UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~September 30, 2020~~March 31, 2021

☐ 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

PING IDENTITY HOLDING CORP.

(Exact Name of Registrant as Specified in Its Charter)


Delaware	81-2933383
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

1001 17th Street, Suite 100

Denver, Colorado 80202

(Address of Principal executive offices, including zip code)

(303) 468-2900

(Registrant’s telephone number, including area code)

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


Title of each class:	Trading Symbol(s):	Name of each exchange on which registered:
Common Stock, $0.001 par value per share	PING	New York Stock Exchange

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

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

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


Large accelerated filer	☐☒	Accelerated filer	☐
Non-accelerated filer	☒☐	Smaller reporting company	☐
Emerging growth company	☒☐

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

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

On ~~October~~April 30, ~~2020,~~2021, the Registrant had ~~81,110,873~~82,031,979 shares of common stock, $0.001 par value, outstanding.

Table of Contents

PING IDENTITY HOLDING CORP.

FORM 10-Q

For the Quarter Ended ~~September 30, 2020~~March 31, 2021

TABLE OF CONTENTS


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	3

	Condensed Consolidated Balance Sheets as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020	3

	Condensed Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~	4

	Condensed Consolidated Statements of Comprehensive Loss for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~	5

	Condensed Consolidated Statements of Stockholders’ Equity for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~	6

	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~	87

	Notes to Condensed Consolidated Financial Statements	98

Forward-Looking Statements		2723

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3026

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4942

Item 4.	Controls and Procedures	5043

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	5144

Item 1A.	Risk Factors	5144

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5344

Item 3.	Defaults Upon Senior Securities	5344

Item 4.	Mine Safety Disclosures	5344

Item 5.	Other Information	5344

Item 6.	Exhibits	5344

	Signatures	5546

Table of Contents

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,		March 31,		December 31,
	2020		2019		2021		2020
Assets
Current assets:
Cash and cash equivalents	$	173,206	$	67,637	$	55,003	$	145,733
Accounts receivable, net of allowances of $728 and $873 at September 30, 2020 and December 31, 2019, respectively		49,659		67,642
Contract assets, current		69,766		70,031
Accounts receivable, net of allowances of $652 and $828 at March 31, 2021 and December 31, 2020, respectively						65,702		82,335
Contract assets, current (net of allowance)						61,562		62,503
Deferred commissions, current		5,773		5,814		6,819		6,604
Prepaid expenses		17,703		12,768		15,250		17,608
Other current assets		1,068		3,774		1,840		1,940
Total current assets		317,175		227,666		206,176		316,723
Noncurrent assets:
Property and equipment, net		9,564		11,183		9,134		9,446
Goodwill		418,660		417,696		441,352		441,150
Intangible assets, net		177,447		187,868		175,502		180,422
Contract assets, noncurrent		14,239		15,979
Contract assets, noncurrent (net of allowance)						8,119		11,288
Deferred commissions, noncurrent		8,231		7,856		9,715		9,325
Deferred income taxes, net		2,685		2,755		3,997		3,962
Operating lease right-of-use assets		15,052		—		14,808		15,619
Other noncurrent assets		2,518		1,808		3,327		2,516
Total noncurrent assets		648,396		645,145		665,954		673,728
Total assets	$	965,571	$	872,811	$	872,130	$	990,451
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	748	$	1,118	$	571	$	2,795
Accrued expenses and other current liabilities		6,837		9,302		8,026		7,339
Accrued compensation		10,427		18,126		12,948		17,170
Deferred revenue, current		35,640		45,446		45,993		49,203
Operating lease liabilities, current		3,770		—		4,065		3,979
Total current liabilities		57,422		73,992		71,603		80,486
Noncurrent liabilities:
Deferred revenue, noncurrent		2,352		2,061		3,359		3,195
Long-term debt		148,951		50,941		39,076		149,014
Deferred income taxes, net		19,679		30,571		14,334		17,867
Operating lease liabilities, noncurrent		17,005		—		16,173		17,213
Other liabilities, noncurrent		2,607		4,775		1,565		1,566
Total noncurrent liabilities		190,594		88,348		74,507		188,855
Total liabilities		248,016		162,340		146,110		269,341
Commitments and contingencies (Note 13)
Commitments and contingencies (Note 14)
Stockholders' equity:
Preferred stock; $0.001 par value; 50,000,000 shares authorized at September 30, 2020 and December 31, 2019; 0 shares issued or outstanding at September 30, 2020 or December 31, 2019		—		—
Common stock; $0.001 par value; 500,000,000 shares authorized at September 30, 2020 and December 31, 2019; 81,003,507 and 79,632,500 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively		81		80
Preferred stock; $0.001 par value; 50,000,000 shares authorized at March 31, 2021 and December 31, 2020; 0 shares issued or outstanding at March 31, 2021 or December 31, 2020						—		—
Common stock; $0.001 par value; 500,000,000 shares authorized at March 31, 2021 and December 31, 2020; 81,475,176 and 81,163,896 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively						81		81
Additional paid-in capital		733,769		718,446		759,645		739,051
Accumulated other comprehensive loss		(561)		(399)
Accumulated other comprehensive income						1,623		1,373
Accumulated deficit		(15,734)		(7,656)		(35,329)		(19,395)
Total stockholders' equity		717,555		710,471		726,020		721,110
Total liabilities and stockholders' equity	$	965,571	$	872,811	$	872,130	$	990,451

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

Table of Contents

PING IDENTITY HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,


2020

2019

2020

2019
Revenue:




Subscription

$
55,113

$
57,495

$
166,199

$
161,387
Professional services and other

4,828

4,270

14,135

13,276
Total revenue

59,941

61,765

180,334

174,663
Cost of revenue:

Subscription (exclusive of amortization shown below)

8,091

5,995

22,709

16,828
Professional services and other (exclusive of amortization shown below)

4,083

4,086

12,322

11,002
Amortization expense

5,177

4,159

14,723

11,981
Total cost of revenue

17,351

14,240

49,754

39,811
Gross profit

42,590

47,525

130,580

134,852
Operating expenses:







Sales and marketing

21,164

17,819

64,105

55,153
Research and development

12,224

11,283

35,849

33,594
General and administrative

10,702

10,984

33,817

26,732
Depreciation and amortization

4,223

4,060

12,705

12,334
Total operating expenses

48,313

44,146

146,476

127,813
Income (loss) from operations

(5,723)

3,379

(15,896)

7,039
Other income (expense):







Interest expense

(605)

(3,818)

(1,835)

(12,067)
Loss on extinguishment of debt

—

(3,150)

—

(3,150)
Other income (expense), net

1,271

(992)

716

(767)
Total other income (expense)

666

(7,960)

(1,119)

(15,984)
Loss before income taxes

(5,057)

(4,581)

(17,015)

(8,945)
Benefit for income taxes

4,061

3,986

8,937

5,227
Net loss

$
(996)

$
(595)

$
(8,078)

$
(3,718)
Net loss per share:

Basic and diluted

$
(0.01)

$
(0.01)

$
(0.10)

$
(0.06)
Weighted-average shares used in computing net loss per share:

Basic and diluted

80,692

66,269

80,203

65,436


	Three Months Ended March 31,
	2021		2020
Revenue:
Subscription	$	64,216	$	56,818
Professional services and other		4,728		4,594
Total revenue		68,944		61,412
Cost of revenue:
Subscription (exclusive of amortization shown below)		9,414		7,109
Professional services and other (exclusive of amortization shown below)		5,583		4,013
Amortization expense		5,809		4,602
Total cost of revenue		20,806		15,724
Gross profit		48,138		45,688
Operating expenses:
Sales and marketing		25,549		22,190
Research and development		21,702		12,214
General and administrative		14,455		11,515
Depreciation and amortization		4,365		4,249
Total operating expenses		66,071		50,168
Loss from operations		(17,933)		(4,480)
Other income (expense):
Interest expense		(396)		(506)
Other income (expense), net		(872)		(1,250)
Total other income (expense)		(1,268)		(1,756)
Loss before income taxes		(19,201)		(6,236)
Benefit for income taxes		3,267		1,944
Net loss	$	(15,934)	$	(4,292)
Net loss per share:
Basic and diluted	$	(0.20)	$	(0.05)
Weighted-average shares used in computing net loss per share:
Basic and diluted		81,339		79,743

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

Table of Contents

PING IDENTITY HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2020

2019

2020

2019
Net loss

$
(996)

$
(595)

$
(8,078)

$
(3,718)
Other comprehensive income (loss), net of tax:








Foreign currency translation adjustments

502

(110)

(162)

205
Total other comprehensive income (loss)

502

(110)

(162)

205
Comprehensive loss

$
(494)

$
(705)

$
(8,240)

$
(3,513)


	Three Months Ended March 31,
	2021		2020
Net loss	$	(15,934)	$	(4,292)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		250		(1,015)
Total other comprehensive income (loss)		250		(1,015)
Comprehensive loss	$	(15,684)	$	(5,307)

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

Table of Contents

PING IDENTITY HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

(unaudited)

Three Months Ended ~~September 30, 2020:~~

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders'


Shares

Amount

Capital

Income (Loss)

Deficit

Equity
Balances at June 30, 2020

80,444,507

$
80

$
729,602

$
(1,063)

$
(14,738)

$
713,881
Net loss

—

—

—

—

(996)

(996)
Stock-based compensation

—

—

3,956

—

—

3,956
Exercise of stock options, net of tax withholding

318,818

1

2,980

—

—

2,981
Vesting of restricted stock, net of tax withholding

240,182

—

(2,769)

—

—

(2,769)
Foreign currency translation adjustments, net of tax

—

—

—

502

—

502
Balances at September 30, 2020

81,003,507

$
81

$
733,769

$
(561)

$
(15,734)

$
717,555

~~Three Months Ended September 30, 2019:~~March 31, 2021:


							Accumulated												Accumulated		Retained
					Additional		Other				Total						Additional		Other		Earnings		Total
	Common Stock				Paid-in		Comprehensive		Accumulated		Stockholders'		Common Stock				Paid-in		Comprehensive		(Accumulated		Stockholders'
	Shares		Amount		Capital		Loss		Deficit		Equity		Shares		Amount		Capital		Income		Deficit)		Equity
Balances at June 30, 2019		65,141,506	$	65	$	519,056	$	(472)	$	(9,275)	$	509,374
Balances at December 31, 2020														81,163,896	$	81	$	739,051	$	1,373	$	(19,395)	$	721,110
Net loss		—		—		—		—		(595)		(595)		—		—		—		—		(15,934)		(15,934)
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		—		—		16,300		—		—		16,300
Exercise of stock options		74,854		—		593		—		—		593
Vesting of restricted stock		41,140		—		—		—		—		—
Reclassification of liability-classified awards upon settlement														—		—		3,089						3,089
Exercise of stock options, net of tax withholding														198,105		—		1,770		—		—		1,770
Vesting of restricted stock, net of tax withholding														113,175		—		(565)		—		—		(565)
Foreign currency translation adjustments, net of tax		—		—		—		(110)		—		(110)		—		—		—		250		—		250
Balances at September 30, 2019		77,757,500	$	78	$	690,170	$	(582)	$	(9,870)	$	679,796
Balances at March 31, 2021														81,475,176	$	81	$	759,645	$	1,623	$	(35,329)	$	726,020

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

~~Table of Contents~~

~~PING IDENTITY HOLDING CORP.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~

~~(In thousands, except share amounts)~~

~~(unaudited)~~

~~Nine~~Three Months Ended ~~September 30,~~March 31, 2020:

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders'


Shares

Amount

Capital

Loss

Deficit

Equity
Balances at December 31, 2019

79,632,500

$
80

$
718,446

$
(399)

$
(7,656)

$
710,471
Net loss

—

—

—

—

(8,078)

(8,078)
Stock-based compensation

—

—

10,720

—

—

10,720
Exercise of stock options, net of tax withholding

1,104,481

1

7,372

—

—

7,373
Vesting of restricted stock, net of tax withholding

266,526

—

(2,769)

—

—

(2,769)
Foreign currency translation adjustments, net of tax

—

—

—

(162)

—

(162)
Balances at September 30, 2020

81,003,507

$
81

$
733,769

$
(561)

$
(15,734)

$
717,555

~~Nine Months Ended September 30, 2019:~~


							Accumulated												Accumulated
					Additional		Other				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, 2018		65,000,816	$	65	$	515,979	$	(787)	$	(6,152)	$	509,105
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		—		—		—		—		(3,718)		(3,718)		—		—		—		—		(4,292)		(4,292)
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		—		—		2,600		—		—		2,600
Exercise of stock options		199,522		—		1,571		—		—		1,571
Exercise of stock options, net of tax withholding														273,444		—		135		—		—		135
Vesting of restricted stock		57,162		—		—		—		—		—		17,170		—		—		—		—		—
Foreign currency translation adjustments, net of tax		—		—		—		205		—		205		—		—		—		(1,015)		—		(1,015)
Balances at September 30, 2019		77,757,500	$	78	$	690,170	$	(582)	$	(9,870)	$	679,796
Balances at March 31, 2020														79,923,114	$	80	$	721,181	$	(1,414)	$	(11,796)	$	708,051

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

Table of Contents

PING IDENTITY HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)


	Nine Months Ended September 30,				Three Months Ended March 31,
	2020		2019		2021		2020
Cash flows from operating activities
Net loss	$	(8,078)	$	(3,718)	$	(15,934)	$	(4,292)
Adjustments to reconcile net loss to net cash provided by operating activities:
Loss on extinguishment of debt		—		3,150
Depreciation and amortization		27,428		24,315		10,174		8,851
Stock-based compensation expense		11,983		3,797		16,939		2,857
Amortization of deferred commissions		5,432		4,110		2,329		2,102
Amortization of deferred debt issuance costs		187		626		62		62
Operating leases, net		(105)		—		(142)		59
Deferred taxes		(11,391)		(6,910)		(3,546)		(2,050)
Other		(13)		292		(10)		282
Changes in operating assets and liabilities:
Accounts receivable		18,029		15,980		16,640		13,030
Contract assets		2,005		(15,931)		4,128		797
Deferred commissions		(5,766)		(5,295)		(2,934)		(1,536)
Prepaid expenses and other current assets		(2,869)		(4,486)		2,466		4,822
Other assets		(700)		305		(820)		49
Accounts payable		(322)		736		(2,013)		2,734
Accrued compensation		(9,017)		(7,639)		(1,865)		(6,222)
Accrued expenses and other		2,682		2,302		1,659		1,104
Deferred revenue		(9,515)		(3,160)		(3,046)		(9,164)
Net cash provided by operating activities		19,970		8,474		24,087		13,485
Cash flows from investing activities
Purchases of property and equipment and other		(1,716)		(4,517)		(953)		(1,094)
Capitalized software development costs		(9,824)		(7,260)		(3,974)		(3,299)
Acquisition of ShoCard, net of cash acquired of $0		(4,703)		—
Other investing activities		—		(300)
Payments for business acquisitions, net of cash acquired						—		(4,703)
Net cash used in investing activities		(16,243)		(12,077)		(4,927)		(9,096)
Cash flows from financing activities
Payment of Elastic Beam consideration and holdbacks		(424)		(1,136)
Proceeds from initial public offering, net of underwriting discounts and commissions		—		174,375
Payment of Symphonic and ShoCard holdbacks						(993)		—
Payment of offering costs		(295)		(1,093)		—		(295)
Proceeds from stock option exercises		9,027		1,571		1,770		1,309
Payment for tax withholding on equity awards		(4,422)		—		(565)		(1,205)
Proceeds from long-term debt		97,823		—		—		97,823
Payment of long-term debt		—		(171,743)		(110,000)		—
Net cash provided by financing activities		101,709		1,974
Net cash provided by (used in) financing activities						(109,788)		97,632
Effect of exchange rates on cash and cash equivalents and restricted cash		132		168		(111)		(645)
Net increase (decrease) in cash and cash equivalents and restricted cash		105,568		(1,461)		(90,739)		101,376
Cash and cash equivalents and restricted cash
Beginning of period		68,386		84,143		146,499		68,386
End of period	$	173,954	$	82,682	$	55,760	$	169,762
Supplemental disclosures of cash flow information:
Cash paid for interest	$	1,728	$	11,441	$	339	$	514
Cash paid for taxes		931		417		215		157
Noncash activities:
Purchases of property and equipment, accrued but not yet paid	$	—	$	418	$	42	$	107
Accruals related to the acquisition of ShoCard		226		—
Offering costs, accrued but not yet paid		—		3,295
Reclassification of liability-classified awards upon settlement						3,089		—
Acquisition-related accruals						—		226
Lease liabilities arising from right-of-use assets		2,717		—		—		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	$	173,206	$	81,934	$	55,003	$	169,022
Restricted cash included in other noncurrent assets		748		748		757		740
Total cash and cash equivalents and restricted cash	$	173,954	$	82,682	$	55,760	$	169,762

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

Table of Contents

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Overview and Basis of Presentation

Organization and Description of Business

Ping Identity Holding Corp. and its wholly owned subsidiaries, referred to herein as the “Company,” is headquartered in Denver, Colorado with international locations principally in Canada, the United Kingdom, France, Australia, Israel and India. The Company, doing business as Ping Identity Corporation (“Ping Identity”), provides customers, employees and partners with secure access to any service, application or application programming interface (“API”), while also managing identity and profile data at scale.

