Ping Identity Holding Corp.

Thanks, everyone, for joining us today, and welcome to the Ping Identity conference call, where we will discuss our results for the third quarter of fiscal 2020 and provide our outlook for the fourth quarter of fiscal year 2020. I joined the company last month to lead our Investor Relations efforts.

Very happy to be here. Before we begin, I'd like to remind you that shortly after the market closed today, we issued a press release announcing our third 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 discussion may include forward-looking statements.

Please refer to our annual report for the year ending December 31, 2019, filed on Form 10-K and filed with the Securities and Exchange Commission. And our quarterly report for the quarter ended September 30, 2020, filed on Form 10-Q with the Securities and Exchange Commission, where you will see a discussion of factors that could cause the company's actual results to differ materially from these statements.

I would also like to remind you that during the call, we will discuss some non-GAAP measures related to Ping Identity's performance. You can find a reconciliation of those measures to the nearest comparable GAAP measures in our quarterly financial statements.

[Operator Instructions]. And with that, I'll turn the call over to Andre.

Thanks, David, and welcome to Ping, and thank you all for joining us today. We hope you and your families are safe and healthy as we enter month 7 in a work-from-home posture in Europe for winter.

I'd like to start by acknowledging the continued efforts of our employees and the continued support of our partners, both of whom are vital to ensuring the success of our customers. As a company, we continue to operate in a fully remote environment and expect to do so for the remainder of the year and likely into early 2021.

While there have been a number of learning curves, our resiliency and commitment to helping enterprises transition to remote work, increase security and accelerate digital transformation initiatives has never been stronger. I'm pleased to report that we closed another great quarter, exceeding our expectations across the board.

We remain confident in our enterprise leadership position and the mission-critical nature of our solutions as validated by increasing support across new and existing enterprise customers. Our annual recurring revenue at the end of Q3 was $242.6 million, representing a 17% growth rate year-over-year.

Q3 revenue was $59.9 million, with a subscription revenue representing 92% of total revenue. Unlevered free cash flow usage was $4.1 million.

Given the pervasiveness of work from home, cloud adoption and increasing personalized customer engagement, identity security has cemented itself as a cornerstone of Zero Trust and customer experience. Along those lines, we are intently focused on 4 core themes.

First, a unified hybrid cloud platform. As enterprises embark on their digital journeys, Ping provides unparalleled deployment flexibility, we called Cloud Your Way.

Through DevOps, PingCloud and stand-alone SaaS services, Ping meet enterprises where they are, managing thousands of mission-critical applications all while providing a road map to the myriad of hybrid cloud architectures. In Q3, we launched a new unified administration portal, which will become the centerpiece of Ping's hybrid cloud platform helping companies administer their global enterprise deployments across customer, employee and partner identities.

Second, customer identity. Ping's scalability and performance are unmatched amongst identity providers.

A core pillar of serving tens of millions of users. We are enterprise proven at handling peak volumes of over 50,000 transactions per second with many of our customers.

We are also increasingly the central directory that enables unified profiles across an entire enterprises digital properties. Customers have come to expect this level of personalization and ease of use without compromising their security.

And as a result, companies look to Ping to enable these experiences. Third, rapid migration from legacy.

Analyst estimates suggest there is between $3 billion and $4 billion of annual spend on legacy identity systems. Having completed hundreds of these migrations for enterprises, Ping has invested to make these projects easier and less costly through our self-service capabilities that allow application teams to integrate with the company's centralized Ping platform.

Finally, expanding and embracing our partner network, which is core to our operations and vital to our customers' success. Our expansive partner network consists of technology and partners such as Sailpoint and CyberArk, who collaborate alongside Ping in the most complex enterprise IT environment as well as our integration and channel partners who provide invaluable expertise to our clients both when selecting Ping and through the go-live process.

Now I'd like to switch gears and highlight a few Q3 customer wins. On the new customer front, TransUnion, a leading credit agency, selected Ping to serve as its global workforce authentication authority, protecting tens of thousands of users.

