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~~June 30, ~~2020~~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)~~

1001 17th Street, Suite 100

Denver, Colorado
80202
(Address of Principal executive offices)
(Zip Code)

(303) 468-2900

(Registrant’s telephone number, including area code)

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


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

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

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~~July 30, ~~2020,~~2021, the Registrant had ~~81,110,873~~82,088,438 shares of common stock, $0.001 par value, outstanding.

Table of Contents

PING IDENTITY HOLDING CORP.

FORM 10-Q

For the Quarter Ended ~~September~~June 30, ~~2020~~2021

TABLE OF CONTENTS


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	3

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

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

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

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

	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	8

	Notes to Condensed Consolidated Financial Statements	9

Forward-Looking Statements		27

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4948

Item 4.	Controls and Procedures	5049

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	5150

Item 1A.	Risk Factors	5150

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5350

Item 3.	Defaults Upon Senior Securities	5350

Item 4.	Mine Safety Disclosures	5350

Item 5.	Other Information	5350

Item 6.	Exhibits	5350

	Signatures	5552

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,		June 30,		December 31,
	2020		2019		2021		2020
Assets
Current assets:
Cash and cash equivalents	$	173,206	$	67,637	$	104,342	$	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 $645 and $828 at June 30, 2021 and December 31, 2020, respectively						64,720		82,335
Contract assets, current (net of allowance)						62,955		62,503
Deferred commissions, current		5,773		5,814		7,711		6,604
Prepaid expenses		17,703		12,768		14,061		17,608
Other current assets		1,068		3,774		2,239		1,940
Total current assets		317,175		227,666		256,028		316,723
Noncurrent assets:
Property and equipment, net		9,564		11,183		8,753		9,446
Goodwill		418,660		417,696		473,697		441,150
Intangible assets, net		177,447		187,868		179,324		180,422
Contract assets, noncurrent		14,239		15,979
Contract assets, noncurrent (net of allowance)						5,159		11,288
Deferred commissions, noncurrent		8,231		7,856		11,753		9,325
Deferred income taxes, net		2,685		2,755		3,370		3,962
Operating lease right-of-use assets		15,052		—		14,085		15,619
Other noncurrent assets		2,518		1,808		2,944		2,516
Total noncurrent assets		648,396		645,145		699,085		673,728
Total assets	$	965,571	$	872,811	$	955,113	$	990,451
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	748	$	1,118	$	2,944	$	2,795
Accrued expenses and other current liabilities		6,837		9,302		7,730		7,339
Accrued compensation		10,427		18,126		20,165		17,170
Deferred revenue, current		35,640		45,446		43,431		49,203
Operating lease liabilities, current		3,770		—		4,097		3,979
Total current liabilities		57,422		73,992		78,367		80,486
Noncurrent liabilities:
Deferred revenue, noncurrent		2,352		2,061		4,288		3,195
Long-term debt		148,951		50,941		119,138		149,014
Deferred income taxes, net		19,679		30,571		9,603		17,867
Operating lease liabilities, noncurrent		17,005		—		15,216		17,213
Other liabilities, noncurrent		2,607		4,775		1,565		1,566
Total noncurrent liabilities		190,594		88,348		149,810		188,855
Total liabilities		248,016		162,340		228,177		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 June 30, 2021 and December 31, 2020; 0 shares issued or outstanding at June 30, 2021 or December 31, 2020						—		—
Common stock; $0.001 par value; 500,000,000 shares authorized at June 30, 2021 and December 31, 2020; 82,086,665 and 81,163,896 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively						82		81
Additional paid-in capital		733,769		718,446		771,332		739,051
Accumulated other comprehensive loss		(561)		(399)
Accumulated other comprehensive income						1,830		1,373
Accumulated deficit		(15,734)		(7,656)		(46,308)		(19,395)
Total stockholders' equity		717,555		710,471		726,936		721,110
Total liabilities and stockholders' equity	$	965,571	$	872,811	$	955,113	$	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,				Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
Revenue:
Subscription	$	55,113	$	57,495	$	166,199	$	161,387	$	73,151	$	54,268	$	137,367	$	111,086
Professional services and other		4,828		4,270		14,135		13,276		5,753		4,713		10,481		9,307
Total revenue		59,941		61,765		180,334		174,663		78,904		58,981		147,848		120,393
Cost of revenue:
Subscription (exclusive of amortization shown below)		8,091		5,995		22,709		16,828		10,185		7,509		19,599		14,618
Professional services and other (exclusive of amortization shown below)		4,083		4,086		12,322		11,002		6,142		4,226		11,725		8,239
Amortization expense		5,177		4,159		14,723		11,981		6,077		4,944		11,886		9,546
Total cost of revenue		17,351		14,240		49,754		39,811		22,404		16,679		43,210		32,403
Gross profit		42,590		47,525		130,580		134,852		56,500		42,302		104,638		87,990
Operating expenses:
Sales and marketing		21,164		17,819		64,105		55,153		29,082		20,751		54,631		42,941
Research and development		12,224		11,283		35,849		33,594		18,692		11,411		40,394		23,625
General and administrative		10,702		10,984		33,817		26,732		19,545		12,082		34,000		23,597
Depreciation and amortization		4,223		4,060		12,705		12,334		4,327		4,233		8,692		8,482
Total operating expenses		48,313		44,146		146,476		127,813		71,646		48,477		137,717		98,645
Income (loss) from operations		(5,723)		3,379		(15,896)		7,039
Loss from operations										(15,146)		(6,175)		(33,079)		(10,655)
Other income (expense):
Interest expense		(605)		(3,818)		(1,835)		(12,067)		(310)		(724)		(706)		(1,230)
Loss on extinguishment of debt		—		(3,150)		—		(3,150)
Other income (expense), net		1,271		(992)		716		(767)		430		695		(442)		(555)
Total other income (expense)		666		(7,960)		(1,119)		(15,984)		120		(29)		(1,148)		(1,785)
Loss before income taxes		(5,057)		(4,581)		(17,015)		(8,945)		(15,026)		(6,204)		(34,227)		(12,440)
Benefit for income taxes		4,061		3,986		8,937		5,227		4,047		2,932		7,314		4,876
Net loss	$	(996)	$	(595)	$	(8,078)	$	(3,718)	$	(10,979)	$	(3,272)	$	(26,913)	$	(7,564)
Net loss per share:
Basic and diluted	$	(0.01)	$	(0.01)	$	(0.10)	$	(0.06)	$	(0.13)	$	(0.04)	$	(0.33)	$	(0.09)
Weighted-average shares used in computing net loss per share:
Basic and diluted		80,692		66,269		80,203		65,436		82,025		80,169		81,684		79,956

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,				Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
Net loss	$	(996)	$	(595)	$	(8,078)	$	(3,718)	$	(10,979)	$	(3,272)	$	(26,913)	$	(7,564)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		502		(110)		(162)		205		207		351		457		(664)
Total other comprehensive income (loss)		502		(110)		(162)		205		207		351		457		(664)
Comprehensive loss	$	(494)	$	(705)	$	(8,240)	$	(3,513)	$	(10,772)	$	(2,921)	$	(26,456)	$	(8,228)

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~~June 30, ~~2020:~~2021:


							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		Income		Deficit		Equity
Balances at June 30, 2020		80,444,507	$	80	$	729,602	$	(1,063)	$	(14,738)	$	713,881
Balances at March 31, 2021														81,475,176	$	81	$	759,645	$	1,623	$	(35,329)	$	726,020
Net loss		—		—		—		—		(996)		(996)		—		—		—		—		(10,979)		(10,979)
Stock-based compensation		—		—		3,956		—		—		3,956		—		—		17,167		—		—		17,167
Exercise of stock options, net of tax withholding		318,818		1		2,980		—		—		2,981		22,377		—		30		—		—		30
Vesting of restricted stock, net of tax withholding		240,182		—		(2,769)		—		—		(2,769)
Vesting of restricted stock units, net of tax withholding														589,112		1		(5,510)		—		—		(5,509)
Foreign currency translation adjustments, net of tax		—		—		—		502		—		502		—		—		—		207		—		207
Balances at September 30, 2020		81,003,507	$	81	$	733,769	$	(561)	$	(15,734)	$	717,555
Balances at June 30, 2021														82,086,665	$	82	$	771,332	$	1,830	$	(46,308)	$	726,936

Three Months Ended ~~September~~June 30, ~~2019:~~2020:


							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		Loss		Deficit		Equity		Shares		Amount		Capital		Income (Loss)		Deficit		Equity
Balances at June 30, 2019		65,141,506	$	65	$	519,056	$	(472)	$	(9,275)	$	509,374
Balances at March 31, 2020														79,923,114	$	80	$	721,181	$	(1,414)	$	(11,796)	$	708,051
Net loss		—		—		—		—		(595)		(595)		—		—		—		—		(3,272)		(3,272)
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		—		—		4,164		—		—		4,164
Exercise of stock options		74,854		—		593		—		—		593
Vesting of restricted stock		41,140		—		—		—		—		—
Exercise of stock options, net of tax withholding														512,219		—		4,257		—		—		4,257
Vesting of restricted stock units														9,174		—		—		—		—		—
Foreign currency translation adjustments, net of tax		—		—		—		(110)		—		(110)		—		—		—		351		—		351
Balances at September 30, 2019		77,757,500	$	78	$	690,170	$	(582)	$	(9,870)	$	679,796
Balances at June 30, 2020														80,444,507	$	80	$	729,602	$	(1,063)	$	(15,068)	$	713,551

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

Table of Contents

PING IDENTITY HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

(unaudited)

~~Nine~~Six Months Ended ~~September~~June 30, ~~2020:~~2021:

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


							Accumulated
					Additional		Other				Total
	Common Stock				Paid-in		Comprehensive		Accumulated		Stockholders'
	Shares		Amount		Capital		Income		Deficit		Equity
Balances at December 31, 2020		81,163,896	$	81	$	739,051	$	1,373	$	(19,395)	$	721,110
Net loss		—		—		—		—		(26,913)		(26,913)
Stock-based compensation		—		—		33,467		—		—		33,467
Reclassification of liability-classified awards upon settlement		—		—		3,089						3,089
Exercise of stock options, net of tax withholding		220,482		—		1,801		—		—		1,801
Vesting of restricted stock units, net of tax withholding		702,287		1		(6,076)		—		—		(6,075)
Foreign currency translation adjustments, net of tax		—		—		—		457		—		457
Balances at June 30, 2021		82,086,665	$	82	$	771,332	$	1,830	$	(46,308)	$	726,936

~~Nine~~Six Months Ended ~~September~~June 30, ~~2019:~~2020:


							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)		—		—		—		—		(7,564)		(7,564)
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		—		—		6,764		—		—		6,764
Exercise of stock options		199,522		—		1,571		—		—		1,571
Vesting of restricted stock		57,162		—		—		—		—		—
Exercise of stock options, net of tax withholding														785,663		—		4,392		—		—		4,392
Vesting of restricted stock units														26,344		—		—		—		—		—
Foreign currency translation adjustments, net of tax		—		—		—		205		—		205		—		—		—		(664)		—		(664)
Balances at September 30, 2019		77,757,500	$	78	$	690,170	$	(582)	$	(9,870)	$	679,796
Balances at June 30, 2020														80,444,507	$	80	$	729,602	$	(1,063)	$	(15,068)	$	713,551

