Market Overview

SailPoint Announces Second Quarter 2018 Financial Results

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  • Q2 total revenue of $54.6 million, up 39% year-over-year
  • Subscription revenue up by 53% year-over-year

SailPoint
Technologies Holdings, Inc.
(NYSE:SAIL), the leader in enterprise identity
governance
, today announced financial results for the second quarter
ended June 30, 2018.

"We are pleased to announce our financial results for Q2 2018, which
showed strong momentum across the business with revenue increasing 39%
year-over-year and profitability on a non-GAAP basis," said Mark
McClain, SailPoint's CEO and Co-founder. "At 1,031 customers, we are
excited to have crossed the 1,000 customer milestone. Our customers
represent everything from the world's largest companies to cloud-first
mid-market enterprises."

"Organizations are struggling to keep pace with the constantly evolving
security and compliance landscape amid their digital transformation,
which is why identity governance is so critical," added McClain.
"Regardless of where an enterprise is in their digital transformation,
they need the ability to securely govern digital identities for all
users, which includes both humans and non-human bots, all applications
and all data, whether on premises or in the cloud. SailPoint is at the
forefront of developing innovative ways of providing comprehensive
identity governance to ensure companies can securely and confidently
enable their workforce."

Financial Highlights for Second Quarter 2018:

  • Revenue: Total revenue was $54.6 million, a 39% increase over
    Q2 2017. License revenue was $19.1 million, a 43% increase over Q2
    2017. Subscription revenue was $25.0 million, a 53% increase over Q2
    2017. Services and other revenue was $10.4 million, an 8% increase
    over Q2 2017.
  • Operating (Loss) Income: Loss from operations was $(1.8)
    million, compared to loss from operations of $(1.2) million in Q2 2017.
    Non-GAAP income from operations was $4.6 million, compared to $1.2
    million in Q2 2017.
  • Net (Loss) Income: Net loss was $(5.6) million, compared to
    $(4.3) million in Q2 2017. Net loss available to common
    shareholders per basic and diluted share was $(0.07), compared to
    $(0.22) in Q2 2017. Non-GAAP net income was $2.5 million, compared to
    non-GAAP net loss of $(1.7) million in Q2 2017. Non-GAAP net
    income per diluted share was $0.03, compared to non-GAAP net loss per
    basic and diluted share of $(0.02) in Q2 2017.
  • Adjusted EBITDA: Adjusted EBITDA was $4.4 million, compared to
    $1.9 million in Q2 2017.
  • Balance Sheet and Cash Flow: As of June 30, 2018, cash and cash
    equivalents were $81.8 million. During the second quarter of 2018, the
    Company repaid $60.0 million of borrowings outstanding under its term
    loan facility to reduce the aggregate outstanding principal amount
    thereof to $10.0 million. During the three months ended June 30, 2018,
    the Company generated $11.3 million in cash from operations compared
    with $(0.9) million of cash used in operations from the prior year
    period. For the six months ended June 30, 2018, the Company generated
    $26.6 million in cash from operations, compared to $6.0 million of
    cash from operations in the prior year period.

The tables at the end of this press release include reconciliation of
non-GAAP net income (loss) to GAAP net loss, non-GAAP income from
operations to GAAP loss from operations, non-GAAP to GAAP weighted
average shares outstanding and adjusted EBITDA to GAAP net loss for the
three months and six months ended June 30, 2018 and 2017. An explanation
of these measures is also included below under the heading "Non-GAAP
Financial Measures."

Financial Outlook:

For the third quarter of 2018, SailPoint expects:

  • Revenue in the range of $54.5 million to $55.5 million
  • Non-GAAP (loss) income from operations in the range of $(1.0) million
    to breakeven
  • Non-GAAP net loss per basic and diluted common share in the range of
    $(0.02) to $(0.01), based on estimated cash income tax payments of
    $0.6 million and 88 million basic and diluted common shares
    outstanding. Expectations of non-GAAP loss from operations and
    non-GAAP net loss per basic and diluted common share exclude
    stock-based compensation expense and amortization of acquired
    intangibles.

