Q1 2021 SailPoint Technologies Holdings Inc Earnings Call
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Greetings and welcome to the Sailpoint Technologies Holdings, Inc. First quarter 2021 earnings conference call. At this time all participants are in a listen only mode are free.
Question and answer session will follow the formal presentation should anyone require operator assistance during the conference. Please press star Zero and your telephone keypad. As a reminder, this conference is being recorded and is now my pleasure to introduce your host Josh Harding Senior Vice President of financial planning analysis and Investor Relations. Please go ahead.
Good afternoon, and thank you for joining us today to discuss Sailpoint and first quarter 2021 financial results.
Joining me today are Sailpoint, CEO and co founder Mark Mcclain, and our Chief Financial Officer, Jason Ream.
Please note that today's call will include forward looking statements and because these statements are based on the company's current intent expectations and projections. They are not guarantees of future performance and a variety of factors could cause actual results to differ materially.
Since this call will include references to non-GAAP results, which exclude special items. Please reference this afternoon's press release and the investors section of Sailpoint Dot com for further information regarding forward looking statements and <unk>.
Reconciliations of GAAP to non-GAAP results.
And now I'd like to turn the call over to Mark Mcclain.
Thanks, Josh and thanks to each of you for joining the call today I'm very pleased to share our first quarter fiscal year, 2020 one results with you.
And a very strong first quarter, we comfortably exceeded our internal sales goals and at the same time, our mix shifted towards SaaS and faster than we had been expecting resulting in $272 million of total <unk> at quarter end and a year over year growth of 43 per cent.
We reported quarterly total revenue of $90 $8 million, including SaaS revenue and $21 2 million up 20 per cent and 55 per cent year over year, respectively.
Our excellent results this quarter were driven by a high level of execution across the business and continued demand for sailpoint identity platform.
And we established strong momentum and 2020 and continue to build on that this year seeing both our average deal size and number of new logos increased notably as compared to Q1 and 2020.
We believe the results this quarter are a testament to increased depreciation of identity security as organizations strive to balance the fine line between enabling and securing their largely remote or hybrid workforce today.
As we indicated during our financial analyst day in February and identity security has become a critical area of focus among enterprises. This is driving growing interest and commitment from the upper end of the enterprise market and our SaaS identity platform.
We believe this trend will continue throughout 2021 and beyond as more and more enterprises recognize that their legacy on Prem identity solutions are not capable of providing the level of visibility and protection they require.
Importantly enterprises of all sizes are recognizing that taking a SaaS first approach will give them the simplified yet sophisticated identity security program that only we provide to fully address the complexity of their enterprise needs and at scale.
I'd like to spend a few moments sharing some examples from the quarter, a large marquee enterprise customers, who selected Sailpoint SaaS identity platform to fuel their identity security program.
First a large U S based American multinational technology and services company selected Sailpoint SaaS identity platform to help them transform their identity program from legacy to Nexgen.
And with more than 200000, human identities, plus 200000 machine identities to manage they required a platform that could expertly scale keeping pace with the complexities of their business.
They added Sailpoint AI services, including cloud access management as the company requires both the autonomous intelligence needed to identify access trends that need remediation and very clear visibility and to access to cloud infrastructure environments, and which a large portion of their business is built.
With Sailpoint and they can securely and at scale and embrace the company's aggressive digital transformation efforts without introducing unnecessary access risk.
Second a large tire manufacturer chose sailpoint SaaS identity platform to help them securely enable their nearly 50000 identities as they make the pivot towards SaaS first as part of the company's accelerated digital transformation efforts they needed and identity solution that was time tested flexible.
And scalable.
They required a better way to manage and secure their workers access needs, including granting and certifying access to business critical information has been there S. A P systems.
And I'll point delivered across the board as their trusted identity partner, providing them with and identity security platform that will help reduce risk and improve and streamline and compliance efforts and support their transformation to the cloud.
And finally, a large APAC public health system and hospital network chose Sailpoint SaaS platform to help them quickly bring under governance, there more than 100000 identities.
The decision was driven by the CIO, who did not want to spend time and money on constant upgrade cycles are huge pinpoint with their existing on prem approach to identity with Sailpoint. They have and identity solution that has already delivered quick value to them and will resolve the major pinpoint and security concern and over privileged access.
Yes.
As these customer anecdotes indicate larger enterprises are embracing our SaaS delivered identity platform, which not only meets the current complexity of their business, but can scale with them over time.
With years of investment and our SaaS platform and an ongoing commitment to driving continued innovation. We are confident that were and the best positioned to meet the identity security and governance needs of today's enterprise.
