Ping Identity Holding Corp.
Q2 2020 Earnings Call Transcript

Published: 13 Aug 2020

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Ping Identity Second Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speakers today Raj Dani, CFO. Thank you. Please go ahead, sir.

[Raj Dani:]

Thanks, everyone, for joining us today, and welcome to the Ping Identity conference call where we will discuss our results for the second quarter of fiscal year 2020 and provide our initial outlook for the third quarter of fiscal year 2020. Before we begin, I would like to remind you that shortly after the market closed today, Ping Identity issued a press release announcing its second quarter 2020 financial results. Additionally, Ping Identity published a supplemental slide presentation to accompany this call. You may access the press release and presentation on the Investor Relations section of pingidentity.com. With me today is Andre Durand, our CEO and Founder. Today's discussion may include forward-looking statements. Please refer to our annual report for the year ending December 31, 2019, filed on Form 10-K and filed with the Securities and Exchange Commission, and our quarterly report for the quarter ended June 30, 2020, filed on Form 10-Q and filed with the Securities and Exchange Commission, where you will see a discussion of factors that could cause the Company's actual results to differ materially from these statements. I would also like to remind you that during the call, we will discuss some non-GAAP measures related to Ping Identity's performance. You can find a reconciliation of those measures to the nearest comparable GAAP measures in our quarterly financial statements. To ensure that we can address as many analyst questions as possible during the call, we ask that you please limit your questions to one initial question and one follow-up. And with that, I'll turn the call over to Andre Durand.

[Andre Durand:]

Thanks, Raj, and thank you all for joining us today. We hope you and your families are safe and our thoughts remain with those affected by COVID-19. As a company, we continue to operate efficiently in a fully remote environment. And as a result, expect to remain in this posture until the safety of our employees can be assured. Having navigated the COVID-19 environment for the past five months, we're proud of our continued support of our customers to the extension of our solutions to enterprises beginning for evolving their identity security and digital transformation journey. As remote work and digital transformation trends accelerate, the importance of identity security has never been greater and we are dedicated to advancing our mission. Team delivered another strong quarter with results exceeding expectations across the board. Our performance demonstrates the resiliency of the identity and access management market in our ability to execute difficult circumstances. ARR grew 19% year-over-year, yielding $235.2 million. Q2 revenue was $59 million, with subscription revenue representing 92% of total revenue, and unlevered free cash flow of total $4.7 million. I would like to start by following up on a few trends we discussed during our Q1 earnings call and also highlight new trends from the quarter. Cloud adoption increased in our new bookings a testament to our R&D investments and hybrid cloud approach to enterprise identity. Similarly, we have now experienced hundreds of customers utilizing our new DevOps capabilities to consume the Ping platform in their private or public clouds. The speed, flexibility and control we provide these companies is unparalleled and that why many of these large enterprises selecting as their strategic identity platform of choice. Engagement with enterprise customers remains at an all time high as they looked at Ping for our advanced capabilities and thought leadership Customer renewals and retention remain strong, and new customers are increasingly accelerating their Ping deployments to protect critical resources in this remote and digital environment. In light of the sustained challenges within the macro environment and associated economic uncertainty, we continue to see some delays and larger deals. However, a number of customers are electing to phase in their purchases of our solutions. Customers realize the importance of identity and starting their journey with Ping. But with heightened budgetary scrutiny, they're phasing their purchases and this is resulting in smaller initial deals. For example, of the deals from Q1 that we mentioned were delayed, a majority have now closed in this phased approach. The impact on ARR of this phase approach was offset by a greater number of deals executed during the quarter than what we had originally anticipated. As enterprises have recovered from their initial shock of COVID, they