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

Table of Contents

PING IDENTITY HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)


	Nine Months Ended September 30,				Six Months Ended June 30,
	2020		2019		2021		2020
Cash flows from operating activities
Net loss	$	(8,078)	$	(3,718)	$	(26,913)	$	(7,564)
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		20,578		18,028
Stock-based compensation expense		11,983		3,797		34,415		7,402
Amortization of deferred commissions		5,432		4,110		4,674		3,761
Amortization of deferred debt issuance costs		187		626		124		124
Operating leases, net		(105)		—		(346)		(21)
Deferred taxes		(11,391)		(6,910)		(7,624)		(5,280)
Other		(13)		292		63		668
Changes in operating assets and liabilities:
Accounts receivable		18,029		15,980		17,621		8,727
Contract assets		2,005		(15,931)		5,653		1,309
Deferred commissions		(5,766)		(5,295)		(8,209)		(3,186)
Prepaid expenses and other current assets		(2,869)		(4,486)		3,405		7,186
Other assets		(700)		305		(426)		220
Accounts payable		(322)		736		348		3,894
Accrued compensation		(9,017)		(7,639)		4,280		(8,724)
Accrued expenses and other		2,682		2,302		1,338		2,243
Deferred revenue		(9,515)		(3,160)		(5,016)		(7,543)
Net cash provided by operating activities		19,970		8,474		43,965		21,244
Cash flows from investing activities
Payments for business acquisitions, net of cash acquired						(39,875)		(4,703)
Purchases of property and equipment and other		(1,716)		(4,517)		(1,502)		(1,420)
Capitalized software development costs		(9,824)		(7,260)		(8,582)		(6,749)
Acquisition of ShoCard, net of cash acquired of $0		(4,703)		—
Other investing activities		—		(300)
Net cash used in investing activities		(16,243)		(12,077)		(49,959)		(12,872)
Cash flows from financing activities
Payment of Symphonic and ShoCard holdbacks						(993)		—
Payment of Elastic Beam consideration and holdbacks		(424)		(1,136)		—		(424)
Proceeds from initial public offering, net of underwriting discounts and commissions		—		174,375
Payment of offering costs		(295)		(1,093)		—		(295)
Proceeds from stock option exercises		9,027		1,571		1,900		6,046
Payment for tax withholding on equity awards		(4,422)		—		(6,174)		(1,653)
Proceeds from long-term debt		97,823		—		80,000		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						(35,267)		101,497
Effect of exchange rates on cash and cash equivalents and restricted cash		132		168		(130)		(406)
Net increase (decrease) in cash and cash equivalents and restricted cash		105,568		(1,461)		(41,391)		109,463
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	$	105,108	$	177,849
Supplemental disclosures of cash flow information:
Cash paid for interest	$	1,728	$	11,441	$	584	$	1,186
Cash paid for taxes		931		417		283		423
Noncash activities:
Purchases of property and equipment, accrued but not yet paid	$	—	$	418	$	40	$	202
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	$	104,342	$	177,102
Restricted cash included in other noncurrent assets		748		748		766		747
Total cash and cash equivalents and restricted cash	$	173,954	$	82,682	$	105,108	$	177,849

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. Certain amounts for the three and six months ended June 30, 2020 have been reclassified to conform with current period presentation.

Unaudited Interim Condensed Consolidated Financial Information

The accompanying interim condensed consolidated balance sheet as of ~~September~~June 30, ~~2020,~~2021, the condensed consolidated statements of operations, of comprehensive income (loss) and of stockholders’ equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, the condensed consolidated statements of cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 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~~June 30, ~~2020,~~2021, the results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 and cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020. The results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~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~~

Table of ~~the awards meeting vesting conditions, recognizing revenue,~~Contents

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

assets, 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

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~~PING IDENTITY HOLDING CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

and various other assumptions that are believed to be reasonable. Actual results may differ from these estimates due to risks and uncertainties, including the 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~~six months ended ~~September~~June 30, ~~2020.~~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.

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~~PING IDENTITY HOLDING CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

~~Deferred Commissions~~

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

Three Months Ended
September 30,

Nine Months Ended
September 30,

2020

2019

2020

2019

(in thousands)
Beginning balance

$
13,095

$
11,902

$
13,670

$
11,033
Additions to deferred commissions

2,580

1,666

5,766

5,295
Amortization of deferred commissions

(1,671)

(1,350)

(5,432)

(4,110)
Ending balance

$
14,004

$
12,218

$
14,004

$
12,218

Deferred commissions, current

$
5,773

$
4,846

$
5,773

$
4,846
Deferred commissions, noncurrent

8,231

7,372

8,231

7,372
Total deferred commissions

$
14,004

$
12,218

$
14,004

$
12,218

Recent Accounting Pronouncements

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

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

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

●

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

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~~PING IDENTITY HOLDING CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited)~~

●

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

●

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

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

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

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

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

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

~~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.

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Disaggregation of Revenue

The following table presents revenue by category:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020

	(in thousands)
Subscription term-based licenses:
Multi-year subscription term-based licenses	$	32,391	$	21,141	$	56,229	$	45,129
1-year subscription term-based licenses		15,464		14,183		32,808		28,332
Total subscription term-based licenses		47,855		35,324		89,037		73,461
Subscription SaaS		13,425		8,890		25,411		17,416
Maintenance and support		11,871		10,054		22,919		20,209
Total subscription revenue		73,151		54,268		137,367		111,086
Professional services and other		5,753		4,713		10,481		9,307
Total revenue	$	78,904	$	58,981	$	147,848	$	120,393

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020

	(in thousands)
United States	$	56,934	$	44,626	$	110,805	$	87,655
International		21,970		14,355		37,043		32,738
Total revenue	$	78,904	$	58,981	$	147,848	$	120,393

Other than the United States, no other individual country exceeded 10% of total revenue for the three months ended June 30, 2021 and 2020 or the six months ended June 30, 2021 and 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 June 30,				Six Months Ended June 30,
	2021		2020		2021		2020

	(in thousands)
Beginning balance	$	69,681	$	85,150	$	73,791	$	86,010
Ending balance		68,114		84,640		68,114		84,640
Change	$	(1,567)	$	(510)	$	(5,677)	$	(1,370)

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 June 30,				Six Months Ended June 30,
	2021		2020		2021		2020

	(in thousands)
Beginning balance	$	49,352	$	38,343	$	52,398	$	47,507
Ending balance		47,719		39,964		47,719		39,964
Change	$	(1,633)	$	1,621	$	(4,679)	$	(7,543)

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020

	(in thousands)
Deferred revenue recognized as revenue	$	12,101	$	12,247	$	38,036	$	35,215

Remaining Performance Obligations

Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and noncancelable amounts to be invoiced. As of June 30, 2021, the Company had $185.1 million of transaction price allocated to remaining performance obligations, of which 82% is expected to be recognized as revenue over the next 24 months, with the remainder to be recognized thereafter.

Deferred Commissions

The following table summarizes the account activity of deferred commissions for the three and six months ended June 30, 2021 and 2020:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020

	(in thousands)
Beginning balance	$	16,534	$	13,104	$	15,929	$	13,670
Additions to deferred commissions		5,275		1,650		8,209		3,186
Amortization of deferred commissions		(2,345)		(1,659)		(4,674)		(3,761)
Ending balance	$	19,464	$	13,095	$	19,464	$	13,095

Deferred commissions, current	$	7,711	$	5,355	$	7,711	$	5,355
Deferred commissions, noncurrent		11,753		7,740		11,753		7,740
Total deferred commissions	$	19,464	$	13,095	$	19,464	$	13,095

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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		Accounts Receivable		Contract Assets

	Three Months Ended June 30, 2021				Six Months Ended June 30, 2021

	(in thousands)
Beginning balance	$	652	$	80	$	828	$	87
Provision for credit losses, net of recoveries		28		45		7		38
Write-offs		(35)		(37)		(190)		(37)
Ending balance	$	645	$	88	$	645	$	88

3.5. Fair Value of Financial Instruments

For financial assets and liabilities that are measured at fair value on a recurring basis at each reporting period, the Company uses a fair value hierarchy that prioritizes the use of observable inputs and minimizes the use of unobservable inputs. A financial instrument’s classification within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

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								June 30, 2021
	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	$	140,074	$	—	$	—	$	140,074	$	45,001	$	—	$	—	$	45,001


	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).

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

6. Property and Equipment

Property and equipment consisted of the following:


	June 30,		December 31,
	2021		2020

	(in thousands)
Computer equipment	$	7,639	$	6,581
Furniture and fixtures		3,893		3,887
Purchased computer software		785		785
Leasehold improvements		7,899		7,818
Other		448		448
Property and equipment, gross		20,664		19,519
Less: Accumulated depreciation		(11,911)		(10,073)
Property and equipment, net	$	8,753	$	9,446

Depreciation expense was $0.9 million for each of the three months ended June 30, 2021 and 2020. Depreciation expense for the six months ended June 30, 2021 and 2020 was $1.8 million and $1.9 million, respectively.

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


	June 30,			December 31,
	2021			2020

	(in thousands)
United States	$	16,642		$	18,367
United Kingdom		2,319			2,410
International		3,877	��		4,288
Total long-lived assets	$	22,838		$	25,065

7. Business Combinations

SecuredTouch, Inc. Acquisition

On June 20, 2021 the Company acquired 100% of the voting equity interest in SecuredTouch, Inc. (“SecuredTouch”). SecuredTouch is a leader in fraud and bot detection and mitigation, which leverages behavioral biometrics, artificial intelligence, machine learning, and deep learning to provide identity, risk, and fraud teams early visibility into potential malicious activity happening across digital properties. The purpose of this acquisition was to accelerate the Company’s cloud-delivered intelligent-identity solutions that combat malicious behavior such as bots, emulators, and account takeover.

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.

5The total purchase price was $39.9 million, net of cash acquired. The following table summarizes the preliminary allocation of the purchase price, based on the estimated fair value of the assets acquired and liabilities assumed at the acquisition date:

June 20, 2021

Useful Life

(in thousands)

Fair value of net assets acquired




Developed technology

$
8,300

4 years
Goodwill

32,257

Indefinite
Other assets

167


Total assets acquired

40,724


Deferred revenue

(337)

Other liabilities

(512)


Total liabilities assumed

(849)


Net assets acquired, excluding cash

$
39,875

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

Additional information relating to the SecuredTouch acquisition, such as that related to income tax and other contingencies existing as of the acquisition 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.

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, 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.

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PING IDENTITY HOLDING CORP.

~~Business Combinations~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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



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

1516

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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


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 $0.1 million and $0.6 million of acquisition-related expenses in conjunction with the ShoCard acquisition, which are included in general and administrative expenses on the condensed consolidated statement of operations for the ~~nine~~three and six months ended ~~September~~June 30, ~~2020.~~2020, respectively.

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~~SecuredTouch, 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~~SecuredTouch, 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.