In addition, we're continuing to expand the scope of our identity platform to encompass new enterprise use cases, including addressing deeper enterprise security needs or adjacent market needs and we're addressing this and three ways.
First I'd like to talk for a moment about the extensibility of our SaaS platform.
We introduced several of these new extensibility innovations and Q1, which are all about helping customers and bad sailpoint into the fabric of their business.
These new capabilities include a refreshed set of Apis, which enabled customers to integrate our platform functionality within their systems. We also launched new no code integration with Xavier and Ricardo which makes it easier for our customers using these workflow automation platforms to build sailpoint into their workflow.
We also introduced our new apps per slack and Microsoft teams, which lets and users access sailpoint capabilities and plain English from within these systems.
And finally within this category of Extensibility, we introduced a new developer relations hub and team, which helps our customers and partners learn how to build on top of Sailpoint.
You'll see that the common thread among these initiatives is meeting our customers where they are.
And whether they are experts who went to code to our AP is or they want to use existing enterprise workflow platforms or they just want to use sailpoint from within slack or teams with no coding effort.
Customer response to all of these initiatives has been very positive.
Second we expanded the scope by addressing deeper enterprise security and governance needs with the acquisition of ERP Maestro and with the new separation of duties access control capabilities and ERP Maestro brings and we're helping companies better and dress the need for deep visibility of access to critical business systems like I say.
Eliminating conflicts and access that could result in fraud or compliance concerns.
Once fully integrated into the Sailpoint identity platform customers will soon have a unified view and real time business focused intelligence needed to analyze logical access to critical business systems, and then to identify potential areas of access conflict before access as ever granted.
And the third expansion to highlight is that we are addressing and emerging adjacent market need with the acquisition of <unk> with the SaaS management technology, and expertise and and Tello brings and we're addressing the massive explosion and SaaS apps across the enterprise today, many of which live outside of Ts per view can be.
And with our existing identity platform and tell those capabilities will help companies discover where all of their SaaS apps exist across the business and then quickly put the right identity security controls in place to protect access to these apps and the sensitive data with it.
With each of these added capabilities, we're delivering increased value to our customers around the world and are already seeing strong interest from both new and existing customers and broadening and deepening their identity program with us.
And clothing as we come off of a very strong start to <unk> 2021 I'd like to thank the entire sailpoint team for their contributions we are well positioned this year and will continue to execute and to innovate to the benefit of our customers around the world with that I'd like to hand, it off to Jason who will cover our financial performance.
And in greater detail.
Thank you Mark and thanks to everyone joining us on the call today.
On the call I will review, our first quarter results and then update you on our expectations for the rest of the year.
Let me start off by saying that we had a very strong quarter and we meaningfully outperformed our new bookings expectations.
Furthermore, our mix accelerated and shift and the direction that we would like to see it go and other words towards SaaS and subscription and.
In fact subscription represented over 70% of new sales software bookings and the quarter and SaaS as a percentage of the mix with almost 10 points higher than our plan going into the quarter.
As Mark mentioned earlier, we're seeing appetite for south across the enterprise customer spectrum, and our internal team is more comfortable than ever pitching and delivering our SaaS products.
We believe that the acceleration towards soft and we saw in Q1 is an indicator of where this business is going and the near future.
Driven by strong new bookings faster than expected mix shift and retention and that was better than plan.
Total E. R. R grew by $19 million in the quarter to $270 million, representing 43 per cent year over year growth.
We finished the quarter with $98 million of total revenue within the guidance range that we laid out several months ago, but obviously, given the accelerated mix shift less and what we would otherwise have expected.
And our actual bookings results been of the mix it was and our plan going into the quarter. We would have reported revenue well above the top end of our guidance range.
Net net we're very happy with what is clearly the best result for long term value.
Strong bookings performance and a richer mix of recurring subscription business that accelerates our growth and a R. R.
And I talk about expenses and operating profit. Please note that unless otherwise stated all references to expenses and operating results are calculated on a non-GAAP basis and exclude the items outlined in the GAAP to non-GAAP reconciliation provided in today's press release.
First quarter operating income was <unk> $7 million within our guidance range. Despite the revenue headwind from the accelerated mix shift.
As we've said before we continue to invest aggressively and the business rounding out our product portfolio and building for scale, but we do so with as much discipline and efficiency as possible.
Now, let's shift to look at our approach to the rest of the year.
And our Q1 performance and by what we see and the pipeline going forward, we feel even more bullish about 2021 and we did a few months ago.
As a result, we are raising our full year outlook for total air or to $340 million to $345 million.
Up from $333 million to $339 million previously.
