Ping Identity Holding (PING) 10-Q 2022 Q1 Quarterly report

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 March 31, 2022

or

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

For the transition period from _____ to _____

Commission File Number: 001-39056

_____________________________________________________________________________________________________________________________________

PING IDENTITY HOLDING CORP.

(Exact Name of Registrant as Specified in Its Charter)

_____________________________________________________________________________________________________________________________________

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

1001 17th Street, Suite 100

Denver, Colorado 80202

(Address of Principal executive offices, including zip code)

(303) 468-2900

(Registrant’s telephone number, including area code)

_______________________________________________________________________________________________________________________________________

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

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

__________________________________________________________________________________________________________________________________________________________________________

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

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

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

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

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

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

On April 29, 2022, the Registrant had 85,285,543 shares of common stock, $0.001 par value, outstanding.

PING IDENTITY HOLDING CORP.

FORM 10-Q

For the Quarter Ended March 31, 2022

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021	3
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021	4
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2022 and 2021	5
	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2022 and 2021	6
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021	7
	Notes to Condensed Consolidated Financial Statements	8
Forward-Looking Statements		25
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	43
Item 4.	Controls and Procedures	44
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3.	Defaults Upon Senior Securities	45
Item 4.	Mine Safety Disclosures	45
Item 5.	Other Information	45
Item 6.	Exhibits	45
	Signatures	47

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)

	March 31,		December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	213,286	$	220,607
Accounts receivable, net of allowances of $526 and $610 at March 31, 2022 and December 31, 2021, respectively		74,265		82,969
Contract assets, current (net of allowance)		61,468		67,540
Deferred commissions, current		10,829		10,460
Prepaid expenses		21,084		16,654
Other current assets		2,055		2,914
Total current assets		382,987		401,144
Noncurrent assets:
Property and equipment, net		8,955		9,396
Goodwill		527,933		528,548
Intangible assets, net		183,289		190,077
Contract assets, noncurrent (net of allowance)		5,565		3,457
Deferred commissions, noncurrent		19,411		19,380
Deferred income taxes, net		3,089		6,201
Operating lease right-of-use assets		12,937		13,709
Other noncurrent assets		8,962		6,121
Total noncurrent assets		770,141		776,889
Total assets	$	1,153,128	$	1,178,033
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	9,665	$	4,528
Accrued expenses and other current liabilities		9,822		10,305
Accrued compensation		16,796		29,258
Deferred revenue, current		70,446		71,957
Operating lease liabilities, current		4,372		4,330
Current portion of long-term debt (net of issuance costs)		1,882		1,132
Total current liabilities		112,983		121,510
Noncurrent liabilities:
Deferred revenue, noncurrent		4,298		5,584
Long-term debt (net of issuance costs)		290,680		291,154
Deferred income taxes, net		777		4,240
Operating lease liabilities, noncurrent		13,077		14,140
Total noncurrent liabilities		308,832		315,118
Total liabilities		421,815		436,628
Commitments and contingencies (Note 14)
Stockholders' equity:
Preferred stock; $0.001 par value; 50,000,000 shares authorized at March 31, 2022 and December 31, 2021; 0 shares issued or outstanding at March 31, 2022 or December 31, 2021		—		—
Common stock; $0.001 par value; 500,000,000 shares authorized at March 31, 2022 and December 31, 2021; 84,016,147 and 83,754,449 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively		84		84
Additional paid-in capital		835,454		824,455
Accumulated other comprehensive income (loss)		(181)		652
Accumulated deficit		(104,044)		(83,786)
Total stockholders' equity		731,313		741,405
Total liabilities and stockholders' equity	$	1,153,128	$	1,178,033

3

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

PING IDENTITY HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(unaudited)

	Three Months Ended March 31,
	2022		2021
Revenue:
Subscription	$	80,200	$	64,216
Professional services and other		4,491		4,728
Total revenue		84,691		68,944
Cost of revenue:
Subscription (exclusive of amortization shown below)		13,388		9,414
Professional services and other (exclusive of amortization shown below)		6,759		5,583
Amortization expense		8,516		5,809
Total cost of revenue		28,663		20,806
Gross profit		56,028		48,138
Operating expenses:
Sales and marketing		30,941		25,549
Research and development		20,467		21,702
General and administrative		16,231		14,455
Depreciation and amortization		4,388		4,365
Total operating expenses		72,027		66,071
Loss from operations		(15,999)		(17,933)
Other expense:
Interest expense		(3,636)		(396)
Other expense, net		(804)		(872)
Total other expense		(4,440)		(1,268)
Loss before income taxes		(20,439)		(19,201)
Benefit for income taxes		181		3,267
Net loss	$	(20,258)	$	(15,934)
Net loss per share:
Basic and diluted	$	(0.24)	$	(0.20)
Weighted-average shares used in computing net loss per share:
Basic and diluted		83,822		81,339

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

4

PING IDENTITY HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(unaudited)

	Three Months Ended March 31,
	2022		2021
Net loss	$	(20,258)	$	(15,934)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		(833)		250
Total other comprehensive income (loss)		(833)		250
Comprehensive loss	$	(21,091)	$	(15,684)

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

5

PING IDENTITY HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

(unaudited)

Three Months Ended March 31, 2022:

							Accumulated
					Additional		Other				Total
	Common Stock				Paid-in		Comprehensive		Accumulated		Stockholders'
	Shares		Amount		Capital		Income (Loss)		Deficit		Equity
Balances at December 31, 2021		83,754,449	$	84	$	824,455	$	652	$	(83,786)	$	741,405
Net loss		—		—		—		—		(20,258)		(20,258)
Stock-based compensation		—		—		7,701		—		—		7,701
Reclassification of liability-classified awards upon settlement		—		—		2,541						2,541
Exercise of stock options, net of tax withholding		106,434		—		838		—		—		838
Vesting of restricted stock, net of tax withholding		155,264		—		(81)		—		—		(81)
Foreign currency translation adjustments, net of tax		—		—		—		(833)		—		(833)
Balances at March 31, 2022		84,016,147	$	84	$	835,454	$	(181)	$	(104,044)	$	731,313

Three Months Ended March 31, 2021:

							Accumulated
					Additional		Other				Total
	Common Stock				Paid-in		Comprehensive		Accumulated		Stockholders'
	Shares		Amount		Capital		Income		Deficit		Equity
Balances at December 31, 2020		81,163,896	$	81	$	739,051	$	1,373	$	(19,395)	$	721,110
Net loss		—		—		—		—		(15,934)		(15,934)
Stock-based compensation		—		—		16,300		—		—		16,300
Reclassification of liability-classified awards upon settlement		—		—		3,089						3,089
Exercise of stock options, net of tax withholding		198,105		—		1,770		—		—		1,770
Vesting of restricted stock, net of tax withholding		113,175		—		(565)		—		—		(565)
Foreign currency translation adjustments, net of tax		—		—		—		250		—		250
Balances at March 31, 2021		81,475,176	$	81	$	759,645	$	1,623	$	(35,329)	$	726,020

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

6

PING IDENTITY HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities
Net loss	$	(20,258)	$	(15,934)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		12,904		10,174
Stock-based compensation expense		8,128		16,939
Amortization of deferred commissions		3,316		2,329
Amortization of deferred debt issuance costs		318		62
Operating leases, net		(249)		(142)
Deferred taxes		(286)		(3,546)
Other		96		(10)
Changes in operating assets and liabilities:
Accounts receivable		8,574		16,640
Contract assets		4,006		4,128
Deferred commissions		(3,716)		(2,934)
Prepaid expenses and other current assets		(3,891)		2,466
Other assets		(3,707)		(820)
Accounts payable		5,274		(2,013)
Accrued compensation		(10,583)		(1,865)
Accrued expenses and other		(413)		1,659
Deferred revenue		(2,797)		(3,046)
Net cash provided by (used in) operating activities		(3,284)		24,087
Cash flows from investing activities
Payments for business acquisitions, net of cash acquired		(4)		—
Purchases of property and equipment and other		(809)		(953)
Capitalized software development costs		(4,908)		(3,974)
Net cash used in investing activities		(5,721)		(4,927)
Cash flows from financing activities
Payment of acquisition-related holdbacks		—		(993)
Proceeds from stock option exercises		1,093		1,770
Payment for tax withholding on equity awards		(81)		(565)
Payment of long-term debt		—		(110,000)
Net cash provided by (used in) financing activities		1,012		(109,788)
Effect of exchange rates on cash and cash equivalents and restricted cash		717		(111)
Net decrease in cash and cash equivalents and restricted cash		(7,276)		(90,739)
Cash and cash equivalents and restricted cash
Beginning of period		220,889		146,499
End of period	$	213,613	$	55,760
Supplemental disclosures of cash flow information:
Cash paid for interest	$	3,320	$	339
Cash paid for taxes		554		215
Noncash activities:
Purchases of property and equipment, accrued but not yet paid	$	210	$	42
Reclassification of liability-classified awards upon settlement		2,541		3,089
Lease liabilities arising from right-of-use assets		134		—
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	$	213,286	$	55,003
Restricted cash included in other noncurrent assets		327		757
Total cash and cash equivalents and restricted cash	$	213,613	$	55,760

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

7

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 months ended March 31, 2021 have been reclassified to conform with current period presentation.

