Ping Identity Holding Corp.
Q1 2022 Earnings Call Transcript

Published: 6 May 2022

[Operator:]

Good afternoon, ladies and gentlemen, and welcome to the Ping Identity First Quarter 2022 Earnings Conference Call. And please be advised that this call is being recorded. And now at this time, I'd like to turn the call over to Mr. David Banks, Vice President, Investor Relations. Please go ahead, sir.

[David Banks:]

Thanks, everyone, for joining us today, and welcome to the Ping Identity conference call where we'll discuss our first quarter 2022 results, provide our outlook for the second quarter and update our outlook for the full year. Shortly after the market closed today, we issued a press release announcing our first quarter financial results. In addition to the financial results, we'll be presenting a live supplemental set of slides through the webcast portal. These will be published to our website following the call. You may access the press release and presentation on the Investor Relations section of pingidentity.com. With me today is our CEO, Andre Durand; and our CFO, Raj Dani. Today's discussion may include forward-looking statements. Please refer to our annual report on Form 10-K for 2021 and our quarterly report on Form 10-Q for the quarter ended March 31, 2022, filed with the Securities and Exchange Commission. Here, you'll 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 certain non-GAAP measures related to Ping Identity's performance. You can find the reconciliation of those measures to the most closely comparable GAAP measures in our first quarter press release and the slides that were posted on our website. To assure we can address as many analyst questions as possible during the call, we ask that you please limit your questions to one plus a follow-up. We will end the call after 60 minutes. With that, I'll turn the call over to Andre.

[Andre Durand:]

Thank you, David. We had a good start to the year. For the quarter, we delivered our fifth straight quarter of accelerated annual recurring revenue growth at 21%. Total revenue grew 23%, driven by robust SaaS revenue that surpassed $20 million and grew 68% year-over-year. Net retention climbed by 2 percentage points sequentially from Q4 to 114%. We again grew our base of customers with $250,000 or more in ARR by 21% matching our overall ARR growth rate. Our non-GAAP unlevered free cash flow was negative $6 million, a bit lower than originally expected, driven by cash collection timing and an acceleration of some investments, which Raj will address in our financial results. We continue to make progress in Q1 advancing our 2022 strategic initiatives that we've labeled our 3Cs

[Raj Dani:]

Thanks, Andre. We're pleased by our strong start to the year highlighted by our fifth straight quarter of accelerating ARR growth and fourth straight quarter of accelerating SaaS revenue growth. First quarter ARR of $323.5 million grew 21% year-over-year with net ARR in the quarter of $10.8 million, up 50% compared with Q1 of 2021. First quarter revenue grew 23% year-over-year to $84.7 million, of which 95% was subscription-based. Revenue growth was driven by SaaS as well as maintenance and support or M&S. We generated $20.2 million of SaaS revenue in Q1, up 68% year-over-year, the strongest quarterly growth rate since Q4 of 2018 when SaaS was less than 1/4 of its current size. This quarter, it represented 25% of subscription revenue. We generated more than half of new ARR from SaaS versus software for the third straight quarter. M&S revenue grew 42% year-over-year in Q1, making up approximately 20% of subscription revenue. The SaaS and M&S revenue categories together comprise our ratable revenue which made up 45% of our subscription revenue and 42% of total revenue in Q1. Term license revenue was $44.3 million in Q1, up approximately 8% year-over-year. It represented 55% of subscription revenue. As we discussed last quarter, we forecasted these shifts in SaaS, M&S and term license revenue percentages and we expect a more pronounced change as the year progresses. More on that in a moment when I update our 2022 outlook. Professional services revenue was lower than expected at $4.5 million in Q1, a year-over-year decline of 5%, driven primarily by customer delayed implementations. We ended the quarter with 321 customers with at least $250,000 in ARR, up 21% year-over-year and once again in line with our ARR growth. Our first quarter dollar-based net retention rate calculated on a trailing 12-month basis was 114%, a sequential improvement of 2 percentage points compared with Q4 of 2021, driven by strong base expansion in the quarter. Unless otherwise noted, for the remainder of the P&L, I will refer to non-GAAP metrics. You can find a reconciliation of non-GAAP to GAAP numbers in the accompanying press release. Our non-GAAP gross profit margin for the first quarter was 77% compared with 80% in Q1 2021, driven primarily by our high-growth SaaS. Our GAAP subscription gross margin this quarter was 83%. Total non-GAAP operating expenses in the first quarter were $61.2 million. We ended Q1 with more than $213 million in cash, with cash used in operating activities of $3.3 million in the quarter. This resulted in unlevered free cash flow of negative $5.7 million in Q1, slightly below the bottom end of our guidance range. Now turning to guidance. For the second quarter, we are maintaining our revenue outlook range of $70 million to $75 million as we start to see the more meaningful impact of the mix shift between license revenue and maintenance and support take effect. We anticipate the impact of this mix shift will persist in Q3 before revenue reaccelerates further in Q4, as you can see in the growth wave. Given our outperformance in Q1, we are raising our full year revenue outlook to a new range of $332 million to $342 million, up 13% year-over-year at the midpoint. We continue to expect GAAP reported revenue growth to be lower than ARR growth due cheaply to accelerating SaaS market adoption and growth. We are now recognizing an increasing percentage of revenue ratably over the life of a contract versus upfront. That change showed up partially in Q1. You'll continue to see it reflected going forward in our disaggregated revenue footnote, which you can also find in the appendix of our supplemental earnings presentation. We expect to end Q2 with annual recurring revenue in the range of $337 million to $340 million or 21% year-over-year growth at the midpoint. We are slightly raising and tightening our full year ARR guidance to a new range of $380 million to $385 million, growth of 22% year-over-year at the midpoint. Over time, we expect that the difference in growth between our trailing 12-month revenue and ARR will shrink. As we have said for several quarters, these revenue fluctuations support our ongoing belief that ARR is the best metric for measuring things growth trajectory. In addition to the timing of collections, this quarter's cash flow and expenses reflected more aggressive investments to continue driving growth in our 3 focus areas

