Q4 2025 SailPoint Inc Earnings Call
music
[music].
Speaker Change: Thank you for standing by and welcome to sell points fourth quarter and year end at 2025 earnings Conference call. At this time, all participants are in a listen only mode.
Speaker Change: The speaker presentation, there will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone.
Speaker Change: Move yourself from the queue you May press Star one one the game I would now like to hand, the call over to Scott Smith SVP Investor Relations. Please go ahead.
Scott Smith: Good morning, and thank you for joining us today to discuss sales points fiscal fourth quarter and full year 2025 financial results Tony.
Speaker Change: Joining me today are Sailpoint is founder and CEO, Mark Mcclain, and our Chief Financial Officer, Brian Carolyn.
Speaker Change: Please note that today's call will include forward looking statements and because these statements are based on the company's current intent expectations.
Speaker Change: The expectations and projections they are not guarantees of future performance and a variety of factors could cause actual results to differ materially.
Speaker Change: This call will also include references to non-GAAP adjusted results, which exclude special items.
Speaker Change: Please reference this morning's press release in the investors section of Sailpoint Dot com for further information regarding forward looking statements and reconciliations of GAAP to non-GAAP financial measures.
Mark Mcclain: And with that I'd like to turn the call over to Mark.
Mark Mcclain: Thank you Scott good morning, everyone and thank you for joining US today, we're thrilled to share our fiscal Q4 and full year 2025 results, marking an incredible year for sale point, which was followed by our recent return to the public markets, our competitive differentiation and focused execution drove our strong Q4.
Mark Mcclain: Full year 2025 results we.
Mark Mcclain: We ended this year with $877 million.
Mark Mcclain: Annual recurring revenue or <unk> a.
Mark Mcclain: A 29% year over year increase with SaaS growing 39% or AOR growth reflects increasing demand for our modern identity solutions across approximately 3000 enterprise customers worldwide.
Mark Mcclain: We also saw an almost 80% year over year increase in customers with <unk>.
Mark Mcclain: Greater than $1 billion.
Mark Mcclain: Which showcases the prioritized investment customers are making and identity security and the significant scale of their programs with us.
Mark Mcclain: This performance demonstrates our ability to capitalize on a sizeable market opportunity delivering strong consistent growth at scale.
Mark Mcclain: There are three key factors that have set us up for success, our industry leadership continuous innovation and focus on efficient growth.
Mark Mcclain: First industry leadership.
Mark Mcclain: With over 20 years of expertise and enterprise identity security, we bring a deep understanding of our customers' challenges with Atlas our cutting edge unified identity platform, we delivered the broad and deep governance of access and identity that large enterprises require to meet the expansive nature of their idea.
Mark Mcclain: <unk> landscape and the velocity of change in their access needs.
Mark Mcclain: Our ability to deliver identity security controls across the spectrum of enterprise access, notably down to the detailed entitlement level rather than just the sign on level strengthens our competitive edge.
Mark Mcclain: Physicians sailpoint to serve as a central control plane for securing all enterprise identities and their access to all enterprise data.
Mark Mcclain: And our significant expertise and longstanding leadership.
Mark Mcclain: In governance and administration, which we believe is the most difficult part of identity security makes us well suited to address the highly complex enterprise class identity challenges faced by our customers.
Mark Mcclain: Taken together, our expertise experience and proven track record provide a strong competitive moat for sailpoint, helping us to drive continued growth and to extend our leadership position in the market.
Mark Mcclain: This differentiation is key as it stands in Stark contrast to the high number of failed identity programs that are prevalent today.
Mark Mcclain: Cording to Gardner path of all enterprises have distressed identity programs.
Mark Mcclain: We continue to see success in replacing legacy endless identity vendors, who have been unable to address the scale and scope of the sophisticated identity challenges faced by companies at the mid to upper end of the market.
Mark Mcclain: As just one example from the last year, a large manufacturer failed twice in the past 10 years with Iga solutions that were insufficient and addressing the complexity of their digital landscape.
Mark Mcclain: After a substantial breached put them at risk for major fines and compliance violations. The company recognized their need for an identity partner with the sophistication financial stability and future focused capabilities to meet their requirements.
Mark Mcclain: Sailpoint to help them transform their identity program, leveraging our SaaS delivered AI powered approach to protect their large complex and growing enterprise.
Mark Mcclain: The second factor is innovation innovation is the cornerstone of our culture and our SaaS based Atlas platform remains one of our core differentiators driving accelerated time to value comprehensive security and operational efficiency, while delivering at the scale, our large complex customers demand.
Mark Mcclain: In fiscal 2025, we made significant advancements in our application onboarding and extensibility capabilities as well as many other services and our Atlas platform. We also introduced new innovations like privilege task automation and machine identity security to address emerging market needs.
Mark Mcclain: As we look out onto the horizon of the identity security landscape, we see the next wave of challenges centering around the security and governance of AI agents.
Mark Mcclain: We believe our expertise in securing and covering human and machine identities positions us uniquely well to address this new frontier of AI agents.
Mark Mcclain: Earlier this week, we made two announcements in this area.
Mark Mcclain: First we introduced harbor pilot, our proprietary collection that AI agents designed to provide identity teams with deep insights automation and contextual assistance through intuitive natural language prompts this will enhance decision, making streamline information discovery and simplified task execution.
Mark Mcclain: For our customers and.
Mark Mcclain: And second we announced the development of agents identity security, which will help enterprises manage AI agents as the new identity type within their identity ecosystem. We anticipate this offering will be available later in the year.