Unaudited Interim Condensed Consolidated Financial Information

The accompanying interim condensed consolidated balance sheet as of March 31, 2022, the condensed consolidated statements of operations, of comprehensive loss, of cash flows and of stockholders’ equity for the three months ended March 31, 2022 and 2021 and the related footnote disclosures are unaudited. The condensed consolidated balance sheet data as of December 31, 2021 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, 2021.

These unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in management’s opinion, include all adjustments necessary to state fairly the consolidated financial position of the Company as of March 31, 2022, the results of operations for the three months ended March 31, 2022 and 2021 and cash flows for the three months ended March 31, 2022 and 2021. The results for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 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, determining the fair values of assets acquired and liabilities assumed in business combinations, valuing stock-based compensation 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, determining the amortization period for deferred commissions and assessing the

8

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

accounting treatment for commitments and contingencies. Management evaluates these estimates and assumptions on an ongoing basis and makes estimates based on historical experience and various other assumptions that are believed to be reasonable. Actual results may differ from these estimates due to risks and uncertainties, including those related to the novel Coronavirus Disease 2019 (“COVID-19”) pandemic.

2.       Summary of Significant Accounting Policies

The Company’s significant accounting policies are discussed in “Note 2 — Summary of Significant Accounting Policies” to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. There have been no significant changes to these policies that have had a material impact on the Company’s condensed consolidated financial statements and related notes for the three months ended March 31, 2022. The following describes the impact of certain policies.

Recent Accounting Pronouncements

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU No. 2021-08"). ASU No. 2021-08 will require companies to apply the definition of a performance obligation under ASC Topic 606 to recognize and measure contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers that are acquired in a business combination. Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU No. 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its condensed consolidated financial statements. The impact is dependent on the size and frequency of future acquisitions and does not affect contract assets or contract liabilities related to acquisitions completed in a year prior to the adoption date.

3.       Revenue Recognition and Deferred Commissions

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

Disaggregation of Revenue

The following table presents revenue by category:

	Three Months Ended March 31,
	2022		2021
Subscription term-based licenses:
Multi-year subscription term-based licenses	$	32,782	$	23,838
1-year subscription term-based licenses		11,528		17,344
Total subscription term-based licenses		44,310		41,182
Subscription SaaS		20,181		11,986
Maintenance and support		15,709		11,048
Total subscription revenue		80,200		64,216
Professional services and other		4,491		4,728
Total revenue	$	84,691	$	68,944

9

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

	Three Months Ended March 31,
	2022		2021
United States	$	65,763	$	53,871
International		18,928		15,073
Total revenue	$	84,691	$	68,944

Other than the United States, no other individual country exceeded 10% of total revenue for the three months ended March 31, 2022 or 2021.

Contract Balances

Contract assets represent amounts for which the Company has recognized revenue, pursuant to its revenue recognition policy, for contracts that have not yet been invoiced to customers where there is a remaining performance obligation, typically for multi-year arrangements. In multi-year agreements, the Company generally invoices customers on an annual basis on each anniversary of the contract start date. Amounts anticipated to be billed within one year of the balance sheet date are recorded as contract assets, current; the remaining portion is recorded as contract assets, noncurrent in the condensed consolidated balance sheets. The change in the total contract asset balance relates to entering into new multi-year contracts and billing on existing contracts. The opening and closing balances of contract assets were as follows:

	Three Months Ended March 31,
	2022		2021
Beginning balance	$	70,997	$	73,791
Ending balance		67,033		69,681
Change	$	(3,964)	$	(4,110)

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

	Three Months Ended March 31,
	2022		2021
Beginning balance	$	77,541	$	52,398
Ending balance		74,744		49,352
Change	$	(2,797)	$	(3,046)

10

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The change in deferred revenue relates primarily to invoicing customers and recognizing revenue in conjunction with the satisfaction of performance obligations. Revenue recognized during the three months ended March 31, 2022 and 2021 that was included in the deferred revenue balances at the beginning of the respective periods was as follows:

	Three Months Ended March 31,
	2022		2021
Deferred revenue recognized as revenue	$	37,769	$	25,935

Remaining Performance Obligations

Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and noncancelable amounts to be invoiced. As of March 31, 2022, the Company had $294.8 million of transaction price allocated to remaining performance obligations, of which 81% is expected to be recognized as revenue over the next 24 months, with the remainder to be recognized thereafter.

Deferred Commissions

The following table summarizes the account activity of deferred commissions for the three months ended March 31, 2022 and 2021:

	Three Months Ended March 31,
	2022		2021
Beginning balance	$	29,840	$	15,929
Additions to deferred commissions		3,716		2,934
Amortization of deferred commissions		(3,316)		(2,329)
Ending balance	$	30,240	$	16,534
Deferred commissions, current	$	10,829	$	6,819
Deferred commissions, noncurrent		19,411		9,715
Total deferred commissions	$	30,240	$	16,534

4. Allowances for Expected Credit Losses

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

	Accounts Receivable		Contract Assets
	Three Months Ended March 31, 2022
	(in thousands)
Beginning balance	$	610	$	156
Provision for credit losses, net of recoveries		138		(42)
Write-offs		(222)		—
Ending balance	$	526	$	114

11

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

5.       Fair Value of Financial Instruments

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

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

	March 31, 2022
	Level 1		Level 2		Level 3		Total
	(in thousands)
Cash and cash equivalents:
Money market funds	$	166,030	$	—	$	—	$	166,030

	December 31, 2021
	Level 1		Level 2		Level 3		Total
	(in thousands)
Cash and cash equivalents:
Money market funds	$	181,009	$	—	$	—	$	181,009

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 9).

6.       Property and Equipment

Property and equipment consisted of the following:

	March 31,		December 31,
	2022		2021
	(in thousands)
Computer equipment	$	8,202	$	8,117
Furniture and fixtures		4,381		4,331
Purchased computer software		785		785
Leasehold improvements		8,870		8,670
Other		448		448
Property and equipment, gross		22,686		22,351
Less: Accumulated depreciation		(13,731)		(12,955)
Property and equipment, net	$	8,955	$	9,396

Depreciation expense was $0.9 million for the three months ended March 31, 2022 and March 31, 2021.

12

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

7.       Business Combinations

Singular Key, Inc. Acquisition

On September 27, 2021, the Company acquired 100% of the voting equity interest in Singular Key, Inc. (“Singular Key”). Singular Key is a provider of no-code identity and security orchestration. Singular Key streamlines the integration of identity services, providing a no-code method of creating workflows across multiple identity platforms, including identity verification, fraud, risk, access management, privileged access and identity governance into a unified identity fabric. The purpose of this acquisition was to accelerate the Company’s entry into the identity orchestration arena.

The total purchase price was $73.2 million, net of cash acquired, which consisted of the following:

	Fair Value
	(in thousands)
Cash, net of cash acquired	$	40,314
Common stock issued		32,871
Total	$	73,185

The fair value of the 1,260,885 common shares issued as consideration was determined based on the lowest trading price of a Ping Identity common share on the New York Stock Exchange on the acquisition date of September 27, 2021.

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:

	September 27, 2021		Useful Life
	(in thousands)
Fair value of net assets acquired
Developed technology	$	21,480	4 years
Goodwill		56,864	Indefinite
Other assets		75
Total assets acquired		78,419
Other liabilities		(39)
Deferred tax liability		(5,195)
Total liabilities assumed		(5,234)
Net assets acquired	$	73,185

Goodwill is primarily attributable to the workforce acquired and the expected synergies arising from integrating Singular Key into the PingOne Cloud Platform. The integration of Singular Key capabilities is expected to enable customers to improve deployment speed, accelerate cloud migration, reduce costs and lower the risk associated with vendor lock-in. NaN of the goodwill is deductible for tax purposes.