Our new outlook represents 35% to 37% year over year growth.
Based on what we've seen over the last few months, we now expect the mix shift towards SaaS and subscription to be more rapid than previously forecast.
As such we are also raising our full year outlook for SaaS revenue by $5 million to $6 million to a range of $102 million to $105 million or 52 to 57 per cent your growth year over year.
With this recurring revenue increase and the overall strength in our business, we are able to maintain our full year outlook for total revenue at $404 million to $412 million.
Our revenue outlook is of course based on the information. We currently have and the best assumptions and we can make right now, but ultimately near term revenue is highly dependent on the mix of business, we experienced throughout the remainder of the year.
As I mentioned earlier and at our recent analyst day, we're focused on transitioning to a 100% subscription based model as quickly as possible. So we'll happily trade near term license revenue for subscription bookings that deliver incremental air R and superior long term economics.
Yeah.
In terms of profitability for the full year, we now expect and operating loss of $5 million to $15 million compared to our prior guidance of breakeven to a loss of approximately $10 million.
The change and profitability outlook is primarily driven by the addition of ERP maestro to our business the acquisition of which we closed in March after our last earnings release.
As we look at the second quarter I want to remind you that we had a huge second quarter and 2020.
And part closing some business that didn't happen in Q1 as the pandemic first hit.
So this year and we have a pretty tough compare.
With that said, we are initiating total air our guidance for the quarter and the range of $288 million to $290 million, representing 42 to 43 per cent growth year over year.
Yeah.
In terms of total revenue our current expectations for the second quarter are and the range of $98 million to $100 million, representing 6% to 8% year over year growth.
And if you look at those growth rates I'd like you to remember that our second quarter 2020 results were driven in part by some particularly large deals primarily perpetual and term license space, which drove significant upfront revenue. So.
The mix shift has a pretty significant impact on our expectations for GAAP revenue in Q2.
Net net we expect the mix shift from Q2, 'twenty to Q2, 'twenty, one and have approximately 17 points of headwind to GAAP revenue.
And for the second quarter, we expect our operating loss to be and the range of $6 million to $8 million.
As I close I'll say again, we're very pleased with our start to 2020. One we continue to see market demand and appetite for identity security and we are the clear leader and the market.
The faster than expected transition to SaaS reinforces that we are making the right strategic moves to increase the value, we deliver for customers and ultimately to shareholders.
And that we'd now like to take your questions. Operator, you can start the Q&A.
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One moment, please while the poll for questions.
The first question is from Matt Hedberg from RBC. Please go ahead.
Oh, Hey, guys. Thanks for taking my questions.
Jason for you I guess, you know AOR was obviously really strong and the primary metric, but I think all of US we're going to be looking at to judge the health of the business. It was good to see you raising the full year license was was it a little bit light, though can.
Can you remind us again, maybe sort of a thought on license revenue. This year I know you don't guide and that specifically, but but how should a license revenue just optically trend throughout this year given given this fast from mix shift towards subscription and sauce.
Yeah, Matt and thanks for that question you know, we went into the year thinking and that license revenue was going to trend down for the year and other words and be a year over year decline.
You know, obviously as the mix shifts even faster towards towards SaaS and subscription and that that's going to be even more pronounced and so you don't continue to think about that being a decline.
And so when you think of.
About the progression through both last year and this year you know, we're not only shifting year over year towards SaaS and subscription, but also within the year right. This is.
Not of course perfectly linear, but it is an ongoing transition right and so every quarter.
And where we're getting more towards that towards that subscription.
Model and so you know as the year goes along you you potentially see even bigger declines.
Got it that's helpful and then and then Mark.
And you guys have had been long established leader and a T. A during the quarter after announced their plans of entering the market sort of and earnest I guess in calendar 'twenty. Two can you talk about just sort of you know what what that means to the market.
And your position and and just kind of what you know what have you heard from customers on that thus far given that is it was it is a good partner as well.
Yeah, Thanks, Matt and.
In general it hasn't really felt like it made much fundamental change and our market to date I think.
And let folks react to their announcement as if that puts them right squarely on top of us, but today in the market. We focus on the enterprise class customer, we don't see them as often as people might think and thus far it hasn't really changed much of our selling dynamic I think we you know as you pointed out we've been at this a long time and pretty strong leadership position and.
And we find out when we're talking to the the enterprise customers that debt. We think are the right kinds of customers for us to be talking to there they're very much resident with with our solution quite often those customers already have okta for their SSO or multi factor authentication and.