are beginning to prioritize identity security for both their employees and customers. Our subscription business model, enterprise market focus, diversified vertical customer base, and leadership and the identity market has allowed us to weather the beginning of this pandemic. Now, I'd like to switch gears and highlight a few Q2 customer wins. On the new customer front, one of the largest healthcare providers chose Ping to serve as modern, scalable, and central authentication platform for both workforce and customer use case. This hybrid cloud solution leverages the full complement of Ping's advanced enterprise capabilities of single sign-on, access, multi factor authentication, and user directory. Ping was chosen for its ability to seamlessly migrate, all existing applications, consolidate vendors and for his track record in performance. The seven figure ARR deal is another testament to our ability to go wall to wall in securing all primary use cases within the enterprise. In another example, a multibillion dollar fast food chain purchased PingCloud solution in 30 days to accelerate the launch of a new mobile ordering application. The six figure deal will allow the Company to establish an enhanced customer experience to better operate and service customers in the current environment. In a third example, the leading European hotel chain expanded with Ping from the workforce to customer use case to serve as the identity provider behind their new brand and loyalty application. Specifically, they're leveraging Ping's cloud SSO, MFA, and directory capabilities to manage and secure their millions of loyal customers, factor authentication solution. They plan to embed strong authentication into their customer care application for enhanced security and identity management. While newer and more emerging technologies tend to move down time, we continue to successfully deploy our API security solution at three large global enterprises. These include a top five pharmaceutical, where we are now protecting 100 APIs in the cloud. Another is a global 100 manufacturer firm where we are protecting 3,000 APIs across both their cloud and data centers. And finally, at a large, Asian bank seeking to track all API activity for every user across their entire hybrid cloud, in these instances, the solution is now identity aware and contract API activities across multiple clouds and applications on a per user basis. As recognition of identity and its associated attack vectors for security threats increase, we continue to innovate across our platform to meet the needs of the world's most demanding enterprises. In Q2, we delivered the largest array of new capabilities to support the themes enterprises case about the most such as cloud and hybrid IT, zero trust and password list, customer identity solutions, and leveraging intelligence for better security. Furthermore, we delivered a wide array of new integration for identify proofing through ID data web, mobile device risk scores through threat metrics and single sign-on for Zoom, Zscaler and Atlassian. We also enhanced our integrations for Microsoft Intune, Symantec VIP and LinkedIn social login, adding to the thousands of pre-built integrations that speed times of production and value for our customers. These enhancements highlight Ping's innovative culture and strong partner ecosystem. More and more, Ping is viewed as a strategic partner for the future of digital security. And as a result, we're engaging more than ever with the C suite, building the future of identity security together. Speaking of building the future together, I'm proud to announce we released a newly revamped partner program and are engaging with GSI more than ever. We've also just completed our largest adenoverse 2020 virtual conference ever with 1,000s of participants and 100s of industry luminaries sharing their insights, best practice and visions for the future of identity. Capitalizing on the opportunity of identity is no small feat. It takes great vision and execution, but it also starts with people and teams. So, I'm proud to welcome Candace Worley to Ping as our Chief Product Officer. Candace brings over 25 years of enterprise strategy and product development experience from some of the largest technology companies, such as Amazon Web Services and McAfee. We're excited to have Candace's leadership and expertise as she advances our global product vision. In closing, I'm pleased for the second quarter results amidst the backdrop of uncertainty related to COVID-19. I'm thankful for the resiliency of our employees, customers and partners during this difficult time and I'm encouraged that identity remains one of the top priorities for CIOs and CTOs. I would now like to turn the call over to Raj Dani to walk through the quarter results in more detail. Raj?