Basis of Presentation and Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated. The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). All amounts are reported in U.S. dollars.

Unaudited Interim Condensed Consolidated Financial Information

The accompanying interim condensed consolidated balance sheet as of ~~September 30, 2020,~~March 31, 2021, the condensed consolidated statements of operations, of comprehensive ~~income (loss)~~loss, of cash flows and of stockholders’ equity for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019, the condensed consolidated statements of cash flows for the nine months ended September 30, 2020 and 2019~~ and the related footnote disclosures are unaudited. The condensed consolidated balance sheet data as of December 31, ~~2019~~2020 was derived from audited financial statements, but does not include all disclosures required by GAAP. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~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 ~~September 30, 2020,~~March 31, 2021, the results of operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ and cash flows for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020. The results for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, ~~2020~~2021 or for any future period.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, ~~establishing allowances for doubtful accounts, determining useful lives for finite-lived assets, assessing the recoverability of long-lived assets,~~ determining the fair values of assets acquired and liabilities assumed in business combinations, 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 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

Table of Contents

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~and various other assumptions~~ that are believed to be reasonable. Actual results may differ from these estimates due to risks and uncertainties, including the continued uncertainty surrounding rapidly changing market and economic conditions due to the ~~recent outbreak of the~~ novel Coronavirus Disease 2019 ~~("COVID-19"~~(“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 Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019. Except for accounting policies related to the adoption of the new leasing standard as described herein, there~~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 nine~~ months ended ~~September 30, 2020.~~March 31, 2021. The following describes the impact of certain policies.

~~Revenue Recognition~~

~~The Company recognizes revenue under Accounting Standards Codification Topic 606 (“ASC 606”),~~ ~~Revenue from Contracts with Customers~~. Under ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services.

~~Disaggregation of Revenue~~

~~The following table presents revenue by category:~~


	Three Months Ended September 30,				Nine Months Ended September 30,
	~~2020~~		~~2019~~		~~2020~~		~~2019~~

	~~(in thousands)~~
~~Subscription term-based licenses:~~
~~Multi-year subscription term-based licenses~~	$	~~22,974~~	$	~~28,497~~	$	~~68,103~~	$	~~80,922~~
~~1-year subscription term-based licenses~~		~~11,944~~		~~12,649~~		~~40,276~~		~~33,731~~
~~Total subscription term-based licenses~~		~~34,918~~		~~41,146~~		~~108,379~~		~~114,653~~
~~Subscription SaaS and support and maintenance~~		~~20,195~~		~~16,349~~		~~57,820~~		~~46,734~~
~~Professional services and other~~		~~4,828~~		~~4,270~~		~~14,135~~		~~13,276~~
~~Total revenue~~	$	~~59,941~~	$	~~61,765~~	$	~~180,334~~	$	~~174,663~~

~~The following table presents revenue by geographic region, which is based on the delivery address of the customer, and is summarized by geographic area:~~

Three Months Ended
September 30,

Nine Months Ended
September 30,

2020

2019

2020

2019

(in thousands)
United States

$
41,818

$
46,305

$
129,473

$
136,010
International

18,123

15,460

50,861

38,653
Total revenue

$
59,941

$
61,765

$
180,334

$
174,663

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~~PING IDENTITY HOLDING CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

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

~~Contract Balances~~

Three Months Ended
September 30,

Nine Months Ended
September 30,

2020

2019

2020

2019

(in thousands)
Beginning balance

$
84,701

$
75,637

$
86,010

$
67,468
Ending balance

84,005

83,399

84,005

83,399
Change

$
(696)

$
7,762

$
(2,005)

$
15,931

~~Contract liabilities consist of customer billings in advance of revenue being recognized. The opening and closing balances of contract liabilities included in deferred revenue were as follows:~~


	Three Months Ended September 30,				Nine Months Ended September 30,
	~~2020~~		~~2019~~		~~2020~~		~~2019~~

	~~(in thousands)~~
~~Beginning balance~~	$	~~39,964~~	$	~~35,490~~	$	~~47,507~~	$	~~35,367~~
~~Ending balance~~		~~37,992~~		~~32,207~~		~~37,992~~		~~32,207~~
~~Change~~	$	~~(1,972)~~	$	~~(3,283)~~	$	~~(9,515)~~	$	~~(3,160)~~

The change in deferred revenue relates primarily to invoicing customers and recognizing revenue in conjunction with the satisfaction of performance obligations. Revenue recognized during the three and nine months ended September 30, 2020 and 2019 that was included in the deferred revenue balances at the beginning of the respective periods was as follows:

Three Months Ended
September 30,

Nine Months Ended
September 30,

2020

2019

2020

2019

(in thousands)
Deferred revenue recognized as revenue

$
5,314

$
4,805

$
40,529

$
29,106

~~Remaining Performance Obligations~~

Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and noncancelable amounts to be invoiced. As of September 30, 2020, the Company had $134.6 million of transaction price allocated to remaining performance obligations, of which 88% is expected to be recognized as revenue over the next 24 months, with the remainder to be recognized thereafter.

~~Table of Contents~~

~~PING IDENTITY HOLDING CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~Deferred Commissions~~

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

Three Months Ended
September 30,

Nine Months Ended
September 30,

2020

2019

2020

2019

(in thousands)
Beginning balance

$
13,095

$
11,902

$
13,670

$
11,033
Additions to deferred commissions

2,580

1,666

5,766

5,295
Amortization of deferred commissions

(1,671)

(1,350)

(5,432)

(4,110)
Ending balance

$
14,004

$
12,218

$
14,004

$
12,218

Deferred commissions, current

$
5,773

$
4,846

$
5,773

$
4,846
Deferred commissions, noncurrent

8,231

7,372

8,231

7,372
Total deferred commissions

$
14,004

$
12,218

$
14,004

$
12,218

Recent Accounting Pronouncements

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

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases (Topic 842)~~ ~~(“ASU 2016-02”), which supersedes the guidance in topic ASC 840,~~ ~~Leases~~ (“ASC 840”). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The FASB has also issued several ASUs to provide implementation guidance relating to ASU 2016-02, including ASU 2017-13, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01, all of which the Company has considered when evaluating the impact of ASU 2016-02. Collectively, the Company refers to the amendments described herein as “ASC 842.”

Effective January 1, 2020, the Company adopted ASC 842 using the modified retrospective transition approach through a cumulative-effect adjustment, which resulted in the recognition of right-of-use assets of $14.6 million and lease liabilities of $18.9 million. As part of applying the modified retrospective transition method, the Company elected to apply the package of transition practical expedients within the new guidance. As required by ASC 842, these expedients have been elected as a package and have been consistently applied across the Company’s lease portfolio. Given this election, the Company need not reassess the following:

●

~~whether any expired or existing contracts are or contain leases;~~

~~Table of Contents~~

~~PING IDENTITY HOLDING CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

●

~~the lease classification for any expired or existing leases; or~~

●

~~the treatment of initial direct costs relating to any existing leases.~~

The Company also elected to apply the transition practical expedient to use hindsight in determining lease term and in assessing impairment of right-of-use assets. As a result of adoption of this standard and election of the transition practical expedients, the Company recognized right-of-use assets and lease liabilities for those leases classified as operating leases under ASC 840 that continued to be classified as operating leases under ASC 842 at the later of (1) the earliest period presented or (2) the applicable lease commencement date.

In applying the modified retrospective transition method to these leases, the Company measured lease liabilities at the present value of the sum of remaining minimum rental payments (as defined under ASC 840), as the leases contained no residual value guarantees. These lease liabilities have been measured using the Company’s incremental borrowing rates at the later of (1) the earliest period presented or (2) the commencement date of the applicable lease. Additionally, right-of-use assets for these operating leases have been measured as the initial measurement of applicable lease liabilities adjusted for any prepaid/accrued rent and unamortized lease incentives. The adoption of ASC 842 did not have a material impact on the condensed consolidated statements of cash flows or condensed consolidated statements of operations and comprehensive loss. Expanded disclosures around the Company’s lease agreements under ASC 842 are included in Note 12 of these condensed consolidated financial statements.

~~In June 2016, the FASB issued ASU No. 2016-13,~~ ~~Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~ (‘‘ASU 2016-13’’), which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. In February 2020, the FASB issued ASU No. 2020-02, ~~Financial Instruments – Credit Losses (Topic 326)~~, which amends the effective date of the original pronouncement for smaller reporting companies. For public companies, ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within that reporting period. For all other entities, including emerging growth companies, ASU 2016-13 and its amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. As the Company will be designated a large accelerated filer on December 31, 2020, it plans to adopt ASU 2016-13 in the fourth quarter of 2020 for the year ended December 31, 2020. The Company is currently evaluating the impact of the adoption of these pronouncements on its condensed consolidated financial statements and related disclosures.

~~In August 2018, the FASB issued ASU No. 2018-13,~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement~~ (“ASU 2018-13”), which improves the disclosure requirements for fair value measurements. Effective January 1, 2020, the Company adopted ASU 2018-13. The adoption did not have a material impact on its condensed consolidated financial statements.

~~In August 2018, the FASB issued ASU No. 2018-15,~~ ~~Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~ (“ASU 2018-15”), which requires implementation costs incurred by customers in a cloud computing arrangement to be deferred over the noncancelable term of the cloud computing arrangement plus any optional renewal periods that (1) are reasonably certain to be exercised by the customer, or (2) for which exercise of the renewal option is controlled by the cloud service provider. For public companies, the effective date of this pronouncement is for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, the effective date of this pronouncement is for fiscal years beginning after December 15, 2020 and interim periods within annual periods beginning after December 15, 2021. Early adoption is permitted. As the Company will be designated a large accelerated filer on December 31, 2020, it plans

~~Table of Contents~~

~~PING IDENTITY HOLDING CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

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

In December 2019, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ~~ASU~~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 clarifies certain aspects of the current guidance to improve consistent application among reporting entities. ~~For public entities,~~Effective January 1, 2021, the Company adopted ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. For all other entities, ASU 2019-12 is effective for fiscal years beginning after December 15, 2021 and interim periods within annual periods beginning after December 15, 2022. Early2019-12. The adoption ~~is permitted, including adoption in any interim period for which financial statements~~did not have ~~not yet been issued. The Company is currently evaluating the~~a material impact ~~of ASU 2019-12~~ on its condensed consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”), which provides companies with temporary optional financial reporting alternatives to ease the potential burden in accounting for reference rate reform and includes a provision that allows companies to account for a modified contract as a continuation of an existing contract. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. ~~The Company is currently in the process~~Adoption of ~~evaluating~~ ASU 2020-04 ~~and its effect~~did not have a material impact on ~~its~~the Company’s condensed consolidated financial statements.

3. Revenue Recognition and Deferred 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.

Disaggregation of Revenue

The following table presents revenue by category:


	Three Months Ended March 31,
	2021		2020

Subscription term-based licenses:
Multi-year subscription term-based licenses	$	23,838	$	23,988
1-year subscription term-based licenses		17,344		14,149
Total subscription term-based licenses		41,182		38,137
Subscription SaaS and support and maintenance		23,034		18,681
Professional services and other		4,728		4,594
Total revenue	$	68,944	$	61,412

Table of Contents

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following table presents revenue by geographic region, which is based on the delivery address of the customer, and is summarized by geographic area:


	Three Months Ended March 31,
	2021		2020

United States	$	53,871	$	43,029
International		15,073		18,383
Total revenue	$	68,944	$	61,412

Other than the United States, no other individual country exceeded 10% of total revenue for the three months ended March 31, 2021 or 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 March 31,
	2021		2020

Beginning balance	$	73,791	$	86,010
Ending balance		69,681		85,150
Change	$	(4,110)	$	(860)

Contract liabilities consist of customer billings in advance of revenue being recognized. The Company primarily invoices its customers for subscription arrangements annually in advance, though certain contracts require invoicing for the entire subscription in advance. Amounts anticipated to be recognized within one year of the balance sheet date are recorded as deferred revenue, current; the remaining portion is recorded as deferred revenue, noncurrent in the condensed consolidated balance sheets. The opening and closing balances of contract liabilities included in deferred revenue were as follows:


	Three Months Ended March 31,
	2021		2020

Beginning balance	$	52,398	$	47,507
Ending balance		49,352		38,343
Change	$	(3,046)	$	(9,164)

Table of Contents

3. PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The change in deferred revenue relates primarily to invoicing customers and recognizing revenue in conjunction with the satisfaction of performance obligations. Revenue recognized during the three months ended March 31, 2021 and 2020 that was included in the deferred revenue balances at the beginning of the respective periods was as follows:

Remaining Performance Obligations

Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and noncancelable amounts to be invoiced. As of March 31, 2021, the Company had $175.5 million of transaction price allocated to remaining performance obligations, of which 83% is expected to be recognized as revenue over the next 24 months, with the remainder to be recognized thereafter.

Deferred Commissions

The following table summarizes the account activity of deferred commissions for the three months ended March 31, 2021 and 2020:


	Three Months Ended March 31,
	2021		2020

Beginning balance	$	15,929	$	13,670
Additions to deferred commissions		2,934		1,536
Amortization of deferred commissions		(2,329)		(2,102)
Ending balance	$	16,534	$	13,104

Deferred commissions, current	$	6,819	$	5,303
Deferred commissions, noncurrent		9,715		7,801
Total deferred commissions	$	16,534	$	13,104

4. Allowances for Expected Credit Losses

The following table presents the changes in allowance for expected credit losses for financial assets measured at amortized cost:


	Accounts Receivable		Contract Assets

	Three Months Ended March 31, 2021
	(in thousands)
Beginning balance	$	828	$	87
Provision for credit losses, net of recoveries		(21)		(7)
Write-offs		(155)		—
Ending balance	$	652	$	80

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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.

The Company invests primarily in money market funds, which are measured and recorded at fair value on a recurring basis and are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. The fair value of these financial instruments were as follows:

September 30, 2020


Level 1

Level 2

Level 3

Total

(in thousands)
Cash and cash equivalents:

Money market funds

$
140,074

$
—

$
—

$
140,074


	March 31, 2021
	Level 1		Level 2		Level 3		Total

	(in thousands)
Cash and cash equivalents:
Money market funds	$	5,000	$	—	$	—	$	5,000


	December 31, 2019								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	$	47,858	$	—	$	—	$	47,858	$	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).

6. Property and Equipment

Property and equipment consisted of the following:


	March 31,		December 31,
	2021		2020

	(in thousands)
Computer equipment	$	7,163	$	6,581
Furniture and fixtures		3,885		3,887
Purchased computer software		785		785
Leasehold improvements		7,866		7,818
Other		448		448
Property and equipment, gross		20,147		19,519
Less: Accumulated depreciation		(11,013)		(10,073)
Property and equipment, net	$	9,134	$	9,446

Depreciation expense was $0.9 million for each of the three months ended March 31, 2021 and 2020.

7. Business Combinations

Symphonic 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

1412

Table of Contents

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~4. Property and Equipment~~

~~Property and equipment consisted of the following:~~

September 30,

December 31,

2020

2019

(in thousands)
Computer equipment

$
6,082

$
5,729
Furniture and fixtures

3,798

3,757
Purchased computer software

785

785
Leasehold improvements

7,492

7,086
Other

448

448
Property and equipment, gross

18,605

17,805
Less: Accumulated depreciation

(9,041)

(6,622)
Property and equipment, net

$
9,564

$
11,183

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

5. ~~Business Combinations~~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 $0.6 million is payable in common stock of the Company on December 31, 2021 and December 31, 2022, respectively, contingent on individuals remaining employed as of those 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. See Note 12 for additional details.