This hybrid cloud solution leverages Ping's SSO, MFA and access capabilities. TransUnion selected Ping for our ability to seamlessly migrate off their legacy SiteMinder implementation, support a hybrid cloud deployment and achieve best-in-class scale and performance.

During the quarter, Sharp Healthcare expanded with Ping to launch a world-class digital and unified customer experience. While placing a heavy focus on consumer privacy and compliance with the CARES Act, the Ping platform will help Sharp better manage data sharing requirements.

For example, when capturing patient consent to release any data to third parties. We are proud to work alongside Optiv to assist Sharp in their customer identity journey.

Third, one of the largest manufacturers of pharmaceutical products selected Ping to serve as the authentication authority for a new employee and partner portal. Before launching, the business was keen to ensure the highest level of security as external users would be accessing the system worldwide.

In addition, this new initiative was set to replace 10 disparate private portals to help the company increase user adoption, ultimately driving better retention and future outreach. Together with our partner, Insight, we were able to drive quick deployment and time to value.

Finally, a leading Australian bank partnered with Ping to provide a modern end-to-end customer identity platform to improve user engagement and better deliver against security and compliance requirements. Specifically, they are leveraging Ping's SSO, MFA, access, directory and authorization solutions to replace existing IBM infrastructure.

The bank plans to leverage Ping to better grow customer reach and market share with a unified policy-driven customer view. Our partner and customer success was on full display at our October annual users conference, IDENTIFY.

This year, we had hundreds of companies participate in our 20-plus hours of Ping Identity content from many Ping attendees as well as many external speakers. During the event, we recognized a number of truly extraordinary customers for their work to champion Identity across their organizations.

These include Ticketmaster for its authentication and authorization deployment that serves millions of loyal customers, and logistics giant, DB Schenker, for its commitment to securing tens of thousands of employees in their rapid transition to work from home. As I mentioned earlier, partners are vital to our success, and we are always seeking ways to better align with our customers.

In Q3, our growth team partnered with the Herjavec Group to deliver our SSO and MFA capabilities in under 30 days as a health care company look to modernize their workforce and partner infrastructure. We also made a number of exciting product announcements during IDENTIFY that I would like to discuss in detail.

We're expanding our solution offerings by providing enterprises new stand-alone SaaS services built on PingOne, our state-of-the-art multi-tenant SaaS platform. The first 2 services are PingOne MFA and PingOne Risk and are accessible via APIs to streamline integration.

PingOne MFA is our new offering to protect customer identities from account takeover, compromise credentials, fraud and other malicious activities while delivering a frictionless user experience for end users. The solution uses adaptive authentication policies so that organizations only prompt customers for authentication when needed.

Users can also utilize PingOne MFA for custom transaction approvals, such as improving fund transfers for high-value transactions. PingOne MFA can be embedded into web and mobile applications, allowing enterprises to brand the end-user experience and provide a choice of easy to use authentication methods.

PingOne Risk leverages machine learning to evaluate risk signals and detect threats in real time. The service is an important part of Zero Trust security and our goal to achieve passwordless user experiences.

PingOne Risk evaluates multiple signals, including the user's behavior, device posture and location amongst other signals to understand the level of risk posed by a user attempting to access a particular resource. If the risk is high, an organization may trigger a higher level of authentication through Ping's MFA authentication service or make block access entirely, leveraging our access enforcement services.

As we continue our efforts to deliver exceptional user experiences, we launched a new unified administration console to provide enterprise identity teams a holistic view of their entire Ping hybrid cloud platform. This one-stop shop allows teams to easily manage their deployment, add new environments, trial new products, and access the latest training and documentation.

As we look to the future, we're investing in innovation that promises to reshape our industry. And we're pleased to announce our intention to leverage the recent ShoCard acquisition to usher in a new paradigm of individual control over their identity.

Individuals especially in the customer and consumer context, have little to no control over how or where their information is used today. Our vision is to transform that paradigm to give users more control over their identity.

We call this personal identity, and we believe it holds the key to better privacy, lower fraud, and better user experiences for both the workforce and customer use cases. While personal identity is an emerging use case, we're excited by the potential and believe no identity platform will be complete without it in the years ahead.

