SailPoint Technologies Holdings, Inc.

Greetings. Welcome to the SailPoint Technologies fourth quarter and full year 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I'll now turn the conference over to your host, Brian Daniel from ICR. You may begin.

Good afternoon.

And thank you for joining us today to discuss SailPoint's fourth quarter 2021 financial results. Joining me today are SailPoint's CEO and co-founder, Mark McClain, and our interim chief financial officer, Cam McMartin. Please note today's call will include four looking statements, and because those statements are based on the company's current intent, expectations, and projections, they are not guaranteed their future performance, and a variety of factors could cause actual results to differ materially. Since this call will include references to non-GAAP results, which excludes special items, please reference this afternoon's press release in the Investor section of SailPoint.com for further information regarding forward-looking statements and reconciliation of GAAP to non-GAAP results. And now I'd like to turn the call over to Mark McClain.

Thanks, Brian, and thanks to each of you for joining the call today. I'm very pleased to share the business and financial performance that led to our record-breaking fourth quarter and year. 2021 was an outstanding year for SailPoint. We demonstrated our market leadership and the differentiated value our identity security offerings deliver. Our record-breaking Q4 helped us to close 2021 exceeding the plan we set forth at the start of the fiscal year. As we highlighted then and continued to see throughout the year, Enterprises worldwide have elevated identity security to a top-level IT priority. Our performance has made it clear that the market for SaaS identity security solutions is large and growing, and demand is very strong, as our solution is being adopted by customers even faster than we anticipated. As a result, we are increasingly confident in our ability to generate strong growth for years to come. To fully capitalize on the attractive market opportunity in front of us, we will continue to invest in our go-to-market and product development initiatives in 2022. As Cam will discuss in more detail shortly, these investments, together with a faster-than-expected revenue model transition, will have a near-term impact on our profitability. We strongly believe this best-positioned sale point to generate high revenue growth rates, significant margin expansion, and substantial shareholder value over the long term. Now, let me provide some insight into our Q4 performance, which exceeded the high end of our ARR and revenue guidance. We ended the year with approximately $370 million of ARR, up 48% year over year, and subscription revenue of approximately $273 million, up 39% year over year. ARR performance this past quarter was driven by three important things. First, customers continue to choose our SaaS platform at an increasing rate, driving strong growth in our recurring revenue base. As evidence of this point, we added nearly $30 million of SaaS ARR in the fourth quarter, up more than 130% year-over-year. Secondly, Overall, we generated record demand for our entire product portfolio as global enterprises continue to prioritize their investment in our identity security offerings as foundational to the security of their enterprise. And finally, our average deal size for both new and existing customers continue to expand year over year as customers embrace our growing portfolio of identity security solutions. Further, Our success is being driven in part by the investments we have made in recent quarters in product innovation and international expansion. We've made significant enhancements in our SaaS platform that help us better address the complexity of securing identity in modern enterprises, while simplifying both the administration and user experience for our customers and their workforce. For example, Our new workflows capability is designed to help customers streamline and automate repetitive manual security tasks with minimal to no coding required. And our identity outliers capability will enable companies to quickly discover and remediate high-risk access by leveraging AI and machine learning-driven analysis to unearth anomalous identities, all within a single dashboard. These are just a couple of examples of how we're infusing intelligence and automation into our SaaS platform to enable smarter, faster, and broader adoption of policies and controls to address identity security challenges faced by global enterprises. It's also important to note that these investments benefit all of our customers, no matter their choice of operating environment, on-prem or in the cloud. We also made considerable investments into our international business this year, Both in Europe, Middle East, Africa, and Asia Pacific, Japan delivered significant and record-breaking contributions in Q4. Our international success reflects the benefit of the new leadership we appointed in APJ this past year, the increased number of field-facing teams in Latin America, EMEA, and APJ, and the broadening of our partner network in these important geographies. To provide some additional color on Q4, I'd like to share a few customer anecdotes. A global information technology company based in India selected our SaaS platform along with our additional AI services to help them manage and secure the 300,000 identities that make up their business. They recognized that SailPoint was the only vendor who could support the complexities and scale of their business with a SaaS-architected platform and a simple, straightforward user interface. A multinational supply chain company based in Germany chose SailPoint due to our clearly defined SaaS vision and ongoing commitment to delivering an autonomous, flexible approach to identity sequencing. This customer needed broad visibility and an AI-driven approach, plus the ability to scale to over 1 million identities. The strength of our customer base and the terrific customer reference checks we provided to this customer during the sales process were critical in sealing the deal. And finally, based on a shared belief that identity security is foundational to the security of their business, a large U.S.-based retailer chose SailPoint as it formalized its own approach to identity security after spinning out from their parent company. Our SaaS platform won them over given the flexibility and agility it will provide, coupled with our AI services that they will rely on to further simplify and streamline the ongoing administration of their identity program over time. As these customer examples underscore, we continue to lead the market with a technically superior identity security offering. This leadership was recently validated by our placement as the leader for the third time in the Forrester wave for identity management and governance. In the most recent 2021 report, we received the highest ranking across all three evaluation criteria, spanning company strategy, current offering, and market presence. Now, as we look ahead to 2022, we are laser focused on three key priorities as we continue to build on the momentum demonstrated throughout 2021. Number one, as the industry leader, we will continue to invest in innovation that delivers to the market an increasingly autonomous, intelligent, and simplified approach to identity security. This approach is critical to helping our customers deliver secure and frictionless workforce productivity. which is especially important in the tight labor market that many sectors continue to experience today. Number two, we are investing in our demand generation and direct sales efforts to further accelerate our ability to address the exciting market opportunity that's in front of us. Adoption of SaaS identity security solutions is still in an early stage of development, and we expect to have a strong year of new customer growth and expansion within our customer base. Number three, we will continue to capitalize on the increasing strategic importance of identity security as more C-level executives and board members recognize that identity security, and specifically SailPoint, is core to enterprise security. With digital transformation now pervasive across all industry sectors, we believe the demand for and prioritization of identity security will continue as identity is seen as an enabler and secure digital transformation efforts worldwide. We have go-to-market plans in place to drive increased awareness and interest in SailPoint with these key decision makers around the globe. In closing, we are thrilled with our performance in 2021. We executed at a very high level to capitalize on the demand for our offerings, leaving us well-positioned for sustained long-term success. We remain confident in our ability to generate high growth rates and increasing profitability over time as we execute on our strategy and complete our revenue model transition. A key factor in our success is our strong and growing leadership team, which brings the right mix of domain expertise, proven experience building and scaling global brands, and the operational excellence needed to bring SailPoint to new heights. To that end, I would like to welcome our newly appointed CFO, Colleen Healy. Colleen has nearly 30 years of finance and operational experience, including nearly 20 years at Microsoft, where she held various roles in finance and operations, including as general manager of the company's U.S. industry for financial services and as head of investor relations. Colleen will assume the CFO role effective March 16th. Cam McMartin will step down from his role as interim CFO but continue his service to SailPoint as a board member. I am thrilled to have Colleen joining the SailPoint leadership team and believe her enterprise pedigree and operational background will be instrumental in our company's continued success. I'm also grateful to Cam for his support as interim CFO and look forward to his continued service as a member of our board. With that, I'd like to turn the call over to Cam

