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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_____________________________________

FORM 10-Q

_____________________________________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 001-39056

_____________________________________________________________________________________________________________________________________

GRAPHIC

PING IDENTITY HOLDING CORP.

(Exact Name of Registrant as Specified in Its Charter)

_____________________________________________________________________________________________________________________________________

Delaware

81-2933383

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification Number)

1001 17th Street, Suite 100

Denver, Colorado 80202

(Address of Principal executive offices, including zip code)

(303) 468-2900

(Registrant’s telephone number, including area code)

_______________________________________________________________________________________________________________________________________

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class:

Trading Symbol(s):

Name of each exchange on which registered:

Common Stock, $0.001 par value per share

PING

New York Stock Exchange

__________________________________________________________________________________________________________________________________________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)  Yes  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No

On October 30, 2020, the Registrant had 81,110,873 shares of common stock, $0.001 par value, outstanding.

PING IDENTITY HOLDING CORP.

FORM 10-Q

For the Quarter Ended September 30, 2020

TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)

3

Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019

3

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019

4

Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2020 and 2019

5

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2020 and 2019

6

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019

8

Notes to Condensed Consolidated Financial Statements

9

Forward-Looking Statements

27

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

30

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

49

Item 4.

Controls and Procedures

50

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

51

Item 1A.

Risk Factors

51

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

53

Item 3.

Defaults Upon Senior Securities

53

Item 4.

Mine Safety Disclosures

53

Item 5.

Other Information

53

Item 6.

Exhibits

53

Signatures

55

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PING IDENTITY HOLDING CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(unaudited)

September 30, 

December 31, 

    

2020

    

2019

Assets

Current assets:

Cash and cash equivalents

$

173,206

$

67,637

Accounts receivable, net of allowances of $728 and $873 at September 30, 2020 and December 31, 2019, respectively

 

49,659

 

67,642

Contract assets, current

69,766

70,031

Deferred commissions, current

5,773

5,814

Prepaid expenses

17,703

12,768

Other current assets

 

1,068

 

3,774

Total current assets

 

317,175

 

227,666

Noncurrent assets:

Property and equipment, net

 

9,564

 

11,183

Goodwill

 

418,660

 

417,696

Intangible assets, net

 

177,447

 

187,868

Contract assets, noncurrent

14,239

15,979

Deferred commissions, noncurrent

8,231

7,856

Deferred income taxes, net

 

2,685

 

2,755

Operating lease right-of-use assets

15,052

Other noncurrent assets

 

2,518

 

1,808

Total noncurrent assets

 

648,396

 

645,145

Total assets

$

965,571

$

872,811

Liabilities and stockholders' equity

 

  

 

Current liabilities:

 

  

 

Accounts payable

$

748

$

1,118

Accrued expenses and other current liabilities

 

6,837

 

9,302

Accrued compensation

 

10,427

 

18,126

Deferred revenue, current

35,640

45,446

Operating lease liabilities, current

3,770

Total current liabilities

 

57,422

 

73,992

Noncurrent liabilities:

 

  

 

Deferred revenue, noncurrent

 

2,352

 

2,061

Long-term debt

 

148,951

 

50,941

Deferred income taxes, net

 

19,679

 

30,571

Operating lease liabilities, noncurrent

17,005

Other liabilities, noncurrent

 

2,607

 

4,775

Total noncurrent liabilities

 

190,594

 

88,348

Total liabilities

 

248,016

 

162,340

Commitments and contingencies (Note 13)

 

  

 

Stockholders' equity:

 

  

 

Preferred stock; $0.001 par value; 50,000,000 shares authorized at September 30, 2020 and December 31, 2019; no shares issued or outstanding at September 30, 2020 or December 31, 2019

Common stock; $0.001 par value; 500,000,000 shares authorized at September 30, 2020 and December 31, 2019; 81,003,507 and 79,632,500 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

81

80

Additional paid-in capital

 

733,769

 

718,446

Accumulated other comprehensive loss

 

(561)

 

(399)

Accumulated deficit

 

(15,734)

 

(7,656)

