Ping Identity Holding Corp.
Q4 2020 Earnings Call Transcript

Published: 25 Feb 2021

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Ping Identity Fourth Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Banks, VP of Investor Relations. Thank you. Please go ahead.

[David Banks:]

Thanks, everyone, for joining us today, and welcome to the Ping Identity conference call, where we will discuss our results for the fourth quarter and full year 2020 and provide our outlook for the first quarter and full year 2021. Before we begin, I'd like to remind you that shortly after the market closed today, we issued a press release announcing our fourth quarter 2020 financial results. We also 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 Raj Dani, our CFO. Today's call may include forward-looking statements. Please refer to our annual report for the year ending December 31, 2020, filed on Form 10-K with the Securities and Exchange Commission. There 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 annual financial statements, and out fourth quarter press release. To ensure we can address as many analysts' questions as possible during the call, we ask that you please limit your questions to one plus a follow-up. And with that, I'll turn the call over to Andre.

[Andre Durand:]

Thanks, David and welcome everyone who's tuned in today. We hope you are doing well and like everyone we're excited to welcome the promise of 2021. I'd like to also extend our heartfelt thanks to our Texas-based associates who like millions of others, having toward days of difficulty related to the extreme cold and extended power outages there. We appreciate all you do and hope things can get back to normal quickly. I'm pleased to report, we closed another strong quarter of annual recurring revenue and unlevered free cash flow. The key metric to gauge the health of the business amidst a challenging year of uncertainty, living and adjusting with COVID. We finished the year with ARR of $259.1 million, up 15% for fiscal 2020. Q4 revenue was $63.3 million and the full-year revenue was $243.6 million. With subscription revenue representing 92% of both totals. We closed the year with $8.8 billion in unlevered free cash flow, a $10 million year-over-year improvement from 2019 and further evidence of the profitable growth model we've built. In reflecting on both the quarter and full year, a few key takeaways emerge. First, Identity is now solidly recognized as the heart of security, something we've talked about for years which has now been accelerated in the COVID era. Work from home is the norm. And the old paradigm of network security is finally given way to Zero Trust. In nearly every customer prospect and partner conversation, enterprises are laying plans to evolve their security model to Zero Trust with Identity at the core.

[Raj Dani:]

Thanks, Andre. I would echo Andre's comments that we are very pleased with our Q4 and fiscal year 2020 results and execution and our ability to drive seamless deployments in quick time to value for our customers. We closed the year with ARR of $259.1 million, representing year-over-year growth of 15%. Q4 net ARR of $16.5 million was up 23% compared with the midpoint of our guidance, a great outcome. Growth was driven by continued adoption of our SaaS solutions, solid international bookings, especially in EMEA and other large customer transactions that are enabling businesses to accelerate their digital transformations. As Andre mentioned, our SaaS ARR now represents more than 15% of our total ARR growing at multiples of our overall ARR growth rate and more than half of our customers now leverage at least one Ping capability in the cloud up from just one-third at the end of 2018. We intend to provide more granularity on these metrics and others at an Investor Day later in the year. Fourth quarter total revenue was $63.3 million, of which 92% was subscription revenue. This was driven by a higher level of ratable revenue and so much shorter subscription term license contract durations. This points to the rapid acceleration of customer SaaS adoption with the accounting related to ASC 606, a natural byproduct. Our ratable subscription SaaS and maintenance and support revenue grew 27% in Q4 and 24% for the full year. In Q4, our SaaS and maintenance and support revenue represented 38% of our total subscription revenue, up 11 percentage points from the prior year. Also within the subscription category, our one-year term based license revenue grew 22% in Q4 to $17.7 million, while our multi-year term based license revenue declined by 43% in the quarter to $18.5 million. These metrics are continued evidence of the SaaS acceleration of our business. Given the impact the deployment mix and contract duration have on GAAP revenue, we continue to believe that ARR is the key growth metric of a subscription business. In Q4, our dollar based net retention rate was 108%, calculated on trailing 12-month basis. Given the prevailing economic uncertainty driven by COVID-19, a number of enterprise customers continue to phase in their purchases of our solutions, resulting in slightly smaller deal sizes and a reduction in our dollar based net retention rate. Net retention rate has historically tracked quite consistently with ARR growth. We ended 2020 with 1411 customers, up 4% year-over-year. This growth belies the strength in specific categories of growth. We had 51 customers with more than $1 million in ARR at the end of the year, up 34% including a number of existing customers who migrated upwards into this cohort from cohorts below $1 million in ARR. Customers with more than $250,000 in ARR number 260 at the end of the year of 12%. The overall growth rate was muted by a drop in customer count from our non-regrettable insurance category. This data supports our business model, which continues to appeal to the largest, most complex enterprises, which are hybrid by default. Unless otherwise stated for the remainder of the P&L, I will refer to non-GAAP metrics press release. Gross margin for the fourth quarter was 80% and comparatively our GAAP subscription gross margin was 86%. Our SaaS rate of the overall business and as the result, we saw slightly lower subscription gross margins. Total operating expenses in the fourth quarter were $46.3 million. Unlevered free cash flow usage was $1.4 million during the quarter, better than expected, primarily due to strong cash collections. Unlevered free cash generation for the full year was $8.8 million, up approximately $10 million from full year 2019. We remain in a strong cash position at the end of the year with $146 million of cash on hand, a reduction, driven primarily by the acquisition of Symphonic. Earlier this month, we paid down $110 million of our revolver, leaving a drawn at only $40 million of the $150 million available. Recall that we drew down $98 million of our revolver in March 2020 to derisk the business at the outset of COVID. We feel the financial risk associated with the pandemic has largely passed and are comfortable holding a smaller amount of cash on our balance sheet. Moving now to guidance. We are reinstating our annual guidance after having suspended it in May of last year. For 2021, we project ARR to be between $295.5 million and $298.5 million, growth of 15% at the midpoint, stabilizing at current levels. For the first quarter, we expect ARR $263 million to $264 million, also growth of 15% at the midpoint. We project full-year revenue of $255 million to $265 million, growth of 7% at the midpoint and reflective of our ongoing SaaS acceleration on new and renewing ARR. This impact for the full year is expected to be about $30 million. In the first quarter, we expect GAAP revenue to be impacted by about $5 million and are guiding to a range of $61.5 million to $63.5 million in revenue. We currently expect a similar quarterly range for the second and third quarters with a typical seasonal uptick in Q4. We expect unlevered free cash flow for the year of $7 million to $11 million, up slightly at the midpoint, relative to our 2020 performance. Similar to last year, we expect our unlevered free cash flow to be materially higher in Q1 at approximately $12 million to $14 million due to the timing of collections and payments. Our free cash generation in 2021 is reflective of accelerating investments. We paused non-critical investments in the middle of 2020 as a result of COVID, resume them in the second half and expect to continue investing in 2021. These investments will drive higher cost of revenue, and R&D, given our SaaS acceleration. We also expect to continue our go-to-market investments and expect a resumption of travel later in the year. We expect our total expense growth to track ARR growth as a result of these investments, which is also reflected in our unlevered free cash flow guidance. We feel encouraged as we move deeper into 2021. We believe the innovation we've been known for, since our inception, will accelerate this year as we invest to drive growth, especially with our SaaS products. We have the financial strength to execute that plan and look forward to reporting to you on it as the year progresses. With that, I'll turn it over to the operator for your questions.

