Chit Chat Stocks - Ping Identity (PING) | Deep Dive

Episode Date: March 14, 2021

Ping Identity provides intelligent identity solutions. The idea is that each user within an organization is given a unique identity that can then allow them to access certain aspects of the organization. Ping Identity offers single sign-on, multi-factor authentication, security controls, and APIs. Brett, Ryan, and Brad dive into the potential Ping Identity might have going forward. As always enjoy the show! Subscribe to 7 Investing with the code "CCM": https://7investing.com/subscribe/ Follow Brad and check out his work on Twitter: https://twitter.com/StockMarketNerd?s=20 Follow us on Twitter: https://twitter.com/chitchatmoney Subscribe to our Youtube Channel: https://www.youtube.com/channel/UCG5Ni-SI-jyrEsoNUhqftNQ Email us: [e-mail] Timestamps Company Background | (2:27) Industry | (7:07) Management & Ownership | (10:44) Valuation | (12:54) Earnings | (13:50) Balance Sheet | (16:23) Our Analysis | (18:10) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. On this show, host Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or recommendation. Now please enjoy this episode. Welcome in. This is the third, nope, Sunday deep dive episode. I'm going to get that right. We have Brad Freeman on again. He's going to be the guest on each Sunday show. So if you liked him last time

talking tattooed chef, we're going to have him on again. Brad, how you doing? How are you dealing with the, I know you do hold some growth stocks. I know that's, you're not shying away from that. How did the sell-off treat you last week? Yeah. Kind of just taking the opportunities as they come, going really slow, adding to my favorite names, taking the advice from one of my favorite investors, Mr. Buffett, greedy when others are fearful. I have no idea if the pain is done. I mean, it would make some sense to see some more, but I will be buying all the way down. All right. Those are good words. I think we kind of have the same approach. Yeah. I mean, to be in all seriousness, if you're an individual and a long-term investor,

I mean, all of us have 40-year time horizons. I mean, the best time to buy is just consistently. My DCFs extrapolate out 40 years. Right. Yes, yes, exactly. But Ryan, we're going to be talking Ping Identity today. You're going to introduce the company, but do you want to talk about 7investing first? Yeah. So you can use our code CCM at checkout. You get $10 off your first month. Last month's recommendation, I guess this month's recommendations was a pretty good batch. There was one in particular that you and I have talked about off the show. We won't say what it was because that would be a violation. But pretty interesting. So that alone should be worth your $7 and use code

CCM. There's a sales pitch. Yep. Okay, ping identity. I'll get into what they do. So they're in the identity security space. They work both on premise and off premise. Basically, that just means whether you're in the office versus remote work. Cloud. Yeah, so connected through multiple devices i think what they mean by that i don't want to sorry let's see your servers yeah so the servers are yeah i think you might have the reason or what you were describing it made it sound like people in the office but you're talking about the service correct right in the yeah and so it's really i could probably try to over complicate it but it's a lot like octa uh very similar actually um they really cater to enterprise businesses so anytime an employee that works for one of

ping's customers signs in they have to use ping identity to be secure so essentially they're going i think they have 60 of the fortune 100 businesses as customers so and that totals like almost more than a billion users in total and uh the goal is essentially to you create an identity for each user and then you can grant that user access wherever they go and they really leaned into this remote work sort of uh being dispersed across the country kind of uh style of work and um a little bit about the history well i should talk about the products but they have single sign-on so uh that's kind of the i guess you could call it the landing page for a lot of work uh a lot of employees if you if you aren't familiar with octa just go look up sort of octa interface or

something like that or ping identity interface and you can access all the different areas that you need to be if you're working for a company from that single sign on and then they have multi-factor authentication which is their send you a text and you type in the code type of thing yeah pretty standard stuff yeah they have security controls for apis personalized profile directories which is kind of a command center for the it department data governance to control access to identity data and then they have an artificial and machine learning api security this is basically just automatic api security instead of manual based on their quote-unquote ai which i always feel skeptical when people say ai it felt reading their 10k it felt a little bit like an

ibm commercial uh which is always it makes me take a step back where they're like we're hybrid cloud but yeah anyway so the they can be bundled together or they can be purchased individually or you can purchase like one or two or three for a certain part of a team within the company that kind of thing uh history about the business ping was founded in denver colorado in 2002 by andre durand and ping has been headquartered there ever since so durand actually sold his first company i think it was in like 1997 uh maybe i'm wrong on that but he started a second company and then he went on a three-month sabbatical to the caribbean all good ideas start on sabbaticals so uh that's where he had his epiphany uh while blogging on his friend's boat that he thought that the internet was