who will review the financial details of our performance this quarter. Cam? Thank you, Mark, and thanks to everyone for joining us on the call today.

Before reviewing our strong performance this past quarter, I'd like to remind everyone that we posted a few slides to the investor relations section of SailPoint's website. These supplemented materials include additional disclosures we introduced last quarter. We believe they further highlight SailPoint's continued strong performance and the success we've had shifting the business to a subscription model. As Mark noted earlier, we had a terrific fourth quarter with revenue and bookings well ahead of our expectations. The fourth quarter yielded SailPoint's largest ever bookings performance and enabled us to comfortably exceed our guidance on revenue and ARR. Total ARR grew sequentially by more than $46 million, ending the period at approximately $370 million. This represents a 48% year-over-year growth rate and a result that is $10 million above the high end of the guidance range we provided on our last call. We ended the fourth quarter with approximately $221 million of ARR from our subscription-based offerings, which represents an 87% year-over-year increase. Our subscription ARR consists of over $161 million from SAS and approximately $60 million from recurring term licenses. The increasing portion of total ARR that is coming from our subscription offerings speaks to the great success we are having in driving SAS adoption. We anticipate this mix will continue to increase meaningfully in 2022. While subscription offerings are driving the bulk of total ARR growth, our recurring perpetual maintenance base continues to expand as well, ending the quarter at approximately $150 million. This growth is an important demonstration of the strength of our customer relationships and their commitment to SailPoint. As I highlighted on the last earnings call, we expect to see an increase in migrations of maintenance customers to our SaaS offering over time, which will provide a nice business tailwind in the coming years. In addition to solid ARR growth this past quarter, total revenue was $135.6 million, $21.6 million above the top end of our prior guidance range. We delivered very strong bookings growth across the board, including better-than-expected performance from our license-based offerings, which drove the majority of the revenue upside. In terms of year-over-year growth, total reported revenue grew 31%, largely driven by the license-out performance I just mentioned. However, we still experienced a significant revenue growth headwind in the quarter due to the model transition. If our bookings mix had been the same as we delivered in Q4 of last year, year-over-year revenue growth would have been approximately 14 points higher. We believe this mix-adjusted metric, when combined with the very healthy ARR growth discussed earlier, provides investors a clear indication of the underlying momentum in the business. Moving past license revenue, total subscription revenue grew 41% year-over-year this quarter. This growth was driven by a strong sequential increase in SAS revenue of approximately $6 million and the health of the maintenance base, which continues to benefit from robust renewal rates and upsell into the installed base. I'll now transition to expenses and operating profit for the quarter. Please note that as otherwise stated, all references to expenses and operating results are calculated on a non-GAAP basis and exclude the items outlined in the gap to non-gap reconciliation provided in today's press release. Operating income was $11.1 million, which was significantly ahead of our prior guidance, primarily due to the outperformance in license revenue. As previously noted, we are investing aggressively in the business, given the large opportunity we see in front of us, and is paying off as demonstrated by the strong fourth quarter results. I would like to now shift to our thinking about Q1 and expectations for 2022. For the first quarter, we expect total ending AR in the range of 393 to $395 million for 45 to 46% year over year growth. For total revenue, we expect 110.5 to $112.5 million for 22 to 24% growth year over year. From a profitability perspective, we anticipate an operating loss of 12 to $14 million. For the full year 2022, we are targeting total ARR 516 to $524 million or 39 to 41% growth year over year. We expect total revenue of 513 to $521 million or 17 to 19% growth year over year and expect SAS revenue of $197 to $201 million, or 75 to 78% growth year over year. From a profitability perspective, we anticipate an operating loss of $27 to $35 million. This reflects a meaningful impact from the revenue model transition, as well as several cost drivers. Continued expansion of sales capacity to drive durable growth, sustain product and engineering