[Operator:]

Your first question comes from Matt Hedberg from RBC Capital Markets.

[Matthew Swanson:]

Yes. Thank you. This is Matt Swanson on for Matt, Raj. Could you touch a little bit on your expectations for the SaaS mix having into the quarter. And then if there is any more granularity on what that mix is kind of embedded in your guidance. Obviously the breakout of the impact on top line revenue, which will be helpful.

[Raj Dani:]

Sure. So in our -- in our hybrid model, GAAP revenue is highly variable due to the deployment mix and contract durations on software. And going into Q4, we certainly anticipated some SaaS acceleration. But we actually saw more than what we had originally anticipated. So you saw some of that in the actual for Q4. We also saw some shortening of contract durations, that's related throughout the year and -- on software deals. So -- and those are largely driven by budget and overall uncertainty around COVID. So essentially, if you think about the confluence of those two factors that's what drove sort of the delta between our guidance and the actuals. But offsetting this, our ratable revenue grew 27% year-over-year in Q4. So just to kind of summarize our revenue, while it's an important GAAP metric, it's just not a relevant growth metric for us as ARR normalizes for all the noise created by deployment mix and contract base.

[Matthew Swanson:]

That's super helpful insight. And then Andre, it's been really good to hear about the airline deal when you're replacing the Oracle systems. Are you starting to kind of see some of that legacy replacement opportunity start to open up again, at least some like a pipeline perspective as we start to kind of move through the vaccine period here.

[Andre Durand:]

Matt, it is opening up. A lot of times the legacy replacement is driven by our renewal and companies back into an amount of time that they need to plan to ultimately replace and convert indoor, integrate all the applications that are in the legacy. And so as renewals for the legacy come up, we get introduced into the account. All of that said, I do think that there is an increased level of awareness that Identity is the foundation of security in this now even more distributed world. And so I think that there is now an elevated and more strategic view of the role of Identity and the role of the partner that they are choosing to not just displace legacy, but actually put the business on solid footing for where they want to go with customer experience and where they know they need to go in securing the workforce in a Zero Trust world.

[Matthew Swanson:]

Thank you, both.

[Andre Durand:]

Thank you, Matt.

[Operator:]

Your next question comes from Saket Kalia from Barclays.

[Saket Kalia:]

Hey guys, thanks for taking my questions here. Andre, maybe first for you, just given the shift that we're seeing to Ping cloud, Ping SaaS, the question is how do you feel about that SaaS solution to your more traditional Ping on-prem solution and maybe relatedly, how do you feel about the cloud solution -- how do you feel like cloud solution competes against perhaps other cloud native competitors? Does it make sense?

