Q3 2021 ForgeRock Inc Earnings Call
Please standby.
Welcome to forge rocks third quarter earnings Conference call. As a reminder, this call is being recorded.
I would like to turn the call over to Mark King for drugs head of Investor Relations. Please go ahead.
Hello, everyone welcome to the Boardwalk Q3, 2021 conference call on the call with me today are brainwashed CEO, a boardwalk and John Fernandez, Our Chief Financial Officer, and EVP of global operations before we begin I'd like to remind you that our discussion today includes forward looking statements within the meaning of the federal Securities laws.
Forward looking statements include statements related to our expected results for cute for a full year 2021 results architecture offerings and enhancements to our current offerings the market for our offerings customer demand for our offerings and other matters actual results to differ materially from those indicated by these forward looking statements. We encourage you to read.
View the risk factors that we've included in our SEC filings, including our final IPO perspective filed with the SEC on September 17th 2021 for some of the factors that could cause actual results to differ from those indicated by the forward looking statements all non-GAAP numbers dropping in today's call are reconciled with our press release and slides available on our investor relates.
Whose web site with that I'll have to call over to Grand.
Thanks, Mark and thanks to everyone for joining our person earnings call as a public company.
Before I get started I would like to thank our employees customers partners and investors for their support over the years I'm very excited to have completed a successful IPL in September and we were looking forward to this next stage of our growth.
We're pleased with the result, we achieved in our first quarter as a public company revenue in the third quarter grew 38% year over year $44 million.
<unk> grew 30% to $164 million.
We continued to see traction with the four Draco Danny cloud, our SaaS offering which is seen growing adoption is both new and existing customers.
Identity continues to be critical to digital transformation as more companies recognize the need to deliver both safe and seamless experiences to engage their customers and keep employees productive.
See these trends continuing into our fiscal fourth quarter bolstering our confidence that we are well positioned to capitalize on a large and growing market for enterprise grade identity.
Before I elaborate on our highlights of the third quarter. Given this is our first earnings call I'd like to tell you more about <unk> or opportunity and why I am so excited about the future ahead.
If you take a moment to look around it's easy to spot how the world is changing and.
<unk> that we used to conduct in person are now happening digitally banking healthcare in retail to name a few.
We are using facial recognition on our phones to get access to applications and prodrug is helping to power. This new digital economy and drive this massive digital transformation.
<unk> is the global leader and consumer workforce, and Iot identity, and our unique technology breaks the forest compromise that has been the status quo for far too long.
We hope people access the connected world with intuitive digital experiences that provide enhanced security in a zero trust environment.
Our mission is to create a danny experiences for people at work at home or on the go that are so simple and secure that two things happened identity recedes into the background completely and users never have to log in again.
We purpose built our enterprise grade unified and full sweet platform to serve the modern digital identity needs of enterprise, who are under ever increasing competitive pressure to deliver personalised and seamless omnichannel experiences.
This competitive pressure is driving enterprises to focus on identity as a key strategic initiative to provide differentiated experiences to increase the loyalty with consumers.
And enhanced productivity for employees how're.
However, enterprises are saddled with complex heterogeneous environments, driven by the accumulation of a myriad of applications and infrastructures, resulting from decentralisation of it.
<unk> and acquisitions and decades of homegrown or legacy systems.
Increasing and evolving regulatory and compliance mandates at additional pressure as enterprises operate globally.
These challenges faced by our enterprise customers present, a massive opportunity for for Jock.
Based on our bottoms up analysis, using our current product suite, we estimate our market opportunity to be $71 billion across consumer workforce Iot and services.
We estimate the consumer opportunity often referred to as consumer identity, and access management or cyan to be $41 billion, which we believe to be the fastest growing part of the identity market.
Also we are focused on enterprises, who make up the majority of business information and communications technology spend.
And a big reason why we win is because we give our customers the power of choice.
Our customers choose how they want to deploy our software and their heterogeneous environments, including self managed environments, such as public and private cloud environments and through our SaaS offering the for drug identity cloud or a combination of both.
For drug has always had a differentiated approach to solving the identity challenge.
We launched in 2010 with the intention of building most comprehensive digital identity platform in the market a full suite identity solution purpose built for all kinds of identities that can easily integrate into complex hybrid enterprise environments and provide blazingly fast performance.
When we ask our customers why they selected for a dry here the key reasons that they give us.
We provide our customers with the power to build simple flexible identi experiences that are embedded with security by leveraging our identity tree capabilities.
Their developers love this drag and drop capability that allows them to quickly create customer identity journeys in minutes.
Are unified platform is purpose built for all kinds of identities consumers workforce Iot and services.
And across the identity lifecycle, including identity management access management, including MFA and single sign on and.
And governance administration.
Our customers want to avoid the complexity and expense related to Cobbling together, an operating multiple points solutions.
What they want is a more comprehensive platform like for drug.
Our customers choose for drug because of our unique approach to the cloud.