[Operator:]

With that, we'll take our first question this afternoon from Jonathan Ho at William Blair.

[Jonathan Ho:]

Just wanted to, I guess, dig in a little bit in terms of your commentary around the U.S. government. Are there any specific programs or directives that you potentially could benefit more from when it comes to the U.S. government vertical? And why now? Like why is the decision to sort of accelerate the investment here?

[Andre Durand:]

Jonathan, this is Andre. We've had our eye on the federal market for years. We made a conscious decision a couple of years ago to build out a federal practice that coincided with our commitment to get FedRAMP certified. So as we've reported before, we have now built out a dedicated team for federal. We have been investing along with our sponsor at the Department of Energy to get our FedRAMP certification to create a service that we call PingOne for government. Along with that commitment, we obviously -- well, we announced a partnership with Carahsoft and we do have a pretty exciting pipeline as well as some early customers as we just announced in the GSA. The federal government is a very large opportunity for us and for identity. The commitment was not driven by any one particular regulation or mandate that has come out, although obviously, as we've watched in the last 6 months, there is growing concern and a growing number of mandates like and other things that are coming out as guidance by the federal government. So we're watching it closely. We think the timing is good.

[Jonathan Ho:]

Got it. And then just in terms of your commentary around the customer use case, I think you said that there were 2x either ARR or wins in the quarter that were associated with that use case. Can you talk a little bit about maybe what's driving the strength in that market? And do you expect that to continue to expand in terms of the customers getting to be an even larger portion of revenue? Or is this going to remain somewhat consistent?

[Andre Durand:]

We do expect that the -- so let me step back -- as a company, one of our strategic growth focus areas is the customer use case. It was a very deliberate and conscious choice that we made that is part of our long-term strategic focus. We do see this market as both ultimately larger than the workforce use case and stickier. If you look at the competitive landscape and the current dynamics in the market, most of the customer use cases have historically been homegrown and the need now to consolidate the user experience across a very complex but digital omnichannel is driving new requirements. So there's a lot of room for innovation in that space. So it's a combination. Our interest in the space has to do with the TAM, has to do with the growth has to do with the historical reality that much of what has been done there has been homegrown and is ready now for commercial products. It has to do with there is tremendous room for innovation across risk, fraud, verification and a focus on exceptional user experience, all of what we're doing with DaVinci across the omnichannel. So we see this as a long-term area of strategic focus and growth and what you are seeing reported is that focus that we've had, the investments that we've made are now beginning to pan out materially in our business. We do expect that to continue.