Total stockholders' equity

 

717,555

 

710,471

Total liabilities and stockholders' equity

$

965,571

$

872,811

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

PING IDENTITY HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(unaudited)

Three Months Ended
September 30, 

Nine Months Ended
September 30, 

    

2020

    

2019

    

2020

    

2019

Revenue:

 

  

 

  

Subscription

$

55,113

$

57,495

$

166,199

$

161,387

Professional services and other

 

4,828

 

4,270

 

14,135

 

13,276

Total revenue

 

59,941

 

61,765

 

180,334

 

174,663

Cost of revenue:

Subscription (exclusive of amortization shown below)

8,091

5,995

22,709

16,828

Professional services and other (exclusive of amortization shown below)

 

4,083

 

4,086

 

12,322

 

11,002

Amortization expense

 

5,177

 

4,159

 

14,723

 

11,981

Total cost of revenue

17,351

14,240

49,754

39,811

Gross profit

 

42,590

 

47,525

 

130,580

 

134,852

Operating expenses:

 

  

 

  

 

  

 

Sales and marketing

 

21,164

 

17,819

 

64,105

 

55,153

Research and development

 

12,224

 

11,283

 

35,849

 

33,594

General and administrative

 

10,702

 

10,984

 

33,817

 

26,732

Depreciation and amortization

 

4,223

 

4,060

 

12,705

 

12,334

Total operating expenses

 

48,313

 

44,146

 

146,476

 

127,813

Income (loss) from operations

 

(5,723)

 

3,379

 

(15,896)

 

7,039

Other income (expense):

 

  

 

  

 

  

 

Interest expense

 

(605)

 

(3,818)

 

(1,835)

 

(12,067)

Loss on extinguishment of debt

(3,150)

(3,150)

Other income (expense), net

 

1,271

 

(992)

 

716

 

(767)

Total other income (expense)

 

666

 

(7,960)

 

(1,119)

 

(15,984)

Loss before income taxes

 

(5,057)

 

(4,581)

 

(17,015)

 

(8,945)

Benefit for income taxes

 

4,061

 

3,986

 

8,937

 

5,227

Net loss

$

(996)

$

(595)

$

(8,078)

$

(3,718)

Net loss per share:

Basic and diluted

$

(0.01)

$

(0.01)

$

(0.10)

$

(0.06)

Weighted-average shares used in computing net loss per share:

Basic and diluted

 

80,692

 

66,269

 

80,203

 

65,436

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

PING IDENTITY HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(unaudited)

Three Months Ended
September 30, 

Nine Months Ended
September 30, 

2020

2019

2020

2019

Net loss

$

(996)

$

(595)

$

(8,078)

$

(3,718)

Other comprehensive income (loss), net of tax:

 

  

 

  

 

  

 

  

Foreign currency translation adjustments

 

502

 

(110)

 

(162)

 

205

Total other comprehensive income (loss)

 

502

 

(110)

 

(162)

 

205

Comprehensive loss

$

(494)

$

(705)

$

(8,240)

$

(3,513)

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

PING IDENTITY HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

(unaudited)

Three Months Ended September 30, 2020:

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders'

    

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Deficit

    

Equity

Balances at June 30, 2020

80,444,507

$

80

$

729,602

$

(1,063)

$

(14,738)

$

713,881

Net loss

(996)

(996)

Stock-based compensation

 

 

3,956

 

 

 

3,956

Exercise of stock options, net of tax withholding

318,818

1

2,980

2,981

Vesting of restricted stock, net of tax withholding

240,182

 

 

(2,769)

 

 

 

(2,769)

Foreign currency translation adjustments, net of tax

 

 

 

502

 

 

502

Balances at September 30, 2020

81,003,507

$

81

$

733,769

$

(561)

$

(15,734)

$

717,555

Three Months Ended September 30, 2019:

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders'

    

Shares

    

Amount

    

Capital

    

Loss

    

Deficit

    

Equity

Balances at June 30, 2019

65,141,506

$

65

$

519,056

$

(472)

$

(9,275)

$

509,374

Net loss

(595)