For a drug offers the choice between private and public in size in our modern architecture provides our customers with more control over their data and performance.
This differentiated cut architecture is so important to global companies, who face requirements to keep their identity data in their respective countries to insure data sovereignty.
The forward to a platform enables our customers to create sophisticated identity experiences and to integrate into complex hybrid environment and performance scale with high reliability.
More than 1300 organizations around the world leverage our platform to manage an aggregate over 3 billion identities.
Our platform is capable of managing over 60000 user based access transactions per second per customer.
This is particularly important for customers with tens of millions or hundreds of millions of identities like the BBC HSBC and telecom sell the largest wireless carrier in Indonesia.
Our trust network allows our customers to quickly integrate with our network of over 120 technology partners across biometrics identity proofing and risk analysis.
These integrations are part of the four drunk identity platform and our prebuilt tested and always up to date.
Lastly, our customers appreciate our track record of innovation across important areas, such as Pasturalists authentication governance, AI and our SaaS offering.
We expect a rapid pace of innovation to drive our future growth.
We've taken a modern approach to the poor Jack identity cloud.
Our multitenant size architecture with complete tenant isolation provides our enterprise customers with more control over how their data is stored and wear resides.
While all companies value. This increased David control. This is particularly important to for Jock as around 50% of our revenue is generated from customers located outside of the U S. And these customers pays many requirement to maintain data sovereignty and information privacy.
Our modern architecture also helps our customers to maximize performance and service reliability by not throttling or rate limiting individual customer environments, which can be critical for enterprises, especially during large usage spikes such as cyber Monday or meat.
Events like the World Cup or Royal wedding.
We also protect against noisy neighbour issues, so that traffic from one customer will not affect another customers performance.
The holiday season is expected to be more digital than ever with retail trends like clicking collect at curbside growing companies cannot afford the front door of their businesses to be shut down due to large usage spikes something or unique architecture prevents.
As I mentioned previously we provide our customers with if I were to choose how they want to consume our software rather be self managed or SaaS.
For our new customers in Q3, 75% chose ourself manage offering and 25% chose the poor Jack identity cloud.
Demand for our self manage offering is strong because many global enterprises need a combination of on premise and cloud of deployment for their hybrid environment.
Our SaaS offer continues to experience rapid growth since its launch with 50% of IRR from new customers in Q3 coming from SaaS.
Now, let's discuss some of the recent the highlights on the product front.
We've continued to invest in our platform to drive innovation and the biggest areas of focus for US recently have been in the for Draco day cloud as well as AI.
We released enhanced sight and capabilities to the poor Jack identity cloud to ensure every customer touch point, along a buyer's journey feels personal and effortless. This is especially useful for companies that manage multiple brands and want to deliver personalized experiences across a V.
Variety of channels like web and mobile and have a single view of all of their identities.
Called UI theming. It offers out of the box design options for developers. So they can quickly and easily configure identity journeys that recognize the consumer across brands and digital channels for a personalized experience.
Our customers are telling us that they want to go past rootless as part of their digital transformation journey.
For many hybridize T organizations, maintaining sensitive passwords on Prem while moving other operations to the cloud creates a significant challenge teams.
Teams must evaluate the best authentication approach that will maximize security, while preserving a greater user experience.
But a move to the cloud often means adding more passwords or forced password reset.
Which is a bad experience for users.
To help these customers we released two new features pass through authentication and just in time migration.
Now for Jack identity cloud empowers enterprises to move to the cloud without the headaches of managing even more passwords, and causing customer inconveniences that can erode brand loyalty.
We continued to provide more benefits to customers, who buy the for Draco deigned cloud by obtaining certifications that are important to see shows and cio's.
Healthcare records are prime targets for attackers.
During the quarter, we achieved HIPAA compliance to give the healthcare customers, a safe and secure way to protect electronic health information.
We also completed the sock too tight to certification.
This additional third party industry validation confirms for drug provides the enterprise great security availability confidentiality and privacy for customer data managed by the four drive identity cloud.
Our investments in AI and ml continued to benefit our customers, who rely on us to better governor identities for the workforce.
We released a market first capability to our AI driven autonomous identity product that we believe is superior to traditional role based access control, commonly known as our back used by many companies for provisioning access.
Arbat can be costly to administer and often can't keep up and agile environments that changes with our new roles workshop capability, which uses the AI to quickly analyze and recommend the optimal roles structure to manage access for the enterprise.
Customers of the Crown jewel of forward drive and I'm excited to share several notable wins from the quarter.
Directv is a new Siam customer.
The company chose our SaaS offering the four Jack identity cloud to establish a single unified identity platform for their millions of users. This will give their subscribers the ability to seamlessly log in to Directv services across devices automate actions like patchy.
Resets and more.
Ultimately this will lead to a superior customer experience, while helping directv retain subscribers and reduced cost.
Our next customer example is a top 25 U S retailer that has been using for jock over the past five years for both consumer and workforce use cases.