Speaking of acquisitions, as announced earlier this week, I couldn't be more excited to welcome the Symphonic team to Ping. After a collaborative 2-year partnership, we look forward to having Symphonic as part of the Ping family.

Through the acquisition, the PingDataGovernance and Symphonic combined capability delivers a comprehensive dynamic authorization solution. Integrated with the broader Ping platform, enterprises will now be able to centralize authorization and extend identity controls to address global regulatory requirements for privacy, API and data security while lowering fraud and delivering new digital services faster.

This acquisition is a vital component of our Zero Trust efforts and is expected to become central to organizations seeking better security through identity. These are exciting times at Ping as we continue to lead the enterprise identity industry, invest in our future, serve customers and expand our reach with both channel and technology partners.

Now I'll turn the call over to Raj Dani to walk through the quarter results and updated outlook in more detail. Raj?

Thanks, Andre. I would echo Andre's comments that we are very pleased with our Q3 results and execution, and thus remain optimistic about our ability to drive seamless deployments and quick time to value for our customers.

In addition, contract durations for both new bookings and renewals have begun to normalize more closely to pre-COVID levels, another testament to the prominence of Identity within security and Zero Trust road maps. One such renewal and expansion in the quarter was with long-time customer, CoreLogic, a leading provider of financial data and analytics.

The customer was looking to grow its business with a new revenue stream and expanded its customer identity and access management suite of services with us. We closed Q3 with ARR of $242.6 million, representing year-over-year growth of 17%.

Growth was driven by strong international bookings in EMEA and Australia, continued adoption of cloud solutions such as MFA and leveraging of the Ping platform for the customer use case to accelerate digital business. Third quarter total revenue was $59.9 million, of which 92% was subscription revenue.

In Q3, our dollar-based net retention rate was up 110%, calculated on a trailing 12-month basis. Given the prevailing economic uncertainty driven by COVID-19, a number of enterprise customers continued to phase in their purchase of our solutions, resulting in slightly smaller deal sizes and a reduction in our dollar-based net retention rate.

Unless otherwise stated, 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.

Gross margin for the third quarter was 80%, and comparatively, our GAAP subscription gross margin was 85%. Total operating expenses in the third quarter were $40.6 million.

Adjusted EBITDA in the third quarter was $8.3 million, representing a margin of 14%. Unlevered free cash flow usage was $4.1 million during the quarter, better-than-expected primarily due to strong cash collections, which offset a typically high quarter of annual prepayments.

Unlevered free cash generation year-to-date is $10.2 million, up 25% compared to the same period in the prior year. Cloud solutions continued to grow faster than the rate of the overall business.

And as a result, we saw slightly lower subscription gross margins. New customer acquisition with our growth team remains a strategic priority in generating pipeline and landing quickly in the Global 3000.

As of the end of the quarter, we remained in a strong net cash position with $173 million of cash on hand. Moving now to guidance.

For the fourth quarter, we project ARR to be between $255 million and $257 million. We project revenue to be between $67 million and $70 million, with annual revenue of between $247.3 million and $250.3 million based on our Q4 expectation.

This revenue range anticipates faster growth in our ratable revenue relative to the overall business as well as some expected impact from shorter-term license subscriptions with our customers. Given the impact that deployment mix and contract duration has on GAAP revenue, management continues to believe that ARR is a key growth metric of our subscription business.

Finally, we expect fourth quarter unlevered free cash flow to range between negative $5 million and negative $3 million with the full year unlevered free cash flow expectation of approximately $5 million to $7 million based on our Q4 expectation. Note that Symphonic will not have a material impact to Q4 revenue or ARR.

Our unlevered free cash flow guidance is inclusive of approximately $1 million of increased burden. Given our success navigating the COVID macro environment, we have fully resumed sales and marketing and R&D operating investments that were put on pause in Q2.

