Q4 2021 SailPoint Technologies Holdings Inc Earnings Call

Greetings and welcome to the Sharepoint technologies fourth quarter and full year 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.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Please note this conference is being recorded.

Now I'll turn the conference over to your host Brian Daniels from ICR you may begin.

Good afternoon, and thank you for joining us Tonight.

South Point's fourth quarter, 2021, and find out the results joining.

Joining me today yourself by CEO and co founder Mark Mcclain.

Interim Chief Financial Officer Cam Mcmartin.

Please note today's call will include forward looking statements.

Such 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.

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 <unk>.

I'll point in Dot com for further information regarding forward looking statements.

Conciliation of GAAP to non-GAAP results.

And now I'd like to turn the call over to Mark Mcclain.

Thanks, Brian and thanks to each of you for joining the call today.

I'm very pleased to share the business and financial performance that led to a record breaking fourth quarter and year.

2021 was an outstanding year for Sailpoint, we demonstrated our market leadership and the differentiated value our identity security offerings deliver.

Our record breaking Q4 helped us to close 2021 exceeding the plan, we set forth at the start of the fiscal year.

As we highlighted then and continue to see throughout the year.

Enterprises worldwide have elevated identity security to a top level priority.

Our performance has made it clear that the market for SaaS identity security solutions is large and growing and demand is very strong as our solution is being adopted by customers even faster than we anticipated.

As a result, we are increasingly confident in our ability to generate strong growth for years to come.

To fully capitalize on the attractive market opportunity in front of US we will continue to invest in our go to market and product development initiatives in 2022.

As Ken will discuss in more detail. Shortly these investments together with a faster than expected. The revenue model transition will have a near term impact on our profitability.

We strongly believe this best positioned sailpoint to generate high revenue growth rates significant market margin expansion and substantial shareholder value over the long term.

Now, let me provide some insight into our Q4 performance, which exceeded the high end of our a R R and revenue guidance.

We ended the year with approximately $370 million of Ey are are up 48% year over year and subscription revenue of approximately $273 million up 39% year over year.

They are our performance this past quarter was driven by three important three.

First customers continue to choose our SaaS platform at an increasing rate driving strong growth in our recurring revenue base.

As evidence at this point, we added nearly $30 million of SaaS or are in the fourth quarter up more than 130% year over year.

Secondly, overall, we generated record demand for our entire product portfolio is global enterprises continue to prioritize their investments and our identity security offerings as foundational to the security of their enterprise.

And finally, our average deal size for both new and existing customers continued to expand year over year as customers embrace our growing portfolio of identity security solutions.

Further our success is being driven in part by the investments we have made in recent quarters and product innovation and international expansion.

We've made significant enhancements in our SaaS platform that help us better address the complexity of securing identity in butter and enterprises, while simplifying both the administration and user experience for our customers and their workforce.

For example, our new workflows capability is designed to help customers streamline and automate repetitive manual security tasks with minimal to no coding required.

And our identity outliers capability will enable companies to quickly discover and remediate high risk access by leveraging AI and machine learning driven analysis to unearth anomalous identities all within a single dashboard.

These are just a couple of examples of how we're infusing intelligence and automation into our SaaS platform to enable smarter faster and broader adoption of policies and controls to address identity security challenges faced by global enterprises.

It's also important to note that these investments benefit all of our customers no matter their choice of operating environment on prem or in the cloud.

We also made considerable investments into our international business this year.

In Europe , Middle East Africa, and Asia Pacific, Japan delivered significant and record breaking contributions in Q4, our international success reflects the benefit of the new leadership, we appointed and a P. J. This past year the increased number of field facing teams.

Latin America, EMEA, and a P J and the broadening of our partner network in these important geographies.

To provide some additional color on Q4, I'd like to share a few customer anecdotes.

A global information Technology company based in India selected our SaaS platform, along with our additional AI services to help them manage and secure the 300000 identities that make up their business.

They recognized Sailpoint was the only vendor who could support the complexities and scale up their business with SaaS Architected platform and a simple straightforward user interface.

A multinational supply chain company based in Germany chose Sailpoint due to our clearly defined SaaS vision and ongoing commitment to delivering an autonomous flexible approach to identity sequences sit again.

This customer needed broad visibility and an AI driven approach plus the ability to scale to over 1 million identities the strength of our customer base and the terrific customer reference checks we provided to this customer during the sales process were critical in sealing the deal.

And finally based on a shared belief that identity security is foundational to the security of their business a large U S. Based retailer chose sailpoint is it formalized its own approach to identity security after spinning out from their parent company.

Our SaaS platform, one them over given the flexibility and agility. It will provide coupled with our AI services, but they will rely on to further simplify and streamline the ongoing administration of their identity program overtime.

As these customer examples underscore we continue to lead the market with a technically superior identity security offering this.

This leadership was recently validated by our placement as the leader for the third time in the Forrester wave for identity management and governance and the most recent 'twenty 'twenty. One report we received the highest ranking across all three evaluation criteria spanning company strategy current offering and market prep.

Vince.