[Raj Dani:]

Thanks, Andre. As mentioned, we are very pleased with our Q2 results and execution. Given our strong balance sheet, the subscription nature of our business model, enterprise customer base and the diversification of our business across industries and verticals, we were able to navigate the initial impact of COVID and executes seamlessly and efficiently. We ended the second quarter with ARR of $235.2 million, representing year-over-year ARR growth of 19%. Growth was driven by continued expansion of capabilities by our large enterprise, adoption of our cloud solutions and our ability to land quickly in new enterprise accounts. Second quarter total revenue was $59 million of which 92% was subscription revenue. Andre mentioned, contract relations for both new bookings and renewals began to normalize closer pre-COVID levels faster than we had anticipated and what we had experienced in the first quarter. We also had some larger three year renewals that resulted in higher revenue than expected. In Q2, our dollar base net retention rate was 111% calculated on a trailing 12 months basis. We continue to experience overall strong engagement with enterprise customers in the second quarter, as work-from-home and increased virtual customer engagement highlighted the need for modernization of their identity security infrastructure. However, given the economic uncertainties driven by COVID-19, certain of these enterprise customers elected to phase in their purchase of our solutions, resulting in smaller deal sizes and a reduction in our dollar base net retention rates for the second quarter of 2020, as compared to the second quarter of 2019. Unless otherwise stated, for the remainder of the P&L, I will refer to non-GAAP metrics. You can find the reconciliation of non-GAAP to GAAP numbers in the accompanying press release Gross margin for the second quarter was 81%, and comparatively, our GAAP subscription gross margin was 86%. Total operating expenses in the second quarter were $40.5 million. Adjusted EBITDA in the first quarter was $7.9 million, representing a margin of 13%. Unlevered free cash flow was $4.7 million during the quarter, higher than expected primarily due to timing, as we deferred several investments in the second half of 2020 due to the pandemic. Note that this figure is burdened by the second and final Elastic Beam acquisition contingency payment of $4.2 million. Similar to what we experienced in Q1, our new cloud solutions continued to gain significant traction in the market, particularly due to increasing adoption of Pink Cloud and our SaaS platform for the customer use case. New customer acquisition with our growth team remains a strategic priority in generating pipeline and landing quickly in the enterprise. As of the end of the quarter, we remained in a strong net cash position with $177.1 million of cash on hand. Looking forward while Q2 demonstrated the resiliency of identity and the strong execution of our business, we are mindful that the situation is constantly evolving and still prone to a higher than normal variance of outcomes, not only as it relates to Ping, but to the entire large enterprise customer landscape. We saw this cut both ways during Q2, as a larger than expected number of long-term renewals provided upside in revenue, but this was offset by a lower than expected net dollar retention rate as more customers decided to phase in their purchases of our solutions. Because of this, we are maintaining our pragmatic outlook regarding the uncertain global macro economic backdrop, and as a result, believe it is prudent to keep our full year 2020 guidance withdrawn until we have an increased understanding of the recovery timeline. For the quarter ending September 30, 2020, we project ARR to be between $240.2 million and $242.2 million and revenue to be between $54 million and $57 million. This revenue range anticipates faster growth in our ratable revenue relative to the overall business as well as some expected impacts from shorter term license subscriptions with our customers. Given the impact that deployment mix and contract duration have on GAAP revenue, management continues to believe that ARR is the key growth metric of a subscription business. Finally, we expect unlevered free cash flow to range from negative $10 million to negative $8 million, driven primarily by timing of prepayments of annual hosting costs, insurance expenses, and other miscellaneous items, as well as approximately $2 million of fees and expenses related to follow on equity offerings in Q2 and Q3. In addition, given our success navigating the curve and macro environment, we are looking for resume sales and market marketing and R&D operating investments in the second half of the year that were put on pause in Q2 as a result of COVID-19. In the absence of the prepayments and equity offering expense, we would be roughly break even for the quarter and still expect to be profitable on an unlevered free cash flow basis for full year 2020. We would also like to bring specific attention to footnote 10 of the latest 10-Q. This is a disclosure we have provided in past filings and it outlines performance plans for select employees tied to Vista's realized cash-on-cash return on its investment in Ping. Given our share price appreciation since IPO and Vista successes in further monetizing its long-term investment in Ping, we believe the probability threshold to accrue approximately $19 million for the long-term incentive plan and approximately $6 million of additional stock based compensation expense will be met in 2020. We do expect that these will be non-cash charges in 2020. While we took a temporary pause in Q2 on hiring a new investment, given our performance during Q2, we have resumed investing in our go-to-market initiatives and in platform innovations and expect to continue to do so during the second half of the year. In closing, we remain focused on building a durable business with sustainable growth and compelling margins. Along with providing enterprise customers the best identify platform and service in the market, scaling the business efficiently remains a top priority. Our strong balance sheet, subscription business model and track record of balancing growth and profitability provide us with great confidence as we continue to operate in unprecedented circumstances. With that, I'll turn it over to the operator for your questions.

[Operator:]

[Operator Instructions] First question comes from the line of Jonathan Ho with William Blair & Company.

[Jonathan Ho:]

I just wanted to start out and just to get a better sense from you around, I guess, the multi-year renewal activity. Could you talk a little bit about how much of a benefit you saw here? And why is the decision by the customers to sort of increase the duration of those deals?

[Raj Dani:]

This is Raj, I'll take that. So, when we provided guidance back in May, we were really looking at our experience that we had in the first quarter in terms of durations and modeled the business as such. What we saw was, a bounce back across, not quite to pre-COVID levels. There are pretty healthy bounce backs in durations to a little bit more of a normal operating environment. And with that, we also saw two large renewals that decided to go with three year deals on renewal. So that impact was about $4.5 million. And then I would say, there was about $800,000 also on some duration related revenue on our newer ACV. And we do have that broken out in our earnings presentation on the website too.

[Jonathan Ho:]

And then, this is a follow-up. How do you think about maybe the continuation of trends that you saw towards the end of the quarter? What are you seeing so far in July? Just trying to get a sense for whether that visibility container continues to improve or what that trend looks like?

[Raj Dani:]

Yes, so what we saw. I think what we saw in Q1, Jonathan was this paralysis that took over and everybody sort of retrenched. And then as we started to get better visibility in Q2, I think our customers also were living in an environment where things became a little bit more normal and things bounce back to a little bit more of a normal quote unquote environment. Now, in Q3, we have seen that contract durations have been similar to what we saw in Q2, and we do still see though that larger deals are going through more scrutiny and are going through longer procurement cycles.

[Operator:]

Your next question comes from the line of Gur Talpaz with Stifel. Your line is open.

[Gur Talpaz:]

Andre, you talked about customers embarking on a phased approach to the deployments. Can you elaborate a bit on that? Can you walk us through what a typical approach might look like here? And does it change the way you think about long-term lifetime customer value within that cohort?

