Table of Contents

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 SeptemberJune 30, 20192021

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

GraphicGraphic

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, Colorado80202

(Address of Principal executive offices, including zip code)

1001 17th Street, Suite 100

Denver, Colorado

80202

(Address of Principal executive offices)

(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  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 November 8, 2019,July 30, 2021, the Registrant had 79,632,50082,088,438 shares of common stock, $0.001 par value, outstanding.

Table of Contents

PING IDENTITY HOLDING CORP.

FORM 10-Q

For the Quarter Ended SeptemberJune 30, 20192021

TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)

3

Condensed Consolidated Balance Sheets as of SeptemberJune 30, 20192021 and December 31, 20182020

3

Condensed Consolidated Statements of Operations for the Three and NineSix Months Ended SeptemberJune 30, 20192021 and 20182020

4

Condensed Consolidated Statements of Comprehensive Loss for the Three and NineSix Months Ended SeptemberJune 30, 20192021 and 20182020

5

Condensed Consolidated Statements of Stockholders’ Equity for the Three and NineSix Months Ended SeptemberJune 30, 20192021 and 20182020

6

Condensed Consolidated Statements of Cash Flows for the NineSix Months Ended SeptemberJune 30, 20192021 and 20182020

8

Notes to Condensed Consolidated Financial Statements

9

Forward-Looking Statements

2627

Item 2.

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

2830

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

4648

Item 4.

Controls and Procedures

4749

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

4950

Item 1A.

Risk Factors

4950

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

4950

Item 3.

Defaults Upon Senior Securities

50

Item 4.

Mine Safety Disclosures

50

Item 5.

Other Information

50

Item 6.

Exhibits

50

Signatures

52

2

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, 

    

2019

    

2018

Assets

Current assets:

Cash and cash equivalents

$

81,934

$

83,499

Accounts receivable, net of allowances of $735 and $455 at September 30, 2019 and December 31, 2018, respectively

 

33,760

 

50,108

Contract assets, current

66,608

53,435

Deferred commissions, current

4,846

3,746

Prepaid expenses and other current assets

 

14,094

 

10,644

Total current assets

 

201,242

 

201,432

Noncurrent assets:

Property and equipment, net

 

8,226

 

5,630

Goodwill

 

417,696

 

417,696

Intangible assets, net

 

192,283

 

207,043

Contract assets, noncurrent

16,791

14,033

Deferred commissions, noncurrent

7,372

7,287

Deferred income taxes, net

 

2,622

 

1,829

Other noncurrent assets

 

1,866

 

2,073

Total noncurrent assets

 

646,856

 

655,591

Total assets

$

848,098

$

857,023

Liabilities and stockholders' equity

 

  

 

Current liabilities:

 

  

 

Accounts payable

$

2,839

$

1,766

Accrued expenses and other current liabilities

 

10,165

 

7,906

Accrued compensation

 

10,808

 

18,394

Deferred revenue, current

30,613

31,493

Current portion of long-term debt

 

774

 

2,500

Total current liabilities

 

55,199

 

62,059

Noncurrent liabilities:

 

  

 

Deferred revenue, noncurrent

 

1,594

 

3,874

Long-term debt, net of current portion

 

74,810

 

241,051

Deferred income taxes, net

 

33,839

 

39,112

Other liabilities, noncurrent

 

2,860

 

1,822

Total noncurrent liabilities

 

113,103

 

285,859

Total liabilities

 

168,302

 

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 September 30, 2019 and December 31, 2018, respectively; 0 shares issued or outstanding at September 30, 2019 or December 31, 2018

Common stock; $0.001 par value; 500,000,000 and 85,000,000 shares authorized at September 30, 2019 and December 31, 2018, respectively; 77,757,500 and 65,000,816 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively

78

65

Additional paid-in capital

 

690,170

 

515,979

Accumulated other comprehensive loss

 

(582)

 

(787)

Accumulated deficit

 

(9,870)

 

(6,152)

Total stockholders' equity

 

679,796

 

509,105

Total liabilities and stockholders' equity

$

848,098

$

857,023

June 30, 

December 31, 

    

2021

    

2020

Assets

Current assets:

Cash and cash equivalents

$

104,342

$

145,733

Accounts receivable, net of allowances of $645 and $828 at June 30, 2021 and December 31, 2020, respectively

 

64,720

 

82,335

Contract assets, current (net of allowance)

62,955

62,503

Deferred commissions, current

7,711

6,604

Prepaid expenses

14,061

17,608

Other current assets

 

2,239

 

1,940

Total current assets

 

256,028

 

316,723

Noncurrent assets:

Property and equipment, net

 

8,753

 

9,446

Goodwill

 

473,697

 

441,150

Intangible assets, net

 

179,324

 

180,422

Contract assets, noncurrent (net of allowance)

5,159

11,288

Deferred commissions, noncurrent

11,753

9,325

Deferred income taxes, net

 

3,370

 

3,962

Operating lease right-of-use assets

14,085

15,619

Other noncurrent assets

 

2,944

 

2,516

Total noncurrent assets

 

699,085

 

673,728

Total assets

$

955,113

$

990,451

Liabilities and stockholders' equity

 

  

 

Current liabilities:

 

  

 

Accounts payable

$

2,944

$

2,795

Accrued expenses and other current liabilities

 

7,730

 

7,339

Accrued compensation

 

20,165

 

17,170

Deferred revenue, current

43,431

49,203

Operating lease liabilities, current

4,097

3,979

Total current liabilities

 

78,367

 

80,486

Noncurrent liabilities:

 

  

 

Deferred revenue, noncurrent

 

4,288

 

3,195

Long-term debt

 

119,138

 

149,014

Deferred income taxes, net

 

9,603

 

17,867

Operating lease liabilities, noncurrent

15,216

17,213

Other liabilities, noncurrent

 

1,565

 

1,566

Total noncurrent liabilities

 

149,810

 

188,855

Total liabilities

 

228,177

 

269,341

Commitments and contingencies (Note 14)

 

  

 

Stockholders' equity:

 

  

 

Preferred stock; $0.001 par value; 50,000,000 shares authorized at June 30, 2021 and December 31, 2020; 0 shares issued or outstanding at June 30, 2021 or December 31, 2020

Common stock; $0.001 par value; 500,000,000 shares authorized at June 30, 2021 and December 31, 2020; 82,086,665 and 81,163,896 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

82

81

Additional paid-in capital

 

771,332

 

739,051

Accumulated other comprehensive income

 

1,830

 

1,373

Accumulated deficit

 

(46,308)

 

(19,395)

Total stockholders' equity

 

726,936

 

721,110

Total liabilities and stockholders' equity

$

955,113

$

990,451

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, 

Three Months Ended
June 30, 

Six Months Ended
June 30, 

    

2019

    

2018

    

2019

    

2018

    

2021

    

2020

    

2021

    

2020

Revenue:

 

  

 

  

 

  

 

  

Subscription

$

57,495

$

38,481

$

161,387

$

129,057

$

73,151

$

54,268

$

137,367

$

111,086

Professional services and other

 

4,270

 

4,138

 

13,276

 

13,012

 

5,753

 

4,713

 

10,481

 

9,307

Total revenue

 

61,765

 

42,619

 

174,663

 

142,069

 

78,904

 

58,981

 

147,848

 

120,393

Cost of revenue:

Subscription (exclusive of amortization shown below)

5,995

4,526

16,828

12,785

10,185

7,509

19,599

14,618

Professional services and other (exclusive of amortization shown below)

 

4,086

 

3,347

 

11,002

 

9,184

 

6,142

 

4,226

 

11,725

 

8,239

Amortization expense

 

4,159

 

3,549

 

11,981

 

10,613

 

6,077

 

4,944

 

11,886

 

9,546

Total cost of revenue

14,240

11,422

39,811

32,582

22,404

16,679

43,210

32,403

Gross profit

 

47,525

 

31,197

 

134,852

 

109,487

 

56,500

 

42,302

 

104,638

 

87,990

Operating expenses:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Sales and marketing

 

17,819

 

13,690

 

55,153

 

41,811

 

29,082

 

20,751

 

54,631

 

42,941

Research and development

 

11,283

 

9,634

 

33,594

 

26,027

 

18,692

 

11,411

 

40,394

 

23,625

General and administrative

 

10,984

 

6,411

 

26,732

 

19,490

 

19,545

 

12,082

 

34,000

 

23,597

Depreciation and amortization

 

4,060

 

3,976

 

12,334

 

12,332

 

4,327

 

4,233

 

8,692

 

8,482

Total operating expenses

 

44,146

 

33,711

 

127,813

 

99,660

 

71,646

 

48,477

 

137,717

 

98,645

Income (loss) from operations

 

3,379

 

(2,514)

 

7,039

 

9,827

Loss from operations

 

(15,146)

 

(6,175)

 

(33,079)

 

(10,655)

Other income (expense):

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Interest expense

 

(3,818)

 

(3,959)

 

(12,067)

 

(11,750)

 

(310)

 

(724)

 

(706)

 

(1,230)

Loss on extinguishment of debt

(3,150)

(3,150)

(9,785)

Other income (expense), net

 

(992)

 

(131)

 

(767)

 

(1,043)

 

430

 

695

 

(442)

 

(555)

Total other income (expense)

 

(7,960)

 

(4,090)

 

(15,984)

 

(22,578)

 

120

 

(29)

 

(1,148)

 

(1,785)

Loss before income taxes

 

(4,581)

 

(6,604)

 

(8,945)

 

(12,751)

 

(15,026)

 

(6,204)

 

(34,227)

 

(12,440)

Benefit for income taxes

 

3,986

 

983

 

5,227

 

1,374

 

4,047

 

2,932

 

7,314

 

4,876

Net loss

$

(595)

$

(5,621)

$

(3,718)

$

(11,377)

$

(10,979)

$

(3,272)

$

(26,913)

$

(7,564)

Net loss per share:

Basic and diluted

$

(0.01)

$

(0.09)

$

(0.06)

$

(0.18)

$

(0.13)

$

(0.04)

$

(0.33)

$

(0.09)

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

Basic and diluted

 

66,269

 

65,004

 

65,436

 

65,002

 

82,025

 

80,169

 

81,684

 

79,956

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, 

Three Months Ended
June 30, 

Six Months Ended
June 30, 

2019

2018

2019

2018

2021

2020

2021

2020

Net loss

$

(595)

$

(5,621)

$

(3,718)

$

(11,377)

$

(10,979)

$

(3,272)

$

(26,913)

$

(7,564)

Other comprehensive income (loss), net of tax:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Foreign currency translation adjustments

 

(110)

 

139

 

205

 

(347)

 

207

 

351

 

457

 

(664)

Total other comprehensive income (loss)

 

(110)

 

139

 

205

 

(347)

 

207

 

351

 

457

 

(664)

Comprehensive loss

$

(705)

$

(5,482)

$

(3,513)

$

(11,724)

$

(10,772)

$

(2,921)

$

(26,456)

$

(8,228)

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 SeptemberJune 30, 2019:2021:

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders'

    

Shares

    

Amount

    

Capital

    

Income

    

Deficit

    

Equity

Balances at March 31, 2021

81,475,176

$

81

$

759,645

$

1,623

$

(35,329)

$

726,020

Net loss

(10,979)

(10,979)

Stock-based compensation

 

 

17,167

 

 

 

17,167

Exercise of stock options, net of tax withholding

22,377

30

30

Vesting of restricted stock units, net of tax withholding

589,112

 

1

 

(5,510)

 

 

 

(5,509)

Foreign currency translation adjustments, net of tax

 

 

 

207

 

 

207

Balances at June 30, 2021

82,086,665

$

82

$

771,332

$

1,830

$

(46,308)

$

726,936

Three Months Ended June 30, 2020:

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

Three Months Ended September 30, 2018:

Accumulated

Retained

Accumulated

Additional

Other

Earnings

Total

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

(Accumulated

Stockholders'

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders'

    

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Deficit)

    

Equity

    

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Deficit

    

Equity

Balances at June 30, 2018

65,001,964

$

65

$

514,487

$

(372)

$

1,538

$

515,718

Balances at March 31, 2020

79,923,114

$

80

$

721,181

$

(1,414)

$

(11,796)

$

708,051

Net loss

(5,621)

(5,621)

(3,272)

(3,272)

Stock-based compensation

 

 

704

 

 

 

704

 

 

4,164

 

 

 

4,164

Vesting of restricted stock

5,312

 

 

 

 

 

Repurchase of common stock

(6,460)

 

 

(76)

 

 

 

(76)

Exercise of stock options, net of tax withholding

512,219

4,257

4,257

Vesting of restricted stock units

9,174

 

 

 

 

 

Foreign currency translation adjustments, net of tax

139

139

351

351

Balances at September 30, 2018

65,000,816

$

65

$

515,115

$

(233)

$

(4,083)

$

510,864

Balances at June 30, 2020

80,444,507

$

80

$

729,602

$

(1,063)

$

(15,068)

$

713,551

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)

NineSix Months Ended SeptemberJune 30, 2019:2021:

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders'

    

Shares

    

Amount

    

Capital

    

Income

    

Deficit

    

Equity

Balances at December 31, 2020

81,163,896

$

81

$

739,051

$

1,373

$

(19,395)

$

721,110

Net loss

(26,913)

(26,913)

Stock-based compensation

 

 

33,467

 

 

 

33,467

Reclassification of liability-classified awards upon settlement

3,089

3,089

Exercise of stock options, net of tax withholding

220,482

1,801

1,801

Vesting of restricted stock units, net of tax withholding

702,287

 

1

 

(6,076)

 

 

 

(6,075)

Foreign currency translation adjustments, net of tax

 

 

 

457

 

 

457

Balances at June 30, 2021

82,086,665

$

82

$

771,332

$

1,830

$

(46,308)

$

726,936

Six Months Ended June 30, 2020:

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

Nine Months Ended September 30, 2018:

Accumulated

Retained

Accumulated

Additional

Other

Earnings

Total

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

(Accumulated

Stockholders'

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders'

    

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Deficit)

    

Equity

    

Shares

    

Amount

    

Capital

    

Loss

    

Deficit

    

Equity

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)

Balances at December 31, 2019

79,632,500

$

80

$

718,446

$

(399)

$

(7,656)

$

710,471

Cumulative-effect adjustment for adoption of ASU 2016-13

152

152

Net loss

(11,377)

(11,377)

(7,564)

(7,564)

Stock-based compensation

 

 

1,984

 

 

 

1,984

6,764

6,764

Vesting of restricted stock

10,625

 

 

 

 

 

Repurchase of common stock

(6,460)

(76)

(76)

Exercise of stock options, net of tax withholding

785,663

 

 

4,392

 

 

 

4,392

Vesting of restricted stock units

26,344

 

 

 

 

 

Foreign currency translation adjustments, net of tax

(347)

(347)

 

 

 

(664)

 

 

(664)

Balances at September 30, 2018

65,000,816

$

65

$

515,115

$

(233)

$

(4,083)

$

510,864

Balances at June 30, 2020

80,444,507

$

80

$

729,602

$

(1,063)

$

(15,068)

$

713,551

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, 

Six Months Ended
June 30, 

    

2019

2018

    

2021

2020

Cash flows from operating activities

 

  

  

 

  

  

Net loss

$

(3,718)

$

(11,377)

$

(26,913)

$

(7,564)

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

 

 

 

 

Loss on extinguishment of debt

 

3,150

 

9,785

Depreciation and amortization

 

24,315

 

22,945

 

20,578

 

18,028

Stock-based compensation expense

 

3,797

 

1,984

 

34,415

 

7,402

Amortization of deferred commissions

4,110

2,716

4,674

3,761

Amortization of deferred debt issuance costs

626

673

124

124

Operating leases, net

(346)

(21)

Deferred taxes

 

(6,910)

 

(1,755)

 

(7,624)

 

(5,280)

Other

 

292

 

(50)

 

63

 

668

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable

 

15,980

 

10,903

 

17,621

 

8,727

Contract assets

 

(15,931)

 

(2,710)

 

5,653

 

1,309

Deferred commissions

 

(5,295)

 

(4,543)

 

(8,209)

 

(3,186)

Prepaid expenses and other current assets

 

(4,486)

 

(472)

 

3,405

 

7,186

Other assets

 

305

 

126

 

(426)

 

220

Accounts payable

 

736

 

111

 

348

 

3,894

Accrued compensation

(7,639)

(1,828)

4,280

(8,724)

Accrued expenses and other

 

2,302

 

(297)

 

1,338

 

2,243

Deferred revenue

 

(3,160)

 

(2,526)

 

(5,016)

 

(7,543)

Net cash provided by operating activities

 

8,474

 

23,685

 

43,965

 

21,244

Cash flows from investing activities

 

  

 

  

 

  

 

  

Payments for business acquisitions, net of cash acquired

(39,875)

(4,703)

Purchases of property and equipment and other

 

(4,517)

 

(2,081)

 

(1,502)

 

(1,420)

Capitalized software development costs

 

(7,260)

 

(4,314)

 

(8,582)

 

(6,749)

Acquisition of Elastic Beam, net of cash acquired of $0

 

 

(17,414)

Other investing activities

(300)

Net cash used in investing activities

 

(12,077)

 

(23,809)

 

(49,959)

 

(12,872)

Cash flows from financing activities

 

 

  

 

  

 

  

Payment of Symphonic and ShoCard holdbacks

 

(993)

 

Payment of Elastic Beam consideration and holdbacks

 

(1,136)

 

(424)

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

174,375

Payment of offering costs

 

(1,093)

 

(52)

 

 

(295)

Proceeds from stock option exercises

 

1,571

 

 

1,900

 

6,046

Repurchase of common stock

(76)

Payment for tax withholding on equity awards

(6,174)

(1,653)

Proceeds from long-term debt

 

 

250,000

 

80,000

 

97,823

Issuance costs of long-term debt

 

 

(5,994)

Payment of long-term debt

 

(171,743)

 

(170,625)

 

(110,000)

 

Payment of debt extinguishment costs

 

 

(5,085)

Net cash provided by financing activities

 

1,974

 

68,168

Net cash provided by (used in) financing activities

 

(35,267)

 

101,497

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

 

168

 

(310)

 

(130)

 

(406)

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

 

(1,461)

 

67,734

 

(41,391)

 

109,463

Cash and cash equivalents and restricted cash

 

  

 

  

 

  

 

  

Beginning of period

 

84,143

 

21,469

 

146,499

 

68,386

End of period

$

82,682

$

89,203

$

105,108

$

177,849

Supplemental disclosures of cash flow information:

 

  

 

  

 

  

 

  

Cash paid for interest

$

11,441

$

9,646

$

584

$

1,186

Cash paid for taxes

 

417

 

208

 

283

 

423

Noncash investing and financing activities:

 

  

 

  

Purchases of property and equipment in accounts payable

$

418

$

52

Accruals related to the acquisition of Elastic Beam

 

 

1,560

Offering costs, accrued but not yet paid

 

3,295

 

367

Noncash activities:

 

  

 

  

Purchases of property and equipment, accrued but not yet paid

$

40

$

202

Reclassification of liability-classified awards upon settlement

3,089

Acquisition-related accruals

 

 

226

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

$

81,934

$

88,554

$

104,342

$

177,102

Restricted cash included in other noncurrent assets

 

748

 

649

 

766

 

747

Total cash and cash equivalents and restricted cash

$

82,682

$

89,203

$

105,108

$

177,849

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

8

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, Australia, France, 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 (“U.S. GAAP”). All amounts are reported in U.S. dollars.

Initial Public Offering

On September 23, 2019, Certain amounts for the Company closed its IPO through which it issuedthree and sold 12,500,000 shares of common stock at a price per share of $15.00. The Company received aggregate proceeds of $174.4 million from the IPO, net of underwriters’ discounts and commissions. Upon the closing of the IPO, the Company repaid $170.3 million of its outstanding debt as described in Note 7.six months ended June 30, 2020 have been reclassified to conform with current period presentation.

Unaudited Interim Condensed Consolidated Financial Information

The accompanying interim condensed consolidated balance sheet as of SeptemberJune 30, 2019,2021, the condensed consolidated statements of operations, of comprehensive income (loss) and of stockholders’ equity for the three and ninesix months ended SeptemberJune 30, 20192021 and 2018,2020, the condensed consolidated statements of cash flows for the ninesix months ended SeptemberJune 30, 20192021 and 20182020 and the related footnote disclosures are unaudited. The condensed consolidated balance sheet data as of December 31, 20182020 was derived from audited financial statements, but does not include all disclosures required by U.S. 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 final prospectus (the “IPO Prospectus”)Annual Report on Form 10-K for its initial public offering (“IPO”) dated as of September 18, 2019 and filed with the Securities and Exchange Commission (the “SEC”) pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the “Securities Act”).year ended December 31, 2020.

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 SeptemberJune 30, 2019,2021, the results of operations for the three and ninesix months ended SeptemberJune 30, 20192021 and 20182020 and cash flows for the ninesix months ended SeptemberJune 30, 20192021 and 2018.2020. The results for the three and ninesix months ended SeptemberJune 30, 20192021 are not necessarily indicative of the results to be expected for the year ending December 31, 20192021 or for any future period.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. 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, determining the fair values of assets acquired and liabilities assumed in business combinations, valuing stock option awards and assessing the probability of the awards meeting vesting conditions, recognizing revenue, establishing allowances for expected credit losses based on expected credit losses and the collectability of financial assets, determining useful lives for finite-lived assets, assessing the recoverability of long-lived assets, determining the value of right-of-use assets and lease liabilities, accounting for income taxes and related valuation allowances against deferred tax

9

Table of Contents

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

include, but are not limited to, establishing allowances for doubtful accounts, determining useful lives for definite lived assets, assessing the recoverability of long lived assets (property and equipment and intangible 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.estimates due to risks and uncertainties, including the continued uncertainty surrounding rapidly changing market and economic conditions due to the novel Coronavirus Disease 2019 (“COVID-19”) pandemic.

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 IPO Prospectus.Company’s Annual Report on Form 10-K for the year ended December 31, 2020. 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 ninesix months ended SeptemberJune 30, 2019.2021. The following describes the impact of certain policies.

Stock SplitRecent Accounting Pronouncements

On September 5,In December 2019, the Company effected a 170-for-1 stock split of itsFinancial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 outstanding shares of common stock and made comparable and equitable adjustments to its equity awards in accordance with the termsclarifies certain aspects of the awards.current guidance to improve consistent application among reporting entities. Effective January 1, 2021, the Company adopted ASU 2019-12. The par value of the common and preferred stock wasadoption did not adjusted ashave a result of the stock split. Accordingly, all share and per share amounts for the periods presented in the accompanyingmaterial impact on its condensed consolidated financial statementsstatements.

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 notes theretoincludes 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. Adoption of ASU 2020-04 did not have been adjusted retrospectively, where applicable, to reflect this stock split. In connection with the stock split,a material impact on the Company’s Board of Directorscondensed consolidated financial statements.

3.       Revenue Recognition 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, $5.5 million of offering costs was reclassified to stockholders’ equity and recorded against the proceeds from the offering.

Revenue RecognitionDeferred Commissions

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.

10

Table of Contents

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Disaggregation of Revenue

The following table presents revenue by category:

Three Months Ended September 30, 

Nine Months Ended September 30, 

2019

2018

2019

2018

(in thousands)

Subscription term-based licenses:

Multi-year subscription term-based licenses

$

28,497

$

14,567

$

80,922

$

59,077

1-year subscription term-based licenses

12,649

10,673

33,731

32,118

Total subscription term-based licenses

41,146

25,240

114,653

91,195

Subscription SaaS and support and maintenance

16,349

13,241

46,734

37,862

Professional services and other

4,270

4,138

13,276

13,012

Total revenue

$

61,765

$

42,619

$

174,663

$

142,069

Three Months Ended
June 30, 

Six Months Ended
June 30, 

2021

2020

2021

2020

(in thousands)

Subscription term-based licenses:

Multi-year subscription term-based licenses

$

32,391

$

21,141

$

56,229

$

45,129

1-year subscription term-based licenses

15,464

14,183

32,808

28,332

Total subscription term-based licenses

47,855

35,324

89,037

73,461

Subscription SaaS

13,425

8,890

25,411

17,416

Maintenance and support

11,871

10,054

22,919

20,209

Total subscription revenue

73,151

54,268

137,367

111,086

Professional services and other

 

5,753

 

4,713

 

10,481

 

9,307

Total revenue

$

78,904

$

58,981

$

147,848

$

120,393

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, 

Three Months Ended

June 30, 

Six Months Ended

June 30, 

2019

2018

2019

2018

2021

2020

2021

2020

(in thousands)

(in thousands)

United States

$

46,305

$

33,418

$

136,010

$

109,059

$

56,934

$

44,626

$

110,805

$

87,655

International

 

15,460

 

9,201

 

38,653

 

33,010

 

21,970

 

14,355

 

37,043

 

32,738

Total revenue

$

61,765

$

42,619

$

174,663

$

142,069

$

78,904

$

58,981

$

147,848

$

120,393

Other than the United States, no other individual country exceeded 10% of total revenue for the three months ended SeptemberJune 30, 20192021 and 20182020 or the ninesix months ended SeptemberJune 30, 20192021 and 2018.2020.

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 condensed consolidated balance sheets. The change in the total contract asset balance relates to entering into new multi-year contracts and billing on existing contracts.The opening and closing balances of contract assets were as follows:

Three Months Ended

September 30, 

Nine Months Ended

September 30, 

Three Months Ended

June 30, 

Six Months Ended

June 30, 

2019

2018

2019

2018

2021

2020

2021

2020

(in thousands)

(in thousands)

Beginning balance

$

75,637

$

64,450

$

67,468

$

60,662

$

69,681

$

85,150

$

73,791

$

86,010

Ending balance

83,399

63,372

83,399

63,372

68,114

84,640

68,114

84,640

Change

$

7,762

$

(1,078)

$

15,931

$

2,710

$

(1,567)

$

(510)

$

(5,677)

$

(1,370)

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:

11

Table of Contents

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Three Months Ended

September 30, 

Nine Months Ended

September 30, 

2019

2018

2019

2018

(in thousands)

Beginning balance

$

35,490

$

31,160

$

35,367

$

33,810

Ending balance

32,207

31,399

32,207

31,399

Change

$

(3,283)

$

239

$

(3,160)

$

(2,411)

Contract liabilities consist of customer billings in advance of revenue being recognized. The changeCompany 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 condensed consolidated balance sheets. The opening and closing balances of contract liabilities included 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, 2019 and 2018 that was included in the deferred revenue balances at the beginning of the respective periods waswere as follows:

Three Months Ended

September 30, 

Nine Months Ended

September 30, 

2019

2018

2019

2018

(in thousands)

Deferred revenue recognized as revenue

$

4,805

$

4,056

$

29,106

$

26,753

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, 2019, the Company had $109.3 million of transaction price allocated to remaining performance obligations, of which 87% 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 and nine months ended September 30, 2019 and 2018:

Three Months Ended

SeptemberJune 30, 

NineSix Months Ended

SeptemberJune 30, 

20192021

20182020

20192021

20182020

(in thousands)

Beginning balance

$

11,90249,352

$

7,34238,343

$

11,03352,398

$

6,354

Additions to deferred commissions

1,666

1,862

5,295

4,543

Amortization of deferred commissions

(1,350)

(1,023)

(4,110)

(2,716)47,507

Ending balance

$

12,218

$

8,181

$

12,218

$

8,181

47,719

39,964

47,719

39,964

Deferred commissions, currentChange

$

4,846(1,633)

$

2,6521,621

$

4,846(4,679)

$

2,652

Deferred commissions, noncurrent

7,372

5,529

7,372

5,529

Total deferred commissions

$

12,218

$

8,181

$

12,218

$

8,181(7,543)

Recent Accounting PronouncementsThe 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 six months ended June 30, 2021 and 2020 that was included in the deferred revenue balances at the beginning of the respective periods was as follows:

In February 2016,

Three Months Ended
June 30, 

Six Months Ended
June 30, 

    

2021

2020

2021

2020

(in thousands)

Deferred revenue recognized as revenue

$

12,101

$

12,247

$

38,036

$

35,215

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 June 30, 2021, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”),Company had $185.1 million of transaction price allocated to remaining performance obligations, of which supersedes the guidance in topic ASC 840, Leases. The new standard requires lessees82% is expected to apply a dual approach, classifying leasesbe recognized 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 basisrevenue over the termnext 24 months, with the remainder to be recognized thereafter.

Deferred Commissions

The following table summarizes the account activity of deferred commissions for the lease. A lessee is also required to record a right-of-use assetthree and a lease liability for all leases with a term of greater than 12six months regardless of their classification. Leases with a term of 12 monthsended June 30, 2021 and 2020:

Three Months Ended

June 30, 

Six Months Ended

June 30, 

2021

2020

2021

2020

(in thousands)

Beginning balance

$

16,534

$

13,104

$

15,929

$

13,670

Additions to deferred commissions

5,275

1,650

8,209

3,186

Amortization of deferred commissions

 

(2,345)

 

(1,659)

 

(4,674)

 

(3,761)

Ending balance

$

19,464

$

13,095

$

19,464

$

13,095

Deferred commissions, current

$

7,711

$

5,355

$

7,711

$

5,355

Deferred commissions, noncurrent

11,753

7,740

11,753

7,740

Total deferred commissions

$

19,464

$

13,095

$

19,464

$

13,095

12

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

or less will be accounted4.       Allowances for similar to existing guidanceExpected Credit Losses

The following table presents the changes in allowance for operating leases today. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 942, Leases, and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which affect certain aspects of the previously issued guidance. Amendments include an additional transition method that allows entities to apply the new standard on the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings, as well as a new practical expedientexpected credit losses for lessors. The new leasing guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within fiscal years beginning after December 15, 2020. 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, the Company expects that the majority of its operating lease commitments will materially increase totalfinancial assets and total liabilities on its condensed consolidated balance sheet upon adoption. The Company is continuing to evaluate the impact of ASU 2016-02, so an estimated dollar value impact has not been determined. The Company does not believe that ASU 2016-02 will have a material impact on its condensed consolidated statements of operations and cash flows.measured at amortized cost:

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. ASU 2016-13 is effective for fiscal years beginning after December 15, 2021, 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 condensed consolidated financial statements.

Accounts
Receivable

    

Contract
Assets

    

Accounts
Receivable

    

Contract
Assets

Three Months Ended June 30, 2021

Six Months Ended June 30, 2021

(in thousands)

Beginning balance

$

652

$

80

$

828

$

87

Provision for credit losses, net of recoveries

 

28

 

45

 

7

 

38

Write-offs

 

(35)

 

(37)

 

(190)

 

(37)

Ending balance

$

645

$

88

$

645

$

88

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. The Company will adopt ASU 2018-13 in the first quarter of 2020 and though the Company is currently assessing the impact of adopting the updated provisions, it is not expected to 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.

3.       5.  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.

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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, 2019

Level 1

Level 2

Level 3

Total

(in thousands)

Cash and cash equivalents:

Money market funds

$

50,718

$

$

$

50,718

June 30, 2021

    

Level 1

    

Level 2

    

Level 3

    

Total

(in thousands)

Cash and cash equivalents:

Money market funds

$

45,001

$

$

$

45,001

December 31, 2018

December 31, 2020

    

Level 1

    

Level 2

    

Level 3

    

Total

    

Level 1

    

Level 2

    

Level 3

    

Total

(in thousands)

(in thousands)

Cash and cash equivalents:

Money market funds

$

57,974

$

$

$

57,974

$

113,083

$

$

$

113,083

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)9).

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

4.6.   Property and Equipment

Property and equipment consisted of the following:

September 30, 

December 31, 

June 30, 

December 31, 

2019

    

2018

2021

    

2020

    

(in thousands)

    

(in thousands)

Computer equipment

$

5,456

$

4,218

$

7,639

$

6,581

Furniture and fixtures

2,540

1,920

3,893

3,887

Purchased computer software

785

450

785

785

Leasehold improvements

4,817

2,868

7,899

7,818

Other

444

363

448

448

Property and equipment, gross

14,042

9,819

20,664

19,519

Less: Accumulated depreciation

(5,816)

(4,189)

(11,911)

(10,073)

Property and equipment, net

$

8,226

$

5,630

$

8,753

$

9,446

Depreciation expense was $0.9 million for each of the three months ended SeptemberJune 30, 20192021 and 2018 was $0.7 million and $0.5 million, respectively.2020. Depreciation expense for the ninesix months ended SeptemberJune 30, 20192021 and 20182020 was $2.1$1.8 million and $1.6$1.9 million, respectively.

The Company’s long-lived assets are composed of property and equipment, net and operating lease right-of-use assets, and are summarized by geographic area as follows:

5

    

June 30,

December 31,

    

2021

    

2020

(in thousands)

United States

$

16,642

$

18,367

United Kingdom

2,319

2,410

International

 

3,877

���

 

4,288

Total long-lived assets

$

22,838

$

25,065

7.  Business Combinations

Elastic BeamSecuredTouch, Inc. Acquisition

On April 5, 2018, Ping Identity CorporationJune 20, 2021 the Company acquired 100% of the voting equity interest in Elastic BeamSecuredTouch, Inc., a Delaware Corporation (“Elastic Beam”SecuredTouch”). Elastic BeamSecuredTouch is a machine learning/leader in fraud and bot detection and mitigation, which leverages behavioral biometrics, artificial intelligence, API behavioral security software which detects, reportsmachine learning, and stops cyberattacks on datadeep learning to provide identity, risk, and applications via APIs.fraud teams early visibility into potential malicious activity happening across digital properties. The purpose of this acquisition was to expandaccelerate the Company’s capabilities in identity security, particularly with regard to artificial intelligence.cloud-delivered intelligent-identity solutions that combat malicious behavior such as bots, emulators, and account takeover.

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

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

payableThe total purchase price was $39.9 million, net of cash acquired. The following table summarizes the preliminary allocation of the purchase price, based on the firstestimated fair value of the assets acquired and second anniversaryliabilities assumed at the acquisition date:

    

June 20, 2021

    

Useful Life

(in thousands)

Fair value of net assets acquired

 

  

 

  

Developed technology

$

8,300

 

4 years

Goodwill

 

32,257

 

Indefinite

Other assets

 

167

 

  

Total assets acquired

 

40,724

 

  

Deferred revenue

(337)

Other liabilities

 

(512)

 

  

Total liabilities assumed

 

(849)

 

  

Net assets acquired, excluding cash

$

39,875

 

  

Goodwill is primarily attributable to the workforce acquired and the expected synergies arising from integrating SecuredTouch into the Ping Intelligent Identity Platform to provide customers a more comprehensive offering that extends past traditional workforce use case and accelerates Ping’s cloud-delivered intelligent identity solutions that combat malicious behavior. NaN of the goodwill is deductible for tax purposes. The Company incurred $0.4 million of acquisition-related expenses, which are included in general and administrative expenses on the condensed consolidated statement of operations for the three and six months ended June 30, 2021.

Additional information relating to the SecuredTouch acquisition, such as that related to income tax and other contingencies existing as of the acquisition respectively. During the nine months ended September 30, 2019,date but unknown to the Company, paidmay become known during the first anniversary paymentremainder of $1.1 million.the measurement period, not to exceed one year from the acquisition date, which may result in changes to the amounts and allocations recorded.

$4.8Symphonic Software Limited Acquisition

On October 31, 2020, the Company acquired 100% of the voting equity interest in Symphonic Software Limited (“Symphonic”). Symphonic is a leader in dynamic authorization for protecting APIs, data, apps, and resources through identity. The purpose of this acquisition was to accelerate dynamic and intelligent authorization for enterprises pursuing Zero Trust identity-defined security.

The total purchase price was $28.8 million, net of cash acquired. An additional $0.4 million and $4.2$0.6 million of contingent compensation is payable on the first and second anniversaryin common stock of the acquisition,Company on December 31, 2021 and December 31, 2022, respectively, contingent on certain individuals remaining employed as of those dates.dates and meeting certain performance conditions. As these payments are subject to the continued employment of those individuals, they will be recognized through compensation expense as incurred. DuringSee Note 12 for additional details.

15

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following table summarizes the nine months ended September 30, 2019,preliminary allocation of the purchase price, based on the estimated fair value of the assets acquired and liabilities assumed at the acquisition date:

    

October 31, 2020

    

Useful Life

(in thousands)

Fair value of net assets acquired

 

  

 

  

Developed technology

$

6,999

 

6 years

Product backlog

609

3 years

Customer relationships

246

3 years

Goodwill

 

21,341

 

Indefinite

Contract asset

1,387

Other assets

 

373

 

  

Total assets acquired

 

30,955

 

  

Deferred tax liability

(1,881)

Other liabilities

 

(253)

 

  

Total liabilities assumed

 

(2,134)

 

  

Net assets acquired, excluding cash

$

28,821

 

  

Goodwill is primarily attributable to the workforce acquired and the expected synergies arising from integrating Symphonic into the Ping Intelligent Identity Platform so enterprise customers can cover advanced authorization scenarios that go beyond typical user roles and entitlements. NaN of the goodwill is deductible for tax purposes.