investment to drive innovation, and increase T&E and facilities related expenses as we anticipate moving past the pandemic and into a more normal operating environment. There are a few things I'd like to highlight as you think about our guidance. First, we are forecasting another year of very strong ARR growth underpinned by our rapidly growing SaaS business. We're seeing better than expected adoption of our SaaS solutions as the market for cloud identity security has become a top investment priority for CIOs and CISOs. Second, from a revenue perspective, we expect a similar level of revenue headwind as we experienced in 2021. As a reminder, we are in the midst of a two-step revenue model transition. First, to a subscription model consisting of recurring term licenses and SaaS in place of our legacy perpetual license model. and then a shift from term licenses to a business that is overwhelmingly SaaS. The first of these transitions is now effectively complete as we expect minimal perpetual license contribution in 2022 and beyond. Based on this dynamic and the underlying strength of the business, we expect 2022 will be the trough year for revenue growth before accelerating meaningfully in 2023. From an expense perspective, as Mark noted earlier, Our success in 2021 has shown us that the market is larger and growing even faster than we initially expected. We strongly believe that as the clear market leader, maintaining our investment pace and sales capacity and product innovation will enable us to fully capitalize on this opportunity. We made impactful investments during 2021 that strove a strong top-line return, and we plan to do so again in 2022. particularly in the first half of the year. The combination of these factors is driving the operating loss for the year. As we noted at our analyst day last February, we're setting our investment pace based upon the real underlying growth of the business and not based upon gap revenue growth, which is impacted by the model transition. To illustrate this point, if you adjusted for the anticipated revenue headwind, we would have guided to a position of profitability in 2022. As we anticipate revenue growth to accelerate next year, we expect profitability will also improve. In closing, I want to reiterate how excited we are about the opportunity in front of us. With the strong execution we're seeing across the business and the favorable demand backdrop for identity security, we are incredibly well positioned to drive significant growth for many years to come. With that, we'll now shift to Q&A. Operator?

Thank you, and at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start keys. One moment, please, while we poll for questions. And our first question comes from the line of Matt Hedberg with RBC Capital Markets. Please proceed with your question.

Great. Thanks for taking my questions, guys. Congrats on the results. Just really good to see. And also great to hear the news on Colleen Campbell. Certainly to miss chatting with you, but I know you're still going to be around things here, so I appreciate your time here. You know, I guess there's a lot to focus on here, obviously, with the momentum in SaaS. You know, when you think about some of these incremental sort of go-to-market initiatives for 2022, how are you prioritizing where those dollars are going? And I guess I'm wondering, you know, between partners or sort of like direct-facing initiatives, just sort of wondering if you could talk a little bit about that.

Yeah, Matt, Cam here. First, thanks for the kind words. It's been a real pleasure to be back working with the team, and I'm As you can appreciate, excited we've identified and have Colleen ready to come on board to pick up the ball and run with it. We're very excited about 2022 and really beyond, I would say. As it relates to your specific question, the prioritization of investments as it relates to go to market is really focused in two areas. First is continuing to grow the global sales capacity. We saw very good productivity in calendar 2021 in terms of the ads we made across the geographies and very pleased with the ramp rate and productivity of that field force, both in terms of the existing force, but also the folks we added during calendar 21. The second is demand generation, because as Mark highlighted in his comments, we're seeing really quite healthy demand and accelerating demand for our SaaS solutions, while we quite frankly see still very good demand for our term license business as well in certain categories of use. You know, we feel like accelerating the spend on a dollar basis in 2022 is a good investment that will yield productive results. And so we're, we're, focused really on maintaining our investment philosophy in 2022. And in doing that, you're seeing, I think, the investment go across the total go-to-market team.