[Andre Durand:]

So, on these larger enterprises, I would say the character of the larger either lands or larger expands are where they anticipate using the Ping platform, multiple Ping capabilities for multiple use cases. So, we might see a customer use 2, 3, 4 of our products for both customer use case and the workforce use case and that would typically embody, a fairly significant deal whether that was a land or an expand. In this environment, what we're seeing companies really forced to do under the budgetary constraints, they still have the same vision of where they want to go. They are still selecting paying as a strategic vendor, but they're being forced to, in essence phase the projects and the rolling. So, it might not be uncommon for them to say, well, we're going to start with one use case or the other use cases or we might start with a project for single sign on an MFA. And we might postpone the unification of all of our identities into a single Ping identity store or Ping directory. And so, they're getting creative to work within the constraints of the business, but they are still choosing to start the journey with Ping.

[Gur Talpaz:]

That's very helpful. And then, Raj, maybe one for you. You talked about a pickup in investment in the back half of the year. Hoping you could elaborate a bit on what that might entail and where you're most likely to put money to work here?

[Raj Dani:]

Yes, Gur, sure. So, as we've been talking about sales and marketing continues to be a keen focus for us as well as continued innovation on the R&D side. So, we do feel good about the investments we've made in 2019. We are starting to see some pretty good early results from that. And so, we expect to continue to double down in those areas in the second half.

[Operator:]

The next question comes from the line of Saket Kalia with Barclays. Your line is open.

[Saket Kalia:]

Hey, Andre, maybe first for you. Can you just talk a little bit about customers desire to start deploying products like single sign-on and other products in the cloud specifically hosted by Ping's or PingCloud for example? And relatedly how does that may be impacting your competitive win rates if at all?

[Andre Durand:]

Good question. We are seeing upwards of 60% of our newer deployments are deploying in the cloud today and that is a combination of public private and/or PingCloud. So the cloud your way flexibility is part of our architecture, as part of our deployment flexibility as part of our, kind of scale that we provide and control that we provide to large enterprises. So, I would say that, that we are seeing a majority of our newer deployments take place in the cloud, and I would say that we're becoming increasingly competitive there as well.

[Saket Kalia:]

Maybe my follow-up for you, Raj. Can you remind us how different, is it possible? How different is sort of the average PingCloud deal versus for example, a Ping fed deal on an ARR basis? And I guess what I'm trying to get there as, if the business moves more to SaaS, are these deals similar on an ARR basis to term deals? Or are they different and how? Does that make sense?

[Raj Dani:]

Yes, actually, they are very similar in both deal sizes as well as deal duration factors.

[Operator:]

Next question comes from the line of Catherine Trebnick with Colliers Securities. Your line is open.

[Catherine Trebnick:]

One of the things could you elaborate on is during the -- you've done very well with your API business and you also have some interesting partnerships with like F5. And they do a lot of API work. Could you just maybe give a finer point to what you should be doing in respect to going after these API opportunities?

[Andre Durand:]

We have a number of partners that we are working with on our API security and API intelligence product. So most of the gateway, API management and gateway vendors have now worked with us to build essentially integrations to the Ping intelligent for API products. F5 is one of several companies where we have essentially endorsed and partnership integrations with those companies. If you step back, the goal of a large enterprise with respect to their API security is to first and foremost, gain complete visibility into all API traffic. And many of these large enterprises run between divisions and over many generations of purchases. They have APIs managed and protected or gated, if you will behind multiple API gateway products. So, it's very important for paying our value proposition to be able to go into those large global enterprises and be able to tell them that they can integrate with all of their API management tools. And then, as a catchall to work with F5 in NGINX and other technologies that can give us complete visibility into all the API traffic. So that we can apply our AI and machine learning to then determine whether or not there's anomalous traffic. So, you have seen and we'll continue to see partnerships with companies like F5 and IBM, and a whole slew of others that we've partnered with, to make sure that we can offer that promise to these large enterprises. And the deployments that I recently spoke about, some of these are extremely large, global deployments to span thousands of APIs across multiple infrastructures. The value that we're giving is the completeness of that visibility and protection.

[Operator:]

Next question comes from the line of Matt Hedberg with RBC. Your line is open.

[Matt Hedberg:]

Raj, on your Q3 ARR guide was above Street expectations. I'm wondering, if you can provide a little bit more context on how you're thinking about the macro assumptions at either the high or low end of the guide? And then when you think about the Q3 revenue guide, in light of some of those large Q2 renewals. How should we think about that relative to Q3 and are there perhaps more of these larger multiyear renewals that could continue to show up here?

[Raj Dani:]

So, with respect to the ARR guide, we -- it's essentially our philosophies the same which is, it's more determined by what we have good visibility to at the moment. So, the macro is trying to, if you will bake into that visibility, we're constantly looking at that pipeline and checking in with the CEO. And so, we feel pretty good about where our ranges right now. And then with respect to durations, as I mentioned, durations for new and renewals bounce back relatively well, not quite to pre-COVID levels. Right now, we don't have visibility to any kind of surprises like that where customers would just have multiyear renewals where we're expecting single year. But as with what happened in Q2, there's always a possibility of something like that happening.