[Operator:]

We go next now to Matt Hedberg of RBC Capital Markets.

[Matt Hedberg:]

Andre, one for you and a quick one for Raj. I -- also great to hear about the progress in the U.S. Fed. You also mentioned DaVinci in your prepared remarks. And I think one of the things that we're watching is some of the orchestration capabilities of DaVinci really seen interest, especially when we consider provider expansion, but also perhaps the legacies. Could you talk maybe a little bit more on some of the senses you're seeing out of DaVinci?

[Andre Durand:]

I caught part of that, Matt. I think I got the essence but you were breaking up just a little bit there. So question was around DaVinci and some of the successes we're seeing there, and I think you were asking to elaborate a little bit more.

[Matt Hedberg:]

That's right.

[Andre Durand:]

We have -- yes, we've commented in the past, identity is an integration challenge for large enterprises. So if a large enterprise wants to make identity the center of security and the fund -- really the control plane in this new distributed Zero Trust world or the center of both security, personalization, privacy and experience for the customer use case, speed of integration is exceptional -- is extremely important. DaVinci is a tool that allows companies to elevate where they spend their time and focus not only integrating identity but integrating identity leading it into everything else. It is a 10x or better improvement on the speed with which companies can achieve their outcomes and see the value from their identity investments. We have focused -- modified our go-to-market and put focus on DaVinci and orchestration as the starting point for every identity journey. It doesn't matter if you're pursuing a password list or adaptive off-journey, whether you're trying to centralize authorization for a customer use case, whether you're trying to consolidate a bunch of siloed identity websites for end users or whether or not you're trying to verify the real identity of the user before you enroll them to register them in your system. All of those use cases require integration and DaVinci is becoming the steel thread that delivers on that experience. So it is an application to what we lead with, what we -- and our approach to the go-to-market, how we POC and ultimately how we deliver value. And the customers are seeing and beginning to experience that now that we are in GSA. So we announced that FIFA Plus has now gone live much sooner than expected on DaVinci, and they are all about delivering an exceptional experience for a worldwide base of fans that measures ultimately into the billions. You're going to see and hear more of this over time, but it is an extremely important component of our platform, and it is highly differentiated and coming back from both the partners and the customers, heads and heels about the competition.

[Matt Hedberg:]

Super helpful. And then, Raj, one for you. On the margin side, you're maintaining your unlevered free cash flow guidance effectively breakeven for the year, but you talked a lot also about some additional spending this year. I presume that's just because of some of the pipeline that you're seeing. But wondering if you could break down a little bit more, sort of what changed in this quarter to drive some higher spending levels. But again, it's not really impacting on local free cash flow this year, but maybe unpack sort of the rationale on spending for the balance of the year?

[Raj Dani:]

Yes, absolutely, Matt. As you know, we're highly ROI focused and have a lot of rigor around spend around here as we've proven over the last several years. However, we are seeing this opportunity now, right, SaaS accelerating at 68% year-over-year that surpassed our expectations. And that acceleration does create some incremental spend. Additionally, we're seeing great progress on the channel. As we've said, when we see -- when we start to see these signs of SaaS acceleration and channel adoption and acceleration, we are going to lean into that. I think we've -- we've been fairly clear on that, and this is the time. Now it's happening sooner in the year than we had thought, and that's actually a good thing from our perspective. But over the course of the year, we still expect to be breakeven. I will caveat that with -- again, we're -- with the kind of success that we're seeing on, on investing behind those 3Cs, as we've talked about, if we do see opportunities to go after the market, we won't be afraid to lean in further.

[Operator:]

We go next now to Andrew Nowinski at Wells Fargo.

[Andrew Nowinski:]

I'd like to start off with a question on the competitive landscape. I'm curious if you benefited at all from the active security incident that they sustained? And if the combination of that breach and DaVinci and how it helps customers migrate the pain might be swinging customers to actually migrate over?