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

Beginning balance

$
441,150
Additions to goodwill related to SecuredTouch acquisition

32,257
Foreign currency translation adjustment

290
Ending balance

$
473,697

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~6. Goodwill and Intangible Assets~~
~~The changes in the carrying amount of the Company’s goodwill balance from December 31, 2019 to September 30, 2020 were as follows (in thousands):~~

Beginning balance

$
417,696
Additions to goodwill related to acquisitions

964
Ending balance

$
418,660

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

September 30, 2020

June 30, 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

$
127,844

$
(63,248)

$
64,596
Customer relationships

94,875

(31,832)

63,043

95,138

(37,527)

57,611
Trade names

56,711

(24,006)

32,705

56,734

(28,260)

28,474
Product backlog

650

(168)

482
Capitalized internal-use software

32,244

(11,012)

21,232

44,932

(17,392)

27,540
Other intangible assets

1,178

(537)

641

1,347

(726)

621
Total intangible assets

$
297,082

$
(119,635)

$
177,447

$
326,645

$
(147,321)

$
179,324

The Company’s intangible assets as of December 31, ~~2019~~2020 were as follows:


	December 31, 2019						December 31, 2020
	Gross		Accumulated		Net Carrying		Gross		Accumulated		Net Carrying
	Amount		Amortization		Value		Amount		Amortization		Value

	(in thousands)						(in thousands)
Developed technology	$	107,938	$	(42,260)	$	65,678	$	119,450	$	(55,826)	$	63,624
Customer relationships		94,875		(26,205)		68,670		95,135		(33,724)		61,411
Trade names		56,640		(19,754)		36,886		56,718		(25,424)		31,294
Product backlog								642		(42)		600
Capitalized internal-use software		21,881		(6,375)		15,506		35,841		(12,949)		22,892
Other intangible assets		1,077		(535)		542		1,199		(598)		601
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	$	308,985	$	(128,563)	$	180,422

Table of Contents

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~2020, $0.6 million of in-process research and development was reclassified to developed technology when ready for intended use.~~

~~As of September 30, 2020, 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

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 shall not be less than 3.50 to 1.00. As of ~~September~~June 30, ~~2020,~~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 June 30, 2021 was 1.34%. 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.~~re-borrowed. 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 the three months ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, 2020 and 2019, the Company recognized $1.6 million and $11.4 million in interest expense, respectively.

As of September 30, 2020 and December 31, 2019, the Company’s outstanding long-term debt balance was $149.0 million and $50.9 million, respectively (net of debt issuance costs of $1.0 million and $1.2 million, respectively). Debt issuance costs are a direct deduction from the long-term debt liability and are amortized into interest expense over the contractual term of the borrowings using the effective interest method. During the three months ended September 30, 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 of debt issuance costs, respectively.

Table of Contents

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The Company recognized $0.3 million and $0.7 million in interest expense for the three months ended June 30, 2021 and 2020, respectively. For the six months ended June 30, 2021 and 2020, the Company recognized $0.6 million and $1.1 million in interest expense, respectively.
As of June 30, 2021 and December 31, 2020, the Company’s outstanding long-term debt balance representing borrowings under the Credit Agreement was $119.1 million and $149.0 million, respectively (net of debt issuance costs of $0.9 million and $1.0 million, respectively). Debt issuance costs are a direct deduction from the long-term debt liability and are amortized into interest expense over the contractual term of the borrowings using the effective interest method. During each of the three and six months ended June 30, 2021 and 2020, the Company amortized $0.1 million of debt issuance costs.
Future principal payments on outstanding borrowings as of ~~September~~June 30, ~~2020~~2021 are as follows:

Year Ending December 31,

September 30, 2020

June 30, 2021

(in thousands)

(in thousands)
2020 (remaining three months)

$
—
2021

—
2021 (remaining six months)

$
—
2022

—

—
2023

—

—
2024

150,000

120,000
2025

—
Thereafter

—

—
Total

$
150,000

$
120,000

10.8. Income Taxes
For the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, the Company recorded ~~$4.1~~$4.0 million and ~~$4.0~~$2.9 million as its benefit for income taxes, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, the Company recorded ~~$8.9~~$7.3 million and ~~$5.2~~$4.9 million as its benefit for income taxes, respectively. The Company’s calculation of its benefit for income taxes is dependent in part on forecasts of full-year results and key components of the Company’s benefit for income taxes primarily consist of state and federal income taxes, foreign income taxes and research and development (“R&D”) credits. The Company’s quarterly tax benefit calculation is also subject to variation due to several factors, including variability in loss before income taxes, the mix of jurisdictions to which such loss relates, changes in how the Company conducts business and tax law developments. ~~Other variations~~The increase in the ~~Company’s~~ tax benefit ~~between~~for the three and ~~nine~~six months ended ~~September~~June 30, 2021 as compared to the three and six months ended June 30, 2020 ~~and 2019 related~~primarily relates to ~~changes~~a larger expected pre-tax loss in 2021 as compared to 2020, the ~~Company’s state benefit, period-over-period increases in stock-based compensation,~~release of a foreign valuation allowance, and an increase in R&D and other credits recorded in the three and six months ended June 30, 2021. The increase in tax benefit for the ~~net benefit from an initial public offering (“IPO”) deduction study performed in 2020.~~six months ended June 30, 2021 as compared to the six months ended June 30, 2020 was partially offset by a valuation allowance recorded against our U.S. deferred tax assets during the first quarter of 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.

Table of Contents

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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~~June 30, ~~2020~~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 hold or purchase stock in Ping Identity Holding Corp. The Company has 6,800,000 shares of common stock reserved for issuance under the 2016 Plan. Following the Company’s initial public offering (“IPO”), no additional awards are granted under the 2016 Plan.
On September 23, 2019, the Company adopted the Ping Identity Holding Corp. Omnibus Incentive Plan (the “2019 Omnibus Incentive Plan”). The 2019 Omnibus Incentive Plan provides for grants of (i) stock options, (ii) stock appreciation rights, (iii) restricted shares, (iv) performance awards, (v) other share-based awards and (vi) other cash-based awards to eligible employees, non-employee directors and consultants of the Company. At ~~September~~June 30, ~~2020,~~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~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 was as follows:

Three Months Ended
September 30,

Nine Months Ended
September 30,

Three Months Ended
June 30,

Six Months Ended
June 30,

2020

2019

2020

2019

2021

2020

2021

2020

(in thousands)

(in thousands)
Subscription cost of revenue

$
166

$
—

$
486

$
—

$
513

$
174

$
1,048

$
320
Professional services and other cost of revenue

98

—

281

—

429

99

1,020

183
Sales and marketing

1,169

283

3,209

693

4,843

1,243

9,041

2,040
Research and development

1,602

225

3,788

658

4,647

1,298

13,159

2,186
General and administrative

1,546

1,190

4,219

2,446

7,044

1,731

10,147

2,673
Total

$
4,581

$
1,698

$
11,983

$
3,797

$
17,476

$
4,545

$
34,415

$
7,402

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

Table of Contents

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~Restricted Stock Units~~
~~The~~billion. In the first quarter of 2021, the Company offered employees with LTIP grants ~~RSUs that generally vest over~~ ~~one~~the opportunity to ~~four years. NaN RSUs were granted during~~convert those awards into restricted stock units (“RSUs”) under the ~~three months ended September 30, 2020. The weighted-average grant-date fair value of RSUs granted during the three months ended September 30,~~ 2019 was $19.69. The weighted-average grant-date fair value of RSUs granted during the nine months ended September 30, 2020 and 2019 was $20.63 and $19.06, respectively. The total intrinsic value of RSUs vested during the three months ended September 30, 2020 and 2019 was $10.1 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 million, respectively. As of September 30, 2020, there was $41.5 million of total unrecognized compensation, which will be recognized over the remaining weighted-average vesting period of 3.3 years using the straight-line method. A summaryOmnibus Incentive Plan. Upon conversion, approximately half of the ~~status of the Company’s unvested~~ RSUs would solely be subject to time-based restrictions and ~~activity for the nine months ended September 30, 2020 is as follows:~~

Weighted

Average

Grant Date


Shares

Fair Value
Unvested as of December 31, 2019

1,415,629

$
16.46
Granted

1,490,722

20.63
Forfeited/canceled

(138,399)

16.58
Vested

(356,663)

16.68
Unvested as of September 30, 2020

2,411,289

$
18.99

~~Stock Options~~
NaN stock options were granted during the three or nine months ended September 30, 2020 or 2019. A summary 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~~would vest on April 1, 2021 and the remaining weighted-average vesting term was 2.0 years. The vesting of these time-based awards may accelerate and the 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 mayremainder would 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~~ subject to performance and market conditions ~~unrecognized~~consistent with those of the LTIP grants outlined above. All employees elected to convert their outstanding LTIP grants to RSUs, resulting in grants totaling 948,250 shares.

The conversion of the previously outstanding LTIP grants into time-based vesting RSUs resulted in the recognition of $0.4 million and $12.8 million of stock-based compensation expense as of September 30, 2020 was $7.9 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 September 30, 2020, 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~~and six months ended ~~September~~June 30, ~~2020. During future reporting periods, if~~2021, respectively. Expense recognized related to 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.~~RSUs subject to performance and market conditions is discussed in more detail below.

Other Liability-Classified Awards

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

Additionally, in conjunction with the ShoCard acquisition (Note 5)7), the Company issued liability-classified awards to certain individuals with a stated value of $3.1 million and $2.3 million that vest on the first and second anniversary of the acquisition, respectively, and are subject to continuous service and other conditions. The liability-classified awards will be settled with a variable number of shares of the Company’s common stock at each anniversary date based on the satisfaction of such conditions. On March 2, 2021, the Company settled the first $3.1 million of these liability-classified awards, resulting in the issuance of 123,192 shares. Upon issuance, the associated $3.1 million liability was reclassified from accrued compensation to common stock and additional paid-in capital on the condensed consolidated balance sheets.

During the three ~~and nine~~ months ended ~~September~~June 30, 2021 and 2020, the Company recognized $0.7 million and $0.8 million of stock-based compensation expense, respectively, related to these awards. During the six months ended June 30, 2021, the Company recognized $1.5 million and ~~$1.8~~$1.0 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.Restricted Stock Units

The Company ~~also has revenue arrangements~~grants RSUs that generally vest over one to four years. Additionally, the Company granted time-based vesting RSUs converted from the previously outstanding cash-based LTIP grants and those issued in connection with ~~Vista affiliates.~~the ShoCard acquisition. The ~~Company recognized revenue~~weighted-average grant-date fair value of ~~$0.1 million and $0.2 million~~RSUs granted during the three months ended ~~September~~June 30, 2021 and 2020, was $22.24 and ~~2019,~~$20.50, respectively. The ~~Company recognized revenue~~weighted-average grant-date fair value of ~~$0.4 million~~RSUs granted during the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020 was $23.45 and ~~2019.~~$20.63, respectively. The ~~Company had $0.1~~total intrinsic value of RSUs that vested during the three months ended June 30, 2021 and 2020 was $18.5 million and ~~$1.1~~$0.2 million, respectively. The total intrinsic value of RSUs that vested during the six months ended June 30, 2021 and 2020 was $22.0 million and $0.6 million, respectively. As of June 30, 2021, there was $65.0 million of total unamortized compensation, which will be recognized over the remaining weighted-average vesting period of 3.3 years

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

Weighted

Average

Grant Date


Shares

Fair Value
Unvested as of December 31, 2020

2,504,148

$
19.84
Granted

1,715,867

22.46
Converted from LTIP grant

474,095

27.06
Forfeited/canceled

(186,423)

19.46
Vested

(974,599)