[Matt Hedberg:]

And then, Andre, how are CIOs thinking about the importance MFA versus SSO post-COVID world? And are you seeing a higher attach of MFA and either existing accounts or net new business?

[Andre Durand:]

We've seen a trend of higher attaches MFA to SSO, frankly, for probably a few years. MFA is honestly to ubiquity. In a COVID landscape, as I've reported before, we had several customers who had purchased that drastically accelerated their deployment, some in the case. We've had several companies deploy 10s of thousands, if not hundreds of thousands in a matter of a few short weeks. So, we are seeing -- we do believe that there is a coupling now of single sign on and strong authentication. It is represented in the success of MFA products within our product line and the penetration that we've had in our customer base, I don't expect that to turn around. I think MFA these days is simply a requirement for companies. You don't want to be the Company that hasn't deployed two factors MFA with as much social engineering around phishing, which is going on. So I do believe that it is becoming the baseline or table stakes for any responsible company looking to protect their users from these phishing attacks. I expect that to continue.

[Operator:]

Your next question comes from the line of Phil Winslow with Wells Fargo. Your line is open.

[Rich Hilliker:]

This is Rich Hilliker on for Phil. Thanks for taking my question. Andre, 190 days ago, you'd mentioned that identity budgets were open up well and project prioritization was shifting a Ping's favor and I think you've heard of it today, but I'm just wondering what you say about each of those today?

[Andre Durand:]

I think what I said a quarter ago stands today as well. And with the exception of larger deal timing and larger deals being phased. I think everything that we spoke to in the early weeks of our experience of COVID have largely continued to manifest here in month five. Identity continues to be resilient, that some of the acid tests of that resiliency is in some of the deals that we've reported in highly impacted industries. For example, that European hotel just expanded with us. As I reported the event ticketing company that expanded with us. So I feel as if the identity of being resilient in COVID, month five continues to hold true. But as we've also reported, I haven't seen a change in posture around larger deals, and the scrutiny of larger deals and the requirements of teams to essentially face their purchases of things. Now that said, we have closed some large deals, but not to pre-COVID levels. So, I think its status quo sitting here at month five, it was within the first couple of weeks.

[Rich Hilliker:]

And then I have a follow-up here. I'm wondering, if you guys can comment on the mix of employee versus customer fixing projects in the quarter. And any trends you're seeing on that side, in light of this of the prioritization that we've been talking about?

[Andre Durand:]

We are seeing our customer solution is growing faster than the overall rate of the business to the workforce solution. And as I've said before, we have leaned into that we think we have an ideal solution for many of these large enterprises. And especially these large modernization that consolidations of in some cases 15, 20 years of siloed legacy or homegrown products. In those circumstances, the complexity of the consolidation is really kind of runs right into our wheelhouse. And I am noticing a difference between what I'll call the modernization of the customer use case with these large enterprises and/or a line of business and/or development or app team going out just wanting to procure identity for their app, or for their website or for their particular solution. There's a big difference between that line of business or developer purchase with a really only looking out for their own application or website. And the large enterprise that has a strategic mandate under the digital transformation to create a single identity for all products and services. Fortunately, we're well positioned in both now. We have an ideal solution for the large modernizations. And we have now a new solution in our paying one for customer. And as we reported here, this recent, that was an example of a single app going out under a rapid deployment timeline, and they selected our SaaS platform for it.

[Operator:]

Your next question comes from the line of Heather Bellini with Goldman Sachs. Your line is open.

[Heather Bellini:]

I just have a couple, if you don't mind. Just wanted to get a sense from a competitive landscape, any rip and replace update on kind of who you're seeing most often in terms of replacements? And then also on the back of one of those large API deals that you mentioned. Just anything you could share with us on how much do you think that expands your addressable market and how quickly do you think that ramp?

[Andre Durand:]