[Andre Durand:]

Well, I'll start by saying identity is the gate. And obviously, we and everyone in this industry work hard to earn customer trust every day. And I'll also say we are investing to ensure that we maintain that customer trust and that we keep customers safe. As we become more competitive in the cloud, I would say, overall, we are seeing a benefit to our ability to compete in the cloud not just with Okta, but against other vendors with customers who have a cloud-first mandate. And I think that, that has been benefited by all the acquisitions that we've made in the last couple of years and the fact that our cloud platform, a truly unified cloud platform across all the use cases that can address the very advanced hybrid needs has clearly not been commoditized, and our investments in risk and fraud and verification and authorization are all now starting to significantly differentiate us. DaVinci is just the most recent addition to that. So I think there's a number of factors, not just, as you mentioned, the breach that occurred that has been leading to increased competitiveness.

[Andrew Nowinski:]

That's great. And maybe just a follow-up on -- I want to ask about your net new ARR growth. Specifically in Q2, you just came off of Q1 with really strong net ARR growth of 50%. And I realize Q2 last year looks like a fairly tough comp, but I'm wondering if there was anything abnormal in Q2 last year to consider as to why net new ARR growth might decelerate so much in Q2 based on your guidance?

[Raj Dani:]

Andy, it's Raj. Q2 was just a particularly strong year. In fact, I believe it was -- we booked the single biggest deal in Ping's history in that quarter last year, and that is -- that's what's skewing the comp.

[Operator:]

Adam Tindle at Raymond James.

[Adam Tindle:]

Okay. I wanted to ask a question on ARR obviously up nicely 200 basis points sequentially back to 114%. Could you just touch on the key attribution for that between gross retention, upsell? And I think we used to think 115 to 120 in that metric years ago. Is there like an updated range that you're thinking about the business can sustain?

[Andre Durand:]

I'll let Raj comment on the updated range. But in terms of a little color commentary on the 2 percentage point increase, we did a lot of base expansion in Q2 as a result of a number of the new SaaS service offerings that we've had. So when we talk about continued, I'll say, growth and acceleration of the adoption of our platform and our cloud vision. So we had a number of customers decide to go -- take the journey to the cloud with Ping. When they do that, a number of the new services, which are SaaS only, also become available to them. So I think that you are seeing now the beginning of a trend where Ping now has a unified SaaS and cloud platform and a number of new services that we've acquired and introduced in GA over the course of the last quarter or 2. We don't expect that to slow down kind of a new day in the chapter of the transformation of Ping to the cloud.

[Raj Dani:]

And on the numbers itself, I mean when you look at the 114%, we're really pleased with that, especially if you look at the evolution of net retention rate over the last 4 quarters has continued to increase. And it generally tracks with our ARR growth. So we're within the 700 basis point to 800 basis point band between ARR and net retention. So as we continue to accelerate on the ARR line for the fixed rate quarter now, you’ve started to see net retention rate tick up along with that in that kind of range that we expect.

[Adam Tindle:]

Got it. And as a follow-up, the partnership with Crowdstrike and Cloudflare, Andre, those are two really impressive names in terms of the partners. Maybe you could just help us understand how that partnership came about in the first place? And secondly, it’s a little bit different in terms of the motion where you are offering a product essentially free upfront with an intention to, I would assume, convert to a paid customer at some point. Can you talk about how you're planning to implement some sort of conversion funnel and any early indications of wins in terms of converting customers to paid?

[Andre Durand:]

I'll start with the last part of that question. We actually are starting to see pipe now develop around that partnership. It's an early part of your question, how it came about? The world is clearly being attacked on the digital front. The Ukraine crisis and shields up as a result of Ukraine and anticipated increased attacks from Russia, that drum -- that drumbeat has been growing over several quarters. It was just probably accentuated over the course of the last quarter or 2 as a result of the conflict in Ukraine. But what we're seeing is a shift in the way companies think about securing themselves and it is a shift towards Zero Trust, where protecting the endpoint that a user is coming in from strongly protecting the user's identity, that's Ping's role, and then protecting the cloud edge, Cloudflare's role, all 3 of these really are the pillars that make up the new fabric of the Zero Trust security model. So we got a call -- I got a call from Cloudflare before we obviously announced that week saying that in contact with the government and the with the Shields Up mandate, they were looking for companies that were instrumental in Zero Trust to step up and build some awareness around protecting our critical infrastructure. Yes, we have seen this before. Anytime there is a call to action to help protect our companies, Ping has risen to that challenge. We did at the last time with NFA. We are really proud to have been selected as a partner by those two companies. We see a lot of opportunity not just in what we announced, right, in the critical infrastructure project, but we see a lot of opportunity growing in the secular shift towards Zero Trust where we play a very important and central role in making sure everybody is strongly authenticated, everybody is appropriately authorized, but we need to connect it end-to-end in partnership with the endpoint and the edge, the new cloud edge as defined in Cloudflare's business.

