States
|
|
$
|
(12,707
|
)
|
$
|
(12,488
|
)
|
$
|
3,996
|
|
Foreign
|
|
|
2,981
|
|
|
2,417
|
|
|
1,780
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
(9,726
|
)
|
$
|
(10,071
|
)
|
$
|
5,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
income taxes of foreign subsidiaries not included in the U.S. tax group are presented based on a separate return basis for each tax-paying entity.
The
benefit (provision) for income taxes from continuing operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
$
|
(23
|
)
|
$
|
|
|
State
|
|
|
(711
|
)
|
|
(55
|
)
|
|
|
|
Foreign
|
|
|
(446
|
)
|
|
(225
|
)
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total current expense
|
|
|
(1,157
|
)
|
|
(303
|
)
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
3,266
|
|
|
1,416
|
|
|
14,501
|
|
State
|
|
|
5,280
|
|
|
(4,756
|
)
|
|
(2,201
|
)
|
Foreign
|
|
|
833
|
|
|
268
|
|
|
981
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred benefit (expense)
|
|
|
9,379
|
|
|
(3,072
|
)
|
|
13,281
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit (provision) for income taxes
|
|
$
|
8,222
|
|
$
|
(3,375
|
)
|
$
|
13,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-30
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Income Taxes (Continued)
The
benefit (provision) for income taxes from continuing operations differs from the provision determined by applying the U.S. statutory tax rate to pretax earnings as a result of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Statutory U.S. federal income taxes
|
|
$
|
2,042
|
|
|
(21.0
|
)%
|
$
|
2,115
|
|
|
(21.0
|
)%
|
$
|
(2,021
|
)
|
|
(35.0
|
)%
|
State income taxes, net of federal taxes
|
|
|
482
|
|
|
(5.0
|
)
|
|
405
|
|
|
(4.0
|
)
|
|
(166
|
)
|
|
(2.9
|
)
|
Foreign taxes rate differential
|
|
|
49
|
|
|
(0.5
|
)
|
|
18
|
|
|
(0.2
|
)
|
|
257
|
|
|
4.4
|
|
Rate changes tax reform
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,040
|
|
|
295.0
|
|
Rate changes other
|
|
|
2,726
|
|
|
(28.0
|
)
|
|
(4,210
|
)
|
|
41.8
|
|
|
(1,901
|
)
|
|
(32.9
|
)
|
Income tax credits
|
|
|
1,036
|
|
|
(10.7
|
)
|
|
536
|
|
|
(5.3
|
)
|
|
1,358
|
|
|
23.5
|
|
Change in valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(533
|
)
|
|
(9.2
|
)
|
Deemed repatriation of untaxed foreign earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,158
|
)
|
|
(20.0
|
)
|
Contingent deal consideration
|
|
|
(610
|
)
|
|
6.3
|
|
|
(985
|
)
|
|
9.8
|
|
|
|
|
|
|
|
Meals and entertainment
|
|
|
(826
|
)
|
|
8.5
|
|
|
(706
|
)
|
|
7.0
|
|
|
(519
|
)
|
|
(9.0
|
)
|
GILTI inclusion
|
|
|
(820
|
)
|
|
8.4
|
|
|
(338
|
)
|
|
3.4
|
|
|
|
|
|
|
|
Acquisition costs
|
|
|
|
|
|
|
|
|
(134
|
)
|
|
1.3
|
|
|
|
|
|
|
|
Transaction costs
|
|
|
116
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
293
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation costs
|
|
|
(120
|
)
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State net operating loss adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
746
|
|
|
12.9
|
|
Return to provision
|
|
|
178
|
|
|
(1.8
|
)
|
|
36
|
|
|
(0.4
|
)
|
|
131
|
|
|
2.3
|
|
Other permanent items
|
|
|
(95
|
)
|
|
1.0
|
|
|
(159
|
)
|
|
1.6
|
|
|
(45
|
)
|
|
(0.8
|
)
|
R&D credits
|
|
|
4,642
|
|
|
(47.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Uncertain tax positions
|
|
|
(920
|
)
|
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
49
|
|
|
(0.5
|
)
|
|
47
|
|
|
(0.5
|
)
|
|
(4
|
)
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit (provision) for income taxes
|
|
$
|
8,222
|
|
|
(84.5
|
)%
|
$
|
(3,375
|
)
|
|
33.5
|
%
|
$
|
13,185
|
|
|
228.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed
earnings of foreign subsidiaries were $13.9 million as of December 31, 2019, of which $8.9 million was deemed to be repatriated at December 31,
2017, pursuant to the Tax Act. The deemed repatriation resulted in $1.2 million of additional U.S. income tax expense. The Company considers the current earnings and any future foreign earnings
to be indefinitely reinvested, and therefore does not record deferred taxes related to these earnings. Upon repatriation of earnings, in the form of dividends or otherwise, the Company would be
subject to both U.S. income taxes (subject to a dividends received deduction) and withholding taxes payable to certain foreign jurisdictions. Withholding taxes of less than $0.9 million would
be payable upon remittance of all previously unremitted earnings at December 31, 2019.
F-31
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Income Taxes (Continued)
The
significant components of deferred tax assets and liabilities at December 31, 2019 and 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
Accruals and reserves
|
|
$
|
|
|
$
|
|
|
Fixed assets and intangible assets
|
|
|
380
|
|
|
130
|
|
Tax credits (net of uncertain tax position)
|
|
|
8,845
|
|
|
3,386
|
|
Deferred share-based compensation
|
|
|
2,642
|
|
|
1,525
|
|
Loss and other carryforwards
|
|
|
23,767
|
|
|
35,191
|
|
Other
|
|
|
1,433
|
|
|
720
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
37,067
|
|
|
40,952
|
|
Valuation allowance
|
|
|
(1,812
|
)
|
|
(1,812
|
)
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
|
35,255
|
|
|
39,140
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
Accruals and reserves
|
|
|
(508
|
)
|
|
(138
|
)
|
Fixed assets and intangible assets
|
|
|
(47,871
|
)
|
|
(53,849
|
)
|
Deferred revenue
|
|
|
(14,024
|
)
|
|
(21,896
|
)
|
Other, net
|
|
|
(668
|
)
|
|
(540
|
)
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
(63,071
|
)
|
|
(76,423
|
)
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(27,816
|
)
|
$
|
(37,283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
components giving rise to the net deferred income tax liabilities detailed above have been included in the accompanying consolidated balance sheet at December 31, 2019 and
2018 as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Noncurrent deferred tax assets
|
|
$
|
2,755
|
|
$
|
1,829
|
|
Noncurrent deferred tax liabilities
|
|
|
(30,571
|
)
|
|
(39,112
|
)
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(27,816
|
)
|
$
|
(37,283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2019, the Company had U.S. net operating loss carryforwards of $95.4 million and U.S. research and development ("R&D") credit carryforwards of
$5.3 million. If not used, the U.S. net operating loss and R&D credit carryforwards will begin expiring in 2021 and 2024, respectively. Additionally, the Company had $3.7 million of
foreign R&D credit carryforwards at December 31, 2019 which, if not used, will begin expiring in 2030. Section 382 and Section 383 of the Internal Revenue Code contain provisions
that limit the utilization of net operating loss and tax credit carryforwards if there has been a change of ownership. The Company has completed an analysis of the historical changes in ownership, and
has determined that $2.5 million of the net
F-32
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Income Taxes (Continued)
operating
loss carryforward at December 31, 2019 will expire prior to utilization due to the Section 382 limitation. As such, the Company has established a valuation allowance against
the deferred tax asset related to these net operating loss carryforwards. Additionally, a change in ownership could be triggered by subsequent sales of securities by the Company or its shareholders
resulting in a limitation of the net operating loss and tax credit carryforwards in the future.
The
Company has determined that it is more likely than not it will be unable to realize the benefit of its deferred tax assets for R&D credit carryforwards in the U.S. prior to their
expiration and has, therefore, established a valuation allowance offset against the deferred tax asset. A valuation allowance has not been established against the net deferred tax assets attributed to
foreign jurisdictions. The valuation allowance for deferred tax assets was $1.8 million at December 31, 2019 and 2018. Changes in the valuation allowance for deferred tax assets during
the years ended December 31, 2019, 2018 and 2017 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Valuation allowance at beginning of year
|
|
$
|
1,812
|
|
$
|
1,812
|
|
$
|
1,279
|
|
Increases recorded to income tax provision
|
|
|
|
|
|
|
|
|
533
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance at end of year
|
|
$
|
1,812
|
|
$
|
1,812
|
|
$
|
1,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The tax years for the Company that remain subject to examination are:
|
|
|
|
|
|
|
|
|
Years Under
Examination
|
|
Additional
Open Years
|
|
|
|
|
|
|
Jurisdiction
|
|
|
|
|
|
U.S. Federal
|
|
|
None
|
|
2016 - 2018
|
United Kingdom
|
|
|
None
|
|
2014 - 2018
|
Canada
|
|
|
None
|
|
2014 - 2018
|
Australia
|
|
|
None
|
|
2014 - 2018
|
Israel
|
|
|
None
|
|
2015 - 2018
|
France
|
|
|
None
|
|
2017 - 2018
|
Additionally,
U.S. federal net operating losses and other foreign tax credits carried forward into open years may be subject to adjustment. The Company has evaluated its tax positions
and has determined that it has certain unrecognized tax benefits. Accordingly, as of December 31, 2019 and 2018, the Company has reduced certain tax attributes to the extent they would be
utilized to offset
F-33
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Income Taxes (Continued)
an
unrecognized tax benefit. Changes in the unrecognized tax benefits during the years ended December 31, 2019, 2018 and 2017 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Unrecognized tax benefits at beginning of the year
|
|
$
|
211
|
|
$
|
292
|
|
$
|
706
|
|
Current year increase
|
|
|
920
|
|
|
|
|
|
|
|
Statute expiration
|
|
|
(41
|
)
|
|
(78
|
)
|
|
(365
|
)
|
Currency
|
|
|
7
|
|
|
(13
|
)
|
|
11
|
|
Tax rate changes
|
|
|
(6
|
)
|
|
10
|
|
|
(60
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits at end of the year
|
|
$
|
1,091
|
|
$
|
211
|
|
$
|
292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company does not currently anticipate significant changes in its unrecognized tax benefits over the next 12 months. No interest or penalties for the Company's unrecognized
tax benefits were recorded for the years ended December 31, 2019, 2018 or 2017.
