Q4 2021 ForgeRock Earnings Call
Welcome to sport Truck's fourth 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.
That's a really shouldn't please go ahead.
Hello, everyone welcome to the Boardwalk Q4, and full year 2021 earnings conference call on the call with me today are Brian Ross CEO , Jacques and John Fernandez, Our Chief Financial Officer, and EVP of global operations before.
Before we begin I would 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 Q1, and full year 2022, our future offerings and enhancements to our current offerings the market for our offering customer demand for our offerings and other matters.
Actual results could differ materially from those indicated by these forward looking statements. We encourage you to review the risk factors that we've included in our SEC filings, including our quarterly report on Form 10-Q filed with the SEC on November 12, 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 referenced in today's call are reconciled in our press release and slides available on our Investor Relations website with that I'll hand, the call over to Brad.
Thanks, Mark and thanks, everyone for joining our second earnings call as a public company.
2021 was a momentous year for poor drop that was capped off with strong acceleration in our <unk> growth rate and a record amount of net new IRR generated in a quarter.
<unk> grew 35% in Q4 and 35% in fiscal 2021, a significant sequential acceleration compared to the 30% growth in Q3 of 2021.
Our strong results are driven by the consistent demand that we're seeing for <unk> enterprise grade identity platform.
We continue to win business from many of the world's largest and most demanding enterprises.
We added a record number of customers with a $100000 of AOR or greater in Q4, bringing our total to $3 94, representing an acceleration and large customer growth to 21% year over year.
Adoption of our SaaS offering for drug identity cloud is exceeding our expectations.
We previously said, we will provide disclosure around SaaS <unk> and <unk>.
Today, we are pleased to announce that the <unk> cloud represented 12% of total IRR at the end of 2021.
This traction underscores the rapid enterprise adoption and strong product market fit for our SaaS offering after its first full year of availability.
Our achievements in 2021 and the momentum heading into 2022 supports our view that we've raised the bar for <unk> growth.
We are confident we can continue to grow our IRR north of 30% in 2022 with the potential for further acceleration in this exciting market.
We built a leading enterprise identity platform and the demand for our platform is stronger than ever.
We also plan a massive $71 billion market across Siam workforce, and Iot identity, where legacy platforms, and homegrown and point solutions represent a huge replacement opportunity.
All of this plays to our platform strength and contributes to our market share gains.
Before diving into some of the highlights of the fourth quarter I wanted to revisit four key drivers of our growth.
As we look ahead to 2022 with Cvs dynamics is core to our strategy and continuing to gain market share and capitalize on the larger growing market for identity.
First we have the right platform for enterprises that are made digital transformation a top priority.
What makes our platform differentiated.
We are purpose built for enterprises.
Cover the broadest identity lifecycle.
We view this as the Internet scale with one platform for all identities consumers employees partners and Iot.
We make it easy for companies to deliver personalized and seamless omnichannel experiences.
And our customers don't have to cobble together multiple point solutions, our unified platform takes the complexity out of it.
Second many companies one choice, where they deploy their iam solution.
Our ability to serve customers in a self managed hybrid or SaaS environment really enables us to address the full market.
Third our differentiated SaaS architecture with a focus on high scale performance and data security is a key reason why enterprise customers choose for drop.
We give customers control over where their data resides would you becoming increasingly more important for enterprise customers globally.
Fourth we have an attractive land and expand growth opportunity new customer acquisition is being driven by new product innovation increased productivity of our go to market engine and industry analyst recognition.
Our expand opportunity is being driven by customers, adding more identity use cases and product modules.
We have a big opportunity to convert our existing self managed customers does the forward rack identity cloud.
We've continued to receive third party validation from industry research in the past you may have heard us mention the triple Crown. So poor drought continues to be the only provider recognized as a leader by Gartner for access management and Forrester covers your coal for cyan.
Just a few months ago Gartner published a new report called critical capabilities for access management, which is a deep technical review of 12 identity companies.
When you combine our scores across all three categories in the report, which are Siam workforce and application development, where the highest ranked platform.
We believe we are best positioned in the market with a leading identity platform that is the earned recognition for many market analysts over the past year.
Customers are at the heart of <unk> culture, and I'm excited to share several notable wins from the quarter.
First let's take a look at the momentum we're seeing with our SaaS offering.
Health partners and nationwide building society are net new customers for us.
So partners is the largest.
Tumor governed nonprofit health care organization in the U S with a mission to improve health and wellbeing and partnership with members patients and the community.
Health partners saw an opportunity to leverage identity to improve and grow its business such as enhancing the user experience for members and providers and driving efficiencies such as reducing helped us calls and eliminating duplicate accounts.
So partners selected <unk> cloud due to its unique architecture and features that specifically address health partners innovative use cases, as well as far as flexibility to drive rapid success.
Our HIPAA compliance is essential to helping close this deal as well as others in Q4.
Nationwide building Society is the Uk's largest building organization with 16 million members and one of the largest providers of mortgages savings and current accounts in the UK.
Nationwide selected our <unk> identity cloud for both its retail banking and mortgage divisions as it improves and enhances our syndicates people across its mortgage banking divisions.
Our next two customers are great examples of existing customers that have decided to migrate to our SaaS offering as part of our software to SaaS initiative.
With more than 500 companies and over 130 countries. This global financial services Company offers end to end managed payroll service, including visa Medtronic at Intuit.
The company connects all employee pay processes, including payroll payments and on demand pay through a unified SaaS platform.
As the company continues to expand it was looking to broaden its existing <unk> solution to support more employees reduce the overhead and lower the tcl for iam.
The company chose to migrate to the poor drag identity cloud to address their performance and capabilities needs and <unk> ability to support on Prem and cloud simultaneously to minimize typical migration challenges also influenced their decision.
Hughes for drugs SaaS offering.
Our fourth customer example has been important to our customers in 2015.
And he has been managing identities for its nearly 13000 employees and more than 100000 customers.
When the company decided to transfer all of its applications to a cloud based environment.
This customer is confident in <unk> ability to operate in a hybrid model during the phase transition with the on Prem and cloud applications running in parallel and not impacting the security or business functions.
With four Jack identity cloud, the customer expects to reduce their tito and reduce risk through the automation of patches upgrades, while continuing to meet the company's scalability and user experience requirements.
We are extremely proud to announce that two of the world's largest banks became significant customers for drop in Q4.
For our fifth customer example, this banking customer need to migrate off of its legacy CA site Minder and custom build infrastructure in order to provide the business with a more flexible and stable identity platform.
I was an exhaustive review of the market as banks selected for drug because of our deployment model flexibility and the strength of our platform for large complex enterprise use cases.
This particular bank needed to provide their very large consumer customer base with the exceptional user experiences and improve security for multiple devices to reduce fraud is regulatory compliance.
To deliver innovation to maintain our industry leadership.
This customer chose <unk> for the key reasons that I highlighted earlier first our ability to give customers choice of deployment across complex environments.
Our leadership in cyan.
Third our full suite identity platform that scales to meet the demands of the world's largest enterprises.
And fourth the ability for our customers to design frictionless identity experiences using our low code no code identity trees without compromising on security and fraud reduction.
For our next banking customer example for Jack was selected to support hundreds of thousands of identities across the globe for all lines of business.
This customer chose to replace its existing enterprise identity governance solution in order to improve visibility and onboarding of employees and applications.
Initially the customer will deploy for dock provision and reconcile millions of applications with nonhuman identities.
Currently this process is manual which is extremely time consuming and costly.
Streamlining the process with four drug will help the customer realize significant cost savings and ensure regulatory compliance.
A plan to address the same needs with human identities next.
We are also seeing ongoing traction with our AI offering, which we referred to as autonomous identity.
And the following is an example of a customer that purchased that Tom said that any during the quarter.
<unk> offers a wide range of insurance and financial products and services to individuals families and businesses like.
Like many financial services organizations.
<unk> was managing roles and entitlements manually, which is time intensive and costly.
<unk> was able to quickly produce an assessment without Tom its identity in less than two weeks in order to show a merit just how the company could more rapidly and efficiently clean its data.
Specifically emeritus was impressed with the AI capabilities and autonomous identity, which provides excellent time to value identifying relationships in the data in an automated way and labeling them as low medium or high risk.
This helps the analyst at a merit is to make decisions much faster than before.
This is a great example of the value of autonomous identity, which helps organizations save time and money and lower risk automated decision, making.
I couldnt be more pleased with these large customer wins across our SaaS self manage offering as well as a broad range of industries.
We released over 30, new features on our Iam platform in Q4 focused on advancing our SaaS scalability and resilience.
Our market, leading identity trees, and orchestration capability, even more powerful and.
Deepening our supportive identity standards, such as the one off to an open I'd connect.
Looking ahead to 2022, we are extending our pace of innovation in the areas of AI and SaaS.
We are building on the success of our existing autonomous identity product and will be introducing a new AI driven fraud protection solution in the next several months.
It provides risk signals in scores for users and orders stopped that actors and fraud in real time at the identity perimeter.
Core features will help to identify account takeover attempts credential stuffing.
<unk> is the Ips possible travelers man in the middle attacks fishing and box while at the same time, improving the experience of legitimate users.
We're now into our third year of having a converged identity management access management, MFA and identity governance solution.
Since 2019, we've been innovating and AI, driven governance and customers choose our solution because it automates, commonly used identity lifecycle processes.
The users the access they need to do their jobs and ensures compliance and security and regulatory guidelines.
Later in 2022, we will release, our identity governance solution into the <unk> cloud with a cloud native modern architecture that will scale to large enterprise needs.
Before I turn the call over to John I want to revisit or drivers of our growth in 2022 and beyond.
We are extremely well positioned to continue to capitalize on the large and growing market opportunity for enterprise grade identity, which will drive durable and sustainable growth for us.
First we have the right monitoring identity platform for enterprises for all types of identity.
We give our customers the power of deployment choice.
Third our differentiated SaaS architecture.
And fourth our attractive land and expand growth opportunity is a winning combination.
These four business dynamics give us tremendous confidence that we have the right platform supported by our best in class go to market organization, which is fueling our growth.
Our achievements in 2021, and our momentum heading into this fiscal year supports our view that we've raised the bar for growth we.
We expect to grow at or north of 30% in 2022, even as we further scale our company.
We are a leader in this massive market, we have the right platform technology people and partners to continue the acceleration of our business and further gain market share.
With that I'll turn the call over to Jon to walk through our financial results in more detail John .
Thank you Frank I'm pleased to announce that our fourth quarter results exceeded our guidance across all metrics.
We ended our first year as a public company on a high note total revenue for the year was $176 9 million, an increase of 39% year over year, and our non-GAAP operating margin improved year over year to negative 10% from negative 20% last year.
Before I get into the results from the quarter I want to remind you that we run our business and focus its growth on its the best metric by which to measure our business performance, especially as we rapidly grow our SaaS business due to ASC 606, our revenue growth is impacted by the amount of revenue recognized upfront for <unk>.
<unk> managed deals versus revenue that is recognized ratably and we believe our IRR numbers appropriately normalized for this especially as we are experiencing rapid SaaS adoption, which is ratable revenue.
As of the end of Q4.
<unk> was $183 1 million up 35% year over year, our <unk> growth was driven by new customers, who have purchased our self managed or SaaS software and expansion within our existing customer base through more identities more use cases more product modules and more customers choosing our SaaS offering.
Before Jack identity cloud represented 12% of <unk>.
At the end of the year, demonstrating the rapid enterprise adoption and strong product market fit for our SaaS offering after its first full year of availability.
In Q4, 40% of our new customers purchased our SaaS offering and 38% of <unk> from new customers was SaaS.
This compares to 25% of our new customers, who purchased SaaS in Q3, and 50% of SaaS <unk> from new customers in Q3.
Average SaaS AAR from new and existing customers, who purchased <unk> in Q4 remained greater than 350000.
It is great to see such strong traction with our SaaS offering as more new customers chose our SaaS offering this quarter versus Q3 at the same time, we value given our customers choice and saw some large self managed deals this quarter, including the large banks to frame discussed earlier, which resulted in a low.
The percentage of new <unk> coming from SaaS this quarter versus Q3.
We continue to grow very strong customer base that includes many of the world's leading brands our customers leverage our software to manage over $3 billion identities.
Ended Q4 with 394 large customers defined as customers with 100 K of <unk> or greater.
Our large customer base grew 21% year over year, an acceleration versus Q3 at our large customers represented 90% of our IRR is at the end of Q4.
Our net retention rate for Q4 remained consistent at 112%.
Our average <unk> from new customers in 2021 exceeded 200 K of IRR, demonstrating that we tend to land larger with new customers also due to an increase in new logo acquisition over the past several quarters the mix of new <unk> from new customers has been higher on a relative basis.
Total revenue for Q4 was $47 9 million, an increase of 19% year over year as we transition more of our business to SaaS, we expect our subscription SaaS support and maintenance revenue to meaningfully outpace the growth in subscription license subscription.
Subscription SaaS support and maintenance revenue grew 48% year over year and represented 50% of our total revenue in Q4.
Before turning to profitability and expense items I'd like to point out that I will only be discussing non-GAAP results going forward.
non-GAAP results exclude stock based compensation for all periods discussed and restructuring and impairment charges in 2020.
Our press release contains our GAAP results and reconciliation to our non-GAAP results.
Q4, gross profit was $38 4 million and gross margin was 80% as we continue to scale. Our SaaS offering we will see increased investment in cloud infrastructure and incur higher hosting costs.
Turning now to operating expenses.
Sales and marketing expense for Q4 was $22 4 million compared to $19 2 million in Q4 last year. This represents 47% of total revenue for Q4 compared to 48% in Q4 of last year. The percent of revenue improvement was primarily driven by an increase in sales productivity.
R&D expense in Q4 was $11 4 million compared to $8 9 million in Q4 last year. This represents 24% of total revenue for Q4 versus 22% in Q4 of last year, we continued to invest in advancing our products and innovation in areas such as our enterprise SaaS offering.
Our AI and machine learning capabilities, and our identity trees that empower our customers to create orchestration journeys focused on greater 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 in Q4 was $10 7 million compared to $6 3 million in Q4 last year G&A was 22% of revenue versus 16% of revenue last year, our G&A expenses increased due to new public company expenses that we primarily began to incur in Q3 of 2021.
Operating loss was $6 1 million versus a loss of 39000 in Q4 year ago operating margin in Q4 was negative 13% versus just below breakeven a year ago, but for the full year 2021, our margin improved 10 percentage points year over year to negative 10%.
<unk>.
Turning to the balance sheet, we ended the quarter with $369 8 million in cash cash equivalents and marketable securities.
We are confident that we can grow our IRR at a rate north of 30% in 2022, and we believe we have the platform technology people and market opportunity to continue growing our business at this rate in the future. We are managing our path to profitability, while also raising our bar for growth.
Our priorities for investment in 2022 are in key areas that drive our growth, including our product technology and go to market organization longer term, we expect to demonstrate annual improvements and operating leverage though our progress may not be linear on a quarterly basis.
Before we turn to guidance I'd like to provide some comments for our expected performance for fiscal 2022.
For revenue, our SaaS growth continues to exceed our expectations and our SaaS revenue is ratable revenue as we shift more of our business to SaaS you will see variability in our revenue as our SaaS support maintenance revenue growth should meaningfully outpace our term license revenue growth, we expect revenue growth.
To begin reaccelerate in the second half of 2022 in.
In 2022, we expect ending SaaS AAR to be 20% to 25% of ending <unk>.
In terms of revenue seasonality. We currently expect approximately 56% of 2022 revenue in the second half of the year.
For operating margin, we expect 2022 to remain relatively consistent with 2021, we are confident in our core business is on the path to operating profitability, even as we invest in growth of our business in 2022, we expect to be profitable from a non-GAAP operating margin perspective in the second half.
Of 2023 and for the 2024 annual period.
For the first quarter of 2022, we expect total IRR of 187 million to $188 million, representing 31% year over year growth at the midpoint total revenue of $46 million to $47 million non-GAAP operating loss of $13 5 million to $12 5 million.
non-GAAP net loss per share of <unk> 18 to 16, assuming weighted average shares outstanding of approximately $83 3 million.
For the full year 2022, we expect total IRR of $238 million to $241 million, representing 31% year over year growth at the midpoint total.
Total revenue of $212 million to $215 million.
non-GAAP operating loss of 27 million to 24 million and non-GAAP net loss per share of 38 to 34.
Assuming weighted average shares outstanding of approximately $86 million.
That concludes my remarks for Q4, and now I will turn the call back to France for closing remarks Fran.
Thank you John .
I'll close with my final point before we open up for Q&A.
We run our company on IRR, and it's the best metric by which to measure our business performance, especially as we rapidly grow our SaaS business.
We had an amazing 2021, as we accelerated our <unk> growth from 30% in Q3 to 35% in Q4.
We've raised the bar on our AOR growth expectations for 2022.
And the midpoint of our guidance of 31% growth is approximately five percentage points above current consensus.
Our SaaS business continues to exceed our expectations.
We expect to end this year with 20% to 25% of SaaS.
Operator, you May now 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 are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
I ask that you. Please limit your questions today to only one and one follow up again press star one to ask a question, we'll pause for just a moment to allow opportunities for questions.
And we'll take our first caller.
Ones that Todd Wohler with Morgan Stanley .
Hey, guys. Good evening I'm, taking my questions.
Scott.
Great.
So maybe first question for you.
Our growth in Q4 and the outlook.
Really strong I think it was stronger than a lot of us were expecting I'm curious if you could talk a little bit about.
Just a broader enterprise demand environment that youre seeing.
It does seem like things.
Kind of inflected in the last three to six months, if I look at you and your peers. So just curious if you could comment a little bit on the pipeline and how things have trended more recently that gives you the confidence to guide to over 30% IRR growth for next year or for this year rather.
Yes, Thank you and it was.
Great to see that acceleration.
Acceleration and certainly very proud of that and a lot of hard work by everybody in the company to get there and we do feel confident in that guide we have for 2022 and it is really driven by two things I think the general market demand.
Digital transformation is.
Obviously been going on for a long time I think it has accelerated in terms of Covid, where almost every workers become a remote worker and more and more consumers are doing everything online banking health care financial services everything has really gone digital so I think a lot of it's driven by this external market demand and we're seeing that.
In our pipeline.
But it's also I think driven by the uniqueness of our technology and our platform.
The ability to have the single enterprise platform for that full identity lifecycle.
A single platform for workforce consumer and Iot the unique approach we've taken to cloud.
Work, we're doing around AI seems to really be resonating. So it's a combination that's driving our confidence in the guide which is the market factors as well as <unk>.
Our technology and advance since we completed last year.
And then if we were to.
Just think about growth in workforce versus Siam.
I guess, which one surprised you the most it seems like things were just strong across the board, but was there one that surprised you more than the other.
I think that it was strong across both we saw really strong growth and Simon as well in workforce I think we continue to see the trends of really landing and Siam and Florida really is little bit more well known and we really have that market leading science platform.
And I think that's a great opportunity great technology. So we're seeing a lot of land there and then our ability to kind of cross sell and upsell on that workforce side. So that's kind of in the pattern.
I think the work we've done around governance.
And the work we've done to bring AI to make it really a smarter governance solution.
Actually the fastest growing part of our portfolio in there. So we see really good growth across both and of course as we've shared in the past we don't really see this world in two separate assignment in workforce.
Out of our enterprise customers are looking for a single converged platform that can be used to manage all their identities and that's really where we're unique because we are really purpose built for that are many of the other products in the market really maybe have multiple platforms are starting with one or the other so it's really both.
Thank you.
Thanks, Tom Thank you.
Thank you and next we'll move on to Greg.
<unk> with mid tier.
Hello, Greg.
Hey, guys, it's actually Mike on for Gregg Thanks for.
Taking the questions, maybe just to start off Mike.
As it relates to your business any current or expected impact from log for shell and or the Ukraine invasion.
So let's take that take the two of them I think.
Certainly we've all watched the events.
Unfolding, Ukraine, and our Hearts go out to all those people that are involved in that and does that really are hoping for a quick resolution to that.
So that's kind of that perspective, we don't see a big impact on our business, we don't have any customers or partners or employees and either Ukraine or Russia. So we don't see any direct impact at all on our business.
I think clearly this has highlighted that.
Conflicts between countries are no longer just about tanks and bonds, but ciber has really become a big part of these conflicts and so as a reminder to ourselves and to our customers that they've got to continue to invest in security and identity is a big part of that so we're working with our customers to ensure that they're getting the full value of the <unk>.
<unk> capability and platforms.
Looking of course to beef up our own security kind of in this environment that we have so that's kind of our perspective on that as far as those other vulnerabilities no impact in our business not material impact as we very little in our products and services. So we've communicated with our customers as appropriate and are kind of moving forward.
Got it that's helpful and then maybe for my follow up.
Good to see.
Strong IRR Guy I guess are you, making any changes to sales incentives or.
To your broader go to market initiatives in 2022.
We're not making any big changes.
Our sales team is focused on new IRR, whether that comes from.
Brand, new customers or existing customers as we cross and up sell both our land and expand opportunity.
Continuing to keep them focused on that as from a SaaS. We're really pleased to see the traction of our SaaS platform and that kind of a unique architecture really resonating in the market, but we're really all about customer choice.
We know that there are portions of the market that still want to run either in a private cloud public cloud of their choice or SaaS. So we want to make sure our customers have that option and we will continue with that approach going forward. So it kind of really making more of a customer choice versus <unk>.
Alright, Thank you Mike operator.
Next we'll take Patrick Colville with Deutsche Bank.
Hey, Patrick Hey, Thank you.
Thank you so much for taking the question.
Congrats on a.
Really strong.
Inaugural IPO year.
My question is about the fiscal 'twenty two guide so very healthy and.
Above.
I think that bodes was.
Great to see that how conservative you guys being with that guide.
No.
The reason I ask is if I layer on that kind of sequential growth rates, we've seen in fiscal 'twenty one.
In fiscal 'twenty two.
Just a ton of conservatism. So just help us understand kind of that asset. Please.
One moment please.
Operator can you hear us okay.
Yes, Hi, Ken. Please proceed.
Okay, we're having an audio issues or to switch over to our other line here.
Okay.
Okay.
I'm sorry can you guys hear his now Patrick do you mind repeating the question.
Of course.
So I guess.
Congrats on what was a really strong <unk> and <unk>.
On a very healthy fiscal 'twenty two guys. They are all.
Definitely above kind of where they think that bogie was the investment community. So that's very positive to see I guess my question is what is the level of conservatism that is baked into that forecast.
I think we feel really confident in the guide that we've given.
When you look at our pipeline, primarily and we had good pipeline growth in the latter half of the year with a good pipeline growth.
Into the start of the year, we look at our MAA and productivity and we look at our MH and categories at zero to six months tenure six to 12 and greater than 12, we have a pretty good feel for what their productivity is in each one of those cohorts. How our MAA is are graduating into those cohorts. So we training.
A lot of information that gives us really good confidence in that guide.
It's of course early in the year and we'll continue to update you guys throughout the period, but it's really a matter of.
Great market.
Seeing great pipeline, we're seeing improved productivity of our go to market engine, we're releasing new functionality. This year that we think will also help us drive that growth. So it's many factors that give us that comps in that guide.
Great. That's helpful. Thank you.
Second question is around profitability.
Over the last three months the pendulum is very much swung.
And the investment community towards more profitability being a focus.
With you guys.
Topline is definitely the most important metric given.
Very high levels of growth you guys are showing but can we just focus on profitability quickly.
So whats the kind of the thinking.
If I'm not mistaken.
Fiscal first quarter suggest a negative 28% operating margin for the fiscal year looking at the negative 12, which as you know.
Slightly down year on year. So just help me understand that I guess.
Why that level of investment how do I got my numbers right in terms of the kind of all throughout the year.
Sure Okay sure Patrick services, Josh maybe a couple comments would help so midpoint of the revenue guide as we think about profitability for Q1 is 14% midpoint for the year is 21%.
So if we play that through the cycle on a couple of the dynamics happening. So first and foremost we are growing our SaaS business quickly right around that ratable Rev. Rec, which is a huge strong positive for the company exactly what we intended to execute upon so more of our revenue becoming ratable less of the self managed upfront.
And put a couple more bookends of how that top line has been impacted we said we'd end the year around 10%. We ended at 12 and SaaS. So again more ratable Rev. Rec. We also thought was important to help provide you some year end guidance, which originally was 20% and now we're looking at 20% to 25% of ending ALR that's SaaS.
Also as we look at the back end of the year Q3, and Q4, we've got approximately 56% we estimate of our 2022 revenue that'll be recognized in the second half of the year. So cumulatively all of these factors are causing operating margins to be temporarily impacted especially in this first half of the.
Year, but on a full year basis, we expect our operating margins being the same ballpark as 2021 and then if we look out take one step further to the progress we're making around operating leverage we expect to be profitable from a non-GAAP operating margin perspective in the second half. So Q3, plus Q4 of 2023.
And for the 2024 annual period and beyond and I think along with that when you look at the investments that we're making this year ran to touch on some of those were really setting ourselves up to to promote the company's growth.
To not only obviously support the top line this year, but to take advantage of other opportunities in our huge market.
Yes, Thanks, Jonathan as you said, we really raised that bar growth for the company and we're going to continue to invest wisely into continuing.
Accelerating growth, so terry's around product and technology, continuing to drive innovation more investment in scalability of the cloud.
More things around.
And bringing the full governance suite to the cloud so a lot of things there will be investing in scaling our go to market. John mentioned, we're seeing improving leverage will still be investing in our sales team and our partner teams marketing lead Gen. So it's kind of a balanced approach to continue to drive the growth.
Alright, that's very clear. Thank you so much taking my questions.
Thanks.
Operator, do we have another question.
We will move on to Greg Powell with <unk>.
Great. Thanks for taking my questions.
Hey, How's it going.
So yes, congratulations on the strong results.
So I guess for my two questions.
Good to see the updated SaaS disclosures and the traction there.
How confident are you on the $20 to 25% SaaS mix of total <unk> by the end of 2022, and then I think I'm doing the math right, but just to kind of make sure I have it correct.
I think it implies that SaaS AAR will grow around 140% this year.
And account for over half of your total net new <unk>.
Is that the right way to think about it.
Yeah, Hey, great. So.
From your first part of your question was was whereas confidence in the SaaS I think we have a lot of great triangulation points.
Our SaaS sales cycles be networks considerably shorter and have been that consistently.
Inception of SaaS.
We look at the pipeline and pipeline build around size and that's been really really fantastic and obviously just even within respect to wins that we see continuing to close I think some of the largest enterprises in the world and our SaaS product. So we have a lot of confidence around that and the consistent growth. So.
Very very pleased there on the SaaS.
And so you are correct in the 2025% ending as it relates to the SaaS growth. We are planning to as I mentioned in prior calls provide additional revenue segmentation at the end of the year. So we will we will do that as well.
And the last point is not only do we see SaaS as a great way to attract new customers to further drive which many many people are choosing that is as we talk about it.
The earnings script, but also great opportunity to go into our installed base, we have a program called software does as well.
Where we look at customers are very happy with the product functionality. They no longer want to run infrastructure and looking to do moving tax to the cloud. So that's another driver of why we feel so confident that we'll see that continued really strong growth.
And our SaaS platform and get to that 20% to 25% of ending by the end of the year.
Understood that makes a lot of sense. Thank you very much.
Thanks.
Thank you, we'll move on to Jonathan Ho with William Blair.
Hi, Good afternoon, and let me Echo my congratulations as well.
Wanted to start with sort of the net retention number and particularly for 2022, how should we think about.
Either this trend persisting or with some of the new product introductions is there an opportunity to see this also improve as well.
Yes, Jonathan Thanks so.
Yes.
Couple of key points on net retention first and foremost we just continue to land large on the original deal. So that's number one as we looked at last year. In 2021, we just made a very considerable investment in customer success and we've already seen a huge payoff from that we saw that in the form of customer retention.
But I will tell you at this point, where we are at customer retention and we are at our best in class level and so as we think about is there real upside from our customer retention perspective, I think thats minimal at this point given we're already at a best in class level.
In Q4, an interesting thing to share is that when we look at what was new and our new logo acquisition, we actually acquired the most new logos in Q4 that we've acquired in the prior eight quarters.
On the basis of how the pie split up between new and existing it was really skewed toward new which was great for market penetration.
And thus I would say, we're going to stay in the range of plus or minus a 112% in the near term now to your point of other new products market introduction for several things happening there I think new products to get laws are absolutely going to be able to have an impact on that 112% and provide some upside but we've also got.
More users more modules and more use cases as well as the ability for our existing a lot of that basis self managed to actually buy SaaS and some will move to SaaS from their self managed and we've looked at specifically that last point, we think that the opportunity and the initiative around <unk>.
Where to SaaS could be several hundred million dollars opportunity. So all of those factors together I think provide us confidence in the 112% and some upside.
Okay.
Got it and then just regarding the new fraud prevention opportunity how much of an upsell opportunity do you see whats maybe roughly the timing for that product to become generally available and.
Is there any sort of upside built in from that product in your guidance today. Thank you.
So we do we will be looking at that as an additional upsell opportunity an additional module on the floor truck platform, which we'll be able to to sell.
The.
Orchestration trees have always had the ability to collect signals on user and device behavior and help our customers make intelligent decisions based on that risk.
Really brings the AI capability to that module and embedded in with that whole orchestration journey that we've ever had so we're really excited about it from our release standpoint.
We do plan to release at GAA and the first half of this year.
So we think it's a great opportunity, it's not really built into our.
<unk> modeled this points do you think it really can help continue to drive.
Some good growth for the company going forward and it's just an area. We've been working on we launched our first AI product back in 2019 around the governance and the workforce, we're now extending that over the authentication and primarily to the science space. So I think it can be really well received we had several design partner customers that worked on it with us.
So we've got really good customer and put in so it's going to be an exciting opportunity for us this year.
Thank you.
Thank you.
Thank you and next we'll take a question from Rob Owens with Piper Sandler.
Hey, Rob Thanks for.
Good afternoon, and thanks for taking my question.
Where youre seeing customers opt for self manage upfront is there any rhyme or reason regulatory requirements kind of more traditional industries and as you talked about the potential for the shift from self managed SaaS what was kind of the in the last six months experience there.
How should we think about that pipe for 2022. Thanks.
So there are companies that sales serve who still want to go into a self managed approach and we feel we're really uniquely positioned because thats great.
<unk> choice.
Customers want to go self managed and their private cloud or public cloud or use our SaaS.
So I think some of the drivers are a couple of different things. One is regulatory requirements. There are certain countries around the world that have to keep data maybe in their own facilities around protection.
Or there are other companies, who just aren't culturally ready to move to the cloud they feel very large companies failed controlling all that infrastructure gives them better.
Better control and Thats, Okay, because we had the opportunity to serve all of them.
We think eventually will be more and more.
Everybody going to identity as a service right now there is still on and we talked about really these two large financial services.
Is that signed up.
With four dropped last quarter they looked at all the options. They said they weren't ready to go to the Cod, We said, great, Let's say love that our platform given the ability when they are ready to be able to make that move so that idea is important.
When it comes to our pipeline software SaaS.
Phil.
Strong pipeline about a third of our SaaS customers last year came from our installed base.
And about two thirds from new customers, we expect that to kind of go.
Into this year as well, we're about a third of that will come from existing customers as they convert so and we see a strong pipeline. We've also rolled out a lot more structure on that software does that program, including creating what we call accelerators easier ways for our customers to make it a really easy move from self.
The cloud, where we can help them with truly in accelerators move there their identity data move or get any trees move their setting configurations directly to the cloud. So it makes it easy move for them, we've created Tcl calculators ROI tools, so really helping customers make that decision.
So we think it will continue to grow over time.
I appreciate the color. Thank you.
Thank you.
Thank you and next we'll move on Sterling Auty with J P. Morgan.
Yeah. Thanks, Hi, guys Hi, guys. Thanks for squeezing me in so question would be around the tip of the spear in most of your new deals new logos over the past quarter, how much of that is coming from kind of MFA single sign on set of use cases versus governance use cases.
So for US a lot of the tip of the spear is Siam.
And thats kind of where we tend to land most frequently but when someone chooses for direct and not choosing just because of MFA or access it's a platform.
And where the front door for their enterprise. So they are looking for a platform that can help it really easy to onboard new customers make that registration process provisioning process easy through through when they come back through our syndication MSA.
All of this really easy from a whole platform. So same as the tip of the spear, but it's usually the whole platform.
The other kind of tip of the spear that we saw and we expect to continue is around that governance and the AI work. We've done our autonomous identity product is a great opportunity for us to land. So those are two kind of land motions, but our expand motion as really exciting whether it's selling the full workforce platform to ours.
Customers or the full signing platform to our workforce customers or more modules more business lines and then of course that software to SaaS movement. So we really have some really clear sales plays for our team around kind of that land around Siam and governance and may expand to the full portfolio and move.
To the cloud.
Alright, Great and then just one follow up the incremental investment that you're making so if we look at where kind of the guidance for next year versus most of our models or how should we think about where that extra investment is going in terms of the split between R&D sales and market.
And maybe even cloud infrastructure in the Cogs line.
Yes, I mean, I think it's a pretty balanced investment so and all of that is obviously in the details, but it's a balanced investment where we're investing in R&D.
That's probably our biggest investment area.
Around bringing on more engineers to release more products to accelerate our innovation engine. So good growth. There we continue to do some investment in our customer success and our support and services organization. As we continue to have more customers, it's kind of a variable expense around supporting the onboarding and succeed.
That customer base, we continue to invest in our go to market around marketing market awareness lead Gen. And then our full our full sales team. So it's pretty much of a balanced investment over that.
When it comes to cloud we've done a lot this year to make a really efficient scalable SaaS infrastructure that we think has given us some good economies of scale and we'll see that continue.
Going forward as John talked about some really strong gross margin. So John maybe you were kind of on that.
Rob on the gross margin side right non-GAAP Q4, we ended at 80% as Fran said, we did a lot on the platform to make sure that we were efficiently leveraging our cloud spend that said we are still early innings right. I mean, we're just after our first full year of the cloud product.
And so we've got a lot of things on deck to make further that much more efficient and so as we look out towards this year. We think we can see 100 to 200 basis point compression off of our really strong 80% non-GAAP at the end of Q4 margins, but actually we think we'll end the year around that 80% I think just reinforcing.
That there isn't any disproportionate level of cloud hosting costs. It really is as Fran mentioned, so really even and well spread grow the business across the board for efficiency this year.
Understood. Thank you.
Thank you.
Can we do have one last question from shell.
With Cowen and company.
Hey, John how are you Hey, I'm good I'm good guys.
Thank you for squeezing me in and congrats on the quarter and on the outlook for fiscal 'twenty two.
So maybe fran or John My first question.
SaaS and I think kind of the overall opportunity.
The new business that you guys booked during the quarter again I don't know if you can quantify or maybe just some qualitative commentary about whats part of that came from displacements.
What was more greenfield than as we specifically thinking about the SaaS business is that strictly greenfield or have you also seen some displacement on that front.
Maybe just kind of a <unk> did you guys meet your 2021 hiring plan.
So on the.
On the first point, because we generally sell to enterprises and large enterprises.
Usually some again in the system in place already that we're displacing when we bring on a new customer and.
And we talked about for example, the one of the financial services customer that was running a legacy site minder deployment.
They were looking to upgrade to something more modern so we see a fair amount of that where we are replacing some of those legacy players with a modern platform.
So that's kind of a displacement.
Approach one we also see displacement of homegrown a lot of our customers may be running homegrown technology that they created over years and they are realizing that that homegrown data at scale to meet the needs of the business around flexibility.
Frictionless identity without compromising on security, but we also displaced companies have done a lot of point solutions that may be.
There they might have one for workforce and one for consumer and Theyre looking to be able to consolidate so it has a lot of displacement.
Above something and it kind of goes across the board. Our SaaS is great because as John said, we have shorter sales cycles as more people want to go to cloud we're seeing.
Higher initial lands with our SaaS offering so its been great, but we also love our customers who want to stay with US help managed approach and having the opportunity to give them choice and a product that covers both of those is really great. So thats kind of what we see with regards to hiring it's really critically important but what I'd say is we don't look at it just as one.
Hiring challenge when you look at really the talent opportunity.
And we look at that its about hiring new people developing our talent and retaining our best players. So we as a leadership team are always looking at that from a talent perspective and of course, I always making sure that we focus on the right diversity, because we know that makes us kind of a better company from a talent perspective. So we are on.
Track so far this year a lot of focus on it here as we end February where we are on a 100% of our hiring plan and we got it behind on hiring to do so it's a big big focus for the company and we're absolutely on track.
Got it alright.
Thank you so my follow up.
Okay.
Okay.
Alright, well then I'll just go ahead and close the call and say thanks, everybody. So much where we're thrilled with the progress of the company I wanted to say, thank you to any of the poor drivers around the phone any of our customers.
Thank you for helping us get here and we'll talk to you all soon.
Thank you and that does conclude today's teleconference.
Appreciate your participation you may now disconnect.
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