[Andre Durand:]

Yes, makes sense, Saket. Thank you for that question. As I've reported before, we have hundreds of enterprises now deploying Ping in their cloud. We refer to this as Cloud Your Way and this will continue, I think for the largest, most regulated customers and one that have a cloud first mandate but want a certain level of control. And Ping is fairly unique in our ability to deploy in one or more public clouds or the private cloud as I reported in my earnings script. But for companies wanting pure SaaS, we have a very strong offering now, built on the most recent architectures. Our SaaS ARR is growing at multiples of our overall ARR, now represents greater than 15% of our overall ARR. And as we've also noted and you've seen in the press releases, we've accelerated the pace of our SaaS offerings by introducing three new services in three quarters and we're seeing good traction from the early introduction. Perhaps what you're referring to which I'm also very excited about, in recent developments, our SaaS offering now has the ability for companies to consume our most advanced capabilities, as SaaS and what we refer to as a no compromise, best of all world's scenario. This is a 100% feature parity with the software the companies have been deploying for years in mission critical environments. And we are seeing really good traction in that solution. So we've been investing aggressively in our cloud, in our cloud platform and now having the ability to offer as SaaS our most advanced services and capabilities, is making us very competitive.

[Saket Kalia:]

Got it. That's really helpful. Raj, maybe for my follow-up for you. Can you just talk a little bit about the pipeline of multi-year renewals this quarter. Maybe related to that, did some of those multi-year renewals, perhaps renew for shorter durations. I know you talked about duration being a little bit lower broadly, but specific on renewals, I'm curious if you say those renewal durations maybe decrease a little bit, and in some of those renewals that may be were previously term on premise, perhaps changed deployment the SaaS.

[Raj Dani:]

Hey, Saket. Thanks for the question. So typically for Q4, we had a significant amount of -- typical for Q4, we had a significant amount of renewal volume in Q4 of 2020 and I'm pleased to say that we had great retention as usual. And just to answer your second question first, because that's top of mind, we did see some customers to SaaS over software in the renewals, but I wouldn't call it overly significant as we saw with, perhaps more SaaS acceleration on new ARR booked in the quarter. So I just wanted to kind of address that second question first. And then, going back to your first question on the pipeline of multi-year renewals, there's just a confluence of factors, right, that impact revenue and especially when it comes to renewals. Not all initial multi-year deals renew for multiple years, if that makes sense. There is -- typically there is renewals of all different durations. And so I think you're seeing some of that in your question that I think you're asking. Specific to Q4, we did see higher degree of SaaS, as I mentioned and some shortening of contract durations. But really on our renewals, there was nothing of note that where we had a whole bunch of multi-year renewal slated and they came in shorter, pretty much tracked according to schedule.

[Saket Kalia:]

Got it. Very helpful. Thanks guys.

[Andre Durand:]

Sure, Saket.

[Operator:]

Your next question comes from Adam Tindle from Raymond James.

[Adam Tindle:]

Okay, thanks, good afternoon. I just wanted to touch on the comment about how, over 15% of total ARR is coming from SaaS at this point. Curious if you're seeing this as net new ARR or is there some aspect of cannibalization of the non-SaaS ARR because that shift seems poised to continue, probably good for valuation but it'd be helpful to understand whether this is additive or cannibalistic because it should push up growth rates as well, if it's becoming a bigger part of the mix.

[Raj Dani:]

Adam, most of it is new and obviously everything related to SaaS and our SaaS growth and our SaaS offering. As we noted, will be discussed in our Investor Day in the second half of this year. We do anticipate that some of our customers over time that we will journey our customers to the cloud, if that's what they wish to do, we do see an opportunity for significant up sell as they move into our cloud offering. We have several services offered as SaaS in the cloud that are not available as software for them to run on-prem. So as customers make the commitment to Ping in their cloud journey, move into our cloud platform, we do see opportunity for expansion. But most of what you're seeing is new.

[Adam Tindle:]

Okay, that's helpful. And maybe as a follow-up Raj, new ARR, $16.5 million this quarter, was a source of upside. It looks like the year-over-year declines are bottoming out and actually should see low double-digit growth year-over-year in this metric based on your guidance. Maybe just touch on the key drivers of that new ARR improvement over the course of the year. And any assumptions embedded whether it's new versus existing customers or additional color you can give on what's embedded in that? Thank you.

[Raj Dani:]

Thanks, Adam. Are you talking about for 2021 specifically?

[Adam Tindle:]

Yes. For 2021, so Q4, it was $16.5 million. The year-over-year decline is bottoming out and improving. And if we look at 2021, I think it's going to grow low double digits. Just curious on that trajectory and what's embedded in the new ARR assumption?

[Raj Dani:]

Sure. So we've -- we typically had a fairly stable mix of base versus new. And our net retention sort of tracks to our overall ARR growth pretty steadily to within about 700 and 800 basis points. So we don't really anticipate that mix changing a whole lot. We view kind of a two-thirds want their as base versus new as pretty healthy and with the investments we're making in channel and in our -- and in our growth team, which is shown a lot of early traction. We're encouraged that we can continue that trend.