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.

13

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The total purchase price was $39.7 million, net of cash acquired and a $0.2 million post-closing purchase price adjustment. The purchase price required to be paid by Ping Identity was reduced by $0.2 million as a result of changes to SecuredTouch’s originally estimated working capital balances.

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:

	June 20, 2021		Useful Life
	(in thousands)
Fair value of net assets acquired
Developed technology	$	8,300	4 years
Goodwill		30,804	Indefinite
Deferred tax asset		1,216
Other assets		157
Total assets acquired		40,477
Deferred revenue		(337)
Other liabilities		(483)
Total liabilities assumed		(820)
Net assets acquired	$	39,657

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.

Additional Acquisition Related Information

The operating results of Singular Key and SecuredTouch are included in the Company’s condensed consolidated statements of operations from their respective dates of acquisition.  

8.       Goodwill and Intangible Assets

The changes in the carrying amount of the Company’s goodwill balance from December 31, 2021 to March 31, 2022 were as follows (in thousands):

Beginning balance	$	528,548
Foreign currency translation adjustment		(615)
Ending balance	$	527,933

14

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The Company’s intangible assets as of March 31, 2022 were as follows:

	March 31, 2022
	Gross		Accumulated		Net Carrying
	Amount		Amortization		Value
	(in thousands)
Developed technology	$	145,939	$	(75,102)	$	70,837
Customer relationships		95,124		(43,223)		51,901
Trade names		56,793		(32,512)		24,281
Product backlog		617		(338)		279
Capitalized internal-use software		54,836		(19,624)		35,212
Other intangible assets		1,535		(756)		779
Total intangible assets	$	354,844	$	(171,555)	$	183,289

The Company’s intangible assets as of December 31, 2021 were as follows:

	December 31, 2021
	Gross		Accumulated		Net Carrying
	Amount		Amortization		Value
	(in thousands)
Developed technology	$	146,142	$	(69,802)	$	76,340
Customer relationships		95,131		(41,326)		53,805
Trade names		56,778		(31,093)		25,685
Product backlog		634		(287)		347
Capitalized internal-use software		50,934		(17,760)		33,174
Other intangible assets		1,481		(755)		726
Total intangible assets	$	351,100	$	(161,023)	$	190,077

The Company capitalized $5.2 million and $4.2 million of internal-use software costs during the three months ended March 31, 2022 and 2021, respectively, which included $0.3 million and $0.2 million of stock-based compensation costs, respectively.

Amortization expense for the three months ended March 31, 2022 and 2021 was $12.0 million and $9.3 million, respectively.

As of March 31, 2022, expected amortization expense for intangible assets subject to amortization for the next five years is as follows:

Year Ending December 31,	March 31, 2022
	(in thousands)
2022 (remaining nine months)	$	36,129
2023		45,885
2024		42,376
2025		30,020
2026		11,601
Thereafter		17,278
Total	$	183,289

9.       Debt

2019 Credit Agreement

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 (together, the “Credit Parties”)

15

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

entered into a credit agreement (the “2019 Credit Agreement”) with the financial institutions identified therein as lenders, including Bank of America, N.A., as administrative agent, and BofA Securities, Inc. and RBC Capital Markets as joint lead arrangers. Borrower and Holdings are wholly-owned indirect subsidiaries of the Company. The 2019 Credit Agreement provided for a senior revolving line of credit in a principal committed amount of $150.0 million (the “2019 Revolving Credit Facility”), with the option to request incremental term loan facilities in a minimum amount of $10 million for each facility if certain conditions are met. The 2019 Revolving Credit Facility had a maturity date of December 12, 2024. Obligations under the 2019 Credit Agreement were secured by substantially all of the assets of the Credit Parties.

The 2019 Revolving Credit Facility bore interest at the option of the Borrower 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 Borrower also paid 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.

2021 Credit Agreement

On November 23, 2021 (the “Closing Date”), the Credit Parties entered into a credit agreement (the “2021 Credit Agreement”) with the financial institutions party thereto as lenders and Bank of America, N.A., as administrative agent. Borrower and Holdings are wholly-owned indirect subsidiaries of the Company. The 2021 Credit Agreement provides for (a) a new term loan B facility with an aggregate principal amount of $300 million (the “2021 Term Loan Facility” and the loans thereunder, the “2021 Term Loans”) and (b) a new revolving line of credit facility in an aggregate principal amount of $150 million (the “2021 Revolving Facility” and together with the 2021 Term Loan Facility, the “2021 Credit Facilities”).  Proceeds from the 2021 Term Loan Facility were used to repay in full paid all remaining balances under the 2019 Revolving Credit Facility. The 2021 Revolving Facility was undrawn at the Closing Date. Following the repayment of the 2019 Revolving Credit Facility, any remaining and future proceeds from the 2021 Credit Facilities will be used for working capital purposes and general corporate purposes. The 2021 Credit Facilities are secured by substantially all of the assets of the Credit Parties.

The 2021 Term Loans mature on November 23, 2028. Amortization payments on the 2021 Term Loans are equal to 0.25% of the initial aggregate principal amount of the 2021 Term Loans, payable at the end of each fiscal quarter, commencing with the fiscal quarter ending June 30, 2022. The 2021 Term Loans bear interest at Term SOFR (as defined in the 2021 Credit Agreement and subject to a floor of 0.50%), plus the applicable SOFR Adjustment (as defined in the 2021 Credit Agreement), plus an applicable margin of 3.75%, or a base rate plus an applicable margin of 2.75%. The interest rate on the 2021 Term Loans was 4.25% as of March 31, 2022.

The 2021 Revolving Facility matures on November 23, 2026. Amounts drawn under the 2021 Revolving Facility denominated in U.S. dollars will bear interest at Term SOFR, subject to a floor of 0.00%, plus the applicable SOFR Adjustment, plus an applicable margin ranging from 1.25% to 2.00%, depending on the senior secured net leverage ratio (as calculated pursuant to the 2021 Credit Agreement) or (ii) a base rate plus an applicable margin ranging from 0.25% to 1.00%, depending on the senior secured net leverage ratio. Amounts drawn under the 2021 Revolving Facility denominated in available non-U.S. dollar currencies will bear interest at the applicable rate for such non-U.S. dollar currencies plus the applicable rate adjustment (if any) plus an applicable margin ranging from 1.25% to 2.00%, depending

16

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

on the senior secured net leverage ratio. There were 0 amounts drawn under the 2021 Revolving Facility as of March 31, 2022.

Additionally, the Borrower will also pay a commitment fee ranging from 0.20% to 0.35% per annum on the actual daily unused amount of the 2021 Revolving Facility, based on the senior secured net leverage ratio, payable quarterly in arrears the last business day of each March, June, September and December.

Any prepayment of the 2021 Term Loans in connection with a repricing transaction occurring prior to six months after the effective date of the 2021 Credit Agreement, subject to exceptions set forth in the 2021 Credit Agreement, will be subject to a prepayment premium equal to 1.00% of the principal amount of any 2021 Term Loans being prepaid. After May 23, 2022, any borrowing under the 2021 Term Loans 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. Amounts drawn under the 2021 Revolving Facility 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, subject to the terms, conditions and limitations set forth in the 2021 Credit Agreement, any amounts repaid may be reborrowed. Additionally, the 2021 Credit Agreement contains customary mandatory prepayment provisions.

The 2021 Credit Agreement contains customary events of default (including an event of default upon a change of control), customary representations and warranties and affirmative and negative covenants, including customary restrictions on the ability of the Credit Parties and their restricted subsidiaries to, among other things, incur indebtedness, make investments, make dividends and incur liens.

Under the terms of the 2021 Credit Agreement, Holdings and its restricted subsidiaries are required to maintain a total net leverage ratio (as calculated pursuant to the 2021 Credit Agreement) (i) commencing with the fiscal quarter ending June 30, 2022 and through and including the fiscal quarter ending March 31, 2024, of no more than 5.00:1.00 and (ii) commencing with the fiscal quarter ending June 30, 2024 and each fiscal quarter thereafter, of no more than 4.00:1.00. As of March 31, 2022, the Credit Parties were in compliance with all financial covenants.

