UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO |
Commission File Number 001-38297
(Exact name of Registrant as specified in its Charter)
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Delaware |
47-1628077 |
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
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11305 Four Points Drive, Building 2, Suite 100, Austin, TX 78726 |
78726 |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (512) 346-2000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The registrant had
SailPoint Technologies Holdings, Inc.
Table of Contents
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PART I. FINANCIAL INFORMATION |
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Item 1. |
1 |
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Unaudited Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II. OTHER INFORMATION |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 5. |
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Item 6. |
31 |
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32 |
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i
PART I
ITEM 1. Financial Statements
Sailpoint technologies Holding, Inc. and subsidiaries
Condensed Consolidated Balance sheets
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As of |
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September 30, 2018 |
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December 31, 2017 |
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(In thousands, except share and per share data) |
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(Unaudited) |
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Assets |
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Current assets |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Accounts receivable |
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Prepayments and other current assets |
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Total current assets |
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Property and equipment, net |
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Deferred tax asset - non-current |
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Other non-current assets |
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Goodwill |
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Intangible assets, net |
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Total assets |
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$ |
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$ |
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Liabilities and stockholders’ equity |
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Current liabilities |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other liabilities |
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Income taxes payable |
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Deferred revenue |
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Current portion of long-term debt |
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— |
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Total current liabilities |
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Long-term debt |
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— |
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Other long-term liabilities |
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Deferred revenue non-current |
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Total liabilities |
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Commitments and contingencies (Note 4) |
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Stockholders’ equity |
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Common stock, $0.0001 par value, authorized 300,000,000 shares, issued and outstanding 87,004,975 shares at September 30, 2018 and 84,948,126 shares at December 31, 2017 |
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Preferred stock, $0.0001 par value, authorized 10,000,000 shares, no shares issued and outstanding at September 30, 2018 and December 31, 2017 |
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Additional paid in capital |
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Accumulated deficit |
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( |
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( |
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Total stockholders' equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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See accompanying notes to unaudited condensed consolidated financial statements.
1
Sailpoint technologies Holding, Inc. and subsidiaries
Condensed Consolidated STATEMENTS OF OPERATIONS
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Three months ended |
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Nine months ended |
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September 30, 2018 |
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September 30, 2017 |
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September 30, 2018 |
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September 30, 2017 |
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(In thousands, except share and per share data) |
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(Unaudited) |
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Revenue |
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Licenses |
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$ |
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$ |
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$ |
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$ |
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Subscription |
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Services and other |
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Total revenue |
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Cost of revenue |
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Licenses |
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Subscription |
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Services and other |
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Total cost of revenue |
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Gross profit |
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Operating expenses |
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Research and development |
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General and administrative |
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Sales and marketing |
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Total operating expenses |
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Income (loss) from operations |
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( |
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( |
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Other expense, net: |
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Interest expense, net |
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( |
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( |
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( |
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( |
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Other, net |
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( |
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( |
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( |
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( |
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Total other expense, net |
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( |
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( |
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( |
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( |
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Income (loss) before income taxes |
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( |
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( |
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( |
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Income tax expense |
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( |
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( |
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( |
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( |
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Net income (loss) |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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Net income (loss) available to common shareholders |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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Net income (loss) per share |
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Basic |
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$ |
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$ |
( |
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$ |
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$ |
( |
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Diluted |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted average shares outstanding |
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Basic |
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Diluted |
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See accompanying notes to unaudited condensed consolidated financial statements.
2
Sailpoint technologies Holding, Inc. and subsidiaries
Condensed Consolidated STATEMENTS OF CASH FLOWS
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Nine months ended |
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September 30, 2018 |
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September 30, 2017 |
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(In thousands) |
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(Unaudited) |
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Operating activities |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash provided by operating activities: |
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Depreciation and amortization expense |
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Amortization of loan origination fees |
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Loss on modification and partial extinguishment of debt |
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— |
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(Gain) loss on disposal of fixed assets |
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( |
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Bad debt |
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Stock-based compensation expense |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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( |
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Prepayments and other current assets |
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( |
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Other non-current assets |
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( |
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Accounts payable |
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Accrued expenses and other liabilities |
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( |
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Income taxes payable |
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Deferred revenue |
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Net cash provided by operating activities |
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Investing activities |
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Purchase of property and equipment |
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( |
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Proceeds from sale of property and equipment |
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Net cash used in investing activities |
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( |
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( |
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Financing activities |
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Repayment of debt |
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( |
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— |
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Prepayment penalty and fees |
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( |
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— |
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Proceeds from borrowing |
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— |
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Dividend payments |
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— |
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( |
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Debt issuance costs |
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— |
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( |
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Repurchase of equity shares |
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( |
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( |
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Exercise of stock options |
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Net cash used in financing activities |
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( |
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( |
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(Decrease) increase in cash |
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( |
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Cash, cash equivalents and restricted cash, beginning of period |
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Cash, cash equivalents and restricted cash, end of period |
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$ |
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$ |
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Supplemental cash disclosures: |
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Cash paid for interest |
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$ |
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$ |
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Cash paid for income taxes |
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$ |
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$ |
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Supplemental non-cash disclosures: |
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Tenant improvement allowance |
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$ |
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$ |
- |
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Conversion of prepaid incentive units to common stock (Note 7) |
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$ |
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$ |
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See accompanying notes to unaudited condensed consolidated financial statements.