9. Stockholders' Equity
On June 30, 2016, the Board and stockholders approved the Second Amended and Restated Certificate of Incorporation authorizing the Company to issue up to 85,000,000 shares of
common
stock and 34,000,000 shares of preferred stock (each after giving effect to the stock split as described in Note 2), each with a par value of $0.001 per share. On September 5, 2019 in
connection with the stock split, the Company's Board and stockholders approved the Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation to increase the number of
authorized shares of common stock from 85,000,000 shares to 500,000,000 shares and to increase the number of authorized shares of preferred stock from 34,000,000 shares to 50,000,000 shares. The par
value of the common and preferred stock remained at $0.001 per share.
Common stock
The Company's Third Amended and Restated Certificate of Incorporation, which the Board approved on September 18, 2019 and the
stockholders approved on September 23, 2019, authorizes issuance of up to 500,000,000 shares of common stock with a par value of $0.001 per share. The common stock confers upon its holders the
right to vote on all matters to be voted on by the stockholders of the Company (with each share representing one vote) and to ratably participate in any distribution of dividends or payments in the
event of liquidation or dissolution on a per share basis. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of holders of any preferred stock
that may be issued in the future.
As
described in Note 1, the Company issued and sold 12,500,000 shares of common stock to the public in conjunction with the closing of its IPO on September 23, 2019. The
underwriters' overallotment option was exercised in full and closed on October 22, 2019, where the Company issued and sold an additional 1,875,000 shares of common stock to the public.
F-34
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Stockholders' Equity (Continued)
Preferred stock
As of December 31, 2019, the Company was authorized, without stockholder approval but subject to any limitations prescribed by law, to
issue up to an aggregate of 50,000,000 shares of preferred stock (in one or more series or classes), to create additional series or classes of preferred stock and to establish the number of shares to
be included in such series or class. As of December 31, 2019, the Board was also authorized to increase or decrease the number of shares of any series or class subsequent to the issuance of
shares of that series or class. Each series will have such rights, preferences and limitations, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation
preferences as determined by the Board. As of December 31, 2019 and December 31, 2018, the Company did not have any shares of preferred stock outstanding and currently has no plans to
issue shares of preferred stock.
10. Stock-Based Compensation
On June 30, 2016, the Company established the 2016 Stock Option Plan (the "2016 Plan"). The 2016 Plan provides for grants of restricted stock units and stock options to
executives, directors, consultants, advisors and key employees which allow option holders to purchase stock in Ping Identity Holding Corp. The Company has 6,800,000 shares of common stock reserved for
issuance under the 2016 Plan.
In
conjunction with the closing of the IPO on September 23, 2019, the Company adopted the Ping Identity Holding Corp. Omnibus Incentive Plan (the "2019 Omnibus Incentive Plan").
The 2019 Omnibus Incentive Plan provides for grants of (i) stock options, (ii) stock appreciation rights, (iii) restricted shares, (iv) performance awards, (v) other
share-based awards and (vi) other cash-based awards to eligible employees, non-employee directors and consultants of the Company. As of December 31, 2019, the maximum number of shares of
common stock available for issuance under the 2019 Omnibus Incentive Plan was 9,300,000 shares.
Stock-based
compensation expense for all equity arrangements for the years ended December 31, 2019, 2018 and 2017 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Subscription cost of revenue
|
|
$
|
141
|
|
$
|
|
|
$
|
|
|
Professional services and other cost of revenue
|
|
|
80
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
1,407
|
|
|
726
|
|
|
626
|
|
Research and development
|
|
|
1,364
|
|
|
342
|
|
|
297
|
|
General and administrative
|
|
|
3,340
|
|
|
1,780
|
|
|
1,601
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,332
|
|
$
|
2,848
|
|
$
|
2,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units
The Company grants RSUs that generally vest over one to four years. The weighted-average grant-date fair value of RSUs granted during the years
ended December 31, 2019, 2018 and 2017
F-35
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Stock-Based Compensation (Continued)
was
$16.49, $9.39 and $7.85, respectively. The total intrinsic value of RSUs vested during the years ended December 31, 2019, 2018 and 2017 was $0.7 million, $0.1 million and
$0.0 million, respectively. As of December 31, 2019, there was $21.5 million of total unrecognized compensation, which will be recognized over the remaining weighted-average
vesting period of 3.6 years using the straight-line method. A summary of the status of the Company's unvested RSUs and activity for the year ended December 31, 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
|
|
|
|
|
|
|
Unvested as of December 31, 2018
|
|
|
37,272
|
|
$
|
8.29
|
|
Granted
|
|
|
1,474,996
|
|
|
16.49
|
|
Forfeited/canceled
|
|
|
(39,477
|
)
|
|
15.99
|
|
Vested
|
|
|
(57,162
|
)
|
|
12.25
|
|
|
|
|
|
|
|
|
|
Unvested as of December 31, 2019
|
|
|
1,415,629
|
|
$
|
16.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
No options were granted during the year ended December 31, 2019. During the year ended December 31, 2018, the Company granted
1,413,251 time-based options and 706,628 options subject to performance and market conditions, both of which grant the holder the option to purchase common stock upon vesting. During the year ended
December 31, 2017, the Company granted 569,970 time-based options and 284,984 options subject to performance and market conditions. Time-based options vest over four years with 25% vesting one
year after grant and the remainder vesting ratably on a quarterly basis thereafter. Options subject to performance and market conditions vest upon the sale of the business subject to certain
conditions specified in the 2016 Plan. All options have a 10 year contractual life, and an option holder must be an employee of the Company at the date of sale of the business.
F-36
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Stock-Based Compensation (Continued)
A
summary of the Company's stock option activity and related information for the years ended December 31, 2019, 2018 and 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in years)
|
|
|
(in thousands)
|
|
Outstanding as of December 31, 2018
|
|
|
6,398,982
|
|
$
|
9.31
|
|
|
8.4
|
|
$
|
25,678
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited/canceled
|
|
|
(253,582
|
)
|
|
7.97
|
|
|
|
|
|
2,739
|
|
Exercised
|
|
|
(199,522
|
)
|
|
7.88
|
|
|
|
|
|
2,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2019
|
|
|
5,945,878
|
|
$
|
9.41
|
|
|
7.5
|
|
$
|
88,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest
|
|
|
3,958,005
|
|
$
|
9.42
|
|
|
7.5
|
|
$
|
58,914
|
|
Vested and exercisable
|
|
|
2,485,010
|
|
$
|
8.56
|
|
|
7.0
|
|
$
|
39,118
|
|
As
of December 31, 2019, unamortized stock-based compensation expense related to the time-based awards was $6.3 million, which will be recognized over the remaining
weighted-average vesting term of 2.3 years. In conjunction with the IPO, the Company modified the vesting conditions of these awards to provide for the options to vest and become exercisable
following an IPO and registration of shares of common stock of Ping Identity Holding Corp. and Vista Equity Partners ("Vista") realizing a cash return on its investment in the Company equaling or
exceeding $1.491 billion. Though the recognition of the remaining unamortized stock-based compensation expense may be accelerated, the modification did not result in incremental compensation
cost.
For
the awards subject to performance and market conditions, unrecognized stock-based compensation expense as of December 31, 2018 was $5.3 million. In conjunction with
the IPO, the Company modified the vesting conditions of these awards to provide for the options to vest and become exercisable following an IPO and registration of shares of common stock of Ping
Identity
Holding Corp. and Vista's realized cash return on its investment in the Company equaling or exceeding $1.491 billion. In accordance with ASC 718, the Company calculated the fair value of these
options on the date of modification, noting an increase in the fair value from $5.1 million to $9.0 million on the date of modification, with the incremental increase in fair value
representing additional unrecognized stock-based compensation expense. The following assumptions were used in calculating the fair value of these awards on the date of modification:
|
|
|
|
|
Risk-free rate
|
|
|
1.7
|
%
|
Expected term
|
|
|
2.3 years
|
|
Dividend yield
|
|
|
|
|
Volatility
|
|
|
47.0
|
%
|
Weighted-average fair value of modified options
|
|
$
|
4.41
|
|
As
of December 31, 2019, unamortized stock-based compensation expense related to the awards subject to performance and market conditions was $8.8 million. As these awards
were not
F-37
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Stock-Based Compensation (Continued)
considered
probable of meeting vesting requirements, no expense was recorded and the timing of when this expense will be recognized is unknown.
Long-Term Incentive Plan
In conjunction with the IPO, the Company amended its long-term incentive plan ("LTIP") which could provide cash compensation to certain
employees upon vesting and are thus liability-classified awards. Grants under the plan are expected to vest following an IPO and registration of shares of common stock of Ping Identity Holding Corp.
and Vista's realized cash return on its investment in the Company equaling or exceeding $1.491 billion. The awards expire upon the earlier of (i) the sale of Vista's shares of common
stock of Ping Identity Holding Corp., or (ii) August 2, 2026. The Company will remeasure the fair value of the awards at each reporting period until the awards are settled, which
includes the evaluation of the probability of the awards meeting vesting conditions. As of December 31, 2019, these awards were not considered probable of meeting the vesting requirements and
accordingly, no expense was recorded during the year ended December 31, 2019 and the timing of when this expense will be recognized is unknown. During future reporting periods, if the awards
are considered to be probable of meeting vesting requirements, this could result in a total expense of at least $18.8 million.
11. Related Party Transactions
Vista is a U.S.-based investment firm that controlled the funds which owned a majority of the Company during the years ended December 31, 2019, 2018 and 2017. During the years
ended December 31, 2019, 2018 and 2017, the Company paid for consulting services and other expenses related to services provided by Vista and Vista affiliates. The total expenses incurred by
the Company for Vista were $1.2 million, $1.3 million and $0.9 million for the years ended December 31, 2019, 2018 and 2017, respectively. The Company had no amount and
$0.3 million in accounts payable related to these expenses at December 31, 2019 and 2018, respectively.
The
Company also has revenue arrangements with Vista affiliates. The Company recognized revenue of $0.6 million, $1.9 million and $0.8 million during the years
ended December 31, 2019, 2018
and 2017, respectively. The Company had $1.1 million and $0.5 million in accounts receivable related to these agreements at December 31, 2019 and 2018, respectively.