This customer's significantly expanded their relationship with us in Q3, driven by digital transformation and more shoppers moving to online retail.
They were looking to unify identity for employees customers partners and vendors and chose for dark as their sole enterprise authentication and identity and access management platform.
On the consumer side, they leveraged the poor Jack identity platform to improve their omnichannel capabilities as their customers were seeking the same purchase experience across in store online curbside pickup and same day delivery.
Two four jock they were able to provide a better user experience, while also boosting security for the consumer and workforce used cases.
Australia were helping the Australian Department of home affairs reopened the country's borders.
Our identity platform is enabling digital passenger declaration cards to replace physical travel documentation.
Travelers to Australia will be able to complete the digital passenger declaration process in minutes from their mobile device or computer.
Four jock in partnership with Accenture will be used for this initiative due to the flexibility scale and unified an extensive identity platform that we provide.
And the industry, leading global transportation company experiencing massive growth.
Particularly with its vdb business selected for <unk> in the quarter.
This customer's saw immense potential for growth two at the end users and is embarking on a new digital strategy based on identity.
The company chose for drug to get a 360 degree view of its customers to enable personalized digital experiences offer new products streamline compliant and reduce costs.
Moving to a market leadership for Jack continues to be recognized by multiple third party industry analysts in fact for Jock has once again been named a leader in the 2021 Gardner Magic quadrant for access management, we're pleased to receive leadership recognition and back to.
<unk> years.
We continued to be the only identity provider recognize as a leader by Gardner for access management enforcer in coverage of coal for Siam.
During the quarter, we added impressive new town to the team.
<unk> Smith joined <unk> as our new Chief people officer, She joins us from Cisco, which he served as senior Vice president of people and communities overseeing talent rewards recruiting and leadership development strategies.
We also appointed to new members to our board of directors, Rinky SETI and Johanna flower.
Rinky is currently the Chief information Security Officer at Twitter and go to a career, leading developing innovative online security infrastructures for fortune 500 companies.
Johann has served as crowds strikes first CMO and was instrumental in helping the company grow from $12 million to nearly $800 million an error.
We're pleased to welcome Shooty Rinky and Johanna to the poor dog team that now exceeds 750 people worldwide.
Overall, I'm very pleased with the momentum we're seeing across our business.
Identity continues to be critical to digital transformation as more companies recognize the need to deliver both safe and seamless experiences to engage their customers and keep employees productive.
We see these trends continuing into our fourth quarter bolstering our confidence that we are well positioned to capitalize on a large and growing market opportunity for enterprise grade identity.
With that I'll turn the call over to John to walk through our financial results in more detail.
John.
Thank you Fran and thank you to everyone for joining us before I get into the results from the quarter I want to provide a quick overview of our business model and the key metrics that we look at to measure our business customers license our software platform, primarily through subscription licenses for our self managed or SaaS offerings.
Our subscription revenue includes recurring revenue from term licenses sauce maintenance and support we run our business and focus it's growth on AOR. We believe it's the best metrics to measure our business performance.
Due to ASC six O six a revenue growth is impacted by the amount of revenue recognize upfront versus dot which is recognized ratably. We believe are are are numbers normalized for this.
As of the end of Q3.
<unk> was 164 million up 30% year over year.
Our AOR growth was driven by new customer wins and expansion within our existing customer base through more identities more use cases more product modules and more deployment.
Based on our process of continuous improvement and targeted lead generation qualification of leads and pipeline and conversion rates, we have confidence in the sustainability of our growth.
We have a very strong customer base that includes many of the world's leading brands. We ended Q3 with over 1300 customers globally, who leveraged our software to manage over 3 billion identities.
We ended Q3 with 369 large customers defined as customers with 100 K of ALR or greater.
Our large customer base grew 18% year over year at our large customers represented 89% of our total IRR as of the end of Q3.
Our net retention rate for Q3 was 112%.
Our average IRR from new customers in Q3, again exceeded 200, K var, demonstrating that we tend to land larger with new customers also due to an increase in new logo acquisition over the past few quarters, we mix of new IRR from existing customers was slightly lower on a relative basis.
Total revenue was $44 $2 million, an increase of 38% year over year.
We have transitioned to a nearly 100% subscription model over the past two and a half years and 96% of our Q3 revenue was subscription revenue hour.
Our revenue growth was primarily driven by the growth in our customer base expansion within existing customers multiyear subscription licenses and SaaS revenue.
Before turning to profitability an expense items I would like to point out that I will only be discussing non-GAAP results going forward non-GAAP results exclude stock based compensation and restructuring an impairment charges. Our press release contains our GAAP results and reconciliations two are non-GAAP results.
Q3, gross profit was $36 million in gross margin was 81% as we continue to scale SaaS offering we will see increasing investment in cloud infrastructure and incur higher hosting costs.
Our strong subscription gross margin is offset by our professional services gross margin as we continue to invest in supporting our customers through further build out of our customers success and support organizations.