Mark Mcclain: Looking forward to the rest of fiscal year 2026, we are focused on extending our lead with innovation as our fuel.
John: We're thrilled to have recently appointed John <unk> as executive VP of product and Chief Technology Officer, who will lead our innovation agenda and work to ensure we continue delivering cutting edge solutions that add value to our customers.
Mark Mcclain: Lastly, I'd like to speak about efficient growth.
Mark Mcclain: We continued to execute at a high level, enabling us to deliver efficient growth at scale with a high win rate and increased <unk> per customer within both new logos and our installed base our ability to win new customers and expand existing relationships provides us with significant growth potential in a market that we <unk>.
Mark Mcclain: Aleve is underpenetrated.
Mark Mcclain: Let me highlight a few key factors that contributed to our ability to grow efficiently.
Mark Mcclain: First we saw solid performance in acquiring new logos supported by a growing sales pipeline.
Mark Mcclain: <unk> for our Sailpoint identity security cloud continues to increase as evidenced by our SaaS, IRR, which grew 39% year over year.
Mark Mcclain: Second we saw strong customer expansion through cross sell upsell and SaaS migrations, which drove approximately half of our growth. This is evidenced by our dollar based net retention rate, which remained steady at 114%.
Mark Mcclain: And finally, we saw increasing demand for newly introduced products that add value to our identity security cloud suites. For example, two of our newer add on products non employee risk management and machine identity security continues to resonate well with both new and existing customers machine identity security.
Mark Mcclain: It was just introduced in October of last year and was a solid contributor to our Q4 results, making it one of our fastest growing new product launches in recent years.
Mark Mcclain: Both of these products have a strong pipeline heading into fiscal 2026, demonstrating our agility by delivering new innovations that address critical needs as the market requires them.
Mark Mcclain: To underscore this point I want to share one more customer example that highlights the value we deliver to customers all along their journey with us.
Mark Mcclain: This large Forbes global 2000, pharmaceutical distributor and provider of healthcare services returned to Sailpoint earlier. This year. After a failed implementation with a small iga vendor.
Mark Mcclain: In addition to using identity security cloud and non employee risk management to manage their 70000 employees and 12000 additional non employee identities. The company added our machine identity security product in Q4 to manage to 100000 machine identities that comprise another key aspect.
Mark Mcclain: Their identity landscape.
Mark Mcclain: This customer is now set up for long term success and securely managing their wide variety and volume of identities, reducing risk and future proofing their business.
Mark Mcclain: In conclusion, I am more optimistic than ever about the future of Sailpoint.
Mark Mcclain: Believe our strong market leadership technological expertise and proven ability to execute uniquely positions us to solve the next set of digital identity challenges to global enterprises face.
Im grateful to our customers for their belief in Sailpoint and for the continued strong relationships, we have with them as evidenced by our Gartner peer insights voice of the customer recognition this past year.
Mark Mcclain: I'd also like to thank our dedicated sales team for being an integral part of this journey and for their commitment to our award winning culture.
Mark Mcclain: We are honored that Sailpoint was named number 17 out of the top 100 best places to work by Glassdoor one of only five software companies in the top 20.
Mark Mcclain: And finally, a huge thank you to our partners, who help us deliver that value to customers and our shareholders, whose belief and as fuels us everyday together, we're securing the future of identity in a complex world.
Mark Mcclain: And now let me hand, it off to Brian who will share more details of our financial results for the quarter and the fiscal year.
Brian Carolyn: Thank you Mark and good morning, everyone I am extremely proud of everything we accomplished over the last couple of years, including our recent return to the public markets, while delivering efficient growth at scale.
Brian Carolyn: The explosion of data applications and the number and type of identities provides a solid foundation for growth as we believe identity is becoming the center of enterprise security.
Mark Mcclain: Building off marks three key themes, we believe our results showcase our leadership position strong competitive advantage and durable growth profile.
Mark Mcclain: We ended fiscal year 2025, with IRR of $877 million, an increase of 29% year over year.
Mark Mcclain: And with SaaS growing 39% year over year.
Mark Mcclain: SAS IRR now represents over 60% of our total <unk>.
As a reminder, we previously provided a preliminary estimated range for <unk> at the beginning of our IPO Roadshow and this result is that the high end of that range.
Mark Mcclain: In Q4, we delivered total revenue of $240 million up 18% year over year with subscription revenue up $224 million up 22% year over year.
Mark Mcclain: Adjusted gross profit margin increased by 80 basis points year over year to 78, 9%.
And adjusted operating margin increased by 530 basis points year over year to 19%.
Mark Mcclain: We believe we deliver exceptional value to our customers, helping them to achieve a more robust security posture with the measurable ROI and that results in a high retention rate.
Mark Mcclain: We finished the fiscal year with approximately 3000 customers and we saw an almost 80% year over year increase in customers with IRR greater than $1 billion.
Mark Mcclain: Our initial customer lands continue to get larger as we become a more strategic platform for securing all enterprise identities and their access to enterprise data our.
Mark Mcclain: Our large customer lands are complemented by expanding existing customer relationships as of January 31, 2025, our dollar based net retention rate remains steady at 114% and was driven by nearly even contributions from suite upgrades migrations upsell and cross sell initiatives.
Mark Mcclain: We believe our balanced and durable growth profile from both new and existing customers as well as our transition to a subscription model is increasing the visibility and predictability of our financial model.
In fiscal year 2025, we delivered total revenue of $862 million, an increase of 23% year over year with subscription revenue of $794 million, increasing 27% year over year.
Mark Mcclain: Our adjusted gross profit margin expanded 110 basis points year over year to 78, 1% in fiscal year 2025.
Mark Mcclain: Driven by higher mix of subscription revenue.
Mark Mcclain: For the year, our adjusted subscription gross profit margin was 84, 1%.
Mark Mcclain: Our adjusted operating margin increased by 760 basis points to 15, 4% in fiscal year 2025.
Mark Mcclain: This was driven by leverage in R&D and sales and marketing.
Mark Mcclain: <unk>, our strong adjusted operating margin performance and durable AOR growth, we continue to exceed the rule of 40, underscoring our efficient growth strategy.
Mark Mcclain: Turning now to guidance for simplicity I'll refer to the midpoint of our guidance ranges.
Mark Mcclain: Full details can be found in our press release and supplemental earnings deck.
Mark Mcclain: As a reminder, we believe <unk> is the best indicator of our business as opposed to revenue, which can be impacted by SaaS and term mix.
Mark Mcclain: For the fiscal first quarter of 2026, we expect <unk>.
Mark Mcclain: To be $898 million up 27% year over year, we expect revenue to be $225 million, an increase of 20% year over year with adjusted operating margin of six 4% the.
Mark Mcclain: The implied year over year change in our adjusted operating margin is the result of higher public company costs and lower term revenue mix.
Mark Mcclain: We expect our diluted share count to be approximately 564 million shares.
Mark Mcclain: And adjusted EPS to be a loss of one penny.
Mark Mcclain: It's also worth noting that in March we paid off all of the outstanding debt on our balance sheet.
Mark Mcclain: We expect a partial interest payment in Q1 of approximately $37 million with $19 million of interest expense running through our P&L.
Mark Mcclain: For our fiscal year 2026, we expect <unk> to be one point euro $8 billion up 23% year over year.
Mark Mcclain: We expect revenue to be approximately 1.03 billion, an increase of 20% year over year with adjusted operating margin of 14, 9% we.
Mark Mcclain: We expect our diluted share count to be approximately 570 million shares and adjusted EPS to be <unk> 16.
Mark Mcclain: We believe we are well positioned to win the next generation of identity security because of the depth and breadth of our platform, our enterprise scale, and our innate ability to listen and respond to market needs with the combination of these core fundamental drivers and our strong pipeline. We believe this guidance is the right play.
Mark Mcclain: Just to start as we reenter the public markets.
Mark Mcclain: As an essential business platform, we see significant growth potential through the universe of new customers that are prime for more modern solution. We also see a large opportunity just within our existing installed base as we continue to convert customers to SaaS and cross sell new modules in.
Mark Mcclain: In summary, we believe there are several drivers that position us for sustained long term growth and we are truly excited about the opportunities ahead.
Mark Mcclain: With that let's open the call for questions operator.
Mark Mcclain: Thank you as a reminder to ask a question you will need to press star one on your telephone to remove yourself from the queue. You May Press Star one one again, we ask that you limit yourself to one question to allow everyone the opportunity to participate.
Mark Mcclain: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes.
Speaker Change: From the line of Rob Owens with Piper Sandler.
Speaker Change: Your question please Rob.
Speaker Change: Great. Thanks for taking my question. This is Ethan on for Rob This morning.
Speaker Change: Mark I, just wanted to kind of start off with the macro environment and kind of whats you guys are seeing out there in the landscape today, especially with kind of all the geopolitical uncertainty that tends to be changing on a day by day basis could you talk about how that played out in the quarter and then also maybe kind of how that has trended.
Speaker Change: Through February and March now too thanks.
Speaker Change: Yes, Thanks, Stephen I appreciate the question.
Speaker Change: We would still tell everyone that we sell and what we consider a very resilient part of the market.
Speaker Change: As companies are looking at spend in this kind of macro somewhat challenged environment. There are certainly focused on what they consider to be most critical.
Speaker Change: We continue to get evidence.
Speaker Change: Identity security is considered business essential by the kinds of customers we sell to.
Speaker Change: Going program, it's not a project that can easily be turned off returned on top.
Speaker Change: Top priority and most CIO and CSO environment kind.
Speaker Change: Kind of as a proof point, we felt some similar headwinds are in the market I should say at the beginning of the Covid environment and fairly quickly customers came back to kind of assure us that this was going to continue to be an area of focus for them and while they might be looking to make some reductions in spend in some areas. This was not likely to be an area that they would see affected so I think we're seeing a very similar.
Speaker Change: Kind of a picture where people are on their toes were kind of double checking on things in our pipeline, but so far getting good strong signals that demand is overall still very high and the macro environment doesn't seem to be having a significant impact at this point.
Speaker Change: Great. Thanks for the color.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of <unk> Kalia of Barclays. Please go ahead Sir.
Speaker Change: Okay, Great Hey, guys. Thanks for taking my question here and congrats on your first quarter as a public company.
Speaker Change: Thanks. Thanks.
Mark Mcclain: Absolutely Mark maybe for you, maybe maybe just picking up on that on that thread, but but even more specific can we just talk a little bit about your U S. Federal business, obviously very topical right now, but maybe remind us how big that business is just for just for everybody's benefit.
Mark Mcclain: And maybe maybe how youre thinking about next year, given some of the moving pieces with the new administration.
Mark Mcclain: Yes, we're certainly mindful of what's happening in the environment and kind of watching again similar to the macro in general are we seeing indicators of change in the environment or from some of our customers I'll, let Brian hit some of the statistics here about kind of how this business.
Mark Mcclain: We are represented in our overall business I would point out that a lot of our customers in federal had been with us for like five years. They are long term committed customers, but in general let Brian give you a little sense of where it fits in the overall landscape, yes sure. Good morning sockets, it's Brian here. So just to give you some statistics our public sector business in total represents about 12 two.