Now as we look ahead to 2022, we are laser focused on three key priorities as we continue to build on the momentum demonstrated throughout 2021.

Number one is.

As the industry leader, we will continue to invest in innovation that delivers to the market and increasingly autonomous intelligent and simplified approach to identity security.

This approach is critical to helping our customers deliver secure and frictionless workforce productivity, which is especially important in the tight labor market that many sectors continued to experience today.

Number two.

We are investing in our demand generation and direct sales efforts to further accelerate our ability to address the exciting market opportunity that's in front of us adoption.

Adoption of SaaS identity Security solutions is still in an early stage of development and we expect to have a strong year of new customer growth and expansion within our customer base.

Number three we will continue to capitalize on the increasing strategic importance of identity security as more C level executives and board members recognize that identity security and specifically Sailpoint is core to enterprise security.

With digital transformation now pervasive across all industry sectors, we believe the demand for and prioritization of identity security will continue as identity is seen as an enabler and secure digital transformation efforts worldwide.

We have go to market plans in place to drive increased awareness and interest in Sailpoint with these key decision makers around the globe.

In closing we are thrilled with our performance in 2020 , one we executed at a very high level to capitalize on the demand for our offerings, leaving us well positioned for sustained long term success.

We remain confident in our ability to generate high growth rates and increasing profitability over time as we execute on our strategy and complete our revenue model transition.

A key factor in our success is our strong and growing leadership team, which brings the right mix of domain expertise proven experience building and scaling go with global brands and the operational excellence needed to bring sailpoint to new Heights.

To that end I would like to welcome our newly appointed CFO Colleen Healy Colleen has nearly 30 years of finance and operational experience, including nearly 20 years at Microsoft where she held various roles in finance and operations, including as general manager of the Companys U S industry for financial services and.

As head of Investor Relations Colleen will assume the CFO role effective March 16, Ken.

Cam Mcmartin, who will step down from his role as interim CFO , but continue his service to sell point as a board member.

I'm thrilled to have Colleen joining the Sailpoint leadership team and believe her enterprise pedigree and operational background will be instrumental in our company's continued success I'm also grateful to Cam for his support as interim CFO and look forward to his continued service as a member of our board.

With that I'd like to turn the call over to Kim who will review the financial details of our performance this quarter Ken.

Thank you Mark and thanks to everyone for joining us on the call today.

Before reviewing our strong performance this past quarter I'd like to remind everyone that we posted a few slides to the Investor Relations section of Sailpoint website.

These supplemental materials include additional disclosure, we introduced last quarter.

We believe they further highlight show points continued strong performance and the success, we've had shifting the business to a subscription model.

As Mark noted earlier, we had a terrific fourth quarter with revenue and bookings well ahead of our expectations.

The fourth quarter yielded sailpoint is the largest ever bookings performance and enabled us to comfortably exceed our guidance on revenue and a R. R.

Total AOR grew sequentially by more than $46 million ending the period at approximately $370 million.

This represents a 48% year over year growth rate.

And a result that is $10 million above the high end of our guidance range, we provided on our last call.

We ended the fourth quarter with approximately $221 million of IRR from our subscription based offerings, which represents an 87% year over year increase.

Our subscription AOR consists of over $161 million from SaaS and approximately $60 million from recurring term licenses.

The increasing portion of total a or are they just coming from our subscription offerings speaks to the great success, we're having in driving SaaS adoption.

We anticipate this mix will continue to increase meaningfully in 2020 two.

While subscription offerings are driving the bulk of total AOR growth our recurring perpetual maintenance base continues to continues to expand as well ending the quarter at approximately $150 million.

This growth is an important demonstration of the strength of our customer relationships and their commitment to sailpoint.

As I highlighted on the last earnings call, we expect to see an increase in migrations of maintenance customers.

So our SaaS offering over time, which will provide a nice business tailwind in the coming years.

In addition to solid AOR growth. This past quarter total revenue was $135 $6 million $21.6 million above the top end of our prior guidance range we.

We delivered very strong bookings growth.

Cross the board, including better than expected performance from our license based offerings, which drove the majority of the revenue upside.

In terms of year over year growth total reported revenue grew 31% largely driven by the license outperformance I just mentioned.

However, we still experienced significant revenue growth headwind in the quarter due to the model transition.

If our bookings mix had been the same as we delivered in Q4 of last year year over year revenue groups growth would have been approximately 14 points higher.

We believe this mix adjusted metric when combined with the very healthy AOR growth discussed earlier provides investors a clear indication of the underlying momentum in the business.

Moving past license revenue total subscription revenue grew 41% year over year this quarter.

This growth was driven by a strong sequential increase in SaaS revenue of approximately $6 million.

And the health of the maintenance space, which continues to benefit from robust renewal rates and up sell into the installed base.

I'll now transition to expenses and operating profit for the quarter.

Please note that unless otherwise stated all references to expenses and operating results are calculated on a non-GAAP basis.

And exclude the items outlined in the GAAP to non-GAAP reconciliation provided in today's press release.

Operating income was $11 $1 million, which was significantly ahead of our prior guidance.

Primarily due to the outperformance in our license revenue.