That makes a lot of sense. And I like, you know, how you characterize X, the transition where profitability would have been. And then I guess, Mark, you know, none of you guys for one time, we've asked you about the competitive landscape for years. And I know you guys sort of you know, play well in the upper end of the market here. But for those who are wondering about sort of, you know, perhaps newcomers in the space and whatnot, could you talk about sort of the competitive landscape today? You know, are you still seeing a lot of these deals, you know, more greenfield in nature or a lack of competition? Just wondering if you could put a little finer point on that.

And no massive shift, Matt, in the last quarter since we spoke to the market. I still feel like we see some amount, a fair amount, of installed legacy solutions, some portion of which gets interested in talking to us about migration off of those older solutions every quarter. I do think that as the strength of our SaaS solution has become better known, we've won some very large deals with our SaaS solution. I think that catches people's attention and their peer groups when they see very large organizations choosing to move toward a SaaS offering for this part of their solution landscape. And then I think we've certainly been attuned to some of the concerns about entrance into the market. I guess the two notables that people ask us about are Microsoft and Okta. And it's still kind of the story we've been saying for quite some time. We do believe that they are active kind of in the lower end of the market where we are just not as focused. So I think they're probably capturing some market share there, which is good for their business, but not really at our expense today. We find that we are still very, very successful in competing with what we consider kind of our core mid to large enterprise segment, and particularly in organizations that have a complex infrastructure to deal with. And in those scenarios, we're still very, very pleased with the win rates and our ability to do quite well against all the competition we face in those segments.

Great to hear. Best of luck, guys.

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

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

Yeah, Rob, Cam here. As you recall from the last earnings call back in the fall, you know, we had highlighted that this was a motion that we were beginning to see early activity around. We did see a handful of deals, not a large number, in Q4 closed that relate to customers looking to migrate from identity IQ maintenance to our SaaS solution platform. That was a not an area of selling focus for us. Quite frankly, it's demand coming to us rather than us outreaching to our installed base. So that, I think, is a good indicator. As we come into 2022, as we highlighted back in the October-November timeframe, really the focus now will be to be a bit more intentional. What do I mean by that? It means we're organizing from an engineering perspective to make sure we have the tools to migrate folks successfully. and in a predictable fashion. We're working from a go-to-market perspective to have the right motion to address those customers that are interested in making the migrations. Our expectations remain that 2022 will be a get-off-the-ground year is the way to think about it. We'll have a good number of opportunities, we believe, to migrate customers to SAS, but this will be a story that plays out over a multi-year basis.

Great. And then second, I was wondering if you could touch on the license strength that you saw in the quarter. I mean, ironically, I think it's the largest license quarter you've ever seen, despite the fact that you are focused on SaaS and transitioning the business. So was this just the way the pipeline shook out for the quarter? Did you overachieve on what you thought would be there? And as you look forward, how should we think about that license line, which had been declining over the last year and then was up 27% year over year? Thanks.

You bet, Rob. I guess first let me remind everyone that Q4 seasonally is always our strongest quarter of the year. It also tends to be that quarter when we see a lot of what I'm going to characterize as year-end money that tends to flesh itself out. The pipeline was healthy across the board, as I highlighted in my prepared remarks. This was the best booking performance we've ever seen as a company, and that's really true across all the lines of SAS term and perpetual in terms of what we expected. So we're pleased with the performance. It was a very healthy mix, Rob, of contribution from customers expanding their installed installations of installed programs, if you will, of Identity IQ. We like that expansion motion. with our installed base because it basically signals, as I highlighted in my remarks, that the customers are happy with IdentityIQ and are investing in it as they continue to grow their identity security programs. And I think we recognize retaining those customers and keeping them actively using our solutions and growing their platforms speaks on a long-term basis to what we think will be the opportunity at some point in the future to migrate them to SaaS because they're clearly comfortable with, confident in SailPoint as their identity security solution provider. And that's really what we're focused on. So pleased with the result. Definitely had a larger-than-expected quarter in IIQ Perpetual. But, again, nothing atypical in terms of the profile of the quarter, just a really strong full-spectrum quarter.

Thank you.

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

Hey guys, thanks for taking my question. Maybe a question for Cam and perhaps Mark can chime in. I'm just curious, when you look at the ARR guide for 22, which was obviously much stronger than a lot of us were expecting, how much of that would you say is coming from underlying demand growth, which seems to be really strong, but also what seems to be an incremental shift from your existing maintenance base to SAS over the last couple quarters. So can you help us sort of break that out a little bit?

Sure, Hamza. First of all, thanks for the questions. The answer is the former is the driver. The latter is an emergent factor is the way to think about it fundamentally. So at the end of the day, the strength of this ARR guide is entirely in the way I think about it, driven by the underlying strength of the SAS business. Mark highlighted it for you. Competitively, we're well-positioned. We're winning at a high rate across the full spectrum, across the full market, if you will, that we address from a vertical standpoint, from a size standpoint, from a geography standpoint. So the totality of the go-to-market energy is really paying off at a high level. And we're quite pleased by it. And that, you know, back to the earlier question Matt Hedberg asked, you know, we're investing behind that trend fundamentally. And we believe it will yield in a similar fashion in 22 and 23 as we saw in, you know, the 20, 21, and now 22 timeframe. So we like the setup that we're seeing. To the second half of your question, The maintenance migration is emergent. It's a small contributor. We want to grow it, but we're going to be very intentional about how we grow it. We want those customers that get migrated to be fully successful in a predictable and timely manner as we migrate them off IIQ and onto IDNow. And so we'll let demand come to us, and we'll fill that demand, but you're not going to see us put our foot on the accelerator in 22 as it relates to how much ARR growth might be contributed from that maintenance migration.