[Operator:]

We take our next question now from Saket Kalia at Barclays.

[Saket Kalia:]

And apologies, I joined late, so apologies if these were already asked. Raj, maybe just to start with you. Can you just talk a little bit about the shape of revenue this year? I guess with the increasing SaaS mix, which is great to see, clearly, ARR is the cleanest metric to look at. But for those of us that care about revenue, how do you sort of think about the shape of revenue for this year?

[Raj Dani:]

Well, it's interesting you say the word shape, Saket, because we have the growth wave out there in the earnings presentation. And I'd really like to kind of call attention to that because we have been pretty thoughtful about how we think, revenue -- not just revenue but ARR, revenue and cash flow is going to evolve towards our end of 2024 targets. So when you think about revenue, we do think of Q2 as being -- I don’t necessarily want to say a trough quarter but it certainly will be a low quarter, as well Q3 and then we will start to see some acceleration in Q4 back towards our full year targets. And so we will kind of see that dampen and we will see it reaccelerate. And again that’s -- as you rightly pointed out let’s say by-product of how we rev rec and the business there is we are getting more ratable, right? So 45% of our revenue is now ratable. And when I think about the full year, I almost think about it sort of flip-flopping, right? So it’s 55% ratable and 45% upfront. So we are starting to see some meaningful shifts from that. And what happens through that process as you all know is it does impact -- it does have a very near term revenue impact but it’s a lot more predictable and a lot more ratable over the long run which is a good thing for us.

[Saket Kalia:]

Got it. Got it. That's very helpful. Andre, maybe for you, just zooming out a little bit, I think you started this year really with just a lot more focus on working with the channel this year. In fact, I think some sales comp have changed to reflect that. I guess the question for you is, can you talk about some of the early data points that you've seen from that increased focus? And strategically, how does that channel -- how is that channel focus -- the increased channel focus going to help with the SaaS transition. Sorry, there's a lot there, but does that make sense?

[Andre Durand:]

Yes, it does, Saket. I'll start by saying it's a top initiative for 2022, but it is a multiyear journey to come from essentially a direct from a market versus a -- through the partner channel market. So we're in the middle, but all of the indications of continued strength in the channel are heading in the right direction. And actually, our anticipation for the first half of this year is it will be above our targets on all the major KPIs that we track for acceleration within the channel. The anecdotal data that we're getting back and the level of conversations, the number of conversations, the number of people in the conversations from the largest GSIs, Accenture, KPMG, Deloitte, TD SYNNEX on the kind of the reseller side, Carahsoft for the federal government, the level of conversations, the depth is very, very significant. They see tremendous opportunity and where we are going as a company. They see tremendous opportunity in DaVinci and authorization and a whole slew of other things. So unsourced pipeline, attach rate, our aim is to have a partner in every deal. And we will be sharing more stats in the future around that, but all of the indicators of our commitment there are positive and on track.

[Operator:]

We go next now to Tal Liani at Bank of America.

[Madeline Brooks:]

This is Madeline on for Tal. A quick question for you guys. I wanted to just check in on the international segment and see what the results were for about this quarter.

[Raj Dani:]

I think I got that question, Madeline. It was around the international business and how that trended?

[Madeline Brooks:]

That's correct.

[Raj Dani:]

Yes. So international was about 22% of revenue for the quarter and roughly flat year-over-year. International still continues to be a good contributor to our business. And we don't anticipate it sort of shifting a whole lot from that 25%-75% international to domestic, the mix we historically had.