As
discussed in Note 7, the Company entered into the 2018 Term Loan Facility and 2018 Revolving Credit Facility on January 25, 2018 with a consortium of lenders for a
principal amount of $250.0 million and principal committed amount of $25.0 million, respectively. At December 31, 2018, affiliates of Vista held $34.8 million of the 2018
Term Loan Facility and there were no amounts drawn on the 2018 Revolving Credit Facility. In conjunction with the repayment of debt using proceeds from the IPO and the refinancing of outstanding debt
as described in Note 7, affiliates of Vista received proceeds of $27.5 million and $7.1 million, respectively. At December 31, 2019, affiliates of Vista no longer held a
portion of the Company's outstanding debt. During the years ended December 31, 2019 and 2018, affiliates of Vista were paid $34.8 million and $0.2 million in principal,
respectively, and $1.7 million and $1.9 million in interest on the portion of the 2018 Term Loan Facility, respectively, held by them.
F-38
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Commitments and Contingencies
Letters of Credit
As of December 31, 2019 and 2018, the Company had outstanding letters of credit under an office lease agreement that totaled
$0.7 million and $0.6 million, respectively, which primarily guaranteed early termination fees in the event of default. The Company collateralizes the letters of credit with restricted
cash balances which were classified in other noncurrent assets at December 31, 2019 and 2018.
Leases
The Company leases office space and certain office equipment under noncancelable leases. Most of the leases contain renewal options at then
market rates.
At
December 31, 2019, future minimum lease payments under the existing leases were as follows:
|
|
|
|
|
Year Ending December 31,
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2020
|
|
$
|
3,819
|
|
2021
|
|
|
3,774
|
|
2022
|
|
|
3,785
|
|
2023
|
|
|
3,839
|
|
2024
|
|
|
3,712
|
|
Thereafter
|
|
|
3,606
|
|
|
|
|
|
|
Total
|
|
$
|
22,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent
expense under noncancelable operating leases totaled $3.6 million, $2.3 million and $2.1 million for the years ended December 31, 2019, 2018 and 2017,
respectively.
Purchase Commitments
In the ordinary course of business, the Company enters into various purchase commitments primarily related to third-party cloud hosting and
data services, IT operations and marketing events. Total noncancelable purchase commitments as of December 31, 2019 were approximately $29.6 million for periods through 2022.
Employment Agreements
The Company has entered into various employment agreements with certain officers and foreign-based employees. The employment agreements provide
for minimum annual base salaries, allowances for benefits and insurance coverage, termination rights and other provisions commonly found in such agreements. Under the terms of the employment
agreements,
the officers and employees are subject to non-compete provisions, as defined. Terms of the employment agreements vary and may be extended.
F-39
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Commitments and Contingencies (Continued)
Employee Benefit Plans
The Company established a defined contribution savings plan under Section 401(k) of the Internal Revenue Code (the "401(k) Plan") in
which full-time U.S. employees are eligible to participate on the first day of the subsequent month of their date of employment. The 401(k) Plan covers substantially all employees who meet minimum age
and service requirements and allows participants to defer a percentage of their annual compensation as defined in the 401(k) Plan. Employees in the United Kingdom and Canada are covered by defined
contribution savings arrangements that are administered based upon the legislative and tax requirements of the respective countries.
The
Company made contributions to its employee benefit plans of $2.7 million, $2.0 million and $1.4 million during the years ended December 31, 2019, 2018
and 2017, respectively.
Litigation
From time to time, the Company may be subject to various claims, charges and litigation. The Company records a liability when it is both
probable that a liability will be incurred and the amount of the loss can be reasonably estimated. The Company maintains insurance to cover certain actions and believes that resolution of such claims,
charges, or litigation will not have a material impact on the Company's financial position, results of operations, or liquidity.
13. Net Income (Loss) Per Share
The
following table provides a reconciliation of the numerator and denominator used in the Company's calculation of basic and diluted net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except share
and per share amounts)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,504
|
)
|
$
|
(13,446
|
)
|
$
|
18,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
Basic shares:
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common stock outstanding basic
|
|
|
68,906
|
|
|
65,002
|
|
|
64,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares:
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common stock outstanding basic
|
|
|
68,906
|
|
|
65,002
|
|
|
64,984
|
|
Effect of potentially dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
RSUs
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common stock outstanding diluted
|
|
|
68,906
|
|
|
65,002
|
|
|
64,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.02
|
)
|
$
|
(0.21
|
)
|
$
|
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.02
|
)
|
$
|
(0.21
|
)
|
$
|
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-40
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Net Income (Loss) Per Share (Continued)
The
following shares were excluded from the computation of diluted net income (loss) per share for the periods presented, as their effect would have been antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
RSUs
|
|
|
1,416
|
|
|
37
|
|
|
|
|
Stock options
|
|
|
3,958
|
|
|
4,263
|
|
|
3,207
|
|
|
|
|
|
|
|
|
|
|
|
|
Total antidilutive shares
|
|
|
5,374
|
|
|
4,300
|
|
|
3,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-41
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Condensed Financial Information of Registrant (Parent Company Only)
Ping Identity Holding Corp.
(Parent Company Only)
Condensed Balance Sheets
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets:
|
|
|
|
|
|
|
|
Investment in subsidiaries
|
|
|
710,471
|
|
|
509,105
|
|
|
|
|
|
|
|
|
|
Total noncurrent assets
|
|
|
710,471
|
|
|
509,105
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
710,471
|
|
$
|
509,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders' equity
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent liabilities:
|
|
|
|
|
|
|
|
Liabilities, noncurrent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
Preferred stock; $0.001 par value; 50,000,000 and 34,000,000 shares authorized at December 31, 2019 and December 31, 2018, respectively; no shares issued or outstanding at December 31, 2019 or December 31, 2018
|
|
|
|
|
|
|
|
Common stock; $0.001 par value; 500,000,000 and 85,000,000 shares authorized at December 31, 2019 and December 31, 2018, respectively;
79,632,500 and 65,000,816 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively
|
|
|
80
|
|
|
65
|
|
Additional paid-in capital
|
|
|
718,446
|
|
|
515,979
|
|
Accumulated other comprehensive loss
|
|
|
(399
|
)
|
|
(787
|
)
|
Accumulated deficit
|
|
|
(7,656
|
)
|
|
(6,152
|
)
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
710,471
|
|
|
509,105
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
710,471
|
|
$
|
509,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-42
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Condensed Financial Information of Registrant (Parent Company Only) (Continued)
Ping Identity Holding Corp.
(Parent Company Only)
Condensed Statements of Operations
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and equity in net income of subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit for income taxes
|
|
|
|
|
|
|
|
|
|
|
Equity in net income (loss) of subsidiaries
|
|
|
(1,504
|
)
|
|
(13,446
|
)
|
|
18,961
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,504
|
)
|
$
|
(13,446
|
)
|
$
|
18,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ping Identity Holding Corp.
(Parent Company Only)
Condensed Statements of Comprehensive Income (Loss)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,504
|
)
|
$
|
(13,446
|
)
|
$
|
18,961
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
Subsidiaries' other comprehensive income (loss)
|
|
|
388
|
|
|
(901
|
)
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)
|
|
|
388
|
|
|
(901
|
)
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
(1,116
|
)
|
$
|
(14,347
|
)
|
$
|
19,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis of Presentation
Parent is a holding company with no material operations of its own that conducts substantially all of its activities through its subsidiaries.
Parent has no direct outstanding debt obligations. However, Ping Identity Corporation, a wholly owned indirect subsidiary, as borrower under its 2016 Credit Facilities, was limited in its ability to
declare dividends or make any payment on account of its capital stock to, directly or indirectly, fund a dividend or other distribution to the Parent, subject to limited exceptions, including
(1) stock repurchases, (2) unlimited amounts subject to compliance with a 4.0 to 1.0 total leverage ratio giving pro forma effect to any distribution, (3) unlimited amounts up to
5% of the Parent's market capitalization and (4) payment of the Parent's overhead expenses. For a discussion of the 2016 Credit Facilities, see Note 7. Ping Identity Corporation is
further limited in its ability to declare dividends or make any payment on account of its capital stock
F-43
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Condensed Financial Information of Registrant (Parent Company Only) (Continued)
to,
directly or indirectly, fund a dividend or other distribution to the Parent as borrower under its 2018 Credit Facilities and, upon the refinancing of its debt, as borrower under its 2019 Credit
Facilities. For a discussion of the 2018 Credit Facilities, the 2019 Credit Facilities and their associated dividend restrictions, refer to Note 7.
These
condensed financial statements have been presented on a "parent-only" basis. Under a parent-only presentation, the Parent's investments in subsidiaries are presented under the
equity method of accounting. A condensed statement of cash flows was not presented because the Parent had no material operating, investing, or financing cash flow activities for the years ended
December 31, 2019, 2018 or 2017. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. As such,
these parent-only statements should be read in conjunction with the accompanying notes to consolidated financial statements.
15. Subsequent Events
On March 2, 2020, the Company acquired ShoCard, Inc., a Delaware corporation ("ShoCard") for $5.5 million in cash funded with existing resources. ShoCard is a
cloud-based mobile identity solution that offers identity service for verified claims. An additional $3.1 million and $2.3 million is payable in common stock of the Company on the first
and second anniversary of the acquisition, respectively, contingent on individuals remaining employed as of those dates and meeting certain performance conditions. These amounts are payable on such
anniversaries based on a fixed dollar value.
Due
to the timing of the acquisition, the allocation of the purchase price has not yet been finalized.