And they quite often choose us for the governance and administration side. So it hasn't felt like it's fundamentally shifted much yet and we're certainly going to keep paying attention as we continue to pursue what we think is the solutions and it does those customers need so so far not much delta as Matt last quick point I'll make is you know we've.
We've seen them and in our space with their L. C M offering for over a year now and really bad hasn't had much impact in our market to date, so they announced an intent for some other products next year, well, we'll have to wait and see what happens when those actually show up I guess.
Got it thanks, a lot and congrats on the quarter guys.
Thanks, Matt.
The next question is from Rob Owens from Piper Sandler. Please go ahead.
Yeah.
Yeah.
Rob Your line is open.
You're on mute.
Sorry about that.
And thanks for taking my question and sorry from the mute button.
I wanted to drill down into the success you saw in <unk> and more specifically I think as you've guided this year you talked about from legacy pipeline and then effectively you thought would convert and more perpetual license and so when we see the Arab strength. This quarter is that coming from some of that converting and a different ways and you had previously thought.
Or are some of the sales cycles that you thought were moving to SaaS and actually compressing and happening faster.
Yeah, Rob Yeah. Thank you. So I think look there's a little bit of of.
Both of those phenomenon plus a third one which is which is our performance right.
Outperforming our own expectations and and what we said for guidance. So yes. There. There are some deals that are and the pipeline that have switched a particularly more from perpetual term and there've been some some you know deals where the customer was looking identity IQ and and they're now.
And have purchased identity now.
And so shifting all the way to SaaS that has happened as well.
There's also you know as we look at new deals that were created.
Particularly within this year, but but certainly even though and the latter part of last year and before and more of those were either going and and.
And the SaaS or subscription direction, but then you know fundamentally also our air our performances is reflective of the fact that we really outperformed our plan.
And then with regard to the acquisitions I guess number one Jason while you have the floor.
Or was there anything inorganic then relative to the air and performance during the quarter and then Mark maybe you can elaborate just a little bit more on the customer response was this something and they were asking for something you just found to be opportunistic relative to these conditions.
Yeah, I'll just quickly hit the error.
<unk> added about $1 million worth of air are between that between the two acquisitions, so pretty immaterial from that perspective.
And then Rob good to talk to you and I'm on the on the other side of it I'd say two thoughts one is a little different between the two acquisitions, Rob on the on the ERP Maestro, which is really kind of our ERP management, you know deep, particularly deep and S. A P. That's definitely something our customers have been kind of seeing as part of the overall value prop at times.
We had partnered with them and others in the field and definitely something that we saw is kind of filling out a set of capabilities. We had we had sort of I'd call. It somewhat shallow capabilities and SAP ERP, we had some some capability, but this really gives us a very deep and broad offering there and that's been very well received on the other side with what we did with Intel on that.
It's a little more forward leaning and so I wouldn't characterize that as something customers were asking for per se.
For for Us to approach directly I would tell you that what we've heard from many of our customers as that's a growing area of concern and general and so when we announced what we were doing with that technology, and how we saw and extending our value prop and it's been very well received and there's there's actually some really nice momentum, we see building and the field on that.
Great. Thanks.
Thanks, Rob.
The next question is from Hamzah <unk> from Morgan Stanley. Please go ahead.
Hey, guys. Thank you for taking my question.
And just to follow up on Rob's question around the inorganic impact was.
Was that $1 million and are off for Q1, specifically or just your expectations for the full year as it relates to the recent acquisitions.
When you think about the full year thinking about it adding a little bit more than a point to our growth.
Growth rate year over year, so within our guidance a little a little bit more than a point comes from the two acquisitions.
And then when you the way, we calculate air or we're taking the right down into account and so you know right now just having closed the acquisitions there isn't there isn't a ton of <unk> in Q1 from those and Theres a little more by the time you get to the the anniversary, but but pretty minimal either way you look at it.
Got it thanks for the clarification and then and then Mark just my first question for you I was wondering if you could dig into a little bit around your debt. The demand that you saw between existing customers versus new build or new customer business.
And this quarter and kind of if you could speak to the pipeline that you're seeing and Q2 and and sort of the back half.
Yeah, I think in general I guess the short answer is both are very strong you know we have a very strong set of motions for both new acquisition of customers and and we're pleased with the numbers that we added this quarter and and kind of where they are and kind of some some very large impressive brands. Unfortunately, most of whom.
Still don't allow us to use their name publicly but.
Theres, good momentum and large and midsize enterprise accounts that we're very happy with but I think partly back to Rob's question on the acquisitions and and just some of the additional products, we brought to market organically and the last year, we're seeing a very strong can upsell cross sell motion and a lot of our accounts. So both both pipe and both the performance in Q.