[Madeline Brooks:]

And maybe just one follow-up, too, on the net retention. I'm just wondering if you'd be able to talk about the cross-selling motion. And what are you seeing in terms of natural steps for investing in that second or third product from you guys? Are there 1 or 2 solutions that companies there really going after? Or is it a mix across the board on your offering?

[Andre Durand:]

We tend to land in either the workforce use case or the customer use case. And historically, we tended to land with authentication in one of those 2 use cases. Expansion took 2 dimensions for our existing customers. One was if they started with single sign-on and directory in the authentication use case, their expansion was in the password list. So they would add MFA and risk for an adaptive authentication or password list journey. The other dimension of expansion is that they started in one use case and were successful, they would expand into the other use case. And we have roughly just under 1/4 of our customers that use paying for both use cases. That's the reason we're very focused on a unified cloud platform that can serve both use cases. Companies can get leverage about that from that. So I would say the typical expansion journey is they start in one or the other use case. And over time, they expanded to other use case and/or they start in the simpler scenarios of either authentication or authorization and they expand into more sophisticated authentication and authorization use cases.

[Operator:]

Adam Borg at Stifel.

[Austin Gewecke:]

This is Austin Gewecke on for Adam Borg. Maybe for Andre on API security, can you talk about your role in API security, how you expect this market to evolve in the coming periods?

[Andre Durand:]

I'm sorry, you broke up on that one. You were asking about API security and how we anticipate the market evolving?

[Austin Gewecke:]

Exactly. Yes.

[Andre Durand:]

Okay. Well, we see 3 things that companies have to do to secure their APIs. Number one, they have to secure the front door, that is who can access the APIs, and Ping is a leader in that market. And there is a protocol called OLAF that is used by companies to basically gain access to APIs. A lot of our major enterprises use us for API access security. The second thing is we believe we must have complete visibility into all transactions for the APIs across multiple clouds, internal and external, and leverage machine learning to see the attacks against those APIs, and that is our API intelligence product. The third level of security is to, in essence, centralize the way companies authorize fine-grained access to those APIs and control what data is returned from those APIs. So 3 levels of security and Ping has essentially solutions across all 3, and we really are the only identity vendor that has gone that deep. It's exceptionally important in certain regulated industries where their APIs are now forced to be open and accessible by third parties. So whenever you hear us talk about open banking or the CARES Act, one in the financial services, one in healthcare, open APIs have to be secured. And we're one of the only vendors that can provide that 3 layers of protection.

[Operator:]

We'll go next now to Gray Powell at BTIG.

[Gray Powell:]

All right. Great. Congratulations on the good numbers. So this again on the SaaS side, really good numbers there. And please tell me if I'm doing this incorrectly, but if I look at SaaS revenue, it increased by $3.3 million sequentially. That's like a $13 million annualized increase. If I look at ARR, up $11 million sequentially. So is it safe to say that SaaS is now driving almost all of your incremental ARR growth? Or is there something unique that just happened in the quarter? And then how should we think about that trend for the rest of the year?

[Andre Durand:]

Great. It's not driving substantially all of the incremental growth, but it's -- suffice it to say, it's in most deals, right? Either companies are going wholesale SaaS or a good chunk of the deal is SaaS-based. So I think there may have been a little bit of coincidence there in terms of the linkage you're drawing. But the way I think about it for the rest of the year is if you just think about the growth rates on a CAGR basis over the last 3, 4, 5 quarters. We kind of expect that to continue into the full year. And like I said, the -- we feel like that the ratable to upfront rev rec of 45/55 for the full year will likely flip to 55/45 ratable to front, which, like I said, drives predictability and ratability and that's a good thing.

[Austin Gewecke:]

Yes. That makes a lot of sense. That's really helpful. And I guess my follow-up question would be that given that there's at least a 2x uplift to ARR when a customer takes the SaaS product, is there a way to quantify how much of the growth is from the conversion of existing customers versus just sort of pure net new expansion, either new customers or existing customers taking pure expansion with SaaS?

[Andre Durand:]

Yes. Right now, we're still -- we're close to 50/50. I'd say what we saw was probably about 40% new and 60% existing. So in the quarter, it's -- it will take a while, Gray, for our existing base. We have a $300 million-plus base here of ARR, right? It will take a while for migrations to occur. And so I think that when you look at it over a longer period of time, yes, you would see more contribution from these migrations. But for the near term, as companies are renewing, we're having those discussions well in advance. And if it makes sense for them, we are putting them on that on-ramp to the cloud and we are seeing sort of the benefits of the new 2x expansion potential.