These investments are heavily focused on building a world-class channel and partner organization and delivering on new and innovative PingCloud and PingOne SaaS services. We expect to accrue between $17.5 million and $19 million for the long-term incentive plan and approximately $6 million of additional stock-based compensation in the quarter in which these awards are first considered probable of meeting vesting requirements, which could be as early as Q4.

This is predicated on the price appreciation of Ping stocks since the IPO and Vista's ongoing efforts to monetize their long-term investment in Ping. We expect that these will be noncash charges.

In closing, we remain excited about our opportunity as we are still in the early innings of Identity transforming both enterprise security and digital experiences. Ping is disrupting 20 years of enterprise legacy access management, while leading innovation among customer identity solutions.

Our strong balance sheet, subscription business model and track record of balancing growth and profitability provide us with great confidence to continue to execute to our plan. With that, I'll turn it over to the operator for your questions.

Wondering if you could give us some more color on, call it, the employee/partner side of your business and then the B2C side. Sort of what trends you've been seeing year-to-date and sort of how your expectations for Q4?

And I guess if you think about this from a, call it, COVID economic recovery perspective, how would you think about those sort of in '21?

Phil, this is Andre speaking. Both of those use cases remain strong.

We have, as I've said before, been investing and leaning into the customer use case, which is a smaller market but growing faster. That said, our platform has always been designed to serve both use cases.

It's our belief that a single identity platform should be able to serve all identity use cases. That's been our design goal, our architecture and our historical realities really since the inception of the company.

So in the COVID environment, we certainly have seen, I would say, in earnest, interest in adopting the Zero Trust identity security model. I think more of that has to do with the reality of the workforce use case, where all of a sudden now, users are remote.

And no longer kind of on the corporate network. And they're looking for architectures that don't have to have the workforce VPN back into the corporate network.

So we do see Zero Trust, which has been incoming for some time, have kind of been increased focus on the workforce use case. But likewise, COVID has also impacted a desire to simplify digital experiences across the omnichannel for customers.

And so we see companies looking to consolidate a lot of siloed or fragmented customer experiences and then rally around the Ping platform to facilitate that consolidation. So COVID has actually had kind of, I would say, a positive influence on both sides of that equation.

The customer use case is growing faster for us, and that is by design as we've leaned into it.

I just wanted to start on the ARR question and around customers taking a phased approach where they have smaller initial purchases. I would imagine that's going to be a catalyst to future quarters as they expand.

But maybe, Raj, just to start, is there a way to help us size that cohort? I think we can make some assumptions around maybe normalized ARR and new customer growth, I think it could become a pretty material catalyst, but any way to corral or help us size that number?

And as a follow-up, Andre, how does that play out? It seems like that demand would not be perishable, but I'm just wondering what you're seeing and if there's anything like pricing that would compete that away?

Because if not, I'd imagine we'd see ARR growth acceleration in 2021.

Yes. Adam, thanks.

This is Raj here. So certainly, we started seeing the phasing in of these typically larger deals starting with COVID and back in Q1.

It's -- we're starting to see the cycle now in terms of Phase 2 and beyond in what we saw in Q3 and into Q4. So typically, what I'd say is we're seeing the larger deals are being phased in over, call it, 4 to 6 quarters.

So like I said, we're seeing it now. Customer engagement is really strong.

That pipeline is still intact. It's all part of a customer's road map and Zero Trust, and they selected Ping for that journey.

So it's just a matter of time in terms of the phasing in of those, but I would expect that to continue over the next few quarters.

And Adam, this is Andre here. We don't have any expectations that this demand is perishable.

We think this is a dynamic brought about by budgeting in the COVID environment. And it's fair to say, we serve the large enterprises.

Every sector to varying degrees has been impacted and budgets have been impacted. And that's not new.

We saw that in Q2. We saw that in Q3.

I think as Raj reports and as we've reported, we are now starting to see kind of Phase 2 and/or Phase 3 either be discussed or closed. And when companies do make commitments to Ping on what would typically be a larger deal for us, that is typically a multiple use case and multiple product or multiple capability commitment.

They've got a road map to a larger vision. They've strategically selected Ping for that vision.