Turning now to operating expenses, we remained focused on investing for growth to capture additional share and the large market opportunity from discussed earlier say.
Sales and marketing expense for Q3 was $21.4 million compared to $17.5 million in Q3 last year. This represents 48% of total revenue for Q3 compared to 55% in Q3 of last year. The percent of revenue improvement was primarily driven by an inquiry.
And sales productivity as we continue to expand our footprint in scale. Our business. We believe we will continue to see operating leverage.
R&D expense in Q3 was $10.3 million compared to $9.3 million in Q3 last year. This represents 23% of total revenue for Q3 versus 29% in Q3 of last year, given the strong demand, we're seeing for consumer and workforce identity use cases, we.
Continue to invest in advancing our products and innovation in areas such as our enterprise sauce offering.
Our AI machine learning capabilities, and our identity trees that empower our customers to create orchestration journeys focused on great customer experience without compromising security. We believe the continued investment in our product differentiation will further cement our market leadership and identity.
G&A expense was nine $7 million for the quarter compared to $5.3 million in the third quarter last year.
<unk> was 22% of revenue versus 16% of revenue last year.
Our G&A expenses increased in absolute dollars and as a percentage of revenue due to new public company expenses and Q3 of this year.
However, overtime, we expect growth in G&A expense as a percentage of revenue to decrease as we optimize our back office costs as we scale.
Operating loss was five 7 million versus a loss of four $9 million in Q3, a year ago.
Brady margin was negative 13% versus negative 15% a year ago. Despite the increase in absolute dollars year over year in our operating expenses, we continue to see operating leverage in our business with revenue growth outpacing the growth in our operating expenses, we view our strong top line growth.
Indicator that our investments are paying off and we expect this trend to continue.
Turning to the balance sheet, we ended the second quarter with $378 $1 million in cash cash equivalents and marketable securities.
Turning now to guidance for the fourth quarter of 2021, we expect total IRR of $175 million to $176 million, representing 29% year over year growth.
Total revenue of $46.5 million to $47.5 million.
Non-GAAP operating loss of 9 million to $8 million.
And non-GAAP net loss per share a 14 to 12.
Assuming weighted average shares outstanding of approximately $82 $3 million for.
For the full year 2021, we expect total revenue of 175 $5 million to 176.5 million non-GAAP operating loss of $25 million to $19.5 million and non-GAAP net loss per share of 96 to 94, assuming.
Weighted average shares outstanding of approximately $41.8 million now.
That concludes my remarks for Q3, and now I'll turn the call back to France for closing remarks.
Thank you John Thanks to everyone for being with us on our call today I am very pleased with the momentum that we are seeing across our business.
The market for both consumer and workforce identity is massive and growing.
And we believe for drug is well positioned to capitalize on the opportunity and this is just the beginning.
Operator, you May know open the call for questions.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speakerphone. Please make sure. Your mute function is turned off to let us know treat shy equipment.
Could you please limit yourself to one question and went follow up again press star one to ask a question.
And we'll take our first question of Dave from Hamzah photo off with Morgan Stanley.
Hey, guys. Good afternoon. Thank you for taking my question.
Just first question for a friend I was wondering if you could elaborate a little bit more on.
Before his rock identity cloud recently.
Achieving a HIPAA compliant what does that mean for you and obviously for drugs.
Differentiate itself and being able to handle more complexity over some of its competitors. So I'm curious how you see the opportunity within the healthcare vertical penetrated you think it is and and with the strategy there is going forward.
Great. Thanks, so much and good to hear from you I think the health care vertical continues to really grow and be an important to us.
And I think with the digital transformation in a lot of driven through Covid everyone's doing much more in line and that has led a lot of people to look for healthcare and telemedicine and move all of that online and.
When I talk to our health care customers, they're looking to compete in their markets and to differentiate and a lot of that is how easy it is for.
Patients to come in and and enroll in get access and meet with doctors and that whole ease of uses identity that key part of that but there's also a lot of requirements around data privacy and security. So it really is a a vertical that really drives toward what for drug does it really well.
And it's been growing are expected to continue to grow which is why it makes sense for us to get the HIPAA certification as actually important to so many different health care companies.
Maybe just a follow up for John.
You mentioned.
25% of of new customers, who bought this out solution.
I think.
If I remember correctly.
Against the point, where close to half of new customers are buying the SaaS solution. So I'm curious.
Why maybe that was a little bit lower in Q3 and.
And does it have to do with summer seasonality do you expect to see a stronger queue for when it comes to SaaS offering any color you can give us there would be helpful.
Sure.
Yeah. So that's right in queue to we sure that 41% of our new customers had bought SaaS and that was now 25. We also show the new metric, which was that that 25% was actually 50% of the new AOR and so we are seeing a little bit of that variability from period to period and we.
Think that's great because remember that in this period, when 25% bought SaaS, 75% chose self manage which was really important in the enterprise because we could serve them quite uniquely with are offering an with choice as we look at this and as we look forward to next year will look to provide some additional detail around of.