[Operator:]

We go next count Brian Colley at Stephens.

[Brian Colley:]

So I was curious if you could provide some color on just how the win rates progress specifically in 1Q against legacy vendors and modern SaaS competitors? I'm curious just if you've seen any acceleration in win rates at either of those buckets kind of as your SaaS platform continues to mature and gain awareness in the market and kind of where incremental net new and ARR is coming from between those 2 buckets when it comes to like net new customer adds as well.

[Andre Durand:]

If you go back a couple of years, I think there was probably a pretty healthy mix of we were winning against the legacy incumbent and on occasion, depending on the requirements of the enterprise, we may or may not be competing with a modern, say, SaaS or cloud competitor. You roll forward to today and there are still legacy migrations taking place. And to the extent that their needs are hybrid or on-prem or maybe in their own cloud, it's a very short list of companies that have the proven track record to kind of meet their scale and meet their hybrid deployment needs. So I almost take that for granted. We do exceptionally well there, rightfully so. What's changed is that now 100% of our offerings are SaaS. And today, for many enterprises, they are starting up in the cloud or they are planning to migrate to the cloud, and now is able to say yes, across our entire platform. And that's what's changed. So where in the past, we might have been less competitive or a disadvantage for not having 100% of our capabilities offered a SaaS that has now materially changed. And as a result, our win rate -- not just our win rate but our ability to get past the first one of requirements, which is, is it cloud or is it SaaS, we're able to say yes to that. So it's improving. Our competitiveness and win rate is improving as our SaaS maturity has improved.

[Brian Colley:]

Got it. And then I also wanted to ask about your new cloud solution packages that you announced along with DaVinci and whether you're seeing those results in more customers landing with multiple products.

[Andre Durand:]

I think it's too early to tell on that one. We've had -- as you would imagine, with a SaaS offering, it's all about simplicity and ease of use, and that includes simplicity of packaging and pricing. And so as an initial onboard to take a customer from 0 into the Ping SaaS house, if you will, we wanted to simplify what the base package look like. We had seen enough customers buy enough products to know typically where their journeys began and what features they felt needed to be in a base package versus what more advanced features they would want in one of the higher tiers. We took all of that knowledge with the goal of simplifying our packaging and simplifying the way in which we land new customers in the cloud, and we applied it to those bundles. That is a long-term strategic initiative to be competitive in landing new customers in the cloud. Too early for us to report on that, but from everything that we've both heard from prior customers who have purchased our SaaS solution is a big step in the right direction.

[Operator:]

We go next now to Mike Cikos at Needham & Company.

[Mike Cikos:]

I wanted to ask, was probably going to Raj, but more about net new ARR, the ARR guide we have for calendar '22 and the seasonality, anything that takes you on that front? I know we pretty much have the first half in hand given the 1Q print and the 2Q guide, but when I look at historically, the back half of the year from a net new ARR perspective, Q3 tends to be around 1/3 of the total net new ARR for the second half of the year, at least that's what it's been over the last 2 or 3 years. And I just wanted to see, is that a fair way to think about the cadence when you guys are thinking through this year? Or is it maybe just more circumstance or chance on -- because of the environment we've been in with COVID over the last couple of years?

[Raj Dani:]

Yes. As you know, we don't guide necessarily to Q3 right now, but I would say that when you look at the second half, it will be Q4 loaded, and that's fairly typical for us.

[Mike Cikos:]

Okay. And I know there was another question earlier on that point, but I think 2Q we're seeing this impact year-over-year because of the difficult comp. Obviously, you had mentioned that you guys signed your possibly largest deal in company history during 2Q of last year, which benefited ARR, so totally understand that. Is there anything else to think about from a large deal mechanic standpoint as we put pen to paper on the second half of the year for ARR and how we're looking to model?

[Raj Dani:]

I don't think there will be anything unusual. Certainly, as we've as we've developed our platform, we have a ton more solutions now than we did 12 months ago and certainly 24 months ago. So naturally, the deals are getting bigger. PingOne Advanced Services is driving larger deals. PingOne for government will drive some larger deals. So it's more about sort of getting more strategic with existing and new customers than anything else.