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


	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 around the Symphonic acquisition, such as that related to income tax and other contingencies existing as of the acquisition date but unknown to the Company, may become known during the remainder of the measurement period, not to exceed one year from the acquisition date, which may result in changes to the amounts and allocations recorded.

ShoCard, Inc. Acquisition

On March 2, 2020, ~~Ping Identity Corporation~~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 iswas payable in common stock of the Company on the first and second anniversary of the acquisition, respectively, contingent on certain individuals remaining employed as of those dates and other service conditions. As these payments are subject to the continued employment of those individuals, they will be recognized through compensation expense as incurred. On March 2, 2021, the Company settled the first portion of contingent compensation payable. See Note 1012 for additional details.

~~The following table summarizes the preliminary allocation of the purchase price, based on the estimated fair value of the assets acquired and liabilities assumed at the acquisition date:~~

March 2, 2020

Useful Life

(in thousands)

Fair value of net assets acquired




Developed technology

$
3,550

7 years
Goodwill

964

Indefinite
Deferred tax asset

1,005

Other assets

11


Total assets acquired

5,530


Other liabilities

(2)


Total liabilities assumed

(2)


Net assets acquired

$
5,528

1513

Table of Contents

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:


	March 2, 2020		Useful Life
	(in thousands)
Fair value of net assets acquired
Developed technology	$	3,550	7 years
Goodwill		964	Indefinite
Deferred tax asset		1,005
Other assets		11
Total assets acquired		5,530
Other liabilities		(2)
Total liabilities assumed		(2)
Net assets acquired	$	5,528

Goodwill is primarily attributable to the workforce acquired and the expected synergies arising from integrating ShoCard’s identity solution with the Company’s existing identity solutions. NaN of the goodwill is deductible for tax purposes. The Company incurred ~~$0.6~~$0.5 million of acquisition-related expenses in conjunction with the ShoCard acquisition, which are included in general and administrative expenses on the condensed consolidated statement of operations for the ~~nine~~three months ended ~~September 30,~~March 31, 2020.

Additional information around the ShoCard acquisition, such as that related to income tax and other contingencies existing as of the acquisition date but unknown to the Company, may become known during the remainder of the measurement period, not to exceed one year from the acquisition date, which may result in changes to the amounts and allocations recorded.

~~Elastic Beam Inc. Acquisition~~

On April 5, 2018, Ping Identity Corporation acquired 100% of the voting equity interest in Elastic Beam Inc., a Delaware Corporation (“Elastic Beam”). Elastic Beam is a machine learning/artificial intelligence API behavioral security software which detects, reports and stops cyberattacks on data and applications via APIs. The purpose of this acquisition was to expand the Company’s capabilities in identity security, particularly with regard to artificial intelligence.

The total purchase price was $19.0 million, which included up-front cash consideration of $17.4 million that was funded with existing cash resources, and $1.6 million, of which $1.1 million and $0.5 million was payable on the first and second anniversary of the acquisition, respectively. During the nine months ended September 30, 2019, the Company paid the first anniversary payment of $1.1 million. During the nine months ended September 30, 2020, the Company paid the second anniversary payment of $0.5 million.

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

~~The following table summarizes the allocation of the purchase price, based on the fair value of the assets acquired and liabilities assumed at the acquisition date:~~

April 5, 2018

Useful Life

(in thousands)

Fair value of net assets acquired




In process research and development

$
3,006

Indefinite
Goodwill

15,972

Indefinite
Deferred tax asset

108

Other assets

3


Total assets acquired

19,089


Deferred revenue

(115)


Total liabilities assumed

(115)


Net assets acquired

$
18,974

Goodwill is primarily attributable to the workforce acquired and the expected synergies arising from integrating Elastic Beam’s behavioral security software with the Company’s existing security platform. NaN of the goodwill is deductible for tax purposes.

~~Table of Contents~~

~~PING IDENTITY HOLDING CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

Additional Acquisition Related Information

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

6.8. Goodwill and Intangible Assets

The changes in the carrying amount of the Company’s goodwill balance from December 31, ~~2019~~2020 to ~~September 30, 2020~~March 31, 2021 were as follows (in thousands):


Beginning balance	$	417,696	$	441,150
Additions to goodwill related to acquisitions		964
Foreign currency translation adjustment				202
Ending balance	$	418,660	$	441,352

The Company’s intangible assets as of ~~September 30, 2020~~March 31, 2021 were as follows:


	September 30, 2020						March 31, 2021
	Gross		Accumulated		Net Carrying		Gross		Accumulated		Net Carrying
	Amount		Amortization		Value		Amount		Amortization		Value

	(in thousands)						(in thousands)
Developed technology	$	112,074	$	(52,248)	$	59,826	$	119,516	$	(59,508)	$	60,008
Customer relationships		94,875		(31,832)		63,043		95,137		(35,625)		59,512
Trade names		56,711		(24,006)		32,705		56,734		(26,842)		29,892
Product backlog								648		(105)		543
Capitalized internal-use software		32,244		(11,012)		21,232		39,974		(15,056)		24,918
Other intangible assets		1,178		(537)		641		1,290		(661)		629
Total intangible assets	$	297,082	$	(119,635)	$	177,447	$	313,299	$	(137,797)	$	175,502

~~The Company’s intangible assets as of December 31, 2019 were as follows:~~

December 31, 2019


Gross

Accumulated

Net Carrying


Amount

Amortization

Value

(in thousands)
Developed technology

$
107,938

$
(42,260)

$
65,678
Customer relationships

94,875

(26,205)

68,670
Trade names

56,640

(19,754)

36,886
Capitalized internal-use software

21,881

(6,375)

15,506
Other intangible assets

1,077

(535)

542
Total intangible assets subject to amortization

282,411

(95,129)

187,282
In-process research and development

586

—

586
Total intangible assets

$
282,997

$
(95,129)

$
187,868

The Company capitalized $3.2 million and $2.8 million of internal-use software costs during the three months ended September 30, 2020 and 2019, respectively, which included $0.2 million and $0.0 million of stock-based compensation costs, respectively. The Company capitalized $10.4 million and $7.3 million of internal-use software costs during the nine months ended September 30, 2020 and 2019, respectively, which included $0.5 million and $0.0 million of stock-based compensation costs, respectively.

Amortization expense for the three months ended September 30, 2020 and 2019 was $8.5 million and $7.5 million, respectively. Amortization expense for the nine months ended September 30, 2020 and 2019 was $24.7 million and $22.2 million, respectively. During the nine months ended September 30,

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The Company’s intangible assets as of December 31, 2020 ~~$0.6~~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 $4.2 million and $3.3 million of ~~in-process research~~internal-use software costs during the three months ended March 31, 2021 and ~~development~~2020, respectively, which included $0.2 million and $0.0 million of stock-based compensation costs, respectively.

Amortization expense for the three months ended March 31, 2021 and 2020 was ~~reclassified to developed technology when ready for intended use.~~$9.3 million and $7.9 million, respectively.

As of ~~September 30, 2020,~~March 31, 2021, expected amortization expense for intangible assets subject to amortization for the next five years is as follows:

Year Ending December 31,

September 30, 2020

(in thousands)
2020 (remaining three months)

$
8,659
2021

33,946
2022

32,091
2023

29,750
2024

26,377
Thereafter

46,624
Total

$
177,447


Year Ending December 31,	March 31, 2021
	(in thousands)
2021 (remaining nine months)	$	37,104
2022		35,080
2023		32,297
2024		28,664
2025		17,423
Thereafter		24,934
Total	$	175,502

7.9. Debt

In January 2018, the Company entered into credit facilities with a consortium of lenders comprised of (a) a term loan with a principal amount of $250.0 million (the “2018 Term Loan Facility”), and (b) a revolving line of credit in a principal committed amount of $25.0 million (the “2018 Revolving Credit Facility” and, collectively with the 2018 Term Loan Facility, the “2018 Credit Facilities”). The 2018 Term Loan Facility and 2018 Revolving Credit Facility had maturity dates of January 25, 2025 and January 25, 2023, respectively. Borrowings under the 2018 Credit Facilities were collateralized by substantially all of the assets of the Company.

There were no significant financial covenants to which the Company was required to comply in relation to the 2018 Term Loan Facility. The wholly owned indirect subsidiary, Ping Identity Corporation, as borrower under the 2018 Credit Facilities, was limited to declare dividends or make any payment on account of its capital stock to, directly or indirectly, fund a dividend or other distribution to Ping Identity Holding Corp. (the “Parent”), subject to limited exceptions, including (1) stock repurchases in an amount not to exceed the greater of $1.5 million per year or 3.75% of consolidated EBITDA, with any unused amount being carried forward to future periods, (2) unlimited amounts subject to compliance with a 4.25 to 1.00 total leverage ratio giving pro forma effect to any distribution, (3) unlimited amounts up to 7% of the Parent’s market capitalization and (4) payment of the Parent’s overhead expenses.

The 2018 Term Loan Facility bore interest at the option of the Company at a rate per annum equal to (a) an adjusted LIBO rate (with a floor of 1.00% per annum) plus an applicable margin of 3.75%, payable on the last day of the applicable interest period applicable thereto (“Eurodollar” loan), or (b) the alternate base rate (with a floor of 2.00% per annum) plus an applicable margin of 2.75%, payable quarterly in arrears the last business day of each March, June, September and December. The 2018 Term Loan Facility was borrowed as a Eurodollar loan.

In December 2019, Roaring Fork Intermediate, LLC and Ping Identity Corporation, each a wholly-owned subsidiary of Ping Identity Holding Corp., and certain of their subsidiaries, entered into a credit agreement (the ~~“2019 Credit~~“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. ~~In connection therewith, the Company repaid all outstanding borrowings under the 2018 Term Loan Facility and terminated the 2018 Revolving Credit Facility.~~ The ~~2019~~ Credit Agreement provides for a senior revolving line of credit in a principal committed amount of $150.0 million (the ~~“2019 Revolving~~“Revolving Credit Facility”), with the option to request incremental term loan facilities in a minimum amount of $10 million for each facility if certain conditions are met. The Company’s obligations under the ~~2019~~ Credit Agreement are secured by substantially all of the assets of the Company, and borrowings under

~~Table of Contents~~

~~PING IDENTITY HOLDING CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

the ~~2019~~ Revolving Credit Facility may be used for working capital and other general corporate purposes, including for acquisitions permitted under the ~~2019~~ Credit Agreement.

The ~~2019~~ Credit Agreement contains certain customary events of default and customary representations and warranties and affirmative and negative covenants, including certain restrictions on the ability of the Company to incur additional indebtedness or guarantee indebtedness of others, to create liens on properties or assets, and to enter into certain asset and stock-based transactions. In addition, under the terms of the ~~2019~~ Credit Agreement, the Company must adhere to certain financial covenants, including (i) a senior secured net leverage ratio, which shall not be more than 3.50 to 1.00, provided that the maximum ratio shall be increased to 4.00 to 1.00 during a fiscal year in which a Material Acquisition (as defined in the ~~2019~~ Credit Agreement) has been consummated, and (ii) a consolidated interest coverage ratio, which

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

shall not be less than 3.50 to 1.00. As of ~~September 30, 2020,~~March 31, 2021, the Company was in compliance with all financial covenants.

The wholly owned indirect subsidiary, Ping Identity Corporation, as borrower under the ~~2019~~ Credit Agreement, is limited in its ability to declare dividends or make any payment on account of its capital stock to, directly or indirectly, fund a dividend or other distribution to Ping Identity Holding Corp. (as the Parent), subject to limited exceptions, including (1) stock repurchases from current or former employees, officers or directors in an amount not to exceed $5 million, (2) unlimited amounts subject to compliance with its financial covenants for the most recently ended 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) unlimited 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 Parent's overhead expenses.

The ~~2019~~ Revolving Credit Facility matures on December 12, 2024 and bears interest at the option of the Company at a rate per annum equal to either (i) a base rate, which is equal to the greater of (a) the prime rate, (b) the federal funds effective rate plus 0.5% and (c) the adjusted LIBO rate for a one month interest period plus 1%, or (ii) the adjusted LIBO rate equal to the LIBO rate for the interest period multiplied by the statutory reserve rate, plus in the case of each of clauses (i) and (ii), the Applicable Rate (as defined in the ~~2019~~ Credit Agreement), which ranges from (i) 0.25% to 1.0% per annum for base rate loans and (ii) 1.25% to 2.0% per annum for LIBO rate loans, in each case, depending on the senior secured net leverage ratio. The interest rate as of March 31, 2021 was 1.4%. The Company will also pay a commitment fee during the term of the ~~2019~~ Credit Agreement ranging from 0.20% to 0.35% of the average daily amount of the available amount to be borrowed under the ~~2019~~ Credit Agreement per annum, based on the senior secured net leverage ratio.

Any borrowing under the ~~2019~~ Credit Agreement may be repaid, in whole or in part, at any time and from time to time without premium or penalty other than customary breakage costs, and any amounts repaid may be reborrowed. No mandatory prepayments will be required other than when borrowings and letter of credit usage exceed the aggregate commitment of all lenders.

~~The Company recognized $0.5 million and $3.6 million in interest expense for~~For the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, respectively. For the nine months ended September 30, 2020 and 2019,~~ the Company recognized ~~$1.6~~$0.3 million and ~~$11.4~~$0.4 million in interest expense, respectively.

As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Company’s outstanding long-term debt balance representing borrowings under the Credit Agreement was $39.1 million and $149.0 million, ~~and $50.9 million,~~ respectively, ~~(net~~net of debt issuance costs of $0.9 million and $1.0 million, ~~and $1.2 million, respectively).~~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 months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company amortized $0.1 million ~~and $0.2 million~~ of debt issuance ~~costs, respectively. During the nine months ended September 30, 2020 and 2019, the Company amortized $0.2 million and $0.6 million~~costs.

Future principal payments on outstanding borrowings as of ~~debt issuance costs, respectively.~~March 31, 2021 are as follows:


Year Ending December 31,	March 31, 2021
	(in thousands)
2021 (remaining nine months)	$	—
2022		—
2023		—
2024		40,000
2025		—
Thereafter		—
Total	$	40,000

1916

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~Future principal payments on outstanding borrowings as of September 30, 2020 are as follows:~~

Year Ending December 31,

September 30, 2020

(in thousands)
2020 (remaining three months)

$
—
2021

—
2022

—
2023

—
2024

150,000
Thereafter

—
Total

$
150,000

108.. Income Taxes

For the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company recorded ~~$4.1~~$3.3 million and ~~$4.0 million as its benefit for income taxes, respectively. For the nine months ended September 30, 2020 and 2019, the Company recorded $8.9 million and $5.2~~$1.9 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. ~~Other variations~~The increase in the ~~Company’s~~ tax benefit ~~between~~for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 as compared to the three months ended March 31, 2020 ~~and 2019 related~~primarily relates to ~~changes~~a larger expected pre-tax loss in ~~the Company’s state benefit, period-over-period increases in stock-based compensation,~~2021 as compared to 2020, along with an increase in R&D and other credits ~~and~~recorded in the ~~net benefit from an initial public offering (“IPO”) deduction study performed~~three months ended March 31, 2021. These increases were partially offset by a valuation allowance recorded against our deferred tax assets in ~~2020.~~the three months ended March 31, 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~~ with a par value of $0.001 per share. On September 5, 2019, the Company’s Board of Directors and stockholders approved the Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 85,000,000 shares to 500,000,000 shares and to increase the number of authorized shares of preferred stock from 34,000,000 shares to 50,000,000 shares. The par value of the common and ~~preferred~~ ~~stock remained at $0.001 per share.~~

Common stock

The Company’s Third Amended and Restated Certificate of Incorporation, which the Board of Directors approved on September 18, 2019 and the stockholders approved on September 23, 2019, authorizes issuance of up to 500,000,000 shares of common stock with a par value of $0.001 per share. The common stock confers upon its holders the right to vote on all matters to be voted on by the stockholders of the Company (with each share representing 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 be~~are subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future.