was really missing individual identity. So apparently he cut his sabbatical early and headed back to Denver to start this thing. Probably totally. It's probably completely true. That's just how I made it for the newspapers. He's always... Whenever I hear people like,

oh, it came to me on a sabbatical, I just think of Ehrlich Bachman at Silicon Valley, like taking shrimps and trying to think of a company name. He's like, or Reed Hastings. I tried to return my video and I got a $100 late fee and that inspired me to build this global empire anyway uh but i think ping was actually the first

mover in this space and they started the digital identity conference which is called like identiverse now not that that's some big thing but uh if you ever want to go to identiverse i'm sure you can attend uh that's sort of the conference they came up with and they did have a good uh they successfully successfully transitioned um out of they used to just be on-premise sort of security identity that kind of thing they've sort of transitioned out of that uh they went public in 2019 i think that pretty much covers all the history do you want to get into the landscape competition yeah and it is weird because you think they ipo'd after octa and they are competitor but they're actually founded earlier and that's kind of what left them a little bit behind octa

because they weren't really a sas offering now they have some sas stuff that kind of gets them we'll talk about it later where they were they're mainly like software for it was cloud-based but they also had you know the on-premise stuff to compete with oracle and ibm but octa kind of had that advantage the last few years but ping's kind of trying to catch up to them but i'll get to the industry um according to ping's 10k ibm and oracle are legacy competitors for on-prem stuff which is again, the servers at someone's place, it's not the cloud distributed stuff. And then Okta and Auth0 are their cloud competitors. And Microsoft has its own offering called Azure Ad. But Ping does work with Microsoft too. And that's kind of interesting to talk about, because

you would think maybe some big companies would be able to build something like this themselves. But it sounds like really the only company that can build something of that level would be Microsoft, I guess you could probably say the other big tech companies. It seems like it's not really worth the investment unless you're someone of Microsoft's size. But the main competitor is Okta. I mean, they focus on it basically every conference call. Okta is the biggest player by market cap.

I'm not sure on a revenue level how much bigger it is, but it is considerably bigger on market cap. And Okta actually just acquired Auth0 for $6.5 billion in stocks, which can kind of give you an indication of how hot the market is right now for these companies. Quantifying the market opportunity is hard and can be a little bit misleading. But to give a rough idea, Ping is in 60% of the Fortune 100 right now. So that market is a bit mature. And that was their legacy market, but they're looking to work down to the global 3000. I'm not sure. There's all these, there's Fortune 500, global

1000, global 3000. I'm not sure exactly what these companies are, but I think they're just more mid-sized companies um the only question i had and maybe we can just talk about this a bit probably have it on the second half too do you guys think it's harder to go from like the smaller companies to larger ones or do you think it's harder to go from the larger companies to smaller enterprise clients uh i'll go first yeah uh i would say it's easier to go from small to large because uh there is and i talk about this later on but there's like a reputational advantage that you have if you're with the large customers. But a lot of the time, it's just smaller companies becoming large companies, and you're already integrated into their stack or their system.

So it's not necessarily, you don't have to go out and get the customers, the customers themselves just become larger over time. Potentially. Yeah, potentially that could get off to an advantage. Brad, what do you think? I agree. The only thing about starting big and then going small is you do, like Brian kind of hinted at, get that recognition and that legitimacy from working with large fortune 100 500 companies um and i think that probably does open some doors for landing smaller clients right yeah yeah you could say that the like ping definitely has the tech advantage where they can do everything super complex but octa may have that you know they've already landed with all those but i think that's all i have for industry brad do you want to talk

management i was sorry before we get to brad i would also add that with the single sign-on they complete they compete with a lot of the workflow type of stuff so in a way we you know how we talked about when we talk about dropbox we said they kind of compete with octa i would say ping in this regard with the single sign-on if they're trying to be the landing page for a lot of employees they also work with the workflow stuff like box or dropbox they kind of compete in that guard that regard um but obviously at the same time they have all the other uh security based offerings which dropbox and box don't have yeah yeah it's it's some companies are yes like kind of competitors like you can't even argue with some of the security stuff datadog and maybe