They just have a reality of what they can deploy in any one quarter.

I just wanted to maybe start out with the ShoCard opportunity. Can you maybe help us understand how that potentially can play out?

And maybe give a few examples of how you could build out the consumer identity market? And I'm assuming this is not going to be a direct-to-consumer type of offering, but maybe just help us understand the business case around it.

Yes. Thanks, Jonathan.

This is an entirely new paradigm to be clear. So -- and it hasn't been talked about by us, I guess, if you're in the identity industry, deeply embedded in the identity industry, it is a conversation.

But as I stated at IDENTIFY, we as individuals or consumers as we engage with companies, we do have little control over what information is shared. Now there's regulation that is enforcing companies have better consent capture and then also consent enforcement, meaning once they capture users' consent to share, they need to make sure that they apply that consent appropriately in sharing data.

Ping actually sells and enables companies to ensure that they're not violating a lot of this privacy policy. The entire notion that an individual in the future can begin to collect pieces of their identity information on to their phone and into an identity wallet, and then present that information when requested or required in interactions with other businesses.

It fundamentally changes the privacy model. Makes the individual an active participant in the management and control of their identity and their privacy.

Where this gets really interesting, especially, is in the -- is in what we call the registration or identity verification side of the identity use cases. Companies spend a tremendous amount of money verifying your identity before you -- before they allow you to authenticate.

And there's a lot of friction in new customer relationships as customers basically register to create an account with companies. The concept that a user could show up with a verified identity, skip registration and establish a relationship with a company in a matter of seconds is a completely new paradigm.

And to do so in a privacy-enabling way is going to lower the friction, both for end users and for businesses, and it's going to simultaneously improve the privacy for the end user. So this is a model that we think will have applicability in all identity use cases.

When employees -- new employees show up to a company, they also have to verify identity. It's not just a customer consumer use case.

But we also believe that it has significant value in the customer consumer use case.

Got it. That's very helpful.

And just in terms of the contract duration, I think you said that it's moved back to a normalized state. But I mean I just want to confirm that maybe we've already passed the bottom point here and whether that can sort of sustain a more normalized contract durations?

Yes. It's a good question, Jonathan.

This is Raj. So as we talked about in Q1, when we had the COVID shock to the system, everyone sort of retracted back to what's a minimum they could do, right?

Realizing that identity is mission-critical to everything and we saw that bounce back a bit in Q2. Q3, actually, we saw it normalized back to sort of pre-COVID levels.

Now I don't know if that's the bottom. But we certainly feel that in those conversations with customers that the feeling we get anecdotally in these discussions is that the same that we felt prior to COVID.

Okay. Great.

Andre, maybe for you, and I apologize if this has already been addressed. I joined the call late.

But can you just talk about the legacy identity infrastructure out there from the likes of like a CA SiteMinder or like an Oracle Access Manager, for example. I guess how are customers sort of approaching the prospect of ripping and replacing these heavy sort of kind of systems amidst the pandemic?

And maybe qualitatively, how does your pipeline of those types of displacements look like here in the coming quarters? Does that make sense?

Yes. It does, Saket.

I would say that as we've discussed before, web access management, the legacy Oracle Access Manager, SiteMinder and other products, probably is one of the stickiest products in the identity suite because they do tend to touch every application. We had seen a trend and have been seeing a trend of a modernization of those products as they've become largely unsupported by the legacy vendors.

In CA's case, in particular, Broadcom, which is according to their playbook, has really turned the screws on some of the renewals of those products. So I would say that there has been a general desire and/or acceleration to move off of those products, even though they are a heavy lift.

At the same time, and so I would call the tailwinds have been increasing for that. At the same time, in the COVID environment, large replacement projects in general come under budget scrutiny and companies asked is this the highest priority of something that we need to do.

And so we've seen both puts and takes on that front. That said, we estimate that there's a $3 billion to $5 billion legacy market still in existence in the large enterprise market.