Preferred stock

The Company’s Third Amended and Restated Certificate of Incorporation authorizes, without stockholder approval but subject to any limitations prescribed by law, the issuance of up to an aggregate of

~~Table of Contents~~

~~PING IDENTITY HOLDING CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

50,000,000 shares of preferred stock (in one or more series or classes), to create additional series or classes of preferred stock and to establish the number of shares to be included in such series or class. The Board of Directors is also authorized to increase or decrease the number of shares of any series or class subsequent to the issuance of shares of that series or class. Each series will have such rights, preferences and limitations, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences as determined by the Board of Directors. As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Company did ~~not~~0t 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 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”), 0 additional awards are granted under the 2016 Plan.

On September 23, 2019, the Company adopted the Ping Identity Holding Corp. Omnibus Incentive Plan (the “2019 Omnibus Incentive Plan”). The 2019 Omnibus Incentive Plan provides for grants of (i) stock options, (ii) stock appreciation rights, (iii) restricted shares, (iv) performance awards, (v) other ~~share-based~~share-

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

based awards and (vi) other cash-based awards to eligible employees, non-employee directors and consultants of the Company. At ~~September 30, 2020,~~March 31, 2021, the maximum number of shares of common stock available for issuance under the 2019 Omnibus Incentive Plan was ~~11,290,813~~14,131,549 shares.

Stock-based compensation expense for all equity arrangements for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2020		2019		2020		2019		2021		2020

	(in thousands)
Subscription cost of revenue	$	166	$	—	$	486	$	—	$	535	$	146
Professional services and other cost of revenue		98		—		281		—		591		84
Sales and marketing		1,169		283		3,209		693		4,198		797
Research and development		1,602		225		3,788		658		8,512		888
General and administrative		1,546		1,190		4,219		2,446		3,103		942
Total	$	4,581	$	1,698	$	11,983	$	3,797	$	16,939	$	2,857

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 68 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 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 $12.4 million of stock-based compensation expense during the three months ended March 31, 2021. As of March 31, 2021, the RSUs subject to performance and market conditions were not considered probable of meeting vesting requirements and accordingly, 0 expense was recorded. These awards are 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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 fromAccrued compensation to Common stock and Additional paid-in capitalon the condensed consolidated balance sheets.

During the three months ended March 31, 2021 and 2020, the Company recognized $0.8 million and $0.3 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. ~~NaN~~Additionally, the Company granted time-based vesting RSUs ~~were granted during~~converted from the ~~three months ended September 30, 2020.~~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 ~~September 30, 2019~~March 31, 2021 and 2020 was ~~$19.69. The weighted-average grant-date fair value of RSUs granted during the nine months ended September 30, 2020~~$26.66 and ~~2019 was $20.63 and $19.06,~~$24.28, respectively. The total intrinsic value of RSUs that vested during the three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ was ~~$10.1~~$3.5 million and ~~$0.6 million, respectively. The total intrinsic value of RSUs vested during the nine months ended September 30, 2020 and 2019 was $10.7 million and $0.7~~$0.4 million, respectively. As of ~~September 30, 2020,~~March 31, 2021, there was ~~$41.5~~$38.0 million of total unrecognized compensation, which will be recognized over the remaining weighted-average vesting period of ~~3.3~~2.9 years using the straight-line method. A summary of the status of the Company’s unvested RSUs and activity for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 is as follows:


		Weighted			Weighted
		Average			Average
		Grant Date			Grant Date
	Shares	Fair Value		Shares	Fair Value
Unvested as of December 31, 2019	1,415,629	$	16.46
Unvested as of December 31, 2020				2,504,148	$	19.84
Granted	1,490,722		20.63	127,767		25.19
Converted from LTIP grant				474,095		27.06
Forfeited/canceled	(138,399)		16.58	(59,342)		18.26
Vested	(356,663)		16.68	(134,621)		25.03
Unvested as of September 30, 2020	2,411,289	$	18.99
Unvested as of March 31, 2021				2,912,047	$	21.04

Performance Stock ~~Options~~Units

~~NaN stock options were granted~~As previously discussed, during the three ~~or nine~~ months ended ~~September 30, 2020 or 2019. A summary~~March 31, 2021, the Company granted 948,250 restricted stock units in connection with the conversion of ~~the Company’s stock option activity and related information for the nine months ended September 30, 2020 is as follows:~~

Weighted

Weighted

Average

Average

Remaining

Aggregate

Exercise

Contractual

Intrinsic


Options

Price

Term

Value

(in years)

(in thousands)
Outstanding as of December 31, 2019

5,945,878

$
9.41

7.5

$
88,520
Granted

—

—

Forfeited/canceled

(332,380)

9.02

Exercised

(1,278,855)

9.09

22,647
Outstanding as of September 30, 2020

4,334,643

$
9.54

6.7

$
93,935

As of September 30, 2020:







Vested and expected to vest

2,543,608

$
9.58

6.8

$
55,027
Vested and exercisable

1,789,475

$
8.56

6.3

$
40,523

~~As of September 30, 2020, unamortized stock-based compensation expense related to the time-based awards was $3.5 million and the remaining weighted-average vesting term was 2.0 years. The vesting~~previously outstanding LTIP grants, with 474,155 of these ~~time-based awards may accelerate and the~~restricted stock options will 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. Though the recognition of the remaining unamortized stock-based compensation expense may be accelerated, acceleration was not probable as of September 30, 2020.

~~Table of Contents~~

~~PING IDENTITY HOLDING CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~For the awards~~units subject to performance and market conditions ~~unrecognized stock-based compensation expense as of September 30, 2020 was $7.9 million. The vesting conditions of these awards provide for the options~~(“PSUs”). These PSUs are expected 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. These awards were valued at the date of grant at $19.94 per share using a Monte Carlo simulation.

As of ~~September 30, 2020,~~March 31, 2021, 474,155 PSUs remain unvested and unrecognized stock-based compensation expense for these PSUs was $9.5 million. As of March 31, 2021, these awards were not considered probable of meeting vesting requirements and accordingly, 0 expense was recorded. During future reporting periods, if the awards are considered probable of meeting vesting requirements, the Company will begin recognizing the associated stock-based compensation expense ~~of $7.9 million~~ over the expected vesting period.

~~Long-Term Incentive Plan~~

Grants under the Company’s long-term incentive plan (“LTIP”) are expected to vest 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. As of September 30, 2020, these awards were not considered probable of meeting the vesting requirements and accordingly, 0 expense was recorded during the three or nine months ended September 30, 2020. During future reporting periods, if the awards are considered probable of meeting vesting requirements, the Company will begin recognizing the associated compensation expense of at least $17.9 million over the expected vesting period.

~~Other Liability-Classified Awards~~

In conjunction with the ShoCard acquisition (Note 5), the Company issued liability-classified awards to certain individuals with a stated value of $3.1 million and $2.3 million that vest on the first and second anniversary of the acquisition, respectively, and are subject to continuous service and other conditions. The liability-classified awards will be settled with a variable number of shares of the Company’s common stock at each anniversary date based on the satisfaction of such conditions. During the three and nine months ended September 30, 2020, the Company recognized $0.8 million and $1.8 million of stock-based compensation expense, respectively, related to these awards.

~~11. Related Party Transactions~~

Vista is a U.S.-based investment firm that controlled the funds which owned a majority of the Company during the three and nine months ended September 30, 2020 and 2019. During the three and nine months ended September 30, 2020 and 2019, the Company paid for consulting services and other expenses related to services provided by Vista and Vista affiliates. The total expenses incurred by the Company for Vista were $0.1 million and $0.4 million for the three months ended September 30, 2020 and 2019, respectively. The total expenses incurred by the Company for Vista were $0.3 million and $1.0 million for the nine months ended September 30, 2020 and 2019, respectively.

The Company also has revenue arrangements with Vista affiliates. The Company recognized revenue of $0.1 million and $0.2 million during the three months ended September 30, 2020 and 2019, respectively. The Company recognized revenue of $0.4 million during the nine months ended September 30, 2020 and 2019. The Company had $0.1 million and $1.1 million in accounts receivable related to these agreements at September 30, 2020 and December 31, 2019, respectively.

~~12. Operating Leases~~

The Company leases office spaces and a data center under noncancelable lease terms. These leases have a remaining lease term of up to six years, with a small number of office spaces that are month-to-month and accounted for as short-term leases in accordance with ASC 842-20-25-2. The Company has not recognized renewal options as part of its right-of-use assets and lease liabilities, as renewal options

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~are not reasonably certain of exercise~~Stock Options

NaN stock options were granted during the three months ended March 31, 2021 or ~~occurrence as of September 30,~~ 2020. ~~Additionally, these leasing arrangements do not contain residual value guarantees, and there are no other restrictions or covenants in the contracts.~~

Some real estate leases contain lease and non-lease components. Non-lease components generally represent use-based charges for common area maintenance, taxes and utilities. The Company has elected not to separate lease and non-lease components. In addition to variable lease payments for use-based charges, some leasing arrangements contain variable lease payments that increase based on a consumer price index. Some contracts also contain lease incentives such as tenant improvement allowances and rent holidays, which are treated as a reduction of lease payments for the measurementA summary of the ~~lease liability.~~

Determination of a leasing arrangement is performed at inception. Right-of-use assets represent the Company's right to use leased assets over the term of the lease, adjusted for lease incentives such as tenant improvements. Lease liabilities represent the Company's contractual obligation to make lease payments over the lease term. Right-of-use assetsCompany’s stock option activity and lease liabilities are determined based on the present value of future lease payments using the interest rate implicit in the loan or, if that rate cannot be readily determined, the incremental borrowing rate. Incremental borrowing rates were determined for each lease based on the Company's borrowing rate adjusted for term differences and foreign currency risk.

~~The following tables present components of lease cost recorded in the condensed consolidated statement of operations and supplemental~~related information ~~as of and~~ for the three ~~and nine~~ months ended ~~September 30, 2020.~~March 31, 2021 is as follows:


	~~Three Months Ended~~		~~Nine Months Ended~~
	~~September 30, 2020~~		~~September 30, 2020~~

	~~(in thousands)~~
~~Lease costs:~~
~~Operating lease costs~~	$	~~917~~	$	~~2,765~~
~~Short-term lease costs~~		~~126~~		~~308~~
~~Variable lease costs~~		~~520~~		~~1,483~~
~~Total lease costs~~	$	~~1,563~~	$	~~4,556~~


				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
		Exercise		Contractual	Intrinsic
	Options	Price		Term	Value
				(in years)	(in thousands)
Outstanding as of December 31, 2020	4,044,616	$	9.49	6.5	$	77,454
Granted	—		—
Forfeited/canceled	—		—
Exercised	(198,105)		8.93			4,666
Outstanding as of March 31, 2021	3,846,511	$	9.52	6.2	$	47,740

As of March 31, 2021:
Vested and expected to vest	2,123,496	$	9.61	6.3	$	26,158
Vested and exercisable	1,632,524	$	8.80	5.9	$	21,435

Nine Months Ended

September 30, 2020

(in thousands)
Other information:

Cash paid for the amounts included in the measurement of lease liabilities within operating cash flows

$
2,893

As of March 31, 2021, unamortized stock-based compensation expense related to the time-based awards was $2.3 million, which will be recognized over the remaining weighted-average vesting term of 1.6 years. The vesting of these time-based awards may accelerate and the stock options will become exercisable following both (i) the IPO and registration of shares of common stock of Ping Identity Holding Corp. and (ii) Vista realizing a cash return on its investment in the Company equaling or exceeding $1.491 billion. Though the recognition of the remaining unamortized stock-based compensation expense may be accelerated, acceleration was not probable as of March 31, 2021.


	~~September 30,~~
	~~2020~~
~~Weighted-average:~~
~~Remaining lease term~~	~~5.1~~	~~years~~
~~Discount rate~~	~~3.7~~	%

For the options subject to performance and market conditions, unrecognized stock-based compensation expense as of March 31, 2021 was $7.6 million. The vesting conditions of these awards 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. As of March 31, 2021, these awards were not considered probable of meeting vesting requirements and accordingly, 0 expense was recorded. During future reporting periods, if the awards are considered probable of meeting vesting requirements, the Company will begin recognizing the associated stock-based compensation expense of $7.6 million over the expected vesting period.

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. During the three months ended March 31, 2021 and 2020, 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 $0.1 million and $0.2 million for the three months ended March 31, 2021 and 2020, respectively.

The Company also has revenue arrangements with Vista affiliates. The Company recognized revenue of $0.9 million and $0.1 million during the three months ended March 31, 2021 and 2020, respectively.

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~As of September 30, 2020, the maturities of remaining lease payments included~~The Company had $0.1 million and $0.9 million in ~~the measurement of operating leases are as follows:~~

Year Ending December 31,

September 30, 2020

(in thousands)
2020 (remaining three months)

$
1,097
2021

4,503
2022

4,461
2023

4,528
2024

4,167
Thereafter

4,066
Total lease payments

22,822
Less: imputed interest

(2,047)
Total operating lease liability

$
20,775

~~As previously disclosed in the Company’s Annual Report on Form 10-K for the year ended~~accounts receivable related to these agreements at March 31, 2021 and December 31, ~~2019, the following table summarizes the future minimum lease payments related to operating leases as of December 31, 2019 under ASC 840.~~

Year Ending December 31,

December 31, 2019

(in thousands)
2020

$
3,819
2021

3,774
2022

3,785
2023

3,839
2024

3,712
Thereafter

3,606
Total

$
22,535

~~Rent expense under noncancelable operating leases totaled $1.0 million and $2.6 million for the three and nine months ended September 30, 2019,~~2020, respectively.

~~13.~~14. Commitments and Contingencies

Letters of Credit

As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Company had outstanding letters of credit under an office lease agreement that totaled ~~$0.7~~$0.8 million, which primarily guaranteed early termination fees in the event of default. The Company collateralizes the letters of credit with restricted cash balances which were classified in other noncurrent assets at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

Purchase Commitments

In the ordinary course of business, the Company enters into various purchase commitments primarily related to third-party cloud hosting and data services, IT operations and marketing events. Total noncancelable purchase commitments as of ~~September 30, 2020~~March 31, 2021 were approximately ~~$20.0~~$14.4 million for periods through ~~2023.~~2024.

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

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~~PING IDENTITY HOLDING CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

percentage of their annual compensation as defined in the 401(k) Plan. Employees in the United Kingdom and Canada are covered by defined contribution savings arrangements that are administered based upon the legislative and tax requirements of the respective countries.

The Company made contributions to its employee benefit plans of ~~$0.8~~$0.9 million and ~~$0.7~~$0.8 million during the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. ~~The Company made contributions to its employee benefit plans of $2.3 million and $2.1 million during the nine months ended September 30, 2020 and 2019, 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.

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~14.~~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,
	~~2020~~		~~2019~~		~~2020~~		~~2019~~

	~~(in thousands, except per share amounts)~~
~~Numerator:~~
~~Net loss~~	$	~~(996)~~	$	~~(595)~~	$	~~(8,078)~~	$	~~(3,718)~~
~~Denominator:~~
~~Weighted-average common stock outstanding - basic and diluted~~		~~80,692~~		~~66,269~~		~~80,203~~		~~65,436~~
~~Net loss per share:~~
~~Basic and diluted~~	$	~~(0.01)~~	$	~~(0.01)~~	$	~~(0.10)~~	$	~~(0.06)~~


	Three Months Ended March 31,
	2021		2020

Numerator:
Net loss	$	(15,934)	$	(4,292)
Denominator:
Weighted-average common stock outstanding - basic and diluted		81,339		79,743
Net loss per share:
Basic and diluted	$	(0.20)	$	(0.05)

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 March 31,
	2020	2019	2020	2019	2021	2020

	(in thousands)
RSUs	2,411	88	2,411	88	2,912	1,386
Stock options	2,544	4,008	2,544	4,008	2,123	3,419
Other awards	173	—	173	—	128	270
Total antidilutive shares	5,128	4,096	5,128	4,096	5,163	5,075

16. Subsequent Events

~~15. Subsequent Events~~

On ~~October 31, 2020,~~April 1, 2021, the Company ~~acquired Symphonic Software Limited (“Symphonic”) for $31~~granted an aggregate of 1,367,317 RSUs to certain of its employees under the 2019 Omnibus Incentive Plan, which had a total grant date fair value of $30.0 million ~~in cash funded with existing resources. Symphonic~~that is expected to be recognized over a ~~leader in dynamic authorization for protecting APIs, data, apps and resources through identity. An additional $0.4 million and $0.6 million~~weighted-average vesting period of 4.0 years using the straight-line method.