Brian Carolyn: 14% of revenue again, Thats all public sector.
Mark Mcclain: The U S fed is less than half of that.
Mark Mcclain: This is actually spread among dozens and dozens of customers multiple dozens.
Mark Mcclain: Largest being defense.
Mark Mcclain: The average tenure with these customers is greater than five years. So I think what you see is that this is a business essential area of spend that drives efficiency we believe.
Mark Mcclain: We are fed ramp certified right now so I think thats positive positive sign for embracing identity security cloud the federal government.
Mark Mcclain: So again, we're not seeing anything show up just yet we are very mindful of it we're watching it closely we stay close to our customers through our customer success organization.
Mark Mcclain: But again, we're not seeing anything immediate showing up in that area.
Speaker Change: Got it Super helpful guys. Thank you very much.
Doug: Thanks, Doug.
Speaker Change: Thank you. Our next question comes from Joel Fishbein of Truest you question. Please Joe.
Mark Mcclain: Thanks for taking the question Hey, Mark.
Mark Mcclain: I love the commentary about the machine and non human identities and the momentum you're seeing there.
Mark Mcclain: Want to just see if there's any way for you to quantify that and maybe for Brian just as a follow up.
Mark Mcclain: How is the.
Mark Mcclain: How is that being priced.
Mark Mcclain: And love to get any color there. Thank you.
Mark Mcclain: Thanks, Joe Yeah, I think what we're feeling from our customers is it's pretty early on on both machine and as you heard us announced the intent to deliver an agent product later this year. Both of those are machine is already out there in many cases, there are new things being introduced but theres a lot of machine identities out there in the violent already the challenge.
Mark Mcclain: For customers is to identify all of them. So our product offering actually focuses on first literally discovering and identifying all these so they can be categorized assigned to owners and then managed at a typical identity governance and security process beyond that.
Mark Mcclain: As we all know we're all reading the same press on this one everybody everywhere is busily, creating and delivering new agents. So I think customers know theres, a large I'll say tidal wave I just started to stay wave I'll call. It tidal wave coming of agents, so getting our arms around what scale, that's actually going to hit with a lot of these enterprise customers is pretty difficult, but I can.
Mark Mcclain: Tell you that every enterprise customer, we're talking to seize it as an emerging challenge and they see sale point very well positioned to help them address it and I'll, let Brian talk about where we are in kind of the pricing strategy remember machine identity is already announced and available agents identity is not yeah. Thanks Mark.
Mark Mcclain: So Joel you May remember, we just launched our machine identity security product in October 2024.
Mark Mcclain: Right out of the gate, we actually saw a strong demand for it we closed in fiscal Q4 double digits in terms of number of customers.
Mark Mcclain: To the low millions in terms of the IRR contributions. So again, we saw an immediate benefit.
Mark Mcclain: We feel like we've got a strong and developing funnel and pipeline for machine identity. So those green shoots are starting to show up.
Mark Mcclain: From pricing perspective, again, we're working with our customers on this it's early.
Mark Mcclain: But we priced it at about a third of a human identity for the time being.
Mark Mcclain: Again that may change over time, we're early in this process, but we feel like Thats the right place to start and we'll work with customers to get the right value proposition in front of them.
Mark Mcclain: Great. Thank you.
Speaker Change: Thanks, Joe.
Speaker Change: Thank you. Our next question comes from Matt Hedberg of RBC. Please go ahead, Matt.
Matt Hedberg: Great. Thanks for taking my question guys and I'll offer my congrats again, great to have you guys back in the public markets.
Speaker Change: Maybe for Mark.
Speaker Change: A question that you all get in we get obviously is.
Speaker Change: The identity consolidation opportunity.
Speaker Change: Wondering.
Matt Hedberg: In your prepared remarks, Mark you talked about Iga being one of the most complex areas of identity could you talk about the strategic opportunity as customers look to consolidate identity is that something that you expect to see.
Speaker Change: At the high end of the market and then maybe just kind of from a competitive standpoint.
Matt Hedberg: Cypress.
Matt Hedberg: It remains a very good partner for you guys.
Matt Hedberg: Just acquired an Iga vendor as well just kind of talk about that how you think about that holistically. Thanks, a lot mark.
Matt Hedberg: Thanks, Matt Yeah, let me state at the macro level of that question first and specifically talk maybe more specifically about a couple of folks closer to us.
Matt Hedberg: From our perspective, the kind of customer that is going to resonate well with sell points offerings.
Matt Hedberg: Will a complexity and sometimes complexity.
Matt Hedberg: It mostly correlates with scale it doesn't only correlate the scale I mean, we can see some customers with only a few thousand employees with quite complex. It environment. So when they show up with a multi vendor heterogeneous complex IP environment. That's a very good target for sale point because of our strength and experience in delivering value and those kinds of environments right and so.
Matt Hedberg: We consider our market kind of that mid to large enterprise and mid can go down to low mid but.
But not the SMB market and for what it's worth when you talk about consolidation. We believe that's where the market is much more receptive to the consolidation offerings frankly at this point Microsoft.
Speaker Change: And now I guess <unk> could be in that camp too and we anticipate that they're going to have most success with that consolidated offering down market in the SMB space, where customers are going to value that integration more than this significant.
Speaker Change: Value delivered for a complex environment that these larger customers require and we just have not felt much competitive pressure in these mid large customers for a consolidated solution. They are far more focused on actually solving their complex identity security problem and they look at Sailpoint is by far their best option for doing that so we still feel like thats.