3
Sailpoint technologies Holding, Inc. and subsidiaries
NOTES TO UNAUDITED Condensed Consolidated FINANCIAL STATEMENTS
1. Organization and Description of Business
SailPoint Technologies Holdings, Inc. (“we,” “our,” “the Company” or “SailPoint”) was incorporated in the state of
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with Article 10 of Regulation S-X, “Interim Financial Statements” and the rules and regulations for Form 10-Q of the Securities and Exchange Commission (the “SEC”). Pursuant to those rules and regulations, the Company has condensed or omitted certain information and footnote disclosure it normally includes in its annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the balance sheet, statements of operations and the statements of cash flows for the interim periods but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2018 or any future period. Our unaudited consolidated financial statements have been prepared in a manner consistent with the accounting principles described in our Company’s Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on March 19, 2018 (the “Annual Report”). These financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s Annual Report. All intercompany accounts and transactions have been eliminated in consolidation.
Cash, Cash Equivalents and Restricted Cash
We consider all highly liquid investments with an original maturity of three months or less from date of purchase to be cash equivalents. The Company is required to maintain a small amount of restricted cash to guarantee rent payments in a foreign subsidiary.
Segment Information and Concentration of Credit and Other Risks
Segment Information
The Company operates as
ASC 280, Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company manages its business on the basis of one reportable segment, and derives revenues from licensing of software, sale of professional services, maintenance and technical support.
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Three months ended |
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Nine months ended |
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September 30, 2018 |
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September 30, 2017 |
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September 30, 2018 |
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September 30, 2017 |
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(In thousands) |
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United States |
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$ |
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$ |
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$ |
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$ |
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EMEA (1) |
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Rest of the World (1) |
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Total revenue |
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$ |
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$ |
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$ |
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$ |
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(1) |
No single country represented more than 10% of our consolidated revenue. |
4
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and accounts receivable. The Company maintains its cash in bank deposit accounts that, at times, may exceed federally insured limits. There is no concentration of credit risk for customers as no individual entity represented more than 10% of the balance in accounts receivable as of September 30, 2018 and December 31, 2017 or 10% of revenue for three and nine months ended September 30, 2018 and 2017. The Company does not experience concentration of credit risk in foreign countries as no foreign country represents more than 10% of the Company’s condensed consolidated revenues or net assets.
Significant Accounting Policies
There have been no significant changes to the Company’s significant accounting policies, which are discussed in Note 2 of “Notes to Consolidated Financial Statements” in the Annual Report.
Reclassification
Reclassifications have been made to the prior-period financial statements to conform to the current period presentation
Recently Issued Accounting Standards Not Yet Adopted
Under the Jumpstart Our Business Startups Act (the “JOBS Act”), emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to take advantage of the longer phase-in periods for the adoption of new or revised financial accounting standards under the JOBS Act until we are no longer an emerging growth company.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance, and creates guidance for when revenue should be recognized from the exchange of goods or services. ASU No. 2016-08 was issued in March 2016 to clarify the principal versus agent guidance in this new revenue recognition standard. ASU 2016-10 was issued in April 2016 to clarify the guidance on accounting for licenses of intellectual property and identifying performance obligations in the new revenue recognition standard. ASU 2016-12 was issued in May 2016 to clarify the guidance on transition, collectability, noncash consideration and the presentation of sales and other similar taxes in the new revenue recognition standard. ASU 2016-20 was issued in December 2016 to make technical corrections and improvements on narrow aspects of this guidance. ASU No. 2015-14 was issued in August 2015 to defer the effective date of ASU 2014-09 for one year. The new standard permits adoption either by using (i) a full retrospective approach for all periods presented in the period of adoption or (ii) a modified retrospective approach with the cumulative effect of initially applying the new standard recognized at the date of initial application and providing certain additional disclosures. For public companies, the new standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. For all other entities, including emerging growth companies, this standard is effective for annual reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company will adopt this standard for the annual reporting period beginning after December 15, 2017 as the company will be designated a large accelerated filer on December 31, 2018, at which time the Company will no longer be an emerging growth company.
The Company will adopt the standard under the modified retrospective method. This determination was made upon a number of factors including the significance of the impact of the new standard on the Company’s financial results, system readiness, including that of software procured from third-party providers, and the Company’s ability to accumulate and analyze the information necessary to assess the impact on prior period financial statements, as necessary, as well as earlier than expected loss of emerging growth company status. The Company will continue to evaluate and analyze all other aspects of ASC 606 that may be impactful through the adoption date.
The Company anticipates to elect use of the following practical expedients upon adoption of the new standard:
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To use an output method to measure progress toward completion of a performance obligation that is satisfied over time for a service contract in which it bills a fixed amount for each hour of service provided, with respect to time and material services contracts. |
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|
• |
To include analysis of significant financing components only if the time between when the company transfers promised goods or services to a customer and when the customer pays for that good or service extends beyond one year. |
5
|
|
• |
To account for shipping and handling activities performed after control of a good has been transferred to the customer as a fulfillment cost and not a performance obligation. |
|
|
• |
To immediately recognize expense for the contract acquisition costs when the asset that would have resulted from capitalizing such costs would have been amortized in one year or less. |
The core principle of the new standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods or services. The most significant impacts of the standard to the Company relate to the timing of expense recognition for customer acquisition costs for most arrangements and the timing of revenue recognition for arrangements involving term licenses. Under ASU 606, the Company is required to recognize term license revenues upon the transfer of the license and the associated maintenance revenues over the contract period, as opposed to the Company’s current practice of recognizing both the term license and maintenance revenues ratably over the contract period.