And the pipeline looking forward are quite strong and both kind of new account capture as well as additional.
And she and overtime. So both both motions are very good.
Alright, thank you.
Thanks, Tom.
The next question is from Brian Essex from Goldman Sachs. Please go ahead.
Okay.
Hi, good afternoon, and thank you for taking the question I was wondering if maybe you could dig in a little bit too.
And how things are progressing through the channel channel expansion and expansion in Europe.
And particularly relative to your initial expectations.
And the beginning of the year.
I guess, so Brian just clarify kind of channel globally, or particularly both kind of focused a little more on Europe just unclear.
Yeah, Yeah, both both globally as well as you know specifically you know and you know detail around Europe and expansion and Europe. Okay got it thanks and on the on the channel thing I'd, just kind of a reminder, that we still spend a lot of energy on on the systems and the greater.
Quote unquote channel, but as everyone knows that doesn't necessarily imply always a resell our products. So we didn't give you a lot of business, it's very heavily influenced and and sometimes even uncovered by our by our good partners and in that realm, but those are still sailpoint you know contracts.
And those those partnerships are very strong and really good momentum with with the the big the big and size, we worked with for years and frankly, some good momentum with some other ones we've worked less with over over the last 10 years.
And that's true globally, and then particularly in Europe. Both you know as we all know Europe tends to have a pretty strong you know channel motion. We have added a fair amount of capacity to our our Sailpoint sales force over there and the last few years and we're seeing really good production and some of the core markets we care the most about.
And particularly strong and and you know some of the northern and Western European countries. So in general we feel good about that we feel good about the momentum we're seeing and Europe.
And Asia continues to be a stronger true contributor off of other small base, obviously that where we're actively growing over time, but yeah. All around the globe pretty pleased with channel relationships still looking to add more what we would call classic reselling capabilities, we always like to point to our friends adoptive had been a very strong partner and continue to do a lot of business with us and classic resell fashion bug.
But yeah. Good good momentum there nothing nothing that we're concerned about share.
Got it and maybe to follow up I mean, we've heard a number of different vendors. There's this earning season and talk about better visibility into budgets going into the year, particularly relative to last year, where it seemed as though budget visibility was was pretty minimal, but you you've kind of you know.
And with growing at a pretty robust pace through last year in spite of this but just in general from a macro point of view.
And any any change that you're seeing on the budget side and is that is that impacting your ability to you know.
Great integration and sales cycles.
Accelerate business through the year.
And maybe any thoughts from a macro would be helpful.
Yeah, I think you know like like you guys are watching all of the new cycles week to week month to month, and you know theres a lot of noise out there as we all know I think and general Brian We would still say that the the tailwind once once we get through that initial rattling and you know March early April last year, the tailwind has been pretty consistent for.
Through through that last five quarters, now I guess, four or five quarters, meaning the the confirmation we got from a lot of customers who were in and a pipeline cycled back then and and had been and this year and those pipeline and cycles is that this continues to be a high area of focus and certainly don't know enough about whatever it just happened and the pipeline breached but all we can.
Who is that every time something significant like that happens it does refocus people's attention on the importance of security and and a good good news for us is debt.
Identity is largely considered if not be core one other core aspects of security. These days and that continues to put a lot of focus on our area of expertise and and.
And solutions, providing to our customers so with all that and we certainly haven't felt any negativity. There I mean, I think you know budget cycles are always hard to predict ever and the world of enterprises, but is generally and the U S. At least we get a little more opening up that does seem to give people a little more confidence about where we're headed but I don't know that we would say it's.
X percent easier than it was this time a year ago or anything like that it's just you know we feel pretty confident and the demand profile. Because this is viewed as a pretty high priority issued and to address.
Got it that's pretty helpful. Thank you.
The next question is from French sales from Jefferies. Please go ahead.
Yeah.
Thanks, Jason on the Billings number you were about 6 million short of what the street was expecting is that all related to this quicker transition or was there something else going on behind the scenes debt related to the billings shortfall.
No Brent that's that's really.
The transition keep in mind, though when you look at billings. It is it is somewhat difficult.
Difficult to parse through that number given that we've got term license and there as well what sort of works opposite the way.
You know it used to under 605, but no our billings, our billings and our collections were good and we obviously know.
To cut to the related topic. There you know from a cash flow perspective in Q1, and we we paid a pretty substantial bonus based on our performance last year.
But no billings were.
You know simply reflective of the mix shift really.
Okay. That's helpful.
And Matt highlighted at the Analyst day, you know this transition to solution selling versus.
Point, selling or whatever else you might call it.