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 ~~payable in common stock~~not achieved, or 50% or 100% of total shares granted. As of the ~~Company on December 31, 2021 and December 31, 2022, respectively, contingent on individuals remaining employed as~~date of ~~those dates and meeting certain performance conditions. These amounts are payable on such dates based on~~issuance, these awards were considered probable of vesting, with the total grant date fair value of $4.6 million expected to be recognized over a ~~fixed dollar value.~~

weighted average estimated vesting period of 0.8 years.

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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” and other important factors disclosed previously in our other filings with the Securities 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 ~~outbreak;~~pandemic;

●

the impact on our business of a network or data security incident or unauthorized access to our network or data or our 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 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 solution packages to interoperate with our 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;

●

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 SaaS vendors to operate certain functions of our business;

●

the risks associated with indemnity provisions in our agreements;

●

the risks associated with liability claims if we breach our 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’’ ~~and elsewhere~~ in ~~this Quarterly Report.~~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 year ended December 31, ~~2019.~~2020.

Overview

Ping Identity is the Intelligent Identity solution for the enterprise. We enable companies to achieve Zero Trust identity-defined security and more personalized, streamlined user experiences. The Ping Intelligent Identity Platform provides customers, workforce and partners with secure, convenient access to their applications whether they are SaaS, mobile, in the cloud ~~mobile, SaaS and on-premise applications across the hybrid enterprise.~~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, including over half of the Fortune 100. Our cloud-based platform ~~can be deployed across cloud, hybrid~~has 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 in a single deployment.

The Ping Intelligent Identity Platform can secure all primary use cases, including customer, workforce, partner and ~~increasingly,~~ 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.

The Ping Intelligent Identity Platform is comprised of ~~six~~multiple solutions that can be purchased individually or integrated as a more complete set of ~~integrated offerings~~solutions for the customer, 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 to~~centralized, fine-grained control over access to sensitive identity and device data (“~~Data Governance”~~Dynamic Authorization”);

●

risk signal capture and analysis to make more intelligent authentication and authorization decisions (“Risk Management”);

●

identity verification services to prove an individual’s identity with facial biometrics and government issued IDs; (“Identity Verification”); and

●

~~artificial intelligence~~AI and ~~machine learning~~ML powered API security (“API Intelligence”).

Our offerings are predominately priced based on the solution, use case and number of 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. This includes sourcing new leads, aiding in pre-sale processes (such as proof of concepts, demos or requests for proposals) and reselling our solutions to customers. We also leverage a number of our channel partners and system integrators to provide the

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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.

~~Table of Contents~~

Impact of COVID-19

~~Though the impact of rapidly changing market and economic conditions due to~~ COVID-19 ~~is uncertain, it~~ continues to disrupt the business of our customers and partners and we expect that it will continue to impact our business and ~~condensed~~ consolidated results of operations and financial condition in the ~~future.~~next quarters. The worldwide spread of the COVID-19 outbreak ~~is resulting~~has resulted in a global slowdown of economic activity with a corresponding decrease in demand for certain goods and services, including ~~possibly~~ 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 ~~when~~what an economic ~~recovery could start and what a~~ 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 ~~October 31, 2020,~~April 30, 2021, the majority of our employees ~~are~~continue working remotely. While we have not incurred significant disruptions ~~thus far~~in providing our services from the COVID-19 pandemic, we are unable to ~~accurately~~ predict the long-term extent of the impact on our business due to numerous uncertainties, including but not limited to, ~~the severity of the disease, the duration of the outbreak,~~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 ~~II,~~I, Item 1A of ~~this Quarterly~~our Annual Report on Form ~~10-Q.~~ 10-K for the year ended December 31, 2020. Specifically, during the ~~third~~first quarter of ~~2020,~~2021, we continued to experience overall strong engagement with enterprise customers as work-from-home and increased virtual customer engagement highlighted the need for modernization of their identity security infrastructure. However, given the economic uncertainty driven by the COVID-19 pandemic, certain of these enterprise customers elected to phase-in their purchases of our solutions, resulting in smaller deal sizes and a reduction in our dollar-based net retention rate for the quarter ended ~~September 30, 2020~~March 31, 2021 as compared to the quarter ended ~~September 30, 2019.~~March 31, 2020.

While we continued to see the effects of the COVID-19 pandemic on our results of operations and overall financial performance for the quarter ended ~~September 30, 2020,~~March 31, 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. 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 ~~for doubtful accounts,~~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 ~~outbreak.~~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:

~~Generate~~Generation of 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 spend 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.

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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~~depends on a number of factors, including

~~Table of Contents~~

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.

~~Increase~~Increasing 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, API Intelligence solutions and 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.

~~Maintain~~Maintaining our Technology Differentiation and Product Leadership

The 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.

~~Invest~~Investing for Growth

We believe Identity and Access Management (“IAM”) represents a large market opportunity, and we plan to invest in order to support further growth. During 2018, we accelerated investments in our business to expand our footprint within this large and growing market. Specifically, we invested in new cloud-based offerings to broaden the 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 in these areas. Additionally, we plan to invest in 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 annual recurring revenue (“ARR”) growth in the immediate term as we expect natural purchasing cycles will affect the speed of market adoption.

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~~quarter, rather than from other quarters. ~~For the year ended December 31, 2019, 26% and 28% of our annual revenue was in our second and fourth quarter, respectively.~~ However, due to the economic environment resulting from COVID-19, we ~~may~~did not see our historical trends in seasonality for the year ended December 31, 2020, where 26% of our annual revenue was in our fourth quarter. Our historical trends in seasonality may continue ~~through~~to be disrupted during the year ending December 31, ~~2020.~~

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 ~~mitigates~~neutralizes fluctuations due to seasonality, contract term and the sales mix of subscriptions for term-based licenses and SaaS. ARR only includes the annualized value of subscription contracts. ARR does not have any standardized meaning and is therefore unlikely to be comparable to similarly titled measures presented by other companies. ARR should be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace either of those items. ARR is not a forecast and the active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers.

The table below sets forth our ARR as of the end of ~~September 30, 2020~~March 31, 2021 and ~~2019, respectively.~~2020.


	September 30,				Change				March 31,				Change
	2020		2019		$		%		2021		2020		$		%

	(dollars in thousands)								(dollars in thousands)
ARR	$	242,594	$	206,730	$	35,864	17	%	$	266,274	$	229,957	$	36,317	16	%

Dollar-Based Net Retention Rate

To further illustrate the land and expand economics of our customer relationships, we examine the rate at which our customers increase their subscriptions for our solutions. Our dollar-based net retention rate measures our ability to increase revenue across our existing customer base through expanded use of our platform, offset by customers whose subscription contracts with us are not renewed or renew at a lower amount.

We calculate our dollar-based net retention rate as of the end of a reporting period as follows:

●

Denominator. We measure ARR as of the last day of the prior reporting period.

●

Numerator. We measure ARR as of the last day of the current reporting period from customers with associated ARR as of the last day of the prior reporting period.

The quotient obtained from this calculation is our dollar-based net retention rate. Our dollar-based net retention rate was ~~110%~~109% at ~~September 30, 2020.~~March 31, 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 $250,000, demonstrates our focus on the large enterprise market and our penetration within those enterprises. ~~Increasing~~Historically, increasing awareness of our platform, further developing our sales and marketing expertise and channel partner ecosystem, and continuing to build solutions that address the unique identity needs of large enterprises have increased our number of large customers across industries. We believe there are significant upsell and ~~cross-sell~~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 ~~227~~240 at ~~September 30, 2019~~March 31, 2020 to ~~252~~265 at ~~September 30, 2020,~~March 31, 2021, representing a year-over-year growth rate of ~~11%~~10%.

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,				Three Months Ended March 31,
	2020		2019		2021		2020

	(in thousands)				(in thousands)
Net cash provided by operating activities	$	19,970	$	8,474	$	24,087	$	13,485
Less:
Purchases of property and equipment		(1,716)		(4,517)		(953)		(1,094)
Capitalized software development costs		(9,824)		(7,260)		(3,974)		(3,299)
Free Cash Flow	$	8,430	$	(3,303)	$	19,160	$	9,092
Net cash used in investing activities	$	(16,243)	$	(12,077)	$	(4,927)	$	(9,096)
Net cash provided by financing activities	$	101,709	$	1,974
Net cash provided by (used in) financing activities					$	(109,788)	$	97,632
Cash paid for interest	$	1,728	$	11,441	$	339	$	514

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 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 March 31,
	2020		2019		2020		2019		2021		2020

	(in thousands)
Gross profit	$	42,590	$	47,525	$	130,580	$	134,852	$	48,138	$	45,688
Amortization expense		5,177		4,159		14,723		11,981		5,809		4,602
Stock-based compensation expense		264		—		767		—		1,126		230
Non-GAAP Gross Profit	$	48,031	$	51,684	$	146,070	$	146,833	$	55,073	$	50,520

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.

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

Three Months Ended
September 30,

Nine Months Ended
September 30,


2020

2019

2020

2019

(in thousands)
Net loss

$
(996)

$
(595)

$
(8,078)

$
(3,718)
Interest expense⁽¹⁾

605

3,818

1,835

12,067
Loss on extinguishment of debt

—

3,150

—

3,150
Benefit for income taxes

(4,061)

(3,986)

(8,937)

(5,227)
Depreciation and amortization

9,400

8,219

27,428

24,315
Stock-based compensation expense

4,581

1,698

11,983

3,797
Acquisition-related expense⁽²⁾

20

522

1,119

2,799
Other (income) expense, net⁽³⁾

(1,271)

992

(716)

767
Adjusted EBITDA

$
8,278

$
13,818

$
24,634

$
37,950

~~(1)~~

~~Includes amortization of debt issuance costs.~~

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~~(2)~~

Acquisition-related expense for the three months ended September 30, 2019 included $0.5 million of contingent compensation and retention expense related to the acquisition of Elastic Beam. Acquisition-related expense for the nine months ended September 30, 2020 and 2019, respectively, included $0.5 million and $2.8 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.

For the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, 58% and 67%, respectively, of our revenue was from subscription term-based licenses. For the nine months ended September 30, 2020 and 2019,~~ 60% and ~~66%~~62%, respectively, of our revenue was from subscription term-based licenses. We expect that a majority of our revenue will be from subscription term-based licenses for the foreseeable future. Changes in period-over-period subscription revenue growth are primarily impacted by the following factors:

●

the type of new and renewed subscriptions (i.e., term-based or SaaS); and

●

the duration of new and renewed term-based subscriptions.

While the number of new and increased subscriptions during a period impacts our subscription revenue growth, the type and duration of those subscriptions has a significantly greater impact on the amount and timing of revenue recognized in a period. Subscription revenue from term-based licenses is recognized at the beginning

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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

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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~~up front relative to a one-year subscription term-based license. Therefore, keeping other factors constant, revenue growth will also trend higher in a period where the percentage of multi-year subscription term-based licenses to total subscription term-based licenses increases.

Professional Services and Other. Professional services and other revenue consists primarily of fees from professional services provided to our customers and partners to configure and optimize 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 and facility rental charges and other associated overhead costs. We expect our professional services and other cost of revenue to increase in absolute dollars relative to the growth of our business.

Amortization Expense. Amortization expense consists of amortization of developed technology and internal-use software.

~~Long-Term Incentive Plan.~~Performance Stock Units. If the ~~LTIP awards~~stock units subject to performance and market conditions are considered probable of meeting vesting requirements in the three months ending ~~December 31, 2020,~~June 30, 2021, it may result in incremental stock-based compensation expense ~~between $1.2 million to $1.7~~of approximately $0.5 million being recognized in the three months ending ~~December 31, 2020,~~June 30, 2021, and ~~$0.7 million to $1.1~~approximately $0.3 million being recognized ratably over the remaining estimated vesting period.

Operating Expenses

Our operating expenses consist of sales and marketing, research and development and general and administrative expenses as well as depreciation and amortization. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, payroll taxes and stock-based compensation expense.

Sales and Marketing. Sales and marketing expenses consist primarily of employee compensation costs, sales commissions, costs of general marketing and promotional activities, travel-related expenses and allocated overhead. Certain sales commissions earned by our sales force on subscription contracts are deferred and amortized over the period of benefit, which is generally four years. We expect to continue to invest in our sales force domestically and internationally, as well as in our channel relationships. We expect our sales and

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marketing expenses to increase on an absolute dollar basis and continue to be our largest operating expense category for the foreseeable future.

Research and Development. Research and development expenses consist primarily of employee compensation costs, allocated overhead and software and maintenance expenses. We will continue to invest

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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 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 continuing to operate as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, and increased expenses for insurance, investor relations and professional services.

Depreciation and Amortization. Depreciation and amortization expense consists primarily of depreciation of our fixed assets and amortization of finite-lived acquired intangible assets such as customer relationships, trade names and non-compete agreements.

~~Long-Term Incentive Plan and~~ Stock Option ~~Awards.~~Awards and Performance Stock Units. If the stock option awards subject to performance and market conditions are considered probable of meeting vesting requirements in the three months ending ~~December 31, 2020,~~June 30, 2021, it may result in incremental stock-based compensation expense of approximately ~~$6.0~~$6.8 million being recognized in the three months ending ~~December 31, 2020,~~June 30, 2021, and approximately ~~$1.8~~$0.8 million being recognized ratably over the remaining estimated vesting period. Additionally, if the ~~LTIP awards~~stock units subject to performance and market conditions are considered probable of meeting vesting requirements in the three months ending ~~December 31, 2020,~~June 30, 2021, it may result in incremental stock-based compensation expense ~~between $16.3 million to $17.3~~of approximately $5.3 million being recognized in the three months ending ~~December 31, 2020,~~June 30, 2021, and ~~$8.3 million to $9.3~~approximately $3.4 million being recognized ratably over the remaining estimated vesting period.

Other Income (Expense)

Interest Expense. Interest expense consists primarily of interest payments on our outstanding borrowings under our credit facilities as well as the amortization of associated deferred financing costs. See “— Liquidity and Capital Resources — Senior Secured Credit Facilities.”

Other Income (Expense), Net. Other income (expense), net primarily consists of gains and losses from transactions denominated in a currency other than the functional currency, interest income and other income (expense). As we have expanded our international operations, our exposure to fluctuations in foreign currencies has increased, and we expect this to continue.