Maybe just a follow-up question. Can you remind us, what is the ARR multiple when you move a customer from maintenance on IdentityIQ to SAS IdentityNow?

The answer is it's too early to tell if I'm candid with you. I mean, at the end of the day, it's ranged. from mid-ones to three in terms of the totality. But I would say the sample size is so small at this juncture that I wouldn't draw any conclusions from it because we're more interested in working with customers that are ready to migrate and positioned to migrate, that is organized to migrate. We can work with them as compared to optimizing the economics of this first handful of customers. We'll Much like you've seen us do, we'll optimize the economics as we accelerate, and we're comfortable as we've looked at what the possibilities are, we're comfortable we're going to see a very healthy contribution from these migrations in the fullness of time.

Thank you. Thanks.

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

Hey guys, you have Joe on for Brent. Really appreciate the question. And Cam, I want to echo the earlier sentiment. It was a pleasure working with you. Should we think of operating margin as a proxy for cash flow? How should we think about cash flow inflection? And is that a 22 event or more of a 23 event given the transition?

Joe, so thanks very much for the comments. It's a pleasure to work with you and your team. You know, the way to think about it fundamentally is the pre-cash flow Profile of this business will largely follow the non-GAAP operating end profile of this business. Substantively, as you can appreciate, the delta between non-GAAP operating income and free cash flow for us is modest. It's the little bit of capex that we drive in the business. And so we'll get some typical model transition benefit in this period of 22 and into 23 as we see more SAS contribution and diminishing term contribution at the margin. But largely speaking, I think you can anticipate that the free cash flow profile will track non-GAAP operating income. And, you know, we've given you some thinking around that for 22. I think as well we've indicated, you know, we see this as 22 as a trough here, and we'll begin to see into 23 revenue growth acceleration and correspondingly non-GAAP operating income acceleration, hence free cash flow acceleration as well.

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

Yeah, I'd say, thanks, Joe. Nothing that I would point to is specifically coming out of the last, you know, weeks. We've had a very strong presence in both federal and we call it SLED, state, local, and ed, and certainly getting some traction around the world today. in some federal governments from our strong position in the U.S. federal government. That tends to play well. And just generally finding that the whole public sector is a good market for us. But I wouldn't point to any inflection or any substantive change. I think when we see things like we're all witnessing, which is, of course, incredibly difficult and unfortunate for those people involved. But in the long run, for anything like this, I think we saw it in COVID from a completely different angle where Anything that kind of raises the concerns around security tends to benefit the space, the sector, and within security, identity I think is well understood to be a key contributor to a better security profile, and we tend to benefit from those things as kind of long-term tailwinds, but I wouldn't point to any short-term inflection of note.

Makes sense. Thanks, guys. Thanks. You bet. Thank you.

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

Hi, this is Charlotte Bedek on for Brian. Congrats on a great quarter. I guess a quick question. Now that you've seen greater parity with identity IQ, is your typical customer profile changing? For example, like are you seeing, what is the mix of traditional hybrid and Oracle ripout versus an emerging cloud native business?

Thank you. You bet. Yeah, no, no substantive change there. I think in many ways, We're seeing, as I said earlier about the legacy displacement, kind of a steady progression. I've said for a number of quarters, we would love to point you to a short-term inflection there, but we just continue to see a steady progression. I would point out, you've seen some of the customer anecdotes we've been highlighting in the last few quarters. Increasingly, SaaS having a stronger impact at the mid-to-high end of the market, particularly for us, while it's been quite well-performing in the mid-market for a long time. As Cam said, therefore, I think SAS is performing well across the board. Well, when we see that, I think we fundamentally see the same market dynamics and market requirements that we have seen. Obviously, you've still got the backdrop of the IT landscape digital transformation being a driver as people get more aggressive about some of those moves. But in general, every large enterprise we're dealing with has a lot of the same underlying challenges. They're going through some flavor of digital transformation. They're shifting workloads to the cloud. They're bringing in new SaaS apps and building new bespoke cloud-based apps. A lot of the dynamics are fairly consistent, which is great for us because it means we have a good market opportunity kind of across the horizontal landscape. Obviously, a handful of verticals a little stronger for us historically, but in general, we still see really good demand and good execution across all the verticals.

Great. Thank you. And can you speak of a vertical that saw significant strength this last quarter?