The new revenue recognition standard also requires the capitalization of certain incremental costs of obtaining a contract, which impacts the period in which we record our sales commissions expense. Currently, we recognize sales commissions expense, the primary incremental costs of obtaining a contract, as incurred for license arrangements, and over the term of the arrangement for subscription arrangements. Under the new revenue recognition standard, we will be required to recognize these expenses over the period of benefit associated with these costs. The Company has determined the expected period of benefit to be approximately five years, which will result in a deferral of sales commissions expense over this expected period of benefit.
Under the new revenue recognition standard, the Company will allocate total transaction price to performance obligations based on estimated standalone selling prices, which will impact the timing of revenue recognition depending on when each performance obligation is completed. We anticipate the timing of recognition will impact deferred revenue balance due to the timing of revenue recognition.
The Company will adopt the new revenue standard for the annual reporting period ending December 31, 2018, using the modified retrospective transition method. The Company is continuing to finalize the impact of adopting the new revenue standard on its condensed consolidated financial statements and related disclosures, changes to its accounting policies and practices and controls to support the new revenue recognition standard. The Company has developed a project plan for this transition and is progressing as planned. The Company expects to implement the plan and report in accordance with ASC 606 for the annual reporting period for the year ended December 31, 2018.
In February 2016, the FASB issued ASU No. 2016-02 and subsequent updates thereafter in ASU 2017-13, ASU 2018-10 and ASU 2018-11, Leases (collectively, Topic 842). This standard requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The standard also expands the required quantitative and qualitative disclosures surrounding leases. For public companies, the new standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. For all other entities, this standard is effective for annual reporting periods beginning after December 15, 2019. Early adoption is permitted. The Company does not plan to early adopt and plans to adopt for the annual period beginning after December 15, 2018.
This standard will be applied using a modified retrospective transition approach with certain practical expedients available for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company currently expects that most of existing operating lease commitments will be subject to the new standard and will be recognized as operating lease liabilities and right-of-use (“ROU”) assets upon our adoption of Topic 842. The Company anticipates this standard will have a material impact on the consolidated balance sheets and will result in the recognition of ROU assets and lease liabilities for leases currently classified as operating leases that are not reported on the balance sheet. While the Company continues to assess the qualitative and quantitative impacts of adopting this standard, the most significant anticipated impact relates to physical office space leases.
In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260). This standard addresses the complexity of accounting for certain financial instruments with down round features. This guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company does not plan to early adopt, and therefore plans to adopt for the annual period beginning after December 15, 2019.
In June 2018, the FASB issued ASU 2018-07 Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (ASU 2018-07), which simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. ASU 2018-07 is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other companies,
6
the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606, Revenue from Contracts with Customers. The Company does not plan to early adopt, and therefore plans to adopt for the annual period beginning after December 15, 2018. The Company is currently evaluating the impact of the pending adoption of ASU 2018-07 on the consolidated financial statement.
In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (ASU 2018-15), which clarifies the accounting for implementation costs in cloud computing arrangements. ASU 2018-15 is effective for public entities, for annual periods, including interim periods within those annual periods, beginning after December 15, 2019, and earlier adoption is permitted. The Company does not plan to early adopt, and therefore plans to adopt for the annual period beginning after December 15, 2019. The Company is currently evaluating the impact of the pending adoption of ASU 2018-15 on the consolidated financial statements.
Recently Adopted Accounting Standards
In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718). This standard clarifies which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. An entity is required to account for the effects of a modification unless all of the following conditions are met: (i) the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or value using an alternative measurement method) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification; (ii) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and (iii) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The new standard is effective for annual period beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The company has early adopted this standard retrospectively beginning with the reporting period ended after December 31, 2017 as the company will be designated a large accelerated filer on December 31, 2018, at which time the company will no longer be an emerging growth company. This adoption resulted in no material impact on the Company’s condensed consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This standard requires companies to account for the income tax effects of intercompany transfers of assets other than inventory when the transfer occurs. For public companies, guidance is effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. For all other entities, including emerging growth companies, this guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted. The new standard is effective for the annual period beginning after December 15, 2017 as the company will be designated a large accelerated filer on December 31, 2018, at which time the company will no longer be an emerging growth company. The company has early adopted this standard retrospectively beginning with the reporting period ended after December 31, 2017 and resulted in no material impact on the Company’s condensed consolidated financial statements.
3. Goodwill and Intangible Assets
Goodwill
Goodwill represents the excess of the purchase price over the identifiable tangible and intangible assets acquired plus liabilities assumed arising from business combinations. The carrying amount of goodwill was $
7
Intangible Assets
Total cost and accumulated amortization of intangible assets is comprised of the following:
|
|
|
|
|
As of |
|
|||||
|
|
|
Weighted Average Useful Life |
|
September 30, 2018 |
|
|
December 31, 2017 |
|
||
|
Intangible assets, net |
|
(In years) |
|
(In thousands) |
|
|||||
|
Customer lists |
|
15 |
|
$ |
|
|
|
$ |
|
|
|
Developed technology |
|
9.6 |
|
|
|
|
|
|
|
|
|
Trade names and trademarks |
|
17 |
|
|
|
|
|
|
|
|
|
Order backlog |
|
1.5 |
|
|
|
|
|
|
|
|
|
Non-competition agreements and related items |
|
4.4 |
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated amortization |
|
|
|
|
( |
) |
|
|
( |
) |
|
Total intangible assets, net |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense of intangible assets was $
|
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
|
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
||||
|
|
|
(In thousands) |
|
|||||||||||||
|
Cost of revenue – license |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Cost of revenue – subscription |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization of acquired intangibles |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periodically, the Company evaluates intangible assets for possible impairment upon a triggering event. There were
4. Commitments and Contingencies
Operating Leases
The Company leases its facilities under non-cancelable operating lease agreements. The majority of these agreements include a renewal option, and/or require the Company to pay taxes, insurance, and maintenance costs. Certain of these facility leases contain predetermined fixed escalations of the minimum rentals, and the Company recognizes expense for these leases on a straight-line basis. The difference between the recognized rental expense and amounts payable under the lease is recorded as deferred rent, which is included in accrued expenses and other liabilities on the accompanying condensed consolidated balance sheets.