Benefit (Provision) for Income Taxes

Benefit ~~(Provision)~~(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,
	~~2020~~		~~2019~~		~~2020~~		~~2019~~

	~~(in thousands)~~
~~Revenue:~~
~~Subscription~~	$	~~55,113~~	$	~~57,495~~	$	~~166,199~~	$	~~161,387~~
~~Professional services and other~~		~~4,828~~		~~4,270~~		~~14,135~~		~~13,276~~
~~Total revenue~~		~~59,941~~		~~61,765~~		~~180,334~~		~~174,663~~
~~Cost of revenue:~~
~~Subscription (exclusive of amortization shown below)~~		~~8,091~~		~~5,995~~		~~22,709~~		~~16,828~~
~~Professional services and other (exclusive of amortization shown below)~~		~~4,083~~		~~4,086~~		~~12,322~~		~~11,002~~
~~Amortization expense~~		~~5,177~~		~~4,159~~		~~14,723~~		~~11,981~~
~~Total cost of revenue~~		~~17,351~~		~~14,240~~		~~49,754~~		~~39,811~~
~~Gross profit~~		~~42,590~~		~~47,525~~		~~130,580~~		~~134,852~~
~~Operating expenses:~~
~~Sales and marketing~~⁽¹⁾		~~21,164~~		~~17,819~~		~~64,105~~		~~55,153~~
~~Research and development~~⁽¹⁾		~~12,224~~		~~11,283~~		~~35,849~~		~~33,594~~
~~General and administrative~~⁽¹⁾		~~10,702~~		~~10,984~~		~~33,817~~		~~26,732~~
~~Depreciation and amortization~~		~~4,223~~		~~4,060~~		~~12,705~~		~~12,334~~
~~Total operating expenses~~		~~48,313~~		~~44,146~~		~~146,476~~		~~127,813~~
~~Income (loss) from operations~~		~~(5,723)~~		~~3,379~~		~~(15,896)~~		~~7,039~~
~~Other income (expense):~~
~~Interest expense~~		~~(605)~~		~~(3,818)~~		~~(1,835)~~		~~(12,067)~~
~~Loss on extinguishment of debt~~		—		~~(3,150)~~		—		~~(3,150)~~
~~Other income (expense), net~~		~~1,271~~		~~(992)~~		~~716~~		~~(767)~~
~~Total other income (expense)~~		~~666~~		~~(7,960)~~		~~(1,119)~~		~~(15,984)~~
~~Loss before income taxes~~		~~(5,057)~~		~~(4,581)~~		~~(17,015)~~		~~(8,945)~~
~~Benefit for income taxes~~		~~4,061~~		~~3,986~~		~~8,937~~		~~5,227~~
~~Net loss~~	$	~~(996)~~	$	~~(595)~~	$	~~(8,078)~~	$	~~(3,718)~~


	Three Months Ended March 31,
	2021		2020

Revenue:
Subscription	$	64,216	$	56,818
Professional services and other		4,728		4,594
Total revenue		68,944		61,412
Cost of revenue:
Subscription (exclusive of amortization shown below)⁽¹⁾		9,414		7,109
Professional services and other (exclusive of amortization shown below)⁽¹⁾		5,583		4,013
Amortization expense		5,809		4,602
Total cost of revenue		20,806		15,724
Gross profit		48,138		45,688
Operating expenses:
Sales and marketing⁽¹⁾		25,549		22,190
Research and development⁽¹⁾		21,702		12,214
General and administrative⁽¹⁾		14,455		11,515
Depreciation and amortization		4,365		4,249
Total operating expenses		66,071		50,168
Loss from operations		(17,933)		(4,480)
Other income (expense):
Interest expense		(396)		(506)
Other income (expense), net		(872)		(1,250)
Total other income (expense)		(1,268)		(1,756)
Loss before income taxes		(19,201)		(6,236)
Benefit for income taxes		3,267		1,944
Net loss	$	(15,934)	$	(4,292)

(1)	Includes stock-based compensation as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2020		2019		2020		2019		2021		2020

	(in thousands)
Subscription cost of revenue	$	166	$	—	$	486	$	—	$	535	$	146
Professional services and other cost of revenue		98		—		281		—		591		84
Sales and marketing		1,169		283		3,209		693		4,198		797
Research and development		1,602		225		3,788		658		8,512		888
General and administrative		1,546		1,190		4,219		2,446		3,103		942
Total	$	4,581	$	1,698	$	11,983	$	3,797	$	16,939	$	2,857

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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,
	~~2020~~		~~2019~~		~~2020~~		~~2019~~
~~Revenue:~~
~~Subscription~~	92	%	93	%	92	%	92	%
~~Professional services and other~~	8		7		8		8
~~Total revenue~~	~~100~~		~~100~~		~~100~~		~~100~~
~~Cost of revenue:~~
~~Subscription (exclusive of amortization shown below)~~	13		9		13		10
~~Professional services and other (exclusive of amortization shown below)~~	7		7		7		6
~~Amortization expense~~	9		7		8		7
~~Total cost of revenue~~	29		23		28		23
~~Gross profit~~	71		77		72		77
~~Operating expenses:~~
~~Sales and marketing~~	36		29		35		32
~~Research and development~~	20		18		20		19
~~General and administrative~~	18		18		19		15
~~Depreciation and amortization~~	7		7		7		7
~~Total operating expenses~~	81		72		81		73
~~Income (loss) from operations~~	~~(10)~~		5		~~(9)~~		4
~~Other income (expense):~~
~~Interest expense~~	—		~~(6)~~		—		~~(7)~~
~~Loss on extinguishment of debt~~	—		~~(5)~~		—		~~(2)~~
~~Other income (expense), net~~	2		~~(1)~~		—		—
~~Total other income (expense)~~	2		~~(12)~~		—		~~(9)~~
~~Loss before income taxes~~	~~(8)~~		~~(7)~~		~~(9)~~		~~(5)~~
~~Benefit for income taxes~~	6		6		5		3
~~Net loss~~	~~(2)~~	%	~~(1)~~	%	~~(4)~~	%	~~(2)~~	%


	Three Months Ended March 31,
	2021		2020
Revenue:
Subscription	93	%	93	%
Professional services and other	7		7
Total revenue	100		100
Cost of revenue:
Subscription (exclusive of amortization shown below)	14		12
Professional services and other (exclusive of amortization shown below)	8		7
Amortization expense	8		7
Total cost of revenue	30		26
Gross profit	70		74
Operating expenses:
Sales and marketing	37		35
Research and development	31		20
General and administrative	21		19
Depreciation and amortization	6		7
Total operating expenses	95		81
Loss from operations	(25)		(7)
Other income (expense):
Interest expense	(1)		(1)
Other income (expense), net	(1)		(2)
Total other income (expense)	(2)		(3)
Loss before income taxes	(27)		(10)
Benefit for income taxes	5		3
Net loss	(22)	%	(7)	%

Comparison of the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~

Revenue


	Three Months Ended								Nine Months Ended								Three Months Ended
	September 30,				Change				September 30,				Change				March 31,				Change
	2020		2019		$		%		2020		2019		$		%		2021		2020		$		%

	(dollars in thousands)
Revenue:
Subscription	$	55,113	$	57,495	$	(2,382)	(4)	%	$	166,199	$	161,387	$	4,812	3	%	$	64,216	$	56,818	$	7,398	13	%
Professional services and other		4,828		4,270		558	13			14,135		13,276		859	6			4,728		4,594		134	3
Total revenue	$	59,941	$	61,765	$	(1,824)	(3)	%	$	180,334	$	174,663	$	5,671	3	%	$	68,944	$	61,412	$	7,532	12	%

Total revenue ~~decreased~~increased by ~~$1.8~~$7.5 million, or 3%12%, for the three months ended ~~September 30, 2020~~March 31, 2021 compared to the three months ended September 30, 2019. The decrease was attributable to a decrease in subscription revenue of $2.4 million, discussed further below. This was offset by an increase in professional services and other revenue of $0.6 million due to an increase in the provisioning of implementation and consulting services.

~~Total revenue increased by $5.7 million, or 3%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. 85%~~March 31, 2020. 98% of the increase in total revenue was due to an increase in subscription revenue of ~~$4.8 million, discussed further below.~~$7.4 million. The remaining ~~$0.9~~$0.1 million of the increase was ~~due~~attributable to an increase in professional services and other ~~revenue as a result of an increase in the provisioning of~~revenue.

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~~implementation and consulting services, partially offset by a decrease in event sponsorship revenue of $3.0 million from hosting our Identiverse conference virtually due to COVID-19.~~

The table below sets forth the components of subscription revenue for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020.


	Three Months Ended								Nine Months Ended								Three Months Ended
	September 30,				Change				September 30,				Change				March 31,				Change
	2020		2019		$		%		2020		2019		$		%		2021		2020		$		%

	(dollars in thousands)
Subscription:
Multi-year subscription term-based licenses	$	22,974	$	28,497	$	(5,523)			$	68,103	$	80,922	$	(12,819)			$	23,838	$	23,988	$	(150)	(1)	%
1-year subscription term-based licenses		11,944		12,649		(705)				40,276		33,731		6,545				17,344		14,149		3,195	23
Subscription term-based licenses		34,918		41,146		(6,228)				108,379		114,653		(6,274)				41,182		38,137		3,045	8
Subscription SaaS and maintenance and support		20,195		16,349		3,846				57,820		46,734		11,086				23,034		18,681		4,353	23
Total subscription revenue	$	55,113	$	57,495	$	(2,382)	(4)	%	$	166,199	$	161,387	$	4,812	3	%	$	64,216	$	56,818	$	7,398	13	%

Subscription revenue ~~decreased by 4%~~increased 13%, or ~~$2.4~~$7.4 million, in the three months ended ~~September 30, 2020~~March 31, 2021. Total subscription revenue increased as a result of a greater amount of new and renewing subscriptions in the three months ended March 31, 2021 compared to the three months ended ~~September 30, 2019.~~March 31, 2020. Changes to subscription revenue were primarily due to the following:

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
	March 31,				Change
	2021		2020		%
Subscription term-based licenses	64	%	67	%	(3)	%
Subscription SaaS and maintenance and support	36		33		3
Total subscription revenue	100	%	100	%

Subscription term-based license revenue as a percentage of subscription revenue decreased from 67% in the three months ended March 31, 2020 to 64% in the three months ended March 31, 2021. Subscription SaaS and support and maintenance as a percentage of total subscription revenue increased from 33% in the three months ended March 31, 2020 to 36% in the three months ended March 31, 2021. The increase in subscription SaaS and support and maintenance revenue 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 months ended March 31, 2021 compared to the three months ended March 31, 2020. We expect subscription SaaS and support and maintenance to continue to gradually increase as a percentage of total subscription revenue in future periods, resulting in greater deferral of revenue in the period in which the subscription is contracted.

Change in term-based subscription duration. 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
	March 31,				Change
	2021		2020		%
Multi-year subscription term-based licenses	58	%	63	%	(5)	%
1-year subscription term-based licenses	42		37		5
Total subscription term-based licenses	100	%	100	%

Multi-year subscription term-based license revenue as a percentage of total subscription term-based license revenue decreased from 63% in the three months ended March 31, 2020 to 58% in the three months ended March 31, 2021. This decrease was ~~primarily a result of~~due to customers electing to phase-in their purchases of our solutions ~~resulting in smaller deal sizes~~ in light of the sustained economic environment and associated uncertainty surrounding ~~COVID-19. However,~~COVID-19, as well as revenue shifting from subscription term-based license revenue to subscription SaaS and maintenance and support revenue primarily due to increased adoption of our SaaS solutions. This resulted in ~~the nine months ended September 30, 2020, subscription~~less upfront revenue ~~increased by 3%, or $4.8 million,~~recognition from ~~the nine months ended September 30, 2019 as a result of a greater amount of~~multi-year subscriptions entered into or renewed induring the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 compared to the ~~nine~~three months ended ~~September 30, 2019. Remaining changes in subscription revenue were due to the following:~~March 31, 2020. We expect increased adoption of our

●

~~Change in subscription type.~~ Subscription term-based license revenue as a percentage of subscription revenue decreased from 72% in the three months ended September 30, 2019 to 63% in the three months ended September 30, 2020, and from 71% in the nine months ended September 30, 2019 to 65% in the nine months ended September 30, 2020. Subscription SaaS and support and maintenance as a percentage of total subscription revenue increased from 28% in the three months ended September 30, 2019 to 37% in the three months ended September 30, 2020, and from 29% in the nine months ended September 30, 2019 to 35% in the nine months ended September 30, 2020. The increase in subscription SaaS and support and maintenance revenue as a percentage of total subscription revenue was primarily driven by the increased adoption of our cloud-based solutions. This resulted in greater deferral of revenue from subscriptions entered into or renewed during the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019. We expect subscription SaaS and support and maintenance to continue to gradually increase as a percentage of total subscription revenue in future periods as adoption of our cloud-based solutions increases, resulting in greater deferral of revenue in the period in which the subscription is contracted.

●

~~Change in term-based subscription duration.~~ Multi-year subscription term-based license revenue as a percentage of total subscription term-based license revenue decreased from 69% in the three months ended September 30, 2019 to 66% in the three months ended September 30, 2020, and increased from 60% in the three months ended June 30, 2020. Multi-year subscription term-based license revenue as a percentage of total subscription term-based license revenue decreased from 71% in the nine months ended September 30, 2019 to 63% in the nine months ended September 30, 2020, and increased from 61% in the six months ended June 30, 2020. This resulted in less upfront revenue recognition from subscriptions entered into or renewed during the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019, but greater upfront recognition when compared to the three and six months ended June 30, 2020.

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SaaS solutions and customers electing to phase in their purchases of our solutions to continue through the year ending December 31, 2021, resulting in less upfront revenue recognition from the corresponding license.

Cost of Revenue


	~~Three Months Ended~~								~~Nine Months Ended~~
	~~September 30,~~				~~Change~~				~~September 30,~~				~~Change~~
	~~2020~~		~~2019~~		$		%		~~2020~~		~~2019~~		$		%

	~~(dollars in thousands)~~
~~Cost of revenue:~~
~~Subscription (exclusive of amortization shown below)~~	$	~~8,091~~	$	~~5,995~~	$	~~2,096~~	35	%	$	~~22,709~~	$	~~16,828~~	$	~~5,881~~	35	%
~~Professional services and other (exclusive of amortization shown below)~~		~~4,083~~		~~4,086~~		~~(3)~~	—			~~12,322~~		~~11,002~~		~~1,320~~	12
~~Amortization expense~~		~~5,177~~		~~4,159~~		~~1,018~~	24			~~14,723~~		~~11,981~~		~~2,742~~	23
~~Total cost of revenue~~	$	~~17,351~~	$	~~14,240~~	$	~~3,111~~	22	%	$	~~49,754~~	$	~~39,811~~	$	~~9,943~~	25	%


	Three Months Ended
	March 31,				Change
	2021		2020		$		%

Cost of revenue:
Subscription (exclusive of amortization shown below)	$	9,414	$	7,109	$	2,305	32	%
Professional services and other (exclusive of amortization shown below)		5,583		4,013		1,570	39
Amortization expense		5,809		4,602		1,207	26
Total cost of revenue	$	20,806	$	15,724	$	5,082	32	%

Subscription cost of revenue increased by ~~$2.1~~$2.3 million, or ~~35%~~32%, for the three months ended ~~September 30, 2020~~March 31, 2021 compared to the three months ended ~~September 30, 2019. $1.6~~March 31, 2020. $1.0 million of the increase was ~~compensation related and~~ primarily attributable to an increase in headcount to support the growth of our subscription SaaS offerings and ongoing maintenance for our expanding customer base. ~~$0.6~~$0.9 million of the increase was attributable to an increase in cloud-based hosting and management costs largely associated with the increased adoption of our ~~SaaS~~ solutions. ~~This was partially offset by decreases in travel costs as well as partner and consulting costs.~~

Subscription cost of revenue increased by $5.9 million, or 35%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. $3.8 million of the increase was compensation related and primarily attributable to an increase in headcount to support the growth of our subscription SaaS offerings and ongoing maintenance for our expanding customer base. $2.1$0.4 million of the increase was attributable to an increase in cloud-based hosting costs largely associated with the increased adoption of our SaaS solutions. We expect this trend in increased cloud-based hosting costs to continue as our customers increase adoption of our cloud-based solutions.

~~Professional services and other cost of revenue remained substantially the same for the three months ended September 30, 2020 compared~~stock-based compensation expense primarily related to the ~~three months ended September 30, 2019.~~conversion of previously outstanding LTIP awards into RSUs during the first quarter of 2021.

Professional services and other cost of revenue increased by ~~$1.3~~$1.6 million, or ~~12%~~39%, for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 compared to the ~~nine~~three months ended ~~September 30, 2019. The~~March 31, 2020. $1.1 million of the increase ~~related to a $0.7 million increase in consulting costs, partially to aid in the development of our certification programs. The remaining increase~~ was ~~due to compensation-related costs~~ primarily attributable to an increase in headcount and and an increase in partner-related costs to support the growth in our business, as well as a $0.5 million increase in stock-based compensation primarily related to the conversion of ~~our business.~~previously outstanding LTIP awards into RSUs during the first quarter of 2021.