I wouldn't call out anything that was uniquely strong. The great news continues to be, you know, I've looked at the data for the last two or three quarters and there's been real balance across the verticals. You know, we typically see, and we did in the second half of the year, a bit of a governmental pop. That's not atypical. That's budget cycle driven. But on balance, as you look across the industries that we're selling into, it remains a quite balanced profile and nothing that I would call out for you that set itself apart, really, for the second half of the year, actually.

Great. Thank you so much.

Thank you.

Our next question comes from the line of Joel Fishbane with Truist. Please proceed with your question.

Hi, guys. Hey, Mark. Thanks for the color on the call with some of the large winds. It sounds like you're getting some traction there. I'd love to just get a little bit more color if you can on any, you know, average deal sizes or if you're landing bigger, some of these overall. That would be really helpful. Thank you.

I mean, I think in general, from an average deal size, Joel, as we see a lot of traction in the mid to high end of the market, and we've highlighted some of those in general, obviously the larger the customer, the larger the deal. I'd say the thing I might point to is we've seen more and more traction with our AI offerings around our core, and that's becoming a more natural motion, both from a demand from the customer and a selling motion with our team, that tends to increase the overall selling deal size because we're attaching those AI products at initial sale time. Quite often, we still have situations where that isn't happening. Maybe it's because the deal's been in the pipeline a long time and things like that, and we have a nice, you know, steady drumbeat of upsell, cross-sell of those AI products into install base. So those things are helping probably drive more expansion, just larger companies in general and the attachment of AI. But yeah, in general, I think we're still really pleased with the overall progression of average sales over time, partly as I think people recognize our strength in the market. We tend to command a premium price. We do get a lot of price pressure in the market. Honestly, we've talked about that before, but we're I think, able to hold that price point pretty well because of the perceived superiority of the solution.

Thank you. Thanks, Joel. Our next question comes from the line of Andrew Nowinski with Wells Fargo.

Please proceed with your question.

All right. Congrats on the great results this quarter, Cam. I thought you did a great job during the interim. I just want to ask a question on... your SaaS business. So I know you're seeing more traction in the mid to high enterprise with adoption of that SaaS solution, but given how easy it is to deploy that solution, I would think you should be able to push your IGA solution down to that small and mid-sized enterprise market that previously could not support or implement an enterprise-grade IGA solution. So I'm wondering whether that lower end of the segment could actually be a growth driver in 2022 and Just wondering if you could give us any color on maybe your new customer growth that you've seen over the last 12 months, call it.

Yeah, the cam here. First of all, thanks for the comments. I appreciate them. The customer growth has been in line with the business growth fundamentally is the way to think about it without giving you a lot of specifics because in these model transition periods, it's difficult to draw equivalencies in my mind. But what I would tell you is Relative to our expectations of the complement of new customer growth that we want to see in the business in order to drive top-line growth, we were right on the curve for the year. And please, as Mark highlighted, I'd highlight this too as well. Please with the non-U.S. portion of that contribution. That's a good indicator of, you know, that the spectrum of investment that we're making across the globe in capacity is yielding, as we would like it to. As it relates to the customers, we've always had a reasonably balanced distribution, for lack of a better term, of customer contribution across size. We're not generally going to dip down to the small enterprise category, but in the mid-enterprise and the large enterprise segments where there are, quite frankly, tens of thousands of target enterprises to build this business, we're winning at a good rate there and across the full spectrum. So, The economics work, the deployment model works, the success model works in a way that we think we can continue to sustain. We've highlighted the larger end of the spectrum in the last couple of calls, largely because it's one of those evolutions around some of the questions we get asked, which is replacement. The large legacy players tended to live at the high end of the market range, And it was a question for us. And I can remember a couple of years ago, we talked about it. And the good news is we've now begun to address customer needs at the higher end of this market spectrum. But don't take that as a conclusion that we're moving in a concentrated way up market. We're continuing to invest across the full spectrum of those accounts we want to be selling to.

OK, that's great. And maybe just a follow up for you. I know you guys, I mean, your results are amazing tonight. You're clearly not having any issues with demand, but I'm wondering if customers are asking you for a more integrated solution with IGA and PAM and SSO. Do they actually want more of a broader platform, or do you see your customers still focusing on best-of-breed solutions for each of those segments? Thanks.

And it's Mark. I'll take that one. Thanks. Good to talk to you. Yeah, kind of related to Cam's last answer, you know, the more you go down market, our contention has been that that's where there's more pressure for that integrated single vendor solution where, frankly, the subcomponents may or may not be as deep and rich as the mid to large enterprise would require, and they'll make that tradeoff for a single vendor solution with maybe a little less depth and breadth of the solution. Since we are focused in that mid to high-end enterprise where the, as I like to say, solving the problem is job one, not just getting a single vendor solution. There's always pressure from procurement and other folks in the industry to consolidate vendors. We get that, but we aren't feeling significant pressure there to move off of our strategy of increasing the breadth of our solution and the core issues. You know, again, we've highlighted this. It wasn't a trivial thing to shift our terminology from identity governance to identity security. We think there's a broader array of things that are beyond just the traditional focus on compliance and provisioning that are still well within this realm and don't take us necessarily into the other core realms of classic privilege and classic access. So I think we still feel like the market is responding well to that message. We do get asked about integration. I think, Andy, that's probably the right way for me to talk about that is at our scope and scale, they want us to integrate with their preferred vendors for those other solutions. but they aren't necessarily pressuring us in our core markets to be consolidated to a single vendor solution.