[Adam Tindle:]

Got it. Thanks for the color and good luck in 2021.

[Raj Dani:]

Sure.

[Andre Durand:]

Thanks, Adam.

[Operator:]

Your next question comes from Brian Essex from Goldman Sachs.

[Brian Essex:]

Hi, good afternoon and thank you for taking the question. Maybe I was wondering if you could start with a little bit of color around customer buying patterns, and I know you in previous periods, you've said you're seeing a return to more normal buying patterns. I mean, how can we -- maybe reconcile that with deal is still being phased. And is that changing at all and maybe your outlook, maybe what's embedded in your assumptions for 2021 as you kind of look at the pipeline and speak with customers around their buying intentions. And what in terms of -- what we can expect there?

[Andre Durand:]

Yes. Thanks, Brian, this is Andre speaking. We have seen what we refer to as a lockdown and hold in the enterprise through COVID. Budgets and cost savings do remain a focus but RFP activity has absolutely picked up. And so we are experiencing now a healthy deal volume and pipeline generation. To be clear, we do anticipate this phasing will continue to incur to occur. So I don't think we're entirely out of the woods from what we experienced pre-COVID. However, things are starting to feel more normal and we saw some of that with the solid ARR beat in Q4, which is really the first sign of a stabilizing environment. So, we do anticipate and I think we are embedding in our guidance. We guide to what we see and what we experience and what we are seeing is still some conservatism in budgeting and cost pressures that does leave those.

[Brian Essex:]

Maybe how a company may think about phasing in these factors that you might see in 2021 that might lead them to reconsider the rate that they're phasing deals, and right-size the deal to what they would normally purchase.

[Andre Durand:]

Well, in two or three of the examples that I gave in my early remarks, it is very common for customers to focus on centralizing authentication and strong authentication or MFA services for either their workforce or their customer, That tends to be the typical land in the low-hanging fruit as companies embark on modernizing their identity. They are looking to consolidate several different authentication systems. They're looking to retire multiple hard tokens that we've seen in the past for MFA, those are the -- very typical land, for either workforce or for customer. Begin to think about for example are all of my identities be in one directory or do I have identity information in multiple directories. Let's unify and consolidate that around a single instance of customer profile information in PingDirectory. So that will be a project. And then, we also tend to see a project of retiring the legacy web access management that we've reported many times of SiteMinder and Oracle Access Manager and IBM Access Manager. All of those products are not adhering to many of the new open standards. They've all become a little long in the tooth and are hard to support and they look to modernize that around our PingAccess product. Very common for us to see the phasing of deals and the modernization of their -- and consolidation of their entire identity platform along those three dimensions.

[Brian Essex:]

Got it. That's helpful. Thank you.

[Operator:]

Your next question comes from Gray Powell from BTIG.

[Gray Powell:]

Great, thanks. Thanks for taking the question. Yes. So maybe starting off just roughly speaking, how much did the macro environment and the phasing of deal activity impact your ARR growth in 2020. And then just kind of following up on a prior question, like how should we think about the pace of recovery as those deals that were delayed last year, coming back into the fold.

[Andre Durand:]

We definitely did see an impact to what we had experienced prior to COVID and as we've reported, and really things have not changed, largely attributable to the phasing of deals, which as I've also said, as we look to guidance going forward, where we won't change the guidance until we experience a return of actual buying behavior where phasing is not occurring. So it did have an impact in 2020. We are projecting that impact into the foreseeable future and you see that kind of embedded in our guidance. That is our philosophy to guide to what we see and experience in front of us. We are seeing early indications as I've also reported of more RFPs. There is some evidence of pent-up demand returning, projects that were put on hold in 2020 are now entering the pipeline as active, here in Q1 and in Q2 of this year. It is a little too early to call -- to call this normal, but the signs are encouraging.

[Gray Powell:]

Got it, okay. That's really helpful. And then just the totally different topic, you kind of talked about this in the prepared remarks, but how are you thinking about the relative growth opportunity and customer identity versus workforce identity in 2021.

[Andre Durand:]

We've been leading into the customer use case now for the better part of the last couple of years. As we've reported now, it is a larger piece of our overall ARR snowball and it is growing faster than the workforce use case. Turns out our solution is really strong both on scale and performance, but also across the growing dimension of security and privacy regulation. We have a very strong product portfolio that allows companies that are under scrutiny of ensuring that they enforce consent around privacy, that all of their infrastructure can actually support those regulatory requirements. So it is a faster growing segment of the market. It is smaller than workforce but we believe ultimately will become larger and we have a very differentiated product.

[Gray Powell:]

Understood. Thank you very much.

[Andre Durand:]

Thank you.

[Operator:]

Your next question comes from Jonathan Ho from William Blair.

[Jonathan Ho:]

Hi, good afternoon. I just wanted to maybe start with your investments comment for 2021. Can you give us a sense of where you're going to be making the bulk of these and where you may be see an opportunity to either catch up more or to accelerate investments?