And in that move it seems to be resonating and and back to your growth and SaaS. It no.
And now close to 55% growth for the year and 50, I think 55 per cent for Q1 and it seems like there's.
There's a lot of confidence that that's paying off when you're when you're and you're guiding to a full year number and at that type of growth.
Yeah, Brad and I agreed and if if you're seeing anything one of the things we're trying to highlight a little more this quarter is the growing acceptance of SaaS at the higher end of the enterprise market I think for a long time now we've been saying that the mid to mid large enterprise class customers had been leaning towards SaaS for quite some time now and that's fair.
<unk> typically been our motion for a couple of years at the higher end of the enterprise market I'd say, even in the early part of last year, we were not feeling quite the same level of shift there and I think that begin to change a little bit more and the second half and I think we're now seeing some very large very strategic customers and brands and select.
And I didn't even know as their choice and we still find customers, who do believe ideally IQ for regulatory or data residency reasons is the right answer and we're still 100 per cent supportive of those customers, making that choice, but we are finding that in general the high end of the enterprise market as they've grown more comfortable with SaaS for this particular.
Aspect of the identity landscape.
Where we're seeing some good momentum at the high and as well as the mid and mid to large that we've seen already.
Thanks Mark.
Thanks, Brett.
The next question is from Daniel Ives from Wedbush Securities. Please go ahead.
And again, thanks in terms of just what you're seeing in the subscription or are you seeing from the sales side, just a number of deals that were even more.
Polarized and push and wanted to just ask you just Wanna get extended range.
Uh huh.
And you as well.
Lots of little the last bit of the questions you get that Jason Yeah, I think growth broke up a little bit subscription model, enabling you know more about poll self service Oh look you know I think I think it is the way that that customers prefer to buy today. So I think it removes some friction.
You know I think I.
I don't know that it's changed the sales dynamic necessarily to the extent that we would you know call. It flipping from push to pull I think look broadly speaking there are there's a poll and our market right now right that there's a.
A growing awareness that customers need identity security and that.
And I hope that they may try to get them from someone else, but mostly they view us as the leader is as we are and and so there there's a clear pull there from that perspective.
But net net I would say that.
The subscription model is helpful, but maybe not game changing from a deal perspective, and I agree I think it takes friction out of the cycle less and it creates new demand.
Great and just.
And give a little follow up Mike.
And when you use them at the success that you're finding here has it basically just need toured the team determined ripped.
Rip the band aid off just go through this quick and then we've seen others.
Yeah, obviously security and then there's been real successful and this can you just talk about that and instead of the slow transition maniacal focus on quarters and then two years later still going through it.
Well, Yeah, I think as we've said and a couple of settings I feel like and as it is difficult to separate some of these factors we feel like the three biggies, we like to point to or that the market demand for both our core offering identity security and you know we're kind of the way we were afraid of governance and admin now.
And the demand has increased overtime the capabilities of our product have increased over time, giving more of those mid and large sized enterprises comfort that the SaaS offering can meet their needs and then lastly, yeah, I think and a year and a half coming up on two years that Matt and it has been here to help kind of guide the go to market organization, we're getting even.
And better and more predictable execution and and predictability of our sales cycles. So it's a bit of all three.
And that we're seeing it's hard to kind of separate the you know the per.
<unk> of each factor, but all three are very real demand capabilities.
Capabilities and execution.
Great. Thanks.
Thank you.
The next question is from Alex Henderson from Needham. Please go ahead.
Great. Thanks, Tim I was hoping you could talk a little bit about the sequential increase and costs associated with the acquisition. So just to give us some sense of how much we should be putting into our R&D sales and marketing G&A the opex lines.
Due to the two acquisitions.
Yeah. So Alex this is Jason we specifically changed our profitability outlook this quarter for the full year to reflect the ERP maestro.
And.
And there's about a $5 million impact for the year.
And keep in mind that from a revenue perspective, you know, there's an acquisition right down so we're getting less revenue than we might otherwise out of that but.
That gives you a pretty good sense.
And Tallo Ah was done before our last guidance and so we didn't call that out separately, but think about it and the same ballpark from a size perspective and for both of them really most of the.
Most of the expense is going into the R&D line.
We don't have separate sales forces for either of those so they're sold by our by our U R.
<unk>.
Our one and only sales force and.
You know, they're all there'll be some marketing work that goes on for both of those products and and obviously, there's some G&A and the background, but but.
You know really all the all the resources that we added and are adding are really focused on the product side of things.
So just to be clear if it wasn't for the Delaware acquisition.
And our profitability would have been unchanged.
Or should we assume that you, possibly would have changed one way or the other.
Exclusive of the deal and the deal is.
Plus what the change was and that Todd because its not clear what the addition is or what the baseline would have done excluding it.
Can you just parse between those two a little bit because that's that's the crux of the question.
Yeah. So we maintained our revenue outlook and I can tell you that there's very minimal revenue contribution from ERP Maestro and <unk>.
We changed our profitability outlook by $5 million.
Essentially you know 5 million more of operating loss, which essentially telling you that there's around $5 million of net expense from that deal.
It's not exact we gave a guidance range that has round numbers and it and it wasn't exactly that round number but that's the vast majority of that change.
Okay. Thank you if I could ask a second question and then.
Going back to the.
The integration and the sudden book to ship to the subscription.
And cloud orientation can you talk a little bit about to what extent.
Seen any improvement and the selling cycle.
And as is the.
And less friction and the more come.
Comfort with the large enterprises and the subscription business and the SaaS business, resulting in a shortening of your cycle time of deals or any change and deal sizes.
Thanks.
Yeah. So a few questions there net net.
The short answer is not really.
The longer answer is.
Actually our deal sizes have been getting a little bit bigger.
Our sales cycles have been getting a little bit shorter.
I would put most of that though to execution.
<unk> debt.
And as Matt is tuning up the sales force and the entire team is learning how to do what we do at scale.
And how to do it repeatedly we're focusing on on.
Execution process and that leads to a shorter deal times not all of it is on our side of course, but the things that we can control, we're controlling better than we had before and so that that's improving things I think that the SaaS and cloud effects.
Kind of like we've talked before about about.
About the and.
And what that does to the deal momentum I think it's it's a.
It's a removal of friction right that that removes a couple of things that the customer might otherwise have to do.
But I would attribute more of our improvement and deal size and our improvement and deal cycles too.
You know intent full.
And the changes that we've made to try and drive those outcomes.
Great that's very very clear answer and thank you very much.
Thanks Al.
The next question is from Andrew Nowinski from D. A Davidson. Please go ahead.
Hi, Thanks for taking the question. This is Hannah on for Andy You mentioned back at the Analyst day that SaaS gross margins have been improving and how are they and this quarter and do you expect to break out SaaS margins and the future.
Yeah. They continue to be kept very strong we're not planning to break those out I don't think it at this point what what.
And we add to the picture.
You know, we're also keep in mind that debt.
You know, we're still rapidly growing that business and adding to the number of products that we have that are our SaaS based.
And despite that continued to see good margins there.
I think it's it's you.
You know, we're already and a good place, but there continues to be a good momentum on our side based on the scale that we're growing and and the changes we're making to our you know to our own operations.
Great. Thanks, and just one follow up on and update on how the new hires and adding capacity to the sales force have been ramping.
And at the Analyst day, you mentioned that the solution oriented prescriptive and selling process should help them ramp a lot faster and just wanted to check in on that.
Yeah. Good question here and there, they're definitely coming along well we've done a lot of investment and our whole sales enablement infrastructure from people to tools to ways, we help folks get onboard and quickly we've found that as we've hired a lot of folks who came from a very strong SaaS background, there their motion and comfort level and selling.
SaaS enterprise solution is quite helpful and enables them to hit the ground running pretty pretty quickly and so yes, generally like didn't say and kind of seeing overall, good improvement and in sales cycles, and average selling and and I guess, notably and whatnot refreshes participation rate that kind of proportion of our team that's bringing in and at least a deal every quarter that's something.
We're also tracking and it's trending trending well.
Great. Thank you.
Thank you.
The next question is from Joshua Tilton from <unk> capital markets. Please go ahead.
Hey, guys. Thanks for taking my questions. My first one has to do with the <unk> guidance I believe that and implied debt H, one net new <unk> accounts for a much larger portion of the annual net new air are relative to the last two years. So how should we think about this is this just because you're doing more SaaS or that SaaS and becoming a larger portion of the business.
Any color there would be helpful.
I think Joshua and you'd probably think about it is as bad as the guidance that we've got right. Now you know, we obviously are very pleased with what we've done and the first half and feel incredibly positive well first half sorry, you're ever done and the first out yes, very pleased about what we did and the first quarter and feel very good about.
You know the rest of the year.
And I think that we can keep delivering strong AOR growth.
Alright, I appreciate the preview for for next quarter and then my my follow up.
Would it be possible and maybe get a sense of the revenue mix between term and petrol and perpetual and the on premise business or maybe just you know what was recurring revenue as a percentage of total revenue and the order.
So I think I mentioned and the script that over 70% of our new sales were subscription based.
In terms of of.