Heather, on the rip and replace, the infrastructure that we are replacing probably has been there for upwards of 15 years, maybe 20 years at the longest. So, the landscape for the opportunity and modernization of legacy has not changed for us significant, frankly for years. We are -- we've done hundreds of those. We have -- we really hard the full go to for large hybrid enterprise in those modernizations. And we continue to win those deals as at the same rate, as we have in the past. About you have to wait until those deals come up to actually be modernized. And we've seen some acceleration of that modest as companies have announced as the legacy vendors have announced the end of life of some of their products. We do tend to see a lot of activity around renewal times of those legacy products, but they're staggered and it's not as if there's a whole mass of them all at once. So I feel as if the modernization of legacy, both the competitive landscape and the rate at which we've seen it, is roughly the same and has been for several quarters to your later question about API and the market opportunity for expansion, as we've said before this really is a brand new market. And so putting any projections for us and creating expectations for you, we're still too early in that. In Q2, we did see some projects that were slated to kind of kick off into COVID environment. Some of those projects got delayed, but as we reported, we had signed several customers in Q4 and Q1 and we really put our attention and focus into getting those early customers deployed and deployed globally. And that's what I reported in the earnings report. We're really excited about those global deployments, because those are the proof points that the rest of the industry will look towards to gain comfort that this solution is now maturing, maturing to the level to where they actually could deploy. All that said it is our belief that APIs are the doorway to all things of value. All services, data is being exposed through API, increasingly through public or internet facing APIs. I cannot foresee a future where the protection of those APIs does not involve a product like PingIntelligence for APIs. Any more than you and I would use email without email suffering, I mean, would just be untenable. And so, the historical state of art for API, which is identity based security through oaf, is the first step in defense of API. PingIntelligence for APIs is the second layer of defense. So very optimistic on it, but we're still in very early innings, and I would hope that in the future, I can give you better answers as, and certainly as we get more visibility into the growth of that product, we will share it.

[Operator:]

Your next question comes from the line of Rob Owens with Piper Sandler. Your line is open.

[Rob Owens:]

Thanks for taking my question. Andre, you painted a picture of relatively consistent demand that you talked about, some legacy landscape as it's starting to evolve, and there's a lot of puts and things around deals. But with all the discussion around the digital transformation we're hearing, is there any sense in terms of the velocity of the business or anything else that there's acceleration coming on the horizon.

[Andre Durand:]

Rob, I feel that the customer use case is experiencing some real focus in enterprises. And as you know, that's part of the digital transformation. So if I step back and think there's a digital transformation of the identity security control plane for workforce. It's really kind of manifest around zero trust, which is the network is no longer the perimeter let's take an identity based approach. But when you switch over to the customer side of the equation, what's really driving. It is a need for a better end user digital experience, oftentimes around the mobile application or oftentimes around a single identity for the customer to gain access to all resources, that part of the digital transformation. I don't know if it's totally COVID inspired because we had seen acceleration of that prior to COVID. I think in a COVID environment, all things digital engagement with customers versus physical offerings, contact list, everything, seems like all of those are taking on an acceleration. And maybe to go back to my prior example, the mobile ordering app that I described, that was part of the digital transformation for that fast food chain. They were scheduled to roll that out in 2021. And then all of a sudden, they needed to roll it out in Q3. So therein lies an example. I also do believe that the hotel that we announced, the European hotel, that that was inspired the timing of that, especially given the impact of their business. The timing of that was inspired by we need better digital experiences for our hotel participants in hotel. And there's a lot of innovation that's going on there right now around kind of physical touch, if that makes sense. So yes, so I think if there's one beneficiary that we're seeing is that there is some urgency around customers.

[Rob Owens:]

Great, and then secondly, give me the color around the majority of your new deployments being across cloud a little bit privates or paying republic? And then you end up coming up with senior getting increasingly competitive there. Can you maybe double click on that a little bit for? Is that in terms of functionality? Is it the breadth of your offering relative to being in a hybrid fashion?

[Andre Durand:]

We've always been the enterprise full functions for hybrid flexibility leader. I think was maybe a little bit different here as we lean into our investments in our cloud offerings. Maybe in scenarios where we might have been not considered or were a cloud first mandate was the priority. And maybe some of the deep or rich enterprise functionality we provide was a secondary requirement. I think we're entering a position to where we could be considered a first class citizen if you will, a first class solution in a cloud environment. So I think that that's probably what's changing. And it's natural as we've been investing there for years.

[Operator:]

The next question comes from the line of Tal Liani with Bank of America. Your line is open.

[Dan Bartus:]

Hey guys, this is Dan Bartus on for Tal. Thanks for taking our questions. The first one for you, Andre, I think it's kind of piggybacking up for the last one. But, what I'm hearing is you guys are doing quite well with PingCloud, but I was wondering if you could talk more specifically about success with PingOne? And because my understanding is PingOne much more of a plug and play offering, and I'm curious if in this environment, new customers or deployments are opting for that product?

[Andre Durand:]

Well, we have a number of solutions that we offer through PingOne and our PingID MFA solution has only ever been offered on PingOne and it is our kind of our largest offering on our PingOne platform that makes sense. We have a number of new services that we've introduced in PingOne over the years. The most recent one is our PingOne for customer. And as I've reported the fast food chain selected PingOne for customer to deploy their mobile app, we are seeing good traction of that platform. Now, there's several things about that that are new to us. We cater to the developer in ways that we have not historically done, developers come and basically consume identity as a service by wiring in PingOne for customer into their app or into their website. We're seeing really good traction there. The PingCloud offering is more catered to the large, more complex or hybrid enterprises that want to use the flexibility and kind of rich capabilities of our full platform. But then want Ping to offer it to the SaaS offering so when we say run it in your private cloud, run it in Azure, or AWS, or Google Cloud or run it in the PingCloud. That offering is designed to cater to our larger, more complex hybrid enterprises. Having the two in our arsenal is actually pretty interesting. One of those, as I said, is being new to SaaS offering. Both are receiving a lot of interest. But both cater to kind of different parts of the enterprise market.