Additional information relating to the Symphonic acquisition, such as that related to income tax and other contingencies existing as of the acquisition date but unknown to the Company, paidmay 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.

ShoCard, Inc. Acquisition

On March 2, 2020, the Company 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 was payable in common stock of the Company on the first and second anniversary payment of $4.8 million.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. On March 2, 2021, the Company settled the first portion of contingent compensation payable. See Note 12 for additional details.

16

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

    

March 2, 2020

    

Useful Life

(in thousands)

(in thousands)

Fair value of net assets acquired

 

  

 

  

 

  

 

  

In process research and development

$

3,006

 

Indefinite

Developed technology

$

3,550

 

7 years

Goodwill

 

15,972

 

Indefinite

 

964

 

Indefinite

Deferred tax asset

108

1,005

Other assets

 

3

 

  

 

11

 

  

Total assets acquired

 

19,089

 

  

 

5,530

 

  

Deferred revenue

 

(115)

 

  

Other liabilities

 

(2)

 

  

Total liabilities assumed

 

(115)

 

  

 

(2)

 

  

Net assets acquired

$

18,974

 

  

$

5,528

 

  

Goodwill is primarily attributable to the workforce acquired and the expected synergies arising from integrating Elastic Beam’s behavioral security softwareShoCard’s identity solution with the Company’s existing security platform.identity solutions. NaN of the goodwill is deductible for tax purposes. The Company incurred $0.1 million and $0.6 million of acquisition-related expenses in conjunction with the Elastic BeamShoCard acquisition, which are included in general and administrative expenses on the condensed consolidated statement of operations for the ninethree and six months ended SeptemberJune 30, 2018.2020, respectively.

Additional Acquisition Related Information

The operating results of Elastic BeamSecuredTouch, Symphonic and ShoCard are included in the Company’s condensed consolidated statements of operations from the datetheir respective dates of acquisition. Revenue and earnings of Elastic BeamSecuredTouch, Symphonic and ShoCard since the datetheir respective dates of acquisition and pro forma results of operations have not been prepared because the effect of the acquisition wasacquisitions were not material to the condensed consolidated statements of operations.

6.8.       Goodwill and Intangible Assets

The changes in the carrying amount of the Company’s goodwill balance from December 31, 2020 to June 30, 2021 were as follows:follows (in thousands):

September 30, 

2019

(in thousands)

Beginning balance

$

417,696

$

441,150

Additions to goodwill related to acquisitions

 

Additions to goodwill related to SecuredTouch acquisition

 

32,257

Foreign currency translation adjustment

290

Ending balance

$

417,696

$

473,697

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The Company’s intangible assets as of SeptemberJune 30, 20192021 were as follows:

September 30, 2019

June 30, 2021

Gross

Accumulated

Net Carrying

Gross

Accumulated

Net Carrying

    

Amount

    

Amortization

    

Value

    

Amount

    

Amortization

    

Value

(in thousands)

(in thousands)

Developed technology

 

$

107,938

 

$

(39,053)

 

$

68,885

 

$

127,844

 

$

(63,248)

 

$

64,596

Customer relationships

 

 

94,875

 

 

(24,329)

 

 

70,546

 

 

95,138

 

 

(37,527)

 

 

57,611

Trade names

 

 

56,612

 

 

(18,339)

 

 

38,273

 

 

56,734

 

 

(28,260)

 

 

28,474

Product backlog

650

(168)

482

Capitalized internal-use software

 

 

18,681

 

 

(5,258)

 

 

13,423

 

44,932

 

 

(17,392)

 

 

27,540

Other intangible assets

 

 

1,059

 

 

(489)

 

 

570

 

 

1,347

 

 

(726)

 

 

621

Total intangible assets subject to amortization

 

 

279,165

 

 

(87,468)

 

 

191,697

In-process research and development

 

 

586

 

 

 

 

586

Total intangible assets

 

$

279,751

 

$

(87,468)

 

$

192,283

 

$

326,645

 

$

(147,321)

 

$

179,324

The Company’s intangible assets as of December 31, 20182020 were as follows:

December 31, 2020

    

Gross

    

Accumulated

    

Net Carrying

    

Amount

    

Amortization

    

Value

(in thousands)

Developed technology

$

119,450

 

$

(55,826)

 

$

63,624

Customer relationships

 

95,135

 

 

(33,724)

 

 

61,411

Trade names

 

56,718

 

 

(25,424)

 

 

31,294

Product backlog

 

642

(42)

600

Capitalized internal-use software

 

35,841

 

 

(12,949)

 

 

22,892

Other intangible assets

 

1,199

 

 

(598)

 

 

601

Total intangible assets

$

308,985

 

$

(128,563)

 

$

180,422

The Company capitalized $4.9 million and $3.8 million of internal-use software costs during the three months ended June 30, 2021 and 2020, respectively, which included $0.3 million and $0.4 million of stock-based compensation costs, respectively. The Company capitalized $9.1 million and $7.1 million of internal-use software costs during the six months ended June 30, 2021 and 2020, respectively, which included $0.5 million and $0.4 million of stock-based compensation costs, respectively.

December 31, 2018

Gross

Accumulated

Net Carrying

Amount

Amortization

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 three months ended SeptemberJune 30, 20192021 and 20182020 was $7.5$9.5 million and $7.0$8.3 million, respectively. Amortization expense for the ninesix months ended SeptemberJune 30, 20192021 and 20182020 was $22.2$18.8 million and $21.4$16.2 million, respectively. During the three and nine months ended September 30, 2018, $3.0 million of in-process research and development was reclassified to developed technology when ready for intended use.

As of SeptemberJune 30, 2019,2021, expected amortization expense for intangible assets subject to amortization for the next five years is as follows:

Year Ending December 31, 

September 30, 2019

(in thousands)

2019 (remaining three months)

$

7,657

2020

30,622

2021

29,837

2022

27,982

2023

25,641

Thereafter

69,958

Total

$

191,697

Year Ending December 31, 

    

June 30, 2021

(in thousands)

2021 (remaining six months)

$

20,212

2022

 

38,971

2023

 

36,425

2024

 

32,906

2025

 

22,301

Thereafter

 

28,509

Total

$

179,324

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

7.9.       Debt

In 2016, the CompanyDecember 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 facilitiesagreement (the “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 Credit Agreement provides for 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’’), and (b) asenior revolving line of credit in a principal committed amount of $10.0$150.0 million (the ‘‘2016 Revolver’’ and, collectively“Revolving Credit Facility”), with the 2016 Term Loan, the ‘‘2016 Credit Facilities’’). The 2016 Credit Facilities had a maturity date of June 30, 2021.

In 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) aoption to request term loan withfacilities in a principalminimum amount of $250.0$10 million (the “2018 Term Loan”) and (b) a revolving line of credit in a principal committed amount of $25.0 million (the “2018 Revolver” and, collectively with the 2018 Term Loan, the “2018 Credit Facilities”).for each facility if certain conditions are met. The 2018 Term Loan and 2018 Revolver mature on January 25, 2025 and January 25, 2023, respectively. BorrowingsCompany’s obligations under the 2018 Credit FacilitiesAgreement are collateralizedsecured by substantially all of the assets of the Company.Company, and borrowings under the Revolving Credit Facility may be used for working capital and other general corporate purposes, including for acquisitions permitted under the Credit Agreement.

In conjunction with entering intoThe Credit Agreement contains certain customary events of default and customary representations and warranties and affirmative and negative covenants, including certain restrictions on the 2018 Credit Facilities,ability of the Company paid allto 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 remaining balancesCredit 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 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 June 30, 2021, the Company was in compliance with all financial covenants.

The wholly owned indirect subsidiary, Ping Identity Corporation, as borrower under the 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 4 quarters as well as a 6.00 to 1.00 total net leverage ratio for the most recently ended 4 quarters, both after giving pro forma effect to any distribution, (3) amounts up to the greater of $19.5 million in the aggregate or 15% of EBITDA for the most recently ended 4 quarters and (4) payment of certain of the 2016 Term Loan and terminated the 2016 Revolver, which resulted in a loss on extinguishment of debt of $9.8 million, included in the condensed consolidated statements of operations for the nine months ended September 30, 2018.

Beginning September 2018, 0.25% of the principal amount of the 2018 Term Loan is payable quarterly. In connection with the closing of the IPO on September 23, 2019, the Company repaid $170.3 million of the principal amount of the 2018 Term Loan using the proceeds from the IPO. Prior to paying down a portion of the 2018 Term Loan, the Company had remaining deferred debt issuance costs of $4.6 million. In connection with the debt repayment, 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 $3.2 million for the write off of deferred debt issuance costs, included in the condensed consolidated statements of operations for the three and nine months ended September 30, 2019.Parent's overhead expenses.

The 2018 Term LoanRevolving 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) anthe prime rate, (b) the federal funds effective rate plus 0.5% and (c) the adjusted LIBO rate (withfor a floorone 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 1.00%each of clauses (i) and (ii), the Applicable Rate (as defined in the Credit Agreement), which ranges from (i) 0.25% to 1.0% per annum) plus an applicable margin of 3.75%, payableannum for base rate loans and (ii) 1.25% to 2.0% per annum for LIBO rate loans, in each case, depending on the last daysenior secured net leverage ratio. The interest rate as 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 Loan30, 2021 was borrowed as a Eurodollar loan.

1.34%. The Company recognized $3.6 million and $3.7 million in interest expense forwill also pay a commitment fee during the three months ended September 30, 2019 and 2018, respectively. For the nine months ended September 30, 2019 and 2018, the Company recognized $11.4 million and $11.1 million in interest expense, respectively.

As of September 30, 2019 and December 31, 2018, the Company’s outstanding long-term debt balance was $74.8 million and $241.1 million, respectively (net of the current portion of long-term debt of $0.8 million and $2.5 million, and debt issuance costs of $1.4 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 Credit Agreement ranging from 0.20% to 0.35% of the average daily amount of the available amount to be borrowed under the Credit Agreement per annum, based on the senior secured net leverage ratio.

Any borrowing under the 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 re-borrowed. No mandatory prepayments will be required other than when borrowings usingand letter of credit usage exceed the effective interest method. During the three months ended September 30, 2019 and 2018, the Company amortized $0.2 millionaggregate commitment of debt issuance costs. During the nine months ended September 30, 2019 and 2018, the Company amortized $0.6 million and $0.7 million of debt issuance costs, respectively.all lenders.

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The Company recognized $0.3 million and $0.7 million in interest expense for the three months ended June 30, 2021 and 2020, respectively. For the six months ended June 30, 2021 and 2020, the Company recognized $0.6 million and $1.1 million in interest expense, respectively.

As of June 30, 2021 and December 31, 2020, the Company’s outstanding long-term debt balance representing borrowings under the Credit Agreement was $119.1 million and $149.0 million, respectively (net of debt issuance costs of $0.9 million and $1.0 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 each of the three and six months ended June 30, 2021 and 2020, the Company amortized $0.1 million of debt issuance costs.

Future principal payments on outstanding borrowings as of SeptemberJune 30, 20192021 are as follows:

Year Ending December 31,

    

September 30, 2019

    

June 30, 2021

(in thousands)

(in thousands)

2019 (remaining three months)

$

193

2020

 

774

2021

 

774

2021 (remaining six months)

$

2022

 

774

 

2023

 

774

 

2024

 

120,000

2025

 

Thereafter

 

73,718

 

Total

$

77,007

$

120,000

8.       10.Income Taxes

For the three months ended SeptemberJune 30, 20192021 and 2018,2020, the Company recorded $4.0 million and $1.0$2.9 million as its benefit for income taxes, respectively. For the ninesix months ended SeptemberJune 30, 20192021 and 2018,2020, the Company recorded $5.2$7.3 million and $1.4$4.9 million as its benefit for income taxes, respectively. The Company’s calculation of its benefit for income taxes is dependent in part on forecasts of full-year results and 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 also 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 and ninesix months ended SeptemberJune 30, 20192021 as compared to the three and ninesix months ended SeptemberJune 30, 2018 also2020 primarily relates to a larger expected pre-tax loss in 2021 as compared to 2020, the finalizationrelease of a foreign valuation allowance, and an increase in R&D studyand other credits recorded in the three and six months ended SeptemberJune 30, 2019 which generated a2021. The increase in tax benefit of $4.6 million, of whichfor the Companysix months ended June 30, 2021 as compared to the six months ended June 30, 2020 was partially offset with an unrecognizedby a valuation allowance recorded against our U.S. deferred tax benefit reserveassets during the first quarter of $0.9 million.

Additionally, 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. The Tax Act also added new provisions for global intangible low-taxed income (“GILTI”), which requires the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets that became applicable in fiscal year 2019. Under these new provisions, 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 elected to treat the taxes due for GILTI as a current-period expense when incurred.2021.

9.11.       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 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 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.

18

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 1 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 beare 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 2, the Company issued and sold 12,500,000 shares20

Table of common stock to the public in conjunction with the closing of its IPO on September 23, 2019.Contents

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Preferred stock

AsThe Company’s Third Amended and Restated Certificate of September 30, 2019, the Company was authorized,Incorporation authorizes, without stockholder approval but subject to any limitations prescribed by law, to issuethe 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. As of September 30, 2019, theThe Board of Directors wasis 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 SeptemberJune 30, 20192021 and December 31, 2018,2020, the Company did not0t have any shares of preferred stock outstanding and currently has no plans to issue shares of preferred stock.

10.     12.  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 hold or purchase stock in Ping Identity Holding Corp. The Company has 6,800,000 shares of common stock reserved for issuance under the 2016 Plan. Following the Company’s initial public offering (“IPO”), no additional awards are granted under the 2016 Plan.

In conjunction with the closing of the IPO onOn 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. TheAt June 30, 2021, the maximum number of shares of common stock available for issuance under the 2019 Omnibus Incentive Plan is 9,300,000was 14,131,549 shares.

Stock-based compensation expense for all equity arrangements for the three and ninesix months ended SeptemberJune 30, 20192021 and 20182020 was as follows:

Three Months Ended

September 30, 

Nine Months Ended

September 30, 

Three Months Ended

June 30, 

Six Months Ended

June 30, 

2019

2018

2019

2018

2021

2020

2021

2020

(in thousands)

(in thousands)

Subscription cost of revenue

 

$

513

 

$

174

$

1,048

 

$

320

Professional services and other cost of revenue

 

429

 

99

1,020

 

183

Sales and marketing

 

$

283

 

$

184

$

693

 

$

535

 

4,843

 

1,243

9,041

 

2,040

Research and development

 

225

 

76

658

 

184

 

4,647

 

1,298

13,159

 

2,186

General and administrative

 

1,190

 

444

2,446

 

1,265

 

7,044

 

1,731

10,147

 

2,673

Total

$

1,698

$

704

$

3,797

$

1,984

$

17,476

$

4,545

$

34,415

$

7,402

Stock-based compensation expense recorded to research and development in the condensed consolidated statements of operations excludes amounts that were capitalized in relation to internal-use software. Refer to Note 8 for additional details.

Long-Term Incentive Plan

In conjunction with the Company’s IPO, the Company amended its long-term incentive plan (“LTIP”) which provided for cash compensation to certain employees upon vesting of the related awards, and thus, these awards were liability-classified. Grants under the plan were expected to vest following both (i) the IPO and registration of shares of common stock of Ping Identity Holding Corp. and (ii) Vista Equity Partner’s (“Vista”) realized cash return on its investment in the Company equaling or exceeding $1.491

1921

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

billion. In the first quarter of 2021, the Company offered employees with LTIP grants the opportunity to convert those awards into restricted stock units (“RSUs”) under the 2019 Omnibus Incentive Plan. Upon conversion, approximately half of the RSUs would solely be subject to time-based restrictions and would vest on April 1, 2021 and the remainder would be subject to performance and market conditions consistent with those of the LTIP grants outlined above. All employees elected to convert their outstanding LTIP grants to RSUs, resulting in grants totaling 948,250 shares.

The conversion of the previously outstanding LTIP grants into time-based vesting RSUs resulted in the recognition of $0.4 million and $12.8 million of stock-based compensation expense during the three and six months ended June 30, 2021, respectively. Expense recognized related to the RSUs subject to performance and market conditions is discussed in more detail below.

Other Liability-Classified Awards

In conjunction with the Symphonic acquisition (Note 7), the Company issued liability-classified awards to certain individuals with a stated value of $0.4 million and $0.6 million that vest on December 31, 2021 and December 31, 2022, respectively, and are subject to continuous service and other performance conditions. The liability-classified awards will be settled with a variable number of shares of the Company’s common stock at each vesting date based on the satisfaction of such conditions. 

Additionally, in conjunction with the ShoCard acquisition (Note 7), 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 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. On March 2, 2021, the Company settled the first $3.1 million of these liability-classified awards, resulting in the issuance of 123,192 shares. Upon issuance, the associated $3.1 million liability was reclassified from accrued compensation to common stock and additional paid-in capital on the condensed consolidated balance sheets.

During the three months ended June 30, 2021 and 2020, the Company recognized $0.7 million and $0.8 million of stock-based compensation expense, respectively, related to these awards. During the six months ended June 30, 2021, the Company recognized $1.5 million and $1.0 million of stock-based compensation expense, respectively, related to these awards.

Restricted Stock Units

The Company grants RSUs that generally vest over one to four years. Additionally, the Company granted time-based vesting RSUs converted from the previously outstanding cash-based LTIP grants and those issued in connection with the ShoCard acquisition. The weighted-average grant-date fair value of RSUs granted during the three months ended SeptemberJune 30, 20192021 and 2020, was $19.69. NaN RSUs were granted during the three months ended September 30, 2018.$22.24 and $20.50, respectively. The weighted-average grant-date fair value of RSUs granted during the ninesix months ended SeptemberJune 30, 20192021 and 20182020 was $19.06$23.45 and $9.39,$20.63, respectively. The total intrinsic value of RSUs that vested during the three months ended SeptemberJune 30, 20192021 and 20182020 was $0.6$18.5 million and $0.0$0.2 million, respectively. The total intrinsic value of RSUs that vested during the ninesix months ended SeptemberJune 30, 20192021 and 20182020 was $0.7$22.0 million and $0.1$0.6 million, respectively. As of SeptemberJune 30, 2019,2021, there was $1.4$65.0 million of total unrecognizedunamortized compensation, which will be recognized over the remaining weighted-average vesting period of 1.63.3 years using the straight-line method. A summary

22

Table of the status of the Company’s unvested RSUs and activity for the nine months ended September 30, 2019 is as follows:

Contents

Weighted

Average

Grant Date

    

Shares

    

Fair Value

Unvested as of December 31, 2018

 

37,272

$

8.29

Granted

 

107,440

19.06

Forfeited/canceled

 

 

Vested

 

(57,162)

 

12.25

Unvested as of September 30, 2019

 

87,550

$

18.92

Stock OptionsPING IDENTITY HOLDING CORP.