Our total NDA RR, what is sauce that obviously as we look forward into twenty-three will actually go to full revenue segmentation is the intended plan. So that's a little bit of additional color for you on that.
Thank you.
Natural hair aggression.
Certainly we hear from Stirling Audi with J P. Morgan.
Yes.
So.
Let's carry on with the SaaS questions and just what I'm curious about is when you look at the the customers that shows and you look at those use cases is there any comment dread that you can pull through in terms of either size of the deployment that they're looking at or use case that can give you a <unk>.
Trend line for what you think the bigger adoption areas for SaaS will be.
Yeah, I think what we're seeing is John mentioned, we're really glad to be able to have both options because there's good market out there opportunity for size as well as self managed and it really kind of have it all covered but when we look at size I think we're seeing a lot of traction in the science space I think that companies, whether they mean digit.
Retail or.
Financial services and other expanding they want to move fast and they don't want to run a lot of infrastructure. So we're really seem that Siamese cases, the one that's driving most of the growth in our SaaS, especially from.
New new customers. So we're going to continue to to focus on that and then of course once we get that same business, we have the opportunity to cross sell upsell workforce as well. So I think the trend. We're seeing is the same opportunities bigger more greenfield a lot of homegrown.
And that's a key driver of our size business and to that point, where seen some big deals.
Directv was really important for them to have a easy science solutions. So that they can make it easy for their subscribers to enroll and get services and manage their accounts.
And they were ready to go to the cloud say can move fast that's kind of an example of the type of Siam sized deals we're seeing.
That makes sense and then one follow up when you look at the new business that you brought on in the quarter can you give us a sense of how much of that was actually displacement of perhaps some of the legacy solutions like the old site Minder versus greenfield projects that were being put into place.
So generally because we tend to focus on the enterprise and large enterprise. There's typically something in place today is these customers already have employees and they already have customers. So we're typically displacing something.
I think it is a mix of we kind of put into three groups. There is a fair amount of homegrown, especially in the science space, where people just tried to build their own identity solutions and they're finding they're not giving them the flexibility they need to be bill great journeys or they can't scale on performance. They need so that's kind of one is homegrown.
Secondly capital C. The legacy.
We've done some additional oracle and Ta site Minder replacement this past quarter and we considered continued to see that is a big opportunity going forward I was looking at our pipeline recently, there is definitely a fair amount of that still in the pipeline.
And then the third is a lot of enterprises large enterprises have kind of up.
A group of point tuition. So they just put in place over the years, maybe one for mobile in one format. One for call center that look into kind of consolidate and looking for a comprehensive solution. So that's the kind of the way we look at what we are displacing as I said, we're typically always displacing something.
Understood. Thank you.
Thank you.
Next we'll hear from Patrick Coalville with Deutsche Bank.
Hey, Thank you so much for my question and congrats guys on.
The first quarter of the company.
Some other questions about against the market more broadly.
This time 12 months ago, we would become a mix of the pandemic now.
Accessing the pandemic each has helped us understand.
The demand environments.
Shifted throughout the process and then I guess, probably the most interesting.
What do you guys see what did you see of the last three months.
Yes, I would say that when John and I look at this we almost see kind of different phases of Covid, what we call kind of Covid tailwind I think in the first six months or a year companies were just trying to react very quickly to respond to the ship to digital.
As it wasn't safe to go out and do a lot of business in person. So most companies had something in place today and they had to scale it up and make it work. So it's a lot of our customers that wouldn't really successfully we.
We talked about one of our customers that's all.
A 300% increase in the digital banking traffic is really they just had to scale up and adopt.
And then I think as people realize that digital transformation is not going back people aren't going to go back to the old ways are going to stay with digital that they had to really say, okay to kind of become or it's kind of become our primary channel why do we have in place today is unable to give us a dab of experiences we need the security can it's scale and perform because when I.
Danny at the front door to your business has to be reliable and be there. So we're kind of seeing a second wave that people are saying.
We've got to move to something and.
And we talked about one of our customers in the quarter is a U S retailer and as.
As they see the holidays coming on board they know they're going to have less people coming in person shopping, especially with some of the labor shortages and more digital so more opportunity for us to expand so we should acceleration of the past three months more rfps bigger pipeline, particularly in time, but workforce as well.
Sure that's helpful.
Guess, what I think about the.
Guidance fiscal fourth quarter.
Pretty big number one some <unk> can you just help us.
Understand.
Kind of puts and takes in Louisville is doing now.
Analysis around sequential build apps and kind of quarter on quarter growth.
I guess, so much conservatism is in that.
And that number.
Yeah, so that represents 29% year over year growth and we have a lot of confidence in that number and in that range and for US Q4 does because of enterprise buying cycles. It does tend to be our largest quarter. So I think that's important and historically fits the.
Pattern very well, so again a lot of confidence in the range in those numbers and obviously the point wrapped in the quarter as well.
We have a lot of visibility into our pipeline.