For the full year 2018, SailPoint now expects:

  • Revenue in the range of $233.0 million to $236.0 million
  • Non-GAAP income from operations in the range of $17.0 million to $19.0
    million
  • Non-GAAP net income per diluted common share in the range of $0.12 to
    $0.14, based on estimated cash income tax payments of $2.0 million and
    93 million diluted common shares outstanding. Expectations of non-GAAP
    income from operations and non-GAAP net income per diluted common
    share exclude stock-based compensation expense and amortization of
    acquired intangibles.

These statements regarding SailPoint's expectations of its financial
outlook are forward-looking and actual results may differ materially.
Refer to "Forward-Looking Statements" below for information on the
factors that could cause its actual results to differ materially from
these forward-looking statements.

All of SailPoint's forward-looking non-GAAP financial measures exclude
estimates for stock-based compensation expense. SailPoint has not
reconciled its expectations as to non-GAAP income from operations and
non-GAAP net income (loss) per basic and diluted common shares to their
most directly comparable GAAP measure due to the high variability and
difficulty in making accurate forecasts and projections, particularly
with respect to stock-based compensation expense. Stock-based
compensation expense is affected by future hiring, turnover, and
retention needs, as well as the future fair market value of our common
stock, all of which are difficult to predict and subject to change. The
actual amount of the excluded stock-based compensation expense will have
a significant impact on SailPoint's GAAP loss from operations and GAAP
net loss per basic and diluted common share. Accordingly,
reconciliations of our forward-looking non-GAAP income (loss) from
operations and non-GAAP net income (loss) per basic and diluted common
shares are not available without unreasonable effort.

Conference Call and Webcast:

SailPoint will host a conference call today, August 8, 2018, at 5:00
p.m. Eastern Time to discuss its second quarter 2018 financial results.
The dial-in number will be 877-407-0792 or 201-689-8263. A live webcast
of the conference call will be available on SailPoint's website at https://investors.sailpoint.com.

Following the conference call, a replay will be available until midnight
on August 22, 2018. The replay dial-in number will be 844-512-2921 or
412-317-6671, using the replay pin number: 13681147. An archived webcast
of the call will also be available at https://investors.sailpoint.com.

Non-GAAP Financial Measures:

In addition to SailPoint's financial information presented in accordance
with generally accepted accounting principles in the United States
("GAAP"), SailPoint uses certain non-GAAP financial measures to clarify
and enhance SailPoint's understanding of past performance and future
prospects. Generally, a non-GAAP financial measure is a numerical
measure of a company's operating performance, financial position or cash
flow that includes or excludes amounts that are included or excluded
from the most directly comparable measure calculated and presented in
accordance with GAAP. SailPoint monitors the non-GAAP financial measures
described below, and SailPoint's management believes they are helpful to
investors because they provide an additional tool to use in evaluating
SailPoint's financial and business trends and operating results. In
addition, SailPoint's management uses these non-GAAP measures to compare
SailPoint's performance to that of prior periods for trend analysis and
for budgeting and planning purposes. In particular, SailPoint believes
that non-GAAP income (loss) from operations, non-GAAP net income (loss),
non-GAAP net income (loss) available to common shareholders per basic
share and per diluted share, and adjusted EBITDA, are important measures
for evaluating SailPoint's performance because they facilitate
comparisons of SailPoint's core operating results from period to period
by removing, where applicable, the impact of SailPoint's capital
structure (net interest income or expense from SailPoint's outstanding
debt, as well as amortization of debt issuance costs and expenses
related to call protection on early payment of debt), asset base
(depreciation and amortization), income taxes, purchase accounting
adjustments, acquisition and sponsor related costs and stock-based
compensation.