As previously noted we are investing aggressively in the business.

Given the large opportunity we see in front of us and is paying off as demonstrated by the strong fourth quarter results.

I would like to now shift to our thinking about Q1 and expectations for 2022.

For the first quarter, we expect total ending a are in the range of $393 million to $395 million or 45% to 46% year over year growth for.

For total revenue, we expect 110.5 to $112 $5 million or 22% to 24% growth year over year.

From a profitability perspective, we anticipate an operating loss of $12 million to $14 million.

For the full year 2022 we are targeting total air or $516 million to $524 million or <unk>, 39% to 41% growth year over year.

We expect total revenue of $513 million to $521 million or 17% to 19% growth year over year.

And expect SaaS revenue of $197 million to $201 million or <unk>, 75% to 78% growth year over year.

From a profitability perspective, we anticipate anticipate an operating loss of 27% to $35 million.

This reflects a meaningful impact from the revenue model transition as well as several cost drivers.

Continued expansion in sales capacity to drive durable growth sustained.

Sustained product and engineering investment to drive innovation and increase T. A knee and facilities related expenses as we anticipate moving past the pandemic and into a more normal operating environment.

There are a few things I'd like to highlight as you think about our guidance.

We are forecasting another year of very strong AOR growth underpinned by our rapidly growing SaaS business.

We're seeing better than expected adoption of our SaaS solutions.

The market for cloud identity security has become a top investment priority for C. I OS and C subs.

Second from a revenue perspective, we expect a similar level of revenue headwind as we experienced in 2020 one.

As a reminder, we are in the midst of a two step revenue model transition.

First to a subscription model consisting of recurring term licenses in SaaS and place of our legacy perpetual license model and then a shift from term licenses to a business that is overwhelmingly SaaS.

The first of these transitions is now effectively complete as we expect minimal perpetual license contribution in 2022 and beyond based.

Based on this dynamic and the underlying strength of the business. We expect 2022 will be the trough year for revenue growth before accelerating meaningfully in 2023.

From an expense perspective, as Mark noted earlier our success in 2021 has shown us that the market is larger and growing even faster than we initially expected.

We strongly believe that as the clear market leader, maintaining our investment pace in sales capacity and product innovation will enable us to fully capitalize on this opportunity. We made impactful investments. During 2021. This drove a strong top line return and we plan to do so again in 2022.

Particularly in the first half of the year.

The combination of these factors is driving the operating loss for the year.

As we noted at our Analyst day last February we're setting our investment pace based upon the real underlying growth of the business and not based upon GAAP revenue growth, which is impacted by the model transition to.

To illustrate this point.

If you adjusted for the anticipated revenue headwind, we would have guided to a position of profitability in 2022.

As we anticipate revenue growth to accelerate next year, we expect profitability will also improve.

In closing I want to reiterate how excited we are about the opportunity in front of us.

With a strong execution, we're seeing across the business and the favorable demand backdrop for identity security, we're incredibly well positioned to drive significant growth for many years to come.

With that we'll now shift to Q&A operator.

Thank you and at this time, we will be conducting a question and answer session.

If you'd like to ask a question. Please press star one on your telephone keypad.

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For participants using speaker equipment, it may be necessary to pick up your handset before Christmas donkeys.

One moment, please while we poll for questions.

And our first question comes from the line of Matt Hedberg with RBC capital markets. Please proceed with your question.

Great. Thanks for taking my questions guys. Congrats on the results just really good to see and also great to hear the news on choline Campbell certainly to Miss chatting with you but.

I know you're still going to be around around things here. So I appreciate your time here.

I guess, there's a lot to focus on here, obviously with the momentum in SaaS you know when you think about some of these incremental.

Sort of go to market initiatives for 2022.

How are you prioritizing where those dollars are going and I guess I'm wondering you know between partners or sort of like direct facing initiatives just sort of wondering if you could talk a little bit about that.

Yeah, Matt Kamm here.

First thanks for the kind words, it's been a real pleasure to be backwards into the team and I am as you can appreciate excited we've identified and then have Colleen ready to come on board.

Pick up the ball and run with it we're very excited about 2022 and really beyond I would say as it relates to your specific question the prioritization of investments as it relates to go to market.

It was really focused in two areas first is continuing to grow the global sales capacity.

We saw very good productivity in calendar 2021 in terms of the adds we've made across the geographies and very pleased with the ramp rate and productivity of that field force. Both in terms of the existing force, but also the folks we added during calendar 'twenty one.

The second is demand generation because as mark highlighted in his comments, we're seeing really quite healthy demand and accelerating demand for our SaaS solutions, while we quite frankly see still very good demand for our term license business as well and in certain categories abuse.

You know, we feel like accelerating the spend.

On a dollar basis.

In 2022 is a good investment.

That will yield productive results and so we're we're focused really on maintaining our investment philosophy.

Two and then doing that Youre seeing I think the investment go across the total go to market team.

That that makes a lot of sense and I like how you characterize the extra transition where profitability.

Would've been and then I guess mark.

No no you guys for a long time, we've asked you about the competitive landscape for years and I know you guys sure.

Play well at the upper end of the market here, but for those who are wondering about sort of you know perhaps newcomers in the space and whatnot could you talk about sort of the competitive landscape. Today are you still seeing a lot of these deals.

More greenfield in nature or a lack of competition. Just wondering if you can put a little finer point on that.

And the massive shift Matt in the last quarter since we spoke to the market I still feel like we see some amount of a fair amount of installed legacy solutions. Some portion of which gets interested in talking to us about migration off of those older solutions every quarter I do think that as the strength of our SaaS.

Our solution has become better known we've we've won some very large deals with our SaaS solution I think that catches people's attention and their peer groups when they see very large organizations choosing to move towards a SaaS offering for this.

As part of their solution landscape and then I think we've certainly been attuned to some of the concerns about entrance into the market I guess, the two notables that people ask us about our Microsoft for Doctor and it's still kind of the story, we've been saying for quite some time, we we do believe that they are active kind of in the lower end of the market, where we are just not as focused so I think there probably.

Capturing some market share there, which is good for their business, but not really at our expense today. We find that we are still very very successful in competing with what we consider kind of our core mid to large enterprise segment and in particularly in organizations that have a complex infrastructure to deal with and and in those scenarios, we're still very very.

Pleased with the win rates and our ability to to do quite well against all the competition, we face in those in those segments.

Great to hear best of luck guys.

Thanks, I appreciate that.

Okay.

And our next question comes from the line of Rob Owens with Piper Sandler. Please proceed with your question.

Great. Thank you guys for taking my question I was wondering if you could double click on your commentary around the increase in the maintenance space transitioning to SaaS, just whether or not you're seeing that here or is that within your expectations. As we look at the next couple of years.

Yeah, Rob Cam here as you recall from the last earnings call back in the fall. We had highlighted that this was emotion that we were beginning to see early activity around.

We did see a handful of deals not a large number in Q4 close that relate to customers looking to migrate from identity IQ maintenance instead of our SaaS solution platform.

That that was not an area of selling focus for us quite frankly, its demand coming to us rather than rush out reaching to our install base. So that I think is a good indicator as we come into 2022, we as we highlighted back in the October November time frame really the focus now will be.

<unk> to be a bit more intentional what do I mean by that it means we're organizing from an engineering perspective to make sure we have the tools.

To migrate folks successfully.

And in a predictable fashion, we're working from a.

Go to market perspective to have the right motion to address those customers that are interested in making the migrations you know our expectations remain that 2022 will be a get off the ground here is the way to think about it we'll have them a good number of opportunities we believe to migrate customers to.

To SaaS, but you know this will be a story that plays out over a multi year basis.

Great and then second was wondering if you could touch on the license strength that you saw in the quarter I mean, Ironically I think it's the largest license quarter you've ever seen despite the fact that you are focused on SaaS and transitioning the business. So was this just the way the pipeline shook out for the quarter did you overachieve on what you thought would be there and as you look.

Forward, how should we think about that license line, which had been declining over the last year, and then was up 27% year over year. Thanks.

You bet Rob.

I guess first let me remind everyone that Q4 seasonally is always our strongest quarter beer. It also tends to be that quarter. When we see a lot of what I'm going to characterize is year end money.

That tends to flush itself out the pipeline was healthy across the board as I highlighted in my prepared remarks. This was the best booking performance, we've ever seen as a company and that's really true across all the lines.

SaaS term and perpetual.

In terms of what we expected. So we're pleased with the performance it was a very healthy mix Rob.

Contribution from customers expanding their installed installations of our installed.

<unk>.

If you will of identity IQ, we like that expansion motion.

With our installed base because it basically signals as I highlighted in my remarks of the customers are happy with identity, a queue and are investing in it as they continue to grow their identity security programs and I think we recognize retaining those customers and keeping them actively using our solutions in growing their platforms.

Speaks on a long term basis to what we think will be the opportunity at some point in the future to migrate them to SaaS because they were clearly comfortable with confident and sailpoint as their identity security solution provider and that's really what we're focused on so pleased with the result definitely had a larger.

Unexpected quarter in NII acute perpetual, but again nothing a typical.

In terms of the profile of the quarter just really strong.

Full spectrum quarter.

Thank you.

And our next question comes from the line of Hamzah firewall with Morgan Stanley . Please proceed with your question.

Hey, guys. Thanks for taking my question, maybe a question for Kevin perhaps Mark can chime in.

I'm just curious when you look at the D. A.

Our guide for 'twenty, two which was obviously much stronger than a lot of us were expecting how much of that would you say is coming from underlying demand growth, which seems to be really strong.

But also.

Well it seems to be an incremental shift.

From your existing maintenance base to SaaS over the last couple of quarters. So can you help us sort of break that out a little bit.

Sure first of all thanks for the questions.

The answer is the former is the driver of the ladder is an emergent factor is the way to think about it fundamentally so at the end of the day. The strength of this are our guide is.

Entirely in the way I think about it driven by the underlying strength of the SaaS business Marc highlighted it for you competitively, we're well positioned we're winning at a high rate across the full spectrum across the full market. If you will that we addressed from a vertical standpoint from a size standpoint and from a geography standby.

So that the totality of the go to market energy is really paying off at a high level.

And we're quite pleased by it and that you know back to the earlier question, Matt Hedberg asked.

We're investing behind that trend fundamentally.

We believe it will.

Yield in a similar fashion in 'twenty, two and 23 as we saw in the 'twenty to 'twenty, one and now 'twenty two time frame. So we like the setup that we're seeing into the second half of your question the maintenance migration as a merchant you know it's a small contributor we want to grow it but we're going to be we're going to be very.

Intentional about how we grow it we want those customers that get migrated to be fully successful in a predictable and timely manner.

As we migrate them off by Q and on the I D. Now and so we'll let demand come to us and we'll fill that demand, but we're you're not going to see us put our foot on the accelerator in 'twenty two.

As it relates to how much AOR growth might be contributed from that maintenance migration.

Got it and maybe just a follow up question can you remind us what what is the air or multiple when you move a customer from maintenance on Ida NDA acute SaaS identity now.

Yeah.

The answer is it's too early to tell if I'm candid with you I mean at the end of the day. It's it's it's ranged.

From mid ones. The three in terms of the totality, but I would say the sample size is so small at this juncture that I wouldn't draw any conclusions from it because we're more interested in and working with customers that are ready to migrate.

And position to migrate that is organized to migrate we can work with them as compared to optimizing the economics of this first handful of customers will much like you've seen us do well, we'll optimize the economics as we as we accelerate and we're comfortable as we've looked at what the possibilities are we're comfortable we're going.

C up very healthy contribution from these migrations in the fullness of time.

Thank you.

Thanks.

Our next question comes from the line of Brent Thill with Jefferies. Please proceed with your question.

Hey, guys you have Joe on for Brent really appreciate the question and Cam I want to Echo the earlier sentiments was a pleasure working with you.

Should we think of operating margin as a proxy for cash flow how should we think about cash flow inflection and is that a 'twenty two event or more of a 'twenty three event given the transition.

Joe Thanks, very much for the comments, it's a pleasure to work with you and your team.

The way to think about it fundamentally is the free cash flow profile of this business will largely follow the non-GAAP operating and profile of this business subsidy. The Devil use you can appreciate the delta between a.

non-GAAP operating income and free cash flow for us is modest it's a little bit of Capex that we drive in the business and so we'll get some typical model transition benefit in this period of 'twenty, two and into 'twenty three as we see more SaaS contribution.

And diminishing term contribution of the margin.

But largely speaking I think you can anticipate that the free cash flow profile will track non-GAAP operating income and we've given you some thinking around that for 'twenty. Two I think as well we have indicated we see this as 'twenty two is a trough year and we'll begin to see into 'twenty three revenue growth acceleration.

Correspondingly non-GAAP operating income acceleration, hence free cash flow acceleration as well.

It makes a lot of sense. Thanks, and then maybe for Mark can you just talk about the traction with federal and local government and has any of that picked up given the recent geopolitical issues.

Yeah I'd say.

Thanks, Joe and nothing that I would point to is specifically coming out of the last you know really weeks, we've had a very strong presence in both federal and sled state local and Ed and certainly getting some traction around the world and so federal governments from our strong position in the U S. Federal government that tends to play well.

And just generally finding that the whole public sector is a good market for us.

I wouldn't point to any inflection or any substantive change I think when we see things like we're all witnessing which is of course incredibly difficult and unfortunate for for those people involved but in the long run from anything like this you know I think it just we saw COVID-19 from a completely different angle, where anything that kind of raises the concerns around security tends to.

A benefit the space sector and within the security identity, I think is well understood to be a key contributor to our better security profile and we tend to benefit from those things as kind of a long term tailwind, but I wouldn't point to any short term inflection of note.

Makes sense thanks, guys.

Thanks, you bet. Thank you.

And our next question comes from the line of Brian Essex with Goldman Sachs.

With your question.

Hi, This is Charlie on for Brian .

Not in every corner of I guess, a quick question now that you've seen greater clarity with identity Eyecare is your typical customer profile changing for example, like are you seeing what is the mix of traditional hybrid and Oracle rip out versus in embracing cloud native business.

Yeah.

You bet, Yeah, no no substantive change there I think in many ways.

Seeing you know as I said earlier about the legacy displacement, you know kind of a steady progression.

For a number of quarters, we would love to point you to a short term inflection there, but we just continue to see a steady progression I would point out you've seen some of the customer anecdotes, we've been highlighting in the last few quarters increasingly SaaS, having a stronger impact at the high mid mid to high end of the market, particularly for us while it has been quite.

Performing in the mid market for a long time as Cam said, therefore think SaaS is performing well across the board well when we see that I think we fundamentally see the same market dynamics and market requirements that we have seen obviously, you've still got the backdrop of the IP landscape digital transformation being a driver as people get more aggressive about some of those moves.

But in general every large enterprise, we're dealing with is a lot of the same underlying challenges there theyre going through some flavor of digital transformation, they're shifting workloads to the cloud there, bringing in new SaaS apps and building new be spokes.

<unk> based apps a lot of the dynamics are fairly consistent which is great for us because it means we have a good market opportunity kind of across the horizontal landscape, obviously, a handful of verticals little stronger for us historically, but in general we still see really good demand and good execution across all the verticals.

Great. Thank you and can you speak of a.

Vertical they saw significant strength that last quarter.

I don't I wouldn't call out anything that was uniquely strong, but the great news continues to be.

Looked at the data for the last two or three quarters and theres been real balance across the verticals.

We typically see and we did in the second half of the year a bit of a governmental pop that's not atypical that's budget cycle driven but on balance as you as you look across the industries that we're selling into is it remains a quite balanced profile and nothing that I would call out for you that set itself.

Apart really for the second half of the year actually.

Great. Thank you so much.

Thank you.

Our next question comes from the line of Joel Fishbein with Truest. Please proceed with your question.

Hi, guys, Hey, Mark Thanks for the color on the call with some some of the large wins it sounds like you're getting some traction there I'd love to just get a little bit more color. If you can on any.

Average deal sizes are.

How if you're landing bigger some of these overall that'd be really helpful. Thank you.

Yeah, I mean, I think in general from a from an average deal size Joel as we as we see a lot of traction in the mid to high end of the market and we've highlighted some of those in general obviously, the larger the customer the larger the deal.

As the thing I might point to is we've seen more and more traction with our AI offerings around our core and that's becoming a more natural motion both from a demand from the customer and a selling motion with our team that tends to increase the overall selling deal size, because we're attaching those AI products at initial sale.

Time quite often we still have situations where that isn't happening maybe it's because the deal has been in the pipeline a long time and things like that and we have a nice.

Steady drumbeat of upsell cross sell of those AI products into installed base. So those things are helping probably drive more expansion just just larger companies in general and the attachment of AI, but yes in general I think we're still really pleased with the overall progression of average sales over time, partly as I think people <unk>.

Our strength in the market, we tend to command a premium price, we do get a lot of price pressure in the market honestly, we've talked about that before but where I think able to hold that price point pretty well because of the perceived superiority of the solution.

Thank you.

Thanks Joel.

Our next question comes from the line of Andrew Nowinski with Wells Fargo. Please proceed with your question.

Alright, congrats on the great results this quarter Gamma I thought you did a great job during the interim.

I just wanted to ask a question on.

The SaaS business, so I know you're seeing more traction in the mid to high enterprise.

With adoption of SaaS solution, but given how easy it is to deploy.

That's at least I would think you should be able to.

Push your Iga solution down that small and midsize enterprise market.

We could not support or implement an enterprise grade solution. So I'm wondering whether that.

The lower end of the segment could actually be a growth driver in 2022 I'm. Just wondering if you can give us any color on maybe your new customer growth that you've seen over the last 12 months call. It.

Yeah, I think the Cam here. So first of all thanks for the comments I appreciate them.

The customer growth has been in line with the business growth fundamentally is the way to think about it without giving you a lot of specifics because in these model transition periods.

<unk> to draw equivalents heaves in my mind, but what I would tell you is relative to our expectations of the complement of new customer growth that we want to see in the business in order to drive topline growth. We were right on the curve for the year and pleased as Mark highlighted I I'd highlight those two as well pleased with the non U.

S portion of that contribution that's a good indicator of the spectrum of investment that we're making across the globe and capacity is yielding.

As we would like it to.

As it relates to the customers, we've always had a reasonably balanced distribution for lack of a better term customer contribution across size. We didn't we're not generally going to dip down to the small enterprise category, but in the mid enterprise and the large enterprise segments, where there are.

Frankly tens of thousands of target enterprises to build this business, we're winning at a good rate there and across the full spectrum. So the the economics work the deployment model works the success model work.

In a way that we think we can continue to sustain.

We've highlighted the larger end of the spectrum in the last couple of calls it's largely because it's one of those evolutions around.

Some of the questions, we get asked which is replacement.

The large legacy players tended to live at the high end of the market range and it was a question for us and I can remember a couple of years ago, we talked about it and the good news is we've now.

Begun to address customer needs and at the higher end of the market spectrum, but don't take that as a conclusion that we're moving in a concentrated way upmarket, we're continuing to invest across the full spectrum of those accounts, we want to be selling to.

Okay, that's great and maybe just a follow up for you.

I know you guys I mean your results are amazing now you're clearly not having any any.

No issues with demand, but I'm wondering if customers are asking you.

You for.

For a more integrated solution with Iga, and Pam and Thats, what so do they actually was.

More of a broader platform or do you see your customers still focusing on best of breed solutions for each of those segments.

And it's Marc I'll take that one thanks, good to talk to you.

Yes, it kind of related to Cam's last answer the more you go down market. Our contention has been that that's where there's more pressure for that integrated single vendor solution, where frankly, the sub components may or may not be as deep and rich.