Rent expense under all operating leases was approximately $
Indemnification Arrangements
In the ordinary course of business, the Company enters into contractual arrangements under which it agrees to provide indemnification of varying scope and terms to customers, business partners and other parties with respect to certain matters, including, losses arising out of the breach of such agreements, intellectual property infringement claims made by third parties, and other liabilities with respect to our products and services and business. In these circumstances, payment may be conditional on the other party making a claim pursuant to the procedures specified in a particular contract.
8
The Company includes service level commitments to its cloud customers warranting certain levels of uptime reliability and performance and permitting those customers to receive credits in the event that it fails to meet those levels. To date, the Company has not incurred any material costs as a result of these commitments and we expect the time between any potential claims and issuance of the credits to be short. As a result, the Company has not accrued any liabilities related to these commitments in our condensed consolidated financial statements.
Litigation Claims and Assessments
The Company is subject to claims and suits that may arise from time to time in the ordinary course of business. In addition, some legal actions, claims and governmental inquiries may be instituted or asserted in the future against us and our subsidiaries. Although the outcome of our legal proceedings cannot be predicted with certainty and no assurances can be provided, based upon current information, we do not believe the liabilities, if any, which may ultimately result from the outcome of such matters, individually or in the aggregate, will have a material adverse impact on our financial statements.
5. Line of Credit and Long-Term Debt
The outstanding balance of the term loan at September 30, 2018 and December 31, 2017 was $
In November 2017, the Company amended its existing credit facility in connection with the consummation of its initial public offering. Such amendment required that the Company use a portion of its net proceeds to repay $
The Company has incurred total debt issuance costs of $
On June 29, 2018, the Company voluntarily prepaid $
Amortization of debt issuance costs for the existing loan and security agreement for the nine months ended September 30, 2018 and September 30, 2017, was approximately $
6. Related Party Transactions
During the three and nine months ended September 30, 2018, the Company engaged in ordinary sales transactions of $
9
In September 2014, the Company entered into an advisory services agreement (the “Consulting Agreement”) with its controlling entity. The Consulting Agreement requires quarterly payments from September 8, 2014 through December 31, 2018 for business consulting services provided by the controlling entity to the Company. Consulting fees from the Consulting Agreement totaled $
7. Stock Option Plans and Stock-Based Compensation
2015 Stock Option Plans
In 2015, the Company adopted (i) the Amended and Restated 2015 Stock Option and Grant Plan and (ii) the 2015 Stock Incentive Plan (together the “2015 Stock Option Plans”) under which it may grant incentive stock options (“ISOs”), nonqualified stock options (“NSOs”), and restricted stock to purchase shares of common stock. The 2015 Stock Option Plans reserve
At September 30, 2018,
2017 Long Term Incentive Plan
In November 2017, the Company’s board of directors adopted the 2017 Long Term Incentive Plan (the “2017 Plan”). As of December 31, 2017, the Company had reserved
|
Employee Stock Purchase Plan |
In November 2017, the Company’s board of directors adopted the Employee Stock Purchase Plan (the "ESPP"). The ESPP became effective in November of 2017, after the date our registration statement was declared effective by the SEC. The first offering period opened July 1, 2018 and permitted eligible employees to purchase shares by authorizing payroll deductions from
The Company initially reserved
ESPP purchase rights have an expected volatility that is based on the historical volatility of the common stock of a collection of our peers in the market. The expected term represents the period of time the ESPP purchase rights are expected to be outstanding and approximates the offering period.
10
Options Activity
The following table summarizes option activity under the 2017 Plan and related information:
|
|
|
Number of Options |
|
|
Weighted Average Exercise Price (per share) |
|
|
Weighted Average Remaining Contractual Term (years) |
|
|
Aggregate Intrinsic Value |
|
||||
|
Balances at December 31, 2017 |
|
|
|
|
|
$ |
|
|
|
|
8.8 |
|
|
$ |
|
|
|
Granted |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30,2018 |
|
|
|
|
|
$ |
|
|
|
|
8.2 |
|
|
$ |
|
|
|
Options vested and expected to vest at September 30, 2018 |
|
|
|
|
$ |
|
|
|
|
8.2 |
|
|
$ |
|
|
|
|
Options vested and exercisable at September 30, 2018 |
|
|
|
|
|
$ |
|
|
|
|
7.3 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects all outstanding stock options at September 30, 2018 to fully vest. The weighted average grant date fair value per share for the period ended September 30, 2018 and 2017 was $
As of September 30, 2018, the total unrecognized compensation expense related to non-vested stock options granted is $
The fair value for the Company’s stock options granted at the date of grant and ESPP purchase rights during the period ended September 30, 2018 and 2017 was estimated using a Black Scholes option-pricing model using the following weighted average assumptions:
|
|
|
Stock Options |
|
ESPP |
||||
|
|
|
September 30, 2018 |
|
September 30, 2017 |
|
September 30, 2018 |
|
September 30, 2017 |
|
Expected dividend rate |
|
|
|
|
|
|
|
— |
|
Expected volatility |
|
40.0% - 41.1% |
|
40.9% - 49.0% |
|
|
|
— |
|
Risk-free interest rate |
|
2.63% - 2.91% |
|
1.96% - 2.14% |
|
|
|
— |
|
Expected term (in years) |
|
6.25 |
|
6.25 |
|
0.5 |
|
— |
Incentive Unit Plan
In 2014 and 2015, the Company granted shares of the Company’s common stock (the “incentive units”) to certain members of management pursuant to restricted stock agreements (the “RSAs”).