Speaker Change: But we feel in the market, we think kind of specific to your cyber a question. We have been good partners with both cyber Ark and frankly some of the other leaders in that part of the market Delaney and beyond Trust.
Speaker Change: We've done that.
Speaker Change: Our little toe in the water about some of the emerging privilege capabilities, notably our privilege task automation offering where we're looking at dynamic privilege and more broadly applied privilege and the general part of the identity landscape not just the classic privileged users, but in some ways. We do see that there is going to be some changing dynamics around the compare.
Speaker Change: A live environment, but for now we're going to continue to focus on solving the problems. We solved we think by far best for the customers, we serve and it will kind of let some of those competitive dynamics play out but I can just tell you in our part of the market that consolidation story isn't creating much competitive pressure for us at this point.
Speaker Change: Great color thanks, guys.
Speaker Change: Thanks.
Speaker Change: <unk>.
Speaker Change: Our next question comes from Brian Essex Sub J P. Morgan. Please go ahead Brian.
Brian Essex: Great Good morning, and congrats on the launch and welcome back to the public markets.
Speaker Change: To see experts is that a result.
Speaker Change: I guess for my question maybe for Brian.
Speaker Change: I know in the last days of the quarter just before you guys launched here Your road show.
Speaker Change: When you Flash numbers, you had an unexpected number of customers pull the trigger on term as opposed to SaaS wed love to get a sense from you what youre seeing with regard to mix. So far this quarter and how should we think about.
Speaker Change: Both the level of revenue generation and when a customer decides to go one versus the other and how you see this kind of playing out longer term with regard to migrations from maintenance off the platform. Thank you.
Speaker Change: Okay. Thanks, Brian.
Speaker Change: Good question. So yes, we were in Q4 fiscal 'twenty five we did see.
Speaker Change: Some strong renewal business and especially the the length and duration of the contracts were a little bit longer which caused more upfront term based revenue recognition, which flowed right to the bottom pretty much for us. So led to strong results. Both on the top line and also the operating margins.
Speaker Change: So moving forward.
Speaker Change: Guiding now to for FY 'twenty six we expect that SaaS will be about 90% of the net new product IRR.
Speaker Change: We do expect about a 60 40 mix in terms of upfront versus ratable recognition.
Speaker Change: So that will cause a little bit of a headwind to revenue and margins for the full year, because we lead with SaaS at this point.
Speaker Change: More specifically for Q1.
Speaker Change: We do see about an 80 20 mix on that just based on the pipeline that we're seeing and the upfront revenue mix should be about 50, 50, so upfront 50, and ratable, meaning 50. So again, we're going to encourage people to really look at <unk> as the primary metric because quarter to quarter based on this term SaaS mix it could.
Speaker Change: Packed the in period revenue growth and also operating margins.
Speaker Change: So your other question just on migrations again, you may recall, we've done about we've migrated about 10% of our maintenance.
Speaker Change: Our base thus far.
Speaker Change: But the positive here is that we typically see a two to three X uplift on the migrated IRR.
Speaker Change: That has contributed about 3% to 4% of our net revenue retention growth.
Speaker Change: We would expect similar contributions moving forward at least for the next couple of years, because we still have.
Speaker Change: A lot of room to go on that area of the business.
Speaker Change: Super helpful. Thank you.
Brian Essex: Thanks, Brian.
Speaker Change: Thank you. Our next question comes from Peter Levine of Evercore. Please go ahead Peter.
Peter Levine: Great. Thank you for taking my question and I'll Echo the congrats on the launch and welcome back to the public markets maybe to piggyback off of a prior question. It does seem like AI agent seem to be the next identity cold Ross So when Youre thinking maybe for you Mark is when youre thinking about which sub segment.
Speaker Change: Identity Tech stack.
Peter Levine: As to kind of be best positioned to monetize the rise of now.
Speaker Change: Meaning why do you think sailpoint with Iga over privileged access or even identity access management, maybe just tell us how.
Speaker Change: How are customers thinking about governance versus privileged access clearly both are important but as one take more of a priority.
Speaker Change: The other agents.
Speaker Change: Agents or customers are kind of just ramping up on these AIA workflows.
Peter Levine: Great question, Peter and thanks, Yes.
Speaker Change: Yes.
Speaker Change: The easier compares to the classic Iam are the access SSO MFA, what world, obviously that is about humans, signing and getting a syndicated debt doesn't technically apply to an AI agent right, they're not going to go through some sort of a sign in process are going to be validated in some fashion. So they can access it but its not like theres not a corollary to assign it right.
Speaker Change: So in essence the classic.
Speaker Change: Am.
Speaker Change: That part of the Tech stack is very much oriented towards human full stop right.
Speaker Change: When you get to the privilege compared to a little more complex here's why we think we happen to be very well positioned maybe against all others in the space. The nature of agents is that they will actually have some characteristics of the machine world and some of the human world.
Speaker Change: And when I say that what I mean is like machines theyre going to be technology, not humans. So theres no sign in rates, but they have to be understood and assigned to an owner you can't just have agents getting.
Speaker Change: Created an environment with no clarity of who owns that agent and is responsible for what it can or can't do or access rate than the other side. These.
Speaker Change: <unk> intelligent agents that will kind of more through time, and perhaps create sub agents to do other pieces of work that is much more like a human taking autonomous action right and so when you think about that kind of combined nature of these intelligent agents, we think that the classic set of disciplines. We've always understood about understanding identities, where do they fit in the environment what.