As the mid to large enterprise would require and they'll make that trade off for a single vendor solution with maybe a little less depth and breadth of the solution. Since we are focused in that mid to high end enterprise, where the as I like to say solving the problem is job one that just getting a single vendor solution, there's always pressure from procurement and other folks in the industry to <unk>.

Holidayed vendors, we get that but we arent feeling significant pressure there to to move off of our strategy of increasing the breadth of our solution and the core issues.

Again, we've highlighted this it wasn't a trivial thing to shift our terminology from identity governance identity security, we think theres a broader array of things that are beyond just the traditional focus on compliance and provisioning that are still well within this realm and don't take us necessarily into the other core realms of classic privilege and classic access so I.

We still feel like the market is responding well to that message. We do get asked about integration I think it is probably the right way for me to talk about that is at our at our scope and scale they want us to integrate with their preferred vendors for those other solutions, but they arent necessarily pressuring us in our core markets to be consolidated into a single vendor solution and this.

To follow on.

The addition, I would make to Mark's last comment is it gradient team worked very hard with the leaders in the Pam solution space to have.

High performing World class integrations, and we've got that we make investments they make investments and it really allows fundamentally across our target customer set it allows our customers to in effect take advantage of best of breed without any if you will any penalty of operating efficiency they get what.

They need because we're jointly investing in those integrations.

Yeah, great. He wasn't amazing layer keep up the good work guys.

Thanks, I appreciate it we'll pass that along.

Our next question comes from the line of Joshua Tilton with Wolfe Research. Please proceed with your question.

Hey, guys. Thanks for taking my questions and congrats on the quarter.

You guys mentioned that the legacy replacement deals continue to be steady from quarter to quarter, but we are starting to hear more of the savvy and customers migrating over to sell anything to comment on that front and how should we think about that opportunity in 2022 with more of their customers start to come up for renewal.

Yeah. So I think this is cam thanks for the question I'll start and let mark pick it up.

The answer is as Mark mentioned.

Uh huh.

Win rates across the last couple of quarters have been quite strong we've been pleased with our ability to win against our competitors, including savvy and that didn't change in the fourth quarter.

And we're pleased by that we do have and I've said it for years, we do have a philosophy when we lose to lose gracefully. Because we are experienced generally is that people are going to come back around and we're seeing that come back around behavior.

And the number of customer situations, where.

The reality is is that with the passage of time in the evolution of the solution deployed people arent able to keep up and we're seeing that and feeling that in selling against that reality and having success. So I think the signals you are picking up in the market.

Being borne out in our selling activity. We're pleased by that suggest that when you think about which.

Which most folks do identity as a long term platform decision that as people get familiar with our competitors' products savvy and or others.

We're able to tell a longer term story.

And the only thing I'd add to that Josh is kind of tied into the last question from Andy about Brett.

So having made a slightly different strategic choices I think they've tried to go much wider.

This is somewhat smaller than ours, I don't know exactly because they are private but they.

They've tried to get more into the Pam space and a few other areas and I think as a result, I think their competitiveness of directly against us.

At times challenged and as Cam said, we will still occasionally lose we have lots of them over the years not at a very high rate, but we have well we have as you picked up on a little more increase in the rate of some of those customers coming back around I think partly because of the breadth and depth just isn't as strong in our <unk> segment, and so I think we will.

We.

Probably don't put them as quickly in our mind to the legacy players say Oracle IBM and CA, but they've been around the game quite some time as well and yeah. I think it is a fair pick up their good good research on your behalf.

Theres been a little bit of a pickup there in terms of displacing them.

I appreciate the color and just as a quick follow up.

You guys did give the disclosure on the bookings mix between <unk> and subscription would it be possible to get the split on subscription between term and SaaS in the quarter. And then also you mentioned that this is kind of going to be a double transition where first perpetual disappears in term.

So given that we should start seeing that term mix kind of come down is there any way to get the mix of term and SaaS that baked into the guide for 2022.

Well, we've given you some we've we're evolving the disclosures that we're making I would start at that point. If you recall, we really broke we provided your incremental visibility as to the composition of our last quarter in terms of the three pieces, we havent yet.

<unk>.

Uh huh.

Made the decision if you will to begin to provide you greater bookings visibility of the mixed I think we will do that as we go through time.

What we've tried to focus on in 'twenty, one and really as we begin 'twenty two is to recognize that this is a subscription business.

And that we're focused there fundamentally we gotten effectively complete as we said in 2021 with the move off of.

Licensed perpetual business and.

Have had great success in selling both SaaS and term and we're going to continue to see.

Good contribution from from.

Both in 2022 growing for SaaS, probably not growing as fast return as we go through time, you will see us in 'twenty three and beyond begin to be more focused on SaaS, but at this point.

We're comfortable with the guidance, we're giving you the visibility because we think it gives you the right profile of what we're focusing on for 2022.

Thank you much appreciated.

Okay.

Our next question comes from the line of Alex Henderson with Needham. Please proceed with your question great. Thanks.

Camden will Miss you and Kelly and welcome.

A couple of just quick.

Quick housekeeping questions if I could.

Could you just talk a little bit about your exposure to Russia and whats your churn rate was.

In terms of staff.

Staff churning in the fourth quarter or for the 'twenty, one time frame not versus 'twenty, but versus 19, and what youre seeing in wage inflation.

And I've got a follow up thanks.

Sure Alex Cam here.

Our exposure to Russia is incredibly small.

Without giving any specifics given the composition of who we serve both on the commercial and the governmental side.

Historically taken the position.

Fundamentally not to serve that market.

And so are our exposure is very small there.

And derivative of that.

Let's see the other questions where wage inflation pretty much in line with what the market's doing it's definitely accelerated I won't tell you otherwise where we are competing in the global.

Marketplace for talent and in that regard, it's become more challenging to both attract and retain talent and we're responding accordingly, the performance of the business gives us really the.

Benefit of being able to do that and we are doing that because we recognize momentum is driven by great people and we want to attract and retain the right individuals to drive this business as it relates to turnover.

Hum.

I think you asked the question relative to the 1921 was higher than 19, we've been looking at it on a blended basis really 2021 versus <unk> 19 in that regard substantive Italy no differential in overall.

Pacer rate of.

Of folks are making the decision to the barge Sailpoint what I will tell you is we're pleased with the way the second half preceded both on some diesel in that rate, but also XL and the rate at which we're bringing people on board so but the great news is.

We look at back at the end of 2021, and we're very happy with where we landed in turn the complement of staffing both in terms of go to market teams and the engineering teams great.

Great and if I could follow up could you just give us some sense of what your head count.

Expectations are for 'twenty, two and what's built into the to the model and specifically if you could give us any sense of what the mix of that increase is relative to the sales staff portion of the market. Thanks.

So Alex the the I won't give you specifics around the plan will bump what I'll do is give you. Some general understanding and that is is that we would expect head count to grow largely in line with what we're trying to do from a top line perspective, that's I think as you heard Mark and me both comment in the prepared remarks.

You know from a go to market capacity standpoint demand generation product development standpoint.

Because we're seeing very healthy AOR growth, whether you look at it on a total basis or a net new basis.

We're seeing that kind of productivity that we want to see and therefore are comfortable making the investments in team size.

The reality is is that across all the teams its balanced we're maintaining an investment philosophy that says we want to invest behind on the product development side behind this fast momentum and as well the total market momentum on the on the go to market teams in terms of all the product portfolio.

So that's really what we're doing nothing out of line there nothing differential it's a continuation largely of what we did in 'twenty, one would be the way to think about it okay. If I could.

Just wanted to clarify so youre, saying revenue, where you think the rate of great. Thank you.

Isolating you hadn't done a transition I E. The subscription underlying growth rate.

Yeah. So Alex we look at it a couple of different ways is the answer but substantively, what we're looking at in terms of the growth in the business is whats the target for bookings growth, what's the target for <unk> of our growth and do we have the capacity available to us to achieve those growth targets.

We ended the year.

A very healthy place and we've got a set of objectives for 2022 to continue to grow the field team and the engineering team to support that those growth objectives, great. Thank you.

You bet.

Our next question comes from the line of Rudy Kissinger with D. A Davidson. Please proceed with your question.

Hey, guys. Thanks for taking my questions last quarter, you had said.

License revenue was about 60%.

Term, 40% perpetual I'm just curious if you could give us a finer point on what it was in Q4 I'm just curious how much perpetual there Ross.

Perpetual I don't have that number handy it came down modestly over Q3 was the answer.

On a percentage basis or a nominal dollar on a percentage basis, yes, sorry, yes, my apologies on a percentage basis, we obviously dollar wise everything grew in the quarter, but on a percentage basis it came down.

It came down modestly over the prior quarter.

Got it.

That is helpful. In 'twenty to the mid point of your guide implies 18% topline growth at the midpoint. If you go back about a year ago at your Analyst Day, you said you expected the model transition would be about 10 to 11 point headwind.

In 2002, I know, it's 14% in Q4 do you still expect that kind of headwind to top line growth in 'twenty two.

Yes, I think the way to think about it is we had a mid teens.

Headwind adjusted growth effect in 'twenty, one and we would expect roughly that sort of.

Effect in 'twenty, two it will moderate a few percentage points.

In 22 over 21, but not significantly you know if you think of it a little bit above the mid teens, a little bit below the mid teens, that's the range.

And the way, we've thought about our business planning.

It is as we've said in the in the prepared remarks, the last meaningful year of headwind effect, we're going to drop in the single digits as we go into next year.

Got it that's it for me thanks, guys congrats on the quarter.

Hey.

Our next question comes from the line of T mobile any with Citi. Please proceed with your question.

Oh, Thank you for taking my questions I appreciate it.

I just wanted to ask you a question with respect to she's one of the model transition, which is now complete so just to be 100% clear the perpetual form factor is entirely out of your price book It will no longer be sold and I'm curious about the term and in the process with the term licensing format, especially.

As you reinforce and double down on the SaaS selling with that like some of your clarification and opinion, there and have a follow up I'm, sorry, I can't if I may.

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I apologize what was the.

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You know I do apologize everyone. Your line is open.

Connecting I'm, just not hearing anything.

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