F-44
Table of Contents
PING IDENTITY HOLDING CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
Assets
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
169,022
|
|
$
|
67,637
|
|
Accounts receivable, net of allowances of $953 and $873 at March 31, 2020 and December 31, 2019, respectively
|
|
|
54,456
|
|
|
67,642
|
|
Contract assets, current
|
|
|
67,966
|
|
|
70,031
|
|
Deferred commissions, current
|
|
|
5,303
|
|
|
5,814
|
|
Prepaid expenses
|
|
|
9,032
|
|
|
12,768
|
|
Other current assets
|
|
|
1,570
|
|
|
3,774
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
307,349
|
|
|
227,666
|
|
|
|
|
|
|
|
|
|
Noncurrent assets:
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
11,029
|
|
|
11,183
|
|
Goodwill
|
|
|
418,711
|
|
|
417,696
|
|
Intangible assets, net
|
|
|
186,936
|
|
|
187,868
|
|
Contract assets, noncurrent
|
|
|
17,247
|
|
|
15,979
|
|
Deferred commissions, noncurrent
|
|
|
7,801
|
|
|
7,856
|
|
Deferred income taxes, net
|
|
|
2,532
|
|
|
2,755
|
|
Operating lease right-of-use assets
|
|
|
14,461
|
|
|
|
|
Other noncurrent assets
|
|
|
1,745
|
|
|
1,808
|
|
|
|
|
|
|
|
|
|
Total noncurrent assets
|
|
|
660,462
|
|
|
645,145
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
967,811
|
|
$
|
872,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders' equity
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,858
|
|
$
|
1,118
|
|
Accrued expenses and other current liabilities
|
|
|
9,377
|
|
|
9,302
|
|
Accrued compensation
|
|
|
11,931
|
|
|
18,126
|
|
Deferred revenue, current
|
|
|
35,168
|
|
|
45,446
|
|
Operating lease liabilities, current
|
|
|
2,957
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
63,291
|
|
|
73,992
|
|
|
|
|
|
|
|
|
|
Noncurrent liabilities:
|
|
|
|
|
|
|
|
Deferred revenue, noncurrent
|
|
|
3,175
|
|
|
2,061
|
|
Long-term debt, net of current portion
|
|
|
148,826
|
|
|
50,941
|
|
Deferred income taxes, net
|
|
|
27,603
|
|
|
30,571
|
|
Operating lease liabilities, noncurrent
|
|
|
16,891
|
|
|
|
|
Other liabilities, noncurrent
|
|
|
|
|
|
4,775
|
|
|
|
|
|
|
|
|
|
Total noncurrent liabilities
|
|
|
196,495
|
|
|
88,348
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
259,786
|
|
|
162,340
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 13)
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
Preferred stock; $0.001 par value; 50,000,000 shares authorized at March 31, 2020 and December 31, 2019; no shares issued or outstanding at March 31, 2020 or December 31, 2019
|
|
|
|
|
|
|
|
Common stock; $0.001 par value; 500,000,000 shares authorized at March 31, 2020 and December 31, 2019; 79,923,114 and 79,632,500 shares issued
and outstanding at March 31, 2020 and December 31, 2019, respectively
|
|
|
80
|
|
|
80
|
|
Additional paid-in capital
|
|
|
721,181
|
|
|
718,446
|
|
Accumulated other comprehensive loss
|
|
|
(1,414
|
)
|
|
(399
|
)
|
Accumulated deficit
|
|
|
(11,822
|
)
|
|
(7,656
|
)
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
708,025
|
|
|
710,471
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
967,811
|
|
$
|
872,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-45
Table of Contents
PING IDENTITY HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
March 31,
|
|
|
|
2020
|
|
2019
|
|
Revenue:
|
|
|
|
|
|
|
|
Subscription
|
|
$
|
56,818
|
|
$
|
47,620
|
|
Professional services and other
|
|
|
4,594
|
|
|
2,818
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
61,412
|
|
|
50,438
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
Subscription (exclusive of amortization shown below)
|
|
|
7,109
|
|
|
5,181
|
|
Professional services and other (exclusive of amortization shown below)
|
|
|
4,013
|
|
|
3,241
|
|
Amortization expense
|
|
|
4,602
|
|
|
3,866
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
15,724
|
|
|
12,288
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
45,688
|
|
|
38,150
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
22,190
|
|
|
17,308
|
|
Research and development
|
|
|
12,214
|
|
|
11,454
|
|
General and administrative
|
|
|
11,389
|
|
|
7,084
|
|
Depreciation and amortization
|
|
|
4,249
|
|
|
4,121
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
50,042
|
|
|
39,967
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(4,354
|
)
|
|
(1,817
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(506
|
)
|
|
(4,116
|
)
|
Other income (expense), net
|
|
|
(1,250
|
)
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(1,756
|
)
|
|
(4,125
|
)
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(6,110
|
)
|
|
(5,942
|
)
|
Benefit for income taxes
|
|
|
1,944
|
|
|
1,063
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,166
|
)
|
$
|
(4,879
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.05
|
)
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in computing net loss per share:
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
79,743
|
|
|
65,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-46
Table of Contents
PING IDENTITY HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
|
|
2020
|
|
2019
|
|
Net loss
|
|
$
|
(4,166
|
)
|
$
|
(4,879
|
)
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(1,015
|
)
|
|
215
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)
|
|
|
(1,015
|
)
|
|
215
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(5,181
|
)
|
$
|
(4,664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-47
Table of Contents
PING IDENTITY HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
(unaudited)
Three Months Ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
Other
Comprehensive
|
|
|
Accumulated
|
|
|
Total
Stockholders'
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Loss
|
|
Deficit
|
|
Equity
|
|
Balances at December 31, 2019
|
|
|
79,632,500
|
|
$
|
80
|
|
$
|
718,446
|
|
$
|
(399
|
)
|
$
|
(7,656
|
)
|
$
|
710,471
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,166
|
)
|
|
(4,166
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
2,600
|
|
|
|
|
|
|
|
|
2,600
|
|
Exercise of stock options, net of tax withholding
|
|
|
273,444
|
|
|
|
|
|
135
|
|
|
|
|
|
|
|
|
135
|
|
Vesting of restricted stock
|
|
|
17,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
(1,015
|
)
|
|
|
|
|
(1,015
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2020
|
|
|
79,923,114
|
|
$
|
80
|
|
$
|
721,181
|
|
$
|
(1,414
|
)
|
$
|
(11,822
|
)
|
$
|
708,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
Other
Comprehensive
|
|
|
Accumulated
|
|
|
Total
Stockholders'
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Income (Loss)
|
|
Deficit
|
|
Equity
|
|
Balances at December 31, 2018
|
|
|
65,000,816
|
|
$
|
65
|
|
$
|
515,979
|
|
$
|
(787
|
)
|
$
|
(6,152
|
)
|
$
|
509,105
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,879
|
)
|
|
(4,879
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
1,059
|
|
|
|
|
|
|
|
|
1,059
|
|
Vesting of restricted stock
|
|
|
5,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
215
|
|
|
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2019
|
|
|
65,006,128
|
|
$
|
65
|
|
$
|
517,038
|
|
$
|
(572
|
)
|
$
|
(11,031
|
)
|
$
|
505,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-48
Table of Contents
PING IDENTITY HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
2019
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,166
|
)
|
$
|
(4,879
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
8,851
|
|
|
7,987
|
|
Stock-based compensation expense
|
|
|
2,857
|
|
|
1,059
|
|
Amortization of deferred commissions
|
|
|
2,102
|
|
|
1,396
|
|
Amortization of deferred debt issuance costs
|
|
|
62
|
|
|
211
|
|
Operating leases, net
|
|
|
59
|
|
|
|
|
Deferred taxes
|
|
|
(2,050
|
)
|
|
(1,270
|
)
|
Other
|
|
|
156
|
|
|
141
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
13,030
|
|
|
6,098
|
|
Contract assets
|
|
|
797
|
|
|
(2,832
|
)
|
Deferred commissions
|
|
|
(1,536
|
)
|
|
(1,298
|
)
|
Prepaid expenses and other current assets
|
|
|
4,822
|
|
|
1,300
|
|
Other assets
|
|
|
49
|
|
|
75
|
|
Accounts payable
|
|
|
2,734
|
|
|
(335
|
)
|
Accrued compensation
|
|
|
(6,222
|
)
|
|
(5,257
|
)
|
Accrued expenses and other
|
|
|
1,104
|
|
|
(1,203
|
)
|
Deferred revenue
|
|
|
(9,164
|
)
|
|
2,608
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
13,485
|
|
|
3,801
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
Purchases of property and equipment and other
|
|
|
(1,094
|
)
|
|
(1,428
|
)
|
Capitalized software development costs
|
|
|
(3,299
|
)
|
|
(2,004
|
)
|
Acquisition of ShoCard, net of cash acquired of $0
|
|
|
(4,703
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(9,096
|
)
|
|
(3,432
|
)
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
Payment of offering costs
|
|
|
(295
|
)
|
|
(7
|
)
|
Proceeds from stock option exercises
|
|
|
1,309
|
|
|
|
|
Payment for tax withholding on equity awards
|
|
|
(1,205
|
)
|
|
|
|
Proceeds from long-term debt
|
|
|
97,823
|
|
|
|
|
Payment of long-term debt
|
|
|
|
|
|
(625
|
)
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
97,632
|
|
|
(632
|
)
|
Effect of exchange rates on cash and cash equivalents and restricted cash
|
|
|
(645
|
)
|
|
133
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents and restricted cash
|
|
|
101,376
|
|
|
(130
|
)
|
Cash and cash equivalents and restricted cash
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
68,386
|
|
|
84,143
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
169,762
|
|
$
|
84,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
514
|
|
$
|
3,819
|
|
Cash paid for taxes
|
|
|
157
|
|
|
74
|
|
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
Purchases of property and equipment, accrued but not yet paid
|
|
$
|
107
|
|
$
|
129
|
|
Accruals related to the acquisition of ShoCard
|
|
|
226
|
|
|
|
|
Offering costs, accrued but not yet paid
|
|
|
|
|
|
1,098
|
|
Lease liabilities arising from right-of-use assets
|
|
|
794
|
|
|
|
|
Reconciliation of cash and cash equivalents and restricted cash within the consolidated balance sheets to the amounts shown in the statements of cash flows above:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
169,022
|
|
$
|
83,364
|
|
Restricted cash included in other noncurrent assets
|
|
|
740
|
|
|
649
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents and restricted cash
|
|
$
|
169,762
|
|
$
|
84,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-49
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Overview and Basis of Presentation
Organization and Description of Business
Ping Identity Holding Corp. and its wholly owned subsidiaries, referred to herein as the "Company," is headquartered in Denver, Colorado with
international locations principally in Canada, the United Kingdom, France, Australia, Israel and India. The Company, doing business as Ping Identity Corporation ("Ping Identity"), provides customers,
employees and partners with secure access to any service, application or application programming interface ("API"), while also managing identity and profile data at scale.
Basis of Presentation and Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany
accounts and transactions have been eliminated. The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles
("GAAP"). All amounts are reported in U.S. dollars.
