Q3 2020 SailPoint Technologies Holdings Inc Earnings Call
Thanks, Josh and thanks to each of you for joining the call today I Hope you and your families are staying healthy and safe.
Im very pleased to share our impressive third quarter results with you. This afternoon, which were underpinned by solid execution and a continued prioritization of identity as a core IP investment area for today's digital enterprise.
Total revenue for the third quarter was approximately $94 million, representing 24% growth year on year.
As more organizations recognize help foundational identity security is to the business today.
In fact, we attracted more than triple the number of attendees to our virtual navigate conference this year.
Identity management is increasingly being recognized as a foundational element of a modern security stack and is a key investment priority for many companies.
The aftermath of COVID-19, and the quick shift to virtual has seen many organizations realize that good enough identity management is not good enough in other words. It is not enough to simply grant workforce access, which many companies were quick to do is their business went remote but that access needs to be proper.
Really secured and managed this.
This has resulted in more enterprises, turning to sail point to provide the right identity security and governance controls needed to properly protect all business assets and securely enable today's workforce.
Days business challenges, while anticipating the emerging challenges to come.
Our customers recognize that in us and continually turned to us for this reason.
It was just one example, and aerospace manufacturer chose to make Sailpoint SaaS identity platform foundational to their cyber security program.
We look forward to continuing to provide the dual value of enabling secure access and protecting the entirety of our customers business, helping them to provision with confidence protective scale and comply with certainty.
With that I'd like to hand, it over to Jason who will discuss the details of our financial performance and results in Q3.
Toward staff.
License in Q3 was also meaningfully ahead of our internal expectations, but this quarter, we saw a pronounced shift in identity Q bookings from perpetual license purchases to term life through subscriptions we.
We have always done some amount of term license and we indicated last quarter, but some of our outperformance came in the form of several large term license deals.
As well as some increased corporate bonus accrual based on our outperformance so far this year.
Said throughout the sooner we are committed to making the investments needed to capitalize on our attractive strategic opportunity.
Around $9 million to $9.5 million.
We expect our non-GAAP operating income to be in the range of breakeven to a loss of $2 million.
If you're on a speakerphone, please pick up your handset before pricing the case.
To withdraw your question. Please freight saw the internet.
Your first question is from Brian Essex. Please go ahead.
Great. Thank you for taking the question and congrats on the results nice nice strong quarter.
Yeah I was wondering maybe if you could address the shift to term license from perpetual you know what is the duration of some of those term contracts and.
How might that pipeline be building with regard to the installed base of term license with respect to building expectations for.
Future periods and renewals.
Yeah, Brian. Thank you this is Jason.
As you know we have done term license in the past, but it's not something we've pushed much you know.
Let me see in the pipeline and that of course, our pipeline, we see going out more than a year at a time right. So we have some pretty good visibility took to longer term demand that's driving a lot of that there's some there's something needs to add to the to the group that supports the core sellers right esses and channels and and internal sales.
Folks who create some of their would demand but in general it's mostly about delivering more capacity and we are seeing continued strength in the U S. We noticed some good strength in Europe and still solid performance in apex. So that's pretty global no no particular areas of focus over another I guess that'd be my short answer I Dunno, Jason would add anything to that.
No I think that's perfect I will note, Brian Uhm, and I mentioned, this a little bit not scripted.
The supply us a sales, but it also applies to the overall business and are a trench.
And when you talk about sales and marketing expense growing up and we certainly are investing in the ways with that Mark just talk about but also remember we are outperforming our plan right. I mean, you certainly see it in the revenue numbers year to date.
But our our SaaS bookings are well ahead, too and you don't quite see that and the and the revenue numbers. So.
As you would expect compensation is up a bit more as we continue to outperform both in terms of sales commissions and in terms of some bonus accrual.
Got it Super helpful. Thank you very much.
Ben.
A great percentage of the license Mcclenny any any color you can give us there.
For me thank you.
Yes, I mean, I'll say that as you said historically it has not been a big part of the mix among.
Amongst.
Our identity I, Q bookings, which is where all our either perpetual or term license comes from at this point.
You know I think if you think about half this quarter.
It's probably the right way to think about it.
That's helpful. Thank you.
Your next question comes from that handbag. Please go ahead.
Yeah. Thanks, guys. This is Matt slots on from that.
Mark could you dig a little deeper into whats really driving the SaaS growth right. Now if you think that's kind of the maturity of the product. The investments that you guys have been making go to market or changes in the demand environment and then as that portfolio kind of builds how are you thinking about managing renewals.
Okay, Matt let me pick up both for actually move to Jason on the second part of the renewals here a little bit on the first part I've used this silly and LG and couple of setting plate. We have the the trying to split out the ingredients of soup versus salad, where you feel like things are kind of mixed together you can't completely separate those ingredients I think in some ways it is pretty difficult.
Yes, the point, specifically to the percentage impact or proportional impact of the three things you named Greg is it is it an increasing breadth and depth of product use case coverage. That's certainly a factor is it had pulled from the market in an increasingly large customers who seem to be getting more comfortable than they were even 12 to 18 months ago with.
SaaS isn't as an operating for this particular part of their identity solution sets that such factor.
Visit our fields growing comfort level with their ability to win SaaS deals not just in the mid market, where we have been strong for quite some time, but also at the mid to high end of the market. That's a factor I can't tell you that those are perfectly when thirtyj.
What I can tell you that they are all definitely contributing to the momentum.
And we do see as Jason said earlier in the year with a very strong indication that over half of our big deals.
We'll be through.
Our SaaS product line and there as you guys know, we do a lot of our business. The high end of the market as well as kind of the mid high into the market. So I guess, we're just seeing all those factors contribute to a lot of success and then I'll flip it over to Jason Matt to talk about kind of how we think about renewals.
Yes, and Matt can you give me a little more color on what you're looking for on renewals.
Yes, no. It's just what steps are you guys putting in place to make sure that you're managing and have visibility to this growing part of your business.
Oh, well look we have a customer.
Customer success organization.
In addition, obviously when you're talking about SaaS products you have.
A lot more visibility into what the customers doing with the product.
Not exactly what they are doing obviously the purpose of the outer using it.
It makes good sense for that growth.
Yeah, I think you're just thinking about it the right way I mean I will give.
Give a little color and say that.
No. We started off this year talking about it a shift toward hsas and aren't in our business.
We have done as you know and everyone knows we've done a fair amount of license deals this year as well.
And think about that in part as a as a factor of of pipeline existing pipeline I'm that was there before we were sort of internally and externally leaned into a SaaS transition.
But also it's also just part of the journey that we're on as we mentioned part of our transition to SaaS is bolstering the product and thats, well underway, but but certainly not complete and so you know I.
Thinking about customers in Q2, who bought in some cases.
In Q3 as well in some cases, the southcross just wasn't quite ready for him and the on Prem product was the right one for them. So.
You know from a from an impact perspective, we talked at the beginning the year of you know our transition potentially having a.
7% headwind.
Our seven point headwind to our growth rate.
You know, we as I mentioned, we've done.
Uh huh.
A fair amount of license this year and so I think not all that has played out.
In the year to date, but if you think about our Q4 guidance I mentioned that we are seeing a lot of the item the Q.
The on Prem software bookings transition to term and we're expecting that shift in Q4 from what we've seen in the pipeline, but we also are expecting you know hsas to be.
Head or better of of what we expect to begin a year and so.
Our growth rate in Q4, and this is not the full year comment we made at the beginning here, but the growth rate in Q4, if we work to do.
Do the same amount of bookings, but the mix we did last year.
We have significantly more revenue right and I would put it more like a 15 point headwind to growth in Q4.
So that's that's obviously super helpful Great job guys.
Thanks, Matt.
Your next question comes from Brean Capital. Please go ahead.
Hey, guys. This is Joe on for Brian. Thanks for the question. So if term was half this quarter of the license line is it fair to say in regards the pipeline that its 50, 25, 25 with SaaS perpetual and term and it sounds like you guys continue to lean into Hsas I would expect that to kind of go up you increased the compensation I believe for sales people and the typical deals.
Cycles six to 12 months. So are we now at the point now we're almost every deal is dean has been led with.
And incentivize salesperson trying to lead and stuff.
Yes, let me start with that and Mark feel free to jump in as well.
Joe I am not going to break out our pipeline, but I will tell you for sure that SASSA has been growing very nicely in the pipeline.
And and growing more rapidly than been on Prem.
In the pipeline and on the term side that has been growing much more rapidly than it ever has in the past right and so I think directionally. It got there you've got the right idea there.
Sorry, what was the next part of your question.
Well it was just more I it sounds like it's going to continue to move toward Hsas. Given that you guys are now kind of leaning into that and incentivizing the sales Oh and given the sales sales cycles six to 12 months were yes.
Yeah look I know I, certainly don't want to say that everything will be on our pipeline.
You know started off during the incentivized.
Period.
Our average steel cycles six to nine months, but there are.
Some you know some big deals and even from being not quite as big deals take longer and are still good opportunity for us. So I wouldn't say that I also would say look there are and we expect this to be the case for some period of time.
There are customers for whom the SaaS product is not the right product yet.
Right.
They have particularly complex use cases.
Particular, sensitivities whatever it might be and so.
It may have used as you said had been started during that incentivize environment, but still I don't have the accumulated right product for them.
Makes sense and I'll keep this question out shorter kind of just get an update on the federal vertical.
Yes said continues to be a good vertical for us.
Obviously that the government is sensitive to identity security concerns and understands the under.
I understand the benefits of our solution can do that continues to be.
Good.
A good opportunity for us.
Okay. Thanks.
Thanks. Your next question comes from Andrew Nowinski. Please go ahead.
Continue to see many more of these term deals not only in queue for.
Which you said does create a headwind your for your guidance, but we'll also see like going into 2021. So I'm wondering if you could just put a finer points on perhaps the.
The headwind how big is a headwind when you have perpetual deal shift to a term license deal how much less revenue are you getting typically on those deals as just just to give us a sort of framework to think about 2021.
Yeah.
The term license is a headwind it's not nearly the headwind that SaaS is.
I think the way to think about it is is just in very rough terms.
When we sell perpetual license, we usually sell the license and the first year of maintenance bundled together and we will recognize somewhere around 80% of that and the first year, well sorry, 80% of it initially.
The entire amount over the first year when we sell a three year term deal will probably recognize somewhere in the neighborhood of 60% of that upfront.
And so.
There is.
There's a bit of a headwind there it's not quite like fast, though where we sell SaaS deal in December and we're not recognizing much of it at all during that year.
Got it thanks, Jason people to go to work.
Thanks.
Once again, if you have a question please pray star Dan one.
The next question comes I'm Joshua <unk>. Please go ahead.
Hi, Thanks for taking my cholesterol.
I was just hoping that you could literally.
Deeper unwanted customer what you term overcloud, what exactly our customers rebuild without being ready for the cloud perspective, and then could you just remind us for the plan on clothing that functionality gap.
[laughter].
Yeah, let me pick that what I have Joshua start at least because that's a little more about why customers go to a certain way not just the financial ramifications of that in general we've really got.
Did we lose mark.
Joshua you still have maintenance as the operator.
At the line for math Mccain has drops please wait while we reconnect.
Okay, well, Josh Let me, let me talk about your question Walmart because when you're joining.
Okay look there.
Range of reasons, why a customer might choose identity IQ instead of identity now.
Ranges in a very few cases, where customers still have a preference for on from software.
There are.
That obviously is decreasing as as they are experiencing SaaS software and all sorts of other parts of the environment and so if there are a few hold outs there aren't many.