Yeah, and just to follow on, the addition I would make to Mark's last comment is that, you know, Grady and team work very hard with the leaders in the PAM solution space to have high-performing, world-class integrations, and we've got that. We make investments, they make investments, and it really allows fundamentally across our target customer set, it allows customers our customers to, in effect, take advantage of best of breed without any, if you will, any penalty of operating efficiency. They get what they need because we're jointly investing in those integrations.

Yeah, Grady was an amazing hire. Keep up the good work, guys. Thanks. Appreciate it. We'll pass that along.

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

Hey, guys, thanks for taking my questions, and congrats on the quarter. You guys mentioned that the legacy replacement deals continue to be steady from quarter to quarter, but we are starting to hear more of the Savian customers migrating over to sale. Anything to comment on that front, and how should we think about that opportunity in 2022 as more of their customers start to come up for renewal?

Yeah, so thanks, Cam. Thanks for the question. I'll start and let Mark pick it up. The answer is, as Mark mentioned, the win rates – across the last couple of quarters have been quite strong. We've been pleased with our ability to win against our competitors, including Savion, and that didn't change in the fourth quarter, and we're pleased by that. We do have, and have said it for years, we do have a philosophy when we lose to lose gracefully because our experience generally is that people are going to come back around, and we're seeing the come back around behavior in a number of customer situations where The reality is that with the passage of time and the evolution of the solution deployed, people aren't able to keep up. And we're seeing that and feeling that and selling against that reality and having success. So I think the signals you're picking up in the market are being borne out in our selling activity. We're pleased by that. It suggests that when you think about, which most folks do, identity is a long-term platform decision that that as people get familiar with our competitors' products, Savvy and others, you know, we're able to tell a longer-term story.

Yeah, and the only thing I'd add to that, Josh, is kind of tie in the last question from Andy about Brett. Savvy made a slightly different strategic choice than us. I think they've tried to go much wider, and their business is somewhat smaller than ours. I don't know exactly because they're private, but, you know, they've tried to get more into the PAM space and a few other areas, and I think As a result, I think their competitiveness directly against us is at times challenged. And as Cam said, we will still occasionally lose. We have lost to them over the years, not at a very high rate, but we have. But we have, as you picked up on, a little more increase in the rate of some of those customers coming back around, I think partly because the breadth and depth just isn't as strong in our deep segment. And so I think we – We probably don't put them as quickly in our mind as a legacy player, say Oracle, IBM, and CA, but they've been around the game quite some time as well. And, yeah, I think it is a fair pickup there. Good research on your behalf that there's been a little bit of a pickup there in terms of displacing them.

I appreciate the color. And just as a quick follow-up, you guys did give the disclosure on the bookings mix between PERP and subscriptions. Would it be possible to get the split on subscription between term and SAS in the quarter? And then also, you know, you mentioned that this is kind of going to be a double transition where first perpetual disappears and then term. So given that, we should start seeing that term mix kind of come down. Is there any way to get the mix of term and SAS that's baked into the guide for 2022?

Well, we've given you some – we've – We're evolving the disclosures that we're making. I would start at that point. If you recall, we provided you incremental visibility as to the composition of ARR last quarter in terms of the three pieces. We haven't yet made the decision, if you will, to begin to provide you greater bookings visibility of the mixed type. I think we'll do that as we go through time. You know, what we've tried to focus on in 21 is and really as we begin 22, is to recognize that this is a subscription business and that we're focused there fundamentally. We got effectively complete, as we said, in 2021 with the move off of licensed perpetual business and have had great success in selling both SaaS and term. And, you know, we're going to continue to see good contribution from, you know, both in 2022, growing for SAS, probably not growing as fast for term. As we go through time, you'll see us in 23 and beyond begin to be more focused on SAS. But at this point, we're comfortable with the guidance we're giving you and the visibility because we think it gives you the right profile of what we're focusing on for 2022.

Thank you. Much appreciated. Thank you.

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

Great, thanks. And Cam, we'll miss you. And Colleen, welcome. A couple of just quick housekeeping questions, if I could. Could you just talk a little bit about your exposure to Russia and what your churn rate was in terms of staff churning in the fourth quarter or for the 21 timeframe? not versus 20, but versus 19, and what you're seeing on wage inflation. And I've got a follow-up, thanks.