Unaudited Interim Condensed Consolidated Financial Information
The accompanying interim condensed consolidated balance sheet as of March 31, 2020, the condensed consolidated statements of operations,
of comprehensive loss, of cash flows and of stockholders' equity for the three months ended March 31, 2020 and 2019, and the related footnote disclosures are unaudited. The condensed
consolidated balance sheet data as of December 31, 2019 was derived from audited financial statements, but does not include all disclosures required by GAAP. Therefore, these unaudited
condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2019.
These
unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in management's opinion,
include all adjustments necessary to state fairly the consolidated financial position of the Company as of
March 31, 2020, the results of operations for the three months ended March 31, 2020 and 2019, and cash flows for the three months ended March 31, 2020 and 2019. The results for
the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any future period.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, establishing
allowances for doubtful accounts, determining useful lives for finite-lived assets, assessing the recoverability of long-lived assets, determining the fair values of assets acquired and liabilities
assumed in business combinations,
F-50
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
1. Overview and Basis of Presentation (Continued)
determining
the value of right-of-use assets and lease liabilities, accounting for income taxes and related valuation allowances against deferred tax assets, valuing stock option awards and assessing
the probability of the awards meeting vesting conditions, recognizing revenue, determining the amortization period for deferred commissions and assessing the accounting treatment for commitments and
contingencies. Management evaluates these estimates and assumptions on an ongoing basis and makes estimates based on historical experience and various other assumptions that are believed to be
reasonable. Actual results may differ from these estimates due to risks and uncertainties, including the uncertainty surrounding rapidly changing market and economic conditions due to the recent
outbreak of the novel Coronavirus Disease 2019 ("COVID-19").
2. Summary of Significant Accounting Policies
The Company's significant accounting policies are discussed in "Note 2 Summary of Significant Accounting Policies" to the consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019. Except for accounting policies related to the adoption of the new leasing standard as described
herein, there have been no significant changes to these policies that have had a material impact on the Company's condensed consolidated financial statements and related notes for the three months
ended March 31, 2020. The following describes the impact of certain policies.
Revenue Recognition
The Company recognizes revenue under Accounting Standards Codification Topic 606 ("ASC 606"), Revenue from Contracts
with Customers. Under ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration that
the Company expects to receive in exchange for those goods or services.
Disaggregation of Revenue
The following table presents revenue by category:
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
Subscription term-based licenses:
|
|
|
|
|
|
|
|
Multi-year subscription term-based licenses
|
|
$
|
23,988
|
|
$
|
23,431
|
|
1-year subscription term-based licenses
|
|
|
14,149
|
|
|
9,294
|
|
|
|
|
|
|
|
|
|
Total subscription term-based licenses
|
|
|
38,137
|
|
|
32,725
|
|
Subscription SaaS and support and maintenance
|
|
|
18,681
|
|
|
14,895
|
|
Professional services and other
|
|
|
4,594
|
|
|
2,818
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
61,412
|
|
$
|
50,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-51
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
2. Summary of Significant Accounting Policies (Continued)
The
following table presents revenue by geographic region, which is based on the delivery address of the customer, and is summarized by geographic area:
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
43,029
|
|
$
|
38,231
|
|
International
|
|
|
18,383
|
|
|
12,207
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
61,412
|
|
$
|
50,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
than the United States, no other individual country exceeded 10% of total revenue for the three months ended March 31, 2020 or 2019.
Contract Balances
Contract assets represent amounts for which the Company has recognized revenue, pursuant to its revenue recognition policy, for contracts that
have not yet been invoiced to customers where there is a remaining performance obligation, typically for multi-year arrangements. The opening and closing balances of contract assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
86,010
|
|
$
|
67,468
|
|
Ending balance
|
|
|
85,213
|
|
|
70,300
|
|
|
|
|
|
|
|
|
|
Change
|
|
$
|
(797
|
)
|
$
|
2,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
liabilities consist of customer billings in advance of revenue being recognized. The opening and closing balances of contract liabilities included in deferred revenue were as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
47,507
|
|
$
|
35,367
|
|
Ending balance
|
|
|
38,343
|
|
|
37,975
|
|
|
|
|
|
|
|
|
|
Change
|
|
$
|
(9,164
|
)
|
$
|
2,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
change in deferred revenue relates primarily to invoicing customers and recognizing revenue in conjunction with the satisfaction of performance obligations. Revenue recognized
during
F-52
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
2. Summary of Significant Accounting Policies (Continued)
the
three months ended March 31, 2020 and 2019 that was included in the deferred revenue balances at the beginning of the respective periods was as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
Deferred revenue recognized as revenue
|
|
$
|
22,968
|
|
$
|
15,536
|
|
Remaining Performance Obligations
Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred
revenue and noncancelable amounts to be invoiced. As of March 31, 2020, the Company had $116.6 million of transaction price
allocated to remaining performance obligations, of which 90% is expected to be recognized as revenue over the next 24 months, with the remainder to be recognized thereafter.
Deferred Commissions
The following table summarizes the account activity of deferred commissions for the three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
13,670
|
|
$
|
11,033
|
|
Additions to deferred commissions
|
|
|
1,536
|
|
|
1,298
|
|
Amortization of deferred commissions
|
|
|
(2,102
|
)
|
|
(1,396
|
)
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
13,104
|
|
$
|
10,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred commissions, current
|
|
$
|
5,303
|
|
$
|
3,831
|
|
Deferred commissions, noncurrent
|
|
|
7,801
|
|
|
7,104
|
|
|
|
|
|
|
|
|
|
Total deferred commissions
|
|
$
|
13,104
|
|
$
|
10,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"),
which supersedes the guidance in topic ASC 840, Leases ("ASC 840"). The new standard requires lessees to apply a dual approach, classifying leases as
either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is
recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases
with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases
today. The FASB has also issued several ASUs to provide
F-53
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
2. Summary of Significant Accounting Policies (Continued)
implementation
guidance relating to ASU 2016-02, including ASU 2017-13, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01, all of which the Company has considered when evaluating the
impact of ASU 2016-02. Collectively, the Company refers to the amendments described herein as "ASC 842." ASC 842 is effective for fiscal years beginning after December 15, 2020 and interim
periods within fiscal years beginning after December 15, 2021. Early adoption is permitted.
Effective
January 1, 2020, the Company adopted ASC 842 using the modified retrospective transition approach through a cumulative-effect adjustment, which resulted in the
recognition of right-of-use assets of $14.6 million and lease liabilities of $18.9 million. As part of applying the modified retrospective transition method, the Company elected to apply
the package of transition practical expedients within the new guidance. As required by ASC 842, these expedients have been elected as a package and have been consistently applied across the Company's
lease portfolio. Given this election, the Company need not reassess the following:
-
-
whether any expired or existing contracts are or contain leases;
-
-
the lease classification for any expired or existing leases; or
-
-
the treatment of initial direct costs relating to any existing leases.
The
Company also elected to apply the transition practical expedient to use hindsight in determining lease term and in assessing impairment of right-of-use assets. As a result of
adoption of this standard and election of the transition practical expedients, the Company recognized right-of-use assets and lease liabilities for those leases classified as operating leases under
ASC 840 that continued to be classified as operating leases under ASC 842 at the later of (1) the earliest period presented or (2) the applicable lease commencement date.
In
applying the modified retrospective transition method to these leases, the Company measured lease liabilities at the present value of the sum of remaining minimum rental payments (as
defined under ASC 840), as the leases contained no residual value guarantees. These lease liabilities have been measured using the Company's incremental borrowing rates at the later of (1) the
earliest period presented or (2) the commencement date of the applicable lease. Additionally, right-of-use assets for these operating leases have been measured as the initial measurement of
applicable lease liabilities adjusted for any prepaid/accrued rent and unamortized lease incentives. The adoption of ASC 842 did not have a material impact on the condensed consolidated statements of
cash flows or condensed consolidated statements of operations and comprehensive loss. Expanded disclosures around the Company's lease agreements under ASC 842 are included in Note 12 of
these condensed consolidated financial statements.
In
June 2016, the FASB issued ASU No. 2016-13, Financial Instruments Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments ("ASU 2016-13"), which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will
generally result in earlier recognition of allowances for losses. In February 2020, the FASB issued ASU No. 2020-02, Financial Instruments Credit
Losses (Topic 326), which amends the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13 and its amendments are effective for
fiscal years beginning after
F-54
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
2. Summary of Significant Accounting Policies (Continued)
December 15,
2022, including interim periods within those fiscal years, though early adoption is permitted. The Company is currently evaluating the impact of the adoption of these
pronouncements on its condensed consolidated financial statements.
In
August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure
Requirements for Fair Value Measurement ("ASU 2018-13"), which improves the disclosure requirements for fair value measurements. The updated guidance is effective for all
entities for fiscal years beginning after December 15, 2019 and interim periods therein. Early adoption is permitted. Further, an entity is permitted to early adopt any removed or modified
disclosures upon the issuance of ASU 2018-13 while delaying the adoption of the additional disclosures until their effective date. Effective January 1, 2020, the Company adopted ASU 2018-13.
The adoption did not have a material impact on its condensed consolidated financial statements.
In
August 2018, the FASB issued ASU No. 2018-15, Intangibles Goodwill and Other Internal-Use Software (Subtopic
350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"), which requires implementation
costs incurred by customers in a cloud computing arrangement to be deferred over the noncancelable term of the cloud computing arrangement plus
any optional renewal periods that (1) are reasonably certain to be exercised by the customer, or (2) for which exercise of the renewal option is controlled by the cloud service provider.
The effective date of this pronouncement is for fiscal years beginning after December 15, 2020 and interim periods within annual periods beginning after December 15, 2021, though early
adoption is permitted. The Company is currently evaluating the impact of this pronouncement on its condensed consolidated financial statements.
In
December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU
2019-12"), which simplifies the accounting for income taxes, eliminates certain exceptions to the general principles in Topic 740 and clarifies certain aspects of the current guidance to improve
consistent application among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2021 and interim periods within annual periods beginning after
December 15, 2022, though early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. The Company is currently evaluating the
impact of ASU 2019-12 on its condensed consolidated financial statements.
In
March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) ("ASU 2020-04"), which provides companies
with temporary optional financial reporting alternatives to ease the potential burden in accounting for reference rate reform and includes a provision that allows companies to account for a modified
contract as a continuation of an existing contract. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently in the
process of evaluating ASU 2020-04 and its effect on its condensed consolidated financial statements.