And and just Patrick we can talk about the puts and takes we look at those puts and takes his brand new logos that are coming on and buying contributing new air to for a drop our ability to cross sell and upsell into our base, which we have a lot of opportunities on both signed to workforce workforce assignment as well as software SaaS help our customers to class.
And that third putting take is our gross retention of our customers and we've invested more on customer success marinara.
Our professional services and we're seeing our customers stick with us longer. So we are very.
Focus as a company on those puts and takes in contributing to our confidence.
And that guidance.
Great. Thank you and the next job once again.
Thank you.
Greg Moscowitz with Mizuho has our next question.
Okay. Thank you for taking the questions good afternoon guys.
Wondering if you could speak to what the early feedback has been like for your for Iraq Autonomous identity offering and then maybe also tell US why it's important to to Igt's Iga solutions out there.
Yeah, it's great great. Thank you. So let me just kind of frame the problem, we hear from customers and.
The what.
<unk> and are autonomous identity product is all that is helping or enterprise customers understand of their employees, who has access to what and to be able to manage that access and they're kind of two competing priorities at our customers have one is of course, they want all the employees to be productive right. They want everyone to get access to the applications and services they need to do.
Do their job so that lends into kind of say well, let's open it all up and get people get access.
But the flip side is they have to manage risk and this whole idea of kind of least privilege where the goal is to have only people have access to with a need. So just reduces risks because you don't have that inappropriate access from someone so we really recognize that they have these competing priorities and what our auto I'd does is brings the AI capability to be able to look at.
The groupings of users and exactly what they need to do their jobs and be able to kind of automatically ensure that employees are only proved to get access to it they need their jobs and their don't get access to what they don't need and that way, we can deliver both for our customers, which is productivity of their workers while managing the.
A risk so that's kind of what we're all about with auto idea and Iga and we've seen some great growth. This year, and we say great pipeline going forward and will continue to be a big focus and a big differentiation for us in 2022.
Alright, that's very helpful. Thanks for and and then John here, a subscription SaaS support and maintenance revenue line item.
Some good acceleration this quarter on a year over year basis, I would expect that.
And that line item SaaS is probably the predominant driver if not the sole driver of that any more color there would be helpful.
Yeah sure. So we did see that 954% increase in that subscription SaaS support and maintenance and yes, a part of that is the the SaaS product that we have.
And really it's really that ongoing focus again, just around the rateable and continuing to do that but certainly contributed meanly meaningfully for the first time.
Perfect. Thanks very much.
Thanks, Craig.
Our next question comes from Gray Powell with <unk>.
Great. Thanks for thanks for taking my question and congratulation on the on the corner.
Thanks, Greg.
Absolutely Yeah, I want to follow up on our early earlier question. So I mean, if I just got to look at the building blocks you growing the customer base in the high teens net retentions into 12 or 13% range. The last few quarters.
Have a new SaaS product, it's gaining momentum is there any reason why AOR growth would not further improve off of this current 30% pace over the next few quarters.
Yeah. So I think we again forecasted 29% with respect to our guidance for Q4, and we feel very confident about that I think we have a lot of upside levers and our growth that we focus on I think our installed base is a big one one of the things we talked about throughout the IPO process was.
The opportunity to unleash the multiple and moving some of our customer base over from self managed SaaS.
And that statement remains true we continue to be able to we're in the early innings of that so to put it in so I think that remains a huge opportunity for upside and that's really focused on obviously not just <unk> overall, but also net retention is a core metric and so that's one of those living SaaS on a standalone basis aside.
Hide from the installed base.
Remains a huge opportunity again, we see that as an opportunity to sell into not to migrate additional usage into our installed base to attract new customers and even to attract new customers that are really in verticals that are more prone to buy sauce that we have access to now with that product.
So a variety of different vectors there that we believe provides strong upside for us in the future.
Understood. That's really helpful. Thanks, and then just one other one.
So yeah I know the SaaS business is relatively new.
How should we think about the SaaS business business as we exit 2021, you are you still expecting it to be and sort of that 10% of arranged by the end of the year, just kind of a ballpark number.
So we yes, our expectations have have not changed from that perspective, and we do anticipate to disclose that number at the end of Q4 and as I mentioned then to provide that into 22, and then revenue segmentation and twenty-three that is that is the intended plan and expectations were.
And the same correct and I would just say we as a company are really focus on that size market, we think that more and more that swayed customers are going to want to consume identity to be able to get going very quickly and we have a unique cloud architecture and that's really resonating in the market. So this ability to have the 10 in isolation.
To ensure that reliability and scalability of that service, it's really resonating. So I think that is John said, we were not we feel comfortable in that guidance, we've given in the past on that but we as a company are really.
Focusing on the growth and the success of that size offerings.
Perfect. Okay. Thank you very much.
Next we'll hear from Rob Owens with Piper Sandler.
Hey, Rob Great good afternoon.