[Dan Bartus:]

And Raj, can you just quickly, sorry, beat a dead horse here. But could you talk about the net retention rate just because it's more in some of the basics of work pushes that up well over 100% and what exactly has been the headwind, because I guess what I'm struggling with is I understand why phasing in would lead to some smaller new deal sizes, but I don't really get why a customer that is renewing would be phasing in that renewal?

[Raj Dani:]

So, the net retention, yes, it's two components. One is new ACV that are new ARR that you've booked from an existing customer. So that's what you return. I would say, on the latter point, our retention has been exceptional, right? So, then it goes back to your net ARR that you're generating from that base customer. And those customers were in the pipeline, we may have had much larger deals like expanding either to new solutions or for workforce customer, expanding to the customer use case side, or vice versa. And what we're seeing there that net new deal with that existing customer coming in, is just being phased in as opposed to a big seven figure deal. So those are the two components essentially.

[Operator:]

Next question comes from the line of Gray Powell of BTIG. Your line is open.

[Gray Powell:]

Just a couple of my side, I'm circling back on purchase behavior. So you guys have been talking about larger enterprise customers, taking longer decisions, and buying things more in stocks versus all at once for a few months. Now, it's not really surprising. But do you think those buying patterns have stabilized? And then how do you feel the potential for case of normalizing and get back to normal levels over the next 6 or 12 months or what timeframe do you think happens?

[Andre Durand:]

Well, I would hope to see a return to normal when the world does return to normal. And yes, I think what we're seeing now. I think we've seen enough to expect that what we are experiencing will continue as long as we are in this environment. I think from a tailwind headwinds perspective. Tailwind, we're seeing real focus on zero trust in MFA and that customer use case around digital customer engagement. The headwinds is used identified are the larger deals, both the procurement cycle itself and the size of the deal being phased. I think we are encouraged by the fact that our pipeline is intact, that our customer engagement is high, even in those impacted industries. And so I think what you're seeing is what we expect provided the conditions that we're experiencing continue as they are. When conditions return to a better semblance of pre-COVID, it is our expectation that our business would return to something more in line with pre-COVID.

[Gray Powell:]

Got it. Okay. That's helpful. And then just one other quick one, so you guys had pretty strong contributions from multi-year deals in Q4 17 and Q4 18, I'm just trying to figure out like how we used to think about that this year. Like what a three year deal that assigning Q4 17 renew for another three years. It sounds like you've done that before. I just want to make sure I'm thinking about exactly. Or should we expect any significant, shorter duration.

[Andre Durand:]

No, I don't think that there's, well, for one, there's not really a correlation between the initial term and the renewal terms. So, what we have been seeing, say pre-COVID was longer duration deals. So say a three year deal on when they came up for renewal, they couldn't renew for one, two or three years. Now, pre-COVID, we were seeing a trend towards a longer term renewals just because of the product and solution was tried and true. And the customers had made a commitment; they were getting great value out of it. So I think if they were, I'd say that there probably just a normalization that's occurring and we're getting closer to those pre-COVID levels, but not quite there yet.

[Operator:]

Next question comes from the line of Walter Prichard with Citi Bank. Your line is open.

[Walter Prichard:]

Thanks. Two questions just about what you're seeing in terms of smaller deals on the upfront side first, what are you doing to your sales training or sales compensation, just to account for that? I'd imagine that harder for those folks to make their quotas. And I just had a follow up related to that.

[Raj Dani:]

So if I understood Walter correctly, you were asking with the smaller deal sizes and shorter durations.

[Walter Prichard:]

Correct. A sales person, I'm probably getting less of enough from tenant and even on an ARR basis. And have you adjusted quotas or done something from a training perspective to try to drive more velocity in terms of more deals as opposed to getting the bigger commitment upfront?

[Raj Dani:]

We haven't changed the comp philosophy, a whole lot but certainly have invested in sales enablement across the board. And we have a growth team that is highly focused on higher velocity lands with especially with some of our newer cloud products. So, we are seeing the transaction increase, even though they may be of smaller value upfront, but the land and expand model has been our bread and butter for a lot of years. So we're quite used to living in this space.

[Walter Prichard:]

And how are you thinking about the NRR metric being impacted by that behavior? And have you started to see some of those customers maybe in Q1 did the smaller deals come back and do follow ups already? Or what do you expect in terms of timing of follow-up behavior on those purchases?