F-55
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
3. Fair Value of Financial Instruments
For financial assets and liabilities that are measured at fair value on a recurring basis at each reporting period, the Company uses a fair value hierarchy that prioritizes the use of
observable inputs and minimizes the use of unobservable inputs. A financial instrument's classification within the fair value hierarchy is based on the lowest level of input that is significant to the
fair value measurement.
The
Company invests primarily in money market funds, which are measured and recorded at fair value on a recurring basis and are classified within Level 1 of the fair value
hierarchy because they are valued based on quoted market prices in active markets. The fair value of these financial instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
50,055
|
|
$
|
|
|
$
|
|
|
$
|
50,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
47,858
|
|
$
|
|
|
$
|
|
|
$
|
47,858
|
|
The
carrying amounts of the Company's accounts receivable, accounts payable and other current liabilities approximate their fair values due to their short maturities. The carrying value
of the Company's long-term debt approximates its fair value based on Level 2 inputs as the principal amounts outstanding are subject to variable interest rates that are based on market rates
(see Note 7).
F-56
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
4. Property and Equipment
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Computer equipment
|
|
$
|
5,899
|
|
$
|
5,729
|
|
Furniture and fixtures
|
|
|
3,847
|
|
|
3,757
|
|
Purchased computer software
|
|
|
785
|
|
|
785
|
|
Leasehold improvements
|
|
|
7,448
|
|
|
7,086
|
|
Other
|
|
|
448
|
|
|
448
|
|
|
|
|
|
|
|
|
|
Property and equipment, gross
|
|
|
18,427
|
|
|
17,805
|
|
Less: Accumulated depreciation
|
|
|
(7,398
|
)
|
|
(6,622
|
)
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
11,029
|
|
$
|
11,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense for the three months ended March 31, 2020 and 2019 was $0.9 million and $0.7 million, respectively.
5. Business Combinations
ShoCard, Inc. Acquisition
On March 2, 2020, Ping Identity Corporation acquired 100% of the voting equity interest in ShoCard, Inc., a Delaware Corporation
("ShoCard"). ShoCard is a cloud-based mobile identity solution that offers identity services for verified claims. The purpose of this acquisition was to expand the Company's identity proofing
solutions.
The
total purchase price was $5.5 million. An additional $3.1 million and $2.3 million of contingent compensation is payable in common stock of the Company on the
first and second anniversary of the acquisition, respectively, contingent on certain individuals remaining employed as of those dates and other service conditions. As these payments are subject to the
continued employment of those individuals, they will be recognized through compensation expense as incurred. See Note 10 for additional details.
F-57
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
5. Business Combinations (Continued)
The
following table summarizes the preliminary allocation of the purchase price, based on the estimated fair value of the assets acquired and liabilities assumed at the acquisition
date:
|
|
|
|
|
|
|
|
|
March 2, 2020
|
|
Useful Life
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
Fair value of net assets acquired
|
|
|
|
|
|
Developed technology
|
|
$
|
3,550
|
|
7 years
|
Goodwill
|
|
|
1,015
|
|
Indefinite
|
Deferred tax asset
|
|
|
954
|
|
|
Other assets
|
|
|
11
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
5,530
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
5,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
is primarily attributable to the workforce acquired and the expected synergies arising from integrating ShoCard's identity solution with the Company's existing identity
solutions. None of the goodwill is deductible for tax purposes. The Company incurred $0.5 million of acquisition-related expenses in conjunction with the ShoCard acquisition, which are included
in general and administrative expenses on the condensed consolidated statement of operations for the three months ended March 31, 2020.
Additional
information around the ShoCard acquisition, such as that related to income tax and other contingencies existing as of the acquisition date but unknown to the Company, may
become known during the remainder of the measurement period, not to exceed one year from the acquisition date, which may result in changes to the amounts and allocations recorded.
On April 5, 2018, Ping Identity Corporation acquired 100% of the voting equity interest in Elastic Beam Inc., a Delaware
Corporation ("Elastic Beam"). Elastic Beam is a machine learning/artificial intelligence API behavioral security software which detects, reports and stops cyberattacks on data and applications via
APIs. The purpose of this acquisition was to expand the Company's capabilities in identity security, particularly with regard to artificial intelligence.
The
total purchase price was $19.0 million, which includes up-front cash consideration of $17.4 million that was funded with existing cash resources, and
$1.6 million, of which $1.1 million and $0.5 million is payable on the first and second anniversary of the acquisition, respectively. The Company paid the first anniversary
payment of $1.1 million during 2019.
$4.8 million
and $4.2 million of contingent compensation is payable on the first and second anniversary of the acquisition, respectively, contingent on certain individuals
remaining employed as of those dates. As these payments are subject to the continued employment of those individuals,
F-58
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
5. Business Combinations (Continued)
they
will be recognized through compensation expense as incurred. The Company paid the first anniversary payment of $4.8 million during 2019.
The
following table summarizes the allocation of the purchase price, based on the estimated fair value of the assets acquired and liabilities assumed at the acquisition date:
|
|
|
|
|
|
|
|
|
April 5, 2018
|
|
Useful Life
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Fair value of net assets acquired
|
|
|
|
|
|
In process research and development
|
|
$
|
3,006
|
|
Indefinite
|
Goodwill
|
|
|
15,972
|
|
Indefinite
|
Deferred tax asset
|
|
|
108
|
|
|
Other assets
|
|
|
3
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
19,089
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
(115
|
)
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(115
|
)
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
18,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
is primarily attributable to the workforce acquired and the expected synergies arising from integrating Elastic Beam's behavioral security software with the Company's existing
security platform. None of the goodwill is deductible for tax purposes.
The operating results of ShoCard and Elastic Beam are included in the Company's condensed consolidated statements of operations from their
respective dates of acquisition. Revenue and earnings of ShoCard and Elastic Beam since their respective dates of acquisition and pro forma results of operations have not been prepared because the
effect of the acquisitions were not material to the condensed consolidated statements of operations.
6. Goodwill and Intangible Assets
The changes in the carrying amount of the Company's goodwill balance were as follows:
|
|
|
|
|
|
|
|
March 31,
2020
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Beginning balance
|
|
$
|
417,696
|
|
Additions to goodwill related to acquisitions
|
|
|
1,015
|
|
|
|
|
|
|
Ending balance
|
|
$
|
418,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-59
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
6. Goodwill and Intangible Assets (Continued)
The
Company's intangible assets as of March 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Developed technology
|
|
$
|
111,488
|
|
$
|
(45,507
|
)
|
$
|
65,981
|
|
Customer relationships
|
|
|
94,875
|
|
|
(28,080
|
)
|
|
66,795
|
|
Trade names
|
|
|
56,674
|
|
|
(21,173
|
)
|
|
35,501
|
|
Capitalized internal-use software
|
|
|
25,180
|
|
|
(7,697
|
)
|
|
17,483
|
|
Other intangible assets
|
|
|
1,014
|
|
|
(424
|
)
|
|
590
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets subject to amortization
|
|
$
|
289,231
|
|
$
|
(102,881
|
)
|
$
|
186,350
|
|
In-process research and development
|
|
|
586
|
|
|
|
|
|
586
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
289,817
|
|
$
|
(102,881
|
)
|
$
|
186,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company's intangible assets as of December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Developed technology
|
|
$
|
107,938
|
|
$
|
(42,260
|
)
|
$
|
65,678
|
|
Customer relationships
|
|
|
94,875
|
|
|
(26,205
|
)
|
|
68,670
|
|
Trade names
|
|
|
56,640
|
|
|
(19,754
|
)
|
|
36,886
|
|
Capitalized internal-use software
|
|
|
21,881
|
|
|
(6,375
|
)
|
|
15,506
|
|
Other intangible assets
|
|
|
1,077
|
|
|
(535
|
)
|
|
542
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets subject to amortization
|
|
|
282,411
|
|
|
(95,129
|
)
|
|
187,282
|
|
In-process research and development
|
|
|
586
|
|
|
|
|
|
586
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
282,997
|
|
$
|
(95,129
|
)
|
$
|
187,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
expense for the three months ended March 31, 2020 and 2019 was $7.9 million and $7.3 million, respectively.
F-60
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
6. Goodwill and Intangible Assets (Continued)
As
of March 31, 2020, expected amortization expense for intangible assets subject to amortization for the next five years is as follows:
|
|
|
|
|
Year Ending December 31,
|
|
March 31,
2020
|
|
|
|
|
(in thousands)
|
|
2020 (remaining nine months)
|
|
$
|
24,581
|
|
2021
|
|
|
31,997
|
|
2022
|
|
|
32,227
|
|
2023
|
|
|
25,861
|
|
2024
|
|
|
25,095
|
|
Thereafter
|
|
|
46,589
|
|
|
|
|
|
|
Total
|
|
$
|
186,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. Debt
In January 2018, the Company entered into credit facilities with a consortium of lenders comprised of (a) a term loan with a principal amount of $250.0 million (the "2018
Term Loan Facility"), and (b) a revolving line of credit in a principal committed amount of $25.0 million (the "2018 Revolving Credit Facility" and, collectively with the 2018 Term Loan
Facility, the "2018 Credit Facilities"). The 2018 Term Loan Facility and 2018 Revolving Credit Facility had maturity dates of January 25, 2025 and January 25, 2023, respectively.
Borrowings under the 2018 Credit Facilities were collateralized by substantially all of the assets of the Company.
There
were no significant financial covenants to which the Company was required to comply in relation to the 2018 Term Loan Facility. The wholly owned indirect subsidiary, Ping Identity
Corporation, as borrower under the 2018 Credit Facilities, was limited to declare dividends or make any payment on account of its capital stock to, directly or indirectly, fund a dividend or other
distribution to Ping Identity Holding Corp. (the "Parent"), subject to limited exceptions, including (1) stock repurchases in an amount not to exceed the greater of $1.5 million per year
or 3.75% of consolidated EBITDA, with any unused amount being carried forward to future periods, (2) unlimited amounts subject to compliance with a 4.25 to 1.00 total leverage ratio giving pro
forma effect to any distribution, (3) unlimited amounts up to 7% of the Parent's market capitalization and (4) payment of the Parent's overhead expenses.