The incentive units were granted with an exercise price equal to the fair market value on the date of grant, are subject to vesting, and are subject to the Company’s right to repurchase until vested. Upon vesting, the incentive units automatically convert to unrestricted common stock. Prior to modification,
11
The Company did
Restricted Stock Units
The Company granted
Employee Stock Purchase Plan
As of September 30, 2018,
At September 30, 2018 there was approximately $
A summary of stock-based compensation expense by underlying equity instrument is as follows:
|
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
|
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
||||
|
|
|
(In thousands) |
|
|||||||||||||
|
Stock options |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Incentive units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs |
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
ESPP |
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
Total stock-based compensation expense |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense, which includes stock options, restricted stock units, incentive units and ESPP, was recognized as follows:
|
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
|
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
||||
|
|
|
(In thousands) |
|
|||||||||||||
|
Cost of revenue - subscription |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Cost of revenue - services and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
8. Income Taxes
Impacts of the U.S. 2017 Tax Cuts and Jobs Act
The U.S. 2017 Tax Cuts and Jobs Act (the “Act”), which was signed into law on December 22, 2017 and effective January 1, 2018, reduces the U.S. federal corporate tax rate from
The Act subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for GILTI, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. Given the complexity of the GILTI provisions, we are still evaluating the effects of the GILTI provisions and have not yet determined our accounting policy. As of September 30, 2018, the Company is not subject to the GILTI provisions due to Section 956 inclusions.
The provision for income taxes for 2018 and 2017 is generated from activity in certain foreign jurisdictions by our consolidated subsidiaries and certain state and local jurisdictions.
The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. During the three and nine months ended September 30, 2018 and 2017 the Company did
The effective tax rate for the three and nine months ended September 30, 2018 was
The Company files income tax returns in the U.S. federal, states, and foreign jurisdictions. The Company is
13
9. Net Income (Loss) Per Share Attributable to Common Shareholders
Basic and diluted net income (loss) per share is computed by dividing net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is calculated using our weighted-average outstanding common shares including the dilutive effect of stock awards. In periods when the Company recognizes a net loss, the Company excludes the impact of outstanding stock awards from the diluted loss per share calculation as their inclusion would have an antidilutive effect.
The following table sets forth the calculation of basic and diluted net income (loss) per share during the periods presented:
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
|
|
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
||||
|
|
|
|
(In thousands, except share data) |
|
|||||||||||||
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Deemed dividends to preferred stockholders |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Earnings allocated to unvested incentive units |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Net income (loss) attributable to common shareholders |
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common shareholders per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Diluted |
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
The following weighted average outstanding shares of common stock equivalents were excluded from the computation of the diluted net income (loss) per share attributable to common shareholders for the periods presented because their effect would have been anti-dilutive. For the period prior to our initial public offering, convertible preferred stock is not included in this computation as it was contingently convertible based upon a future event.
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
|
|
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
||||
|
Stock options to purchase common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs issued and outstanding |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Employee stock purchase plan |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Non-vested incentive units |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our Unaudited Condensed Consolidated Financial Statements and notes thereto in Part I, Item 1 of this Quarterly Report on Form 10-Q (this “Quarterly Report”) and the Annual Report, including the Consolidated Financial Statements and related notes included therein.
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. All statements of historical fact included in this Quarterly Report regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “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 forward-looking statements are based on management’s current beliefs, based on currently available information, as to the outcome and timing of future events. The forward-looking statements are contained principally in this Quarterly Report in “Management’s Discussion and Analysis of Financial Condition and Result of Operations” and “Risk Factors”.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained this Quarterly Report primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors. 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 SEC, including under “Risk Factors” in Part I, Item 1A in the Annual Report and “Risk Factors” in Part II, Item 1A in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Quarterly Report relate only to events as of the date hereof. We undertake no obligation to update any forward-looking statements made in this Quarterly Report to reflect events or circumstances after the date of this Quarterly Report or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
15
Overview
SailPoint is a leading provider of enterprise identity governance solutions. Our open identity platform provides organizations with critical visibility into who currently has access to which resources, who should have access to those resources, and how that access is being used.
We offer both on-premises software and cloud-based solutions, which empower our customers to efficiently and securely govern the digital identities of employees, contractors, business partners and other users, and manage their constantly changing access rights to enterprise applications and data across hybrid IT environments, whether comprised of on-premises, cloud or mobile applications. We help customers enable their businesses with more agile and innovative IT, enhance their security posture and better meet compliance and regulatory requirements. We believe that our open identity platform is a critical, foundational layer of a modern cyber security strategy that complements and builds upon traditional perimeter- and endpoint-centric security solutions, which on their own are increasingly insufficient to secure organizations, and their applications and data. Our customers include many of the world’s largest and most complex organizations, including commercial enterprises, educational institutions and governments.