Amortization expense increased by ~~$1.0~~$1.2 million, or ~~24%~~26%, for the three months ended ~~September 30, 2020~~March 31, 2021 compared to the three months ended ~~September 30, 2019. Amortization expense increased by $2.7 million, or 23%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.~~March 31, 2020. The increase was attributable primarily to an increase in the amortization of our capitalized software as well as an increase in the amortization of developed technology resulting from our ~~acquisition~~acquisitions of ShoCard and Symphonic in March and October of 2020, respectively, as further described in Note 57 of our ~~condensed~~ consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Operating Expenses


	Three Months Ended
	March 31,				Change
	2021		2020		$		%

Sales and marketing	$	25,549	$	22,190	$	3,359	15	%
Research and development		21,702		12,214		9,488	78
General and administrative		14,455		11,515		2,940	26
Depreciation and amortization		4,365		4,249		116	3
Total operating expenses	$	66,071	$	50,168	$	15,903	32	%

~~Three Months Ended~~

~~Nine Months Ended~~

~~September 30,~~

~~Change~~

~~September 30,~~

~~Change~~

~~2020~~

~~2019~~

~~2020~~

~~2019~~

~~(dollars in thousands)~~

~~Sales and marketing~~

~~21,164~~

~~17,819~~

~~3,345~~

~~64,105~~

~~55,153~~

~~8,952~~

~~Research and development~~

~~12,224~~

~~11,283~~

~~941~~

~~35,849~~

~~33,594~~

~~2,255~~

~~General and administrative~~

~~10,702~~

~~10,984~~

~~(282)~~

~~(3)~~

~~33,817~~

~~26,732~~

~~7,085~~

~~Depreciation and amortization~~

~~4,223~~

~~4,060~~

~~163~~

~~12,705~~

~~12,334~~

~~371~~

~~Total operating expenses~~

~~48,313~~

~~44,146~~

~~4,167~~

~~146,476~~

~~127,813~~

~~18,663~~

~~Table of Contents~~

Sales and Marketing. Sales and marketing expenses increased by ~~$3.3~~$3.4 million, or ~~19%~~15%, for the three months ended ~~September 30, 2020~~March 31, 2021 compared to the three months ended ~~September 30, 2019. Compensation-related expenses increased $2.7~~March 31, 2020. $3.4 million of the increase was attributable to an increase in stock-based compensation expense primarily ~~as a result~~related to the conversion of previously outstanding LTIP awards into RSUs during the first quarter of 2021 and expense recognized for equity awards granted after the first quarter of 2020. $1.2 million of the increase was primarily related to an increase in headcount related to the expansion of our sales force and our marketing department ~~as well as an increase~~. These increases were partially offset by a $1.7 million decrease in ~~stock-based compensation expense~~travel and other event-related costs resulting from a reduction in travel due to ~~an increase in the issuance of RSUs granted in 2020 compared~~COVID-19. The remaining increases were related to ~~2019. Additionally, promotional expenses increased by $1.2 million due to~~consulting costs and additional spend around branding and awareness campaigns. These increases were offset by a decrease in travel costs of $1.0 million due a reduction in travel in 2020 because of COVID-19. The remaining increase in sales and marketing expenses was the result of increased partner and consulting costs.

Sales and marketing expenses increased by $9.0 million, or 16%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. $9.3 million of the increase was the result of increased commissions related to the increase in revenue, the increase in our sales force and continued investment in our channel relationships as well as an increase in stock-based compensation expense resulting from an increase in the issuance of RSUs granted in 2020 compared to 2019. Additionally, partner and consulting costs increased by $1.5 million and promotional expenses increased by $0.2 million due to additional spend around branding and awareness campaigns. These increases were offset by a decrease in travel costs of $2.4 million due to a reduction in travel in 2020 because of COVID-19. Substantially all of the remaining increase in sales and marketing expenses was the result of allocated overhead.

~~Research and Development.~~ Research and development expenses increased by $0.9 million, or 8%, for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. Compensation-related expenses increased $2.4 million, primarily as a result of an increase in headcount to enhance and expand our solutions as well as an increase in stock-based compensation expense due to an increase in the issuance of RSUs granted in 2020 compared to 2019. The increase in compensation-related expenses was partially offset by a decrease of $0.5 million attributable to contingent compensation and retention expense related to our acquisition of Elastic Beam that was paid in full by April 2020 (as further discussed in Note 5 of our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q). The increase in research and development expenses was also offset by decreased travel costs and allocated overhead.

Research and development expenses increased by $2.3 million, or 7%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. $6.5 million of the increase was compensation-related and primarily the result of an increase in headcount to enhance and expand our solutions. Compensation-related expenses also increased due to an increase in stock-based compensation expense resulting from an increase in the issuance of equity awards granted in 2020 compared 2019, including the liability-classified awards that were issued in conjunction with the ShoCard acquisition as further described in Notes 5 and 10 of our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. The increase in compensation-related expenses was partially offset by a decrease of $2.3 million attributable to contingent compensation and retention expense related to our acquisition of Elastic Beam that was paid in full by April 2020. The increase in research and development expenses was also offset by decreased travel costs and allocated overhead.

~~General and Administrative.~~ General and administrative expenses decreased by $0.3 million, or 3%, for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. Compensation-related expenses decreased by $0.8 million primarily as a result of a decrease in bonuses accrued in the three months ended September 30, 2020, partially offset by an increase in stock-based compensation expense due to an increase in the issuance of RSUs granted in 2020 compared to 2019. An additional $0.4 million of the decrease was related to a decrease in travel costs in 2020 due to COVID-19 and the remaining decrease was due to a decrease in allocated overhead. These were offset by an increase of $1.5 million in administrative expenses related to operating as a public company.

General and administrative expenses increased by $7.1 million, or 27%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. $7.3 million of the increase was attributable to an increase in administrative expenses related to operating as a public company. $0.3 million of the increase was compensation-related and primarily the result of an increase in stock-based compensation expense duecompaigns.

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Research and Development. Research and development expenses increased by $9.5 million, or 78%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. $7.6 million of the increase was attributable to an increase in stock-based compensation expense primarily related to the ~~issuance~~conversion of previously outstanding LTIP awards into RSUs during the first quarter of 2021 and expense recognized for equity awards granted ~~in 2020 compared to 2019. Additionally, general and administrative expenses increased due~~after the first quarter of 2020. $3.1 million of the increase was primarily related to an increase ~~of $0.6 million~~ in ~~acquisition-related expenses from~~headcount to enhance and expand our acquisition of ShoCard that was consummated in March 2020 (as further discussed in Note 5 of our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q).solutions. These increases were partially offset by ~~a decrease in travel costs~~an increase of ~~$0.7~~$1.3 million related to ~~a reduction~~employee costs that were capitalized as software development costs in ~~travel because~~the three months ended March 31, 2021 as compared to March 31, 2020.

General and Administrative. General and administrative expenses increased by $2.9 million, or 26%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. $2.2 million of ~~COVID-19~~the increase was attributable to an increase in stock-based compensation expense primarily related to the conversion of previously outstanding LTIP awards into RSUs during the first quarter of 2021 and ~~a $0.4 million decrease~~expense recognized for equity awards granted after the first quarter of 2020. The remaining increase was primarily related to an increase in ~~partner and consulting costs.~~allocated overhead.

Depreciation and Amortization. Depreciation and amortization expense ~~slightly increased during~~remained substantially the same for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 compared to the three ~~and nine~~ months ended ~~September 30, 2019 as the Company expanded its office sites in early~~March 31, 2020 ~~to accommodate its growing headcount, which increased the depreciation of the associated leasehold improvements and furniture and fixtures.~~

Other Income (Expense)


	Three Months Ended								Nine Months Ended								Three Months Ended
	September 30,				Change				September 30,				Change				March 31,				Change
	2020		2019		$		%		2020		2019		$		%		2021		2020		$		%

	(dollars in thousands)
Interest expense	$	(605)	$	(3,818)	$	3,213	(84)	%	$	(1,835)	$	(12,067)	$	10,232	(85)	%	$	(396)	$	(506)	$	110	(22)	%
Loss on extinguishment of debt		—		(3,150)		3,150	(100)			—		(3,150)		3,150	(100)
Other income (expense), net		1,271		(992)		2,263	(228)			716		(767)		1,483	(193)			(872)		(1,250)		378	(30)
Total other income (expense)	$	666	$	(7,960)	$	8,626	(108)	%	$	(1,119)	$	(15,984)	$	14,865	(93)	%	$	(1,268)	$	(1,756)	$	488	(28)	%

Interest Expense. Interest expense decreased by ~~$3.2~~$0.1 million, or ~~84%~~22%, for the three months ended ~~September 30, 2020~~March 31, 2021 compared to the three months ended ~~September 30, 2019.~~March 31, 2020. The decrease was attributable primarily to the ~~refinancing~~reduction in our average debt outstanding during the first quarter of ~~our debt in December 2019~~2021 as ~~described in Note 7 of our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. The refinancing also attributed~~compared to ~~the period-over-period~~2020. A decrease in the weighted average interest rate, from ~~6.0%~~2.9% for the three months ended ~~September 30, 2019~~March 31, 2020 to 1.4% for the three months ended ~~September 30, 2020.~~

~~Interest expense decreased by $10.2 million, or 85%, for the nine months ended September 30, 2020 compared~~March 31, 2021, also contributed to the ~~nine months ended September 30, 2019. The decrease was attributable primarily to the refinancing of our debt in December 2019, which attributed to the period-over-period~~ decrease in ~~the weighted average~~ interest ~~rate, from 6.2% for the nine months ended September 30, 2019 to 1.9% for the nine months ended September 30, 2020.~~

~~Loss on Extinguishment of Debt.~~ During the three and nine months ended September 30, 2019, we recorded a loss on extinguishment of debt of $3.2 million related 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 lossexpense during the ~~three or nine months ended September 30, 2020.~~period.

Other Income (Expense), Net.Other income (expense), net ~~increased~~decreased by ~~$2.3~~$0.4 million, ~~or 228%,~~to other expense, net of $0.9 million for the three months ended ~~September 30, 2020 compared to the three months ended September 30, 2019.~~March 31, 2021. The ~~increase~~decrease was primarily attributable ~~primarily~~ to a change in the amount of foreign currency ~~gains and~~ losses, from a loss of ~~$1.3~~$1.4 million in the three months ended ~~September 30, 2019~~March 31, 2020 to a ~~gain~~loss of ~~$1.2~~$0.9 million in the three months ended ~~September 30, 2020,~~March 31, 2021. These losses were partially offset by ~~a decrease in~~ interest income recognized induring the three months ended ~~September 30,~~March 31, 2021 and 2020.

Benefit for Income Taxes


	Three Months Ended
	March 31,				Change
	2021		2020		$		%

Benefit for income taxes	$	3,267	$	1,944	$	1,323	68	%

For the three months ended March 31, 2021 and 2020, we recorded a benefit for income taxes of $3.3 million and $1.9 million, respectively. The increase in the tax benefit for the three months ended March 31, 2021 as compared to the three months ended ~~September 30, 2019.~~

~~Other income (expense), net increased by $1.5 million, or 193%, for~~March 31, 2020 primarily relates to a larger expected pre-tax loss in 2021 as compared to 2020, along with an increase in R&D and other credits recorded in the ~~nine~~three months ended September 30, 2020 compared to the nine months ended September 30, 2019. The increase was attributable primarily to a change in the amount of foreign currency gains and losses, from a loss of $1.8 million in the nine months ended September 30, 2019 compared to a gain of $0.5 million in the nine months ended September 30, 2020. This wasMarch 31, 2021. These increases were partially offset by a ~~decrease in interest income recognized~~valuation allowance recorded against our deferred tax assets in the ~~nine~~three months ended ~~September 30, 2020 compared to the nine months ended September 30, 2019.~~March 31, 2021.

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~~Benefit for Income Taxes~~

Three Months Ended

Nine Months Ended

September 30,

Change

September 30,

Change


2020

2019

$

%

2020

2019

$

%

(dollars in thousands)

Benefit for income taxes

$
4,061

$
3,986

$
75

2
%

$
8,937

$
5,227

$
3,710

71
%

Our benefit for income taxes was $4.1 million and $4.0 million for the three months ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, 2020 and 2019, our benefit for income taxes was $8.9 million and $5.2 million, respectively. Variations in our tax benefit period-over-period related to changes in our state benefit, an increase in stock-based compensation in 2020 as compared to 2019, an increase in R&D credits and the net benefit from an IPO deduction study performed in 2020. Additionally, our calculation of income tax expense is dependent on our full-year forecasts and thus, the impact of COVID-19 may create variability to these forecasts, which could materially impact our benefit for income taxes.

Liquidity and Capital Resources

General

As of ~~September 30, 2020,~~March 31, 2021, our principal sources of liquidity were cash and cash equivalents totaling ~~$173.2~~$55.0 million, which were held for working capital ~~purposes.~~purposes, and borrowing availability under our Revolving Credit Facility as described below. As of ~~September 30, 2020,~~March 31, 2021, our cash equivalents were comprised of money market funds. During the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ 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 have financed our operations primarily through cash received from operations and proceeds from our debt and equity financings. On March 30, 2020, we drew down on the remaining $97.8 million available for borrowing under our ~~2019~~ Revolving Credit Facility (described further below). Given the uncertainty in the global economy as result of the COVID-19 pandemic and out of an abundance of caution, we elected to draw down the remaining available balance to further strengthen our cash position and maintain flexibility. ~~If needed,~~In February 2021, we repaid $110.0 million of the ~~proceeds will~~balance drawn on our Revolving Credit Facility. These funds are still available to us and may be ~~available for working capital and general corporate purposes, subject to compliance with the 2019 Credit Agreement.~~reborrowed in future periods. We believe our existing cash and cash equivalents, our ~~2019~~ Revolving Credit Facility and cash provided by sales of our solutions and services will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. We also believe that these financial resources will allow us to manage the continuing impact of COVID-19 on our business operations for the foreseeable future, including mitigating potential reductions in revenue and delays in payments from our customers and partners. Our future capital requirements will depend on several factors, including but not limited to our obligation to repay any amounts outstanding under our ~~2019~~ Credit ~~Facilities,~~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. In the future, we may enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights.

We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies, this could reduce our ability to compete successfully and harm our results of operations.

A majority of our customers pay in advance for annual subscriptions, a portion of which is recorded as deferred revenue. Deferred revenue consists of the unearned portion of billed fees for our subscriptions, which is later recognized as revenue in accordance with our revenue recognition policy. As of ~~September 30, 2020,~~March 31, 2021, we had deferred revenue of ~~$38.0~~$49.4 million, of which ~~$35.6~~$46.0 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.

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Senior Secured Credit Facilities

On December 12, 2019, ~~in connection with the refinancing of our 2018 Credit Facilities,~~ we entered into the ~~2019~~ Credit Agreement providing for the ~~2019~~ Revolving Credit Facility with an initial $150.0 million in commitments for revolving loans, which amount may be increased or decreased under specific circumstances, with a $15.0 million letter of credit sublimit and a $50.0 million alternative currency sublimit. In addition, the ~~2019~~ Credit Agreement provides for the ability of Ping Identity Corporation to request incremental term loan facilities, in a minimum amount of $10 million for each facility, if, among other things, the Senior Secured Net Leverage Ratio (as defined in the ~~2019~~ Credit Agreement), calculated giving pro forma effect to the requested term loan facility, is no greater than 3.50 to 1.00.

The interest rates applicable to revolving borrowings under the ~~2019~~ Credit Agreement are, at the borrower’s option, either (i) a base rate, which is equal to the greater of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus 0.5% and (c) the Adjusted LIBO Rate for a one month Interest Period (each term as defined in the ~~2019~~ Credit Agreement) plus 1%, or (ii) the Adjusted LIBO Rate equal to the LIBO Rate for the Interest Period multiplied by the Statutory Reserve Rate (each term as defined in the ~~2019~~ Credit Agreement), plus in the case of each of clauses (i) and (ii), the Applicable Rate. The Applicable Rate (i) for base rate loans ranges from 0.25% to 1.0% per

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annum and (i) for LIBO Rate loans ranges from 1.25% to 2.0% per annum, in each case, based on the Senior Secured Net Leverage Ratio (as defined in the ~~2019~~ Credit Agreement). The Adjusted LIBO Rate cannot be less than zero. Base rate borrowings may only be made in dollars. The ~~2019~~interest rate as of March 31, 2021 was 1.4%. 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 ~~will pay~~pays a commitment fee during the term of the ~~2019~~ Credit Agreement ranging from 0.20% to 0.35% of the available revolving commitments per annum based on the Senior Secured Net Leverage Ratio (as defined in the ~~2019~~ Credit Agreement).

Any borrowing under the ~~2019~~ Credit Agreement may be repaid, in whole or in part, at any time and from time to time without premium or penalty other than customary breakage costs, and any amounts repaid may be reborrowed. No mandatory prepayments will be required other than when borrowings or letter of credit usage exceed the aggregate commitment of all lenders.

The 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 erroneous payments and amended certain administrative agent processes.