The
2018 Term Loan Facility bore interest at the option of the Company at a rate per annum equal to (a) an adjusted LIBO rate (with a floor of 1.00% per annum) plus an applicable
margin of 3.75%, payable on the last day of the applicable interest period applicable thereto ("Eurodollar" loan), or
(b) the alternate base rate (with a floor of 2.00% per annum) plus an applicable margin of 2.75%, payable quarterly in arrears the last business day of each March, June, September and December.
The 2018 Term Loan Facility was borrowed as a Eurodollar loan.
In
December 2019, Roaring Fork Intermediate, LLC and Ping Identity Corporation, each a wholly-owned subsidiary of Ping Identity Holding Corp., and certain of their subsidiaries,
entered into a credit agreement (the "2019 Credit Agreement") with the financial institutions identified
F-61
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
7. Debt (Continued)
therein
as lenders, including Bank of America, N.A., as administrative agent, and BofA Securities, Inc. and RBC Capital Markets as joint lead arrangers. In connection therewith, the Company
repaid all outstanding borrowings under the 2018 Term Loan Facility and terminated the 2018 Revolving Credit Facility. The 2019 Credit Agreement provides for a senior revolving line of credit in a
principal committed amount of $150.0 million (the "2019 Revolving Credit Facility"), with the option to request incremental term loan facilities in a minimum amount of $10 million for
each facility if certain conditions are met. The Company's obligations under the 2019 Credit Agreement are secured by substantially all of the assets of the Company, and borrowings under the 2019
Revolving Credit Facility may be used for working capital and other general corporate purposes, including for acquisitions permitted under the 2019 Credit Agreement.
The
2019 Credit Agreement contains certain customary events of default and customary representations and warranties and affirmative and negative covenants, including certain
restrictions on the ability of the Company to incur additional indebtedness or guarantee indebtedness of others, to create liens on properties or assets, and to enter into certain asset and
stock-based transactions. In addition, under the terms of the 2019 Credit Agreement, the Company must adhere to certain financial covenants, including (i) a senior secured net leverage ratio,
which shall not be more than 3.50 to 1.00, provided that the maximum ratio shall be increased to 4.00 to 1.00 during a fiscal year in which a Material Acquisition (as defined in the 2019 Credit
Agreement) has been consummated, and (ii) a consolidated interest coverage ratio, which shall not be less than 3.50 to 1.00. As of March 31, 2020, the Company was in compliance with all
financial covenants.
The
wholly owned indirect subsidiary, Ping Identity Corporation, as borrower under the 2019 Credit Agreement, is limited in its ability to declare dividends or make any payment on
account of its capital stock to, directly or indirectly, fund a dividend or other distribution to Ping Identity Holding Corp. (as the Parent), subject to limited exceptions, including (1) stock
repurchases from current or former employees, officers or directors in an amount not to exceed $5 million, (2) unlimited amounts subject to compliance with its financial covenants for
the most recently ended four quarters as well as a 6.00 to 1.00 total net leverage ratio for the most recently ended four quarters, both after giving pro forma effect to any distribution,
(3) unlimited amounts up to the greater of $19.5 million in the aggregate or 15% of EBITDA for the most recently ended four quarters and (4) payment of certain of the Parent's
overhead expenses.
The
2019 Revolving Credit Facility matures on December 12, 2024 and bears interest at the option of the Company at a rate per annum equal to either (i) a base rate, which
is equal to the greater of (a) the prime rate, (b) the federal funds effective rate plus 0.5% and (c) the adjusted LIBO rate for a one month interest period plus 1%, or
(ii) the adjusted LIBO rate equal to the LIBO rate for the interest period multiplied by the statutory reserve rate, plus in the case of each of clauses (i) and (ii), the Applicable Rate
(as defined in the 2019 Credit Agreement), which ranges from (i) 0.25% to 1.0% per annum for base rate loans and (ii) 1.25% to 2.0% per annum for LIBO rate loans, in each case, depending
on the senior secured net leverage ratio. The Company will also pay a commitment fee during the term of the 2019 Credit Agreement ranging from 0.20% to 0.35% of the average daily amount of the
available amount to be borrowed under the 2019 Credit Agreement per annum, based on the senior secured net leverage ratio.
F-62
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
7. Debt (Continued)
Any
borrowing under the 2019 Credit Agreement may be repaid, in whole or in part, at any time and from time to time without premium or penalty other than customary breakage costs, and
any amounts repaid may be reborrowed. No mandatory prepayments will be required other than when borrowings and letter of credit usage exceed the aggregate commitment of all lenders.
For
the three months ended March 31, 2020 and 2019, the Company recognized $0.4 million and $3.9 million in interest expense, respectively.
As
of March 31, 2020 and December 31, 2019, the Company's outstanding long-term debt balance was $148.8 million and $50.9 million, respectively, net of debt
issuance costs of $1.2 million and $1.2 million, respectively. Debt issuance costs are a direct deduction from the long-term debt liability and are amortized into interest expense over
the contractual term of the borrowings using the effective interest method. During the three months ended March 31, 2020 and 2019, the Company amortized $0.1 million and
$0.2 million of debt issuance costs, respectively.
Future
principal payments on outstanding borrowings as of March 31, 2020 are as follows:
|
|
|
|
|
Year Ending December 31,
|
|
March 31,
2020
|
|
|
|
|
(in thousands)
|
|
2020 (remaining nine months)
|
|
$
|
|
|
2021
|
|
|
|
|
2022
|
|
|
|
|
2023
|
|
|
|
|
2024
|
|
|
150,000
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. Income Taxes
For the three months ended March 31, 2020 and 2019, the Company recorded $1.9 million and $1.1 million as its benefit for income taxes, respectively. The key
components of the Company's benefit for income taxes primarily consist of state and federal income taxes, foreign income taxes and research and development ("R&D") credits. The Company's quarterly tax
benefit calculation is subject to variation due to several factors, including variability in loss before income taxes, the mix of jurisdictions to which such loss relates, changes in how the Company
conducts business and tax law developments. The increase in the tax benefit for the three months ended March 31, 2020 as compared to the three months ended March 31, 2019 also relates to
a larger benefit for stock-based compensation and an increase in R&D credits recorded in the three months ended March 31, 2020 as compared to the three months ended March 31, 2019.
F-63
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
9. Stockholders' Equity
On June 30, 2016, the Board of Directors and stockholders approved the Second Amended and Restated Certificate of Incorporation authorizing the Company to issue up to 85,000,000
shares of common stock and 34,000,000 shares of preferred stock, each with a par value of $0.001 per share. On September 5, 2019, the Company's Board of Directors and stockholders approved the
Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 85,000,000 shares to 500,000,000 shares and to
increase the number of authorized shares of preferred stock from 34,000,000 shares to 50,000,000 shares. The par value of the common and preferred stock remained at $0.001 per share.
Common stock
The Company's Third Amended and Restated Certificate of Incorporation, which the Board of Directors approved on September 18, 2019 and
the stockholders approved on September 23, 2019, authorizes issuance of up to 500,000,000 shares of common stock with a par value of $0.001 per share. The common stock confers upon its holders
the right to vote on all matters to be voted on by the stockholders of the Company (with each share representing one vote) and to ratably participate in any distribution of dividends or payments in
the event of liquidation or dissolution on a per share basis. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of holders of any preferred
stock that may be issued in the future.
Preferred stock
The Company's Third Amended and Restated Certificate of Incorporation authorizes, without stockholder approval but subject to any limitations
prescribed by law, the issuance of up to an aggregate of 50,000,000 shares of preferred stock (in one or more series or classes), to create additional series or classes of preferred stock and to
establish the number of shares to be included in such series or class. The Board of Directors is also authorized to increase or decrease the number of shares of any series or class subsequent to the
issuance of shares of that series or class. Each series will have such rights, preferences and limitations, including voting rights, dividend rights, conversion rights, redemption privileges and
liquidation preferences as determined by the Board of Directors. As of March 31, 2020 and December 31, 2019, the Company did not have any shares of preferred stock outstanding and
currently has no plans to issue shares of preferred stock.
10. Stock-Based Compensation
On June 30, 2016, the Company established the 2016 Stock Option Plan (the "2016 Plan"). The 2016 Plan provides for grants of restricted stock units and stock options to
executives, directors, consultants, advisors and key employees which allow option holders to purchase stock in Ping Identity Holding Corp. The Company has 6,800,000 shares of common stock reserved for
issuance under the 2016 Plan.
On
September 23, 2019, the Company adopted the Ping Identity Holding Corp. Omnibus Incentive Plan (the "2019 Omnibus Incentive Plan"). The 2019 Omnibus Incentive Plan provides
for grants of (i) stock options, (ii) stock appreciation rights, (iii) restricted shares, (iv) performance
F-64
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
10. Stock-Based Compensation (Continued)
awards,
(v) other share-based awards and (vi) other cash-based awards to eligible employees, non-employee directors and consultants of the Company. At March 31, 2020, the maximum
number of shares of common stock available for issuance under the 2019 Omnibus Incentive Plan was 11,290,813 shares.
Stock-based
compensation expense for all equity arrangements for the three months ended March 31, 2020 and 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
Subscription cost of revenue
|
|
$
|
146
|
|
$
|
|
|
Professional services and other cost of revenue
|
|
|
84
|
|
|
|
|
Sales and marketing
|
|
|
797
|
|
|
222
|
|
Research and development
|
|
|
888
|
|
|
215
|
|
General and administrative
|
|
|
942
|
|
|
622
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,857
|
|
$
|
1,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units
The Company grants RSUs that generally vest over one to four years. The weighted-average grant-date fair value of RSUs granted during the three
months ended March 31, 2020 and 2019 was $24.28 and $13.30, respectively. The total intrinsic value of RSUs vested during the three months ended March 31, 2020 and 2019 was
$0.4 million and $0.0 million, respectively. As of March 31, 2020, there was $20.0 million of total unrecognized compensation, which will be recognized over the remaining
weighted-average vesting period of 3.4 years using the straight-line method. A summary of the status of the Company's unvested RSUs and activity for the three months ended March 31, 2020
is as follows:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
|
|
|
|
|
|
|
Unvested as of December 31, 2019
|
|
|
1,415,629
|
|
$
|
16.46
|
|
Granted
|
|
|
49,513
|
|
|
24.28
|
|
Forfeited/canceled
|
|
|
(61,882
|
)
|
|
16.21
|
|
Vested
|
|
|
(17,170
|
)
|
|
15.77
|
|
|
|
|
|
|
|
|
|
Unvested as of March 31, 2020
|
|
|
1,386,090
|
|
$
|
16.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-65
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
10. Stock-Based Compensation (Continued)
Stock Options
No stock options were granted during the three months ended March 31, 2020 or 2019. A summary of the Company's stock option activity and
related information for the three months ended March 31, 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in years)
|
|
|
(in thousands)
|
|
Outstanding as of December 31, 2019
|
|
|
5,945,878
|
|
$
|
9.41
|
|
|
7.5
|
|
$
|
88,520
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited/canceled
|
|
|
(332,380
|
)
|
|
9.02
|
|
|
|
|
|
|
|
Exercised
|
|
|
(403,601
|
)
|
|
8.17
|
|
|
|
|
|
5,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of March 31, 2020
|
|
|
5,209,897
|
|
$
|
9.53
|
|
|
7.1
|
|
$
|
54,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest
|
|
|
3,418,862
|
|
$
|
9.56
|
|
|
7.1
|
|
$
|
35,766
|
|
Vested and exercisable
|
|
|
2,314,738
|
|
$
|
8.71
|
|
|
6.6
|
|
$
|
26,174
|
|
As
of March 31, 2020, unamortized stock-based compensation expense related to the time-based awards was $4.8 million, which will be recognized over the remaining
weighted-average vesting term of 2.3 years. For the awards subject to performance and market conditions, unrecognized stock-based compensation expense as of March 31, 2020 was
$7.9 million. As of March 31, 2020, these awards were not considered probable of meeting vesting requirements and accordingly, no expense was recorded and the timing of when this expense
will be recognized is unknown.
Long-Term Incentive Plan
Grants under the Company's long-term incentive plan ("LTIP") are expected to vest following an initial public offering and registration of
shares of common stock of Ping Identity Holding Corp. and Vista's realized cash return on its investment in the Company equaling or exceeding $1.491 billion. As of March 31, 2020, these
awards were not considered probable of meeting the vesting requirements and accordingly, no expense was recorded during the three months ended March 31, 2020 and the timing of when this expense
will be recognized is unknown. During future reporting periods, if the awards are considered to be probable of meeting vesting requirements, this could result in a total expense of at least
$18.2 million.
Other Liability-Classified Awards
In conjunction with the ShoCard acquisition (Note 5), the Company issued liability-classified awards to certain individuals with a
stated value of $3.1 million and $2.3 million that vest on the first and second anniversary of the acquisition, respectively, and are subject to continuous service and
F-66
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
10. Stock-Based Compensation (Continued)
other
conditions. The liability-classified awards will be settled with a variable number of shares of the Company's common stock at each anniversary date based on the satisfaction of such conditions.
During the three months ended March 31, 2020, the Company recognized $0.3 million of stock-based compensation expense related to these awards.
11. Related Party Transactions
Vista is a U.S.-based investment firm that controlled the funds which owned a majority of the Company during the three months ended March 31, 2020 and 2019. During the three
months ended March 31, 2020 and 2019, the Company paid for consulting services and other expenses related to services provided by Vista and Vista affiliates. The total expenses incurred by the
Company for Vista were $0.2 million and $0.3 million for the three months ended March 31, 2020 and 2019, respectively.
The
Company also has revenue arrangements with Vista affiliates. The Company recognized revenue of $0.1 million during the three months ended March 31, 2020 and 2019. The
Company had $0.0 million and $1.1 million in accounts receivable related to these agreements at March 31, 2020 and December 31, 2019, respectively.
12. Operating Leases
The Company leases office spaces and a data center under noncancelable lease terms. These
leases have a remaining lease term of up to six years, with a small number of office spaces that are month-to-month and accounted for as short-term leases in accordance with ASC 842-20-25-2. The
Company has not recognized renewal options as part of its right-of-use assets and lease liabilities, as renewal options are not reasonably certain of exercise or occurrence as of March 31,
2020. Additionally, these leasing arrangements do not contain residual value guarantees, and there are no other restrictions or covenants in the contracts.
Some
real estate leases contain lease and non-lease components. Non-lease components generally represent use-based charges for common area maintenance, taxes and utilities. The Company
has elected not to separate lease and non-lease components. In addition to variable lease payments for use-based charges, some leasing arrangements contain variable lease payments that increase based
on a consumer price index. Some contracts also contain lease incentives such as tenant improvement allowances and rent holidays, which are treated as a reduction of lease payments for the measurement
of the lease liability.
Determination
of a leasing arrangement is performed at inception. Right-of-use assets represent the Company's right to use leased assets over the term of the lease, adjusted for lease
incentives such as tenant improvements. Lease liabilities represent the Company's contractual obligation to make lease payments over the lease term. Right-of-use assets and lease liabilities are
determined based on the present value of future lease payments using the interest rate implicit in the loan or, if that rate cannot be readily determined, the incremental borrowing rate. Incremental
borrowing rates were determined for each lease based on the Company's borrowing rate adjusted for term differences and foreign currency risk.
F-67
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
12. Operating Leases (Continued)
The following table presents components of lease cost recorded in the condensed consolidated statement of operations and supplemental information for the three months ended
March 31, 2020.
|
|
|
|
|
|
|
|
Three Months
Ended
March 31, 2020
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Lease costs:
|
|
|
|
|
Operating lease costs
|
|
$
|
919
|
|
Short-term lease costs
|
|
|
100
|
|
Variable lease costs
|
|
|
512
|
|
|
|
|
|
|
Total lease costs
|
|
$
|
1,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average:
|
|
|
|
|
Remaining lease term
|
|
|
5.5
|
|
Discount rate
|
|
|
4.8
|
%
|
Other information:
|
|
|
|
|
Cash paid for the amounts included in the measurement of lease liabilities within operating cash flows
|
|
$
|
846
|
|
As
of March 31, 2020, the maturities of remaining lease payments included in the measurement of operating leases are as follows:
|
|
|
|
|
Year Ending December 31,
|
|
March 31, 2020
|
|
|
|
|
(in thousands)
|
|
2020 (remaining nine months)
|
|
$
|
3,106
|
|
2021
|
|
|
4,093
|
|
2022
|
|
|
4,016
|
|
2023
|
|
|
4,069
|
|
2024
|
|
|
3,730
|
|
Thereafter
|
|
|
3,602
|
|
|
|
|
|
|
Total lease payments
|
|
|
22,616
|
|
Less: imputed interest
|
|
|
(2,768
|
)
|
|
|
|
|
|
Total operating lease liability
|
|
$
|
19,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-68
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
12. Operating Leases (Continued)
As
previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, the following table summarizes the future minimum lease payments
related to operating leases as of December 31, 2019 under ASC 840.
|
|
|
|
|
Year Ending December 31,
|
|
December 31,
2019
|
|
|
|
|
(in thousands)
|
|
2020
|
|
$
|
3,819
|
|
2021
|
|
|
3,774
|
|
2022
|
|
|
3,785
|
|
2023
|
|
|
3,839
|
|
2024
|
|
|
3,712
|
|
Thereafter
|
|
|
3,606
|
|
|
|
|
|
|
Total
|
|
$
|
22,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13. Commitments and Contingencies
Letters of Credit
As of March 31, 2020 and December 31, 2019, the Company had outstanding letters of credit under an office lease agreement that
totaled $0.7 million, which primarily guaranteed early termination fees in the event of default. The Company collateralizes the letters of credit with restricted cash balances which were
classified in other noncurrent assets at March 31, 2020 and December 31, 2019.
Purchase Commitments
In the ordinary course of business, the Company enters into various purchase commitments primarily related to third-party cloud hosting and
data services, IT operations and marketing events. Total noncancelable purchase commitments as of March 31, 2020 were approximately $27.5 million for periods through 2022.
Employee Benefit Plans
The Company established a defined contribution savings plan under Section 401(k) of the Internal Revenue Code (the "401(k) Plan") in
which full-time U.S. employees are eligible to participate on the first day of the subsequent month of his or her date of employment. The 401(k) Plan covers substantially all employees who meet
minimum age and service requirements and allows participants to defer a percentage of their annual compensation as defined in the 401(k) Plan. Employees in the United Kingdom and Canada are
covered by defined contribution savings arrangements that are administered based upon the legislative and tax requirements of the respective countries.
The
Company made contributions to its employee benefit plans of $0.8 million and $0.7 million during the three months ended March 31, 2020 and 2019, respectively.
F-69
Table of Contents
PING IDENTITY HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
13. Commitments and Contingencies (Continued)
Litigation
From time to time, the Company may be subject to various claims, charges and litigation. The Company records a liability when it is both
probable that a liability will be incurred and the amount of the loss can be reasonably estimated. The Company maintains insurance to cover certain actions and believes that resolution of such claims,
charges, or litigation
will not have a material impact on the Company's financial position, results of operations, or liquidity.
14. Net Loss Per Share
The following table provides a reconciliation of the numerator and denominator used in the Company's calculation of basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,166
|
)
|
$
|
(4,879
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Basic shares:
|
|
|
|
|
|
|
|
Weighted-average common stock outstanding basic and diluted
|
|
|
79,743
|
|
|
65,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.05
|
)
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following shares were excluded from the computation of diluted net loss per share for the periods presented, as their effect would have been antidilutive:
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
RSUs
|
|
|
1,386
|
|
|
43
|
|
Stock options
|
|
|
3,419
|
|
|
4,207
|
|
Other awards
|
|
|
270
|
|
|
|
|
|
|
|
|
|
|
|
|
Total antidilutive shares
|
|
|
5,075
|
|
|
4,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15. Subsequent Events
On April 1, 2020, the Company granted an aggregate of 1,357,690 RSUs to certain of its employees and directors under the 2019 Omnibus Incentive Plan, which had a total grant date
fair value of $27.2 million that is expected to be recognized over a weighted-average vesting period of approximately four years.
F-70
Table of Contents
8,500,000 Shares
|
|
|
|
|
|
|
Goldman Sachs & Co. LLC
|
|
BofA Securities, Inc.
|
|
RBC Capital Markets
|
|
Citigroup
|
|
|
|
|
|
|
|
Barclays
|
|
Credit Suisse
|
|
Wells Fargo Securities
|
|
Deutsche Bank Securities
|
|
|
|
|
|
|
|
|
|
|
|
Piper Sandler
|
|
Raymond James
|
|
Stifel
|
|
William Blair
|
|
BTIG
|
|
Mizuho Securities
|