During the three months ended September 30, 2018, the Company granted 571,203 time-based options and 285,602 options subject to performance and market conditions, both of which grant the holder the option to purchase common stock upon vesting. During the nine months ended September 30, 2018, the Company granted 712,873 time-based options and 356,438 options subject to performance and market conditions. NaN options were granted during the three or nine months ended September 30, 2019.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The fair value of each time-based option 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 fair value of the shares of common stock underlying the Company’s stock options. 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 of Directors 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 on the grant date to determine fair value.(unaudited)

Theusing the straight-line method. A summary of the status of the Company’s unvested RSUs and activity for the six months ended June 30, 2021 is as follows:

Weighted

Average

Grant Date

    

Shares

    

Fair Value

Unvested as of December 31, 2020

 

2,504,148

$

19.84

Granted

 

1,715,867

22.46

Converted from LTIP grant

474,095

27.06

Forfeited/canceled

 

(186,423)

 

19.46

Vested

 

(974,599)

 

24.49

Unvested as of June 30, 2021

 

3,533,088

$

20.81

Performance Stock Units

As previously discussed, during the six months ended June 30, 2021, the Company granted 948,250 restricted stock units in connection with the conversion of previously outstanding LTIP grants, with 474,155 of these restricted stock units subject to performance and market conditions (“PSUs”). These PSUs are expected to vest following assumptionsboth (i) registration of shares of common stock of Ping Identity Holding Corp. and (ii) Vista’s realized cash return on its investment in the Company equaling or exceeding $1.491 billion. These awards were used for time-based options grantedvalued at the date of grant at $19.94 per share using a Monte Carlo simulation. In the second quarter of 2021, these PSUs were determined to be probable of vesting, resulting in the recognition of $4.0 million in stock-based compensation during the three and ninesix months ended SeptemberJune 30, 2021. As of June 30, 2021, there was $5.0 million of total unamortized compensation associated with these awards, which is expected to be recognized over the remaining estimated vesting period of 0.4 years.

Additionally, on April 1, 2021, the Company granted 208,806 PSUs under the 2019 Omnibus Incentive Plan, which will be earned only if the Company meets specific internal performance targets within a two-year period. The number of awards that ultimately vest could be 0% if the minimum hurdle is not achieved, or 50% or 100% of total shares granted, depending on the Company’s achievement of internal performance targets. The grant-date fair value of these PSUs was $21.93. As of June 30, 2021, there was $2.9 million of total unamortized compensation associated with these awards, which is expected to be recognized over the remaining estimated weighted-average vesting period of 0.5 years.

NaN PSUs vested during the six months ended June 30, 2021.

A summary of the status of the Company’s unvested PSUs and 2018:activity for the six months ended June 30, 2021 is as follows:

Three Months Ended

September 30, 

Nine Months Ended

September 30, 

2019

2018

2019

2018

Risk-free rate

%

2.9 % - 3.0

%

%

2.7 % - 3.0

%

Expected term

years

6.1

years

years

6.1

years

Dividend yield

Volatility

%

41

%

%

39 % - 41

%

Weighted-average grant date fair value of options granted during period

$ —

$ 4.57

$ —

$ 4.38

Weighted

Average

Grant Date

    

Shares

    

Fair Value

Unvested as of December 31, 2020

 

$

Granted

682,961

20.55

Forfeited/canceled

(29,983)

20.52

Unvested as of June 30, 2021

 

652,978

$

20.55

2023

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following assumptions were used for awards subject to performance and market conditions thatStock Options

NaN stock options were granted during the three and nineor six months ended SeptemberJune 30, 2019 and 2018:

Three Months Ended

September 30, 

Nine Months Ended

September 30, 

2019

2018

2019

2018

Risk-free rate

%

2.7

%

%

2.5 % - 2.7

%

Expected term

years

1.8

years

years

1.8 - 3.3

years

Dividend yield

Volatility

%

45

%

%

45 % - 55

%

Weighted-average grant date fair value of options granted during period

$ —

$ 1.96

$ —

$ 2.13

2021 or 2020. A summary of the Company’s stock option activity and related information for the ninesix months ended SeptemberJune 30, 20192021 is as follows:

Weighted

Weighted

Weighted

Average

Weighted

Average

Average

Remaining

Aggregate

Average

Remaining

Aggregate

Exercise

Contractual

Intrinsic

Exercise

Contractual

Intrinsic

    

Options

    

Price

    

Term

Value

    

Options

    

Price

    

Term

Value

(in years)

(in thousands)

(in years)

(in thousands)

Outstanding as of December 31, 2018

 

6,398,982

$

9.31

8.4

$

25,678

Granted (unaudited)

 

Forfeited/canceled (unaudited)

 

(147,333)

7.85

 

 

1,346

Exercised (unaudited)

 

(199,522)

 

7.88

 

2,007

Outstanding as of September 30, 2019

 

6,052,127

$

9.39

 

7.7

$

47,569

Outstanding as of December 31, 2020

 

4,044,616

$

9.49

 

6.5

$

77,454

Granted

 

Forfeited/canceled

 

(218,420)

8.24

 

 

Exercised

 

(232,833)

 

9.00

 

5,170

Outstanding as of June 30, 2021

 

3,593,363

$

9.60

 

6.0

$

47,800

As of September 30, 2019:

 

  

 

  

  

 

As of June 30, 2021:

 

  

 

  

  

 

Vested and expected to vest

 

4,007,587

$

9.40

7.7

$

31,459

 

3,593,363

$

9.60

6.0

$

47,800

Vested and exercisable

 

2,105,221

$

8.18

7.1

$

19,103

 

1,680,980

$

8.94

5.7

$

23,473

AsTime-based options vest over four years with 25% vesting one year after grant and the remainder vesting ratably on a quarterly basis thereafter. Vesting of September 30, 2019, unamortized stock-based compensation expense related to the time-based awards was $7.4 million, which will be recognized overoptions accelerates and the remaining weighted-average vesting term of 2.5 years. In conjunction with the IPO, the Company modified the vesting conditions of these awards to provide for the o3ptions to. vest andstock options become exercisable following both (i) an IPO and registration of shares of common stock of Ping Identity Holding Corp. and (ii) Vista Equity Partners (“Vista”) realizing a cash return on its investment in the Company equaling or exceeding $1.491 billion. ThoughIn the recognitionsecond quarter of 2021, achievement of these conditions was determined to be probable. As of June 30, 2021, total unamortized compensation related to the time-based awards was $1.7 million. This expense will be recognized over the shorter of (i) the remaining unamortized stock-based compensation expense mayexplicit service term or (ii) the estimated period over which the performance condition is expected to be accelerated, the modification did not result in incremental compensation cost.satisfied, with a remaining weighted-average vesting period of 0.4 years.

ForThe vesting conditions of the awardsoptions 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 also modified the vesting conditions of these awards to provide for the options to vest and become exercisable following both (i) an IPO and registration of shares of common stock of Ping Identity Holding Corp. and (ii) 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 valuesecond quarter 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:

21

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 September 30, 2019,2021, 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

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 September 30, 2019, these awards were not considered probable of meeting the vesting requirements and accordingly, no expense was recorded during the three or nine months ended September 30 2019 and the timing of when this expense will be recognized is unknown. During future reporting periods, if the awards are considereddetermined to be probable of meeting vesting, requirements, this could resultresulting in athe recognition of $5.4 million in stock-based compensation expense during the three and six months ended June 30, 2021. The remaining $1.3 million of total unamortized compensation expense is expected to be recognized over the remaining estimated vesting period of at least $17.5 million.approximately 0.4 years.

11.13.     Related Party Transactions

Vista is a U.S.-based investment firm that controlled the funds which previously owned a majority of the Company. During the year ended December 31, 2020, Vista sold a portion of its investment in the Company such that its funds no longer owned a majority of the Company as of December 31, 2020. However, Vista is deemed a related party in accordance with ASC 850 as it continues to be a principal owner of the Company. There were no material transactions with Vista during the three and ninesix months ended SeptemberJune 30, 20192021 and 2018. During the three and nine months ended September 30, 2019 and 2018, 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 $0.4 million and $0.3 million for the three months ended September 30, 2019 and 2018, respectively. The total expenses incurred by the Company for Vista were $1.0 million and $0.9 million for the nine months ended September 30, 2019 and 2018, respectively. The Company had $0.1 million and $0.3 million in accounts payable related to these expenses at September 30, 2019 and December 31, 2018, respectively.2020.

The Company also has revenue arrangements with Vista affiliates. The Company recognized revenue of $0.2 million during the three months ended September 30, 2019 and 2018. The Company recognized revenue of $0.4 million and $1.7 million during the nine months ended September 30, 2019 and 2018, respectively. The Company had $0.1 million and $0.5 million in accounts receivable related to these agreements at September 30, 2019 and December 31, 2018, respectively.

As discussed in Note 7, the Company entered into the 2018 Term Loan and 2018 Revolver 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 September 30, 2019 and December 31, 2018, affiliates of Vista held $10.8 million and $34.8 million of the 2018 Term Loan, respectively and there were 0 amounts drawn on the 2018 Revolver. In conjunction with the repayment of debt using proceeds from the IPO as described in Note 7, Vista received proceeds of $23.8 million. During the three months ended September 30, 2019 and 2018, affiliates of Vista were paid $23.9 million (inclusive of the proceeds received from the repayment of debt upon IPO) and $0.1 million in principal, respectively, and $0.5 million in interest on the portion of the 2018 Term Loan held by them. During the nine months ended September 30, 2019 and 2018, affiliates of Vista were paid $24.0 million (inclusive of the proceeds

2224

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

received from the repayment of debt upon IPO) and $0.1 million in principal, respectively, and $1.6 million and $1.4 million in interest on the portion of the 2018 Term Loan, respectively, held by them.

12.     14.  Commitments and Contingencies

Letters of Credit

As of SeptemberJune 30, 20192021 and December 31, 2018,2020, the Company had outstanding letters of credit under an office lease agreement that totaled $0.7$0.8 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 SeptemberJune 30, 20192021 and December 31, 2018.2020.

LeasesPurchase Commitments

TheIn the ordinary course of business, the Company leases office spaceenters into various purchase commitments primarily related to third-party cloud hosting and certain office equipment underdata services, IT operations and marketing events. Total noncancelable leases. Mostpurchase commitments as of the leases contain renewal options at then market rates.

At SeptemberJune 30, 2019, future minimum lease payments under the existing leases2021 were as follows:

Year Ending December 31, 

September 30, 2019

(in thousands)

2019 (remaining three months)

$

673

2020

3,664

2021

3,765

2022

3,784

2023

3,844

Thereafter

7,352

Total

$

23,082

Rent expense under noncancelable operating leases totaled $1.0 million and $0.6approximately $11.0 million for the three months ended September 30, 2019 and 2018, respectively. Rent expense under noncancelable operating leases totaled $2.6 million and $1.8 million for the nine months ended September 30, 2019 and 2018, respectively.

Hosting Services Agreement

In December 2018, the Company entered into a non-cancelable contractual agreement for hosting services for the period from January 1, 2019 until December 31, 2019. The Company is required to pay a minimum annual commitment of $5.6 million for these services, of which 50% was paid upfront in December 2018. $1.4 million was paid during the three and nine months ended September 30, 2019, and the Company expects to pay an additional $1.4 million during the remaining three months of the year ended December 31, 2019.periods through 2025.

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.

23

Table of Contents

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The Company made contributions to its employee benefit plans of $0.7$1.0 million and $0.4$0.8 million during the three months ended SeptemberJune 30, 20192021 and 2018,2020, respectively. The Company made contributions to its employee benefit plans of $2.1$1.9 million and $1.4$1.6 million during the ninesix months ended SeptemberJune 30, 20192021 and 2018,2020, 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.

13.15.     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

September 30, 

Nine Months Ended

September 30, 

Three Months Ended
June 30, 

Six Months Ended
June 30, 

2019

2018

2019

2018

2021

2020

2021

2020

(in thousands, except per share amounts)

(in thousands, except per share amounts)

Numerator:

Net loss

 

$

(595)

 

$

(5,621)

$

(3,718)

 

$

(11,377)

 

$

(10,979)

 

$

(3,272)

$

(26,913)

 

$

(7,564)

Denominator:

Weighted-average common stock outstanding - basic and diluted

66,269

65,004

65,436

65,002

82,025

80,169

81,684

79,956

Net loss per share:

Basic and diluted

$

(0.01)

$

(0.09)

$

(0.06)

$

(0.18)

$

(0.13)

$

(0.04)

$

(0.33)

$

(0.09)

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

September 30, 

Nine Months Ended

September 30, 

Three Months Ended

June 30, 

Six Months Ended

June 30, 

2019

2018

2019

2018

2021

2020

2021

2020

(in thousands)

(in thousands)

RSUs

88

37

88

37

3,533

2,773

3,533

2,773

Stock options

4,008

3,563

4,008

3,563

2,074

2,862

2,074

2,862

Other awards

123

168

123

168

Total antidilutive shares

4,096

3,600

4,096

3,600

5,730

5,803

5,730

5,803

 

14.     Subsequent Events

After September 30, 2019, the Company granted an aggregate of 1,315,121 RSUs to its employees under the 2019 Omnibus Incentive Plan. These RSUs have a grant date fair value of $21.1 million that is expected to be recognized over a weighted-average vesting period of approximately four years.

Additionally, in connection with the Company’s IPO in September 2019, the underwriters were given the option to purchase up to an additional 1,875,000 shares of common stock at the initial public offering price per share of $15.00 less the underwriting discount. On October 18, 2019, the underwriters exercised their overallotment option in full and on October 22, 2019, the Company completed the sale of an additional 1,875,000 shares of common stock, receiving net proceeds of $26.2 million. After the closing of the sale of the additional shares, the Company used the incremental proceeds to repay $26.1

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

million of outstanding principal on its 2018 Term Loan, of which Vista received $3.7 million of the proceeds.

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Forward-Looking Statements

In addition to historical consolidated financial information, this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that involve substantial risks and uncertainties. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q are forward-looking statements. These statements may include words such as ‘‘anticipate’’, ‘‘estimate’’, ‘‘expect’’, ‘‘project’’, ‘‘plan’’, ‘‘intend’’, ‘‘believe’’, ‘‘may’’, ‘‘will’’, ‘‘should’’, ‘‘can have’’, ‘‘likely’’ and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected costs, expenditures, cash flows, growth rates and financial results or our plans and objectives for future operations, growth initiatives, or strategies are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected. Specific factors that could cause such a difference include, but are not limited to, those set forth under Item 1A. “Risk Factors” of our most recent Annual Report on Form 10-K and other important factors disclosed previously in our other filings with the SECSecurities and Exchange Commission (“SEC”) which include, but are not limited to:

our ability to adapt to rapid technological change, evolving industry standards and changing customer needs, requirements or preferences;
our ability to enhance and deploy our cloud-based offerings while continuing to effectively offer our on-premise offerings;
our ability to maintain or improve our competitive position;
the impact of the COVID-19 pandemic;
the impact on our business of a network or data security incident or unauthorized access to our network or data or our customers'customers’ data;
the effects on our business 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 or solution packages that achieve market acceptance;
our ability to manage our growth effectively, execute our business plan, maintain high levels of service and customer satisfaction or adequately address competitive challenges;
our dependence on our senior management team and other key employees;
our ability to enhance and expand our sales and marketing capabilities;
our ability to attract and retain highly qualified personnel to execute our growth plan;
the risks associated with interruptions or performance problems of our technology, infrastructure and service providers;
our dependence on Amazon Web Services cloud infrastructure services;
the impact of data privacy concerns, evolving regulations of cloud computing, cross-border data transfer restrictions and other domestic and foreign laws and regulations;
the impact of volatility in quarterly operating results;
the risks associated with our revenue recognition policy and other factors may distort our financial results in any given period;
the effects on our customer base and business if we are unable to enhance our brand cost-effectively;
our ability to comply with anti-corruption, anti-bribery and similar laws;
our ability to comply with governmental export and import controls and economic sanctions laws;
our ability to comply with the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”);

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the potential adverse impact of legal proceedings;
the impact of our frequently long and unpredictable sales cycle;
our ability to identify suitable acquisition targets or otherwise successfully implement our growth strategy;
the impact of a change in our pricing model;
our ability to meet service level commitments under our customer contracts;
the impact on our business and reputation if we are unable to provide high-quality customer support;
our dependence on strategic relationships with third parties;
the impact of adverse general and industry-specific economic and market conditions and reductions in IT and identity spending;
the ability of our platform, solutions and solutionssolution packages to interoperate with our customers'customers’ existing or future IT infrastructures;
our dependence on adequate research and development resources and our ability to successfully complete acquisitions;
our dependence on the integrity and scalability of our systems and infrastructures;

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our reliance on software and services from other parties;
the impact of real or perceived errors, failures, vulnerabilities or bugs in our solutions;
our ability to protect our proprietary rights;
the impact on our business if we are subject to infringement claim or a claim that results in a significant damage award;
the risks associated with our use of open source software in our solutions, solution packages and subscriptions;
our reliance on SaaSsoftware as a service (“SaaS”) vendors to operate certain functions of our business;
the risks associated with indemnity provisions in our agreements; and
the risks associated with liability claims if we breach our contracts.contracts;
the impact of the failure by our customers to pay us in accordance with the terms of their agreements;
our ability to expand the sales of our solutions and solution packages to customers located outside of the United States;
the risks associated with exposure to foreign currency fluctuations;
the impact of Brexit;
the impact of potentially adverse tax consequences associated with our international operations;
the impact of changes in tax laws or regulations;
the impact of the Tax Cuts and Jobs Act;
our ability to maintain our corporate culture;
our ability to develop and maintain proper and effective internal control over financial reporting;
our management team’s limited experience managing a public company;
the risks associated with having operations and employees located in Israel;
the risks associated with doing business with governmental entities;

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the impact of catastrophic events on our business; and
other factors disclosed in the section entitled ‘‘Risk Factors’’ in our most recent Annual Report on Form 10-K.

Given these factors, as well as other variables that may affect our operating results, you should not rely on forward-looking statements, assume that past financial performance will be a reliable indicator of future performance, or use historical trends to anticipate results or trends in future periods. The forward-looking statements included in this Quarterly Report on Form 10-Q relate only to events as of the date hereof. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless the context requires otherwise, references in this report to "Ping Identity," the “Company,” “we,” “us” and “our” refer to Ping Identity Holding Corp. and its consolidated subsidiaries. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the IPO Prospectus.year ended December 31, 2020.