[Mike Cikos:]

Awesome, awesome. And then if I could just tack on one more, please. But I didn't -- the commentary that you guys have and have had on this call has obviously been positive. One of the things that I did -- and I want to make sure I'm not misunderstanding this, but obviously, you're operating in this difficult environment, whether it's from macro, the volatility, the geopolitical concerns. But can you talk to the impact that, that has had on you, if any? And then the derivative question. I know in the prepared remarks there was a comment that professional services was lower than expected this quarter in relation to customer delayed implementations. And I just wanted to see if you could hash that out. I don't know if the 2 are connected, but I did want to make sure that those were addressed at least in a public forum.

[Andre Durand:]

Now those are not connected, by the way. Generally speaking, with the macro market issues -- the macro market conditions have been a tailwind to Ping. It's putting more focus on identity, putting more urgency on identity as a whole. With respect to the ProServe, we are seeing and experiencing a very healthy acceleration in SaaS and a lot of interest from the channel. And we are leveraging professional services as a strategic arm to support the successful go-live of very large referenceable cloud customers and to accelerate the learning and the training of our partners to do the same at scale, and that's mostly what you're seeing there.

[Operator:]

Next, Rudy Kessinger at D.A. Davidson.

[Rudy Kessinger:]

It looks like in the quarter, you did a really nice job pushing for multiyear license renewals for your 1-year subscription term license customers. One year license is down 34% year-over-year multiyear terms, up 38% year-over-year. Am I seeing that right? Or was it more of a factor of 1-year term license customers coming up for renewals switching to SaaS?

[Andre Durand:]

The -- it really doesn't have anything to do with 1-year switching to SaaS. What we saw was more of what's normal for us, which is customers opting in for longer duration contracts. So the bigger the deals, the more strategic the projects, the longer -- we have seen that correlation over time where customers sign up for longer, and we are seeing kind of a reversion to that. I think it's a confidence in the road map. Obviously, the environment has improved a little bit. There is some correlation when they go cloud with Ping. It does kind of open up the future runway. But all of it is, I would say, embodied in confidence in Ping and our road map.

[Rudy Kessinger:]

Got it. And then, Raj, just maybe kind of a housekeeping question. You said G&A is expected to grow kind of in line with ARR growth this year, S&M and R&D to grow faster. Is there any kind of bound you could put around the growth you expect from those lines? And then more specifically in S&M, anything you guys can share, maybe quantify the incremental sales capacity you intend to have this year?

[Andre Durand:]

We don't quantify the quota-carrying reps, Rudy. But I will say that we've made a commitment to -- certainly to the channel, and we're investing across the board in sales and marketing, and that is everything from marketing awareness all the way to the channel and enablement and customer success and quota-carrying reps. So we're fairly well balanced across sales and marketing spend. What I will tell you is the -- is through the balance of the year, you will see us invest in sales and marketing and in R&D, primarily those are the 2 areas. And then just the 2 other areas, I'd say, is one, and continuing to build out our SaaS infrastructure so we can accommodate the kind of growth that we're seeing in our SaaS business. And also in security, that's a constantly evolving investment that we make to make sure that we're out ahead of the curve on security internally.

[Operator:]

We have time for one further question. We'll take that now from Eric Heath at KeyBanc.

[Eric Heath:]

I guess just a follow-up on the delayed implementation called out on the professional services side. Did that have any impact to ARR in the quarter?

[Andre Durand:]

On the delayed implementations? No, that would be ProServe revenue, not subscription ARR. So you see that in the ProServe revenue line, that impact.

[Operator:]

At this time, I'd like to turn the call back over to Mr. Durand for any further or final comments.

[Andre Durand:]

So that concludes today's earnings call. Q1 was a strong start to the year, but most importantly, we're making really solid progress against all 3 of our strategic growth drivers

[Operator:]

Thank you, Mr. Durand. Ladies and gentlemen, I will conclude the Ping Identity First Quarter 2022 Earnings Call. We'd like to thank you all so much for joining us and wish you all a great evening. Goodbye.