Under the 2021 Credit Agreement, Holdings, the Borrower and the Borrower’s restricted subsidiaries are limited in their ability to declare or pay a dividend or return any equity capital to its equity holders (including any direct or indirect parent company of Holdings) or to authorize or make any other distribution, payment or delivery of property to such equity holders (each such dividend, return, distribution, payment or delivery, as applicable, a “Dividend”), subject to certain exceptions, including, without limitation, (1) stock repurchases from current or former employees, officers or directors in an amount not to exceed the greater of $16,750,000 and 30% of consolidated EBITDA (as calculated pursuant to the 2021 Credit Agreement) for the most recently ended 4 quarters; (2) other Dividends in an aggregate amount not to exceed the greater of $22,000,000 and 40% of consolidated EBITDA for the most recently ended 4 quarters; (3) unlimited additional Dividends provided that on the day of declaration of such Dividend there is no specified event of default (as defined in the 2021 Credit Agreement) and on a pro forma basis, the total net leverage ratio of Holdings and its restricted subsidiaries for the most recently ended 4 quarters is not greater than 3.50 to 1.00; (4) payment of certain overhead costs and expenses of Holdings or any direct or indirect parent of Holdings (including any direct or indirect parent company of Holdings) and (5) customary tax distributions.

The Company recognized $3.3 million and $0.3 million in interest expense related to the respective debt facilities during the three months ended March 31, 2022 and 2021.

As of March 31, 2022 the Company’s outstanding long-term debt balance was $290.7 million and the current portion of long-term debt was $1.9 million. These balances were net of debt issuance costs of $6.3 million and $1.1 million, respectively. As of December 31, 2021 the Company’s outstanding long-term debt balance was $291.2 million and the current portion of long-term debt was $1.1 million. These

17

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

balances were net of debt issuance costs of $6.6 million and $1.1 million, respectively. The 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.

Costs associated with the 2021 Revolving Facility were capitalized to other assets in the condensed consolidated balance sheet and will be amortized into interest expense on a straight-line basis over the contractual term of the 2021 Revolving Facility. As of March 31, 2022 and December 31, 2021, deferred costs associated with the 2021 Revolving Facility were $0.8 million.

During the three months ended March 31, 2022 and 2021, the Company amortized $0.3 million and $0.1 million of debt issuance costs, respectively.

Future principal payments on outstanding borrowings as of March 31, 2022 are as follows:

Year Ending December 31,	March 31, 2022
	(in thousands)
2022 (remaining nine months)	$	2,250
2023		3,000
2024		3,000
2025		3,000
2026		3,000
Thereafter		285,750
Total	$	300,000

10.    Income Taxes

For the three months ended March 31, 2022 and 2021, the Company recorded $0.2 million and $3.3 million as its benefit for income taxes, respectively. The Company’s calculation of its benefit for income taxes is dependent in part on forecasts of full-year results and key components of the Company’s benefit for income taxes primarily consist of state and federal income taxes, foreign income taxes and research and development (“R&D”) credits. The Company’s quarterly tax benefit calculation is also subject to variation due to several factors, including variability in loss before income taxes, the mix of jurisdictions to which such loss relates, changes in how the Company conducts business and tax law developments.  The decrease in the tax benefit for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 primarily relates to a valuation allowance recorded against our deferred tax assets in the three months ended March 31, 2022. This decrease was offset by a larger expected pre-tax loss in 2022 as compared to 2021, along with an increase in R&D and other credits recorded in the three months ended March 31, 2022.  

11.     Stockholders’ Equity

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 are subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future.

18

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 50,000,000 shares of preferred stock (in one or more series or classes), to create additional series or classes of preferred stock and to establish the number of shares to be included in such series or class. The Board of Directors is also authorized to increase or decrease the number of shares of any series or class subsequent to the issuance of shares of that series or class. Each series will have such rights, preferences and limitations, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences as determined by the Board of Directors. As of March 31, 2022 and December 31, 2021, the Company did 0t have any shares of preferred stock outstanding and currently has no plans to issue shares of preferred stock.

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”), 0 additional awards are granted under the 2016 Plan.

On September 23, 2019, the Company adopted the Ping Identity Holding Corp. Omnibus Incentive Plan (the “2019 Omnibus Incentive Plan”). The 2019 Omnibus Incentive Plan provides for grants of (i) stock options, (ii) stock appreciation rights, (iii) restricted shares, (iv) performance awards, (v) other share-based awards and (vi) other cash-based awards to eligible employees, non-employee directors and consultants of the Company. At March 31, 2022, the maximum number of shares of common stock available for issuance under the 2019 Omnibus Incentive Plan was 18,319,271 shares.

Stock-based compensation expense for all equity arrangements for the three months ended March 31, 2022 and 2021 was as follows:

	Three Months Ended March 31,
	2022		2021
Subscription cost of revenue	$	467	$	535
Professional services and other cost of revenue		281		591
Sales and marketing		2,180		4,198
Research and development		3,226		8,512
General and administrative		1,974		3,103
Total	$	8,128	$	16,939

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

Long-Term Incentive Plan

In conjunction with the 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) an IPO and registration of shares of common stock of Ping Identity Holding Corp. and (ii) Vista Equity Partners (“Vista”) realized cash return on its investment in the Company equaling or exceeding $1.491 billion. In

19

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

The conversion of the previously outstanding LTIP grants into time-based vesting RSUs resulted in the recognition of $12.4 million of stock-based compensation expense during the quarter ended March 31, 2021. Expense recognized related to the RSUs subject to performance and market conditions is discussed in more detail below.

Other Liability-Classified Awards

In conjunction with the Company’s acquisition of Symphonic Software Limited in October 2020, 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. Half of these awards are subject to continuous service conditions and half 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. On December 31, 2021, the Company settled $0.3 million of the first tranche of these liability-classified awards, net of $0.1 million of forfeitures due to employee terminations, resulting in the issuance of 14,664 shares. Upon issuance, the associated $0.3 million liability was reclassified from accrued compensation to additional paid-in capital and common stock on the condensed consolidated balance sheets. As of March 31, 2022, $0.5 million of the second tranche of these liability-classified awards, net of $0.1 million of forfeitures due to employee terminations, remains.

Additionally, in conjunction with the Company’s acquisition of ShoCard, Inc. in March of 2020, the Company issued liability-classified awards to certain individuals with a stated value of $3.1 million and $2.5 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 were to 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 and 2022, the Company settled the first and second tranche of these liability-classified awards, resulting in the grant and vest of 123,192 and 119,836 shares, respectively, within the periods. Upon issuance, the associated $3.1 million and $2.5 million liabilities were reclassified from accrued compensation to common stock and additional paid-in capital on the condensed consolidated balance sheets.

During the three months ended March 31, 2022 and 2021, the Company recognized $0.7 million and $0.8 million of stock-based compensation expense, respectively, related to these awards.

Restricted Stock Units

The Company grants RSUs that generally vest over one to four years. Additionally, the Company granted time-based vesting RSUs converted from the previously outstanding cash-based LTIP grants and those issued in connection with the ShoCard acquisition. The weighted-average grant-date fair value of RSUs granted during the three months ended March 31, 2022 and 2021 was $19.87 and $26.66, respectively. The total intrinsic value of RSUs that vested during the three months ended March 31, 2022 and 2021 was $3.2 million and $3.5 million, respectively. As of March 31, 2022, there was $91.7 million of total unrecognized compensation, which will be recognized over the remaining weighted-average vesting

20

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

period of 2.7 years using the straight-line method. A summary of the status of the Company’s unvested RSUs and activity for the three months ended March 31, 2022 is as follows:

		Weighted
		Average
		Grant Date
	Shares	Fair Value
Unvested as of December 31, 2021	3,950,122	$	21.81
Granted	1,801,743		19.87
Forfeited/canceled	(269,285)		21.49
Vested	(144,684)		21.29
Unvested as of March 31, 2022	5,337,896	$	21.18

Performance Stock Units (“PSUs”)

Awards Subject to Performance and Market Conditions

As previously discussed, during the first quarter of 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. These market-based PSUs were 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 market-based PSUs were determined to be probable of vesting, and the Company began recognizing the associated expense. In the first quarter of 2022, the market condition associated with these awards was modified such that the awards were deemed earned and fully vested as of March 31, 2022. This modification did not have a material impact on the Company’s condensed consolidated financial statements.  

Awards Subject to Performance Conditions

Additionally during the second quarter of 2021, the Company granted 208,806 PSUs under the 2019 Omnibus Incentive Plan, which will be earned only if the Company meets specific internal performance targets within a two-year period. The number of awards that ultimately vest could be 0% if the minimum hurdle is not achieved, or 50% or 100% of 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 March 31, 2022, there was $0.5 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.