Overview

Ping Identity is pioneeringthe Intelligent Identity.Identity solution for the enterprise. We enable secure accesscompanies to any service, application or API from any device. Ourachieve Zero Trust identity-defined security and more personalized, streamlined user experiences. The Ping Intelligent Identity Platform canprovides customers, workforce and partners with secure, convenient access to their applications whether they are SaaS, mobile, in the cloud or on-premise. We leverage artificial intelligence (“AI”) and machine learning (“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.enterprises, including over 60% of the Fortune 100. Our cloud-based platform can be deployed across cloud, hybridhas differentiated deployment flexibility to support multi-cloud and on-premise infrastructures to meet the diverse and demanding requirements of large enterprise customers. Our platform offers a comprehensive suite of turnkey integrations, and is able to scale to millions of identities and thousands of cloud and on-premise applications.applications in a single deployment.

Our

The Ping Intelligent IdentifyIdentity Platform can secure all primary use cases, including customer, employee,workforce, partner and the Internet of Things (“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. 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 identities in a variety of IoT devices, such as connected vehicles and consumer devices.

OurThe Ping Intelligent Identity Platform is comprised of sixmultiple solutions that can be purchased individually or  integrated as a more complete set of integrated offeringssolutions for the customer, employee,workforce, partner or IoT use case:

secure single sign-on (“SSO”);
adaptive multi-factor authentication (“MFA”);
security control for applications and APIs (“Access Security”);
personalized and unified profile directories (“Directory”);
data governance tocentralized, fine-grained control over access to sensitive identity data (“Data Governance”);and device data;
risk signal capture and analysis to make more intelligent authentication and authorization decisions;
identity verification services to prove an individual’s identity with facial biometrics and government issued IDs; and
artificial intelligenceAI and machine learningML powered API security (“API Intelligence”).

Our offerings are predominately priced based on the solution, use case and number of identities, solutions and use cases.identities. We sell our platform through subscription-based contracts, and substantially all of our customers pay annually in advance. We sell our solutions primarily through direct sales, which are enhanced by collaboration with our channel partners, resellers, system integrators and technology partners andpartners. This includes sourcing new leads, aiding in pre-sale processes such(such as proof of concepts, demos or requests for proposalsproposals) and reselling our solutions to customers. 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.

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Impact of COVID-19

COVID-19 continues to disrupt the business of our customers and partners and we expect that it will continue to impact our business and consolidated results of operations and financial condition in the next quarters. The worldwide spread of the COVID-19 outbreak has resulted in a global slowdown of economic activity with a corresponding decrease in demand for certain goods and services, including from our own customers, while also disrupting sales channels, marketing activities and supply chains for an unknown period of time. To add to the continued uncertainty, it is unclear what an economic recovery will look like after this unprecedented economic shutdown. We have endeavored to follow recommended actions of government and health authorities to protect our employees worldwide. For example, as of July 30, 2021, the majority of our employees continue working remotely. While we have not incurred significant disruptions in providing our services from the COVID-19 pandemic, we are unable to predict the long-term extent of the impact on our business due to numerous uncertainties, including but not limited to, vaccination programs, virus variants, actions taken by governmental authorities, the continued impact to our customers and partners and other factors as described in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020. Specifically, during the first half of 2021, we continued to experience overall strong engagement with enterprise customers as continued work-from-home and increased virtual customer engagement highlighted the need for modernization of their identity security infrastructure.

While we continued to see limited effects of the COVID-19 pandemic on our results of operations and overall financial performance for the three and six months ended June 30, 2021, the total effect of the COVID-19 pandemic will not be fully reflected in our results of operations and overall financial performance until future periods and such effect is uncertain. COVID-19 restrictions were lifted in many parts of the U.S. during the three and six months ended June 30, 2021, which had a positive impact on our financial performance during that period, but we cannot predict the effect that variants of COVID-19, and any new restrictions related to such variants, will have on our business and our financial performance. In addition, our condensed consolidated financial statements reflect estimates and assumptions made by management 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 our condensed consolidated financial statements include, but are not limited to, establishing valuation allowances based on expected credit losses and the collectability of financial assets, 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 and various other assumptions that are believed to be reasonable. Actual results may differ from these estimates, including as a result of the COVID-19 pandemic. We will continue to evaluate the nature and extent of the impact to our business and our condensed consolidated results of operations and financial condition.

Key Factors Affecting our Performance

We believe that our future performance will depend on many factors, including the following:

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Generate Additional Sales to Existing Customers

As part of our land and expand strategy, a customer journey often begins with the purchase of one of our solutions for one use case. Once customers realize the value of that solution, their spendspending with us expands by (i) adopting another identity use case, (ii) deploying additional solutions and solution packages and/or (iii) adding more identities over time.

Our future revenue growth is dependent upon our ability to continue to expand our customers’ use of our platform. Our ability to increase sales to existing customers will depend on a number of factors, including

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satisfaction or dissatisfaction with our solutions, competition, pricing, economic conditions and spending by customers on our solutions. We have adopted a customer success strategy and implemented processes across our customer base to drive revenue retention and expansion.

IncreaseIncreasing the Size of our Customer Base

We believe there is significant opportunity to increase market adoption of our platform by new customers. Our SSO, Access Security and Directory solutions often 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. To increase our customer base, we plan to expand our sales force and channel partner network, both domestically and internationally, enhance our marketing efforts and target new buyers. For example, we have extended our cloud-based offering to target developers, who represent a new potential buyer for us. Over time, we believe sales to developers could increase the size of our customer base.

MaintainMaintaining our Technology Differentiation and Product Leadership

OurThe Ping Intelligent Identity Platform is designed for large enterprises with complex, hybrid IT requirements. We have spent over a decade building a standards-based platform with turnkey integrations designed to ensure that large enterprises can easily and rapidly deploy our platform within their complex infrastructures. We intend to continue making investments in research and development to extend our platform and technology capabilities while also expanding our solutions to address new use cases. For example, we recently released our API Intelligence solution that is designed to dynamically discover APIs that are inadvertently exposed and automatically detect and block attacks.

InvestInvesting for Growth

We believe that ourIdentity and Access Management represents a large market opportunity, is large, and we plan to invest in order to continue to support further growth. This includes investing in our sales force and expanding our network of channel partners, resellers, system integrators and technology partners with which we partner to sell our Intelligent Identity Platform, both domestically and internationally. 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 nine months ended September 30, 2019, our international revenue was 22% of our total revenue. We expect international sales to be a meaningful revenue contributor in future periods.

During 2018, we made a decision with our board of directors to accelerateaccelerated investments in our business to take advantage ofexpand our footprint within this large market opportunity.and growing market. Specifically, we invested in enhancing our salesforce globally to increase our selling capacity and capitalize on our large market opportunity. In addition, we have invested in new cloud-based offerings to broaden ourthe Ping Intelligent Identity Platform and the scope of our solutions to cover new identity security threats, such as APIs. We also invested in deploying our platform as a single tenant cloud-based offering, managed by us, to help extend the reach of our solutions within our customers’ infrastructures, while providing them with the level of control and configuration they require. WeSince 2018, we have seen progress with these investments and expect to continue to invest heavily in these areasareas. Additionally, we plan to invest in the near future.increased marketing efforts, expanding our sales force, and growing our network of channel partners, resellers, system integrators and technology partners. However, we are not expecting these investments to provide our business with meaningful increases to ARRannual recurring revenue (“ARR”) growth in the immediate term as we expect natural purchasing cycles will affect the speed of market adoption.

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Seasonality

Given the purchasing patterns of our enterprise customers, we typically experience seasonality in terms of when we receive orders from our 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. Because of these purchasing patterns, a greater percentage of our annual subscription revenue from term-based licenses, the revenue from which is recognized up front at the later of delivery or commencement of the license term, has come from our second and fourth quarters, rather than from other quarters. ForHowever, due to the economic environment resulting from COVID-19, we did not see our historical trends in seasonality for the year ended December 31, 2018, 25%2020, where 24% and 30%26% of our annual revenue was in our second and fourth quarter, respectively. We believe thisOur historical trends in seasonality willmay continue to affect our quarterly results and may become more pronounced.be disrupted during the year ending December 31, 2021 due to the impact of COVID-19.

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.

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Annual Recurring Revenue

ARR represents the annualized value of all subscription contracts as of the end of the period. ARR mitigatesneutralizes 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.

OurThe table below sets forth our ARR was $206.7 millionas of the end of June 30, 2021 and $167.7 million at September 30, 2019 and September 30, 2018, respectively, representing year-over-year growth of 23%.2020, respectively.

June 30, 

Change

    

2021

    

2020

    

$

    

%

(dollars in thousands)

ARR

$

279,630

$

235,232

$

44,398

 

19

%

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 ending ARR as of the last day offor the current reporting period from customers with associated ending ARR as offor the same period last day ofyear.
Denominator.  We measure ending ARR for the prior reporting period.same period last year.

The quotient obtained from this calculation is our dollar-based net retention rate. Our dollar-based net retention rate was 115%111% at SeptemberJune 30, 2019.2021. 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 rate.

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 ARR of $250,000, demonstrates our focus on the large enterprise market and our penetration within those enterprises. IncreasingHistorically, 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

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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.

Our customers with ARR over $250,000 increased from 188242 at SeptemberJune 30, 20182020 to 227279 at SeptemberJune 30, 2019,2021, representing a year-over-year growth rate of 21%15%.

Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results. The non-GAAP financial information is presented for supplemental informational purposes only, and should not be considered a substitute for financial information

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presented in accordance with GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.

Free Cash Flow

Free Cash Flow is a supplemental measure of liquidity that is not made under GAAP and that does not represent, and should not be considered as, an alternative to cash flow from operations, as determined by GAAP. We define Free Cash Flow as net cash provided by (used in) operating activities less cash used for purchases of property and equipment and capitalized software development costs.

We use Free Cash Flow as one measure of the liquidity of our business. We believe that Free Cash Flow is a useful indicator of liquidity that provides information to management and investors about the amount of cash generated from our core operations that, after the purchases of property and equipment and capitalized software development costs, can be used for strategic initiatives, including investing in our business and selectively pursuing acquisitions and strategic investments. We further believe that historical and future trends in Free Cash Flow, even if negative, provide useful information about the amount of cash generated (or consumed) by our operating activities that is available (or is not available) to be used for strategic initiatives. For example, if Free Cash Flow is negative, we may need to access cash reserves or other sources of capital to invest in strategic initiatives. We also believe that the use of Free Cash Flow enables us to more effectively evaluate our liquidity period-over-period and relative to our competitors.

A reconciliation of Free Cash Flow to net cash provided by operating activities, the most directly comparable GAAP measure, is as follows:

Nine Months Ended September 30, 

2019

2018

(in thousands)

Net cash provided by operating activities

$

8,474

$

23,685

Less:

Purchases of property and equipment

(4,517)

(2,081)

Capitalized software development costs

(7,260)

(4,314)

Free Cash Flow

$

(3,303)

$

17,290

Net cash used in investing activities

$

(12,077)

$

(23,809)

Net cash provided by financing activities

$

1,974

$

68,168

Cash paid for interest

$

11,441

$

9,646

Six Months Ended

June 30, 

    

2021

2020

(in thousands)

Net cash provided by operating activities

$

43,965

$

21,244

Less:

 

  

 

  

Purchases of property and equipment

 

(1,502)

 

(1,420)

Capitalized software development costs

 

(8,582)

 

(6,749)

Free Cash Flow

$

33,881

$

13,075

Net cash used in investing activities

$

(49,959)

$

(12,872)

Net cash provided by (used in) financing activities

$

(35,267)

$

101,497

Cash paid for interest

$

584

$

1,186

Free Cash Flow has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. For example, Free Cash Flow does not represent the total increase or decrease in our cash balance for a given period. Because of these limitations, Free Cash Flow

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should not be considered as a replacement for cash flow from operations, as determined by GAAP, or as a measure of our profitability. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP measures only for supplemental purposes.

Non-GAAP Gross Profit

Non-GAAP Gross Profit is a supplemental measure of operating performance that is not made under GAAP and that does not represent, and should not be considered as, an alternative to gross profit, as determined by GAAP. We define Non-GAAP Gross Profit as gross profit, adjusted for stock-based compensation expense and certain amortization expense of acquired intangible assets and software developed for internal use.

We use Non-GAAP Gross Profit to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget, and to develop short-term and long-term operating plans. We believe

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that Non-GAAP Gross Profit is a useful measure to us and to our investors because it provides consistency and comparability with our past financial performance and between fiscal periods, as the metric generally eliminates the effects of the variability of amortization of acquired intangibles and internal-use software and stock-based compensation expense from period to period, which may fluctuate for reasons unrelated to overall operating performance. We believe that the use of this measure enables us to more effectively evaluate our performance period-over-period and relative to our competitors.

A reconciliation of Non-GAAP Gross Profit to gross profit, the most directly comparable GAAP measure, is as follows:

Three Months Ended

September 30, 

Nine Months Ended

September 30, 

Three Months Ended

June 30, 

Six Months Ended

June 30, 

    

2019

    

2018

2019

    

2018

    

2021

    

2020

2021

    

2020

(in thousands)

(in thousands)

Gross profit

$

47,525

$

31,197

$

134,852

$

109,487

$

56,500

$

42,302

$

104,638

$

87,990

Amortization expense

 

4,159

 

3,549

 

11,981

 

10,613

 

6,077

 

4,944

 

11,886

 

9,546

Stock-based compensation expense

942

273

2,068

503

Non-GAAP Gross Profit

$

51,684

$

34,746

$

146,833

$

120,100

$

63,519

$

47,519

$

118,592

$

98,039

Non-GAAP Gross Profit has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, Non-GAAP Gross Profit should not be considered as a replacement for gross profit, as determined by GAAP, or as a measure of our profitability. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP measures only for supplemental purposes.

Adjusted EBITDA

Adjusted EBITDA is a supplemental measure of operating performance that is not made under GAAP and that does not represent, and should not be considered as, an alternative to net income (loss), as determined by GAAP. We define Adjusted EBITDA as net income (loss), adjusted for interest expense, loss on extinguishment of debt, (benefit) provision for income taxes, depreciation and amortization, stock-based compensation expense, acquisition-related expense and other (income) expense.

We use Adjusted EBITDA to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget, and to develop short-term and long-term operating plans. We believe that Adjusted EBITDA facilitates comparison of our operating performance on a consistent basis between periods, and when viewed in combination with our results prepared in accordance with GAAP, helps provide a broader picture of factors and trends affecting our results of operations.

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A reconciliation of Adjusted EBITDA to net loss, the most directly comparable GAAP measure, is as follows:

Three Months Ended

September 30, 

Nine Months Ended

September 30, 

2019

2018

2019

2018

(in thousands)

Net loss

$

(595)

$

(5,621)

$

(3,718)

$

(11,377)

Interest expense(1)

3,818

3,959

12,067

11,750

Loss on extinguishment of debt

3,150

3,150

9,785

Benefit for income taxes

(3,986)

(983)

(5,227)

(1,374)

Depreciation and amortization

8,219

7,525

24,315

22,945

Stock-based compensation expense

1,698

704

3,797

1,984

Acquisition-related expense(2)

522

1,753

2,799

4,928

Other (income) expense, net(3)

992

131

767

1,043

Adjusted EBITDA

$

13,818

$

7,468

$

37,950

$

39,684

(1)Includes amortization of debt issuance costs.
(2)Acquisition-related expense for the three months ended September 30, 2019 and 2018, respectively, included $0.5 million and $1.7 million of contingent compensation and retention expense related to the acquisition of Elastic Beam. Acquisition-related expense for the nine months ended September 30, 2019 and 2018, respectively, included $2.8 million and $3.5 million of contingent consideration and retention expense related to the Elastic Beam acquisition. For more information related to our acquisition of Elastic Beam and the payment of contingent compensation, please refer to Note 5 of our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
(3)See this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the components of other (income) expense.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, Adjusted EBITDA should not be considered as a replacement for net income (loss), as determined by GAAP, or as a measure of our profitability. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP measures only for supplemental purposes.

Components of Results of Operations

Revenue

We recognize revenue under ASC 606. Under 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.

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.

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For the three months ended SeptemberJune 30, 20192021 and 2018, 67%2020, 61% and 59%60%, respectively, of our revenue was from subscription term-based licenses. For the ninesix months ended SeptemberJune 30, 20192021 and 2018, 66%2020, 60% and 64%61%, 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.

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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. In the three and six months ended June 30, 2021, as customers elected longer contract durations in response to the strengthening economic outlook and easing of COVID-19 restrictions, multi-year subscription term-based license revenue increased as a percentage of total subscription term-based license revenue, which resulted in higher revenue growth. There is no guarantee that our customers will continue electing contracts with longer durations in future periods even if economic conditions continue to improve.

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 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, 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, 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.

Gross Profit and Gross Margin

Gross profit, or revenue less cost of revenue, and gross margin, or gross profit as a percentage of revenue, have been and will continue to be affected by various factors, including the timing of our acquisition of new customers and our renewal of and follow-on sales to existing customers, the mix of subscriptions for term-based licenses and SaaS subscriptions that we sell, the costs associated with operating our platform, the extent to

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which we expand our customer support team and the extent to which we can increase the efficiency of our technology and infrastructure through technological improvements. We expect our gross profit to increase in absolute dollars but our gross margin to remain consistent in the near term because we expect cost of subscription revenue to increase consistently with the growth in our subscription revenue, although our gross margin could fluctuate from period to period depending on the interplay of all of these factors.

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 including stock-based compensation, sales commissions, costs of general marketing and promotional activities, travel-related expenses and allocated overhead. Certain sales commissions earned by our sales force on

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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 including stock-based compensation, 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 and 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 including stock-based compensation, 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 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 operatingcontinuing 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 definite livedfinite-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 Facility.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.

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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.