Sure, Alex. Cam here. Our exposure to Russia is incredibly small. Without giving any specifics, given the composition of who we serve, both on the commercial and the governmental side, we have historically taken the position fundamentally not to serve that market. And so our... Our exposure is very small there and derivative of that. Let's see. The other questions were wage inflation pretty much in line with what the market's doing. It's definitely accelerated. I won't tell you otherwise. We are competing in the global marketplace for talent, and in that regard, it's become more challenging to both attract and retain talent, and we're responding accordingly. The performance of the business gives us really the benefit of being able to do that. And we are doing that because we recognize momentum is driven by great people and we wanna attract and retain the right individuals to drive this business. As it relates to turnover, I think you asked the question relative to 19, if 21 was higher than 19, we've been looking at it on a blended basis, really 2021 versus 19. And in that regard, substantively no differential in overall pace or rate of folks making the decision to embark SailPoint. What I will tell you is we're pleased with the way the second half proceeded, both on some decel in that rate, but also Excel in the rate at which we're bringing people on board. So the great news is So we look back at the end of 2021, and we're very happy with where we landed in terms of complemented staffing, both in terms of go-to-market teams and the engineering teams.

Great. And if I could follow up, could you just give us some sense of what your headcount expectations are for 22 and what's built into the model? And specifically, if you could give us any sense of what the mix of that increase is relative to the sales staff portion of the market. Thanks.

So, Alex, I won't give you specifics around the plan. What I'll do is give you some general understanding, and that is that we would expect headcount to grow largely in line with what we're trying to do from a top-line perspective. That's, I think, as you heard Mark and me both comment in prepared remarks. You know, from a go-to-market capacity standpoint, demand generation, product development standpoint, because we're seeing very healthy ARR growth, whether you look at it on a total basis or a net new basis, We're seeing the kind of productivity that we want to see and therefore comfortable making the investments in team size. The reality is that across all the teams, it's balanced. You know, we're maintaining an investment philosophy that says we want to invest behind on the product development side, behind the SaaS momentum, and as well the total market momentum on the go-to-market teams in terms of all the product portfolio. So that's really what we're doing. Nothing out of line there, nothing differential. It's a continuation largely of what we did in 21 would be the way to think about it.

Ken, if I could, I just wanted to clarify. So you're saying revenue or are you saying the rate of growth that you were anticipating as if you hadn't done a transition, i.e. the subscription underlying growth rate?

Yeah, so Alex, we look at it a couple of different ways is the answer. But substantively, what we're looking at in terms of the growth in the business is what's the target for bookings growth? What's the target for ARR growth? And do we have the capacity available to us to achieve those growth targets? And we ended the year in a very healthy place. And we've got a set of objectives for 2022. to continue to grow the field team and the engineering team to support those growth objectives. Great. Thank you.

You bet.

Our next question comes from the line of Rudy Kessinger with DA Davidson. Please proceed with your question.

Hey, guys. Thanks for taking my questions. Last quarter, you said license revenue was about 60% turned 40% perpetual. I'm just curious if you could give That's the final point of what it was in Q4. I'm just curious how much perpetual it was.

Perpetual, I don't have that number right handy. It came down modestly over Q3 was the answer. On a percentage basis or a nominal dollar basis? On a percentage basis. Yeah, sorry. Yeah, my apologies. On a percentage basis. Obviously, dollar-wise, everything grew in the quarter. But on a percentage basis, it came down – It came down modestly over the prior quarter. Got it.

That is helpful. In 2022, the midpoint in your guide implies 18% top line growth at the midpoint. If we go back about a year ago at your analyst day, you said you expected the model transition to be about 10 to 11 point headwind in 2022. I know it was 14% in Q4. Do you still expect that kind of headwind to top line growth in 2022?

Yeah, I think the way to think about it is we had a mid-teens headwind adjusted growth effect in 21, and we would expect roughly that sort of effect in 22. It will moderate a few percentage points in 22 over 21, but not significantly. If you think of it a little bit above the mid-teens, a little bit below the mid-teens, that's the range in the way we've thought about our business planning. It is, as we've said in the the prepared remarks the last meaningful year of headwind effect you know we're going to drop into single digits as we go into next year i got it that's it for me thanks guys congrats from the quarter thank you our next question comes from the line of fatima bulani with city please proceed with your questions oh thank you for taking my questions i appreciate it um

I just wanted to ask you a question with respect to phase one of the model transition, which is now complete. So just to be 100% clear, the perpetual form factor is entirely out of your price books. It will no longer be sold. And I'm curious about the term and the process with the term licensing format, especially as you reinforce and double down on the SAS selling. Would love some of your clarification and opinion there and have a follow up for Cam if I may.

Hi, gentlemen. Is your line on mute? Hello, operator. I can repeat the question. I'm not sure if the line is on mute. They're not disconnected. I do apologize for the... Very strange. Kim, are you there? Again, I do apologize, everyone.

The line is still connected. I'm just not hearing anything.

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Ladies and gentlemen, again, we do apologize for the inconvenience. We have reached the end of the question and answer session, unfortunately, and this does conclude today's conference, and you may disconnect your lines at this time. Thank you for your participation, and again, we do apologize for the