(595)

Issuance of common stock upon initial public offering, net of underwriting discounts and commissions and offering costs

12,500,000

13

168,823

168,836

Stock-based compensation

 

 

1,698

 

 

 

1,698

Exercise of stock options

74,854

593

593

Vesting of restricted stock

41,140

 

 

 

 

 

Foreign currency translation adjustments, net of tax

(110)

(110)

Balances at September 30, 2019

77,757,500

$

78

$

690,170

$

(582)

$

(9,870)

$

679,796

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

PING IDENTITY HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

(unaudited)

Nine Months Ended September 30, 2020:

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

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

(8,078)

(8,078)

Stock-based compensation

 

 

10,720

 

 

 

10,720

Exercise of stock options, net of tax withholding

1,104,481

1

7,372

7,373

Vesting of restricted stock, net of tax withholding

266,526

 

 

(2,769)

 

 

 

(2,769)

Foreign currency translation adjustments, net of tax

 

 

 

(162)

 

 

(162)

Balances at September 30, 2020

81,003,507

$

81

$

733,769

$

(561)

$

(15,734)

$

717,555

Nine Months Ended September 30, 2019:

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

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

(3,718)

(3,718)

Issuance of common stock upon initial public offering, net of underwriting discounts and commissions and offering costs

12,500,000

13

168,823

168,836

Stock-based compensation

 

 

3,797

 

 

 

3,797

Exercise of stock options

199,522

 

 

1,571

 

 

 

1,571

Vesting of restricted stock

57,162

 

 

 

 

 

Foreign currency translation adjustments, net of tax

205

205

Balances at September 30, 2019

77,757,500

$

78

$

690,170

$

(582)

$

(9,870)

$

679,796

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

PING IDENTITY HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

Nine Months Ended
September 30, 

    

2020

2019

Cash flows from operating activities

 

  

  

Net loss

$

(8,078)

$

(3,718)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

Loss on extinguishment of debt

 

 

3,150

Depreciation and amortization

 

27,428

 

24,315

Stock-based compensation expense

 

11,983

 

3,797

Amortization of deferred commissions

5,432

4,110

Amortization of deferred debt issuance costs

187

626

Operating leases, net

(105)

Deferred taxes

 

(11,391)

 

(6,910)

Other

 

(13)

 

292

Changes in operating assets and liabilities:

 

 

Accounts receivable

 

18,029

 

15,980

Contract assets

 

2,005

 

(15,931)

Deferred commissions

 

(5,766)

 

(5,295)

Prepaid expenses and other current assets

 

(2,869)

 

(4,486)

Other assets

 

(700)

 

305

Accounts payable

 

(322)

 

736

Accrued compensation

(9,017)

(7,639)

Accrued expenses and other

 

2,682

 

2,302

Deferred revenue

 

(9,515)

 

(3,160)

Net cash provided by operating activities

 

19,970

 

8,474

Cash flows from investing activities

 

  

 

  

Purchases of property and equipment and other

 

(1,716)

 

(4,517)

Capitalized software development costs

 

(9,824)

 

(7,260)

Acquisition of ShoCard, net of cash acquired of $0

(4,703)

Other investing activities

(300)

Net cash used in investing activities

 

(16,243)

 

(12,077)

Cash flows from financing activities

 

  

 

  

Payment of Elastic Beam consideration and holdbacks

 

(424)

 

(1,136)

Proceeds from initial public offering, net of underwriting discounts and commissions

174,375

Payment of offering costs

 

(295)

 

(1,093)

Proceeds from stock option exercises

 

9,027

 

1,571

Payment for tax withholding on equity awards

(4,422)

Proceeds from long-term debt

 

97,823

 

Payment of long-term debt

 

 

(171,743)

Net cash provided by financing activities

 

101,709

 

1,974

Effect of exchange rates on cash and cash equivalents and restricted cash

 

132

 

168

Net increase (decrease) in cash and cash equivalents and restricted cash

 

105,568

 

(1,461)

Cash and cash equivalents and restricted cash

 

  

 

  

Beginning of period

 