[Raj Dani:]

We're continuing to see the land and expand work out pretty well. Like I said, some of the lands are smaller, but some of the expands are also in phases. So I think we'll probably wind up staying in this range for a little while longer until, I think customers have more visibility into their own businesses and some of their budgets resumed to or revert to normalize level.

[Operator:]

[Operator Instructions] Your next question comes from the line of Gregg Moskowitz with Mizuho. Your line is open.

[Gregg Moskowitz:]

First, I just wanted to get back to the 60% of new deployments being in the cloud. Curious if you're seeing any changes in the mix by which customers are running, in other words, PingCloud versus private cloud versus deploying it themselves with AWS or Azure?

[Andre Durand:]

There's a pretty good mix there, but I would say that the bulk of the interest there at least early because our PingCloud offering is early has been Ping going into Amazon Web Services and into increasingly into Microsoft Azure, so those are the two predominant public clouds. And so I would expect that that would continue. s our as the maturity around our PingCloud offerings continues, we are starting to see more and more interest in the PingCloud offering, why because it has all of the advanced capabilities that they have become a custom to. And so, making it easy for companies to consume Ping in the cloud and take advantage of our most advanced capabilities is a no compromise cloud your way offering. But again, that's a newer offering. And so I think the bulk of the deployments when we speak to that is Ping going into the public cloud.

[Gregg Moskowitz:]

And then Andre as you mentioned in your prepared remarks, you've recently hired a new Chief Product Officer, and she has a very strong background. What will here focus areas be going forward and how might this potentially represented incremental opportunity for Ping?

[Andre Durand:]

We have a fairly large set of capabilities platform now. Making it easier for companies to consume the advanced hybrid capabilities in their cloud of choice providing a better user experience for those companies that deploy the entire Ping platform, accelerating the things that we are the cloud service offerings that we have like our MFA, and new service offerings that are coming out. We have a kind of a well documented roadmap, multiyear roadmap. We have a lot of things that we're focused on that we started before, Candace started with us. Having Candace, now come help us accelerate that and fine tune our thoughts, based upon her prior cloud experience and security experience at McAfee, is what we're focus on. I'll say she's probably about 90 days in so, still getting her legs underneath us. But it's just a fantastic addition to the team brings a lot commercial insights and kind of commercial market outside in perspective in some ways I think we lacked here. So I'm really pleased and I work with her daily. She is fantastic.

[Operator:]

The next question comes from the line of Shaul Eyal with Oppenheimer. Your line is open.

[Shaul Eyal:]

Just two quick one. Maybe, Andre, can you give us a little more color on the adenoverse flagship identity industry event? Has there any set of pipelines building as a result of this market reference?

[Andre Durand:]

Maybe a little bit early for that. We did as I noted before switch the conference as everyone did to an all-virtual conference. It was free. We had our largest registration ever as a result of that. I think the on-demand nature of the way in which we delivered the content, I hear many people really appreciate the fact that all of a sudden, all of adenoverse was now available to them. Whereas in the physical event we run 6 to 7 tracks were up wide and people really felt stressed about missing great content four-day event. So I think our experience has been, it was a good transition under the circumstances to something that probably will stick. I would imagine when we can go back to a physical, we'll probably always from here on forward would be hybrid in some manner. With respect to the exact pipeline build, these, many times in the physical event use the opportunities to relationship build. I think all of us have figured out how to relationship building the absence of the physical events. But really, I don't know if there's a material impact as a result of our big annual user's conference. All that said, I will say the absence of physical gatherings. Early, there was a negative impact to our pipeline, but we've since adjusted and we are hosting a number of smaller virtual events. And I feel as if we've largely adjusted now to that reality. And have largely recovered from what was an immediate impact where nobody was allowed to travel and go face-to-face.

[Shaul Eyal:]

And then, I'll let's just really quick follow up with Raj. On the international side, we see some big growth year-over-year. Raj, can you help us understand, what are the regions, that's driving that growth? And are those targeted regions recovering gradually as they reopen? And that's it for me.

[Raj Dani:]

So, our major markets are in EMEA and Australia, and we had 25% of our revenue from international markets for the second quarter, which has been fairly typical over the last few quarters. I'd say, we're seeing some of the same behavior in all regions. I think all large enterprises are a little bit cautious on stem, but we're certainly seeing some traction and given our positioning as an enterprise leader in those markets.

[Operator:]

I have no further questions at this time. I will now turn the call back over to management for closing remarks.

[Andre Durand:]

Thank you. Well, look, this concludes our Q2 report. I want to thank everyone including my team, that's worked so hard remote. I know in conversation with one of them, he said. It's weird, but it's weird everywhere, and it's tough and it's tough everywhere. I think we're an environment where we just put our head down and we do our work. Our team has been working exceptionally hard. And I'm very, very proud of them. I want to wish everyone a happy and healthy time, and I'm hopeful for a speedy recovery, but we'll see. Thanks, everyone for joining. Take care.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.