We were founded by identity industry veterans to develop a new category of identity management solutions and address emerging identity governance challenges. Since our inception, we have focused on driving innovation in the identity market, with our key milestones including:
|
|
• |
in 2007, we pioneered identity governance through our release of IdentityIQ, our on-premises identity governance solution; |
|
|
• |
in 2010, we revolutionized provisioning by integrating it with IdentityIQ into a single solution; |
|
|
• |
in 2013, we introduced our cloud-based identity governance solution, IdentityNow; |
|
|
• |
in 2015, we extended identity governance by adding our identity governance for data stored in files solution, SecurityIQ, which manages user access to unstructured data, a rapidly growing area of risk; and |
|
|
• |
in 2017, we further extended identity governance with the introduction, on a limited release basis, of our advanced identity analytics solution, IdentityAI, which is designed to use machine learning technologies to enable rapid detection of security threats before they turn into security breaches. |
Our success is principally dependent on our ability to deliver compelling solutions to attract new customers and retain existing customers. Delivering these solutions is challenging because our customers have large, complex IT environments, often rely on both legacy and innovative technologies, and deploy different business models, including on premise and cloud solutions. Rising security threats and evolving regulations and compliance standards for cyber security, data protection, privacy and internal IT controls create new opportunities for our industry and require us to adapt our solutions to be successful. Our ability to continue to maintain our historical growth rates is also challenging because our growth strategy depends in part on our ability to expand our global presence and invest in new vertical markets, while competing against much larger companies with more recognizable brands and financial resources. Although we seek to grow rapidly, we also focus on delivering positive net cash from operations while continuing to invest in our platform and to deliver innovative solutions to our customers. Additionally, our gross margins vary depending on the type of solution we sell, and a shift in the mix of our solutions could affect our performance relative to historical results.
Our Business Model
We deliver an integrated set of solutions that supports all aspects of identity governance, including provisioning, access request, compliance controls, password management and identity governance for data stored in files. Our solutions are built on an open identity platform, which offers connectivity to a variety of security and operational IT applications, extending the reach of our identity governance processes and enabling effective identity governance controls across customer environments.
Our set of solutions currently consists of (i) IdentityIQ, our on-premises identity governance solution, (ii) IdentityNow, our cloud-based, multi-tenant governance suite, which is delivered as a subscription service, and (iii) SecurityIQ, our on-premises identity governance for files solution that secures access to data stored in file servers, collaboration portals, mailboxes and cloud storage systems, and (iv) IdentityAI, our cloud-based advanced identity analytics solution. See the section titled “Business—Products” in Part I, Item 1 of the Annual Report for more information regarding our solutions.
16
For our IdentityIQ and SecurityIQ solutions, our customers typically purchase a perpetual software license, which includes one year of maintenance. Our maintenance provides software maintenance as well as access to our technical support services during the maintenance term. After the initial maintenance period, customers with perpetual licenses may renew their maintenance agreement for an additional fee. For our cloud-based solutions, IdentityNow and IdentityAI, for a subscription fee, we offer customers access to this solution and infrastructure support for the duration of their subscription agreement. Our standard subscription agreement for our IdentityNow solution has a duration of three years.
Pricing for each of our solutions is dependent on the number of digital identities of employees, contractors, business partners and other users that the customer is entitled to govern with the solution. We also package and price our IdentityIQ and IdentityNow solutions into modules. Each module has unique functionalities, and our IdentityIQ and IdentityNow customers are able to purchase one or more modules, depending on their needs. We package and price SecurityIQ, our identity governance for files solution, by target storage systems. Thus, our revenue from any customer is generally determined by the number of identities that the customer is entitled to govern as well as the number of modules (for our IdentityIQ and IdentityNow solutions) or target storage systems (for our SecurityIQ solution) purchased by the customer.
Our go-to-market strategy consists of both direct sales and indirect sales through our partnership network of systems integrators, value-added resellers and adjacent technology vendors. We work closely with systems integrators, many of whom have dedicated SailPoint practices (including Accenture, Deloitte, KPMG and PwC), with some dating back more than seven years, and resellers (including value-added resellers such as Optiv) to identify potential sales opportunities and help us increase our reach, and we frequently cooperate with systems integrators to make joint sales proposals to address our mutual customers’ requirements. We also collaborate with leading access management vendors by adding our identity governance capabilities to their access management services (e.g., Microsoft, Okta and VMware). We do not have any material payment obligations to systems integrators, resellers or our technology partners; nor do they have any material payment obligations to us, except that resellers typically purchase solutions directly from us and resell to customers. See the section titled “Business—Partnerships and Strategic Relationships” in Part I, Item 1 of the Annual Report for more information regarding our partnership network.
In addition to our solutions, we offer professional services to our customers and partners to configure and optimize the use of our solutions as well as training services related to the configuration and operation of our platform. Most of our professional services activity is in support of our partners, who perform a significant majority of all initial and follow-on implementation work for our customers. Most of our consulting services are priced on a time and materials basis; our training services are provided through multiple pricing models, including on a per-person basis (for courses provided at our headquarters and on-site at our customers’ offices) and a flat-rate basis (for our e-learning course).
We devote significant resources to acquire new customers, in both existing and new markets, in order to grow our customer base. In addition, we focus on three distinct opportunities to increase sales to existing customers: (i) expand the number of digital identities; (ii) up-sell additional modules or target storage systems, as applicable, within a single solution; and (iii) cross-sell additional solutions.