Two.
Customers that have particular use cases that they are trying to solve that we just haven't built out in identity now in some cases, those or use cases that that.
We have on our roadmap and we're I think you'd use the words closing the gap, we try not to use those words, but.
I'll be a fair way of talking about in many ways, but.
Sometime early next year, we think will be at a point where product functionality really isn't much of a reason, but there are some use cases and identity Iq.
That we're not planning to build that just aren't.
Broad market use cases, but some particular customers happen to have those use cases on their radar and identity IQ covers it so for some customers that the choice.
And then lastly, there are the there was a.
Calm go caps were.
Identity now just isn't quite at the level of identity IQ yet again, we expected to be there in the next couple of quarters, but.
For now it's not quite there and certainly has some customers started there Phil.
Buying process with fulfill point.
Whether it was six 912 or longer months ago.
They had identity IQ in mind, and sometimes it's tough to change that mindset.
What side, we have some other customers, who who by identity now knowing the direction, we're going even if they're not entirely satisfied with right entity now today, they're sort of coming along the journey with us so it varies a bit but but.
For the most part I would say, it's customers, who particular use cases in mind or particular need but it just aren't solved yet by it in the now but that should be in the near future.
Both helpful and I guess I know you have.
A lot of questions on the term licenses, but if we think about it how do we how do we reconcile.
You are pipeline visibility with the outperformance that you've seen and license business and then if we think about it a lot of the term was supposed to be perpetual implying that the date would have been some greater so I guess the question is how do we reconcile your visibility and be outperformance and how sustainable of this outperformance going forward.
Yeah look the.
Formats.
Did we have visibility into it again I want to be clear.
We're tracking all these deals that we there and expecting them.
To close at some point.
And all of the cases this quarter they were targeted for Q3, we just.
More successful and more than we bet on when we provided guidance at the beginning of the quarter.
In terms of outperformance I'll say like I did last quarter that I don't want to say, we can outperform like this every single quarter, but I would say that there is a.
Fundamental market force that is I think leading to our our outperformance as well as our own execution, which is leading to outperformance and we believe in both of those factors book that identity governance identity security as important as being recognized as such by customers.
And it's something that the priority for customers and that our team isn't a good place that our strategies in a good place in that we're executing well and so.
Why wouldn't promise outperformance like we had this quarter Alaska.
Going forward forward I do think that our business momentum is something that we.
Believe that we can continue and sustained for as I mentioned actually in the script and not just in queue for but for coming years as well.
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<unk>.
Thank you.
Your next question is from <unk> Li Please go ahead.
Thanks for taking my question, Mark and Jason Hope advise fly and congrats on the strong set of results. First question is I think Mark mentioned earlier about the SNB market earlier.
I was wondering if you guys could give me an update Marco Jason.
About we understand sales points, a powerhouse on Catherine enterprise front, but is that going to March in motion How's the pipeline looking on this smb's space.
I have a quick follow up Jason.
Okay, I'll I'll take that one too yeah.
Yeah that could that.
And that could be too.
Two differentiated from your question, but we're not really focused on what most people consider SMB and we typically draw that line.
1000 employees and below we tend to be focused on what what we refer to as kind of a mid enterprise market. It up so think a few thousand.
Users and now there are exceptions in financial services, we will go to smaller organizations that have a lot of complexity in their regulatory framework there.
Application environment things like that but in general.
What we consider mid to large enterprises kind of gives defined in a few thousand 3000 and up.
And I know other other organizations intensifying enterprise quite a bit lower than that.
But but to us large enterprises, maybe 10000 and up and enterprises <unk> just round numbers, that's kind of how.
Do we think about it sometimes.
Yeah.
Got it thanks, Mark and then my follow up with more general. This one is I guess can you discuss like the pipeline go into the fourth quarter. How we think I know you briefly commented earlier that we don't there's a lot of entity whether the secondary lockdown.