During the first quarter of 2022, the Company granted 207,164 PSUs under the 2019 Omnibus Incentive Plan to certain employees, which will be earned only if those individuals meet specific internal performance goals. The number of awards that ultimately vest could be 0% if the minimum hurdle is not achieved, or approximately 59% or 100% of shares granted, depending on the individual’s achievement of internal performance targets. The grant-date fair value of these PSUs was $20.79. As of March 31, 2022, there was $2.4 million of total estimated unamortized compensation associated with these awards, which is expected to be recognized over the remaining estimated weighted-average vesting period of 2.9 years.

The total intrinsic value of the PSUs that vested during the quarter ended March 31, 2022 was $11.7 million. NaN PSUs vested during the quarter ended March 31, 2021.

21

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

A summary of the status of the Company’s unvested PSUs and activity for the quarter ended March 31, 2022 is as follows:

		Weighted
		Average
		Grant Date
	Shares	Fair Value
Unvested as of December 31, 2021	611,685	$	20.52
Granted	207,164		20.79
Forfeited/canceled	(14,164)		21.18
Vested	(428,318)		19.94
Unvested as of March 31, 2022	376,367	$	21.30

Stock Options

NaN options were granted during the three months ended March 31, 2022 or 2021. A summary of the Company’s stock option activity and related information for the three months ended March 31, 2022 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, 2021	3,331,782	$	9.57	5.5	$	44,355
Granted	—		—
Forfeited/canceled	—		—
Exercised	(143,267)		8.26			2,558
Outstanding as of March 31, 2022	3,188,515	$	9.63	4.7	$	56,767
As of March 31, 2022:
Vested and exercisable	3,188,515	$	9.63	4.7	$	56,767

Time-based options were to vest over four years with 25% vesting one year after grant and the remainder vesting ratably on a quarterly basis thereafter. In conjunction with the IPO, the Company modified the vesting conditions of these awards to provide for the options to vest and become exercisable following 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 Company equaling or exceeding $1.491 billion. In the second quarter of 2021, achievement of these conditions was determined to be probable. In the first quarter of 2022, the acceleration clause associated with these options was modified such that the options were deemed earned and fully vested as of March 31, 2022. This modification did not have a material impact on the Company’s condensed consolidated financial statements.

The vesting conditions of the options subject to performance and market conditions provided for the options to vest and become exercisable following both (i) an IPO and registration of shares of common stock of Ping Identity Holding Corp. and (ii) Vista’s realized cash return on its investment in the Company equaling or exceeding $1.491 billion. In the second quarter of 2021, these awards were determined to be probable of vesting, and the Company began recognizing the associated expense. In the first quarter of 2022, the market condition associated with these options was modified such that the options were deemed earned and fully vested as of March 31, 2022. This modification did not have a material impact on the Company’s condensed consolidated financial statements.

22

PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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. As discussed in Note 9, on November 23, 2021, the Company entered into the 2021 Term Loan Facility with a consortium of lenders for a principal amount of $300.0 million. As of March 31, 2022 and December 31, 2021, Vista held $6.5 million of the Company’s outstanding term loan debt. There were no other material transactions with Vista, or any other related party, during the three months ended March 31, 2022 and 2021.

14.     Commitments and Contingencies

Letters of Credit

As of March 31, 2022 and December 31, 2021, the Company had outstanding letters of credit under office lease agreements that totaled $0.3 million, which primarily guaranteed early termination fees in the event of default. The Company collateralizes the letters of credit with restricted cash balances which were classified in other noncurrent assets at March 31, 2022 and December 31, 2021.

Purchase Commitments

In the ordinary course of business, the Company enters into various purchase commitments primarily related to third-party cloud hosting and data services, IT operations and marketing events. Total noncancelable purchase commitments as of March 31, 2022 were approximately $178.0 million for periods through 2026.

Employee Benefit Plans

The Company established a defined contribution savings plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”) in which full-time U.S. employees are eligible to participate on the first day of the subsequent month of his or her date of employment. The 401(k) Plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a percentage of their annual compensation as defined in the 401(k) Plan. Employees in the United Kingdom and Canada are covered by defined contribution savings arrangements that are administered based upon the legislative and tax requirements of the respective countries.

The Company made contributions to its employee benefit plans of $1.3 million and $0.9 million during the three months ended March 31, 2022 and 2021, 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. The Company has evaluated all pending litigation and determined that the probability of loss is remote, therefore no liabilities have been accrued.

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PING IDENTITY HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 March 31,
	2022		2021
Numerator:
Net loss	$	(20,258)	$	(15,934)
Denominator:
Weighted-average common stock outstanding - basic and diluted		83,822		81,339
Net loss per share:
Basic and diluted	$	(0.24)	$	(0.20)

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

	Three Months Ended March 31,
	2022	2021
RSUs	5,338	2,912
Stock options	3,189	2,123
Other awards	9	128
Total antidilutive shares	8,536	5,163

16.     Subsequent Events

Employee Stock Purchase Plan (“ESPP”)

On May 3, 2022, following approval of the Company’s shareholders at the Annual Meeting, the Company adopted the 2022 Employee Stock Purchase Plan (the “2022 ESPP”). 5,000,000 of the Company’s previously authorized shares of common stock were allocated for issuance under the 2022 ESPP. The 2022 ESPP provides for six month offering periods beginning July 1 and January 1 of each year, with the initial offering period beginning on July 1, 2022.

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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 novel COVID-19 pandemic;

● the impact on our business of a network or data security incident or unauthorized access to our network or data or our customers’ data;

● the effects on our business if we are unable to acquire new customers, if our customers do not renew their arrangements with us, or if we are unable to expand sales to our existing customers or develop new solutions or solution packages that achieve market acceptance;

● our ability to manage our growth effectively, execute our business plan, maintain high levels of service and customer satisfaction or adequately address competitive challenges;

● our dependence on our senior management team and other key employees;

● our ability to enhance and expand our sales and marketing capabilities;

● our ability to attract and retain highly qualified personnel to execute our growth plan;

● the risks associated with interruptions or performance problems of our technology, infrastructure and service providers;

● our dependence on Amazon Web Services cloud infrastructure services;

● the impact of data privacy concerns, evolving regulations of cloud computing, cross-border data transfer restrictions and other domestic and foreign laws and regulations;

● the impact of volatility in quarterly operating results;

● the risks associated with our revenue recognition policy and other factors may distort our financial results in any given period;

● the effects on our customer base and business if we are unable to enhance our brand cost-effectively;

● our ability to comply with anti-corruption, anti-bribery and similar laws;

● our ability to comply with governmental export and import controls and economic sanctions laws;

● our ability to comply with the Health Insurance Portability and Accountability Act of 1996;

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● the potential adverse impact of legal proceedings;

● the impact of our frequently long and unpredictable sales cycle;

● our ability to identify suitable acquisition targets or otherwise successfully implement our growth strategy;

● the impact of a change in our pricing model;

● our ability to meet service level commitments under our customer contracts;

● the impact on our business and reputation if we are unable to provide high-quality customer support;

● our dependence on strategic relationships with third parties;

● the impact of adverse general and industry-specific economic and market conditions, including any impact from ongoing conflict in Ukraine and Russia, 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 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’’ in our most recent Annual Report on Form 10-K.

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

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

Unless the context requires otherwise, references in this report to "Ping Identity," the “Company,” “we,” “us” and “our” refer to Ping Identity Holding Corp. and its consolidated subsidiaries. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2021.

Overview

Ping Identity’s mission is to secure the digital world through intelligent identity.     We deliver on this mission by providing intelligent identity solutions for the enterprise, leveraging AI and ML to provide real-time authentication. We are built to scale for 3 billion-plus individual and machine identities globally at speeds that allow for up to 50,000 unique authentications per second. We enable companies to achieve zero trust security by making identity frictionless, giving our customer the ability to go faster, get to the cloud, and reduce costs, all while improving their end-user experiences.

We solve big problems for the world’s largest enterprises.     We serve more than half of the Fortune 100, and we have partnerships with companies such as  Microsoft and Amazon.  We serve a broad range of vertical markets with particular strength in financial services, healthcare, technology, aerospace, and retail especially among the Global 5000.

Ping Identity’s platform enables a range of use cases for workforces, for partners, and for a wide variety of consumer-facing applications.  Our solutions and solution packages can be deployed as SaaS, as on premises software, or a hybrid. We also provide flexibility to deploy our SaaS solutions in Ping Identity’s cloud, the customer’s private cloud, or in a public cloud.

The Ping Intelligent Identity Platform is comprised of multiple solutions that can be purchased individually or integrated as a more complete set of solutions for the customer, workforce, partner or IoT use case: Single Sign-On (“SSO”), Multi-Factor Authentication (“MFA”), Access Security, Directory, Dynamic Authorization, Risk Management, Identity Verification, API Intelligence, Orchestration and Fraud Detection.

Our offerings are predominantly 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.

Impact of COVID-19

While the impact of the COVID-19 pandemic is lessening, new COVID-19 variants are causing continued concern, and the pandemic is not over. To date, we have seen limited effects on the Company’s annual results of operations and overall financial performance as a result of COVID-19. As noted below in “Key Factors Affecting Our Performance—Seasonality,” typical seasonal fluctuations in our revenue have changed as a result of the COVID-19 pandemic. However, if the severity of the economic disruptions increase as the COVID-19 pandemic continues, the negative financial impact could be greater in future periods than in the first fiscal quarter ended March 31, 2022.

The effects of the continued outbreak of COVID-19 and related government responses may include disruptions of  sales channels, marketing activities and supply chains, and we cannot predict the effect that variants of COVID-19, and any related governmental responses to such variants, will have on our business and our

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financial performance, and the full effects of COVID-19 may not be fully reflected in our results of operations and overall financial performance until future periods, and such effect is uncertain.

In addition, our condensed consolidated financial statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. 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 COVID-19. 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:

Generating Additional Sales to Existing Customers

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

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 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.

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, Dynamic Authorization, Risk Management, Identity Verification, API Intelligence, Orchestration and Fraud Detection solutions and the IoT use case. To increase our customer base, we plan to continue 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.

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.

Investing for Growth

We believe Identity and Access Management 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. Since 2018, we have seen progress with these investments and

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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.

Additionally, we have a large and growing international presence and intend to grow our customer base in various international regions by making investments in our sales team globally. For the quarter ended March 31, 2022, our international revenue was 22% of our total revenue. We expect international sales to be a meaningful revenue contributor in future periods.

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. However, due to fluctuations in the economic environment resulting from COVID-19, we did not see our historical trends in seasonality for the year ended December 31, 2021, where 26% and 25% of our annual revenue was in our second and fourth quarters, respectively.

Key Business Metrics

In addition to our GAAP financial information, we review a number of operating and financial metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.

Annual Recurring Revenue

ARR represents the annualized value of all subscription contracts as of the end of the period. ARR 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 March 31, 2022 and 2021.

	March 31,				Change
	2022		2021		$		%
	(dollars in thousands)
ARR	$	323,494	$	266,274	$	57,220	21	%

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.

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

● Numerator.  We measure ending ARR for the current reporting period from customers with associated ending ARR for the same period last year.

● Denominator.  We measure ending ARR for the same period last year.

The quotient obtained from this calculation is our dollar-based net retention rate. Our dollar-based net retention rate was 114% at March 31, 2022. We believe our ability to cross-sell our new solutions to our installed base, particularly MFA, API Intelligence, Fraud Detection, Orchestration, Risk Management, Dynamic Authorization and Identity Verification, 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. 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 265 at March 31, 2021 to 321 at March 31, 2022, representing a year-over-year growth rate of 21%.

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 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.

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

	Three Months Ended March 31,
	2022		2021
	(in thousands)
Net cash provided by (used in) operating activities	$	(3,284)	$	24,087
Less:
Purchases of property and equipment		(809)		(953)
Capitalized software development costs		(4,908)		(3,974)
Free Cash Flow	$	(9,001)	$	19,160
Net cash used in investing activities	$	(5,721)	$	(4,927)
Net cash provided by (used in) financing activities	$	1,012	$	(109,788)
Cash paid for interest	$	3,320	$	339

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 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 March 31,
	2022		2021
Gross profit	$	56,028	$	48,138
Amortization expense		8,516		5,809
Stock-based compensation expense		748		1,126
Non-GAAP Gross Profit	$	65,292	$	55,073

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.

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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. 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 March 31, 2022 and 2021, 52% and 60%, respectively, of our revenue was from subscription term-based licenses. Changes in period-over-period subscription revenue growth are primarily impacted by the following factors:

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

● the duration of new and renewed term-based subscriptions.

While the number of new and increased subscriptions during a period impacts our subscription revenue growth, the type and duration of those subscriptions has a significantly greater impact on the amount and timing of revenue recognized in a period. Subscription revenue from term-based licenses is recognized at the beginning of the subscription term, while subscription revenue from SaaS and support and maintenance is recognized ratably over the subscription term. As a result, our revenue may fluctuate due to the timing of term-based licensing transactions. In addition, keeping other factors constant, when the percentage of subscription term-based licenses to total subscriptions sold or renewed in a period increases relative to the prior period, revenue growth will increase. Conversely, when the percentage of subscription SaaS and support and maintenance to total subscriptions sold or renewed in a period increases, revenue growth will generally decrease. Additionally, a multi-year subscription term-based license will generally result in greater revenue recognition up front relative to a one-year subscription term-based license. Therefore, keeping other factors constant, revenue growth will also trend higher in a period where the percentage of multi year subscription term based licenses to total subscription term based licenses increases. In the three months ended March 31, 2022, 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.

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Cost of Revenue

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

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

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

Operating Expenses

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

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

Research and Development.   Research and development expenses consist primarily of employee compensation costs, allocated overhead and software and maintenance expenses. We will continue to invest in innovation and offer our customers new solutions to enhance our existing platform and expect such investment to increase on an absolute dollar basis as our business grows.

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

We expect our general and administrative expenses to increase on an absolute dollar basis as our business grows. Also, we expect to incur additional general and administrative expenses as a result of continuing to operate as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, and increased expenses for insurance, investor relations and professional services.

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

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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.

Results of Operations

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

	Three Months Ended March 31,
	2022		2021
Revenue:
Subscription	$	80,200	$	64,216
Professional services and other		4,491		4,728
Total revenue		84,691		68,944
Cost of revenue:
Subscription (exclusive of amortization shown below)(1)		13,388		9,414
Professional services and other (exclusive of amortization shown below)(1)		6,759		5,583
Amortization expense		8,516		5,809
Total cost of revenue		28,663		20,806
Gross profit		56,028		48,138
Operating expenses:
Sales and marketing(1)		30,941		25,549
Research and development(1)		20,467		21,702
General and administrative(1)		16,231		14,455
Depreciation and amortization		4,388		4,365
Total operating expenses		72,027		66,071
Loss from operations		(15,999)		(17,933)
Other expense:
Interest expense		(3,636)		(396)
Other expense, net		(804)		(872)
Total other expense		(4,440)		(1,268)
Loss before income taxes		(20,439)		(19,201)
Benefit for income taxes		181		3,267
Net loss	$	(20,258)	$	(15,934)

(1) Includes stock-based compensation as follows:

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	Three Months Ended March 31,
	2022		2021
Subscription cost of revenue	$	467	$	535
Professional services and other cost of revenue		281		591
Sales and marketing		2,180		4,198
Research and development		3,226		8,512
General and administrative		1,974		3,103
Total	$	8,128	$	16,939

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 March 31,
	2022		2021
Revenue:
Subscription	95	%	93	%
Professional services and other	5		7
Total revenue	100		100
Cost of revenue:
Subscription (exclusive of amortization shown below)	16		14
Professional services and other (exclusive of amortization shown below)	8		8
Amortization expense	10		8
Total cost of revenue	34		30
Gross profit	66		70
Operating expenses:
Sales and marketing	37		37
Research and development	24		31
General and administrative	19		21
Depreciation and amortization	5		6
Total operating expenses	85		95
Loss from operations	(19)		(25)
Other expense:
Interest expense	(4)		(1)
Other expense, net	(1)		(1)
Total other expense	(5)		(2)
Loss before income taxes	(24)		(27)
Benefit for income taxes	—		5
Net loss	(24)	%	(22)	%

Comparison of the Three Months Ended March 31, 2022 and 2021

Revenue

	Three Months Ended
	March 31,				Change
	2022		2021		$		%
Revenue:
Subscription	$	80,200	$	64,216	$	15,984	25	%
Professional services and other		4,491		4,728		(237)	(5)
Total revenue	$	84,691	$	68,944	$	15,747	23	%

Total revenue increased by $15.7 million, or 23%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The revenue growth was attributable to an increase in subscription

36

revenue of $16.0 million. This increase was partially offset by a decrease in professional services and other revenue of $0.2 million.

The table below sets forth the components of subscription revenue for the three months ended March 31, 2022 and 2021.

	Three Months Ended
	March 31,				Change
	2022		2021		$		%
Subscription:
Multi-year subscription term-based licenses	$	32,782	$	23,838	$	8,944	38	%
1-year subscription term-based licenses		11,528		17,344		(5,816)	(34)
Total subscription term-based licenses		44,310		41,182		3,128	8
Subscription SaaS		20,181		11,986		8,195	68
Maintenance and support		15,709		11,048		4,661	42
Total subscription revenue	$	80,200	$	64,216	$	15,984	25

Subscription revenue increased 25%, or $16.0 million, in the three months ended March 31, 2022. Total subscription revenue increased as a result of a greater amount of new and renewing subscriptions in the three months ended March 31, 2022 compared to the three months ended March 31, 2021. Changes to subscription revenue were primarily due to the following:

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

	Three Months Ended
	March 31,				Change
	2022		2021		%
Subscription term-based licenses	55	%	64	%	(9)	%
Subscription SaaS	25		19		6
Maintenance and support	20		17		3
Total subscription revenue	100	%	100	%

Subscription term-based license revenue as a percentage of subscription revenue decreased from 64% in the three months ended March 31, 2021 to 55% in the three months ended March 31, 2022. Subscription SaaS as a percentage of total subscription revenue increased from 19% in the three months ended March 31, 2021 to 25% in the three months ended March 31, 2022. Maintenance and support as a percentage of total subscription revenue increased from 17% in the three months ended March 31, 2021 to 20% in the three months ended March 31, 2022.

Additionally, subscription SaaS revenue increased by 68%, or $8.2 million in the three months ended March 31, 2022 compared to the three months ended March 31, 2021. Maintenance and support revenue increased by 42%, or $4.7 million in the three months ended March 31, 2022 compared to the three months ended March 31, 2021. As our business moves increasingly to SaaS, our investments have followed, with a higher percentage of investment shifting to SaaS as well as maintenance and support of our software. Subscription SaaS and maintenance have increased as a percentage of total subscription revenue as adoption of our SaaS solutions has increased, as well as to reflect an increase in the relative value attributable to our software maintenance and support obligations, resulting in greater deferral of revenue in the period in which the subscription is contracted. We expect this trend to continue in future periods.

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

	Three Months Ended
	March 31,				Change
	2022		2021		%
Multi-year subscription term-based licenses	74	%	58	%	16	%
1-year subscription term-based licenses	26		42		(16)
Total subscription term-based licenses	100	%	100	%

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Multi-year subscription term-based license revenue as a percentage of total subscription term-based license revenue increased from 58% in the three months ended March 31, 2021 to 74% in the three months ended March 31, 2022. This resulted in more upfront revenue recognition from multi-year subscriptions entered into or renewed during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, as customers elected longer contract durations in response to the strengthening economic outlook and easing of COVID-19 restrictions. There is no guarantee that our customers will continue electing contracts with longer durations in future periods even if economic conditions continue to improve.

Additionally, 1-year subscription term-based license revenue as a percentage of total subscription term-based license revenue decreased from 42% in the three months ended March 31, 2021 to 26% in the three months ended March 31, 2022. In addition to the shift to multi-year term-based licenses described above, this decrease is attributable to additional value ascribed to our software maintenance and support obligations as compared to license obligations in contracts with multiple performance obligations, resulting in a decrease in term-based license revenue recognized.

Cost of Revenue

	Three Months Ended
	March 31,				Change
	2022		2021		$		%
Cost of revenue:
Subscription (exclusive of amortization shown below)	$	13,388	$	9,414	$	3,974	42	%
Professional services and other (exclusive of amortization shown below)		6,759		5,583		1,176	21
Amortization expense		8,516		5,809		2,707	47
Total cost of revenue	$	28,663	$	20,806	$	7,857	38	%

Subscription cost of revenue increased by $4.0 million, or 42%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. $1.8 million of the increase was attributable to an increase in cloud-based hosting and management costs largely associated with the increased adoption of our solutions.  $1.7 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.

Professional services and other cost of revenue increased by $1.2 million, or 21%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. $1.3 million of the increase was primarily attributable to an increase in headcount and and an increase in partner-related costs to support the growth in our business.

Amortization expense increased by $2.7 million, or 47%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The increase was attributable primarily to increases in the amortization of developed technology resulting from our acquisitions in 2021 of $1.9 million for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021. See further discussion of these acquisitions in Note 7 of our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. The remaining increase in amortization expense was primarily related to an increase in the amortization of our capitalized software of $1.1 million for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021. The increase in capitalized software was driven by an increase in employee costs capitalized as software development costs as a result of our ongoing investment in developing our SaaS services.

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Operating Expenses

	Three Months Ended
	March 31,				Change
	2022		2021		$		%
Sales and marketing	$	30,941	$	25,549	$	5,392	21	%
Research and development		20,467		21,702		(1,235)	(6)
General and administrative		16,231		14,455		1,776	12
Depreciation and amortization		4,388		4,365		23	1
Total operating expenses	$	72,027	$	66,071	$	5,956	9	%

Sales and Marketing.     Sales and marketing expenses increased by $5.4 million, or 21%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. $4.9 million of the increase was primarily related to an increase in headcount related to the expansion of our sales force and our marketing department. $1.7 million of the increase was due to an increase in travel and other event-related costs as COVID-19 restrictions continued to ease. These increases were partially offset by a $2.0 million decrease in stock-based compensation expense primarily related to expense recognized for the conversion of previously outstanding LTIP awards into RSUs during the first quarter of 2021. The remaining increase was primarily due to additional expenses incurred to support branding and awareness campaigns.

Research and Development.    Research and development expenses decreased by $1.2 million, or 6%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. $5.3 million of the decrease was related to a decrease in in stock-based compensation expense primarily related to expense recognized for the conversion of previously outstanding LTIP awards into RSUs during the first quarter of 2021, along with an increase of $1.0 million related to employee costs that were capitalized as software development costs in the three months ended March 31, 2022 as compared to March 31, 2021. These decreases were partially offset by an increase of $3.5 million related to an increase in headcount to enhance and expand our solutions, and an increase of $0.8 million in cloud-based hosting costs largely associated with the development and configuration of our cloud-based solutions. The remaining increase was primarily due to an increase in partner and consulting costs incurred to support the design and growth of our SaaS offerings.

General and Administrative.     General and administrative expenses increased by $1.8 million, or 12%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. $2.7 million of the increase was primarily attributable to an increase in headcount to support growth in our business. This increase was partially offset by a decrease of $1.1 million in stock-based compensation expense primarily related to expense recognized for the conversion of previously outstanding LTIP awards into RSUs during the first quarter of 2021.

Depreciation and Amortization.     Depreciation and amortization expense remained substantially the same for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

Other Income (Expense)

	Three Months Ended
	March 31,				Change
	2022		2021		$		%
Interest expense	$	(3,636)	$	(396)	$	(3,240)	818	%
Other income (expense), net		(804)		(872)		68	(8)
Total other income (expense)	$	(4,440)	$	(1,268)	$	(3,172)	250	%

Interest Expense.     Interest expense increased by $3.2 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The increase was attributable primarily to the increase in our average debt outstanding during the first quarter of 2022 as compared to 2021. An increase in the weighted average interest rate, from 1.4% for the three months ended March 31, 2021 to 4.3% for the three months ended March 31, 2022, also contributed to the increase in interest expense during the period.

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Other Income (Expense), Net.     Other income (expense), net remained substantially the same for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

Benefit for Income Taxes

	Three Months Ended
	March 31,				Change
	2022		2021		$		%
Benefit for income taxes	$	181	$	3,267	$	(3,086)	(94)	%

For the three months ended March 31, 2022 and 2021, we recorded a benefit for income taxes of $0.2 million and $3.3 million, respectively. The decrease in the tax benefit for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 primarily relates to a valuation allowance recorded against our deferred tax assets in the three months ended March 31, 2022. This decrease was offset by a larger expected pre-tax loss in 2022 as compared to 2021, along with an increase in R&D and other credits recorded in the three months ended March 31, 2022.  

Liquidity and Capital Resources

General

As of March 31, 2022, our principal sources of liquidity were cash and cash equivalents totaling $213.3 million, which were held for working capital purposes, and borrowing availability under our 2021 Revolving Credit Facility as described below. As of March 31, 2022, our cash equivalents were comprised of money market funds. We expect our operating cash requirements to increase in the near future as we continue to invest in key initiatives to drive the Company’s growth toward the cloud. However, we expect our long-term operating cash flows to improve as we increase our operational efficiency and realize benefits from cash investments.

We have financed our operations primarily through cash received from operations and proceeds from our debt and equity financings. We believe our existing cash and cash equivalents, our 2021 Credit Facilities 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 and beyond. Our future capital requirements will depend on several factors, including but not limited to our obligation to repay any amounts outstanding under our 2021 Credit Agreement, our subscription growth rate, subscription renewal activity, billing frequency, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced solutions, the continuing market adoption of our platform, and the continuing effects of the COVID-19 pandemic. In the future, we may enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights.

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

A majority of our customers pay in advance for annual subscriptions, a portion of which is recorded as deferred revenue. Deferred revenue consists of the unearned portion of billed fees for our subscriptions, which is later recognized as revenue in accordance with our revenue recognition policy. As of March 31, 2022, we had deferred revenue of $74.7 million, of which $70.4 million was recorded as a current liability and is expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met.

Senior Secured Credit Facilities

On November 23, 2021, in connection with the refinancing of our 2019 Credit Facilities, we entered into the 2021 Credit Agreement providing for (a) a new term loan B facility consisting of an aggregate principal amount of $300 million (the “2021 Term Loan Facility” and the loans thereunder, the “2021 Term Loans”) and (b) a new

40

revolving line of credit facility in an aggregate principal amount of $150 million (the “2021 Revolving Facility” and together with the 2021 Term Loan Facility, the “2021 Credit Facilities).

The 2021 Term Loans mature on November 23, 2028. Amortization payments on the 2021 Term Loans are equal to 0.25% of the initial aggregate principal amount of the 2021 Term Loans, payable at the end of each fiscal quarter, commencing with the fiscal quarter ending June 30, 2022. The 2021 Revolving Facility matures on November 23, 2026. There were no amounts drawn under the 2021 Revolving Facility as of March 31, 2022.

Under the terms of the 2021 Credit Agreement, Holdings and its restricted subsidiaries are required to maintain a total net leverage ratio (as calculated pursuant to the 2021 Credit Agreement) (i) commencing with the fiscal quarter ending June 30, 2022 and through and including the fiscal quarter ending March 31, 2024, of no more than 5.00:1.00 and (ii) commencing with the fiscal quarter ending June 30, 2024 and each fiscal quarter thereafter, of no more than 4.00:1.00. As of March 31, 2022, we were in compliance with all financial covenants.

See additional discussion of the 2021 Credit Facilities in Note 9 of our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Cash Flows

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

	Three Months Ended March 31,
	2022		2021
	(in thousands)
Net cash provided by (used in) operating activities	$	(3,284)	$	24,087
Net cash used in investing activities		(5,721)		(4,927)
Net cash provided by (used in) financing activities		1,012		(109,788)
Effect of exchange rate changes on cash and cash equivalents and restricted cash		717		(111)
Net decrease in cash and cash equivalents and restricted cash	$	(7,276)	$	(90,739)
Cash and cash equivalents and restricted cash at beginning of period		220,889		146,499
Cash and cash equivalents and restricted cash at end of period	$	213,613	$	55,760

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 three months ended March 31, 2022, net cash used in operating activities was $3.3 million, reflecting our net loss of $20.3 million, adjusted for non-cash charges of $24.3 million and net cash outflows of $7.3 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation, amortization of deferred commissions, and depreciation and amortization of property and equipment and intangible assets. The primary drivers of the changes in operating assets and liabilities related to a $2.8 million decrease in deferred revenue driven by the timing of revenue recognition, a $3.7 million increase in deferred commissions, a $3.9 million increase in prepaid expenses and other current assets, a $3.7 million increase in other assets, and a $10.6 million decrease in accrued compensation related to the timing of cash disbursements to our employees. These were partially offset by an $8.6 million decrease in accounts receivable due to the timing of collection of payment from our customers, a $4.0 million decrease in contract assets due to the issuance of invoices and the timing of revenue recognition, and a $5.3 million increase in accounts payable.

During the three months ended March 31, 2021, net cash provided by operating activities was $24.1 million due to our net loss of $15.9 million that was adjusted for non-cash charges of $25.8 million and net cash inflows

41

of $14.2 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation, amortization of deferred commissions, depreciation and amortization of property and equipment, intangible assets, operating leases and deferred income taxes. The primary drivers of the changes in operating assets and liabilities related to a $16.6 million decrease in accounts receivable due to the timing of collection of payment from our customers, a $4.1 million decrease in contract assets due to the issuance of invoices and the timing of revenue recognition, a $2.5 million decrease in prepaid expenses and other current assets primarily related to a reduction in our prepaid expenses during the three months ended March 31, 2021, and a $1.7 million increase in accrued expenses and other liabilities due to the timing of cash disbursements. These were partially offset by a $3.0 million decrease in deferred revenue driven by the timing of revenue recognition, a $2.9 million increase in deferred commissions, a $2.0 million decrease in accounts payable and a $1.9 million decrease in accrued compensation related to the timing of cash disbursements to our employees.

Investing Activities

Net cash used in investing activities was $5.7 million and $4.9 million during the three months ended March 31, 2022 and 2021, respectively, representing an increase of $0.8 million. The net increase is primarily attributable to an increase in the capitalization of internal-use software costs of $0.9 million.

Financing Activities

Net cash provided by financing activities was $1.0 million for the three months ended March 31, 2022, compared to net cash used in financing activities of $109.8 million during the three months ended March 31, 2021, representing an increase of $110.8 million. The net increase primarily relates to the repayment of $110.0 million on our 2019 Revolving Credit Facility in February 2021. There was no comparable activity during the three months ended March 31, 2022.

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 March 31, 2022, 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.

Critical Accounting 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 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

42

estimates under different assumptions or conditions, impacting our reported results of operations and financial condition.

There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the year ended December 31, 2021. For more information, please refer to “Note 2—Summary of Significant Accounting Policies” to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Recent Accounting Pronouncements

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. As we have operations in the United States and internationally, our market risk exposure is primarily a result of exposure due to potential changes in inflation or interest rates. We do not hold financial instruments for trading purposes.

Foreign Currency Exchange Risk

Our revenues and expenses are primarily denominated in U.S. dollars. For the three months ended March 31, 2022 and 2021, we recorded losses of $0.8 million and $0.9 million on foreign exchange transactions, respectively. To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative financial instruments, but we may do so in the future if our exposure to foreign currency should become more significant. For business conducted outside of the United States, we may have both revenue and costs incurred in the local currency of the subsidiary, creating a partial natural hedge. Changes to exchange rates therefore have not had a significant impact on the business to date. However, we will continue to reassess our foreign exchange exposure as we continue to grow our business globally. During the three months ended March 31, 2022 and 2021, 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 SOFR-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 2021 Term Loans bear interest at Term SOFR (as defined in the 2021 Credit Agreement and subject to a floor of 0.50%), plus the applicable SOFR Adjustment (as defined in the 2021 Credit Agreement), plus an applicable margin of 3.75%, or a base rate plus an applicable margin of 2.75%.

Amounts drawn under the 2021 Revolving Facility denominated in U.S. dollars will bear interest at Term SOFR, subject to a floor of 0.00%, plus the applicable SOFR Adjustment, plus an applicable margin ranging from 1.25% to 2.00%, depending on the senior secured net leverage ratio (as calculated pursuant to the 2021 Credit Agreement) or (ii) a base rate plus an applicable margin ranging from 0.25% to 1.00%, depending on the senior secured net leverage ratio. Amounts drawn under the 2021 Revolving Facility denominated in available non-U.S. dollar currencies will bear interest at the applicable rate for such non-U.S. dollar currencies plus the applicable rate adjustment (if any) plus an applicable margin ranging from 1.25% to 2.00%, depending on the senior secured net leverage ratio. There were no amounts drawn under the 2021 Revolving Facility as of March 31, 2022.

43

At March 31, 2022, we had total outstanding debt of $300.0 million under our 2021 Term Loan 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 $3.0 million.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as defined in Rule 13a–15(e) and Rule 15d–15(e) under the Exchange Act that are designed to provide reasonable assurance that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of March 31, 2022, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control

There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2022 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

In addition to the information set forth in this Form 10-Q, you should carefully consider the risk factors disclosed under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes to our risk factors from those included in our Annual Report on Form 10-K for the year ended December 31, 2021.

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 March 31, 2022.

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
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.

May 4, 2022	Ping Identity Holding Corp.
	/s/ Raj Dani
	Raj Dani
	Chief Financial Officer

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