[Raj Dani:]

Yes, absolutely. Jonathan, this is Raj. So we've talked a lot about our SaaS acceleration. We're really excited about that. This is an area where we have been making investments and as you've seen over the last few quarters, we've been able to roll out some really unique -- some really unique products there. And so we're really excited about that and the adoption there. In 2020, keep in mind we paused investment for a good portion of 2020 at the especially around the onset of COVID and now with returning visibility, we're going to start leaning back into investments for growth. Actually, we started back in the second half of last year, but we'll continue that trend. Those will primarily, I'd say, impact cost of revenue and R&D as we lean into the SaaS opportunity ahead of us. And from an OpEx perspective, we will continue to as I mentioned, that growth will track overall ARR growth as we -- as we lean into quota-carrying reps, channel, investments and then just overall, like as I mentioned, in R&D to engineering and overall hosting costs to support our SaaS initiatives.

[Jonathan Ho:]

Got it. And if you think about sort of some changes with the executive leadership around the sales side of things, can you talk a little bit about the search process and maybe what you're looking for either areas of improvement or things that you can continue doing on investment cost basis. Thank you.

[Andre Durand:]

Jonathan, through the years we've been fortunate to have many great leaders at Ping. Each of them critical to our success at different stages of our growth. And as you noted, Dave has been one of those leaders for us. Company is more than doubled during his tenure in the last several years. We're thankful for everything Dave contributed to our success. He built an incredible team. We have an incredible team. We do have an active search underway and Dave will stay through the transition. So, I don't expect any disruption there frankly. We're excited to cheer him on to the next chapter of his career. And -- what's that --- sorry. All right; was there another piece of that question Jonathan, I missed, my apology.

[Jonathan Ho:]

I was just asking for what characteristics you were looking for in sort of a new sales leader as well.

[Andre Durand:]

Yes. So I think the thing that we're looking forward to is the channel is becoming increasingly important to us. When we look to penetrate the Fortune 1000 and the Global 3000, these -- there are many ways to enter those companies, if you look at both the customer and the workforce use case. Many of the advisory firms, the GSIs in the implementers of both identity and security projects, have visibility and insight into what these large enterprises are doing. So, we are making a very concerted effort to partner with the channel to provide both the advisory services upfront, as well as the deployment and implementation services after the fact. So, I do think that we will look for strength in channel and in particular strengths in the GSI and the companies that provide advisory services.

[Jonathan Ho:]

Great, thank you.

[Operator:]

Your next question comes from Brad Zelnick from Credit Suisse.

[Brad Zelnick:]

Excellent, thanks so much for getting to me. It's actually as if Jonathan Ho is telepathic because he asked flavors of the two questions that I wanted to ask. And I'm going to maybe touch on them a little bit differently. Maybe just on the change in sales leadership, how should we think about transition risk and overall sales capacity and head count plans at this point? Why are we not going to come back in a quarter or two and find that more salespeople turned over or there is just some more unexpected consequences of this transition?

[Andre Durand:]

We have a lot of great leaders here, Brad. We have a lot of great sales people here. I think the sales force recognizes the investments that we've made in our product, in our cloud offering, the investments that we've made in new companies and capabilities. And as I said, there is a lot of activity right now. So I think we lived with a certain amount of the trust activity through kind of the COVID-era. I feel as if it's not entirely behind us. But things do begin, things are beginning to emerge. I think also if you look at this more subtle point of the culture that we've built here at Ping, we have a very, very strong culture. We look after our own. I do view with leaderships role to look out for and after our employees. I think that we are both rewarded and recognized by our employees for the caring that leadership has towards their success and growth and opportunity. So, I don't anticipate any major changes that would disrupt this year. You never know what is going to happen, but we put employees first here at Ping. This is not the first change that we've navigated and as we've become larger, we've become more resilient.

[Brad Zelnick:]

Got it. And any update on head count plans, just in capacity in the field?

[Raj Dani:]

I can take that. I mean, Brad. I think the -- the short answer is, we feel good about the capacity. We we've invested over the last year or so and have gotten quota-carrying reps up to the levels that we need to support our plan. And in areas which are outperforming, we're going to double down on those. And so we'll -- we may have some tweaks around the edges around that plan, but for the most part it's baked.

[Brad Zelnick:]

Okay. And Raj and I hope you won't count that as my second question but my other follow-up to Jonathan Ho's question which he asked in terms of areas in which you're investing. I'll maybe ask also a little bit differently. Your comments in your prepared remarks is that expense growth should track ARR growth and especially with an outlook for steady growth against easier and easier comps, I guess the question is, when do we see the acceleration in growth or the leverage, which is natural in this type of subscription business?

[Raj Dani:]

Right. Brad, the big gotcha in 2020 was the depositing of these investments, right. So what you're seeing in 2021 is the result of about a six-month push, right, of 2020 investments into 2021. Now we continue to make the critical investments. We hired our channel leader. We hired a new EMEA leader. We have invested in all the critical quota-carrying reps that we needed to. So part of it is just that, that full year impact of those investments that we made later in the year, which is why you don't see the immediate leverage. But we're confident in the model. If you go back a couple of years, you've seen tremendous operating leverage in this model. We continue to deliver on our profitable growth model, even though COVID and there is no reason to think that we won't return to that. It's just we had a -- we had a bump in the road in COVID and we think that that's now hopefully for the most part behind us, especially later this year.