At some point, does need to be replaced, and we believe that the pressure to replace grows every day with these large enterprises. They will hold on as long as they can, but all of the trends are heading towards a moment in time where they just will not be able to hold on to that legacy any longer.

As I've said before, it's become brutal.

Got it. That's very helpful.

Raj, maybe for you. Just maybe to piggyback off that last question on contract duration.

I just want to zoom in a little bit on renewal specifically. And I guess what I mean there is for renewals that are maybe 3 years in length, are they continuing to sort of renew at their prior duration?

Or are you seeing some of those maybe contract perhaps or change given the pandemic?

That's a good question, Saket, because we tend to focus so much on duration of new ARR, right? But the renewal ARR has a very significant impact on revenue as well.

If you think back to 3 years ago in Q4 '17, when we did have several subscription term licenses that were multi-year, we had a fair amount of those that were 3, but also 4 and 5 years, right? And so those were rev rec as those terms unfold.

But what we are seeing at the time of renewal were pretty much back to where we were before in terms of whether customers were renewing for single year or multiyear, according to their preference. That's pretty much back.

I guess follow-up on the prior question. I have to imagine COVID is increasing your new business pipeline really at an accelerated rate.

I guess I'm wondering if you could talk a bit more about the health of that pipeline. And is this just a function of macro stability that could ultimately reduce some of the phase-in nature that you're seeing?

Or are there actually things that perhaps you can control that could accelerate these deals a bit?

Matt, this is Andre. The pipeline has largely returned to pre-COVID levels at this stage.

When we look at our balance or mix between new and base business, the new side of that business has actually also been very, very strong, actually recently. Now we haven't had conversations yet internally about, is that a COVID impact?

And then all of a sudden, we're seeing kind of strong demand on the new front. The second part of your -- repeat the second part of your question.

Well, is it a function of macro stability that ultimately sort of like brakes this way, I would imagine, is a very healthy pipeline for you? Or are there things that you guys can do to control.

Then I guess, a follow-up to that would be, Raj, you mentioned that you're accelerating -- you resume spending. Maybe it's a function of increased reps or even more tenured reps.

Just sort of curious on that side of the house.

I would say it is macro stability that we do is -- that we do believe is impacting the close rate and/or the size of those initial deals and the experience that we've had with phased-in deals. With respect to the actions we can take to control aspects of closure rate, we, like many others, continue to focus on customers that are expanding customers that we already have a relationship with tends to be less friction associated with the sales cycle for an expansion.

And so we, along with other companies, when we entered into COVID, made sure that we were paying attention to all of the expansion opportunities. That said, we did not make a wholesale jump to focus on simply base business.

We experienced in Q2 and in Q3, a healthy amount of new business. We know that new lands equal future expands.

And so focusing too heavy, while we probably could accelerate some closure with increased focus on base, if it comes at the expense of landing new customers. We also don't like that trade-off.

And then maybe then just sort of to ask Raj a question about the hiring. I mean could you double-click on that a bit in terms of where you're focused?

I imagine sales and marketing and R&D. But maybe a bit more color there.

And how do you kind of think about the rate of new rep additions as we prepare for next year?

Yes, absolutely. So we felt pretty good coming into this year with our hiring plan for reps and this year has been a good strong year in terms of getting those reps seasoned and enabled to be productive next year.

So we feel good about the sales capacity. Now our growth team, which we've highlighted in the past, has been doing phenomenally well.

And that team, as we've talked about, is focused on, say, the Fortune 1000 down to the Global 3000. We've also been investing in our cloud products.

Andre mentioned several innovations around the PingOne platform in terms of our services that we're offering there that are new and as well as our PingCloud platform. So the combination of all of those things is where we're investing.

And certainly, from a rep-specific standpoint, we are continuing to grow that investment in the growth team as well as putting a real fine focus on our channel investments and enabling our partner network there, too. I'd say just in terms of, in general, the other areas of spending around R&D, around cloud hosting and infrastructure in advance of what is expected to be significant growth there as we enable our customers to go about their cloud journey and in our support teams.

Great. And my question actually, Raj, follows what Matt was just asking you.