crowdstrike but it everyone starts overlapping uh but yeah uh brad do you want to get to management and ownership yeah so we kind of got into it a little bit but andre durand is the founder and the ceo um so he founded that company ryan talked about which was sort of like an online photo database company when when the internet uh was sort of beginning um he calls himself the pioneer but a lot of i bet a lot of people call themselves the pioneer there um founded the open source messaging platform called jabber which was sold to cisco in 2008 and then he's the chair and founder of that identity conference we got into chris nagel is the coo he's held a lot of senior leadership roles with apple and portal software which exited and sold to oracle like a few years

ago and then this is this isn't super important to the company's value but terry cruz uh the celebrity is has the world chief identity champion which i thought was hilarious um you huge buy signal yes you might know him from quarter pounder with cheese guy from longest yard or from brooklyn 99 but he is hilarious and he was listed on the management team so i thought i had to talk about that that is funny that's a good anecdote yeah from from a board of directors point of view it's important to note that this company was sold to the private equity firm Vista in 2016. They do focus on enterprise tech. So this was right up their alley. And then Vista IPO'd it in 2019. So other board of director highlights, Diane Gerson was the

former chief human resources officer at IBM and Paul Martin was the former chief internal officer at Baxter International. In terms of insider ownership, the insiders directly own under 1% of the float, so not a ton there. But in terms of institutional ownership, so as you may expect, Vista owns 40% of the float, so I kind of think they can be considered an insider sort of, I mean, if they're the owner of the company. So all the data sources are saying insiders own under 1% of the float, but I think you could consider that 48% also and be just fine. And they're by far the largest holder. They own 10x what Vanguard owns, so they are very much so in this company. Yeah, they are important from the ownership perspective. I'll hit valuation

at this quick at 81.3 million shares, which is what they had listed somewhere in February during the annual report. The market cap is about $1.85 billion. Again, we are in a time where it seems like stocks are either going up or down 3% every day. So just make sure to check what the valuation is when you're listening. The ticker is P-I-N-G. Price to sales trailing would be about 7.6 from what I calculated and price to gross profit about 10.5. No dividends, shares outstanding have gone up steadily since the IPO. Same story as always for these companies. And they are around break even on profitability and cash flow positive. But a lot of that is coming from stock based compensation. So if you're looking at the cash flow, or you're looking at the earnings multiple,

it's going to be quite high. But this is another story, you have to think that the margin expansion should be a big part of the story over the next years, but I'll kick it over to Ryan first. Yeah, for 2020, they had $259 million in annual recurring revenue, and that grew 15% year over year. I'd say ARR, or annual recurring revenue, is kind of the number to pay attention to

since 92% of their, I think it's 92% of their top line is subscription. Yeah, that's right. And I imagine the contracts are probably a little longer dated since it's enterprise customers. They had 72% gross margins. Operating cash flow was $22.4 million, $9 million in unlevered free cash flow. So it's an operating cash flow margin of roughly 9%, like Brett said. I think for people that are bullish on the company, margin expansion is a large part of that narrative.

They spend about 36% of revenue on sales and marketing, 7% of revenue is spent on stock-based compensation so not exorbitant amounts on sbc there um especially compared to some of their other peers in the industry but surprisingly there was a high amount of money spent on depreciation and amortization or realization or whatever on a gap basis yeah so they have to i think sometimes those the gap requirements make you mark down the depreciation more aggressively than you should yeah especially for companies like this but just worth noting there when you if you look at like the EBITDA number, just remember, there's a lot of depreciation expense as well. So they ended the year with 1,411 customers in total. 51 customers contribute

more than a million in ARR. So that's actually growing 34% year over year. And they launched PingOne Verify, which I guess I'll talk about that on my future growth opportunity, but they did that during the quarter as well. Yeah. I thought a big note was if you kind of look at the 51 customers with over 1 million in ARR, and then you look at the 60% plus companies of the Fortune 100, you can think like, all right, well, that's the majority of the Fortune 100 customers are probably paying them a million dollars a year. That was probably my big highlight in the quarter, those lock-in from those people. And it's not just when you think about customers paying more than a million a year in ARR, it's not just added new customers.

it's customers that have crossed that threshold that have maybe been customers previously. So they might just be sort of that land and expand model. Yeah. It might not be that impressive if they went from all 990,000 to a million, but you know, over time that number's gone up, but Brad, you want to close out the first half of the balance sheet? Yeah. So the long-term debt is not super concerning. They're at 150.8, including credit revolvers that still have a year. So for, I think we said what, $1.85 billion in enterprise value, that's really not, I mean, it's not crazy. It's not perfect. It's not ideal, but it's really not a red flag at all. So in 2019, or in March 2020, out of an abundance of caution, they exhausted their 2019 credit revolver.