[Brad Zelnick:]

I also too. Alright, thank you so much for taking the questions.

[Raj Dani:]

Sure, Brad.

[Andre Durand:]

Thanks, Fred.

[Operator:]

Your next question comes from Gregg Moskowitz from Mizuho.

[Gregg Moskowitz:]

All right, thank you very much guys for taking the question, I guess, first off, I know it's not always easy to draw a straight line but Andre, just based on your customer conversations, I'm wondering what impact, if any, you think solar storm has had on your pipeline thus far.

[Andre Durand:]

Well, I'll start by saying we are fortunate that the attacks did not impact our products or corporate environment in any way. I believe near term the SolarWinds, AK Sunburst, vulnerability is a tailwind to both privileged access management, we don't participate in that, as well as MFA. So near term people look at the vulnerabilities of password only and they are looking to kind of shore up those weak links. I believe long term, the SolarWinds attack is going to be a tailwind to all things related to identity-based security and Zero Trust. As you know Ping is at the forefront has invested for years in our platform to be the centerpiece of the will of strongly authenticated users, strongly authorized users, coming in on trusted devices, where identity is the new control plane. So I believe long term is going to be a tailwind. Short term, I believe, a lot of companies have just been busy assessing the posture and their vulnerability. And I certainly have had a lot of conversations with customers about that. Short of the Pam and MFA is being short-term moves. I think most of them are just saying that they really need to pay attention now to their infrastructure and to the supply chain in their choice of partners.

[Gregg Moskowitz:]

Okay, thanks. Andre. That makes lot of sense. And then secondly, I know you're very excited and have been for a while about your API security product. There also have been some puts and takes in 2020 because of COVID and the economic environment. So I would love to hear an update just kind of how that product has been doing for you over the past few months?

[Andre Durand:]

Yes, Greg, the future of digital business as we've said, it's wholly dependent on secure APIs. It's just incredibly important and it's foundational to all enterprises that now and really all businesses that find themselves competing on technology. We are building a very, very strong API story, where API intelligence is just one part of our API security story. As I reported before, this market is nascent and still emerging and during COVID other firefighting priorities took over from many of the pilots that we had underway in March when that hit. The pipeline and the interest remained strong throughout the entirety, say, of the back half of last year. And in 2020 we leveraged the time while there was kind of a pause and what had been the PoC and buying behavior of that emerging product to deploy several enterprise wide large-scale deployments. I mean these are at massive multinationals. Those deployments have now successfully gone live and the customers and champions in those companies are now starting to hit the speaking circuit for us. So in many ways we are beginning to resume a little bit conversations more on the buying front of that. We've also taken the time kind of the low in the buying behavior for that emerging product. We're taking that time to move the entire capability to our cloud and SaaS offering. It is my belief when that market hits, it is going to hit fast and furious. And I want to make sure we're in a position to capture as much of it as possible.

[Gregg Moskowitz:]

All right, that's very interesting. Thanks for the color and obviously look forward to tracking that progress. Thank you.

[Andre Durand:]

Thanks, Gregg.

[Operator:]

Your next question comes from Catharine Trebnick from Colliers Securities.

[Catharine Trebnick:]

Thank you for taking my question. The last couple of quarters, you've been investing more in the channel. Could you give us some more details around how that actually working and is there a possibility to give us like the number of deals or percentage of deals that are influenced by the channel? Thank you.

[Andre Durand:]

Raj, I don't know if we disclosed either sourced or influenced business. I want to make sure.

[Raj Dani:]

We haven't, Catharine. I mean, the channel team has just been really launched in earnest. In the second half, we hired a new leader and we and -- we've -- and she built out her team. So we feel like we're in really good shape at end of the year and looking forward to big things there, but it's probably something we'll report on a little bit down the line.

[Andre Durand:]

I think I can say a significant portion of our business, however, is influenced by the channel. We have -- we've been strong there. We're beginning to track now sourced business also as a result. And this year the commitment to the channel, we have the channel participate in our SKO. We made several commitments, both to the channel and to the employees here at Ping, bringing focus to our desire to be a -- really a partner and channel first company in the way that we partner with -- partnered with our partners to both discover, close and deploy new business.

[Catharine Trebnick:]

All right. I guess, it's a little early on the question and follow up would be, which of your solutions do you think that fit channel motion. Thank you.

[Andre Durand:]

Well, I think we've had good activity from the channel. If I think about use cases, where about half of our business is the workforce use case. The other half is the customer use case, growing faster, maybe slightly larger now than workforce. We've had good partner and channel activity on both use cases. Now with respect to specific capabilities or products or services, Ping is a solution company. We are a strategic partner to the IT departments of large complex enterprises to modernize and essentially build a platform from the ground up, for all of their identity security activities. While we do have some consistent land, if you will, they tend to focus on authentication or strong authentication or single sign-on. Many times where the partners are strong and we are training them on this, it is on selling both the vision of the platform and Ping is the strategic partner, as well as the platform as the foundation for broader solutions. So there is no one product that I would want to pick out of our solution and say that's the product, the channel is endure to, We're a solution company, selling a platform. We are educating. We are selling and behaving that way ourselves and we are training and educating our partners to do the same thing.