So you say that the growth team is doing phenomenally well. Yet if I look at your Q4 ARR guidance, it implies further deceleration year-on-year, whether I just look at the absolute number or trends in net dollar adds in ARR actually referred back to where they were in the first half.

And at the same time, your sales and marketing productivity seems to be deteriorating relative to the new and expansion business that you're having. So what might I be missing that gives you that confidence to resume investing in sales and marketing?

And how should we think about productivity relative to the new ARR that you're adding going forward?

Yes. I think it's a good question, Brad, right?

I mean, basically, we're seeing the headwinds and the tailwinds of COVID here. And we spent this year on enablement of our sales force.

So we do feel like that productivity will improve going forward. We've also seen quicker time to productivity for our growth reps who are selling our -- leading with our cloud products.

So investing there, we feel like will lead to a quicker time to productivity. When we think about the COVID world here that we've lived in this year and we look at the sequential increase in ARR what we're guiding to in Q4 is a healthy, almost doubling of the net ARR we generated in Q3.

So those are all the signs I would point to in terms of what gives us confidence going into Q4 and beyond.

Great. Maybe just a follow-up for you.

How would you characterize the size of your renewal opportunity in Q4 and into next year? I mean if customers are signing shorter duration deals, is it fair to assume then that, that renewal portfolio actually grows in size and gives you more shots on goal, so to speak, for upsells and expansions?

Well, we're continually talking to our customers. We've been investing in our customer success group for several years now and have great coverage over our ARR snowball in that regard.

So everything from making sure that new customers are getting value for money and getting time to value is super important for that group. And we stay in constant contact with them to make sure that if there are upsell and cross-sell opportunities that we're identifying them early on in order to add value to the customers.

So it just doesn't happen at a renewal point. And traditionally, renewals were -- regardless of the initial term of the deal, historically, renewals were typically 1 year.

We just started to see over the last couple of years where certain renewals were longer durations, too. And like I said earlier, we're actually seeing now that the pattern of renewal duration is sort of reverting back to, on a weighted average basis, what we were seeing pre-COVID.

So I don't see any sort of specific renewal duration issue or opportunity there that's different from anything else we've had in terms of upsells and cross sells.

Can you hear me this time?

Yes, we can. Great.

All right. All right.

That's great. Phones tend to work better when they're not on mute.

Okay. So yes, can you talk about the linearity that you saw in Q3?

And then with the recent macro volatility and potential for lockdowns, at least in Europe, could you give us any color on what you saw in October? And just sort of like overall visibility on your pipeline today?

So Greg, the first part of your question was around linearity. Can you just expound on that, please?

Yes, so just like monthly trends. What you saw in terms of your pace of bookings between July, August and September?

Yes. We had a -- what is fairly typical for us where we get off to a pretty reasonable start in the quarter.

And then just given what Q3 is typically for us, there's -- especially with our international business. That tends to be a lull in the middle of the quarter.

And then we finished very strong at the end of the quarter. So I wouldn't say that there was anything out of the ordinary.

We have a monthly focus just like we have a quarterly focus, and we're executing well to that. With regards to your second question around Q4, we continue to have a strong pipeline, as Andre mentioned, and we executed well in the month.

So let's see what happens with some of these macro trends that you mentioned and some of the shutdowns internationally, but certainly, from the beginning of quarter, we're on track.

Question on the SaaS side. Any update there on revenue from SaaS as a percentage of total?

And to the extent you're seeing any change there? Anything in particular driving that?

And how are you thinking about as you go into 2021?

Yes. Sure, Walter.

This is Raj. I'll take that.

So as you know, we disclosed our ratable revenue every quarter in footnote 2. And we continue to see a gradual shift towards ratable.

That's one because we've been investing that way, and we're certainly really excited about all the new innovations we've unveiled here over the last couple of quarters being our PingOne services and PingCloud. So we continue to see good adoption and good pipeline build behind that.

And so -- and also with our customers, right, in terms of their desire to embark on their cloud journeys, and all of them are different. And it's to our advantage to help them navigate through that complex hybrid cloud world to get them to their desired state.