SailPoint's non-GAAP financial measures may not provide information that
is directly comparable to that provided by other companies in our
industry because they may calculate non-GAAP financial results
differently than we do. In addition, there are limitations in using
non-GAAP financial measures because they are not prepared in accordance
with GAAP and exclude expenses that may have a material impact on our
reported financial results. The presentation of non-GAAP financial
information is not meant to be considered in isolation or as a
substitute for the directly comparable financial measures prepared in
accordance with GAAP. SailPoint urges you to review the reconciliations
of our non-GAAP financial measures to the comparable GAAP financial
measures included below, and not to rely on any single financial measure
to evaluate its business.

Non-GAAP income (loss) from operations. SailPoint believes
that the use of non-GAAP income (loss) from operations is helpful to our
investors to clarify and enhance their understanding of past performance
and future prospects. Non-GAAP income (loss) from operations is
calculated as loss from operations on a GAAP basis excluding (i)
stock-based compensation expense and (ii) amortization of acquired
intangibles.

Non-GAAP net income (loss) and non-GAAP net income (loss)
available to common shareholders per basic and diluted share
.
SailPoint believes that the use of non-GAAP net income (loss) and
non-GAAP net income (loss) available to common shareholders per basic
and diluted share is helpful to our investors to clarify and enhance
their understanding of past performance and future prospects. Non-GAAP
net income (loss) is calculated as net income (loss) (a) excluding (i)
stock-based compensation expense, (ii) amortization of acquired
intangibles, (iii) amortization of debt issuance costs, and (iv) income
tax expense (benefit) and (b) including cash income taxes paid.
SailPoint defines non-GAAP net income (loss) available to common
shareholders per basic and diluted share as non-GAAP net income (loss)
divided by the non-GAAP weighted average outstanding common shares,
which is calculated as if the conversion of our preferred stock,
including related accumulated and unpaid dividend, occurred at the
beginning of each respective period.

Adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial
measure that SailPoint calculates as net loss adjusted to exclude income
taxes, net interest expense, depreciation and amortization, purchase
accounting adjustments, acquisition and sponsor related costs and
stock-based compensation expense.

The accompanying tables have more details on the reconciliations of
non-GAAP financial measures to their nearest comparable GAAP measures.

Forward-Looking Statements:

This press release and statements made during the above referenced
conference call may contain "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995,
including regarding the Company's growth rate and its expectations
regarding future revenue, operating income or loss or earnings or loss
per share. In some cases, you can identify forward-looking statements
because they contain words such as "may," "will," "will be," "will
likely result," "should," "expects," "plans," "anticipates," "could,"
"would," "foresees," "intends," "target," "projects," "contemplates,"
"believes," "estimates," "predicts," "potential" or "continue" or the
negative of these words or other similar terms or expressions that
concern our expectations, strategy, plans or intentions. These
statements are not guarantees of future performance, but are based on
management's current expectations, assumptions and beliefs concerning
future developments and their potential effect on us, which are
inherently subject to uncertainties, risks and changes in circumstances
that are difficult to predict. Our expectations expressed or implied in
these forward-looking statements may not turn out to be correct. Our
results could be materially different from our expectations because of
various risks.

Important factors, some of which are beyond our control, that could
cause actual results to differ materially from our historical results or
those expressed or implied by these forward-looking statements include
the following: our ability to attract and retain customers and our
ability to deepen our relationships with existing customers; our
expectations regarding our customer growth rate; our ability to maintain
successful relationships with our channel partners and further develop
strategic relationships; our ability to develop or acquire new
solutions, improve our platform and solutions and increase the value of
and benefits associated with our platform and solutions; our ability to
compete successfully against current and future competitors; our plans
to further invest in and grow our business, and our ability to
effectively manage our growth and associated investments; our ability to
adapt and respond to rapidly changing technology, evolving industry
standards, changing regulations and changing customer needs; our ability
to maintain and enhance our brand or reputation as an industry leader
and innovator; our ability to hire, retain, train and motivate our
senior management team and key employees; our ability to successfully
enter new markets and manage our international expansion; adverse
economic conditions in the United States, Europe or the global economy;
significant changes in the contracting or fiscal policies of the public
sector; actual or perceived failures by us to comply with privacy policy
or legal or regulatory requirements; our ability to maintain third-party
licensed software in or with our solutions; and our ability to raise
additional capital or generate cash flows necessary to expand our
operations and invest in new technologies. These and other important
risk factors are described more fully in our reports and other documents
filed with the Securities and Exchange Commission ("the SEC") including
(i) under "Part I, Item 1A. Risk Factors" in our Annual Report on Form
10-K for the year ended December 31, 2017, which was filed with the SEC
on March 19, 2018, and (ii) under "Part II, Item 1A. Risk Factors" in
our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018,
which was filed with the SEC on May 9, 2018, and (iii) under "Part II,
Item 1A. Risk Factors" in our Quarterly Report on Form 10-Q for the
quarter ended June 30, 2018, which is expected to be filed shortly after
the release of this press release on August 7, 2018, and could cause
actual results to vary from expectations.