But but then again and yet performed really strongly this clutter was to take a.
You take all like maybe the APEC me again as well as the EMEA region versus the us Nugent, how they perform and heading into <unk>. Thanks, guys.
[laughter], yes. Good question I think we saw good strength internationally in Q3.
The team they are in a good position and executing well.
But.
Performance from the us to.
Or in the Americans I guess I should say.
And in terms of pipeline going into the queue for a pipeline looks great.
It gives us.
All the confidence to provide the guidance provided and we feel very good about it.
In terms of the uncertainty I think I think market a little bit at the beginning but.
There is a ton of uncertainty, but for that matter. There's been a lot of uncertainty for the last couple of quarters and I think we saw if you remember back in March we saw the uncertainty have an effect on the business.
And that sort of mitigated how well we did in Q1 I think what we've seen since then and.
For the most part expect to continue is that.
And customers and prospects are able to operate through the uncertainty right now.
Uncertainty is uncertainty and at some point.
Presumably a limit of of what people operate through but from what we have seen.
People are are continuing to operate in and that's what we expect to see going forward.
Thank you for that Jason and Mark.
Take care and stay healthy connect soon.
Thank you. Thank you.
Your next question comes I'm curious after please go ahead.
Hi, Thanks for taking the question just a quick one for me wondering how close you are to being able to steer people towards or some other metric or setup.
Set of metrics to help wash out some of the noise that we're seeing on a quarter to quarter basis. Thanks.
Yes, I mentioned drew thanks for your question I mentioned that in the script that therefore.
Planning to hold our analysts day on February 26th.
Which.
Is.
Early part of next year, that's the sort of opportunity as you might imagine where we can take.
Take the time to look at at the model in detail and potentially look at new metrics that.
Would shed light on the situation.
Give us the ability to take.
More than more than 20 minutes and run through them, but actually walk through them and explain them in detail.
Got it okay. During the call late so I missed that.
Oh, sorry.
Your next question comes from Mike Walkway. Please go ahead.
This is Daniel in from work venture taking my question. So it seems like those are strong quarter in terms of.
Alright, because you guys are the seven to new customers sequentially.
Could you just provide some color for us on what drove the shrimp into your customers.
And you still shows that the majority of innocence competitive displacements.
Just wondering comprising more detail.
I guess, Jason I'll start on that one and you can certainly jump on as well yeah.
Daniel.
I don't think we're seeing any.
Significant shifts they're meeting we still are getting a lot of net new business it tends to be spread across the mid large enterprise in the very large enterprise and as we've said the higher up in that segment. You go the more likely there's at least some partial displacement that they've got some remaining legacy technology it tends to be more.
From the lifecycle slash provisioning side of the portfolio than the compliance or auditors certainly if I'm coming in with more of our kind of predictive identity intelligence solution, that's really not displacing that's coming in the sense things I'd never had before so I guess you're still alone.
Strong focus on net new business that new logos for math and the team coupled with a continued goal continuing to expand our footprint and a lot of the existing accounts were in I think Jason you could come in here, we've had a roughly two thirds one third split by transaction count each quarter for quite a few quarters I think this quarter was about the same I forgot.
Verify subjacent can jump in on that with jobs, that's true that's true.
Sure Yeah, but two thirds of the camp transactions by Count Daniel would be net new logos net new customers to us.
Okay. Thanks for the color.
Thanks Daniel.
This concludes our question and answer station I would like to turn the conference back to Mister Mark Mclean for any closing remarks.
But this again, thank you to everyone who joins US it's been a particularly interesting week here in the U S for before I do most of US are so thanks for making the time for the call I. Appreciate the continued interest in sales point and we will certainly wish all of you a <unk>.
Safe and healthy remainder of the year and look forward to talking to me. So we individually.
Hours and days, Thanks, again I appreciate it.
This concludes today's conference call you may now disconnect your lines. Thank.
Thank you for such as the painting and have a place that day.
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