Speaker Change: Access to meet what is their least privileged status when when might we need to escalate the demands on privilege for that particular identity given the nature of what Theyre doing that set of disciplines. We think is going to apply pretty well to the agent Tech world and that's why it's better suited to sailpoint that anyone because that's exactly what we've been doing for 20 years. So we feel.
Speaker Change: Very good that as customers really Russell with the challenges around agenda AI, they're going to look at the kind of characteristics of our solution and go Thats, what I really need and frankly, that's been validated in some great discussions, we're having with some of the leading hyperscale or is some of the leading software vendors who are creating agents they're.
Speaker Change: Engaging with us in dialogue about how our capabilities can be applied to theres new agents because they are the same customer environment is a little bit of hesitancy.
Speaker Change: <unk> adoption, sometimes because of the security concerns so they want to deploy.
Speaker Change: Deploy these agents quickly, but they also want to make sure they're not trading security exposure in the environment Sailpoint stands to benefit I think as customers are wrestling with that question.
Mark Mcclain: Great. Thank you for the color Mark.
Peter Levine: Thanks Peter.
Speaker Change: Thank you. Our next question comes from Madeline Brooks of Bank of America. Please go ahead Madeline.
Speaker Change: How are you. This is teleonomy sorry, Mike co didn't work so I'll use Madeleine.
Speaker Change: I have the question I have is about flat.
Speaker Change: Platform for identity, what we see in other parts of cyber securities that.
Speaker Change: Things are consolidating around certain platforms endpoints network security et cetera, and the question is whether.
Speaker Change: Identity could also be a platform on its own rather than being embedded into solutions of other companies and the question here is.
How does two things how does SaaS model changes the answer.
Speaker Change: How does it change the answer and second is when you go to.
Speaker Change: Things like machine identity and agents identity is there any benefit to you being the iga or being the identity vendor is there any benefit to you that you will provide the other parts of identity or are they completely independent decisions by the customers.
Speaker Change: Okay. Thank you.
Speaker Change: Multipart question I'm going to do my best.
Speaker Change: Through all of that that's a great question, Okay, Let's talk about the platform concept for 30 seconds I think look when people start to refer to themselves as a platform rather than a product or a solution and I think you have to ask what does that mean I think in our case. It means you've got a core set of shared services and a shared data model that both.
Speaker Change: We as the vendor can used to efficiently deliver new capabilities over time I would point to is a wonderful model here in service now right, who over time move from kind of a product offering and help desk to a well defined platform with a rich set of services and data and then <unk> been able to add kind of particular solutions on top of that pretty quickly. So it enables the.
Speaker Change: Vendor themselves in our case here is still point to add new capabilities quickly part of the speed of innovation, you've seen from Sailpoint around machine identity and privilege task and now agents is because we've spent lots of time in the last five years developing a very rich deep platform with integrated data. But then also allows two other very important.
Speaker Change: Things it allows other software vendors to tie in through Apis are just actually into the platform itself to build new capabilities. It allows our very sophisticated Si partners, who work with us and all of these large accounts to develop new bespoke capabilities.
Speaker Change: On a particular customer and ultimately it allows the rest of the software ecosystem, particularly the rest of the security ecosystem to share and integrate data. So we're getting lots of requests now for customers or excuse me from customers relative to us in other parts of the security ecosystem to integrate things like threat data or network data.
Speaker Change: Sure.
Speaker Change: Data data about data in places like Snowflake with our platform because a lot of times. These other parts of the ecosystem really don't have identity visibility. They can see something that is happening they can't correlate it to an identity. We can't so I think that value of an identity platform has all of these characteristics and it will enable us we think to have this integrated model.
Speaker Change: Will where customers really do want to see every identity. They care about in a single place. So they can understand that full landscape and then understand how all of those identities are in fact accessing data. They care about so we do think this is going to play to our favor that it's a completely integrated view of every identity and all the access to data that customers care about and are <unk>.
Speaker Change: <unk> integrated platform and we're going to be uniquely positioned to provide that.
Speaker Change: Thank you.
Speaker Change: Thanks. Thank you. Our next question comes from Gabriela Borges of Goldman Sachs. Please go ahead Gabriele.
Gabriela Borges: Hey, good morning, Thank you Mark and Brian I wanted to revisit <unk>.
Speaker Change: On strategy I know you mentioned a couple of module with earlier on the call that you released in October.
Gabriela Borges: To give us more detail on the national diabetes.
Speaker Change: Remind us how many modules do you have right now how do you think about penetration and cross sell those module, specifically and are there one or two that you're particularly excited about that can move the needle from NAR standpoint. Thank you.
Gabriela Borges: Okay, I'll talk about a little bit of that overall strategy.
Gabriela Borges: Kind of get I don't know that today, we're actually releasing any particular dollar figures around how much we're doing per module I will comment on some of the ones. We think have a lot of potential in front of us, but yes. The strategy. It continues to be again deepening enriched enriching that platform and the integrated services and then again, adding some of these modular components on top.
Gabriela Borges: Of that which typically youre going to be a separate upcharge. So when we talk about cross sell versus upsell upsell, we usually referring to more quantity of identities that the customer is managing cross sell we're saying theyre, adding new solutions typically new modules right.
Gabriela Borges: I'd say the ones. We're most excited about today are probably three or non human <unk>.
Gabriela Borges: Our risk management product are unemployed excuse me non human non employee risk management product, meaning all of the people humans that are accessing systems that don't carry an employee badge.
Gabriela Borges: <unk> gotten a very strong uptake in the last year, we don't see a introduced at a little over a year ago, and we're seeing very strong uptake pretty broadly across the installed base and a lot of new deals for that.