And we feel like we are in an architecturally differentiated way to help them get there. So we did see a fair amount of ratable revenue growth.

Our ratable revenue grew 24% year-over-year in Q3. In Q2, that growth was 22%.

And overall, ratable revenue was 34% of total revenue for Q3. So we continue to see that trend, as we talked about before, when that's an expectation.

We continue to believe will occur in the future as enterprises go through a gradual transition to more cloud.

Okay. And I guess, just the implication, is there the implication there that you are seeing SaaS uptick as a percentage within that ratable?

Yes. Absolutely.

Just to be clear, yes, we're -- our SaaS businesses are growing at a significantly faster rate than the overall business. And that's been the case for several quarters now.

Mine has more to do with macro environment. And many of the conversations I've had with procurement officers at large financial banks and health care and retail, they're saying that they're really not going to spend much more money in 2021.

And they already have so many tools on sites that they just can't imagine adding any more tools. So can you rationalize how you view your growth opportunity with that type of feedback that I'm getting?

And this is with almost 25 different very senior procurement officers. So I'm just trying to rationalize your growth and how you fit in what they're saying.

Thanks, Catharine. This is Andre.

So we are absolutely hearing and seeing the same thing. What we are seeing is a desire for vendor consolidation and replacement or modernization of several legacy vendors and movement to Ping.

So while we should consider this a wallet share shift from legacy spend to a modern partner in the case of Ping. I personally have been involved in several conversations that played out pretty much exactly what you were describing.

Budgets might be flat year-over-year. We're being asked to find ways in which we can reduce cost where possible.

We also have a desire to reduce the complexity of our vendor landscape, but the business demands have not slowed down. At the same time, we're being pressed to onboard new applications, accommodate new use cases for the business units that are not supported by our legacy environment.

And so we see those companies in dialogue to essentially consolidate several legacy vendors and replace them with Ping. So we look at our -- our growth is not necessarily bound by flat budgets, but by a transition from legacy to Ping.

Chris Speros on for Gur. Andre, can you talk about the level of demand for the API security use case that you saw during the quarter and how we should think about that opportunity evolving going forward into 2021?

Yes, thank you. I would say the interest level in all things API security have been high since we introduced that product and have not changed.

As I reported in Q2, and it was also consistent in Q3, while API security tends to be one of the top 3 conversational topics that CISOs understand is incoming, an important, I would say, vector of future attacks. It also suffered from not being a top 3 priority in the COVID environment.

So we have experienced that new deals around API security have been postponed in many cases through Q2 and Q3. We took the opportunity in Q2 and Q3 to fully deploy enterprise-wide, several extremely large API security deployments, protecting, in some cases, hundreds and other cases, thousands of APIs and fully validate, improve the scalability of that solution with our early customers that signed in Q4 and Q1 as we introduce that product.

It is our expectation that, that is an emerging market. We do not see it going away.

All of my customer interactions are validating that increasing awareness of the exposure of APIs and the lack of visibility into the traffic of APIs is a growing concern to the security groups of many of these large enterprises. But this is an emerging technology, an emerging space and in tight budgets and COVID time, it did not make the top 3 at least in the last couple of quarters.

My expectation is that in 2021, like all new technologies that are incoming, as things return and companies get the high-priority projects under their belt that they will get to the API security. And we've introduced Ping's several new products in new categories over the course of our history.

I've seen this trend before. When you have this level of interest in a new product, it's not a matter of if, it is a matter of when.

Yes. Maybe just one quick one for me.

Most of my questions have been already addressed. Just sort of wondering if you saw any change at all with respect to just customer churn in the quarter?

We really didn't. Identity continues to be mission-critical for these enterprises.

And if anything, as Andre mentioned, you see more and more wallet share going from traditional security budgets towards identity. So we really have continued to see strong retention as we always have in our history.

Thank you. I want to thank everyone for joining today's earnings call.

I wish you guys all the best of health. We look forward to continuing to carry out our mission, providing updates on the business as the year progresses.

Thank you.