Key Factors Affecting Our Performance
Our historical financial performance has been, and we expect our financial performance in the future to be, driven by our ability to:
|
|
• |
Add New Customers Within Existing Markets. Based on data from S&P Global Market Intelligence, we believe that we have penetrated less than 2% of the approximately 65,000 companies in the countries where we have customers today and that as a result, there is significant opportunity to expand our footprint in our existing markets through new, greenfield installations and displacement of our competitors’ legacy solutions. To do so, we plan to grow our sales organization, increase and leverage our indirect channel partners and enhance our marketing efforts. |
|
|
• |
Generate Additional Sales to Existing Customers. We believe that our existing customer base provides us with a significant opportunity to drive incremental sales. In most cases, our customers initially purchase a subset of the modules or solutions we offer based on their immediate need. We focus on generating more revenue from the modules that our customers have already purchased from us as our customers grow the number of identities our solutions manage and govern and as our customers deploy our solutions across other business units or geographies within their organizations. Over time, we also identify up-selling and cross-selling opportunities and seek to sell additional modules and solutions to our existing customers. |
17
|
|
• |
Retain Customers. We believe that our ability to retain our customers is an important component of our growth strategy and reflects the long-term value of our customer relationships. For example, when we add a new customer, we generate new license revenue. If the customer renews, we generate incremental maintenance revenue. As we add new IdentityIQ customers, our high renewal rates result in incremental maintenance revenue. Our key strategies to maintain our high renewal rates include focusing on the quality and reliability of our solutions, customer service and support to ensure our customers receive value from our solutions, providing consistent software upgrades and having dedicated customer success teams. |
|
|
• |
Expand into New Markets. We expect to continue to invest significantly in sales, marketing and customer service, as well as our indirect channel partner network, to expand into new geographies and vertical markets. We believe that our market opportunity is large and growing and that the global cyber security market represents a significant growth opportunity for us. |
Key Business Metrics
In addition to our GAAP financial information, we monitor the following key metrics to help us measure and evaluate the effectiveness of our operations:
|
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
|
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
||||
|
Number of customers |
|
|
1,090 |
|
|
|
829 |
|
|
|
1,090 |
|
|
|
829 |
|
|
Subscription revenue as a percentage of total revenue |
|
|
43 |
% |
|
|
42 |
% |
|
|
45 |
% |
|
|
42 |
% |
|
Adjusted EBITDA (in thousands) |
|
$ |
11,771 |
|
|
$ |
3,376 |
|
|
$ |
19,559 |
|
|
$ |
8,385 |
|
|
|
• |
Number of Customers. We believe that the size of our customer base is an indicator of our market penetration and that our net customer additions are an indicator of the growth of our business and our future revenue opportunity. We define a customer as a distinct entity, division or business unit of an organization that receives support or has the right to use our cloud-based solutions as of the specified measurement date. |
|
|
• |
Subscription Revenue as a Percentage of Total Revenue. Subscription revenue is a portion of our total revenue and is derived from (i) IdentityNow, our cloud-based solution where customers enter into SaaS subscription agreements with us, and (ii) IdentityIQ and SecurityIQ maintenance and support agreements, but not licenses. As we generally sell our solutions on a per-identity basis, our subscription revenue for any customer is primarily determined by the number of identities that the customer is entitled to govern as part of a SaaS subscription, and the ongoing price paid per-identity under a maintenance and support agreement or SaaS subscription. Thus, we consider our subscription revenue to be the recurring portion of our revenue base and believe that its continued growth as a percentage of total revenue will lead to a more predictable revenue model and increase our visibility to future period total revenues. Because we recognize our subscription revenue ratably over the duration of those agreements, a portion of the revenue we recognize each period is derived from agreements we entered into in prior periods. In contrast, we typically recognize license revenue upon entering into the applicable license, the timing of which is less predictable and may cause significant fluctuations in our quarterly financial results. |
|
|
• |
Adjusted EBITDA. We believe that adjusted EBITDA is a measure widely used by securities analysts and investors to evaluate the financial performance of our company and other companies. We believe that adjusted EBITDA is an important measure for evaluating our performance because it facilitates comparisons of our core operating results from period to period by removing the impact of our capital structure (net interest income or expense from our outstanding debt), asset base (depreciation and amortization), tax consequences, purchase accounting adjustments, acquisition and sponsor related costs and stock-based compensation. In addition, we base certain of our forward-looking estimates and budgets on adjusted EBITDA. See the section titled “Non-GAAP Financial Measures” for more information regarding adjusted EBITDA, including the limitations of using adjusted EBITDA as a financial measure, and for a reconciliation of adjusted EBITDA to net loss, the most directly comparable financial measure calculated in accordance with GAAP. |
Non-GAAP Financial Measures
In addition to our financial information presented in accordance with GAAP, we use adjusted EBITDA, a non-GAAP financial measure, to clarify and enhance our 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.
18
Our non-GAAP financial measure of adjusted EBITDA may not provide information that is directly comparable to that provided by other companies in our industry because they may calculate adjusted EBITDA differently. In addition, there are limitations in using non-GAAP financial measures, such as adjusted EBITDA, because they are not prepared in accordance with GAAP and exclude expenses that may have a material impact on our reported financial results. In particular, interest expense, which is excluded from adjusted EBITDA, has been and will continue to be a significant recurring expense in our business for the foreseeable future. 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. We urge you to review the reconciliations of our adjusted EBITDA to net income (loss), the comparable GAAP financial measure, included below, and not to rely on any single financial measure to evaluate our business.
We calculate adjusted EBITDA as net income (loss) adjusted to exclude income taxes, interest expense, net, depreciation and amortization, purchase accounting adjustments, acquisition and sponsor related costs and stock-based compensation expense.