24.49
Unvested as of June 30, 2021

3,533,088

$
20.81

Performance Stock Units
As previously discussed, during the six months ended June 30, 2021, the Company granted 948,250 restricted stock units in connection with the conversion of previously outstanding LTIP grants, with 474,155 of these restricted stock units subject to performance and market conditions (“PSUs”). These PSUs are expected to vest following both (i) registration of shares of common stock of Ping Identity Holding Corp. and (ii) Vista’s realized cash return on its investment in the Company equaling or exceeding $1.491 billion. These awards were valued at the date of grant at $19.94 per share using a Monte Carlo simulation. In the second quarter of 2021, these PSUs were determined to be probable of vesting, resulting in the recognition of $4.0 million in ~~accounts receivable related~~stock-based compensation during the three and six months ended June 30, 2021. As of June 30, 2021, there was $5.0 million of total unamortized compensation associated with these awards, which is expected to ~~these agreements at September 30, 2020 and December 31,~~be recognized over the remaining estimated vesting period of 0.4 years.
Additionally, on April 1, 2021, the Company granted 208,806 PSUs under the 2019 ~~respectively.~~
~~12. Operating Leases~~
~~The~~Omnibus Incentive Plan, which will be earned only if the Company ~~leases office spaces and~~meets specific internal performance targets within a ~~data center under noncancelable lease terms. These leases have a remaining lease term of up to six years, with a small~~two-year period. The number of ~~office spaces~~awards that ~~are month-to-month~~ultimately vest could be 0% if the minimum hurdle is not achieved, or 50% or 100% of total shares granted, depending on the Company’s achievement of internal performance targets. The grant-date fair value of these PSUs was $21.93. As of June 30, 2021, there was $2.9 million of total unamortized compensation associated with these awards, which is expected to be recognized over the remaining estimated weighted-average vesting period of 0.5 years.
NaN PSUs vested during the six months ended June 30, 2021.
A summary of the status of the Company’s unvested PSUs and ~~accounted~~activity for the six months ended June 30, 2021 is 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~~follows:

Weighted

Average

Grant Date


Shares

Fair Value
Unvested as of December 31, 2020

—

$
—
Granted

682,961

20.55
Forfeited/canceled

(29,983)

20.52
Unvested as of June 30, 2021

652,978

$
20.55

Table of Contents

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~are not reasonably certain~~Stock Options
NaN stock options were granted during the three or six months ended June 30, 2021 or 2020. A summary of ~~exercise or occurrence~~the Company’s stock option activity and related information for the six months ended June 30, 2021 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, 2020

4,044,616

$
9.49

6.5

$
77,454
Granted

—

—

Forfeited/canceled

(218,420)

8.24

Exercised

(232,833)

9.00

5,170
Outstanding as of June 30, 2021

3,593,363

$
9.60

6.0

$
47,800

As of June 30, 2021:







Vested and expected to vest

3,593,363

$
9.60

6.0

$
47,800
Vested and exercisable

1,680,980

$
8.94

5.7

$
23,473

Time-based options vest over four years with 25% vesting one year after grant and the remainder vesting ratably on a quarterly basis thereafter. Vesting of ~~September 30, 2020. Additionally, these leasing arrangements do not contain residual value guarantees,~~the time-based options accelerates and ~~there are no other restrictions or covenants~~the stock options become exercisable following both (i) an 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 ~~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~~equaling or exceeding $1.491 billion. In the second quarter of 2021, achievement of these conditions was determined to ~~separate lease and non-lease components. In addition~~be probable. As of June 30, 2021, total unamortized compensation related to variable lease payments for use-based charges, some leasing arrangements contain variable lease payments that increase based on a consumer price index. Some contracts also contain lease incentives such as tenant improvement allowances and rent holidays, which are treated as a reduction of lease payments for the ~~measurement of the lease liability.~~
~~Determination of a leasing arrangement is performed at inception. Right-of-use assets represent the Company's right to use leased assets~~time-based awards was $1.7 million. This expense will be recognized over the shorter of (i) the remaining explicit service term or (ii) the estimated period over which the performance condition is expected to be satisfied, with a remaining weighted-average vesting period of the lease, adjusted for lease incentives such as tenant improvements. Lease liabilities represent the Company's contractual obligation to make lease payments over the lease term. Right-of-use assets and lease liabilities are determined based on the present value of future lease payments using the interest rate implicit in the loan or, if that rate cannot be readily determined, the incremental borrowing rate. Incremental borrowing rates were determined for each lease based on the Company's borrowing rate adjusted for term differences and foreign currency risk.0.4 years.

The vesting conditions of the options subject to performance and market conditions provide for the options to vest and become exercisable following ~~tables present components~~both (i) an IPO and registration of ~~lease cost recorded~~shares of common stock of Ping Identity Holding Corp. and (ii) Vista’s realized cash return on its investment in the ~~condensed consolidated statement~~Company equaling or exceeding $1.491 billion. In the second quarter of ~~operations and supplemental information as~~2021, these awards were determined to be probable of ~~and for~~vesting, resulting in the recognition of $5.4 million in stock-based compensation expense during the three and ~~nine~~six months ended ~~September~~June 30, 2021. The remaining $1.3 million of total unamortized compensation expense is expected to be recognized over the remaining estimated vesting period of approximately 0.4 years.

13.    Related Party Transactions
Vista is a U.S.-based investment firm that controlled the funds which previously owned a majority of the Company. During the year ended December 31, 2020, Vista sold a portion of its investment in the Company such that its funds no longer owned a majority of the Company as of December 31, 2020. However, Vista is deemed a related party in accordance with ASC 850 as it continues to be a principal owner of the Company. There were no material transactions with Vista during the three and six months ended June 30, 2021 and 2020.

~~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~~

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

~~September 30,~~

~~2020~~
~~Weighted-average:~~

~~Remaining lease term~~

~~5.1~~
~~years~~
~~Discount rate~~

~~3.7~~
%

Table of Contents

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~As of September 30, 2020, the maturities of remaining lease payments included 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 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, respectively.~~

~~13.~~ 14. Commitments and Contingencies
Letters of Credit
As of ~~September~~June 30, ~~2020~~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~~June 30, ~~2020~~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~~June 30, ~~2020~~2021 were approximately ~~$20.0~~$11.0 million for periods through ~~2023.~~2025.
Employee Benefit Plans
The Company established a defined contribution savings plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”) in which full-time U.S. employees are eligible to participate on the first day of the subsequent month of his or her date of employment. The 401(k) Plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a

~~Table of Contents~~

~~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~~$1.0 million and ~~$0.7~~$0.8 million during the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The Company made contributions to its employee benefit plans of ~~$2.3~~$1.9 million and ~~$2.1~~$1.6 million during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

Litigation

From time to time, the Company may be subject to various claims, charges and litigation. The Company records a liability when it is both probable that a liability will be incurred and the amount of the loss can be reasonably estimated. The Company maintains insurance to cover certain actions and believes that resolution of such claims, charges, or litigation will not have a material impact on the Company’s financial position, results of operations, or liquidity.

~~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
June 30,

Six Months Ended
June 30,

2021

2020

2021

2020

(in thousands, except per share amounts)
Numerator:

Net loss

$
(10,979)

$
(3,272)

$
(26,913)

$
(7,564)
Denominator:

Weighted-average common stock outstanding - basic and diluted

82,025

80,169

81,684

79,956
Net loss per share:

Basic and diluted

$
(0.13)

$
(0.04)

$
(0.33)

$
(0.09)

Table of Contents

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following shares were excluded from the computation of diluted net loss per share for the periods presented, as their effect would have been antidilutive:

Three Months Ended
September 30,

Nine Months Ended
September 30,

Three Months Ended
June 30,

Six Months Ended
June 30,

2020

2019

2020

2019

2021

2020

2021

2020

(in thousands)

(in thousands)
RSUs

2,411

88

2,411

88

3,533

2,773

3,533

2,773
Stock options

2,544

4,008

2,544

4,008

2,074

2,862

2,074

2,862
Other awards

173

—

173

—

123

168

123

168
Total antidilutive shares

5,128

4,096

5,128

4,096

5,730

5,803

5,730

5,803

~~15. Subsequent Events~~

On October 31, 2020, the Company acquired Symphonic Software Limited (“Symphonic”) for $31 million in cash funded with existing resources. Symphonic is a leader in dynamic authorization for protecting APIs, data, apps and resources through identity. 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. These amounts are payable on such dates based on a fixed dollar value.

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Forward-Looking Statements

In addition to historical consolidated financial information, this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that involve substantial risks and uncertainties. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q are forward-looking statements. These statements may include words such as ‘‘anticipate’’, ‘‘estimate’’, ‘‘expect’’, ‘‘project’’, ‘‘plan’’, ‘‘intend’’, ‘‘believe’’, ‘‘may’’, ‘‘will’’, ‘‘should’’, ‘‘can have’’, ‘‘likely’’ and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected costs, expenditures, cash flows, growth rates and financial results or our plans and objectives for future operations, growth initiatives, or strategies are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected. Specific factors that could cause such a difference include, but are not limited to, those set forth under Item 1A. “Risk Factors” of our most recent Annual Report on Form 10-K and other important factors disclosed ~~previously~~ in our other filings with the 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;~~the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”);

Table of Contents

●

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~~software as a service (“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~~60% 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 ~~data (“Data Governance”);~~and device data;
● risk signal capture and analysis to make more intelligent authentication and authorization decisions;
● identity verification services to prove an individual’s identity with facial biometrics and government issued IDs; and
● ~~artificial 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 implementation services for some of our larger and more complex deployments, significantly increasing the time-to-value for our customers and maximizing the efficiency of our go-to-market efforts.

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Impact of COVID-19

~~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,~~July 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 quarter~~first half of ~~2020,~~2021, we continued to experience overall strong engagement with enterprise customers as continued work-from-home and increased virtual customer engagement highlighted the need for modernization of their identity security infrastructure. 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 as compared to the quarter ended September 30, 2019.

While we continued to see ~~the~~limited effects of the COVID-19 pandemic on our results of operations and overall financial performance for the ~~quarter~~three and six months ended ~~September~~June 30, ~~2020,~~2021, the total effect of the COVID-19 pandemic will not be fully reflected in our results of operations and overall financial performance until future periods and such effect is uncertain. COVID-19 restrictions were lifted in many parts of the U.S. during the three and six months ended June 30, 2021, which had a positive impact on our financial performance during that period, but we cannot predict the effect that variants of COVID-19, and any new restrictions related to such variants, will have on our business and our financial performance. In addition, our condensed consolidated financial statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in our condensed consolidated financial statements include, but are not limited to, establishing valuation allowances ~~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~~spending with us expands by (i) adopting another identity use case, (ii) deploying additional solutions and solution packages and/or (iii) adding more identities over time.
Our future revenue growth is dependent upon our ability to continue to expand our customers’ use of our platform. Our ability to increase sales to existing customers will depend on a number of factors, including

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

~~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, rather than from other quarters. ~~For~~However, due to the economic environment resulting from COVID-19, we did not see our historical trends in seasonality for the year ended December 31, ~~2019,~~2020, where 24% and 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 not see our~~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~~June 30, 2021 and 2020, ~~and 2019,~~ respectively.


	September 30,				Change				June 30,				Change
	2020		2019		$		%		2021		2020		$		%

	(dollars in thousands)								(dollars in thousands)
ARR	$	242,594	$	206,730	$	35,864	17	%	$	279,630	$	235,232	$	44,398	19	%

Dollar-Based Net Retention Rate

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

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

●

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

●

Numerator. We measure ending ARR ~~as of the last day of~~for the current reporting period from customers with associated ending ARR ~~as of~~for the same period last ~~day of~~year.

●

Denominator. We measure ending ARR for the ~~prior reporting period.~~same period last year.

The quotient obtained from this calculation is our dollar-based net retention rate. Our dollar-based net retention rate was ~~110%~~111% at ~~September~~June 30, ~~2020.~~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 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~~242 at ~~September~~June 30, ~~2019~~2020 to ~~252~~279 at ~~September~~June 30, ~~2020,~~2021, representing a year-over-year growth rate of ~~11%~~15%.

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

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

Free Cash Flow

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

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

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


	Nine Months Ended September 30,				Six Months Ended June 30,
	2020		2019		2021		2020

	(in thousands)				(in thousands)
Net cash provided by operating activities	$	19,970	$	8,474	$	43,965	$	21,244
Less:
Purchases of property and equipment		(1,716)		(4,517)		(1,502)		(1,420)
Capitalized software development costs		(9,824)		(7,260)		(8,582)		(6,749)
Free Cash Flow	$	8,430	$	(3,303)	$	33,881	$	13,075
Net cash used in investing activities	$	(16,243)	$	(12,077)	$	(49,959)	$	(12,872)
Net cash provided by financing activities	$	101,709	$	1,974
Net cash provided by (used in) financing activities					$	(35,267)	$	101,497
Cash paid for interest	$	1,728	$	11,441	$	584	$	1,186

Free Cash Flow has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. For example, Free Cash Flow does not represent the total increase or decrease in our cash balance for a given period. Because of these limitations, Free Cash Flow should not be considered as a replacement for cash flow from operations, as determined by GAAP, or as a measure of our profitability. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP measures only for supplemental purposes.

Non-GAAP Gross Profit

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

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

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

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


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019		2021		2020		2021		2020

	(in thousands)								(in thousands)
Gross profit	$	42,590	$	47,525	$	130,580	$	134,852	$	56,500	$	42,302	$	104,638	$	87,990
Amortization expense		5,177		4,159		14,723		11,981		6,077		4,944		11,886		9,546
Stock-based compensation expense		264		—		767		—		942		273		2,068		503
Non-GAAP Gross Profit	$	48,031	$	51,684	$	146,070	$	146,833	$	63,519	$	47,519	$	118,592	$	98,039

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

~~Adjusted EBITDA~~

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

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

~~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~~June 30, 2021 and 2020, 61% and ~~2019, 58% and 67%~~60%, respectively, of our revenue was from subscription term-based licenses. For the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, 60% and ~~66%~~61%, respectively, of our revenue was from subscription term-based licenses. We expect that a majority of our revenue will be from subscription term-based licenses for the foreseeable future. Changes in period-over-period subscription revenue growth are primarily impacted by the following factors:
● the type of new and renewed subscriptions (i.e., term-based or SaaS); and
● the duration of new and renewed term-based subscriptions.

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While the number of new and increased subscriptions during a period impacts our subscription revenue growth, the type and duration of those subscriptions has a significantly greater impact on the amount and timing of revenue recognized in a period. Subscription revenue from term-based licenses is recognized at the beginning of the subscription term, while subscription revenue from SaaS and support and maintenance is recognized ratably over the subscription term. As a result, our revenue may fluctuate due to the timing of term-based licensing transactions. In addition, keeping other factors constant, when the percentage of subscription term-based licenses to total subscriptions sold or renewed in a period increases relative to the prior period, revenue growth will increase. Conversely, when the percentage of subscription SaaS and support and

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

Professional Services and Other. Professional services and other revenue consists primarily of fees from professional services provided to our customers and partners to configure and optimize the use of our solutions, as well as training services related to the configuration and operation of our solutions. Our professional services are generally priced on a time and materials basis, which is generally invoiced monthly and for which revenue is recognized as the services are performed. Revenue from our training services and sponsorship fees is recognized on the date the services are complete. Over time, we expect our professional services revenue to remain relatively stable as a percentage of total revenue.

Cost of Revenue

Subscription. Subscription cost of revenue consists primarily of employee compensation costs for employees associated with supporting our subscription arrangements and certain third-party expenses. Employee compensation and related costs include cash compensation and benefits to employees, stock-based compensation, costs of third-party contractors and associated overhead costs. Third-party expenses consist of cloud infrastructure costs and other expenses directly associated with our customer support. We expect our subscription cost of revenue to increase in absolute dollars to the extent our subscription revenue increases.

Professional Services and Other. Professional services and other cost of revenue consists primarily of employee compensation costs directly associated with delivery of professional services and training, including stock-based compensation, costs of third-party contractors, facility rental charges and other associated overhead costs. We expect our professional services and other cost of revenue to increase in absolute dollars relative to the growth of our business.

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

~~Long-Term Incentive Plan.~~ If the LTIP awards are considered probable of meeting vesting requirements in the three months ending December 31, 2020, it may result in incremental compensation expense between $1.2 million to $1.7 million being recognized in the three months ending December 31, 2020, and $0.7 million to $1.1 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 including stock-based compensation, sales commissions, costs of general marketing and promotional activities, travel-related expenses and allocated overhead. Certain sales commissions earned by our sales force on

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subscription contracts are deferred and amortized over the period of benefit, which is generally four years. We expect to continue to invest in our sales force domestically and internationally, as well as in our channel relationships. We expect our sales and marketing expenses to increase on an absolute dollar basis and continue to be our largest operating expense category for the foreseeable future.

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

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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 including stock-based compensation, for corporate personnel, such as those in our executive, human resource, legal, facilities, accounting and finance, information security and information technology departments. In addition, general and administrative expenses include third-party professional fees, as well as all other supporting corporate expenses not allocated to other departments. General and administrative expense also includes acquisition-related expenses, which primarily consist of third-party expenses related to business acquisitions, such as professional services and legal fees.

We expect our general and administrative expenses to increase on an absolute dollar basis as our business grows. Also, we expect to incur additional general and administrative expenses as a result of 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.~~ 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, it may result in incremental stock-based compensation expense of approximately $6.0 million being recognized in the three months ending December 31, 2020, and approximately $1.8 million being recognized ratably over the remaining estimated vesting period. Additionally, if the LTIP awards are considered probable of meeting vesting requirements in the three months ending December 31, 2020, it may result in incremental compensation expense between $16.3 million to $17.3 million being recognized in the three months ending December 31, 2020, and $8.3 million to $9.3 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) 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.

3837

Table of Contents

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
June 30,

Six Months Ended
June 30,


2021

2020

2021

2020

(in thousands)
Revenue:








Subscription

$
73,151

$
54,268

$
137,367

$
111,086
Professional services and other

5,753

4,713

10,481

9,307
Total revenue

78,904

58,981

147,848

120,393
Cost of revenue:








Subscription (exclusive of amortization shown below)⁽¹⁾

10,185

7,509

19,599

14,618
Professional services and other (exclusive of amortization shown below)⁽¹⁾

6,142

4,226

11,725

8,239
Amortization expense

6,077

4,944

11,886

9,546
Total cost of revenue

22,404

16,679

43,210

32,403
Gross profit

56,500

42,302

104,638

87,990
Operating expenses:








Sales and marketing⁽¹⁾

29,082

20,751

54,631

42,941
Research and development⁽¹⁾

18,692

11,411

40,394

23,625
General and administrative⁽¹⁾

19,545

12,082

34,000

23,597
Depreciation and amortization

4,327

4,233

8,692

8,482
Total operating expenses

71,646

48,477

137,717

98,645
Loss from operations

(15,146)

(6,175)

(33,079)

(10,655)
Other income (expense):








Interest expense

(310)

(724)

(706)

(1,230)
Other income (expense), net

430

695

(442)

(555)
Total other income (expense)

120

(29)

(1,148)

(1,785)
Loss before income taxes

(15,026)

(6,204)

(34,227)

(12,440)
Benefit for income taxes

4,047

2,932

7,314

4,876
Net loss

$
(10,979)

$
(3,272)

$
(26,913)

$
(7,564)
(1)
Includes stock-based compensation as follows:

Three Months Ended
September 30,

Nine Months Ended
September 30,


2020

2019

2020

2019

(in thousands)
Subscription cost of revenue

$
166

$
—

$
486

$
—
Professional services and other cost of revenue

98

—

281

—
Sales and marketing

1,169

283

3,209

693
Research and development

1,602

225

3,788

658
General and administrative

1,546

1,190

4,219

2,446
Total

$
4,581

$
1,698

$
11,983

$
3,797

Three Months Ended
June 30,

Six Months Ended
June 30,


2021

2020

2021

2020

(in thousands)
Subscription cost of revenue

$
513

$
174

$
1,048

$
320
Professional services and other cost of revenue

429

99

1,020

183
Sales and marketing

4,843

1,243

9,041

2,040
Research and development

4,647

1,298

13,159

2,186
General and administrative

7,044

1,731

10,147

2,673
Total

$
17,476

$
4,545

$
34,415

$
7,402

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Table of Contents

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
June 30,

Six Months Ended
June 30,


2021

2020

2021

2020
Revenue:









Subscription

93
%

92
%

93
%

92
%
Professional services and other

7

8

7

8

Total revenue

100

100

100

100

Cost of revenue:

Subscription (exclusive of amortization shown below)

13

13

13

12

Professional services and other (exclusive of amortization shown below)

8

7

8

7

Amortization expense

7

8

8

8

Total cost of revenue

28

28

29

27

Gross profit

72

72

71

73

Operating expenses:

Sales and marketing

37

36

37

36

Research and development

24

19

27

20

General and administrative

25

20

23

19

Depreciation and amortization

5

7

6

7

Total operating expenses

91

82

93

82

Loss from operations

(19)

(10)

(22)

(9)

Other income (expense):

Interest expense

—

(1)

(1)

(1)

Other income (expense), net

—

1

—

—

Total other income (expense)

—

—

(1)

(1)

Loss before income taxes

(19)

(10)

(23)

(10)

Benefit for income taxes

5

5

5

4

Net loss

(14)
%

(5)
%

(18)
%

(6)
%

Comparison of the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020
Revenue

Three Months Ended

Nine Months Ended

September 30,

Change

September 30,

Change


2020

2019

$

%

2020

2019

$

%

(dollars in thousands)

Revenue:

















Subscription

$
55,113

$
57,495

$
(2,382)

(4)
%

$
166,199

$
161,387

$
4,812

3
%
Professional services and other

4,828

4,270

558

13

14,135

13,276

859

6

Total revenue

$
59,941

$
61,765

$
(1,824)

(3)
%

$
180,334

$
174,663

$
5,671

3
%

Three Months Ended

Six Months Ended

June 30,

Change

June 30,

Change


2021

2020

$

%

2021

2020

$

%

(dollars in thousands)

Revenue:

















Subscription

$
73,151

$
54,268

$
18,883

35
%

$
137,367

$
111,086

$
26,281

24
%
Professional services and other

5,753

4,713

1,040

22

10,481

9,307

1,174

13

Total revenue

$
78,904

$
58,981

$
19,923

34
%

$
147,848

$
120,393

$
27,455

23
%

Total revenue ~~decreased~~increased by ~~$1.8~~$19.9 million, or 3%34%, for the three months ended ~~September~~June 30, ~~2020~~2021 compared to the three months ended ~~September~~June 30, ~~2019. The decrease~~2020. 95% of the revenue growth was attributable to ~~a decrease~~an increase in subscription revenue of ~~$2.4~~$18.9 million, discussed further below. ~~This~~The remaining growth was ~~offset by~~attributable to an increase in professional services and other revenue of ~~$0.6~~$1.0 million primarily due to an increase of $1.1 million in event sponsorship revenue from our live Identiverse conference which was conducted virtually in the ~~provisioning~~prior year period as a result of ~~implementation and consulting services.~~COVID-19.
Total revenue increased by ~~$5.7~~$27.5 million, or 3%23%, for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2019. 85%~~2020. 96% of the ~~increase in total~~ revenue growth was ~~due~~attributable to an increase in subscription

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revenue of ~~$4.8~~$26.3 million, discussed further below. The remaining ~~$0.9 million of the increase~~growth was ~~due~~attributable to an increase in professional services and other revenue of $1.2 million primarily due to an increase of $1.1 million in event sponsorship revenue from our live Identiverse conference as described above.
The table below sets forth the components of subscription revenue for the three and six months ended June 30, 2021 and 2020.

Three Months Ended

Six Months Ended

June 30,

Change

June 30,

Change


2021

2020

$

%

2021

2020

$

%

(dollars in thousands)

Subscription:

















Multi-year subscription term-based licenses

$
32,391

$
21,141

$
11,250

53
%

$
56,229

$
45,129

$
11,100

25
%
1-year subscription term-based licenses

15,464

14,183

1,281

9

32,808

28,332

4,476

16

Subscription term-based licenses

47,855

35,324

12,531

35

89,037

73,461

15,576

21

Subscription SaaS

13,425

8,890

4,535

51

25,411

17,416

7,995

46

Maintenance and support

11,871

10,054

1,817

18

22,919

20,209

2,710

13

Total subscription revenue

$
73,151

$
54,268

$
18,883

35
%

$
137,367

$
111,086

$
26,281

24
%

Subscription revenue increased by 35%, or $18.9 million, and 24%, or $26.3 million, in the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020, respectively. Total subscription revenue increased as a result of ana greater amount of new and renewing subscriptions in the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020. Remaining 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

Six Months Ended

June 30,

Change

June 30,

Change


2021

2020

%

2021

2020

%
Subscription term-based licenses

65
%

65
%

—
%

65
%

66
%

(1)
%
Subscription SaaS

18

16

2

18

16

2

Maintenance and support

17

19

(2)

17

18

(1)

Total subscription revenue

100
%

100
%

100
%

100
%

Subscription term-based license revenue as a percentage of subscription revenue remained consistent at 65% for the three months ended June 30, 2021 and 2020 and decreased from 66% in the six months ended June 30, 2020 to 65% in the six months ended June 30, 2021. Subscription SaaS as a percentage of total subscription revenue increased from 16% in each of the three and six months ended June 30, 2020 to 18% in the three and six months ended June 30, 2021. Maintenance and support as a percentage of total subscription revenue decreased from 19% and 18% for the three and six months ended June 30, 2020, respectively, to 17% for each of the three and six months ended June 30, 2021.
Additionally, subscription SaaS revenue increased by 51%, or $4.5 million, and 46%, or $8.0 million, in the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020. The increase in subscription SaaS revenue overall, and as a percentage of total subscription revenue, was primarily driven by the ~~provisioning~~increased adoption of our SaaS solutions. This resulted in greater deferral of revenue from subscriptions entered into or renewed during the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020. We expect subscription SaaS to continue to gradually increase as a percentage of total subscription revenue in future periods, resulting in greater deferral of revenue in the period in which the subscription is contracted.

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

term-based subscription duration. The following table ~~below~~ sets forth the components of subscription ~~revenue for the three and nine months ended September 30, 2020 and 2019.~~term-based licenses expressed as a percentage of total subscription term-based licensed revenue:

Three Months Ended

Nine Months Ended

September 30,

Change

September 30,

Change


2020

2019

$

%

2020

2019

$

%

(dollars in thousands)

Subscription:

















Multi-year subscription term-based licenses

$
22,974

$
28,497

$
(5,523)

$
68,103

$
80,922

$
(12,819)

1-year subscription term-based licenses

11,944

12,649

(705)

40,276

33,731

6,545

Subscription term-based licenses

34,918

41,146

(6,228)

108,379

114,653

(6,274)

Subscription SaaS and maintenance and support

20,195

16,349

3,846

57,820

46,734

11,086

Total subscription revenue

$
55,113

$
57,495

$
(2,382)

(4)
%

$
166,199

$
161,387

$
4,812

3
%

Three Months Ended

Six Months Ended

June 30,

Change

June 30,

Change


2021

2020

%

2021

2020

%
Multi-year subscription term-based licenses

68
%

60
%

8
%

63
%

61
%

2
%
1-year subscription term-based licenses

32

40

(8)

37

39

(2)

Total subscription term-based licenses

100
%

100
%

100
%

100
%

~~Subscription~~Multi-year subscription term-based license revenue ~~decreased by 4%, or $2.4 million,~~as a percentage of total subscription term-based license revenue increased from 60% in the three months ended ~~September~~June 30, 2020 ~~compared~~ to 68% in the three months ended ~~September~~June 30, ~~2019. This decrease was primarily~~2021. Multi-year subscription term-based license revenue as a ~~result~~percentage of 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,total subscription term-based license revenue increased from 61% in the ~~nine~~six months ended ~~September~~June 30, 2020 ~~subscription revenue increased by 3%, or $4.8 million, from~~to 63% in the ~~nine~~six months ended ~~September~~June 30, ~~2019 as a result of a greater amount of~~2021. This resulted in more upfront revenue recognition from multi-year subscriptions entered into or renewed induring the ~~nine~~three and six months ended ~~September~~June 30, ~~2020~~2021 as compared to the ~~nine~~three and six months ended ~~September~~June 30, ~~2019. Remaining changes~~2020, as customers elected longer contract durations in ~~subscription revenue were due~~response to the ~~following:~~strengthening economic outlook and easing of COVID-19 restrictions during the three and six months ended June 30, 2021. There is no guarantee that our customers will continue electing contracts with longer durations in future periods even if economic conditions continue to improve.

● ~~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.

~~Table of Contents~~

Cost of Revenue

Three Months Ended

~~Nine~~Six Months Ended

~~September~~June 30,

Change

~~September~~June 30,

Change


~~2020~~2021

~~2019~~2020

$

%

~~2020~~2021

~~2019~~2020

$

%

(dollars in thousands)

Cost of revenue:

















Subscription (exclusive of amortization shown below)

$
~~8,091~~10,185

$
~~5,995~~7,509

$
~~2,096~~2,676

3536
%

$
~~22,709~~19,599

$
~~16,828~~14,618

$
~~5,881~~4,981

3534
%
Professional services and other (exclusive of amortization shown below)

~~4,083~~6,142

~~4,086~~4,226

~~(3)~~1,916

—45

~~12,322~~11,725

~~11,002~~8,239

~~1,320~~3,486

1242

Amortization expense

~~5,177~~6,077

~~4,159~~4,944

~~1,018~~1,133

2423

~~14,723~~11,886

~~11,981~~9,546

~~2,742~~2,340

2325

Total cost of revenue

$
~~17,351~~22,404

$
~~14,240~~16,679

$
~~3,111~~5,725

2234
%

$
~~49,754~~43,210

$
~~39,811~~32,403

$
~~9,943~~10,807

2533
%

Subscription cost of revenue increased by ~~$2.1~~$2.7 million, or ~~35%~~36%, for the three months ended ~~September~~June 30, ~~2020~~2021 compared to the three months ended ~~September~~June 30, ~~2019.~~2020. $1.6 million of the increase was ~~compensation related~~attributable to an increase in cloud-based hosting and management costs largely associated with the increased adoption of our solutions. $0.7 million of the increase was 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~~$0.3 million of the increase was attributable to an increase in stock-based compensation.
Subscription cost of revenue increased by $5.0 million, or 34%, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. $2.5 million of the increase was attributable to an increase in cloud-based hosting and management costs largely associated with the increased adoption of our ~~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~~$1.7 million of the increase was ~~compensation related and~~ primarily attributable to an increase in headcount to support the growth of our subscription SaaS offerings and ongoing maintenance for our expanding customer base. ~~$2.1~~$0.7 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.stock-based compensation.
Professional services and other cost of revenue ~~remained substantially the same~~increased $1.9 million, or 45%, for the three months ended ~~September~~June 30, ~~2020~~2021 compared to the three months ended ~~September~~June 30, ~~2019.~~2020. $1.6 million of the increase was primarily attributable to an increase in headcount and an increase in partner-related costs to support the growth in our business. $0.3 million of the increase was attributable to an increase in stock-based compensation.

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Professional services and other cost of revenue increased by ~~$1.3~~$3.5 million, or ~~12%~~42%, for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2019. The~~2020. $2.7 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 an increase in partner-related costs to support the growth ofin our ~~business.~~business, as well as a $0.8 million increase in stock-based compensation.
Amortization expense increased by ~~$1.0~~$1.1 million, or ~~24%~~23%, for the three months ended ~~September~~June 30, ~~2020~~2021 compared to the three months ended ~~September~~June 30, ~~2019.~~2020. Amortization expense increased by ~~$2.7~~$2.3 million, or ~~23%~~25%, for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~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 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

~~Nine~~Six Months Ended

~~September~~June 30,

Change

~~September~~June 30,

Change


~~2020~~2021

~~2019~~2020

$

%

~~2020~~2021

~~2019~~2020

$

%

(dollars in thousands)