Any forward-looking statement speaks only as of the date as of which
such statement is made, and, except as required by law, we undertake no
obligation to update or revise publicly any forward-looking statements,
whether because of new information, future events, or otherwise.

About SailPoint

SailPoint, the leader in enterprise identity governance, brings the
Power of Identity to customers around the world. SailPoint's open
identity platform gives organizations the power to enter new markets,
scale their workforces, embrace new technologies, innovate faster and
compete on a global basis. As both an industry pioneer and market leader
in identity governance, SailPoint delivers security, operational
efficiency and compliance to enterprises with complex IT environments.
SailPoint's customers are among the world's largest companies in a wide
range of industries, including: 7 of the top 15 banks, 4 of the top 6
healthcare insurance and managed care providers, 9 of the top 15
property and casualty insurance providers, 5 of the top 15
pharmaceutical companies, and 11 of the largest 15 federal agencies.

More information on SailPoint is available at: www.sailpoint.com.

       

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 
Three months ended Six months ended
June 30, 2018   June 30, 2017 June 30, 2018   June 30, 2017
(In thousands, except share and per share data)
(Unaudited)
Revenue
Licenses $ 19,128 $ 13,341 $ 36,115 $ 25,577
Subscription 25,051 16,324 48,056 31,276
Services and other   10,381   9,595   20,103   17,873
Total revenue 54,560 39,260 104,274 74,726
Cost of revenue
Licenses (1) 1,260 1,110 2,398 2,197
Subscription (1)(2) 4,919 3,938 9,577 7,513
Services and other (2)   7,197   5,647   14,171   11,120

Total cost of revenue

  13,376   10,695   26,146   20,830
Gross profit 41,184 28,565 78,128 53,896
Operating expenses
Research and development (1)(2) 10,115 7,966 19,877 14,893
General and administrative (1)(2) 7,743 3,442 15,400 6,474
Sales and marketing (1)(2)   25,163   18,340   48,978   33,513
Total operating expenses   43,021   29,748   84,255   54,880
Loss from operations (1,837 ) (1,183 ) (6,127 ) (984)
Other expense, net:
Interest expense, net (2,800 ) (2,696 ) (3,978 ) (5,353)
Other, net   (569 )   (30 )   (716 )   (94)
Total other expense, net   (3,369 )   (2,726 )   (4,694 )   (5,447)
Loss before income taxes (5,206 ) (3,909 ) (10,821 ) (6,431)
Income tax expense   (441 )   (395 )   (793 )   (156)
Net loss $ (5,647 ) $ (4,304 ) $ (11,614 ) $ (6,587)
Net loss available to common shareholders (3) $ (5,647 ) $ (10,724 ) $ (11,614 ) $ (19,177)
Net loss per common share
Basic and diluted $ (0.07 ) $ (0.22 ) $ (0.14 ) $ (0.40)
Weighted average shares outstanding
Basic and diluted   86,246,056   47,930,190   85,984,103   47,567,048
 
 

(1) Includes amortization of acquired intangibles as follows:

      Three months ended   Six months ended
June 30, 2018   June 30, 2017 June 30, 2018   June 30, 2017
(In thousands)
Cost of revenue – license $ 1,008 $ 1,008 $ 2,016 $ 2,016
Cost of revenue – subscription 96 96 192 192
Research and development 34 81 68 81
Sales and marketing   1,068   1,022   2,136   2,139
Total amortization of acquired intangibles $ 2,206 $ 2,207 $ 4,412 $ 4,428
 
 

(2) Includes stock-based compensation expense and related employer
payroll tax expense as follows:

  Three months ended   Six months ended
June 30, 2018   June 30, 2017 June 30, 2018   June 30, 2017
(In thousands)
Cost of revenue – subscription $ 255 $ 9 $ 376 $ 18
Cost of revenue – services and other 354 20 729 38
Research and development 652 35 1,293 65
General and administrative 1,706 45 4,046 75
Sales and marketing   1,215   76   2,877   147
Total stock-based compensation expense $ 4,182 $ 185 $ 9,321 $ 343
 
 

(3) Net loss available to common shareholders is calculated by
subtracting the accretion of undeclared and unpaid dividends on
redeemable convertible preferred stock from net loss.

     

CONDENSED CONSOLIDATED BALANCE SHEETS

 
As of
June 30, 2018   December 31, 2017
(In thousands, except share data)
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 81,809 $ 116,049
Restricted cash 120 78
Accounts receivable 55,196 72,907
Prepayments and other current assets   9,784     10,013  
Total current assets 146,909 199,047
Property and equipment, net 3,595 3,018
Deferred tax asset - non-current 264 264
Other non-current assets 3,328 3,542
Goodwill 219,377 219,377
Intangible assets, net   76,773     81,185  
Total assets $ 450,246   $ 506,433  
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 2,894 $ 2,231
Accrued expenses and other liabilities 14,106 22,636
Income taxes payable 1,423 1,688
Deferred revenue   81,322     73,671  
Total current liabilities 99,745 100,226
Long-term debt 9,640 68,329
Other long-term liabilities 51 27
Deferred revenue non-current   13,817     9,454  
Total liabilities 123,253 178,036
Commitments and contingencies
Stockholders' equity
Common stock, $0.0001 par value 9 8
Preferred stock, $0.0001 par value
Additional paid-in capital 363,818 353,609
Accumulated deficit   (36,834 )   (25,220 )
Total stockholders' equity   326,993     328,397  
Total liabilities and stockholders' equity $ 450,246   $ 506,433  
 
     

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
Six months ended
June 30, 2018   June 30, 2017
(In thousands)
(Unaudited)
Operating activities
Net loss $ (11,614 ) $ (6,587 )
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization expense 5,278 4,978
Amortization of loan origination fees 191 307
Loss on modification and partial extinguishment of debt 1,536 -
Gain on disposal of fixed assets (48 ) (5 )
Stock-based compensation expense 9,255 343
Changes in operating assets and liabilities:
Accounts receivable 17,711 1,283
Prepayments and other current assets 229 1,743
Other non-current assets 214 (1,570 )
Accounts payable 663 835
Accrued expenses and other liabilities (8,557 ) (2,731 )
Income taxes payable (264 ) (229 )
Deferred revenue   12,013     7,662  
Net cash provided by operating activities   26,607     6,029  
Investing activities
Purchase of property and equipment (1,405 ) (1,263 )
Proceeds from sale of property and equipment   8     109  
Net cash used in investing activities   (1,397 )   (1,154 )
Financing activities
Repayment of debt (60,000 ) -
Prepayment penalty and fees (300 ) -
Proceeds from borrowing - 50,000
Dividend payments - (50,387 )
Debt issuance costs - (1,494 )
Repurchase of equity shares (1 ) (442 )
Exercise of stock options   893     136  
Net cash used in financing activities   (59,408 )   (2,187 )
(Decrease) increase in cash (34,198 ) 2,688
Cash, cash equivalents and restricted cash, beginning of period   116,127     18,272  
Cash, cash equivalents and restricted cash, end of period $ 81,929   $ 20,960  
 