68,386

 

84,143

End of period

$

173,954

$

82,682

Supplemental disclosures of cash flow information:

 

  

 

  

Cash paid for interest

$

1,728

$

11,441

Cash paid for taxes

 

931

 

417

Noncash activities:

 

  

 

  

Purchases of property and equipment, accrued but not yet paid

$

$

418

Accruals related to the acquisition of ShoCard

226

Offering costs, accrued but not yet paid

 

 

3,295

Lease liabilities arising from right-of-use assets

 

2,717

 

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

$

173,206

$

81,934

Restricted cash included in other noncurrent assets

 

748

 

748

Total cash and cash equivalents and restricted cash

$

173,954

$

82,682

The accompanying notes are an integral part of these condensed consolidated financial statements.

8

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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 September 30, 2020, the condensed consolidated statements of operations, of comprehensive income (loss) and of stockholders’ equity for the three and nine months ended September 30, 2020 and 2019, the condensed consolidated statements of cash flows for the nine months ended September 30, 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 September 30, 2020, the results of operations for the three and nine months ended September 30, 2020 and 2019 and cash flows for the nine months ended September 30, 2020 and 2019. The results for the three and nine months ended September 30, 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, 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

9

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 and nine months ended September 30, 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
September 30, 

Nine Months Ended
September 30, 

2020

2019

2020

2019

(in thousands)

Subscription term-based licenses:

Multi-year subscription term-based licenses

$

22,974

$

28,497

$

68,103

$

80,922

1-year subscription term-based licenses

11,944

12,649

40,276

33,731

Total subscription term-based licenses

34,918

41,146

108,379

114,653

Subscription SaaS and support and maintenance

20,195

16,349

57,820

46,734

Professional services and other

 

4,828

 

4,270

 

14,135

 

13,276

Total revenue

$

59,941

$

61,765

$

180,334

$

174,663

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
September 30, 

Nine Months Ended
September 30, 

2020

2019

2020

2019

(in thousands)

United States

$

41,818

$

46,305

$

129,473

$

136,010

International

 

18,123

 

15,460

 

50,861

 

38,653

Total revenue

$

59,941

$

61,765

$

180,334

$

174,663

10

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Other than the United States, no other individual country exceeded 10% of total revenue for the three months ended September 30, 2020 and 2019 or the nine months ended September 30, 2020 and 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
September 30, 

Nine Months Ended
September 30, 

2020

2019

2020

2019

(in thousands)

Beginning balance

$

84,701

$

75,637

$

86,010

$

67,468

Ending balance

84,005

83,399

84,005

83,399

Change

$

(696)

$

7,762

$

(2,005)

$

15,931

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
September 30, 

Nine Months Ended
September 30, 

2020

2019

2020

2019

    

(in thousands)

Beginning balance

$

39,964

$

35,490

$

47,507

$

35,367

Ending balance

37,992

32,207

37,992

32,207

Change

$

(1,972)

$

(3,283)

$

(9,515)

$

(3,160)

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 three and nine months ended September 30, 2020 and 2019 that was included in the deferred revenue balances at the beginning of the respective periods was as follows:

Three Months Ended
September 30, 

Nine Months Ended
September 30, 

    

2020

2019

2020

2019

(in thousands)

Deferred revenue recognized as revenue

$

5,314

$

4,805

$

40,529

$

29,106

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 September 30, 2020, the Company had $134.6 million of transaction price allocated to remaining performance obligations, of which 88% is expected to be recognized as revenue over the next 24 months, with the remainder to be recognized thereafter.