And then more recently introduced Brian and I, both made reference to machine identity, which was just launched in the fourth quarter and already is starting to show. Some strong early signs of interest and growth in the market and we absolutely believe that this agent identity module will be developing and delivering we are already developing will be delivering later this year will also be a fairly significant contributor over time.
Gabriela Borges: No. So Gabrielle it's Brian here I think the good news that we look at this as a very balanced.
Gabriela Borges: <unk> strategy so.
Gabriela Borges: Our IRR growth about half of that comes from new logo acquisition and half comes from our existing installed base.
Gabriela Borges: What's nice to see if thats, a multi vector growth strategy. So we're able to disperse that growth among migrations in almost equal piece parts migrations to suite upgrades to identity upsell and quantity up so.
Gabriela Borges: We see a lot of contributions coming from our non employee risk management solution. So that was actually at an acquisition. We did back in January 23 that was probably the leading cross sell products.
Gabriela Borges: For FY 'twenty five but again early signs are very positive for machine identity on a heels of that at some point in the future.
Gabriela Borges: <unk> agents identity, so again very balanced growth strategy for us.
Gabriela Borges: Makes sense. Thank you.
Gabriela Borges: Thank you.
Speaker Change: Thank you. Our next question comes from Keith Weiss of Morgan Stanley. Please go ahead Keith.
Speaker Change: Excellent. Thank you guys for taking the question and congratulations on really strong fiscal year overall.
Speaker Change: Wanted to dig into some of the trends that were particularly strong in the year and kind of get your view on durability going forward and the two in particular is one that million dollars million.
Speaker Change: Plus customer count of $1 million <unk> customer count of 78% Super impressive figure can you talk to us a little bit about kind of what's driving those larger customers is it migration or is it product expansion and how durable could that type of growth going forward and then on the other side of the equation you guys are very strong margin expansion in <unk>.
Speaker Change: FY 'twenty five the initial guide is a little bit more temporary into FY 'twenty six how much of that is tactical if you will in terms of IPO cost and shorter term things how much of that is strategic in terms of investing behind some of these newer opportunities like machine identity and at <unk> can you give us a sense of kind of.
Speaker Change: Margin trajectory further along in our models.
Speaker Change: Okay.
Speaker Change: Keith It's Brian here, So I'll take those those are two separate questions.
Speaker Change: Try to get through this fairly quickly.
Speaker Change: So the customer penetration again, we focus on our target account list. We have about 15000 accounts that are identified there. These are the larger accounts. They typically have identities 5000 up their multibillion dollars of revenue. It's the more complex environment. So that's kind of our sweet spot where only about 14%.
Speaker Change: Penetrated in that segment of our target account list. So again lots of headroom there.
Speaker Change: We are landing larger and larger we'd lead with SaaS now we lead with our SaaS suites that we talk about.
Speaker Change: Particularly business and business plus in terms of addressing those more complex environments.
So again this is early days for US, we think we're underpenetrated and Theres a lots of headroom because theres a lot of customers in that space that are just price for a more modern.
Speaker Change: SaaS platform based solution.
Speaker Change: So more to come on that.
With respect to our operating margins. So just to step back we've had 17 points of expansion over the last two years. So I think that we've really demonstrated the ability to grow at scale with <unk> of close to 30%, while delivering efficiencies and decent operating margins.
Speaker Change: As we reenter the public markets for the next year again.
Speaker Change: Public company costs should be about 50 basis points of a headwind to two expansion on that but more importantly, as we continue to transition to more and more SaaS and again, we're modeling about 90% of our net new <unk> coming from SaaS next year, that's going to create an in period revenue headwind for us and also in operating margin headwind we have.
Speaker Change: Estimate that to be about two to 300 basis points for next fiscal year.
Speaker Change: We've made a lot of progress there is more to go longer term for sure.
Speaker Change: We're focused on a balance of both growth and profitability.
Speaker Change: We're not expecting that right out of the gate, but we do have a lot of levers to pull especially within sales and marketing a little bit within R&D and some G&A. So again, we've accomplished a lot, but we do have more efficiency measures to come in the future.
Speaker Change: You were helpful. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from Joseph Gallo of Jefferies. Please go ahead Joseph.
Hi, guys. This is <unk> on for Joseph gallon, Congrats on the first quarter as a public company.
Speaker Change: There remains a large maintenance install base out there using legacy Iga solutions can you just talk us through the new logo side of your business and what some of the drivers are for you to unlock that market opportunities specifically thank you.
Speaker Change: Yes, good morning.
Speaker Change: <unk>.
Speaker Change: Yes. So we would say there is again, we are still underpenetrated in some of the legacy installs that we see out there. These are often very expensive solutions to maintain.
Speaker Change: We believe that we come in with a more modern against SaaS based solution to address their complexities more platform based it's more efficient over time for them. So that's where the new logo acquisition really comes from is really displacing those old legacy.
Speaker Change: Sometimes on Prem solutions, and they're really looking for a more modern approach to that so again, we see this as a very very balanced.
Speaker Change: <unk> strategy for us there's a lot of new logo headroom out there for us in terms of those legacy displacements.
Speaker Change: Thank you. Our next question comes from Gregg Moskowitz Mizuho. Please go ahead Greg.
Speaker Change: Okay. Thank you for taking the question and I have a bit of a follow up to <unk> question Mark.
Speaker Change: Seeing more conversions in identity security and it's been impressive as well just to see how how much sale points product portfolio has broadened over the last few years, but when you look out to the next three to five years, how much more will this space evolve and from a customer standpoint.