A little hard to answer in terms of revenue I'm and revenue we have subscription revenue on the on the face of the income statement right. So that sort of is the answer.
I think.
And if it's a question you're getting to is is.
How much of our sales our subscription base.
Well, that's that's the answer more than 70% this quarter and if you remember from the analyst day, we're expecting to effectively be.
Almost all subscription based next year holding out you know potentially a small bit of room for stragglers, so to speak right, but effectively 100% subscription you know by Q1 of next year.
Thanks, that's helpful.
Okay.
The next question is from Ian Kim from Loop capital. Please go ahead.
Thank you first congrats on a sales solid book this quarter I'm Mark you mentioned, one large deal in your prepared remarks debt.
And that included machine identities can you talk about how common is that to include dosing machine accounts and.
Deals today and.
What is the typical pricing lift or a R. Uplift. When you include those machine accounts and you'll deal with it and are you able to charge the same pricing.
And so human user or even much lower just kind of some.
Some questions around the pricing around that and then is this something does that represent potentially a meaningful add on sales opportunity to your existing customers.
Okay, Hey, you Okay. It's about a four part question I'm Gonna do my best to unpack all four parts.
I think I think in some ways, yes, we are seeing it more calm and that our enterprise class customers have I'll say this and some flavor of nonhuman identities right there.
We're not sure what the right term is in today's market, but there is.
Robotic processes that are nonhuman identities, right, where there's a software bot and sort of emulating them every human and there are true machine that historical machine identities things like systems and services accounts are actually represent and actual physical machine.
And there are there are new Iot types of devices, some of which are sophisticated enough that they also kind of and it makes the behavior of and identity and so theres a collection of different types of of quote machine identities out there and.
And some flavor of that is fairly commonly being discussed and a lot of our deals now it doesn't necessarily mean, it's going to happen at the initial sales time, it might be something that customer it looks to come back and bring along and a subsequent additional sale, but it's certainly a topic that comes up a lot. So and I think that was kind of question part a I think you know part b.
Is do we charge the same for that as for human identities generally no, but it does vary by what exactly is happening and that customer's environment and the volume of those and how the volume of those compare against the human identities. You know we have a we have a fairly flexible approach for customers and sort of getting into this realm and don't.
We know exactly how they're thinking about these new flavors of identity that are not people and how they think about that so it definitely does represent we believe over certainly over the long haul I think the third part of your question over the long haul does this represent and expansion of the opportunity landscape and we think it does.
And you know we've said for a long time that the that the identities, we manage forgive and enterprise a aren't limited to their employees because there's a lot of non employee humans contractors partners et cetera that week and often you know receive.
Licenses and compensation for and now they're a nonhuman identities and will also be part of their their view of their identity landscape. So yeah. We we think it just continues to add to the to the size of the potential market.
Just want to make sure is this a product a SaaS product score.
Or is it both SaaS and on Prem on product. This particular example, we talked about was I think for SaaS, but in general yes, we're handling handling various flavors of machine identities with both identity IQ and identity now.
And Jason and easy question for you and Youre getting some tougher questions Tonight.
Obviously, the model shift going on but wanted.
And what are the dynamics youre seeing other contract length for the other SaaS deals and.
Are you able to maintain that three year duration and also if you can remind us the billing frequency and you'll have the SaaS deals.
Ah, Yes, you and so the.
The term lengths for SaaS deals have been pretty.
Pretty standard you know.
New deals are typically three years, we actually see some customers who want to do longer deals, we don't give and incentive to do that but book.
Customers, sometimes want us sort of lock in the deal.
And so sometimes we'll do a four or five year deal. We don't do new deals that are shorter.
There are occasional times, when a and existing customer is co terming with their existing deal and so and upsell might be shorter than three years, but but new deals are three years or longer.
Billing for SaaS is almost always annual.
Mike.
Uh huh.
Well, they're always annual trying to think if we've done any debt our quarterly but not really aware and I think.
Prepaid upfront, which is very low I guess, we wouldn't bill rate and if we don't really take that with any other standard.
Yeah, and other standard thing.
Alright, great. Thank you so much guys.
Thanks Ian.
This concludes the question and answer session and I'd like to turn the floor back over to Mark Mcclain for closing comments.
Thank you very much operator, and thank you and everyone who joined the call today and again, a shout out to our teams who continue to persevere and deliver really really strong results through still somewhat challenging times and then again, we have a team and India has so many tech companies do our Hearts go out to the folks there and it's been a pretty rough road for those folks. So we continue.
And to think about them and and wish them well and thanks for everyones attention. We appreciate your interest thanks for joining the call.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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