11

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Deferred Commissions

The following table summarizes the account activity of deferred commissions for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended
September 30, 

Nine Months Ended
September 30, 

2020

2019

2020

2019

(in thousands)

Beginning balance

$

13,095

$

11,902

$

13,670

$

11,033

Additions to deferred commissions

2,580

1,666

5,766

5,295

Amortization of deferred commissions

 

(1,671)

 

(1,350)

 

(5,432)

 

(4,110)

Ending balance

$

14,004

$

12,218

$

14,004

$

12,218

Deferred commissions, current

$

5,773

$

4,846

$

5,773

$

4,846

Deferred commissions, noncurrent

8,231

7,372

8,231

7,372

Total deferred commissions

$

14,004

$

12,218

$

14,004

$

12,218

Recent Accounting Pronouncements

Under the Jumpstart Our Business Startups Act (the “JOBS Act”), emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. The Company elected to use the extended transition period for complying with new or revised accounting standards under the JOBS Act until it is no longer an emerging growth company or until it chooses to affirmatively and irrevocably opt out of the extended transition period. On June 30, 2020, the last day of the Company’s second fiscal quarter in 2020, the market value of the Company’s common stock held by non-affiliates exceeded $700 million. Accordingly, the Company will be deemed a large accelerated filer as of December 31, 2020 and can no longer take advantage of the extended timeline to comply with new or revised accounting standards applicable to public companies beginning with its Annual Report on Form 10-K for the year ending December 31, 2020.

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 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.”

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;

12

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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. For public companies, ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within that reporting period. For all other entities, including emerging growth companies, ASU 2016-13 and its amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. As the Company will be designated a large accelerated filer on December 31, 2020, it plans to adopt ASU 2016-13 in the fourth quarter of 2020 for the year ended December 31, 2020. The Company is currently evaluating the impact of the adoption of these pronouncements on its condensed consolidated financial statements and related disclosures.

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. 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. For public companies, the effective date of this pronouncement is for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, 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. Early adoption is permitted. As the Company will be designated a large accelerated filer on December 31, 2020, it plans

13

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

to adopt ASU 2018-15 in the fourth quarter of 2020 for the year ended December 31, 2020. While the Company is currently evaluating the impact of this pronouncement on its condensed consolidated financial statements and related disclosures, it does not expect the adoption of ASU 2018-15 to be material.

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. For public entities, ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. For all other 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. 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.

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:

September 30, 2020

    

Level 1

    

Level 2

    

Level 3

    

Total

(in thousands)

Cash and cash equivalents:

Money market funds

$

140,074

$

$

$

140,074

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).

14

Table of Contents

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

4.   Property and Equipment

Property and equipment consisted of the following:

September 30, 

December 31, 

2020

    

2019

    

(in thousands)

Computer equipment

$

6,082

$

5,729

Furniture and fixtures

3,798

3,757

Purchased computer software

785

785

Leasehold improvements

7,492

7,086

Other

448

448

Property and equipment, gross

18,605

17,805

Less: Accumulated depreciation

(9,041)

(6,622)

Property and equipment, net

$

9,564

$

11,183

Depreciation expense for the three months ended September 30, 2020 and 2019 was $0.9 million and $0.7 million, respectively. Depreciation expense for the nine months ended September 30, 2020 and 2019 was $2.8 million and $2.1 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.

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

 

964

 

Indefinite

Deferred tax asset

1,005

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

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

goodwill is deductible for tax purposes. The Company incurred $0.6 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 nine months ended September 30, 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.

Elastic Beam Inc. Acquisition

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 included 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 was payable on the first and second anniversary of the acquisition, respectively. During the nine months ended September 30, 2019, the Company paid the first anniversary payment of $1.1 million. During the nine months ended September 30, 2020, the Company paid the second anniversary payment of $0.5 million.

$4.8 million and $4.2 million of contingent compensation was payable on the first and second anniversary of the acquisition, respectively, contingent on certain individuals remaining employed as of those dates. As these payments were subject to the continued employment of those individuals, they were recognized through compensation expense as incurred. During the nine months ended September 30, 2019, the Company paid the first anniversary payment of $4.8 million. During the nine months ended September 30, 2020, the Company paid the second anniversary payment of $4.2 million.

The following table summarizes the allocation of the purchase price, based on the 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.

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Additional Acquisition Related Information

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 from December 31, 2019 to September 30, 2020 were as follows (in thousands):

Beginning balance

$

417,696

Additions to goodwill related to acquisitions

 

964

Ending balance

$

418,660

The Company’s intangible assets as of September 30, 2020 were as follows: