Q2 2021 SailPoint Technologies Holdings Inc Earnings Call
[music].
Greetings and welcome to the Sailpoint Technologies Holdings second quarter 2021 earnings Conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Note that this conference is being recorded.
I will now turn the conference over to our host Josh Harding Senior Vice President of Finance and operations. Thank you you may begin good afternoon, and thank you for joining us today to discuss Sailpoint second quarter 2021 financial results. Joining me today are Sailpoint, CEO and co founder Mark Mcclain, and our chief financial.
Sure Jason range.
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 excludes special items. Please reference this afternoon's press release in the investors section of Sailpoint Dot com for further information regarding forward looking statements and 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 strong second quarter fiscal year 2021results with you.
For the second quarter, we exceeded the high end up both on a revenue and are a our our guidance driven by strong growth from our SaaS and subscription based offerings.
We reported subscription revenue of $64 million up 40% year over year and ended the quarter with a R. R of over $291 million up 43% year over year.
The outperformance in revenue and they are our was driven by our sales teams continued focus on demonstrating the value of our subscription based identity security offerings.
Our relentless focus on customer satisfaction that continues to support our strong renewal rates.
Taken together our results this quarter points to solid execution across geographies and strong interest from global enterprises and the critical value we provide to their business.
Our well executed Q2 helped us to close the first half of 2021 and a position of strength as.
As we noted last quarter enterprises are increasingly aware of the foundational role identity plays in securing their business and that continues to bode well for us in the market.
This has proven to be particularly true at the upper end of the market as more and more large enterprises are embracing the next generation of identity and adopting our SaaS identity platform to address their complex identity security needs at scale.
On that point I'd like to share a couple of highlights from Fortune 500 companies that selected our SaaS platform this quarter.
First a large financial services company selected our SaaS identity platform paired with our AI enabled services to replace a legacy solution that had been in place per years required significant maintenance ongoing customization and a large team to keep the program up and running.
As a result, the company constantly struggled to maintain it controls required to secure access to critical business applications and to satisfy complex regulatory demands.
With their move to Sailpoint, they're moving from a cumbersome ecstatic identity stack to a free.
Flexible and agile approach to identity that can scale with their business.
Second a global pharmaceutical company opted for our SaaS identity platform given their desire for a solution that would be simple to deploy and yet sophisticated enough to meet their evolving multinational business needs.
This customer has implemented a SaaS or a strategy and required an identity platform that delivered flexibility agility and quick return on investment.
Sailpoint platform effects all of these boxes, given the company a strong foundation for securing and enabling their workforce, while matching both the pace and scale of the business overtime.
In addition to the growing adoption of our SaaS identity security platform at the upper end of the market. We are seeing a greater number of existing sailpoint customers expand their investment in sailpoint and the first half of the year. We saw on accelerating interest in our AI enabled services from our existing customer base as they look to embrace.
On the future of identity.
These services help companies simplify the administration of their identity programs, while infusing a high level of intelligence automation and extensibility.
We simplify and automate key identity decisions critical to maintaining a compliant and secure environment without sacrificing the intelligent sophisticated and scalable approach that large enterprises require.
In Q2, we saw good momentum among customers deepening their investment with us to help them evolve their program towards this autonomous state of identity.
For example in Q2, a longtime sailpoint customer in the property and casualty insurance space added our AI enabled SaaS services to help them further streamline and modernize their approach to identity with.
With Sailpoint, they will automate and simplify access request and certifications freeing up their teams to focus on the most critical identity decisions.
This will add tangible value to their business by reducing the chances of human error and enforcing consistent application of access policies across the business now.
Now the company can take the strong identity Security Foundation already in place with Sailpoint and evolve their program towards their desired state of autonomous identity.
As we continue to position sailpoint to capitalize on the opportunity in front of US we made some important appointments both at the leadership and board level this quarter.
We recently hired a new CMO, Wendy <unk>, who brings a deep understanding of SaaS, having led teams at box.
Microsoft to their enterprise expansion journeys and we expanded our board of directors with the addition of Sudhakar Ramakrishna, who was named CEO of solar wins earlier, this year and raw Green Executive Vice President and Chief Security Officer from Mastercard.
Both bring deep SaaS and cyber security expertise to our board.
These additions serve us well as we look to grow scale and evolve the business over time.
As we think about the second per the year. We are focused on 2 key areas to continue building upon our momentum.
First we will continue to deliver against our mission to help enterprises discover secure and manage all of their identities.
We believe companies today have a stronger inclination than ever to adopt an enterprise security program. It is grounded in identity security.
Capitalize on this momentum our product organization plans to deliver new functionality that further embeds and extends identity security into the workflow of the business.
We'll make identity security more accessible and approachable for the everyday user while infusing a high level of intelligence and automation needed to fuel and speed identity decisions across the business.
Our entire company is United around delivering a best in class identity security experience. So that our customers can ensure all parts of their businesses are properly enabled resilient and protected.
Second we will continue to focus on consistent execution across the organization driving broad global adoption of the Sailpoint identity platform.
We went in the market by delivering tangible value to our customers and by building solutions that achieve the right balance of speed and security across their businesses.
In closing, we believe we are well positioned for the second half of 2021 and beyond.
We continue to see strong demand.
Have the right teams in place to continue our shift to SaaS and the subscription based revenue model.
We enjoy a strong and committed partner ecosystem to support our customers' success over time.
And most importantly, we have an advanced product offering that sits at the center of a modern enterprise security architecture.
Yes.
Before I turn it over to Jason to review, our financial results I'd like to address the news we released earlier today that Jason will be departing sailpoint to pursue other opportunities.
Jason has been an integral part of our management team for over 2 years and played an important role in our transition to a SaaS company.
Jason will remain as CFO through August 31, and will serve as an advisor for a period of time after that to ensure a seamless transition.
I've truly enjoyed working with Jason and I'd like to thank him for his many contributions to sailpoint.
On behalf of the board and everybody itself point I wish him all the best in his future endeavors.
We will begin the search process from our new CFO immediately which will focus on finding an executive that will complement our ongoing move to SaaS as part of the transition process Cam Mcmartin has agreed to serve as interim CFO starting September 1.
Many of you know Cam from the many years. He served as Sailpoint C O O and CFO prior to transitioning to our board of directors in 2019.
We're incredibly fortunate to have somebody of cans experience able to serve as interim CFO and support our strong internal team through this transition period.
With that I'd like to hand, it off to Jason who will share more details on the financial results from the quarter.
Thank you Mark before we talk about Q2, and the rest of the year I'd like to say, thank you to mark to the Sailpoint Board and most importantly to the Sailpoint team for a fantastic 2 years.
It's been super exciting to be part of such a great company going after a huge market opportunity and to be part of setting the company firmly on the path to SaaS and subscription.
I think Sailpoint best days are still ahead and I'm looking forward to seeing what this team can do.
And now back to business I'll.
I will spend the rest of the time going through our second quarter results and then update you on our expectations for the rest of the year.
In the second quarter, we saw continued strong execution by the team.
And continued interest in our SaaS solution from customers and prospects.
SaaS momentum is very strong and our subscription transition is progressing very well with more than 80% of our new bookings in Q2 coming in on a subscription basis up from over 70% in the first quarter.
Yeah.
Driven primarily by new SaaS bookings, but also in part by term license and some maintenance associated with perpetual licenses.
Total <unk> grew to just over $291 million from Q2, representing 43% year over year growth.
As a reminder, we're lapping a quarter that was early on in our subscription transition. So it's a relatively easy compare but still very good performance.
Total revenue for the quarter came in at $102.5 million a good result, given the ongoing mix shift in our business.
Revenue benefited from strong execution, including bookings earlier in the quarter than we had modeled.
We also had some catch up revenue in the quarter and professional services revenue was a little bit higher than we were expecting.
Again, while revenue is not the most important metric for us. During this transition. We are of course pleased to have a good outcome this quarter.
To help give you a little perspective on the growth dynamics from the business underneath the impact of the model transition.
As we look at this internally.
We estimate that had our new bookings in Q2 of 2021.
The same mix that they were in Q2 of 2020, our total revenue growth year over year would've been approximately 17 points higher this quarter.
Now as we shift to 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 reconciliations provided in today's press release.
Q2, operating income was zero point $8 million, obviously, well ahead of our guidance range due to a combination of our revenue outperformance and expenses coming in below plan.
Given the confidence that we've had in the business and the large opportunity in front of US we had a very aggressive spending plan for the quarter, which in the end we didn't quite manage to hit.
That being said, we're seeing great success in building the team with a significant increase in our software engineering capacity and our sales team that is fully staffed to plan.
While bank the savings from delayed hiring we are pushing some onetime expenditures into the back half of the year.
More importantly, we're continuing to invest aggressively in the business as we support the growth trajectory that we see over the next few years.
Now shifting to the rest of the year.
We're feeling very good about the momentum we are seeing in the business specifically with regard to the appetite of large customers to buy Sailpoint SaaS platform.
Based on our Q2 performance and based on the momentum we're seeing on our pipeline, we are raising our full year outlook to $343 million to $347 million.
An increase of $2.5 million at the midpoint, representing 37% to 38% annual <unk> growth.
We are also raising the midpoint of our full year revenue guidance by $2 million to a total of $408 million to $412 million per year.
This change is based on what we see at this time, but.
But I want to remind you that as we make this transition revenue is difficult to predict given the timing difference in revenue recognition for SaaS versus license and.
And we will depend heavily on the actual bookings mix.
Yeah.
This guidance range represents 12% to 13% total revenue growth year over year.
Consistent with my comments on the second quarter.
Our current expectation is that the mix shift towards SaaS should result in a 12 point headwind to reported revenue growth for the full year.
We are also raising our full year SaaS revenue guidance to a range of $103 million to $106 million.
Representing 54% to 58% growth over 2020.
In terms of profitability, we are tightening the range of our expectations for full year, non-GAAP operating loss to $5 million to $10 million.
Compared to our prior guidance of $5 million to $15 million.
Of course, our profitability outperformance in Q2 raises our outlook for the year.
But we are leaving ourselves room to continue to invest in the business from the back half of the year.
With respect to Q3, we're going to continue with the practice, we began last quarter and guide to <unk> for the quarter.
Our current expectations for Q3 total <unk>.
Mark can be in the range of $315 million to $317 million, representing 40% to 41% growth over Q3 of last year.
As you look at year over year AOR growth I'd like to remind you that we officially leaned into SaaS at the beginning of 2020.
But with our sales cycles.
Really didn't see the mixed shift to kick in until the second half of the year and so our year over year compares are a bit more difficult in Q3 than they were in Q1 on Q2.
As for the P&L in Q3, we currently expect total revenue it's been in the range of $102 million to $104 million or 9% to 11% growth over Q3 of 2020.
As we model it we believe that the mix shift creates about a 10 point headwind to these growth rates.
Lastly, we expect our non-GAAP operating loss for Q3 to be in the range of $7.9 million.
With that we'd now like to take your questions. Operator, you can start the Q&A.
Thank you and.
And ladies and gentlemen at this time, we will be conducting our question and answer session.
If you would like to ask a question. Please press star 1 on your telephone keypad.
A confirmation tone will indicate that your line is on a question queue. You May press. The star key followed by the number 2 if you would like to remove your question from the queue.
For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
Our first question comes from Hamzah <unk> with Morgan Stanley. Please state your question.
Hamzah photo on your line is open.
Have yourself on mute sorry.
Sorry about that I'm on mute Hey, guys. Thanks for taking my question and Jason.
He will be missed I look forward to seeing where you land.
Thanks Hamzah.
So just on the first question so for E. R. R.
<unk> came in strong 43% growth, which was consistent with the prior quarter, but it was I guess maybe more.
More modestly ahead of sort of the guidance that you guys had given out so I'm just curious as to was this kind of just hey. This is the first time you started guidance quarterly air are and kind of what is sort of the day.
Conservatism, that's baked into the air our estimates for the back half.
Yes.
This was the first time that we had guidance quarterly or on obviously on a quarter, there's a little bit less room and flexibility of them here.
I think we tried to approach all of our guidance with.
As much transparency as we can and try to give you our best view on where we're going but obviously put a little bit of conservatism in there as well on I think you know that applies to.
Any particular quarter, we've had in the past, but also the back half of the year as well.
You know when you look at the back half of the year and remember of course.
While there is conservatism on the guidance it's also.
Harder.
Year over year compare from an IRR perspective on those.
Half of the year, we're comparing against a couple of quarters last year, where we werent.
Quite into the SaaS.
From transition quite as much as we were by the back half of the year. We we signaled at the beginning of 2020 last year, but you know with our sales cycles at 6 to 9 to 12 months.
It really was the back half of the year, we started to started to see the shift really happened. So if you remember last Q2, we had a oh sorry.
On PRASM per pervious quarter and.
So the compares on a little harder on the back half of the year. So we think the business is.
Yes.
So it's continued to grow very nicely about the AOR growth has a little bit harder compare as you look at it in the back half of the year.
Got it and just maybe a quick follow up.
You mentioned that the.
The Opex came in a little bit below sort of your spending plans I'm curious from a hiring perspective, you know where you're at for for your.
Our full year plans and.
Has it been may be a little bit more of a difficult hiring environment.
Obviously, it's a very competitive market right now for talent. So just curious for any updated thoughts there.
Yeah look it is a competitive market I think we're a pretty competitive employer, though and so I would say those things kind of balanced each other out.
I mentioned that our sales team is fully staffed to plan, which I don't think I've ever actually been able to say that before it you know.
Either the company I've been at or any company I've known.
Kind of unusual so we've done it we've done a really good job on a places.
There are places, where we're not quite where we wanted to be but then again.
We had as I mentioned on the script, we have very aggressive plans for hiring in some cases look our eyes, where we're a little bit bigger than our stomachs. So I would say you know.
Yes, it's a competitive market out there but.
We also I think are well positioned to hire were well staffed to hire our recruiting team is very good and focused on the places that we want them to be focus which is obviously.
Primarily in go to market and then.
Software engineering so.
Overall, I think it's going well, but look we just had we had very aggressive plans and we didn't we didn't quite hit them.
All right. Thank you very much.
Thanks.
Our next question comes from Matt Hedberg with RBC capital markets. Please state your question.
Yeah. Thanks. This is Matt Swanson on so not you know it was nice hearing mark about some of those expansion deals driven by AI could you just talk a little bit more about how you're shifting your go to market strategy may be around having more expansions, especially SaaS keeps picking up right.
Maybe how youre going to segment your sales force to manage those renewal expansion opportunities.
Okay. Thanks, Matt.
Yeah, I guess on the first part of that kind of what we're what we're seeing certainly we've made a lot of investment as we've said for a little while now around AI and some things and then we've obviously brought in a couple of acquired pieces of technology. So in general kind of setting ourselves up for more of that cross sell upsell motion with more things in the bag.
As it were.
And then and partly as you say as you get into more and more of a SaaS selling motion, it's a little bit typically less upfront and more over time is kind of the way. Both I think forces are trained to sale and customers are generally now trained to buy now.
From a from a sales force standpoint were not really segmenting, along the upsell versus new sales, where we're giving our reps in the field kind of ownership of accounts from territories, and then asking them to own that over time, whether that's a new opportunity or whether it's an existing customer where we see chance to come in and bring in more overtime, we're segmenting more by kind of strategic.
Accounts and larger enterprise accounts and in some cases kind of mid size accounts and territories.
<unk> looking to add and layer in verticals Asian, right. So, we'll get more concentrated expertise and our selling sales in our <unk>.
Sales motion excuse me on the field from folks who are used to dealing with a particular industry and its issues. So.
Definitely been a motion for quite a while now toward more kind of I always hesitate to say land and expand because it kind of connotes some things differently for different people I would say, it's a fairly large land there was still opportunity for expansion and I think youre seeing is now filling some of that expansion around what are typically pretty good size initial transactions.
Yeah.
That's super helpful. And then if I could just throw in 1 more I mean, historically, we have never really needed to talk much about the competitive environment and governance, but as you're moving more into SaaS are you seeing any different dynamics or obviously is from announcements from competitors that seem maybe not going to be focused on your.
<unk> segment of the enterprise, but are you hearing anything change in conversations with our customers.
That's substantially or certainly relative to competition I think we are feeling more pull more demand from the day mid to high end of our traditional enterprise segment for SaaS as we said for a long time, we just werent really feeling that pull from from those largest customers and that has definitely shifted over the last 12 months to 24 months.
But from a competitive standpoint, we still strongly believe we're kind of the only enterprise class SaaS offering for our market. We have some folks as you pointed out have recently chosen to talk about this market space, but really arent kind of enterprise class for this offering today I'm not sure how long it will take them to get there.
And then we have some other competitors who have been in the market around the enterprise space, but really on offering real SaaS offerings. So in general we're kind of still on a fairly unique position there.
And increasingly that seems to be helping us on our competitive dynamics. So yes, I think we're feeling really good about the competitive dynamics today, but haven't really noticed a shift relative directly to the SaaS focus.
Alright, thanks for your time.
Matt.
Thank you. Our next question comes from Rob Owens with Piper Sandler. Please state your question.
Great and thank you for taking my question I Wonder if you could help us a little bit with some of the puts and takes around the second half guide and I didn't know if you gave us a headwinds for Q1, but you had 20% revenue growth.
Jason You mentioned 17 points.
Headwind in Q2, so I guess the implication is there is some organic slowing in the back half with debt.
Just difficult comps or pipeline of conservatism, maybe you can kind of walk us through how we should think about the back half of the year.
You just.
Providing that growth delta to begin with I know the SaaS transition is not necessarily an easy thing.
Yes.
Yeah, no. Thanks, Rob.
I think the best way to think about it as is.
More difficult comps in the back half of the year.
Obviously from a recognized revenue perspective, its sort of neither here nor there because of the SaaS transition that was kicking in in the back half of last year.
But we did have very strong performance in the back half of we are so low.
These are difficult comps now obviously.
Well, we are always aiming to continue to accelerate the business but.
When you look at our guidance we are looking at some some.
Some high comps in the back half of last year.
And I guess, just as a quick follow up can you elaborate a little bit on some of the spending that actually got pushed out of Q2 into the second half from.
Some of those things are they onetime in nature. Thanks.
Yeah, you know look part of part of our understanding on Q2 was hiring and you know you can't exactly pushed the hiring spend out.
It starts whenever you hire the person.
There is some.
1 time, whether its marketing programs or.
Other.
Third party work for example that we do internally whatever whatever it might be that we are pushing to the back half of the year, but at the end of the day really debt.
Important takeaway Rob is that we're investing aggressively in the business, we feel very comfortable with the growth trajectory that we've got over the next several years from feel like.
We can invest now in the business and pay that off.
Easily over over.
This year or next year, but.
For years to come and so.
It's not so much that there was.
A lot of specific things that we didn't do in Q2 that we're then going to do on the back half of the year, but given that we underspent in.
And.
In Q2 were just allowing ourselves a little bit more room in Q3, and Q4 to do some more spending and investing in the business to build for.
For the long term.
Great. Thank you very much.
Thanks. Thanks.
Our next question comes from Brian Essex with Goldman Sachs. Please state your question.
Great. Thank you for taking the question and Jason Congratulations from me as well.
Thank you Mark.
Perhaps you made some commentary in your prepared remarks about success at the upper end of the market could you maybe highlight what youre seeing that debt. If there's anything dramatic there that's driving that better success, whether it's.
Digital transformation.
Initiatives finally, getting over the hurdle, whether it's bringing com.
Conversations of an elevated threat environment up to the board level and what day.
Do you attribute the success there 2.
Primarily.
Yes, I think Brent Brian I only struggle with the primarily part of your question I think you hit on 2 or 3 of the biggest issues right. I think there is a both a push on a pole, meaning I think where we're continuing to enhance the depth and breadth of our product offering obviously, that's a factor as these are very large enterprises look at what their needs are.
They asked us to stack up our capabilities against that I think where we're hitting on the bulk of what they need that's a big factor there acceptance and willingness to take a SaaS offering again has it been a pretty significant shift for the last few years I think we've said before that sometimes people I think confused the incredible acceptance of SaaS for other.
Parts of the identity offering landscape, particularly access management single sign on and multifactor authentication, but it just really wasn't a preferred option in our minds and from our customers for quite some time, but that's really begun to shift and then I think the other 2 things you highlighted Brian are certainly factors like just the the learnings of not just <unk>.
And the pandemic, but just the general growing sense in the realm of security identity is an increasingly important control point to understand and manage and.
And that's a push for digital transformation and they kind of exacerbating effect of working from anywhere has definitely caused these large enterprises to want to make sure they are well.
Well suited well prepared to help their organizations move fast, but safe right I think that all breaks on Racecars thing again right they want to move quickly.
Take advantage of opportunities with technology, but they need to do so on a way that doesn't put the organization at risk and increasingly that means getting a much better handle on identity.
Yeah.
Got it that's helpful. Thank you and then EBIT follow up either for you or Jason I think whenever you commented on bookings earlier in the quarter.
Than normal.
Maybe just the confidence level on the pipeline that Youre seeing are you seeing any acceleration in the pipeline is as maybe some of the conservatism more marked around <unk>.
Which direction are customer might go whether they might go.
With identity IQ identity now on Theres still content decision process or how do you how do you frame out the level of confidence.
Tougher comps.
On the back half of the year, yes.
Thanks, Brian I'm going to highlight that as I started which was.
And you that Jason pointed out it was a very good back half of the year for us. So we're going to have some some fairly challenging comps, but we still feel very good to basically answer your question very good about the direction and growth of the pipeline, particularly kind of a continued very good steady shift towards SaaS and in the pipeline. So we're seeing good overall.
All top line numerical growth of the pipeline, but within that pipeline growth a continued mix shift towards SaaS.
We've been planning for and working toward for some time now so I think we're seeing good strong signs like Jason pointed out.
Part of the reason, we're still keeping that let's say accelerating but keeping our foot on the gas on hiring sales capacity, because we want the the feet on the street to be able to capture that opportunity and so that's why we want to make sure. We have field capacity, that's already for that but so yeah pipeline growth very good incur.
Increasingly focused more and more on SaaS for new business, particularly and then kind of ensuring we have the capacity both ourselves and through our partner network, which is a huge part of our strategy to capture that.
And then Brian in terms of you asked about conservatism and is that just.
How it's going to come in look.
We're obviously not going to put out in guidance all the possible.
<unk> and growth that we could.
Could see in the pipeline and could CNR and our results.
We're obviously going to be a little bit more prudent on that but.
Otherwise look yes, most of the conservatism on the revenue side is around the fact that.
We just don't know exactly how.
The mix is going to shake out it's not so much. So we don't know how whether a deal is going to come in 1 way or another it's just we have a mix of deals across the pipeline and some come in and some you know some don't right and so.
What that mix is will be.
Have a huge effect on what the recognized revenue is much more so than the overall level of bookings.
Great that's true okay. Thank you.
Our next question comes from Brent Thill with Jefferies. Please state your question.
Sure.
Jason just on the adoption of SaaS outside the U S. C. Can you speak to this it looks like EMEA had a great year over year growth rate, which would suggest maybe there.
Still taking perpetual a little harder than SaaS can you talk to what youre seeing there.
Yeah.
Look I would say that the U S is a little bit ahead.
Uh huh.
EMEA and APAC and rest of world, but.
No it's not that we have a market difference between.
And international in terms of SaaS.
Or that there's a.
Anyone.
In their heels, and saying, we're not going to SaaS or anything like that.
I think what you see though Brent in the numbers. This quarter. For example is just simply that they are a little bit smaller sample sizes in our international geographies and so if we happen to get a.
A on Prem deal that debt has upfront license upfront revenue recognition that could just throw things off a little bit for the quarter. We all we've always had a little bit on that issue.
<unk> of services revenue for example, those things don't affect the U S growth rate, but they do affect sometimes.
EMEA or APAC and so.
That's all you're seeing there but.
No I would say that the SaaS transition is happening in EMEA as to how this transition is happening in APAC.
Not quite.
Little bit of a step behind the us, but not in any in a substantially any substantial way different.
And from Mark against maybe.
If we look beyond the financials and we could see through your lens.
From the everything that's happening and what would you say has been the most surprising thing.
For you in terms of what Youre seeing whether its deal size sustainability cross sell is there either a couple of things that come to mind that maybe we all can see that you are seeing.
Right.
Our credit for more intriguing question than normal on that 1 Brett.
I guess I feel like I feel like we are mostly trying to convey to you. What we think we're seeing which is good strong demand profile, particularly from the high end of the market that we continue to feel like is a uniquely strong position for us, but quite strong and in the mid enterprise as well.
Continuing to see the importance of identity get elevated I.
I guess.
I'll call them as something you might not see I think that's maybe a point we tried to highlight but.
Matt would comment that this the stature of the conversation is elevating for lack of a better term right in other words in the customer environment. If you rolled back 10 years in this market space. There was kind of our back office productivity conversation around identity governance can we can we do provisioning faster and better can we do compliance operations faster and better.
Nice to have saved some money great now I think this recognition of I use that term a lot the control point of identity being sort of not well managed and most large enterprises today and in the board and senior management being more aware that it's sort of elevating the conversation I think that does provide tailwind for things like asps.
Over time and growth rates over time, but I think we feel very good about the way the conversations continue to highlight the importance of this to the customer that's probably the main thing that occurred to me when you ask your question.
Okay and this is coming from our clients. So we will say this is not a third questions come up from a client you talked about the increasing interest in existing customers from AI, what's the typical uplift when they when they add penetration. Thank you from the client.
You know.
Brian It's Andy.
Is that a client wondering pricing breath.
[laughter] it really depends right, we talk about AI, but there are several products there.
<unk> can be applied in a different way and so the existing.
Existing employment, I mean think about it as a.
<unk>.
It's a meaningful uplift it's not doubling the.
The.
The opportunity that we have in that range typically but.
But it is still meaningful.
Thank you.
Our next question comes from Mike Walkley with Canaccord Genuity. Please state your question.
Hi, Good afternoon. This is Daniel on for Mark Congrats on the strong quarter on thanks for taking my questions.
It seems like your total deferred balance from billings was up pretty substantially this quarter could you just provide us with some color on what drove the strong results and have you seen any meaningful changes to your range duration as a result of the transition.
Hi, Daniel.
Haven't seen much of a change we typically are 3 year deals there are some.
Some customers that will want to lock in for a 5 year deals as they are making a very big commitment to this platform and this technology.
Typically we're doing 3 year deals I would otherwise not look too closely at differed.
Because we have a mix of both SaaS and term license, which work very differently with deferred.
On the best thing to really look at it that gives you a real sense of where we're on the subscription business is and what run rate where we're driving.
Great. Thanks for the details and just as a follow up can you just provide us with an update on how the integrations of the true.
Acquisitions are coming along.
Yes, sure I'll take that 1 Daniel Mark again, well is the short version.
We're pleased with both of those again kind of serving different purposes.
European Maestro is mostly about kind of making sure we had a good strong offering for so many of our enterprise customers that care, a lot about ERP and folding that into identity governance and identity security and they have been good strong operating there and it's getting a lot of good interest in the market and kind of helping us in our competitive posture as well I think on on the what.
We hold the <unk>, we now call <unk>.
RM.
Acronym escapes me at the moment, but just basically finding that debt home SaaS management, sorry, It's SaaS management.
My mistake, we called that SaaS management.
We're finding that that is in fact, a high area of interest for a lot of customers in an easy thing to add to the discussion that is there a kind of wrestling with the explosion of SaaS applications, particularly sometimes these shadow it.
Kind of phenomenon.
That's just a great adder to our conversations as well and pretty interesting to both new customers that are kind of in the in the chute already as well as existing customers, who have some interest in adding it to their to their existing set situations. So both book very positive.
Great. Thank you very much.
Thanks.
Our next question comes from Alex Henderson with Needham. Please go ahead.
Great. Thank you very much I was hoping you could talk a little bit about the dynamics around the recent tax the presidential executive orders and whether those changed.
Activity rates.
Intensity.
As identity was center stage relative to 2.
So all of those events.
Alex It's Mark I'll start on that 1 I guess kind of separate the 2 from a <unk> standpoint I think.
We're always hesitant to draw very straight line from hack happens in our business goes up X percent, but I think what we do find is there is a it just kind of continues to reinforce with our enterprise class customers that their their security situation is far from fully solved and they need to continue to look to invest to improve.
Their security posture, and as you point out identity seems to be increasingly in either the centre of or near the center of those conversations I think when you look at kind of the executive order a little more indirect as well, but we think positive for us for sure on the long run in terms of just increasing the awareness and need.
For both the federal government and the folks that work with the federal government, but also that governments influence on the overall market conditions that these are things that are probably getting less attention than they should and that they will get more attention going forward. So again all in the category of positive tailwind for US I guess, I'd say, Alex, but nothing I would say.
Tied to X percent increase in pipeline or business in the next period or something.
And can you talk a little bit about your opportunities in the federal arena.
Well, it's still it's still a very good piece of our overall business. Good segment for us as you know price.
Financial services, the overall largest segment strong in healthcare and other verticals, but government, particularly in federal but also frankly state and local and non U S. National governments continue to be a pretty good source of opportunity for us, but the U S. Federal government in particular, that's been a strong team we've added quite a bit to that team over the last few years to take advantage of it.
Various opportunities there in all major areas civilian Dod intelligence, and we have really really strong positions in all aspects of the government, but theres still lots of upside ahead. Both in terms of additional customers that we don't have yet or continuing as the questions earlier pointed out we should have more to.
Sell than we had in some cases, a few years ago, and we're coming back to some of those customers and expanding our position and if I could does the government vertical have any differences in its approach to SaaS adoption and subscription adoptions.
Well I mean, as you well know and a lot of folks know fed ramp as a high a focused topic right to make sure we have something that addresses the fed ramp requirement, but in general I think for the most part we see government kind of matching the general market on that like the general trend towards SaaS as there is strong it doesn't necessarily become the only thing people consider but inquiry.
Recently by far the majority of what people prefer but that said, we still have a very strong presence with identity IQ in that market and will continue to expand that presence over time, but I think as we look forward, we certainly want to be well positioned for increasingly large swaths of the federal government to go with the SaaS offering great. Thanks clear answers. Thanks, Alex.
Thank you and just.
Just a reminder to ask a question press star 1 on your telephone you get price start to to remove yourself from the queue.
Our next question comes from Joshua Tilton with Wolfe Research. Please go ahead.
Yeah, Hi, guys. Thanks for taking my question.
On the first 1 I was just curious did you see any change in the pace of legacy replacements in the quarter relative to previous quarters, and there's replacement opportunity accelerate now that the large enterprises ready to buy a SaaS offering.
Yes, Jason I'll start on that 1 we can book going to tackle that 1 Josh I don't think we would say we saw a distinct change in the pace I think it was the phrasing of your question in other words, we werent on some trajectory that suddenly picked up in last quarter. We can as we said for a long time, we see just a decent chunk of our business every quarter.
And large enterprises is at least partial if not full displacement because it sort of stands to reason that because our focus is on these high end markets that these customers almost always had some level of legacy implementation already when we got there so.
As we like to say, it's pretty rare to hit a fortune 5000 accounts and has zero investment in these kinds of technologies. So there's generally some kind of displacement going on.
I think we are geared up for more and I Wouldnt say theres, probably a little bit of increase in some of the pipe there through our partners. We have seen particularly some of our key large Si partners gear up for more of that displacement replacement opportunity.
Frankly in some of the customers they've had for a decade or 2 that are on those older technologies. So I think we see some good momentum building in la as you pointed out as those large enterprises see SaaS as more of a differentiated on.
Offering to move to.
From their past legacy on Prem deployment, I think that probably spurs them on to take an action a little more than it might have otherwise so yes, all those things together I.
I think we will see we believe potentially a little stronger uplift in that kind of movement in 'twenty 2 as we let less after this year and as we move into 'twenty, 2 but I wouldn't tell you that we would tag some increased outlook to it non adjacent on anything you'd add to that or no.
Makes sense I mean look that's always a part of our business on.
As Mark said, it's tough to isolate that and say this is exactly how much of the business that has arisen but.
It is it is.
A real phenomenon.
That was clear and I just wanted to follow up on the question on the AI service adoption I believe it is still early innings, but on what percentage of the customer base have adopted the AI services.
It's yeah, it's still early innings, we haven't disclosed what that percentage is but it's still pretty early innings.
Interest is very high I guess cash that's 1 thing I'd add we find that the great. Great majority of those customers do want to understand what we're doing there I think they do see it as an enhancement to their traditional approach, but yeah. I think we're pretty early in the selling cycle of getting that broadly into the whole installed base, but it's a good a good amount of business every quarter I think coming through that now.
Thanks, guys I appreciate it.
Thanks.
Thank you there are no further questions at this time I'll turn it back to management for closing remarks.
Okay, well again, thank you to everyone again for your interest and your questions again I'll go ahead and add to what I said on the on the earlier comments really big Thank you to Jason for all of US is great.
Contribution service here, we're excited for what's next for him and obviously, we will keep everyone posted on things with us at Sailpoint and but in the meantime, we will love Jason here to help for quite a bit as we transition.
Thanks for thanks for your attention today, and we look forward to staying in touch over the next few weeks.
Thank you. This concludes today's call all parties may disconnect have a great day.