So they now have $145 million in cash as of December 2020, as we kind of covered cash flows positive. So no really pressing balance sheet concerns. And yes, interestingly, their interest expense declined from 6.1% at the end of 2019 to 1.8% at the end of 2020 due to refinancing. So it looks like the creditor, yeah, it looks like they got through, I guess, the danger zone of whatever the pandemic led creditors to think where they were going, where Ping was going. um and and that is yeah that is a large that is a large drop in interest expense and definitely a good thing for the company yeah i do i did like to see that yeah it's so funny to look back at like march 2020 now and it felt like investors thought every company was going to go to zero

revenue but when we look back at it it's like ping should should see a boost from everyone going remote but uh for sure yeah i mean they pulled out a revolver so i mean they obviously thought they were going to be in some trouble. Yeah, everyone was nervous that no one was going to pay anything. That was definitely an overreaction, but that was the consensus at the time. Let's hit a quick break, though. That wraps up

the introduction to paying identity, and then we're going to talk about more of the analysis part on the second half of the show. Cox Panoramic Wi-Fi includes advanced security to help protect all your connected devices. You'll get real-time alerts. Oh, like this one, so you don't have to worry about malware.

Or when your kid downloads a song from a shady link. And now all your computer can play is red color, red color, where are you? All blocked thanks to advanced security included with Cox Panoramic Wi-Fi. Advanced security must be enabled in the Panoramic Wi-Fi app. Restrictions apply. Welcome back. Next up is competitive advantages. This is where we try to identify any sort of moat, how they're looking at competitors.

in this case, it's probably big to look at Okta and the on-prem competitors like IBM and Oracle, but we'll throw it over to Brad first. What do you think, Yanni, competitive advantages here? I would go back to that reduction in interest expense that I just covered as kind of a developing competitive advantage. So that 1.8% average interest rate does provide them with a lot of flexibility to more aggressively pursue either organic or inorganic growth. And with Vista involved, that seems like it could be even more likely. And based on Vista's track record of really profitable, creative roll-ups, I do like that combination of them being in the equation and having access to very cheap credit. Right. You could argue that Okta has a really low cost of capital.

So before this, you might have said that Ping was at a huge disadvantage because Okta trades, you know, it's one of those companies that trades at 30, 40 times sales. they acquired off of Xero in all stock for $6.5 billion, which is like three times as much as Pandany, more than three times. I'm doing the math in my head, right? So if they can get that to more of an even level, that can give them a better, not really an advantage, but just even the odds when trying to invest for tech versus- It's maybe eliminating a competitive disadvantage that they've been dealing with recently, more so than creating a new competitive advantage, but I think it does have the same impact.

Right, right. Okay, Ryan? Yeah, so I mentioned this a little bit earlier, is the reputational advantage. So if you're an enterprise business, this really isn't a part of the business that you want to take a risk on. And it's so important now that you don't have any sort of security

or identity issues just because it looks so bad to have a headline where it says security problems with blank whatever that company is um so they're not going to take a risk on it and when you have 60 of the fortune 100 companies that can be a really i feel like that's got to be a major sticking point in the sales process like you can just be like well look at them they use us do you want you know they wouldn't make a mistake using us that kind of thing so i think that's just kind of a boost to their reputation um and now i'm not necessarily sure if that helps go down market in terms of big to mid cap or small cap but uh in

terms of acquiring other enterprise customers yeah it feels like they really have an advantage there yes yeah i agree with that uh for sure the enterprise customers i don't want to say there's no way object can take that from them but it seems like if ping identities it just does its job and continually improves its product and it's a good product it seems like um they're not going to lose those customers anytime soon. Okta doesn't really have the specs to compete on the enterprise level. But I'll hit mine. I think the ability to go on-premise, hybrid, or cloud. Again, I mentioned it does feel IBM-y where they're trying to say those hype up the cloud commercials, but I think it can help them win contracts with the giant enterprises. Now, they claim they are neck

and neck now on the pure cloud offerings. And I think at the end of Q4, whatever products they launched in 2020 um we can't they have almost like a dozen products so we can't really talk about them all on the show but they said by i believe the end of q4 of last year that they were neck and neck with the pure cloud offerings which i assume they're uh talking about octa and then if you think that the ui and pricing is similar there's no reason with the better tech specs for you know this api security um the reputation with big companies like i think netflix and like bank of america are their uh clients there's no reason they couldn't win head to head versus octa so maybe to get some market share from there as they try to move down to the

mid-sized clients but i do worry about thinking about that whether they have any pricing power you know are these commodity products at all and at the firm level it's like i mean i guess they can kind of just offload or ship the product and it doesn't really matter it's not like you need a lot of customer service but i i would if you are a smaller business would you be worried that you're like a customer that doesn't really matter to ping if they have 60 percent of the fortune 100 companies i don't think you're thinking about that as a customer but it probably doesn't even come into play uh but yeah i mean it's something to think about brad what do you think is ping and these single sign-on stuff do you think it's commodity product

at all uh today probably probably not um but i think i think there's a lot of uh innovation happening today in technology that will be a commodity in 20 or 30 years sort of like data centers are now um so i do yeah i agree something to keep an eye on all right well do you want to hit your future growth opportunities then i would love to so mine is sort of a a tide or macro tide lifts all boats, not super specific to Ping. But I mean, we got news out of China last weekend on the Microsoft hack. These global cyber security attacks are becoming more and more frequent. The current administration has placed an added emphasis from a budgeting perspective to spending on cyber security. So I just think in general, this is a really good place to be operating in.

And I think the industry compound annual growth rate over the very long term is going to serve ping and everyone else in it very well yeah there's no reason to think of demand for their products aren't are going down they're definitely going up yeah i'd say they just there is that general tailwind behind them which i don't know if that's like a investing thesis on its own but it's like brad said it's a good space to be yeah it seems a bit like it's uh like all right the hackers do something good and then penny has to invest and fight it then they keep leveling up So I get concerned that the R&D spend will not go down as a percentage of revenue because the hackers continually get better. But I'm a bit of an outsider looking in.

So maybe that's not how it works. And maybe that's more of someone like Palo Alto Networks. But Ryan, do you want to get your feedback? Sure. They just launched Ping One Verify. This is their newest SaaS offering. I think it's basically them just leaning in to like cloud. So how they said we're neck and neck on sort of that cloud offering.

I think it's because of this Ping One Verify. And in 2020, Ping acquired a company called Showcard. I'm not sure what price they paid, but that is sort of the tech they're using in order to leverage this offering. And I couldn't necessarily differentiate Showcard's tech from what exactly Ping did. but some tech crunch article said that show card uses mobile phones as a personal ID vaults. They basically said it's like blockchain or personal ID. So if they really, really broadcasted the whole blockchain thing, I think they could get a real premium here.

Yeah. Yeah. The, I was going to say, if I read that tech crunch article, I'd be like, Hmm, I still don't understand this.

It doesn't make much sense, but I, I am like the least tech savvy person out there. So what about you? What do you have? Okay. I got API intelligence offering. I don't know how new this is, but they really like to talk about it a lot. So it brings like API activity into one dashboard. And if you kind of think about it, it's not really for a small business who may be using a few APIs, but if you're a large enterprise, again, these Fortune 100 clients that they're always serving, you might be using hundreds of different APIs throughout your business. And if you can get that for your

IT team onto one dashboard that can help identify strange and malicious activities, and they're using their, quote, machine learning and AI to help automatically see when something is not necessarily malicious, but it could be malicious, or if just something doesn't look usual, and then they can go investigate it. So I think AVI usage should only grow over the next decade, and they're kind of positioned strongly to help deal with this because they talk about a lot how um when you use an api and again this is a little past or tech expertise but it opens up more of a threat to like that's like the entry point where a lot of hacks can happen and they're less secure typically so this

can help them or help these enterprises secure their api um connections better uh feels like Maybe CrowdStrike or Datadog. Again, I may be totally... No, I think you're right there. Datadog might be a little bit because they're monitoring. They're monitoring the whole stack, though. Yeah, maybe I'm talking out of my ass here. They might be leaning more into some of those pure security plays.

But we'll see. I don't know. Seems like a good product either way. Okay. Highlights and lowlights. Brad, you want to go first? Yeah. So for highlights, Duran seems like a really solid guy to be leading, founder, CEO.

He's been with the company for a very long time. There's no real management red flags. This is a really reputable firm. Low light, I'll do two. So essentially flat year-over-year revenues for 2020 with margins that tick down a little bit. So that compares to the direct competition of Okta, expansion on margin and top line and less direct competition, CrowdStrike and Zscaler, same thing.

And then along those same lines for Lowlight, CrowdStrike also just entered the identity space with their preempt purchase. So they will be going after Okta. They will be going after Ping over the coming years. And in terms of who you don't want kind of intruding on your competitive niche, CrowdStrike is an intimidating entrant, I think. So something to keep an eye on. That's interesting.

I guess I missed that on the competitors. Well, Ping did not include that in their 10Ks. Bad on them. I will be suing them. Security's crossed. This purchase happened a few months ago, so they might just have not updated it yet or something. No, 10K came out only two, three weeks ago.

Oh, well, then there you go. It might be, I think, Muji or HyperGrowth. I think he mentioned this in our interview with him that he was going after sort of off his market. that CrowdStrike was yeah that's interesting yeah I mean CrowdStrike from their growth I don't understand the business but uh it's been impressive and uh yes and I own shares so I'm biased so please keep that in mind every uh and it feels like every person I know that's like deeply rooted in tech is like oh yeah CrowdStrike's a shoo-in and so it's uh I don't

yeah that is sort of an intimidating competitor yeah I'll go next though highlights yeah Andre duran he seems bright i like him uh guidance looks solid 15 growth and annual recurring revenue is what they're expecting low light for me i think this is a type of business where the operating expense line is going to basically hinder profitability forever and it's whether yes they're going to have to spend a lot of money on research and development trying to keep up with product offerings to combat sort of uh hackers but they're also going to have to do it through m&a um if and the problem is well like we saw it right they acquired show card um and octa just acquired off the zero whatever they're they're doing that along with r and d and it feels like

that's not necessarily gonna go away ever like it feels like they're always gonna have to spend money in both those categories so that for me is a little bit of a concern especially considering that at this price you are expecting margins to expand over time and they did say next year i think free cash flow guidance was essentially flat um yeah so i don't know that part isn't super appealing to me yeah they are trying to transition to that sass model so that you know that may hurt short-term free cash flow but yes i think people might be misleading themselves if they look at like 80 gross margins and then they go all right profit margins list divide that by two uh you might have to divide by two again uh plus there's going to be stock

based compensation headwinds uh so yeah i mean the operating margins could be 20 it might not be as just because of the competitive positioning like if you look at someone um gosh who would be a better who has like 40 operating margins who has you know that clear competitive advantage in pricing power i guess if you look at someone maybe like otter desk who thinks they can get back to that 40% operating margins where it's tougher for people to compete with them. They don't have to consistently spend as much on R&D. They do do a lot with acquisitions, but yeah. I mean, it's tougher to see Ping in the long run having those strong operating margins, but maybe they will. From the outside looking in, pricing power seems capped.

Or tougher. Yeah. I mean, if you give something too high, why can't Okta steal that competitor? yeah so i don't know uh i guess maybe it's out of my circle of competence then but what about you what do you have yeah the uh all the anyone that's a tech person listening to this uh if you're laughing yeah if you're laughing you're saying that we're completely wrong um do not know feel free feel free to uh yeah yell at us but uh yeah i'll hit mine we can wrap things up i think value proposition just on an absolute basis is strong great product pipeline and competitive like the offering is now, like we said, the competitive advantages might not be as strong as people think. And I think that's more of a concern with Okta at their really crazy valuation,

but they're now competing with Okta, assuming the same product. So maybe that can help them. I think the lifetime value of customers is really high. You can probably argue, I don't know, one of those banks or whatever is probably a lifetime value of $25 million in revenue uh switching costs seem high big lie for me would be vista equity uh they had the either founder or ceo of vista equity partners got i believe arrested for tax evasion and fraud uh and there's a lot of there's no hard evidence no one but there are a lot of uh i don't know like accusations of self-dealing uh within vista equity portfolio companies and now you know the management team at ping identity is not just vista equity you still got the founder

there so that kind of mitigates any of those concerns but i do worry about the culture there um because of this equity that's sort of clearly yeah because if they're going down for evading taxes. I don't know. It just concerns me a bit. I don't think they're hands off when it comes to dealing with ping identity as well. So there's probably some influence in there. And it wouldn't concern me if they had like a 10% stake, but they have like a half of the company, which is like Brad said. So that's kind of something on my mind. That's the biggest low light I saw, but let's wrap things up here. Are we more or less interested? Brad, kick things off to you. Yeah. And before that i thank you brad i missed that um i missed that uh that scandal so that's definitely a good

thing to keep in mind when i'm looking to invest in this company when when vista has i mean 47 i think percent of the flow uh so thank you for for um including that so in terms of more or less interested it's a little weird for me because i i'm generally a really optimistic person and like to say nice things about companies but this isn't just i i there's nothing that makes it terrible there's nothing that makes it me scream this is an awful company but there's just nothing that makes me overly excited to own it um and for that reason i'm probably just gonna stay on the sidelines for the time being all right the shark tank for that reason for that reason i'm out i yeah i'm probably in the same camp as brad we're first of all circle of competence i don't think

this fits in it uh because when it comes to tech we are basically just babbling on about stuff we don't understand and if someone is a tech expert listening to this they know that so it's not tech because that's just a broad income it's more of like the software and security market yeah and so i guess too hard pile in that regard and then also if i were to meander outside of my circle of competence it better be a fat pitch and i wouldn't necessarily call this the perfect pitch yeah i'm in a similar boat i think we might be over i think we can understand it it might take a while but it's definitely something you can understand like octa you can understand this is a little more difficult um the competitive positioning versus like crowdstrike data doc

and all those companies is a little bit difficult as well but yeah i think i'd be interested at a more reasonable valuation but at what is it you know eight times sales for a company like this isn't insane but it seems like a good business trading at a you know pretty fair price it's not like a great business, like say CrowdStrike training in a fair price. I don't know. That's the other issue is that not only do you have to understand Ping Identity's business, but then you've got to really understand the ins and outs of all of its competitors and people that could potentially be competitors. Because if CrowdStrike can completely disrupt that market, then that's a big issue as a shareholder for Ping Identity.

Yeah. And you get away whether the customer lock-in is strong enough uh, to ward off any competition. Uh, but it's almost like these markets are almost, yeah, the market as a whole is probably going to grow. Um, but it's almost like something I don't want to play in where it's just too difficult. You don't know four or five years down the line who's still going to be there. Now, I think the switching costs are pretty high. Um, and I, I don't know. It's a tough, it's a tough one. Might be too hard pile. Brad, do you have anything else before we wrap up yeah sorry to interrupt i think i think if if you're going with the bull thesis of tied lips all boats and cyber security is a really cool a really attractive industry to

be in it makes more sense to just go with a low-cost etf instead of trying to pick a winner in the space and choosing pen or choosing i'm sorry and choosing um ping identity my mind's on pen national gaming sorry um but but but yeah i i would if that that seems like the most compelling bull case to me, which is not an ideal bull case in its own right. But if that was my opinion, I would go with an ETF. All right. Yeah. I guess I wouldn't be surprised. I don't think any of us would be surprised if this was a $10 billion company in five years, if they really execute. But I wouldn't be surprised if it's the same size and I have no really conviction either way. But if you own the stock, hope you do well. Hope we were wrong. Yeah, that's going to do it.

Yeah. Anything else before we close out, guys? Well, my company for next week. Oh, right. Right. Tell us Callaway golf company ticker E L Y. I believe it's an Austin Lieberman's portfolio, a friend of the show. So, uh, kind of interesting one. Uh, I think they made, what was it that they were the one that acquired top golf, right? They acquired top golf and they own top tracer tracer technology. Brad, you know, the company at all.

I know the golf balls. I'm a fan of the golf ball. So I will have to study up on the stock. That, is the extent of my knowledge. That's the competitive advantage right there. That's it. That's it. Okay. That's going to do it for this episode. As always, remember to use our promo code CCM at checkout to get $10 off your first month at 7investing. We are not financial advisors. So anything we say on this show is not formal advice or recommendation. Ryan and I are portfolio managers and general partners at Arch Capital. Clients in Arch Capital may hold securities discussed on this podcast. Thank you all for listening. We'll

see you on our next episode. Don't you wish you could just hit skip on the worst parts of your life? You know, the same way that you can skip an ad, I get it. I'm Siaya and I live in Ice Cove. I've made some questionable decisions that didn't end up the way I planned. And today I'm still figuring it out. Somehow things usually get worse before they get better.

Apparently that's how I roll. So bundle up and come along for the bumpy ride. Stream a new episode of North of North Tuesdays on CBC Gem.