Thanks for taking my question, maybe you could touch a little bit on partners and alliances and just I know it was in the slide deck relative to 2020, but the the trends that you're seeing throughout this year and does that lend more towards the workforce side or the Siam side.
So Rob banks is John I'll take the first part of that as it relates to the X. One as a reminder for folks that we talked about was 15%, 31% and 44% for 2018, 2019, and 2020, respectively that were the level of opportunities that we had closed that.
Source out of our partner network and that's a significant point of leverage for the company.
As we are today sitting here at the end of Q3, we are now above those 2020 levels of 44%. So I think that remains a consistent strong leverage point for the company along those lines, yes, and I would say that when we look at our partners, they're incredibly great accelerators.
For our business right. They are working with our customers on larger digital transformation issued an issue initiatives excuse me and they are bringing forward rock in and we've got great connections in with the identity and the security team, which doesn't lean it's helped a little bit more to the workforce to your question, Rob, but we are forging new relationships with.
Both within those gsi's and engaging with their teams that do digital transformation, because they've got huge initiatives, where they're engaging with retail companies governments public sectors to help them go through that digital transformation separate from their security and identity practices. So we're bringing on new types of partners. So we're really.
Looking at an understanding that these two segment Simon workforce are both critically important and critically large but also different and that means we have to add different messaging and different types of partners to ensure that we are in as many of the opportunities as possible.
Great and I guess, focusing a little bit.
Opec's and where some of the efficiency was in the quarter could you touch on R&D, a little bit I mean, it took a million dollars year over year and I would think given the scale of the company might be leaving in a little bit more aggressively on product development. So how should we think about this line item going forward.
Yeah.
Think we're seeing a lot of efficiencies right I think for a variety of reasons are platform is all organic single platform single code base right. So I think we have the ability to both be in enterprise, where we've always been provide a lot of functionality do it across self managed and sass and be able to do that and that single codebase.
That's really a core reason for that and what you are still seen as this incredible innovation that were released note to the market period over a period. So I think we will see that go down over time to reasonable levels from a long term model perspective that we shared during the IPO Roadshow, we believe without question that that will.
Holden's, what we trend too I don't think we will see any levels of variability in that in either the short or mid term.
Sarah are cheap product officer, Peter Parker is going to love the asked that question.
Thanks Rat.
As John talks about it that's as a percent of revenue. So obviously in real dollars. It's continuing to go up year on year quite a bit and we're going to continue to bring on new engineering talent to continuing to invest in innovation. So it will be scaling it will just be scaling slightly slower than our top line. So.
Improving productivity.
We are a technology company in our Hearts.
We are hiring more engineers right now so if you know anybody send them over.
Sounds good thanks, guys.
Thanks, Rob.
Next we'll hear from Joel Fishbein with truest.
Hey, good evening guys.
And can you talk about the competitive dynamics around that Directv deal.
And if.
If it was a competitive take off.
Sure, Yes, it absolutely wasn't competitive bake off and I think almost every opportunity. We have is that and companies are out there looking at their alternatives and they're choosing for rock over the competition and we feel really we've never felt better about our ability to win these deals.
And I think it comes down to kind of four main reasons when we look at the competition.
One is just the ability to have the full identity.
Experienced in a single platform across identity management dedication MFN governance, a single platform to cover all identities and then we.
Especially in the cloud people really appreciate the uniqueness of that architecture and the.
Ability to have that type of 10 in isolation of our Multitenant SaaS that gives them confidence in the performance the scalability and the data privacy is really huge and I think that's why we see.
Our ability to win in with great customers like like Directv and many others.
And then just as a follow up can you talk about the large deal pipeline and have you seen an uptick since you've become a public company.
So our pipeline is absolutely increasing.
For sure sometimes it's hard to tag exactly what it's for is it because it went public is it because the.
The gardener MQ came out a recognized as a leader again.
Drawing our sales team in our go to market engine, but we definitely seen an uptick in the pipeline and feel confident that we got the pipeline to deliver on the growth rate here for the company.
Great. Thank you.
Thank you.
Now here from Jonathan hold with William Blair.
Hi, Good afternoon, and let me after my congratulations I just wanted to start out with.
More color on some of the sales productivity gains that you referenced I just want to understand maybe what's driving that productivity and what inning are oriented in terms of seeing that productivity expand any color would be helpful. Thanks.
Sure and we're really proud of that sales productivity improvements, we're seeing and.
And I would say the anywhere in as maybe the fourth or fifth inning lots of progress behind us, but but more to go and we see they are really a handful of things driving those sales productivity. One is jet the advancement of our technology and our products are getting better. We've got more features more things to sell so that's opening up more often.
24 us.
Second is I think the market awareness support rock is growing we're just getting more at bats here and I think certainly.
Two Joes question. The IPO is going to help in that as well. So our marketing team has continued to execute on a digital first approach, creating more leads more opportunity. So that's great. That's leading to increased pipeline and my goal is to have one of our sales reps to be able to wake up in the morning and have these leads in these opportunities.