       

RECONCILIATION OF NON-GAAP INCOME FROM OPERATIONS

 
Three months ended Six months ended
June 30, 2018   June 30, 2017 June 30, 2018   June 30, 2017
(In thousands)
Loss from operations $ (1,836 ) $ (1,183 ) $ (6,126 ) $ (984 )
Add back:
Stock-based compensation expense (1) 4,182 185 9,321 343
Amortization of acquired intangibles   2,206     2,207     4,412     4,428  
Non-GAAP income from operations $ 4,552   $ 1,209   $ 7,607   $ 3,787  

(1) Stock-based compensation expense includes related employer payroll
tax expense.

 

RECONCILIATION OF NON-GAAP NET INCOME (LOSS)

       
Three months ended Six months ended
June 30, 2018   June 30, 2017 June 30, 2018   June 30, 2017
(In thousands)
Net loss on a GAAP basis $ (5,647 ) $ (4,304 ) $ (11,614 ) $ (6,587 )
Add back:
Stock-based compensation expense (1) 4,182 185 9,321 343
Amortization of acquired intangibles 2,206 2,207 4,412 4,428

Amortization of debt issuance costs (2)

1,619 155 1,727 307
Expense related to call protection on early payment of debt 300 300
GAAP income tax expense 441 395 793 156
Less:
Cash income taxes paid   629     301     723     374  
Non-GAAP net income (loss)   2,471   $ (1,663 )   3,916   $ (1,727 )
Non-GAAP net income (loss) per common share
Basic $ 0.03   $ (0.02 ) $ 0.05   $ (0.02 )
Diluted $ 0.03   $ (0.02 ) $ 0.04   $ (0.02 )
Non-GAAP weighted average number of common shares outstanding
Basic 86,246,056 66,677,462 85,984,103 69,991,396
Diluted 89,872,726 66,677,462 89,473,365 69,991,396
 

(1) Stock-based compensation expense includes employer related payroll
tax expense.

(2) Includes $1.5 million of loss on the modification and partial
extinguishment of debt for the three and six months ended June 30, 2018

       

RECONCILIATION OF NON-GAAP WEIGHTED-AVERAGE OUTSTANDING COMMON
SHARES

 
Three months ended Six months ended
June 30, 2018   June 30, 2017 June 30, 2018   June 30, 2017
Weighted average shares used to compute net loss per share available
to common shareholders, basic and diluted, on a GAAP basis
86,246,056 47,930,190 85,984,103 47,567,048
Add back:
Additional weighted average shares giving effect to conversion of
preferred stock at the beginning of the period
- 18,747,272 - 22,424,348
Non-GAAP weighted average outstanding common shares
Basic 86,246,056 66,677,462 85,984,103 69,991,396
Effect of potentially dilutive securities 3,626,670 - 3,489,262 -
Diluted 89,872,726 66,677,462 89,473,365 69,991,396
       

RECONCILIATION OF ADJUSTED EBITDA

 
Three months ended Six months ended
June 30, 2018   June 30, 2017 June 30, 2018   June 30, 2017
(In thousands)
Net loss $ (5,647 ) $ (4,304 ) $ (11,614 ) $ (6,587 )
Stock-based compensation (1) 4,182 185 9,321 343
Amortization of acquired intangibles 2,206 2,207 4,412 4,428
Depreciation 445 295 866 550
Purchase price accounting adjustment (2) 19 55 32 110
Acquisition and sponsor related costs - 328 - 656
Interest expense (3) 2,800 2,696 3,978 5,353
Income tax expense   441     395     793     156  
Adjusted EBITDA $ 4,446   $ 1,857   $ 7,788   $ 5,009  

(1) Stock-based compensation expense includes employer related payroll
tax expense.

(2) Purchase accounting adjustment related to the fair value write down
of deferred revenue from the acquisition of SailPoint Technologies, Inc.
on September 8, 2014.

(3) Includes $1.5 million of loss on the modification and partial
extinguishment of debt for the three and six months ended June 30, 2018.

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