Sales and marketing

$
~~21,164~~29,082

$
~~17,819~~20,751

$
~~3,345~~8,331

1940
%

$
~~64,105~~54,631

$
~~55,153~~42,941

$
~~8,952~~11,690

1627
%
Research and development

~~12,224~~18,692

~~11,283~~11,411

~~941~~7,281

864

~~35,849~~40,394

~~33,594~~23,625

~~2,255~~16,769

771

General and administrative

~~10,702~~19,545

~~10,984~~12,082

~~(282)~~7,463

~~(3)~~62

~~33,817~~34,000

~~26,732~~23,597

~~7,085~~10,403

2744

Depreciation and amortization

~~4,223~~4,327

~~4,060~~4,233

~~163~~94

42

~~12,705~~8,692

~~12,334~~8,482

~~371~~210

32

Total operating expenses

$
~~48,313~~71,646

$
~~44,146~~48,477

$
~~4,167~~23,169

948
%

$
~~146,476~~137,717

$
~~127,813~~98,645

$
~~18,663~~39,072

1540
%

~~Table of Contents~~

Sales and Marketing. Sales and marketing expenses increased by ~~$3.3~~$8.3 million, or ~~19%~~40%, for the three months ended ~~September~~June 30, ~~2020~~2021 compared to the three months ended ~~September~~June 30, 2019. Compensation-related expenses increased $2.7 million primarily as a result of an increase in headcount related to the expansion of our sales force and our marketing department 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. Additionally, promotional expenses increased by $1.2 million due to 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~~2020. $3.6 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. This increase was primarily related to expense ~~resulting from an increase in the issuance of equity~~recognized for awards granted in ~~2020 compared 2019, including~~ the ~~liability-classified awards that were issued~~second quarter of 2021 and expense recognized for the options and restricted stock units subject to performance and market conditions determined to be probable of vesting in ~~conjunction with~~ the ~~ShoCard acquisition~~second quarter of 2021 (“market-based options” and “market-based PSUs”), as further described in ~~Notes 5 and 10~~Note 12 of our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. ~~The~~$2.7 million of the increase ~~in compensation-related expenses~~ was ~~partially offset by a decrease of $2.3 million~~primarily 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~~headcount related to ~~a decrease in travel costs in 2020 due to COVID-19~~the expansion of our sales force 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~~our marketing department. Additionally, promotional and ~~administrative~~partner and consulting expenses increased by ~~$7.1~~$1.8 million primarily due to expenses incurred related to the live Identiverse conference held in the second quarter of 2021 and additional spend around branding and awareness campaigns. The remaining increase was primarily related to an increase in travel as COVID-19 restrictions eased during the second quarter.
Sales and marketing expenses increased by $11.7 million, or 27%, for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2019. $7.3~~2020. $7.0 million of the increase was attributable to an increase in ~~administrative expenses~~stock-based compensation expense primarily related to ~~operating as a public company. $0.3~~market-based PSUs and options, and awards granted in the second quarter of 2021. $3.9 million of the increase was ~~compensation-related~~primarily attributable to an increase in headcount related to the expansion of our sales force and our marketing department. Additionally, promotional and partner and consulting expenses increased by $2.4 million primarily due to the ~~result~~live Identiverse conference held in the second quarter of 2021 and additional spend around branding and awareness campaigns. These increases were offset by a decrease in travel and other event-related costs of $1.4 million due to COVID-19 restrictions in the first quarter of 2021.
Research and Development. Research and development expenses increased by $7.3 million, or 64%, for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. $4.2 million of the increase was primarily attributable to an increase in headcount to enhance and expand our solutions. $3.3 million of the increase was attributable to an increase in stock-based compensation expense, primarily related to market-based PSUs and awards granted in the second quarter of 2021. Partner and consulting costs increased $1.1 million primarily to support the design and expansion of our SaaS offerings. The increase in research and development expense was offset by an increase of $1.7 million related to employee costs that

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

Research and development expenses increased by $16.8 million, or 71%, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. $11.0 million of the increase was attributable to an increase in stock-based compensation expense primarily related to the conversion of previously outstanding LTIP awards into time-based vesting RSUs in the first quarter of 2021, along with expense recognized for market-based PSUs and awards granted in the second quarter of 2021. $7.3 million of the increase was primarily attributable to an increase in headcount to enhance and expand our solutions. Partner and consulting costs increased $1.7 million primarily to support the design and growth of our SaaS offerings. The increase in research and development expense was offset by an increase of $3.0 million related to employee costs that were capitalized as software development costs in the six months ended June 30, 2021 as compared to June 30, 2020.
General and Administrative. General and administrative expenses increased by $7.5 million, or 62%, for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. $5.3 million of the increase was attributable to an increase in stock-based compensation expense primarily related to the market-based PSUs and options, and expense recognized for awards granted in the second quarter of 2021. $1.4 million of the increase was primarily attributable to an increase in headcount to support growth in our business, and $0.4 million of the increase was related to expenses incurred in connection with the acquisition of SecuredTouch, Inc. The remaining increase was primarily related to an increase in allocated overhead.
General and administrative expenses increased by $10.4 million, or 44%, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. $7.5 million of the increase was attributable to an increase in stock-based compensation expense primarily related to market-based PSUs and options, and awards granted in the second quarter of 2021. $1.9 million of the increase was primarily attributable to an increase in headcount to support growth in our business. Consulting costs increased by $0.9 million, primarily due to expenses incurred related to strategic planning.
Depreciation and Amortization. Depreciation and amortization expense remained substantially the same during the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020.
Other Income (Expense)

Three Months Ended

Six Months Ended

June 30,

Change

June 30,

Change


2021

2020

$

%

2021

2020

$

%

(dollars in thousands)

Interest expense

$
(310)

$
(724)

$
414

(57)
%

$
(706)

$
(1,230)

$
524

(43)
%
Other income (expense), net

430

695

(265)

(38)

(442)

(555)

113

(20)

Total other income (expense)

$
120

$
(29)

$
149

(514)
%

$
(1,148)

$
(1,785)

$
637

(36)
%

Interest Expense. Interest expense decreased by $0.4 million, or 57%, for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. The decrease was attributable primarily to the reduction in our average debt outstanding during the second quarter of 2021 as compared to 2020. A decrease in the weighted average interest rate, from 1.8% for the three months ended June 30, 2020 to 1.4% for the three months ended June 30, 2021, also contributed to the decrease in interest during the period.
Interest expense decreased by $0.5 million, or 43%, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. The decrease was attributable primarily to the reduction in our average debt outstanding during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. A decrease in the weighted average interest rate, from 2.2% for the six months ended June 30, 2020 to 1.4% for the six months ended June 30, 2021, also contributed to the decrease in interest during the period.
Other Income (Expense), Net. Other income (expense), net decreased by $0.3 million, or 38%, for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. The decrease was

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attributable primarily to ~~an increase~~a change in the ~~issuance~~amount of ~~RSUs granted in 2020 compared to 2019. Additionally, general~~foreign currency gains and ~~administrative expenses increased due to an increase~~losses, from a gain of $0.6 million in acquisition-related expenses from 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). These increases were partially offset by a decrease in travel costs of $0.7 million related to a reduction in travel because of COVID-19 and a $0.4 million decrease in partner and consulting costs.
~~Depreciation and Amortization.~~ Depreciation and amortization expense slightly increased during the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019 as the Company expanded its office sites in early 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

September 30,

Change

September 30,

Change


2020

2019

$

%

2020

2019

$

%

(dollars in thousands)

Interest expense

$
(605)

$
(3,818)

$
3,213

(84)
%

$
(1,835)

$
(12,067)

$
10,232

(85)
%
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)

Total other income (expense)

$
666

$
(7,960)

$
8,626

(108)
%

$
(1,119)

$
(15,984)

$
14,865

(93)
%

~~Interest Expense.~~ ~~Interest expense decreased by $3.2 million, or 84%, for~~ the three months ended ~~September~~June 30, 2020 to a gain of $0.4 million in the three months ended June 30, 2021, along with a decrease in interest income recognized in the three months ended June 30, 2021 compared to the three months ended September 30, 2019. The decrease was attributable primarily to the refinancing of our debt in December 2019 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 to the period-over-period decrease in the weighted average interest rate, from 6.0% for the three months ended September 30, 2019 to 1.4% for the three months ended SeptemberJune 30, 2020.
Interest expense decreased by $10.2 million, or 85%, for the nine months ended September 30, 2020 compared 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 loss during the three or nine months ended September 30, 2020.
~~Other Income (Expense), Net.~~ Other income (expense), net ~~increased~~decreased by ~~$2.3~~$0.1 million, or ~~228%~~20%, for the ~~three~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the ~~three~~six months ended ~~September~~June 30, ~~2019.~~2020. The ~~increase~~decrease was attributable primarily to a change in the amount of foreign currency gains and losses, from a loss of ~~$1.3~~$0.8 million in the ~~three~~six months ended ~~September 30, 2019 to a gain of $1.2 million in the three months ended September 30, 2020, partially offset by a decrease in interest income recognized in the three months ended September~~June 30, 2020 compared to ~~the three months ended September 30, 2019.~~
Other income (expense), net increased by $1.5 million, or 193%, for the nine 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~~six months ended ~~September~~June 30, ~~2020.~~2021. This was partially offset by a decrease in interest income recognized in the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020.

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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
%

Three Months Ended

Six Months Ended

June 30,

Change

June 30,

Change


2021

2020

$

%

2021

2020

$

%

(dollars in thousands)

Benefit for income taxes

$
4,047

$
2,932

$
1,115

38
%

$
7,314

$
4,876

$
2,438

50
%

Our benefit for income taxes was ~~$4.1~~$4.0 million and ~~$4.0~~$2.9 million for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, our benefit for income taxes was ~~$8.9~~$7.3 million and ~~$5.2~~$4.9 million, respectively. ~~Variations~~The increase in ~~our~~the tax benefit ~~period-over-period related to changes in our state benefit, an increase in stock-based compensation in 2020~~for the three and six months ended June 30, 2021 as compared to ~~2019,~~the three and six months ended June 30, 2020 primarily relates to a larger expected pre-tax loss in 2021 as compared to 2020, the release of a foreign valuation allowance, and an increase in R&D and other credits recorded in the three and ~~the net benefit from an IPO deduction study performed~~six months ended June 30, 2021. The increase 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.~~the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 was partially offset by a valuation allowance recorded against our U.S. deferred tax assets during the first quarter of 2021.

Liquidity and Capital Resources
General
As of ~~September~~June 30, ~~2020,~~2021, our principal sources of liquidity were cash and cash equivalents totaling ~~$173.2~~$104.3 million, which were held for working capital ~~purposes.~~purposes, and borrowing availability under our Revolving Credit Facility as described below. As of ~~September~~June 30, ~~2020,~~2021, our cash equivalents were comprised of money market funds. During the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, our positive cash flows from operations have enabled us to make continued investments in supporting the growth of our business. We expect that our operating cash flows, in addition to our cash and cash equivalents, will enable us to continue to make such investments in the future.
We 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 be available~~balance drawn on our Revolving Credit Facility, and in June 2021, we drew down an additional $80.0 million for the acquisition of SecuredTouch, Inc., and for general working capital ~~and general corporate purposes, subject to compliance with the 2019~~purposes. As of June 30, 2021, there was $120.0 million outstanding under our Revolving Credit ~~Agreement.~~ Facility. We believe our existing cash and cash equivalents, our ~~2019~~ Revolving Credit Facility and cash provided by sales of our solutions and services will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. We also believe that these financial resources will allow us to manage the impact of COVID-19 on our business operations for the foreseeable future, including mitigating potential reductions in revenue and delays in payments from our customers and partners. Our future capital requirements will depend on several factors, including but not limited to our obligation to repay any amounts outstanding under our ~~2019~~ Credit ~~Facilities,~~Agreement, our subscription growth rate, subscription renewal activity, billing frequency, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced solutions, ~~and~~ the continuing market adoption of our ~~platform.~~platform, and the continuing effects of the COVID-19 pandemic, including potential reductions in revenue and delays in payments from our customers and partners. In the future, we may

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enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights.

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

A majority of our customers pay in advance for annual subscriptions, a portion of which is recorded as deferred revenue. Deferred revenue consists of the unearned portion of billed fees for our subscriptions, which is later recognized as revenue in accordance with our revenue recognition policy. As of ~~September~~June 30, ~~2020,~~2021, we had deferred revenue of ~~$38.0~~$47.7 million, of which ~~$35.6~~$43.4 million was recorded as a current liability and is expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met.

~~Table of Contents~~

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 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 June 30, 2021 was 1.34%. The Credit Agreement also includes a fallback provision, which, subject to certain terms and conditions, provides for a replacement of the LIBO Rate with (x) one or more SOFR-based rates or (y) any other alternative benchmark rates giving consideration to any evolving or then existing conventions for similar U.S. dollar denominated syndicated credit facilities. The borrower ~~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.