Coming to them that they can continue to work to be efficient now we've got work to do it's always a work in progress, but we are seeing improvements there. So that's resulting in sales acceleration, especially was sad, we're seeing shorter sales cycles for SaaS versus self manage which is which is helping with that we talked a little bit about partner leverage. These.
<unk> as well as dozens of regional identity partners around the world recognize that we're kind of uniquely positioned to out their customers be successful so they're really bringing us into these opportunities. So again, it's like a lot of things. There's there's many things that are driving it we.
We've made great progress and we're going to continue to focus on that in the months and years ahead.
Got it got it and then.
In terms of the role based capabilities that you talked about replacing the traditional are back capabilities can you talk a little bit about sort of the customer reception for that and maybe just a little bit more detail on the understanding why this is important why this is a differentiator and potentially a game changer. Thank you.
Sure I think that you know.
And then the government's administration is critically important accompanies for the reason that we talked about this ability to understand who has access to what have great work flow to keep people productive, but also manage risk for the business and but.
But companies have challenges because the organizations that are very dynamic people always commenting going changing jobs and to be able to really have a fluid system.
It can be really difficult. So we have this rule base structure, we can leverage our algorithms to kind of develop a role based structure not based on an organizational chart, which is always going to change and not necessary a reflection of what you do but really by understanding and looking at the history of what these groups.
And people get access to so it really helps us.
Very accurately and automatically.
Do the true access needs for a particular employee base. So that they can do their jobs without over provisioning access and driving of risks for the company. So I think this is kind of a holy Grail of challenges that companies have maintained with for years, they've dealt with them, maybe rules based or manual approvals and we're just bringing.
And a a new way of doing it. So we think that we're getting a lot of positive reception and.
That really opened up opportunity for us to really have that full workforce identity platform across identity management access governance powered by this AD platform. So it's a big deal and we're going to continue to make investments on that and continued to see as a driver of growth into 22.
Great. Thank you.
Thank you.
Our last question will come from Shaul Eyal with counting company.
Although shockey.
How's everybody congrats on the first corner as a public company it was a little late.
The call. So apologies anything was already address but maybe you'll proud and John How's the hiring plans coming along versus.
Internal plan so far.
Yeah, what I would say shortly it's never been a better time to recruit for talent fr.
<unk>.
We are doing a great job of attracting great new talent across engineering sales marketing support our professional services.
Really the whole group, we announced that our new cheap off peak officer ended grape are bringing Judy Smith onboard. So we're on track to meet our hiring plans that we need to continue to power our business and there's clearly a war for talent out there and we hear about that but we are doing a great job, bringing in 90 talent and.
It's it's important to stay focused on and we kind of look at talent as attracting great talent, but can't stop there, it's all about development and our investing in developing our teams. So that we can retain because we know there is a big cost of of attrition at the same time, we in managing out some people who might at we.
Might have outgrown so we're really looking at it end to end talent management approaches the company.
Understood and certainly been ultimately helps at the visibility that we got.
It also sages identity, I mean, everybody kind of recognized the importance of identity and digital transformation. So it's a great time to attracting accounted for truck.
Got it got it thank you for that and it may be.
My follow up questions France.
On pricing so we.
We have seen a number of company.
Taking pricing up to account for either supply chain looming issues or just overall healthy demand trends.
Have you increased pricing as of late or plan to do so near term.
Yes, I think there's two developments going on one as we continue to be able to effectuate annual price increases with our customers and I think that's been reasonable and not not met with resistance, but I think there's more strategic things to do than just to raise the price.
As they are and we really looked at how we bundle and I think there are mechanisms there that we've looked at where we've been able to find significant value through some of the re bundling techniques that we've done and some that are still to come that are giving us some real uptick and really I think helping too.
Lift that pricing and improve margins. So we're going to continue to put additional focus on that with some of the things that will do in 22.
Understood. Thank you so much Jo I'm sorry.
Ill.
No. That's okay I just wanted to thank you sure go.
Got it thank you everybody.
Thank you and really thanks to all of you for attending our earnings call today and for the great questions. We really look forward to engaging with all of you in the in the days and weeks ahead to talk about poor dropped which we love to do.
Before I conclude the call I'd just like to make a few final remarks are for drug team is focusing on four key business dynamics that are bolstering our confidence that we're well positioned to capitalize on the large and growing market opportunity for enterprise great identity.
And that will target, a durable and sustainable AOR growth rate for a company and those four dynamics are really this enterprise demand for a unified full sweet identic platform across Siam workforce and Iot.
Our unique positioned really is a leader in Siam, where we're seeing the fastest growth and the company.
The fact that we had choice we can either have self managed or SaaS makes that full market available before dark and then our unique approach to size at architecture that gives our customers confidence in performance and security. So we're very excited about the future. So thanks again for your time today, and we look forward to further dialogue.
In the days and months ahead, so back to you operator.
Thank you. This concludes today's call. Thank you for your participation you may now disconnect.
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