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Results of Operations

The following table sets forth our condensed consolidated statements of operations data for the periods indicated:

Three Months Ended

September 30, 

Nine Months Ended

September 30, 

2019

2018

2019

2018

(in thousands)

Revenue:

Subscription

$

57,495

$

38,481

$

161,387

$

129,057

Professional services and other

4,270

4,138

13,276

13,012

Total revenue

61,765

42,619

174,663

142,069

Cost of revenue:

Subscription (exclusive of amortization shown below)

5,995

4,526

16,828

12,785

Professional services and other (exclusive of amortization shown below)

4,086

3,347

11,002

9,184

Amortization expense

4,159

3,549

11,981

10,613

Total cost of revenue

14,240

11,422

39,811

32,582

Gross profit

47,525

31,197

134,852

109,487

Operating expenses:

Sales and marketing(1)

17,819

13,690

55,153

41,811

Research and development(1)

11,283

9,634

33,594

26,027

General and administrative(1)

10,984

6,411

26,732

19,490

Depreciation and amortization

4,060

3,976

12,334

12,332

Total operating expenses

44,146

33,711

127,813

99,660

Income (loss) from operations

3,379

(2,514)

7,039

9,827

Other income (expense):

Interest expense

(3,818)

(3,959)

(12,067)

(11,750)

Loss on extinguishment of debt

(3,150)

(3,150)

(9,785)

Other income (expense), net

(992)

(131)

(767)

(1,043)

Total other income (expense)

(7,960)

(4,090)

(15,984)

(22,578)

Loss before income taxes

(4,581)

(6,604)

(8,945)

(12,751)

Benefit for income taxes

3,986

983

5,227

1,374

Net loss

$

(595)

$

(5,621)

$

(3,718)

$

(11,377)

Three Months Ended
June 30, 

Six Months Ended
June 30, 

    

2021

    

2020

2021

    

2020

(in thousands)

Revenue:

 

  

 

  

  

 

  

Subscription

$

73,151

$

54,268

$

137,367

$

111,086

Professional services and other

 

5,753

 

4,713

 

10,481

 

9,307

Total revenue

 

78,904

 

58,981

 

147,848

 

120,393

Cost of revenue:

 

  

 

  

 

  

 

  

Subscription (exclusive of amortization shown below)(1)

 

10,185

 

7,509

 

19,599

 

14,618

Professional services and other (exclusive of amortization shown below)(1)

 

6,142

 

4,226

 

11,725

 

8,239

Amortization expense

 

6,077

 

4,944

 

11,886

 

9,546

Total cost of revenue

 

22,404

 

16,679

 

43,210

 

32,403

Gross profit

 

56,500

 

42,302

 

104,638

 

87,990

Operating expenses:

 

  

 

  

 

  

 

  

Sales and marketing(1)

 

29,082

 

20,751

 

54,631

 

42,941

Research and development(1)

 

18,692

 

11,411

 

40,394

 

23,625

General and administrative(1)

 

19,545

 

12,082

 

34,000

 

23,597

Depreciation and amortization

 

4,327

 

4,233

 

8,692

 

8,482

Total operating expenses

 

71,646

 

48,477

 

137,717

 

98,645

Loss from operations

 

(15,146)

 

(6,175)

 

(33,079)

 

(10,655)

Other income (expense):

 

  

 

  

 

  

 

  

Interest expense

 

(310)

 

(724)

 

(706)

 

(1,230)

Other income (expense), net

 

430

 

695

 

(442)

 

(555)

Total other income (expense)

 

120

 

(29)

 

(1,148)

 

(1,785)

Loss before income taxes

 

(15,026)

 

(6,204)

 

(34,227)

 

(12,440)

Benefit for income taxes

 

4,047

 

2,932

 

7,314

 

4,876

Net loss

$

(10,979)

$

(3,272)

$

(26,913)

$

(7,564)

(1)

Includes stock-based compensation as follows:

Three Months Ended

September 30, 

Nine Months Ended

September 30, 

2019

2018

2019

2018

(in thousands)

Sales and marketing

$

283

$

184

$

693

$

535

Research and development

225

76

658

184

General and administrative

1,190

444

2,446

1,265

Total

$

1,698

$

704

$

3,797

$

1,984

Three Months Ended

June 30, 

Six Months Ended

June 30, 

    

2021

2020

2021

2020

(in thousands)

Subscription cost of revenue

$

513

$

174

$

1,048

$

320

Professional services and other cost of revenue

429

99

1,020

183

Sales and marketing

4,843

1,243

9,041

2,040

Research and development

 

4,647

 

1,298

 

13,159

 

2,186

General and administrative

 

7,044

 

1,731

 

10,147

 

2,673

Total

$

17,476

$

4,545

$

34,415

$

7,402

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The following table sets forth our condensed consolidated statements of operations data expressed as a percentage of total revenue for the periods indicated:

Three Months Ended

September 30, 

Nine Months Ended

September 30, 

2019

2018

2019

2018

Revenue:

Subscription

93

%  

90

%

92

%  

91

%

Professional services and other

7

10

8

9

Total revenue

100

100

100

100

Cost of revenue:

Subscription (exclusive of amortization shown below)

9

11

10

10

Professional services and other (exclusive of amortization shown below)

7

8

6

6

Amortization expense

7

8

7

7

Total cost of revenue

23

27

23

23

Gross profit

77

73

77

77

Operating expenses:

Sales and marketing

29

32

32

29

Research and development

18

23

19

18

General and administrative

18

15

15

14

Depreciation and amortization

7

9

7

9

Total operating expenses

72

79

73

70

Income (loss) from operations

5

(6)

4

7

Other income (expense):

Interest expense

(6)

(9)

(7)

(8)

Loss on extinguishment of debt

(5)

(2)

(7)

Other income (expense), net

(1)

(1)

Total other income (expense)

(12)

(9)

(9)

(16)

Loss before income taxes

(7)

(15)

(5)

(9)

Benefit for income taxes

6

2

3

1

Net loss

(1)

%  

(13)

%

(2)

%  

(8)

%

Three Months Ended
June 30, 

Six Months Ended
June 30, 

    

2021

    

2020

    

2021

    

2020

Revenue:

 

  

 

  

  

 

  

Subscription

 

93

%  

 

92

%  

 

93

%  

 

92

%  

Professional services and other

 

7

 

8

 

7

 

8

 

Total revenue

 

100

 

100

 

100

 

100

 

Cost of revenue:

 

 

 

 

 

Subscription (exclusive of amortization shown below)

 

13

 

13

 

13

 

12

 

Professional services and other (exclusive of amortization shown below)

 

8

 

7

 

8

 

7

 

Amortization expense

 

7

 

8

 

8

 

8

 

Total cost of revenue

 

28

 

28

 

29

 

27

 

Gross profit

 

72

 

72

 

71

 

73

 

Operating expenses:

 

 

 

 

 

Sales and marketing

 

37

 

36

 

37

 

36

 

Research and development

 

24

 

19

 

27

 

20

 

General and administrative

 

25

 

20

 

23

 

19

 

Depreciation and amortization

 

5

 

7

 

6

 

7

 

Total operating expenses

 

91

 

82

 

93

 

82

 

Loss from operations

 

(19)

 

(10)

 

(22)

 

(9)

 

Other income (expense):

 

 

 

 

 

Interest expense

 

 

(1)

 

(1)

 

(1)

 

Other income (expense), net

 

 

1

 

 

 

Total other income (expense)

 

 

 

(1)

 

(1)

 

Loss before income taxes

 

(19)

 

(10)

 

(23)

 

(10)

 

Benefit for income taxes

 

5

 

5

 

5

 

4

 

Net loss

 

(14)

%  

(5)

%  

(18)

%  

(6)

%  

Comparison of the Three and NineSix Months Ended SeptemberJune 30, 20192021 and 20182020

Revenue

Three Months Ended

 

Nine Months Ended

 

September 30, 

Change

September 30, 

Change

    

2019

    

2018

    

$

    

%

 

2019

    

2018

    

$

    

%

 

(dollars in thousands)

 

Revenue:

 

  

 

  

 

  

 

  

  

 

  

 

  

 

  

Subscription

$

57,495

$

38,481

$

19,014

 

49

%

$

161,387

$

129,057

$

32,330

 

25

%

Professional services and other

 

4,270

 

4,138

 

132

 

3

 

13,276

 

13,012

 

264

 

2

Total revenue

$

61,765

$

42,619

$

19,146

 

45

%

$

174,663

$

142,069

$

32,594

 

23

%

Three Months Ended

 

Six Months Ended

 

June 30, 

Change

June 30, 

Change

    

2021

    

2020

    

$

    

%

    

2021

    

2020

    

$

    

%

(dollars in thousands)

 

Revenue:

 

  

 

  

 

  

 

  

  

 

  

 

  

 

  

Subscription

$

73,151

$

54,268

$

18,883

 

35

%

$

137,367

$

111,086

$

26,281

 

24

%

Professional services and other

 

5,753

 

4,713

 

1,040

 

22

 

10,481

 

9,307

 

1,174

 

13

Total revenue

$

78,904

$

58,981

$

19,923

 

34

%

$

147,848

$

120,393

$

27,455

 

23

%

Total revenue increased by $19.1$19.9 million, or 45%34%, for the three months ended SeptemberJune 30, 20192021 compared to the three months ended SeptemberJune 30, 2018. 99%2020. 95% of the increase in total revenue growth was dueattributable to an increase in subscription revenue of $19.0 million.$18.9 million, discussed further below. The remaining $0.1 million of the increasegrowth was attributable to an increase in professional services and other revenue.revenue of $1.0 million primarily due to an increase of $1.1 million in event sponsorship revenue from our live Identiverse conference which was conducted virtually in the prior year period as a result of COVID-19.

Total revenue increased by $32.6$27.5 million, or 23%, for the ninesix months ended SeptemberJune 30, 20192021 compared to the ninesix months ended SeptemberJune 30, 2018. 99%2020. 96% of the increase in total revenue was due to an increase in subscription revenue of $32.3 million. The remaining $0.3 million of the increasegrowth was attributable to an increase in professional services and other revenue.subscription

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revenue of $26.3 million, discussed further below. The remaining growth was attributable to an increase in professional services and other revenue of $1.2 million primarily due to an increase of $1.1 million in event sponsorship revenue from our live Identiverse conference as described above.

The table below sets forth the components of subscription revenue for the three and ninesix months ended SeptemberJune 30, 20192021 and 2018.2020.

Three Months Ended

 

Nine Months Ended

 

September 30, 

Change

September 30, 

Change

    

2019

    

2018

    

$

    

%

 

2019

    

2018

    

$

    

%

 

(dollars in thousands)

 

Subscription:

 

  

 

  

 

  

 

  

  

 

  

 

  

    

  

Multi-year subscription term-based licenses

$

28,497

$

14,567

$

13,930

 

$

80,922

$

59,077

$

21,845

 

1-year subscription term-based licenses

 

12,649

 

10,673

 

1,976

 

 

33,731

 

32,118

 

1,613

 

Subscription term-based licenses

41,146

25,240

 

15,906

 

114,653

91,195

 

23,458

 

Subscription SaaS and maintenance and support

 

16,349

 

13,241

 

3,108

 

 

46,734

 

37,862

 

8,872

 

Total subscription revenue

$

57,495

$

38,481

$

19,014

 

49

%

$

161,387

$

129,057

$

32,330

 

25

%

Three Months Ended

 

Six Months Ended

 

June 30, 

Change

June 30, 

Change

    

2021

    

2020

    

$

    

%

    

2021

    

2020

    

$

    

%

(dollars in thousands)

 

Subscription:

 

  

 

  

 

  

 

  

  

 

  

 

  

    

  

Multi-year subscription term-based licenses

$

32,391

$

21,141

$

11,250

 

53

%

$

56,229

$

45,129

$

11,100

 

25

%

1-year subscription term-based licenses

 

15,464

 

14,183

 

1,281

 

9

 

32,808

 

28,332

 

4,476

 

16

Subscription term-based licenses

47,855

35,324

 

12,531

 

35

89,037

73,461

 

15,576

 

21

Subscription SaaS

 

13,425

 

8,890

 

4,535

 

51

25,411

17,416

7,995

 

46

Maintenance and support

11,871

10,054

1,817

18

 

22,919

 

20,209

 

2,710

13

Total subscription revenue

$

73,151

$

54,268

$

18,883

 

35

%

$

137,367

$

111,086

$

26,281

 

24

%

Subscription revenue increased 49%by 35%, or $19.0$18.9 million, and 24%, or $26.3 million, in the three and six months ended SeptemberJune 30, 20192021 compared to the three and six months ended SeptemberJune 30, 2018. Subscription2020, respectively. Total subscription revenue increased 25%, or $32.3 million,as a result of a greater amount of new and renewing subscriptions in the ninethree and six months ended SeptemberJune 30, 20192021 compared to the ninethree and six months ended SeptemberJune 30, 2018. The2020. Remaining changes into subscription revenue were primarily due to the following:

Change in subscription type.  Subscription term-based license revenue as a percentage of subscription revenue increased from 66% in the three months ended September 30, 2018 to 72% in the three months ended September 30, 2019. Subscription SaaS and support and maintenance as a percentage of total subscription revenue decreased from 34% in the three months ended September 30, 2018 to 28% in the three months ended September 30, 2019. This resulted in greater upfront recognition of revenue from subscriptions entered into or renewed during the three months ended September 30, 2019 compared to the three months ended September 30, 2018. Subscription term-based license revenue as a percentage of subscription revenue was 71% in the nine months ended September 30, 2019 and 2018. Subscription SaaS and support and maintenance as a percentage of total subscription revenue was 29% in the nine months ended September 30, 2019 and 2018. As the mix of subscription type stayed consistent between the nine months ended September 30, 2019 and 2018, the increase was attributable to a greater number of subscriptions entered into or renewed in the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018.
Change in term-based subscription duration.  Multi-year subscription term-based license revenue as a percentage of total subscription term-based license revenue increased from 58% in the three months ended September 30, 2018 to 69% in the three months ended September 30, 2019. Multi-year subscription term-based license revenue as a percentage of total subscription term-based license revenue increased from 65% in the nine months ended September 30, 2018 to 71% in the nine months ended September 30, 2019. This resulted in more upfront revenue recognition from subscriptions entered into or renewed during the three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018.

Change in subscription type.    The following table sets forth the components of subscription revenue expressed as a percentage of total subscription revenue:

Three Months Ended

 

Six Months Ended

 

June 30, 

Change

June 30, 

Change

    

2021

    

2020

    

%

    

2021

    

2020

    

%

Subscription term-based licenses

65

%

65

%

 

%

65

%

66

%

 

(1)

%

Subscription SaaS

18

16

 

2

18

16

 

2

Maintenance and support

17

19

 

(2)

17

18

 

(1)

Total subscription revenue

100

%

100

%

 

100

%

100

%

 

Subscription term-based license revenue as a percentage of subscription revenue remained consistent at 65% for the three months ended June 30, 2021 and 2020 and decreased from 66% in the six months ended June 30, 2020 to 65% in the six months ended June 30, 2021. Subscription SaaS as a percentage of total subscription revenue increased from 16% in each of the three and six months ended June 30, 2020 to 18% in the three and six months ended June 30, 2021. Maintenance and support as a percentage of total subscription revenue decreased from 19% and 18% for the three and six months ended June 30, 2020, respectively, to 17% for each of the three and six months ended June 30, 2021.

Additionally, subscription SaaS revenue increased by 51%, or $4.5 million, and 46%, or $8.0 million, in the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020. The increase in subscription SaaS revenue overall, and as a percentage of total subscription revenue, was primarily driven by the increased adoption of our SaaS solutions. This resulted in greater deferral of revenue from subscriptions entered into or renewed during the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020. We expect subscription SaaS 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.

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Change in term-based subscription duration.   The following table sets forth the components of subscription term-based licenses expressed as a percentage of total subscription term-based licensed revenue:

Three Months Ended

 

Six Months Ended

 

June 30, 

Change

June 30, 

Change

    

2021

    

2020

    

%

    

2021

    

2020

    

%

Multi-year subscription term-based licenses

68

%

60

%

 

8

%

63

%

61

%

 

2

%

1-year subscription term-based licenses

32

40

 

(8)

37

39

 

(2)

Total subscription term-based licenses

100

%

100

%

 

100

%

100

%

 

Multi-year subscription term-based license revenue as a percentage of total subscription term-based license revenue increased from 60% in the three months ended June 30, 2020 to 68% in the three months ended June 30, 2021. Multi-year subscription term-based license revenue as a percentage of total subscription term-based license revenue increased from 61% in the six months ended June 30, 2020 to 63% in the six months ended June 30, 2021. This resulted in more upfront revenue recognition from multi-year subscriptions entered into or renewed during the three and six months ended June 30, 2021 as compared to the three and six months ended June 30, 2020, as customers elected longer contract durations in response to the strengthening economic outlook and easing of COVID-19 restrictions during the three and six months ended June 30, 2021. There is no guarantee that our customers will continue electing contracts with longer durations in future periods even if economic conditions continue to improve.  

Cost of Revenue and Gross Margin

Three Months Ended

 

NineSix Months Ended

 

SeptemberJune 30, 

Change

SeptemberJune 30, 

Change

    

20192021

    

20182020

    

$

    

%

    

20192021

    

20182020

    

$

    

%

(dollars in thousands)

 

Cost of revenue:

 

  

 

  

 

  

 

  

  

 

  

 

  

 

  

Subscription (exclusive of amortization shown below)

$

5,99510,185

$

4,5267,509

$

1,4692,676

 

3236

%

$

16,82819,599

$

12,78514,618

$

4,0434,981

 

3234

%

Professional services and other (exclusive of amortization shown below)

 

4,0866,142

 

3,3474,226

 

7391,916

 

2245

 

11,00211,725

 

9,1848,239

 

1,8183,486

 

2042

Amortization expense

 

4,1596,077

 

3,5494,944

 

6101,133

 

1723

 

11,98111,886

 

10,6139,546

 

1,3682,340

 

1325

Total cost of revenue

$

14,24022,404

$

11,42216,679

$

2,8185,725

 

2534

%

$

39,81143,210

$

32,58232,403

$

7,22910,807

 

2233

%

Gross margin:

Subscription (exclusive of amortization)

90

%  

88

%  

90

%  

90

%  

Professional services and other (exclusive of amortization)

4

%  

19

%  

17

%  

29

%  

Total gross margin

77

%  

73

%  

77

%  

77

%  

Subscription cost of revenue increased by $1.5$2.7 million, or 32%36%, for the three months ended SeptemberJune 30, 20192021 compared to the three months ended SeptemberJune 30, 2018.2020. $1.6 million of the increase was attributable to an increase in cloud-based hosting and management costs largely associated with the increased adoption of our solutions.  $0.7 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. $0.5$0.3 million of the increase was attributable to an increase in stock-based compensation.

Subscription cost of revenue increased by $5.0 million, or 34%, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. $2.5 million of the increase was attributable to an increase in cloud-based hosting and management 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.

Subscription cost of revenue increased by $4.0 million, or 32%, for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. $1.9$1.7 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. $1.3$0.7 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 subscriptionstock-based compensation.

Professional services and other cost of revenue increased $1.9 million, or 45%, for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. $1.6 million of the increase was dueprimarily attributable to an increase in allocated overhead.headcount and an increase in partner-related costs to support the growth in our business. $0.3 million of the increase was attributable to an increase in stock-based compensation.