[Catharine Trebnick:]

All right, thank you very much.

[Operator:]

Your next question comes from Rob Owens from Piper Sandler.

[Rob Owens:]

Great, thanks for taking my question, guys. First of all, can you touch a little bit on customer acquisition. And I know obviously there are some challenges to this year, from the present cases and how organic as we look at that customer number, was there anything inorganic in the smaller acquisitions and really some flatness, I think mentioned 4% growth, is there any churn issues going on within there or is that just some softness on the new customer acquisition has resulted ?

[Raj Dani:]

Rob, this Raj. I'll take that. In 2020, we saw a slow first half in net new customer adds and a large part of that was COVID related as a world learn to deal with a pandemic. The second half was much stronger. So if you look at the trend in the second half was much stronger in Q4, was stronger than Q3 even. And we saw healthy traction in the larger awards rate with the greater than million dollar ARR customers growing up 34%. I'd say, if there is an area of softness, it was international where we had fewer new logos, given some of the more stringent lockdowns that they had there. But the adds that they had there were significant. Andre mentioned, a couple and some of our larger deals that we had in the quarter were from our international business. So little bit of a mixed bag there. I think you hit the nail on the head. At the end of your question which is, is there some -- some non-regrettable churn and there still is, some of that there is -- we have a cohort of customers that maybe long time ago bought one product and only grow with us. They want in our ideal customer profile and therefore never expanded. So, it's still TBD going forward to say what our SaaS -- what is some of our newer SaaS products will appeal for them or if they fall -- they fall into our ideal customer profile because of that. But in Q4 and in 2020, we did see some of those smaller customers, most of them do not take much ARR with them. So most of them are in that sub 50K category. So for us it's really more of an ARR metric as opposed to our customer count metric; that's important.

[Rob Owens:]

And then, I guess strengthen early just to in advantage of collections, can you -- can you touch on ARR this quarter, your outstanding, special number that I guess we saw during the first COVID quarter in March, but is it going back engage and or was there something unique in the quarter from the collections perspective? Thanks.

[Andre Durand:]

Not really. We had a decent collections quarter all things considered. We -- like most companies have been working with our customers on collection terms, especially those in highly impacted industries. So we have those that those who are few and far between, for the most part where we were in really good shape.

[Rob Owens:]

Thank you.

[Andre Durand:]

Sure, Rob.

[Operator:]

Your next question comes from Tal Liani from Bank of America. Tal Liani, your line is open.

[Tal Liani:]

Here you go. Now you can hear me. Sorry. The beauty of muting and unmuting. I have -- probably my question is not proper question, appropriate question for the end of the call. It's not for the beginning, but I want to go over some very basic stuff, so I can understand there is new disclosure that you have. A few questions on it. Last year the subscription of term based licenses, you see a -- the level is kind of 28% and then goes up to 32% and we finished 2019 on the high notes. And suddenly it starts to go down and it goes down almost every quarter. If I look at the longer term and I don't want to break it down between long term and one year, it doesn't really matter. Can you go over what suddenly changed, meaning cloud and SaaS-based solutions, is always around, Okta always existed. What's suddenly happened that the term based licenses are declining so much. And then, what's the outlook for next year? Is the outlook that term based licenses are going to continue to decline or is it because of the easy comps, is it actually going to turn up?

[Raj Dani:]

So Tal, this is Raj. I'll take that. In terms of what happened in 2020 and specifically towards the end of 2020, we actually had a roller coaster, if you will, of the actual contract durations during the year. And what you saw in Q4 is actually a spike up in terms of single year term-based licenses and a -- but a significant drop in multi-year term based licenses. Now, some of that is because of a transition to more SaaS, right, the SaaS acceleration in the business and keep in mind that we introduced a lot of new SaaS products in the second half of the year and into the first part of this year as well. So it makes sense to us that you would see that more of a mix shift towards SaaS and away from term based licenses. So that's one part of it. The other one is just as we saw -- dip in Q1 and a spike in durations in Q2 and Q3, we saw a dip in contract durations in Q4 and we think a good amount of that was just customer budget and COVID related, to be honest.

[Tal Liani:]

So the second part of my question, if I look at total, right, without the short-term, long-term, there is still a significant decline this year versus next year and the question is, is this the trend because of the SaaS migration to SaaS that we should model also continued decline for the following year, and the following year kind of one of the longer-term trends or is there something specific to 2020 because of COVID or anything else that now you have a low base and easy comp and next year we could actually see growth?

[Raj Dani:]

Well, in 2021 we are projecting a slight uptick in revenue. But again revenue is the key indicator for us in terms of the health and growth of our business, as a 100% subscription model. We're keenly focused on the ARR growth. But in terms of term based licenses, I think you will see a pretty -- at least we're expecting a healthy shift towards toward SaaS because that's what we've been investing in and that's what we've been introducing over the last few quarters. So maybe post-COVID you may see some duration pumps, but again, it's not something that's a key indicator for our business.