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,

2020

2019

(in thousands)
Net cash provided by operating activities

$
19,970

$
8,474
Net cash used in investing activities

(16,243)

(12,077)
Net cash provided by financing activities

101,709

1,974
Effect of exchange rate changes on cash and cash equivalents and restricted cash

132

168
Net increase (decrease) in cash and cash equivalents and restricted cash

$
105,568

$
(1,461)
Cash and cash equivalents and restricted cash at beginning of period

68,386

84,143
Cash and cash equivalents and restricted cash at end of period

$
173,954

$
82,682


	Three Months Ended March 31,
	2021		2020

	(in thousands)
Net cash provided by operating activities	$	24,087	$	13,485
Net cash used in investing activities		(4,927)		(9,096)
Net cash provided by (used in) financing activities		(109,788)		97,632
Effect of exchange rate changes on cash and cash equivalents and restricted cash		(111)		(645)
Net increase (decrease) in cash and cash equivalents and restricted cash	$	(90,739)	$	101,376
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	$	55,760	$	169,762

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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 ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, net cash provided by operating activities was ~~$20.0~~$24.1 million, reflecting our net loss of ~~$8.1~~$15.9 million, adjusted for non-cash charges of ~~$33.5~~$25.8 million and net cash ~~outflows~~inflows of ~~$5.4~~$14.2 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation, amortization of deferred commissions, depreciation and amortization of property and equipment and intangible assets and deferred income taxes. The primary drivers of the changes in operating assets and liabilities related to ~~an $18.0~~a $16.6 million decrease in accounts receivable due to the timing of collection of payment from our customers, a ~~$2.7~~$4.1 million decrease in contract assets due to the issuance of invoices and the timing of revenue recognition, a $2.5 million decrease in prepaid expenses and other current assets primarily related to a reduction in our prepaid expenses during the three months ended March 31, 2021, and a $1.7 million increase in accrued expenses and other liabilities due to the timing of cash ~~disbursements and a $2.0 million decrease in contract assets.~~disbursements. These were partially offset by a ~~$9.5~~$3.0 million decrease in deferred revenue driven by the timing of revenue recognition, a ~~$9.1~~$2.9 million increase in deferred commissions, a $2.0 million decrease in accounts payable and a $1.9 million decrease in accrued compensation related to the timing of cash disbursements to our ~~employees, a $5.8 million increase in deferred commissions and a $2.9 million increase in prepaid expenses and other current assets.~~employees.

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During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, net cash provided by operating activities was ~~$8.5~~$13.5 million due to our net loss of ~~$3.7~~$4.3 million that was adjusted for non-cash charges of ~~$29.4~~$12.2 million and net cash ~~outflows~~inflows of ~~$17.2~~$5.6 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~~operating leases 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$13.0 million decrease in accounts receivable due to the timing of ~~receipt~~collection of payment from our customers, a $4.8 million decrease in prepaid expenses and other current assets primarily related to a reduction in our prepaid expenses during the three months ended March 31, 2020, and a ~~$2.3~~$2.7 million increase in accounts payable due to the timing of cash disbursements. These were partially offset by a $9.2 million decrease in deferred revenue driven by the timing of revenue recognition, a $6.2 million decrease in accrued ~~expenses~~compensation related to the timing of cash disbursements to our employees and ~~other.~~

a $1.5 million increase in deferred commissions.

Investing Activities

Net cash used in investing activities was ~~$16.2~~$4.9 million and ~~$12.1~~$9.1 million during the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively, representing ~~an increase~~a decrease of $4.2 million. The net ~~increase~~decrease is primarily attributable to $4.7 million paid for the acquisition of ShoCard in March 2020, ~~for $4.7 million as well~~partially offset by as an increase in the capitalization of internal-use software costs of ~~$2.6~~$0.7 million ~~offset by a decrease in purchases~~associated with the development of ~~property~~additional features and ~~equipment~~functionality of ~~$2.8 million.~~our hosted platform.

Financing Activities

Net cash ~~provided by~~used in financing activities was ~~$101.7~~$109.8 million ~~during~~for the ~~nine~~three months ended ~~September 30, 2020 whereas~~March 31, 2021, compared to net cash provided by financing activities ~~was $2.0~~of $97.6 million during the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, representing ~~an increase~~a decrease of ~~$99.7~~$207.4 million. The net ~~increase~~decrease primarily relates to the ~~draw down~~repayment of $110.0 million on our ~~2019~~ Revolving Credit Facility in February 2021 as compared to the draw down of $97.8 million that occurred in March ~~2020 and~~ ~~receipt of proceeds from stock option exercises of~~ ~~$9.0 million during the nine months ended September 30, 2020, which was partially offset by the payment for tax withholding on equity awards of $4.4 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 our Annual Report on Form 10-K for the year ended December 31, 2019, we disclosed our total contractual obligations as of December 31, 2019.

As of December 31, 2019, we had $52.2 million outstanding under our 2019 Revolving Credit Facility. On March 30, 2020, we drew down on the remaining $97.8 million available for borrowing under our 2019 Revolving Credit

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Facility. Given the uncertainty in the global economy as result of the COVID-19 pandemic and out of an abundance of caution, we elected to draw down the remaining available balance to further strengthen our cash position and maintain flexibility. If needed, the proceeds will be available for working capital and general corporate purposes, subject to compliance with the 2019 Credit Agreement.

Additionally, effective January 1, 2020, we adopted the new leasing standard, ASC 842, under which operating leases are recorded as liabilities on our condensed consolidated balance sheet with a corresponding right-of-use asset. See “Note 12—Operating Leases” to our condensed consolidated financial statements appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q for the maturities of remaining lease payments included in the measurement of our operating leases.

Outside of the above and routine transactions made in the ordinary course of business, there have been no material changes to the contractual obligations as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

Indemnification Agreements

In the ordinary course of business, we enter into agreements of varying scope and terms pursuant to which we agree to indemnify customers, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by us or from intellectual property infringement claims made by third parties. In addition, we previously entered into indemnification agreements with our directors and certain officers and employees that require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon us to provide indemnification under such agreements and there are no claims that we are aware of that could have a material effect on our 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 ~~September 30, 2020,~~March 31, 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.

On June 30, 2020, the last day of our second fiscal quarter in 2020, the market value of our common stock held by non-affiliates exceeded $700 million. Accordingly, we will be deemed a large accelerated filer as of December 31, 2020 and can no longer take advantage of the extended timeline to comply with new or revised accounting standards applicable to public companies beginning with our Annual Report on Form 10-K for the year ended December 31, 2020.

Critical Accounting ~~Policies~~Estimates

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

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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

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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.

~~Except for accounting policies related to our adoption of ASC 842, there~~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 year ended December 31, ~~2019.~~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.

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 ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ we recorded ~~a gain~~losses of ~~$1.2~~$0.9 million and ~~a loss of $1.3 million on foreign exchange transactions, respectively. For the nine months ended September 30, 2020 and 2019, we recorded a gain of $0.5 million and a loss of $1.8~~$1.4 million on foreign exchange transactions, respectively. To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative financial instruments, but we may do so in the future if our exposure to foreign currency should become more significant. For business conducted outside of the United States, we may have both revenue and costs incurred in the local currency of the subsidiary, creating a partial natural hedge. Changes to exchange rates therefore have not had a significant impact on the business to date. However, we will continue to reassess our foreign exchange exposure as we continue to grow our business globally. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ 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. The interest rates applicable to revolving borrowings under the ~~2019~~ Credit Agreement are, at the borrower’s option, either (i) a base rate, which is equal to the greater of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus 0.5% and (c) the Adjusted LIBO Rate for a one month Interest Period (each term as defined in the ~~2019~~ Credit Agreement) plus 1%, or (ii) the Adjusted LIBO Rate equal to the LIBO Rate for the Interest Period multiplied by the Statutory Reserve Rate (each term as defined in the ~~2019~~ Credit Agreement), plus in the case of each of clauses (i) and (ii), the Applicable Rate. The Applicable Rate (i) for base rate loans ranges from 0.25% to 1.0% per annum and (i) for LIBO Rate loans ranges from 1.25% to 2.0% per annum, in each case, based on the Senior Secured Net Leverage Ratio (as defined in the ~~2019~~ Credit Agreement). The Adjusted LIBO Rate cannot be less than zero. Base rate borrowings may only be made in dollars. The ~~2019~~ Credit Agreement also includes a fallback provision, which, subject to certain terms and conditions, provides for a replacement of the LIBO Rate with (x) one or more SOFR-based rates or (y) any

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other alternative benchmark rate giving consideration to any evolving or then existing conventions for similar U.S. dollar denominated syndicated credit facilities.

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At ~~September 30, 2020,~~March 31, 2021, we had total outstanding debt of ~~$150.0~~$40.0 million under our ~~2019~~ Revolving Credit Facility. Based on the amounts outstanding, a 100-basis point increase or decrease in market interest rates over a twelve-month period would result in a change to interest expense of ~~$1.5~~$0.4 million.

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. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of ~~September 30, 2020,~~March 31, 2021, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control

There have been no changes in our internal control over financial reporting during the quarter ended ~~September 30, 2020~~March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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

~~Except for~~In addition to the ~~risk factors~~information set forth ~~below that are new or contain changes to the similarly titled risk factors included~~ in ~~our Annual Report on~~this Form ~~10-K for the year ended December 31, 2019, there have been no material changes to~~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 year ended December 31, ~~2019.~~

~~Risks Relating to Our Business~~

~~The novel COVID-19 pandemic could materially adversely affect our business, operating results, financial condition and prospects.~~

~~The severity, magnitude and duration of the current COVID-19 pandemic is uncertain and rapidly changing.~~ The COVID-19 pandemic has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders and shutdowns. These measures2020. There have impacted and may further impact all or portions of our facilities, workforce and operations, the behavior of our customers and consumers and the operations of our respective vendors and suppliers. Concern over the impact of COVID-19 has delayed the purchasing decisions of prospective Ping Identity customers and caused certain customers to opt for shorter contract durations. While governmental authorities have taken measures to try to contain the COVID-19 pandemic, there is considerable uncertainty regarding such measures and potential future measures. There isbeen no ~~certainty that measures taken by governmental authorities will be sufficient to mitigate the risks posed by the COVID-19 pandemic, and our ability to perform critical functions could be harmed.~~

While most of our operations can be performed remotely, there is no guarantee that we will be as effective while working remotely because our team is dispersed, many employees may have additional personal needs to attend to (such as looking after children as a result of school closures or family who become sick), and employees may become sick themselves and be unable to work. Decreased effectiveness of our team could adversely affect our results duematerial changes to our inability to meet in person with potential customers, cancellation and inability to participate in conferences and other industry events that lead to sales generation, longer time periods to review and approve work product and a corresponding reduction in innovation, longer time to respond to platform performance issues, or other decreases in productivity that could seriously harm our business. Significant management time and resources may be divertedrisk factors from our ordinary business operations in order to develop, implement and manage workplace safety strategies and conditions as we attempt to return to office workplaces. Further, we may decide to postpone or cancel planned investments in our business in response to changes in our business as a result of the spread of COVID-19, or we may have to reduce headcount in certain areas of our business as a result of the economic impact of COVID-19, which may impact our ability to respond to our customers’ needs and fulfill contractual obligations. In addition, as a result of financial or operational difficulties, our suppliers, system integrators and channel partners may experience delays or interruptions in their ability to provide services to us or our customers, if they are able to do so at all, which could interrupt our customers’ access to our services which could adversely affect their perception of our platform’s reliability and

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result in increased liability exposure. We rely upon third parties for certain critical inputs to our business and solutions, such as data centers and technology infrastructure. Any disruptions to services provided to us by third parties that we rely upon to provide our solutions, including as a result of actions outside of our control, could significantly impact the continued performance of such solutions. This uncertain environment may also lead to increased cyber and fraud risk related to COVID-19, as cybercriminals attempt to profit from the disruption, given the increase in online transaction activity. The dispersed nature of our workforce may also increase our cyber and fraud risk as our information technology and security teams must manage and secure equipment used by our employees remotely, and with our employees working more independently, there are increased opportunities for humor error. We could experience direct financial loss, or be exposed to contractual or reputational liability, if we were affected by cyber security attacks.

The COVID-19 pandemic has also significantly increased economic and demand uncertainty, and has led to disruption and volatility in the global capital markets, which can increase the cost of capital and adversely impact access to capital. The COVID-19 pandemic has caused an economic slowdown, and it is possible that it could cause a global recession. The COVID-19 pandemic has caused a general decrease in consumer spending and decrease in consumer confidence. Our revenue, results of operations and cash flows depend on the overall demand for our solutions and solution packages. Concerns about the systemic impact of a potential widespread recession (in the United States or internationally), geopolitical issues or the availability and cost of credit have led to increased market volatility, decreased consumer confidence and diminished growth expectations in the U.S. economy and abroad, which in turn could result in reductions in IT, IAM and identity security spending by our existing and prospective customers, while also disrupting sales channels, marketing activities and supply chains for an unknown period of time until the outbreak is contained. Some of our customers have experienced and may continue to experience financial hardship that may result in delayed or uncollectible payments. To add to the uncertainty, it is unclear when an economic recovery could start and what a recovery will look like after this unprecedented shutdown of the economy. All of these factors are expected to have a negative impact on our revenue, cash flows and results of operations.

The severity, magnitude and duration of the current COVID-19 pandemic is uncertain, rapidly changing and hard to predict and depends on events beyond our knowledge or control. These and other impacts of the COVID-19 pandemic could have the effect of heightening many of the other risks described in the “Risk Factors” sectionthose included in our Annual Report on Form 10-K for the year ended December 31, 2019, such as those relating to our reputation, product sales, results of operations or financial condition. We might not be able to predict or respond to all impacts on a timely basis to prevent near- or long-term adverse impacts to our results. As a result, we cannot at this time predict the impact of the COVID-19 pandemic, but it could have a material adverse effect on our business, results of operations, financial condition and cash flows.

~~Our growth is substantially dependent on the success of our strategic relationships with channel partners, technology partners and other third parties.~~

As part of our business development efforts, we anticipate that we will continue to depend on relationships with third parties, such as our channel partners and technology partners, to sell, market, build, operate and deploy our solutions and solution packages. Identifying these partners and maintaining these relationships requires significant time and resources. Our competitors may be effective in providing incentives to channel partners and other third parties to favor their solutions or services over subscriptions to our platform and a substantial number of our agreements with channel partners are non-exclusive such that those channel partners may offer customers the solutions of several different companies, including solutions that compete with ours. Our channel partners may cease marketing or reselling our platform with limited or no notice and without penalty. Our channel partners may also choose to promote our competitors’ solutions versus our own solutions and solution packages. If our technology partners fail to build, deploy or operate our solutions and/or solution packages in a manner that satisfies our customers, or if we fail to adequately negotiate and document the underlying agreement with such technology partners, our customers may seek direct recourse against us. In the event that a relationship with a technology partner deploying and operating our solution is terminated, we may be unable to allocate the proper engineering resources to support the solution internally, or the solution may become too costly to run ourselves. In addition, given the competitive landscape, acquisitions of our channel or technology partners by a competitor could adversely affect our customers, as these partners may no longer be in a position to sell, market, build, operate and/or deploy our solutions and solution packages. Furthermore, some

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of these partners may themselves build competitive solutions that are or may become competitive with certain of our solutions and/or solution packages and then elect to no longer support or integrate with our platform. Lastly, we cannot accurately predict the impact of the COVID-19 pandemic on the business operations of these critical third parties, and thus may not be able to recoup any financial or strategic losses as a result of an unexpected termination of the underlying relationship. If we are unsuccessful in establishing or maintaining our relationships with critical third parties, our ability to compete in the marketplace or to grow our revenue could be impaired, and our results of operations may suffer. Even if we are successful, we cannot assure you that these relationships will result in increased customer usage of our solutions or increased revenue.

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

Unregistered Sales of Equity Securities

There were no unregistered sales of equity securities during the three months ended ~~September 30, 2020.~~March 31, 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

10.1		~~First~~Second Amendment to ~~the~~ Credit Agreement, dated ~~August 11, 2020,~~as of April 20, 2021, by and among Roaring Fork Intermediate, LLC, Ping Identity Corporation, the other ~~loan parties~~Loan Parties party ~~thereto,~~hereto, each of the lenders, ~~party thereto,~~ and Bank of America, N.A., as administrative agent for the lenders ~~(incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2020 filed with the SEC on August 12, 2020).~~

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 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, 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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Table of Contents

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.

May 5, 2021Ping Identity Holding Corp.

~~Signature~~

~~Title~~

~~Date~~

/s/Raj Dani

~~Raj Dani~~

Raj Dani

Chief Financial Officer

~~(Principal Financial Officer)~~

~~November 4, 2020~~

5546


	April 5, 2018		Useful Life
	(in thousands)
Fair value of net assets acquired
In process research and development	$	3,006	Indefinite
Goodwill		15,972	Indefinite
Deferred tax asset		108
Other assets		3
Total assets acquired		19,089
Deferred revenue		(115)
Total liabilities assumed		(115)
Net assets acquired	$	18,974

Three Months Ended
March 31,

Deferred revenue recognized as revenue