Speaker Change: Most enterprises have just one or maybe two identity providers by that time, how do you foresee this developing.
Speaker Change: Yes, I think it does vary some by the market Gregg, meaning I think we do believe that as you look down market into that SMB space, where again, I think particularly the access our iam vendors, Microsoft Octa, notably have a lot of penetration I think theyre going to see some amount of consolidation there to one vendor perhaps too as you look.
Speaker Change: Upmarket.
Speaker Change: And our perspective, I think that the access part of this the SSO MFA part of this will become increasingly commoditized, whether that's coming from Microsoft or others. It will be a fairly.
Speaker Change: Broadly applied but not necessarily strategic part of the identity landscape in the areas around governance security privilege will probably be more strategic and we will see whether those consolidate mostly into one or a couple I think.
Theres some good strength in the market with folks like us and some of our colleagues in the privileged space. Obviously, there is a little bit of a kind of competitive heating up there, but I think in general we're going to have to see how customers view the various capabilities. There. We do feel good that as the market moves to a more dynamic environment as more and more of it is the non human <unk>.
Speaker Change: The entity space with agents and machines that as I said on that earlier question, we feel particularly well suited to kind of incorporate that with that broad set of ideas with human identities, both employee and unemployed that we already manage and for customers to have a single consolidated view of that identity landscape with Sailpoint. So we do feel like for those customers, who do want to consolidate that we will be in a very good.
Speaker Change: And for that and we will kind of let the access part go to what we think will be increasingly be kind of a commodity offering.
Mark: Very helpful. Thanks, Mark.
Speaker Change: Thank you. Our next question comes from so.
Speaker Change: TD Cowen. Please go ahead.
Thank you good morning, everyone, Let me Echo my congrats as well.
Speaker Change: Brian or Mark I know the macro has been already discussed during the early part of the call, but can you talk to us about the geographic mix and related performance this quarter any specific European country that.
Speaker Change: Leading lagging last quarter.
Speaker Change: In the current quarter.
Speaker Change: Keith.
Speaker Change: Hi, Sean Thanks for your question. So we continue to see a very balanced mix in terms of our IRR again about two thirds of that roughly 68% comes from the U S. That's followed by EMEA, which is close to 19% in the rest of the world is about 13%.
Speaker Change: The year over year growth was was consistent I would say with prior prior.
Speaker Change: Prior reported years.
Speaker Change: There is nothing specific in terms of a specific geography or country that is standing out to us we still feel like our international opportunity still exists.
Speaker Change: They believe that 50% of the security spend is going to come from outside the United States. According to third party reports so.
Speaker Change: So we feel like there is additional opportunities as we branch out worldwide.
Speaker Change: We'll say that EMEA in particular has been really migrating towards more SaaS first solutions. So thats been a change in the last year or two for us.
Speaker Change: So again, we think that positions us as sailpoint as uniquely positioned against our competition.
Speaker Change: Many thanks.
Speaker Change: Thank you. Our next question comes from Gray Powell of BTG. Please go ahead Greg.
Speaker Change: Okay, great. Thanks.
Speaker Change: I think a lot of the good questions have been asked and answered already but I guess, maybe a simple one.
Speaker Change: Syed.
Speaker Change: So I fully understand.
Speaker Change: How the SaaS and the term mix impacts reported revenue and operating margins are there any pointers you can give on the free cash flow side.
Speaker Change: Particularly with the debt pay down and I think you said Q1, and just the potential for free cash flow too.
Speaker Change: Further scale.
Speaker Change: Yes.
Speaker Change: Great.
Speaker Change: So what was good to see was that we actually saw $14 million positive cash flow from operations. In Q4. This was tied to strong billings and collections and keep in mind, we had to absorb about $45 million of interest payments.
Speaker Change: Other cash settlements for some equity awards for some older equity awards.
Speaker Change: As I said, we paid down all of our outstanding debt in fiscal Q1.
Speaker Change: I think moving forward starting in Q2 will be very clean from a cash flow perspective.
Speaker Change: We raised $120 million of net proceeds from the offering.
Speaker Change: And then with that we're going to need to have in Q1 $37 million of partial interest payments related to the pay down last pay down of the debt.
Speaker Change: And then just some cleanup in terms of $90 million of items associated with the IPO that should not repeat moving forward. So thats anything from some legacy equity award payouts.
Speaker Change: Private equity fees et cetera, and normal course of business. So again I would say that after we get through Q1, we're going to have a very clean free cash flow number to accentuate.
Speaker Change: Okay, Great and then overtime I would expect that I would expect free cash flow margins as we've talked about.
Speaker Change: To approach our adjusted operating margin that will happen over the next year or two.
Speaker Change: So thank you.
Speaker Change: Perfect understood. Thanks.
Speaker Change: Okay.
Speaker Change: Thank you I would now like to turn the conference back to Mark Mcclain for closing remarks, Sir.
Speaker Change: Thank you and I just wanted to say thanks to everyone for the kind words, it is going to be back in the public markets were back a little faster than we thought we might be which is good for everyone I hope.
Speaker Change: We are excited about where we sit in the market today, and obviously very bullish on kind of what's ahead of us in terms of the demand for identity security across these enterprise customers around the globe and Brian pointed out that I think one of the things maybe highlight 14% in our minds penetrated into what we think our best target customers around the world. So lots of new customer opportunity in front of us.
Speaker Change: And lots of growth within our current customers. So very excited about heading into this year and thankful for all the great interest and questions today, and we look forward to continuing to stay engaged with all of you as we go forward. So thanks for joining the call today appreciate it.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: [music].
Speaker Change: [music].