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Professional services and other cost of revenue increased by $0.7$3.5 million, or 22%42%, for the threesix months ended SeptemberJune 30, 20192021 compared to the threesix months ended SeptemberJune 30, 2018. The2020. $2.7 million of the increase related to a $0.8 million increase in compensation-related costswas primarily attributable to an increase in headcount and an increase in partner-related costs to support the growth ofin our business, partially offset byas well as a $0.1 million decrease in consulting costs.

Professional services and other cost of revenue increased by $1.8 million, or 20%, for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. The increase related to a $2.7$0.8 million increase in compensation-related costs primarily attributable to an increase in headcount to support the growth of our business, partially offset by a $1.1 million decrease in consulting costs. The remaining portion of the increase was primarily attributable to travel costs and allocated overhead.stock-based compensation.

Amortization expense increased by $0.6$1.1 million, or 17%23%, for the three months ended SeptemberJune 30, 20192021 compared to the three months ended SeptemberJune 30, 2018.2020. Amortization expense increased by $1.4$2.3 million, or 13%25%, for the ninesix months ended SeptemberJune 30, 20192021 compared to the ninesix months ended SeptemberJune 30, 2018.2020. The increase was attributable primarily to an increase in the amortization of our capitalized software.

Gross Margin.  Subscription gross margin was 90% and 88% for the three months ended September 30, 2019 and 2018, respectively. Subscription gross margin was 90% for the nine months ended September 30, 2019 and 2018. Our subscription gross margin was relatively consistent between periods because our cost of subscription revenue increased relatively consistently with the growth in our subscription revenue period over period.

Professional services and other gross margin decreased to 4% for the three months ended September 30, 2019 compared to 19% for the three months ended September 30, 2018. Professional services and other gross

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margin decreased to 17% for the nine months ended September 30, 2019 compared to 29% for the nine months ended September 30, 2018. The decrease was attributable primarily tosoftware as well as an increase in headcount as we continue to growthe amortization of developed technology resulting from our professional services team.

Total gross margin was 77%acquisitions of ShoCard and 73% for the three months ended September 30, 2019Symphonic in March and 2018,October 2020, respectively, as the slight increase in our subscription gross margin outweighed the decrease in our professional services and other gross margin. Total gross margin was 77% for the nine months ended September 30, 2019 and 2018 as our total costs of revenue increased period-over-period relative to our total revenue.

Operating Expenses

Three Months Ended

 

Nine Months Ended

 

September 30, 

Change

September 30, 

Change

    

2019

    

2018

    

$

    

%

 

2019

    

2018

    

$

    

%

 

(dollars in thousands)

 

Sales and marketing

$

17,819

$

13,690

$

4,129

 

30

%

$

55,153

$

41,811

$

13,342

 

32

%

Research and development

 

11,283

 

9,634

 

1,649

 

17

 

33,594

 

26,027

 

7,567

 

29

General and administrative

 

10,984

 

6,411

 

4,573

 

71

 

26,732

 

19,490

 

7,242

 

37

Depreciation and amortization

 

4,060

 

3,976

 

84

 

2

 

12,334

 

12,332

 

2

 

Total operating expenses

$

44,146

$

33,711

$

10,435

 

31

%

$

127,813

$

99,660

$

28,153

 

28

%

Sales and Marketing.     Sales and marketing expenses increased by $4.1 million, or 30%, for the three months ended September 30, 2019 compared to the three months ended September 30, 2018. $2.2 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. We also experienced increased promotional expenses of $0.6 million primarily related to tradeshows, event sponsorships and marketing around our IPO, and increased partner commissions and consulting costs of $0.5 million. Substantially all of the remaining increase in sales and marketing expenses was the result of increased travel costs and allocated overhead.

Sales and marketing expenses increased by $13.3 million, or 32%, for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. $8.7 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 $0.5 million. In addition, we had increased promotional expenses of $1.7 million primarily related to tradeshows and event sponsorships and marketing around our IPO. Substantially all of the remaining increase in sales and marketing expenses was the result of increased partner commissions and consulting costs of $0.7 million, increased costs related to company events of $0.4 million and allocated overhead.

Research and Development.    Research and development expenses increased by $1.6 million, or 17%, for the three months ended September 30, 2019 compared to the three months ended September 30, 2018. $2.4 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 that was paid in part in April 2019 (as further discusseddescribed in Note 57 of our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q). Substantially all10-Q.

Operating Expenses

Three Months Ended

Six Months Ended

June 30, 

Change

June 30, 

Change

2021

2020

$

%

2021

2020

$

%

(dollars in thousands)

Sales and marketing

$

29,082

$

20,751

$

8,331

40

%

$

54,631

$

42,941

$

11,690

27

%

Research and development

18,692

11,411

7,281

64

40,394

23,625

16,769

71

General and administrative

19,545

12,082

7,463

62

34,000

23,597

10,403

44

Depreciation and amortization

4,327

4,233

94

2

8,692

8,482

210

2

Total operating expenses

$

71,646

$

48,477

$

23,169

48

%

$

137,717

$

98,645

$

39,072

40

%

Sales and Marketing.     Sales and marketing expenses increased by $8.3 million, or 40%, for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. $3.6 million of the increase was attributable to an increase in stock-based compensation expense. This increase was primarily related to expense recognized for awards granted in the second quarter of 2021 and expense recognized for the options and restricted stock units subject to performance and market conditions determined to be probable of vesting in the second quarter of 2021 (“market-based options” and “market-based PSUs”), as further described in Note 12 of our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. $2.7 million of the increase was primarily attributable to an increase in headcount related to the expansion of our sales force and our marketing department. Additionally, promotional and partner and consulting expenses increased by $1.8 million primarily due to expenses incurred related to the live Identiverse conference held in the second quarter of 2021 and additional spend around branding and awareness campaigns. The remaining increase was primarily related to an increase in researchtravel as COVID-19 restrictions eased during the second quarter.

Sales and developmentmarketing expenses increased by $11.7 million, or 27%, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. $7.0 million of the increase was attributable to an increase in stock-based compensation expense primarily related to market-based PSUs and options, and awards granted in the resultsecond quarter of increased2021. $3.9 million of the increase was primarily attributable to an increase in headcount related to the expansion of our sales force and our marketing department. Additionally, promotional and partner and consulting expenses increased by $2.4 million primarily due to support our development efforts for our SaaS offerings.the live Identiverse conference held in the second quarter of 2021 and additional spend around branding and awareness campaigns. These increases were offset by a decrease in travel and other event-related costs of $1.4 million due to COVID-19 restrictions in the first quarter of 2021.

Research and Development. Research and development expenses increased by $7.6$7.3 million, or 29%64%, for the ninethree months ended SeptemberJune 30, 20192021 compared to the ninethree months ended SeptemberJune 30, 2018. $6.82020. $4.2 million of the increase was compensation related and primarily the result ofattributable to an increase in headcount to enhance and expand our solutions. The increase in compensation-related expenses was partially offset by a decrease of $0.7 million attributable to contingent compensation and retention expense related to our acquisition of Elastic Beam that was paid in part in April 2019. An additional $1.2$3.3 million of the increase was attributable to an increase in stock-based compensation expense, primarily related to market-based PSUs and awards granted in the second quarter of 2021. Partner and consulting costs increased consulting expenses$1.1 million primarily to support the design and expansion of our SaaS offerings. The increase in research and development expense was offset by an increase of $1.7 million related to employee costs that

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were capitalized as software development costs in the three months ended June 30, 2021 as compared to June 30, 2020.

Research and development expenses increased by $16.8 million, or 71%, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. $11.0 million of the increase was attributable to an increase in stock-based compensation expense primarily related to the conversion of previously outstanding LTIP awards into time-based vesting RSUs in the first quarter of 2021, along with expense recognized for market-based PSUs and awards granted in the second quarter of 2021. $7.3 million of the increase was primarily attributable to an increase in headcount to enhance and expand our development efforts forsolutions. Partner and consulting costs increased $1.7 million primarily to support the design and growth of our SaaS offerings. Substantially all of the remainingThe increase in research and development expensesexpense was offset by an increase of $3.0 million related to employee costs that were capitalized as software development costs in the result of travel costs and allocated overhead.six months ended June 30, 2021 as compared to June 30, 2020.

General and Administrative.     General and administrative expenses increased by $4.6$7.5 million, or 71%62%, for the three months ended SeptemberJune 30, 20192021 compared to the three months ended SeptemberJune 30, 2018. $3.1 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. $0.52020. $5.3 million of the increase was attributable to an increase in legal feesstock-based compensation expense primarily related to the IPO. An additional $0.3market-based PSUs and options, and expense recognized for awards granted in the second quarter of 2021. $1.4 million of the increase was dueprimarily attributable to increased rent expensean increase in headcount to support growth in our business, and $0.4 million of the increase was related to expenses incurred in connection with the expansionacquisition of our corporate office space. Substantially all of theSecuredTouch, Inc. The remaining increase in general and administrative expenseswas primarily related to increased travel costs, director and officer insurance andan increase in allocated overhead.

General and administrative expenses increased by $7.2$10.4 million, or 37%44%, for the ninesix months ended SeptemberJune 30, 20192021 compared to the ninesix months ended SeptemberJune 30, 2018. $7.2 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. $0.52020. $7.5 million of the increase was attributable to an increase in legal feesstock-based compensation expense primarily related to market-based PSUs and options, and awards granted in the IPO. An additional $0.7second quarter of 2021. $1.9 million of the increase was dueprimarily attributable to increased rent expense related to the expansion of our corporate office space, and $0.3 million of the increase resulted from an increase in consultingheadcount to support growth in our business. Consulting costs drivenincreased by $0.9 million, primarily by the implementation of new accounting standards. These increases were partially offset by a decrease in acquisition-relateddue to expenses of $1.5 million as no acquisition was made in the nine months ended September 30, 2019. Substantially all of the remaining increase in general and administrative expensesincurred related to increased travel costs, director and officer insurance and overhead.strategic planning.

Depreciation and Amortization.     Depreciation and amortization expense remained substantially the same forduring the three and ninesix months ended SeptemberJune 30, 20192021 compared to the three and ninesix months ended 2018 as no major changes were made to our property and equipment or to certain acquired intangible assets period-over-period.June 30, 2020.

Other Income (Expense)

Three Months Ended

 

Nine Months Ended

 

September 30, 

Change

September 30, 

Change

    

2019

    

2018

    

$

    

%

 

2019

    

2018

    

$

    

%

 

(dollars in thousands)

 

Interest expense

$

(3,818)

$

(3,959)

$

141

 

(4)

%

$

(12,067)

$

(11,750)

$

(317)

 

3

%

Loss on extinguishment of debt

 

(3,150)

 

 

(3,150)

 

N/M

 

(3,150)

 

(9,785)

 

6,635

 

(68)

Other income (expense), net

 

(992)

 

(131)

 

(861)

 

657

 

(767)

 

(1,043)

 

276

 

(26)

Total other income (expense)

$

(7,960)

$

(4,090)

$

(3,870)

 

95

%

$

(15,984)

$

(22,578)

$

6,594

 

(29)

%

Three Months Ended

 

Six Months Ended

 

June 30, 

Change

June 30, 

Change

    

2021

    

2020

    

$

    

%

    

2021

    

2020

    

$

    

%

(dollars in thousands)

 

Interest expense

$

(310)

$

(724)

$

414

 

(57)

%

$

(706)

$

(1,230)

$

524

 

(43)

%

Other income (expense), net

 

430

 

695

 

(265)

 

(38)

 

(442)

 

(555)

 

113

 

(20)

Total other income (expense)

$

120

$

(29)

$

149

 

(514)

%

$

(1,148)

$

(1,785)

$

637

 

(36)

%

Interest Expense.     Interest expense decreased by $0.1$0.4 million, or 4%57%, for the three months ended SeptemberJune 30, 20192021 compared to the three months ended SeptemberJune 30, 2018.2020. The decrease was attributable primarily to the repaymentreduction in our average debt outstanding during the second quarter of $170.3 million of outstanding principal on our 2018 Term Loan on September 23, 2019. This2021 as compared to 2020. A decrease was partially offset by the period-over-period increase in the weighted average interest rate, from 5.8%1.8% for the three months ended SeptemberJune 30, 20182020 to 6.0%1.4% for the three months ended SeptemberJune 30, 2019.2021, also contributed to the decrease in interest during the period.

Interest expense increaseddecreased by $0.3$0.5 million, or 3%43%, for the ninesix months ended SeptemberJune 30, 20192021 compared to the ninesix months ended SeptemberJune 30, 2018.2020. The increasedecrease was attributable primarily to the period-over-period increasereduction in our average debt outstanding during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. A decrease in the weighted average interest rate, from 5.7%2.2% for the ninesix months ended SeptemberJune 30, 20182020 to 6.2%1.4% for the ninesix months ended SeptemberJune 30, 2019, which was partially offset by a2021, also contributed to the decrease in interest expense due toduring the repayment of $170.3period.

Other Income (Expense), Net.     Other income (expense), net decreased by $0.3 million, of outstanding principal on our 2018 Term Loan on September 23, 2019.

Loss on Extinguishment of Debt.     Duringor 38%, for the three months ended SeptemberJune 30, 2019, we recorded a loss on extinguishment of debt of $3.2 million related2021 compared to the write off of a portion of our deferred debt issuance costs in conjunction with the repayment of $170.3 million of outstanding principal on our 2018 Term Loan. There was no similar loss during the three months ended SeptemberJune 30, 2018.2020. The decrease was

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Loss on extinguishmentattributable primarily to a change in the amount of debt decreased by $6.6foreign currency gains and losses, from a gain of $0.6 million or 68%, for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. In conjunction with the refinancing of our debt in January 2018, we recorded a loss on extinguishment of debt for the nine months ended September 30, 2018 of $9.8 million compared to the loss on extinguishment of debt of $3.2 million recorded for the nine months ended September 30, 2019 related to the repayment of $170.3 million of outstanding principal on our 2018 Term Loan.

Other Income (Expense), Net.     Other income (expense), net increased by $0.9 million, or 657%, for the three months ended SeptemberJune 30, 20192020 to a gain of $0.4 million in the three months ended June 30, 2021, along with a decrease in interest income recognized in the three months ended June 30, 2021 compared to the three months ended SeptemberJune 30, 2018.2020.

Other income (expense), net decreased by $0.1 million, or 20%, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. The increasedecrease was attributable primarily to a change in the amount of foreign currency gains and losses, from a loss of $0.8 million in the six months ended June 30, 2020 compared to a loss of $0.5 million in the threesix months ended SeptemberJune 30, 2018 compared to a loss of $1.3 million in the three months ended September 30, 2019.

Other income (expense), net decreased by $0.3 million, or 26%, for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. The decrease2021. This was attributable to an increase in interest income of $0.4 million partially offset by a changedecrease in interest income recognized in the amount of foreign currency losses, from a loss of $1.7 million in the ninesix months ended SeptemberJune 30, 20182021 compared to a loss of $1.8 million in the ninesix months ended SeptemberJune 30, 2019.2020.

Benefit for Income Taxes

Three Months Ended

 

Nine Months Ended

 

September 30, 

Change

September 30, 

Change

    

2019

    

2018

    

$

    

%

 

2019

    

2018

    

$

    

%

 

(dollars in thousands)

 

Benefit for income taxes

$

3,986

$

983

$

3,003

 

305

%

$

5,227

$

1,374

$

3,853

 

280

%

Three Months Ended

 

Six Months Ended

 

June 30, 

Change

June 30, 

Change

    

2021

    

2020

    

$

    

%

    

2021

    

2020

    

$

    

%

(dollars in thousands)

 

Benefit for income taxes

$

4,047

$

2,932

$

1,115

 

38

%

$

7,314

$

4,876

$

2,438

 

50

%

ForOur benefit for income taxes was $4.0 million and $2.9 million for the three months ended SeptemberJune 30, 2019, we recorded a benefit for income taxes of $4.0 million.2021 and 2020, respectively. For the threesix months ended SeptemberJune 30, 2018, we recorded a benefit for income taxes of $1.0 million. The increase in2021 and 2020, our benefit for income taxes was $7.3 million and $4.9 million, respectively. The increase in the tax benefit for the three and six months ended SeptemberJune 30, 20192021 as compared to the three and six months ended SeptemberJune 30, 2018 was2020 primarily driven byrelates to a larger expected pre-tax loss in 2021 as compared to 2020, the finalizationrelease of a foreign valuation allowance, and an increase in R&D studyand other credits recorded in the three and six months ended SeptemberJune 30, 2019 which generated a tax benefit of $4.6 million, of which we partially offset with an unrecognized tax benefit reserve of $0.9 million.

For the nine months ended September 30, 2019, we recorded a benefit for income taxes of $5.2 million. For the nine months ended September 30, 2018, we recorded a benefit for income taxes of $1.4 million.2021. The increase in ourtax benefit for income taxes for the ninesix months ended SeptemberJune 30, 20192021 as compared to the ninesix months ended SeptemberJune 30, 20182020 was primarily driven by the finalization of an R&D study in the nine months ended September 30, 2019 which generated a tax benefit of $4.6 million of which we partially offset with an unrecognizedby a valuation allowance recorded against our U.S. deferred tax benefit reserveassets during the first quarter of $0.9 million.2021.

Liquidity and Capital Resources

General

As of SeptemberJune 30, 2019,2021, our principal sources of liquidity were cash and cash equivalents totaling $81.9$104.3 million, which were held for working capital purposes, and borrowing availability under our Revolving Credit Facility as well as the available balance of our 2018 Term Loan and 2018 Revolver, described further below. As of SeptemberJune 30, 2019,2021, our cash equivalents were comprised of money market funds. During the ninesix months ended SeptemberJune 30, 20192021 and 2018,2020, our positive cash flows from operations have enabled us to make continued investments in supporting the growth of 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 expect our operating cash flows to further improve as we increase our operational efficiency and experience economies of scale.

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 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. In February 2021, we repaid $110.0 million of the balance drawn on our Revolving Credit Facility, and in June 2021, we drew down an additional $80.0 million for the acquisition of SecuredTouch, Inc., and for general working capital purposes. As of June 30, 2021, there was $120.0 million outstanding under our Revolving Credit Facility. We believe our existing cash and cash equivalents, the proceeds from our IPO, our 2018Revolving Credit FacilitiesFacility and cash provided by sales of our solutions and services will be sufficient to meet our working

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capital and capital expenditure needs for at least the next 12 months. Our future capital requirements will depend on several factors, including but not limited to our obligation to repay any remaining balanceamounts outstanding under our 2018 Term Loan,Credit Agreement, 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.platform, and the continuing effects of the COVID-19 pandemic, including potential reductions in revenue and delays in payments from our customers and partners. In the future, we may

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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 SeptemberJune 30, 2019,2021, we had deferred revenue of $32.2$47.7 million, of which $30.6$43.4 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 January 25, 2018,December 12, 2019, we entered into our $275.0 millionthe Credit Agreement providing for the 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 syndicate$15.0 million letter of lenders, comprisedcredit sublimit and a $50.0 million alternative currency sublimit. In addition, the Credit Agreement provides for the ability of Ping Identity Corporation to request term loan facilities, in a minimum amount of $10 million for each facility, if, among other things, the $25.0 million 2018 Revolver andSenior Secured Net Leverage Ratio (as defined in the $250.0 million 2018 Term Loan. Proceeds from our IPO were usedCredit Agreement), calculated giving pro forma effect to repay a portion of ourthe requested term loan facility, is no greater than 3.50 to 1.00.

The interest rates applicable to revolving borrowings under the Credit Agreement together with accrued interest. Asare, at the borrower’s option, either (i) a base rate, which is equal to the greater of September 30, 2019, we had $77.0 million(a) the Prime Rate, (b) the Federal Funds Effective Rate plus 0.5% and no(c) the Adjusted LIBO Rate for a one month Interest Period (each term as defined in the 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 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 Credit Agreement). The Adjusted LIBO Rate cannot be less than zero. Base rate borrowings outstanding under our 2018 Term Loan and 2018 Revolver, respectively. As of September 30, 2019, themay only be made in dollars. The interest rate as of June 30, 2021 was 1.34%. The 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 pays a commitment fee during the term of the Credit Agreement ranging from 0.20% to 0.35% of the available revolving commitments per annum based on our 2018 Term Loan and 2018 Revolver was approximately 5.86% and 0.25%, respectively.the Senior Secured Net Leverage Ratio (as defined in the Credit Agreement).

BorrowingsAny borrowing under the Credit Agreement bear interestmay be repaid, in whole or in part, at a rate per annum, at our option, equalany time and from time to an applicable margin, plus, (a)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 Credit Agreement was amended on April 20, 2021 and effective as of March 31, 2021 (the “Credit Amendment”). The Credit Amendment, among other provisions, modified the definition of “EBITDA”, added additional language regarding recovery for alternative base rate borrowings, the highest of (i) the prime rate as determined by theerroneous payments and amended certain administrative agent in effect on such day, (ii) the Federal Funds Rate in effect on such day plus 1/2 of 1.00% and (iii) the Adjusted LIBO Rate (for a one-month interest period and taking into account a 1.00% floor with respect to term loans) plus 1.00% and (b) for eurocurrency borrowings, the Adjusted LIBO Rate determined by the greater of (i) the LIBO rate for the relevant interest period divided by 1 minus the statutory reserves (if any) and (ii) with respect to term loans only, 1.00%.processes.

The applicable margin for borrowings under the Credit Agreement is (a) with respect to term loan borrowings, 2.75% for alternate base rate borrowings and 3.75% for eurocurrency borrowings, and (b) with respect to both revolving and swingline loan borrowings, 2.75% for alternate base rate borrowings and 3.75% for eurocurrency borrowings when our first lien leverage ratio is greater than 5.00 to 1.00, with step downs to (i) 2.50% for alternate base rate borrowings and 3.50% for eurocurrency borrowings when our first lien leverage ratio is less than or equal to 5.00 to 1.00 but greater than 4.50 to 1.00 and (ii) 2.25% for alternate base rate borrowings and 3.25% for eurocurrency when our first lien leverage ratio is less than or equal to 4.50 to 1.00. Our first lien leverage ratio is determined in accordance with the terms of the Credit Agreement.

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Cash Flows

The following table presents a summary of our condensed consolidated cash flows from operating, investing and financing activities for the periods indicated:

Nine Months Ended

September 30, 

2019

2018

(in thousands)

Net cash provided by operating activities

$

8,474

$

23,685

Net cash used in investing activities

(12,077)

(23,809)

Net cash provided by financing activities

1,974

68,168

Effect of exchange rate changes on cash and cash equivalents and restricted cash

168

(310)

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

$

(1,461)

$

67,734

Cash and cash equivalents and restricted cash at beginning of period

84,143

21,469

Cash and cash equivalents and restricted cash at end of period

$

82,682

$

89,203

Six Months Ended

June 30, 

    

2021

2020

(in thousands)

Net cash provided by operating activities

$

43,965

$

21,244

Net cash used in investing activities

 

(49,959)

 

(12,872)

Net cash provided by (used in) financing activities

 

(35,267)

 

101,497

Effect of exchange rate changes on cash and cash equivalents and restricted cash

 

(130)

 

(406)

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

$

(41,391)

$

109,463

Cash and cash equivalents and restricted cash at beginning of period

 

146,499

 

68,386

Cash and cash equivalents and restricted cash at end of period

$

105,108

$

177,849

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.

For the ninesix months ended SeptemberJune 30, 2019,2021, net cash provided by operating activities was $8.5$44.0 million, reflecting our net loss of $3.7$26.9 million, adjusted for non-cash charges of $29.4$51.9 million and net cash outflowsinflows of $17.2$19.0 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 $15.9 million increase in contract assets and a $3.2 million decrease in deferred revenue due to the timing of revenue recognition, and a $5.3 million increase in deferred commissions, a $7.6 million decrease in accrued compensation and a $4.5 million increase in prepaid expenses and other current assets due to the timing of cash disbursements, partially offset by a $16.0$17.6 million decrease in accounts receivable due to the timing of receiptcollection of payment from our customers, a $5.7 million decrease in contract assets due to the issuance of invoices and timing of revenue recognition, a $2.3$4.3 million increase in accrued compensation due to the timing of cash disbursements to our employees, a $3.4 million decrease in prepaid expenses and other.other current assets, and an increase of $1.3 million in accrued expenses and other liabilities due to the timing of cash disbursements. These were partially offset by an $8.2 million increase in deferred commissions, and a $5.0 million decrease in deferred revenue driven by the timing of revenue recognition.

During the ninesix months ended SeptemberJune 30, 2018,2020 net cash provided by operating activities was $23.7$21.2 million due to our net loss of $11.4$7.6 million that was adjusted for non-cash charges of $36.3$24.7 million and net cash outflowsinflows of $1.2$4.1 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 $8.7 million decrease in accounts receivable due to the timing of collection of payment from our customers, a $4.5$7.2 million decrease in prepaid expenses and other current assets, a $3.9 million increase in deferred commissions,accounts payable, a $2.5$2.2 million increase in accrued expenses and other liabilities due to the timing of cash disbursements and a $1.3 million decrease in contract assets. These were partially offset by a $7.5 million decrease in deferred revenue and a $2.7 million increase in contract assets driven by the timing of revenue recognition, as well as a $1.8$3.2 million increase in deferred commissions and an $8.7 million decrease in accrued compensation related to the timing of cash disbursements partially offset by a decrease in accounts receivable of $10.9 million due to the timing of receipt of payment from our customers.employees.

Investing Activities

Net cash used in investing activities was $12.1$50.0 million and $23.8$12.9 million during the ninesix months ended SeptemberJune 30, 20192021 and 2018,2020, respectively, a decreaserepresenting an increase of $11.7$37.1 million. The net decreaseincrease is primarily attributable to the acquisition of Elastic Beam for $17.4 million in cash which occurred during the nine months ended September 30, 2018, partially offset by 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 and an increase in our purchases of property and equipment of $2.4 million predominantly related to the expansion of our corporate office space.

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attributable to the acquisition of SecuredTouch in June 2021 for $39.9 million as compared to the acquisition of ShoCard in the first quarter of 2020 for $4.7 million. The remaining increase was primarily related to an increase in the capitalization of internal-use software costs of $1.8 million in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

Financing Activities

Net cash used in financing activities was $35.3 million during the six months ended June 30, 2021 whereas net cash provided by financing activities was $2.0 million and $68.2$101.5 million during the ninesix months ended SeptemberJune 30, 2019 and 2018, respectively,2020, representing a decrease of $66.2$136.8 million. During the six months ended June 30, 2021, we repaid $110.0 million and drew down $80.0 million on our Revolving Credit Facility, resulting in net cash outflows related to long-term debt of $30.0 million in the period. This compares to cash inflows related to long-term debt of $97.8 million during the six months ended June 30, 2020, due to the draw down of $97.8 million on our Revolving Credit Facility in March 2020. The netremaining decrease primarily relates to a decrease of $4.1 million in proceeds received from option exercises and an increase of $4.5 million in payments for tax withholding on equity awards for the receipt of proceeds from our 2018 Term Loan during the ninesix months ended SeptemberJune 30, 2018 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. Additionally, during the nine months ended September2021 as compared to June 30, 2019, the net cash inflow was related primarily to the receipt of proceeds from our IPO of $174.4 million as well as receipt of proceeds from stock option exercises of $1.6 million, partially offset by the payment of long-term debt and deferred offering costs of $171.7 million and $1.1 million, respectively, as well as the payment of Elastic Beam contingent compensation of $1.1 million.2020.

Contractual Obligations and Commitments

Our principal commitments consist of obligations under operating leases for office space and repayments of long-term debt. In Management’s Discussion and Analysis of Financial Conditions and Results of Operations included in the IPO Prospectus, we disclosed our total contractual obligations as of December 31, 2018.

In connection with the closing of the IPO on September 23, 2019, we repaid $170.3 million of the principal amount of 2018 Term Loan, together with $0.7 million of accrued interest, using the proceeds from the IPO. As of September 30, 2019, there was $77.0 million of aggregate principal amount remaining on our 2018 Term Loan, which matures on January 25, 2025.

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 IPO Prospectus.

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, in connection with the completion of our IPO, 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 condensed consolidated balance sheets, condensed consolidated statements of operations and comprehensive loss, or condensed consolidated statements of cash flows.

Off-Balance Sheet Arrangements

As of SeptemberJune 30, 2019,2021, 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 Jumpstart Our Business Startups Act of 2012 (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.

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Critical Accounting PoliciesEstimates

The discussion and analysis of our financial condition and results of operations are based upon our condensed 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. We evaluate our estimates and assumptions on an ongoing basis. The estimates and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, impacting our reported results of operations and financial condition.

There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the IPO Prospectus.year ended December 31, 2020. For more information, please refer to “Note 2—Summary of Significant Accounting Policies” to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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Recent Accounting Pronouncements

For a description of our recently adopted accounting pronouncements and recently issued accounting standards not yet adopted, see “Note 2—Summary of Significant Accounting Policies—Recent Accounting Pronouncements” to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Item 3. 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 SeptemberJune 30, 20192021 and 2018,2020, we recorded lossesa gain of $1.3$0.4 million and $0.5a gain of $0.6 million on foreign exchange transactions, respectively. For the ninesix months ended SeptemberJune 30, 20192021 and 2018,2020, we recorded lossesa loss of $1.8$0.5 million and $1.7a loss of $0.8 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 and ninesix months ended SeptemberJune 30, 20192021 and 2018,2020, a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have had a material impact on our condensed 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. Our 2018 Term Loan bearsThe interest rates applicable to revolving borrowings under the Credit Agreement are, at the borrower’s option, either (i) a floatingbase rate, which is equal to our optionthe greater of a rate per annum equal to (a) anthe Prime Rate, (b) the Federal Funds Effective Rate plus 0.5% and (c) the Adjusted LIBO Rate (withfor a floorone month Interest Period (each term as defined in the 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 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) plus an applicable margin of 3.75%, or (b) the Alternate Baseannum and (i) for LIBO Rate (with a floor ofloans ranges from 1.25% to 2.0% per annum) plus an applicable marginannum, in each case, based on the Senior Secured Net Leverage Ratio (as defined in the Credit Agreement). The Adjusted LIBO Rate cannot be less than zero. Base rate borrowings may only be made in dollars. The Credit Agreement also includes a fallback provision, which, subject to certain terms and conditions, provides for a replacement of 2.75%. the LIBO Rate with (x) one or more SOFR-based rates or (y) any other alternative benchmark rate giving consideration to any evolving or then existing conventions for similar U.S. dollar denominated syndicated credit facilities.

At SeptemberJune 30, 2019,2021, we had total outstanding debt of $77.0 million and $0.0$120.0 million under our 2018 Term Loan and 2018 Revolver, respectively.Revolving Credit Facility. Based on the amounts outstanding, a 100-basis point increase or

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decrease in market interest rates over a twelve-month period would result in a change to interest expense of $0.8$1.2 million.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as defined in Rule 13a–15(e) and Rule 15d–15(e) under the Exchange Act that are designed to provide reasonable assurance that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our management, with the participation ofBased on such evaluation, our Chief Executive Officerprincipal executive officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2019 andprincipal financial officer have concluded that as of such date, due to the material weakness described below,June 30, 2021, our disclosure controls and procedures were not effective.

Previously Reported Material Weakness in Internal Control over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is aeffective at the reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. During the course of preparing for our IPO and as reported in the IPO Prospectus, we identified a material weakness in our internal control over financial reporting as we did not design and maintain effective controls related to the quarterly accounting for income taxes. Specifically, we did not design and maintain effective controls related to the preparation, analysis and review of the interim income tax provision and significant income tax balance sheet accounts required to assess the accuracy and completeness of the income tax amounts reported within the consolidated financial statements at period end. This material weakness resulted in the restatement of the interim financial statements as of and for the nine months ended September 30, 2018, as well as the financial information for each of the quarters within 2018.

Status of Remediation Plan

As a result of this material weakness, we have implemented processes and controls over the preparation of the interim tax provision and related tax assets and liabilities. Specifically:assurance level.

we have performed a risk assessment and identified control activities to be implemented in response to the identified risks; and
we have designed and implemented new control activities related to the preparation of the interim tax provision and related tax assets and liabilities.

While new controls have been designed and implemented, testing procedures over these new controls have not yet been completed to demonstrate the material weakness has been remediated. As the initiatives we have implemented to remediate the material weakness are subject to continued management review supported by confirmation and testing, as well as audit committee oversight, we will continue the remediation process through the end of fiscal 2019.

Changes in Internal Control

There have been no changes in our internal control over financial reporting during the quarter ended SeptemberJune 30, 20192021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Inherent Limitations on Effectiveness of Controls

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are involved in various claims and legal actions that arise in the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, we do not believe that the ultimate resolution of these actions will have a material adverse effect on our financial position, results of operations, liquidity and capital resources.

Future litigation may be necessary to defend ourselves and our partners by determining the scope, enforceability and validity of third-party proprietary rights or to establish our proprietary rights. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Item 1A. Risk Factors

There have been no material changesIn addition to the information set forth in this Form 10-Q, you should carefully consider the risk factors disclosed under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the IPO Prospectus.

year ended December 31, 2020. There have been no material changes to our risk factors from those included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

From January 1, 2019 to September 30, 2019, we have madeThere were no unregistered sales of equity securities during the following unregistered securities:

We issued an aggregate of 256,684 shares of our common stock to directors, executive officers and employees for aggregate total consideration of $1.6 million.
We issued RSUs for an aggregate of 107,440 shares of our common stock (of which 87,550 are unvested) to certain directors and employees under our 2016 Plan.

The offers and sales of the above securities were deemed to be exempt from registration under the Securities Act of 1933 in reliance upon Section 4(a)(2) of the Securities Act of 1933 or Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of the above securities represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof. Appropriate legends were placed upon any stock certificates issued in these transactions.

Use of Proceeds from Initial Public Offering of Common Stock

On September 23, 2019, we closed our IPO in which we sold 12,500,000 shares of common stock at a public offering price of $15.00 per share. Additionally, we 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. The offer and sale of all of the shares in the IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-233421), which was declared effective by the SEC on September 18, 2019. The representatives of the several underwriters of the IPO were Goldman Sachs & Co. LLC and BofA Securities, Inc. The offering commenced on September 18, 2019 and did not terminate before all of the securities registered in the registration statement were sold.

We raised $194.9 million in net proceeds after deducting underwriting discounts and commissions of $15.1 million and offering expenses of $5.6 million. There was no material change in the use of the IPO proceeds as described in the IPO Prospectus. On September 23, 2019, the net proceeds from the IPO were used to repay $170.3 million of our 2018 Term Loan, together with $0.7 million of accrued interest. After the closing of the

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underwriters’ option to purchase additional shares, we repaid an additional $26.1 million of our 2018 Term Loan, together with $0.1 million of accrued interest.

In connection with our entry into the 2018 Term Loan on January 25, 2018, affiliates of Vista collectively acquired $35.0 million of term loans under our 2018 Term Loan and immediately prior to the repayment on September 23, 2019, affiliates of Vista collectively owned $34.7 million of our 2018 Term Loan. Additionally, immediately prior to the repayment on October 22, 2019, affiliates of Vista collectively owned $10.8 million of our 2018 Term Loan. Accordingly, Vista received $27.5 million of the net proceeds from the IPO and the underwriters’ exercise of the overallotment option in connection with the repayment of $196.4 million of our 2018 Term Loan.three months ended June 30, 2021.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosure

None.

Item 5. Other Information

None.

Item 6. Exhibits

We have filed the exhibits listed on the accompanying Exhibit Index, which is incorporated herein by reference.

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Exhibit Index

Exhibit Number

Exhibit Description

3.1

Third Amended and Restated Certificate of Incorporation of Ping Identity Holding Corp., dated September 23, 2019 (incorporated by reference to the Company’s Current Report filed with the SEC on Form 8-K on September 24, 2019).

3.2

Amended and Restated Bylaws of Ping Identity Holding Corp., dated September 23, 2019 (incorporated by reference to the Company’s Current Report filed with the SEC on Form 8-K on September 24, 2019).

4.1

Registration Rights Agreement, dated September 23, 2019, by and among the Company and the other signatories party thereto (incorporated by reference to the Company’s Current Report filed with the SEC on Form 8-K on September 24, 2019).

10.1

Director Nomination Agreement, dated as of September 23, 2019, by and among the Company and the other signatories party thereto (incorporated by reference to the Company’s Current Report filed with the SEC on Form 8-K on September 24, 2019).

10.2

Ping Identity Holding Corp. Omnibus Incentive Plan (incorporated by reference to the Company’s Current Report filed with the SEC on Form 8-K on September 24, 2019).

31.1

Certification of the Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.2002, filed herewith.

31.2

Certification of the Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.2002, filed herewith.

32.1*

Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, filed herewith.

32.2*

Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, filed herewith.

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, and 101.PRE).

*The certifications furnished in Exhibit 32.1 and Exhibit 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SignatureAugust 4, 2021

Title

DatePing Identity Holding Corp.

/s/Raj Dani

Raj Dani

Chief Financial Officer

(Principal Financial Officer)

November 13, 2019/s/ Raj Dani

Raj Dani

Chief Financial Officer

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