[Tal Liani:]

Right. But you still missed the numbers on revenues. I understand It's not a metric and ARR is the point. ARR guidance kind of in line, it's okay, it's good, it's -- there is no surprises there, it's good for the quarter, good for the year, but you did miss the revenues and you are guiding revenues below. So what change that now the revenue projection is lower than what we thought before? What change on the revenue side?

[Raj Dani:]

On the revenue side, it is deployment mix for the most part and then what we have also baked in some -- at some prudency into our contract durations for term based licenses, just because we saw what happened last year, we're not through the -- we're not completely on the other side of COVID. COVID had a duration impact in certain quarters and so we had baked that in. So it's a combination of the two. But we really -- but we're really excited about -- as our SaaS acceleration and the fact that it's now greater than 15% of the overall ARR mix and growing much faster than the overall rate of the business.

[Tal Liani:]

Got it. Thank you.

[Raj Dani:]

Sure.

[Operator:]

Your next question comes from Patrick Colville from Deutsche Bank.

[Patrick Colville:]

Hey, there. Thank you so much for taking my question. So most of the questions have been asked. I guess kind of, one that I wanted to just touch back on would be ARR linearity. So the growth of 15% this quarter, if I'm not mistaken, guidance in the first quarter of fiscal '21 implies 14.5% and the fiscal '21 in total, 15% growth, so it suggested that actually throughout next fiscal year trends will improve as we go through the year. Just remind me why that is?

[Raj Dani:]

Well, we -- as we talked about, Patrick. we are -- we guide to what we see in front of us. We're looking at various bottoms up and top down models across all the quarters, and obviously we have the best visibility to what's right in front of us for Q1. So that's what you see reflected in our Q1 guidance. We certainly look at the full year guidance in a variety of different ways and we feel that the stabilization that we're feeling now in the macro, is largely what we've built into our full-year guidance as well.

[Patrick Colville:]

Nice. Okay, thank you. And then I guess my second question is about the customer identity management. I just saw the 10-K, 45% of subsea revenue is from customer tax management, which I am not mistaken is up three points year on year. So clearly that businesses is not only -- it's just trending very well. It's -- so just help me understand your expectations qualitatively for that business over the next kind of couple of years, just -- something kind of you're thinking.

[Andre Durand:]

I think you've noticed that we -- it has been a focus for us, we're seeing the results of that focus. We've got a very strong solution and platform and I would expect that, that trend will continue by design.

[Patrick Colville:]

And is that principally from replacement of kind of DIY homegrown software?

[Andre Durand:]

You do run into a lot of DYI in the customer use case.

[Patrick Colville:]

I'm going to sell it.

[Andre Durand:]

It's more prevalent in the customer use case than it has been in the workforce use case. We will find legacy directories, sitting underneath homegrown authentication systems, for example. You will find legacy access management in some of those customer use cases. So, there is some legacy replacement, but there is a lot of homegrown.

[Patrick Colville:]

Understood. Thank you for taking the time to answer my question.

[Operator:]

Your last question comes from Andy Chan from Wells Fargo.

[Phil Winslow:]

Hello, this is Phil Winslow. I think Andy on his name ; do have a question about the greenfield expansion and how you're thinking about that for '21, obviously you talked strategic about MFA dynamic communication API security. But as you think about '21 here, what's your -- how do you sort of expect the spending to come back online sort of -- so to speak in those, if you do one of those subsets sort of take priority over the others?

[Andre Durand:]

Phil, make sure I fully understand that question, because I think you covered a few things. Is there a particular...

[Phil Winslow:]

Just of the products. The products you have, and from a customer perspective, do you think as we call it reopening starts, you have systems that one products are just seeing more uptake before the others. just in a recovery scenario. Thanks.

[Andre Durand:]

I think what I expect to see is that we're making it easier for customers to buy Ping and to consume Ping and deploy Ping. Everything that we've done on our cloud, your way deployment offering and all the investments that we've made in our SaaS offerings. Keep in mind when a company selects Ping, whereas when maybe if you go back 10 years and every company started with single sign-on. Now, it's pretty rare for a company to carve off something that small and select a vendor. So we tend to focus on being a strategic platform and a solution provider for the use cases that we solved. And most of the focus is on how can they get started and knock down the first X number of application integrations or get X number of customers deployed on MFA. That tends to cover multiple products. And so it -- I would say, to answer your question, it's not a single product that comes online. It is an acceleration in our cloud and SaaS offerings around the solutions that typically include multiple products and services. It's not a single product, is my point.

[Phil Winslow:]

Got it. Thanks.

[Operator:]

I will now turn the call back over to the presenters.

[Andre Durand:]

So that concludes today's earnings call. I want to thank everyone for joining. I wish you all the best in 2021. We look forward to providing updates as the year progresses, including our H2 Investor Day. Thank you.

[Operator:]

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