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Cash Flows

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


	Nine Months Ended September 30,				Six Months Ended June 30,
	2020		2019		2021		2020

	(in thousands)				(in thousands)
Net cash provided by operating activities	$	19,970	$	8,474	$	43,965	$	21,244
Net cash used in investing activities		(16,243)		(12,077)		(49,959)		(12,872)
Net cash provided by financing activities		101,709		1,974
Net cash provided by (used in) financing activities						(35,267)		101,497
Effect of exchange rate changes on cash and cash equivalents and restricted cash		132		168		(130)		(406)
Net increase (decrease) in cash and cash equivalents and restricted cash	$	105,568	$	(1,461)	$	(41,391)	$	109,463
Cash and cash equivalents and restricted cash at beginning of period		68,386		84,143		146,499		68,386
Cash and cash equivalents and restricted cash at end of period	$	173,954	$	82,682	$	105,108	$	177,849

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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~~six months ended ~~September~~June 30, 2021, net cash provided by operating activities was $44.0 million, reflecting our net loss of $26.9 million, adjusted for non-cash charges of $51.9 million and net cash inflows of $19.0 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation, amortization of deferred commissions, depreciation and amortization of property and equipment and intangible assets and deferred income taxes. The primary drivers of the changes in operating assets and liabilities related to a $17.6 million decrease in accounts receivable due to the timing of collection of payment from our customers, a $5.7 million decrease in contract assets due to the issuance of invoices and timing of revenue recognition, a $4.3 million increase in accrued compensation due to the timing of cash disbursements to our employees, a $3.4 million decrease in prepaid expenses and other current assets, and an increase of $1.3 million in accrued expenses and other liabilities due to the timing of cash disbursements. These were partially offset by an $8.2 million increase in deferred commissions, and a $5.0 million decrease in deferred revenue driven by the timing of revenue recognition.

During the six months ended June 30, 2020 net cash provided by operating activities was ~~$20.0~~$21.2 million ~~reflecting~~due to our net loss of ~~$8.1~~$7.6 million that was adjusted for non-cash charges of ~~$33.5~~$24.7 million and net cash ~~outflows~~inflows of ~~$5.4~~$4.1 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation, amortization of deferred commissions, depreciation and amortization of property and equipment and intangible assets and deferred income taxes. The primary drivers of the changes in operating assets and liabilities related to an ~~$18.0~~$8.7 million decrease in accounts receivable due to the timing of collection of payment from our customers, a ~~$2.7~~$7.2 million decrease in prepaid expenses and other current assets, a $3.9 million increase in accounts payable, a $2.2 million increase in accrued expenses and other liabilities due to the timing of cash disbursements and a ~~$2.0~~$1.3 million decrease in contract assets. These were partially offset by a ~~$9.5~~$7.5 million decrease in deferred revenue driven by the timing of revenue recognition, a ~~$9.1~~$3.2 million increase in deferred commissions and an $8.7 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.~~

During the nine months ended September 30, 2019, net cash provided by operating activities was $8.5 million due to our net loss of $3.7 million that was adjusted for non-cash charges of $29.4 million and net cash outflows of $17.2 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, loss on extinguishment of debt and deferred income taxes. The primary drivers of the changes in operating assets and liabilities related to a $15.9 million increase in contract assets and a $3.2 million decrease in deferred revenue due to the timing of revenue recognition, and a $5.3 million increase in deferred commissions, a $7.6 million decrease in accrued compensation and a $4.5 million increase in prepaid expenses and other current assets due to the timing of cash disbursements, partially offset by a $16.0 million decrease in accounts receivable due to the timing of receipt of payment from our customers and a $2.3 million increase in accrued expenses and other.employees.

Investing Activities

Net cash used in investing activities was ~~$16.2~~$50.0 million and ~~$12.1~~$12.9 million during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, representing an increase of ~~$4.2~~$37.1 million. The net increase is primarily attributable to the acquisition of ShoCard in March 2020 for $4.7 million as well as an increase in the capitalization of internal-use software costs of $2.6 million, offset by a decrease in purchases of property and equipment of $2.8 million.

~~Financing Activities~~

Net cash provided by financing activities was $101.7 million during the nine months ended September 30, 2020 whereas net cash provided by financing activities was $2.0 million during the nine months ended September 30, 2019, representing an increase of $99.7 million. The net increase primarily relates to the draw down on our 2019 Revolving Credit Facility of $97.8 million that occurred in March 2020 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.~~

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

Financing Activities

Net cash used in financing activities was $35.3 million during the six months ended June 30, 2021 whereas net cash provided by financing activities was $101.5 million during the six months ended June 30, 2020, representing a decrease of $136.8 million. During the ~~COVID-19 pandemic~~six months ended June 30, 2021, we repaid $110.0 million and ~~out~~drew down $80.0 million on our Revolving Credit Facility, resulting in net cash outflows related to long-term debt of ~~an abundance~~$30.0 million in the period. This compares to cash inflows related to long-term debt of ~~caution, we elected~~$97.8 million during the six months ended June 30, 2020, due to the draw down of $97.8 million on our Revolving Credit Facility in March 2020. The remaining decrease relates to a decrease of $4.1 million in proceeds received from option exercises and an increase of $4.5 million in payments for tax withholding on equity awards for the ~~remaining available balance~~six months ended June 30, 2021 as compared 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.June 30, 2020.

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~~June 30, ~~2020,~~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 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.

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Recent Accounting Pronouncements

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. As we have operations in the United States and internationally, our market risk exposure is primarily a result of exposure due to potential changes in inflation or interest rates. We do not hold financial instruments for trading purposes.
Foreign Currency Exchange Risk
Our revenues and expenses are primarily denominated in U.S. dollars. For the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, we recorded a gain of ~~$1.2~~$0.4 million and a ~~loss~~gain of ~~$1.3~~$0.6 million on foreign exchange transactions, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, we recorded a ~~gain~~loss of $0.5 million and a loss of ~~$1.8~~$0.8 million on foreign exchange transactions, respectively. To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative financial instruments, but we may do so in the future if our exposure to foreign currency should become more significant. For business conducted outside of the United States, we may have both revenue and costs incurred in the local currency of the subsidiary, creating a partial natural hedge. Changes to exchange rates therefore have not had a significant impact on the business to date. However, we will continue to reassess our foreign exchange exposure as we continue to grow our business globally. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have had a material impact on our condensed consolidated financial statements.
Interest Rate Risk
Our primary market risk exposure is changing LIBO-based interest rates. Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond our control. 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.

At ~~September~~June 30, ~~2020,~~2021, we had total outstanding debt of ~~$150.0~~$120.0 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~~$1.2 million.

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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rule 13a–15(e) and Rule 15d–15(e) under the Exchange Act that are designed to provide reasonable assurance that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of ~~September~~June 30, ~~2020,~~2021, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control

There have been no changes in internal control over financial reporting during the quarter ended ~~September~~June 30, ~~2020~~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.~~2020

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~~June 30, ~~2020.~~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 Amendment to the Credit Agreement, dated August 11, 2020, by and among Roaring Fork Intermediate, LLC, Ping Identity Corporation, the other loan parties party thereto, 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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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.

~~Signature~~August 4, 2021

~~Title~~

~~Date~~Ping Identity Holding Corp.

~~/s/Raj Dani~~
~~Raj Dani~~

~~Chief Financial Officer~~
~~(Principal Financial Officer)~~

~~November 4, 2020~~/s/ Raj Dani

Raj Dani

Chief Financial Officer

5552


1001 17th Street, Suite 100
Denver, Colorado	80202
(Address of Principal executive offices)	(Zip Code)


	June 20, 2021		Useful Life
	(in thousands)
Fair value of net assets acquired
Developed technology	$	8,300	4 years
Goodwill		32,257	Indefinite
Other assets		167
Total assets acquired		40,724
Deferred revenue		(337)
Other liabilities		(512)
Total liabilities assumed		(849)
Net assets acquired, excluding cash	$	39,875


	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


	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


	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


Beginning balance	$	441,150
Additions to goodwill related to SecuredTouch acquisition		32,257
Foreign currency translation adjustment		290
Ending balance	$	473,697


Beginning balance	$	417,696
Additions to goodwill related to acquisitions		964
Ending balance	$	418,660


Year Ending December 31,	June 30, 2021
	(in thousands)
2021 (remaining six months)	$	20,212
2022		38,971
2023		36,425
2024		32,906
2025		22,301
Thereafter		28,509
Total	$	179,324


		Weighted
		Average
		Grant Date
	Shares	Fair Value
Unvested as of December 31, 2019	1,415,629	$	16.46
Granted	1,490,722		20.63
Forfeited/canceled	(138,399)		16.58
Vested	(356,663)		16.68
Unvested as of September 30, 2020	2,411,289	$	18.99


	~~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~~


	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


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


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

	(dollars in thousands)
Revenue:
Subscription	$	55,113	$	57,495	$	(2,382)	(4)	%	$	166,199	$	161,387	$	4,812	3	%
Professional services and other		4,828		4,270		558	13			14,135		13,276		859	6
Total revenue	$	59,941	$	61,765	$	(1,824)	(3)	%	$	180,334	$	174,663	$	5,671	3	%


	Three Months Ended								Six Months Ended
	June 30,				Change				June 30,				Change
	2021		2020		$		%		2021		2020		$		%

	(dollars in thousands)
Revenue:
Subscription	$	73,151	$	54,268	$	18,883	35	%	$	137,367	$	111,086	$	26,281	24	%
Professional services and other		5,753		4,713		1,040	22			10,481		9,307		1,174	13
Total revenue	$	78,904	$	58,981	$	19,923	34	%	$	147,848	$	120,393	$	27,455	23	%


	Three Months Ended								~~Nine~~Six Months Ended
	~~September~~June 30,				Change				~~September~~June 30,				Change
	~~2020~~2021		~~2019~~2020		$		%		~~2020~~2021		~~2019~~2020		$		%

	(dollars in thousands)
Cost of revenue:
Subscription (exclusive of amortization shown below)	$	~~8,091~~10,185	$	~~5,995~~7,509	$	~~2,096~~2,676	3536	%	$	~~22,709~~19,599	$	~~16,828~~14,618	$	~~5,881~~4,981	3534	%
Professional services and other (exclusive of amortization shown below)		~~4,083~~6,142		~~4,086~~4,226		~~(3)~~1,916	—45			~~12,322~~11,725		~~11,002~~8,239		~~1,320~~3,486	1242
Amortization expense		~~5,177~~6,077		~~4,159~~4,944		~~1,018~~1,133	2423			~~14,723~~11,886		~~11,981~~9,546		~~2,742~~2,340	2325
Total cost of revenue	$	~~17,351~~22,404	$	~~14,240~~16,679	$	~~3,111~~5,725	2234	%	$	~~49,754~~43,210	$	~~39,811~~32,403	$	~~9,943~~10,807	2533	%


~~Signature~~August 4, 2021		~~Title~~	~~Date~~Ping Identity Holding Corp.
~~/s/Raj Dani~~ ~~Raj Dani~~		~~Chief Financial Officer~~ ~~(Principal Financial Officer)~~
	~~November 4, 2020~~/s/ Raj Dani
	Raj Dani
	Chief Financial Officer