We believe that adjusted EBITDA is a measure widely used by securities analysts and investors to evaluate the financial performance of our company and other companies. We believe that adjusted EBITDA is an important measure for evaluating our performance because it facilitates comparisons of our core operating results from period to period by removing the impact of our capital structure (net interest income or expense from our outstanding debt), asset base (depreciation and amortization), tax consequences, purchase accounting adjustments, acquisition and sponsor related costs and stock-based compensation. In addition, we base certain of our forward-looking estimates and budgets on adjusted EBITDA.
The following table reflects the reconciliation of adjusted EBITDA to net income (loss) calculated in accordance with GAAP:
|
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
|
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
||||
|
|
|
(In thousands) |
|
|||||||||||||
|
Net income (loss) |
|
$ |
3,302 |
|
|
$ |
(6,387 |
) |
|
$ |
(8,312 |
) |
|
$ |
(12,974 |
) |
|
Stock-based compensation (1) |
|
|
4,932 |
|
|
|
201 |
|
|
|
14,253 |
|
|
|
544 |
|
|
Amortization of acquired intangibles |
|
|
2,206 |
|
|
|
2,207 |
|
|
|
6,618 |
|
|
|
6,635 |
|
|
Depreciation |
|
|
493 |
|
|
|
385 |
|
|
|
1,359 |
|
|
|
935 |
|
|
Purchase price accounting adjustment (2) |
|
|
18 |
|
|
|
16 |
|
|
|
50 |
|
|
|
126 |
|
|
Acquisition and sponsor related costs |
|
|
— |
|
|
|
322 |
|
|
|
— |
|
|
|
978 |
|
|
Interest expense (3) |
|
|
202 |
|
|
|
3,726 |
|
|
|
4,180 |
|
|
|
9,079 |
|
|
Income tax expense |
|
|
618 |
|
|
|
2,906 |
|
|
|
1,411 |
|
|
|
3,062 |
|
|
Adjusted EBITDA |
|
$ |
11,771 |
|
|
$ |
3,376 |
|
|
$ |
19,559 |
|
|
$ |
8,385 |
|
|
(1) |
Stock-based compensation includes employer related payroll taxes |
|
(2) |
Purchase accounting adjustment related to the fair value write down of deferred revenue from the Acquisition. |
|
(3) |
Interest expense includes amortization of debt issuance costs, loss on the modification and partial extinguishment of debt and prepayment penalty |
Components of Results of Operations
See the section titled “Components of Results of Operations” in Part II, Item 7 of the Annual Report, for information regarding the components of our results of operations.
19
Results of Operations
The following table sets forth our statement of operations for the periods presented:
|
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
|
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
||||
|
|
|
(In thousands, except share and per share data) |
|
|||||||||||||
|
|
|
(Unaudited) |
|
|||||||||||||
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses |
|
$ |
28,131 |
|
|
$ |
16,975 |
|
|
$ |
64,246 |
|
|
$ |
42,552 |
|
|
Subscription |
|
|
28,461 |
|
|
|
18,506 |
|
|
|
76,517 |
|
|
|
49,782 |
|
|
Services and other |
|
|
9,827 |
|
|
|
8,081 |
|
|
|
29,930 |
|
|
|
25,954 |
|
|
Total revenue |
|
|
66,419 |
|
|
|
43,562 |
|
|
|
170,693 |
|
|
|
118,288 |
|
|
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses |
|
|
1,145 |
|
|
|
1,104 |
|
|
|
3,543 |
|
|
|
3,301 |
|
|
Subscription (1) |
|
|
5,252 |
|
|
|
4,020 |
|
|
|
14,829 |
|
|
|
11,533 |
|
|
Services and other (1) |
|
|
7,617 |
|
|
|
5,954 |
|
|
|
21,788 |
|
|
|
17,074 |
|
|
Total cost of revenue |
|
|
14,014 |
|
|
|
11,078 |
|
|
|
40,160 |
|
|
|
31,908 |
|
|
Gross profit |
|
|
52,405 |
|
|
|
32,484 |
|
|
|
130,533 |
|
|
|
86,380 |
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development (1) |
|
|
11,474 |
|
|
|
8,443 |
|
|
|
31,351 |
|
|
|
23,336 |
|
|
General and administrative (1) |
|
|
8,763 |
|
|
|
4,414 |
|
|
|
24,163 |
|
|
|
10,888 |
|
|
Sales and marketing (1) |
|
|
27,658 |
|
|
|
19,220 |
|
|
|
76,636 |
|
|
|
52,733 |
|
|
Total operating expenses |
|
|
47,895 |
|
|
|
32,077 |
|
|
|
132,150 |
|
|
|
86,957 |
|
|
Income (loss) from operations |
|
|
4,510 |
|
|
|
407 |
|
|
|
(1,617 |
) |
|
|
(577 |
) |
|
Other expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(202 |
) |
|
|
(3,726 |
) |
|
|
(4,180 |
) |
|
|
(9,079 |
) |
|
Other, net |
|
|
(388 |
) |
|
|
(162 |
) |
|
|
(1,104 |
) |
|
|
(256 |
) |
|
Total other expense, net |
|
|
(590 |
) |
|
|
(3,888 |
) |
|
|
(5,284 |
) |
|
|
(9,335 |
) |
|
Income (loss) before income taxes |
|
|
3,920 |
|
|
|
(3,481 |
) |
|
|
(6,901 |
) |
|
|
(9,912 |
) |
|
Income tax expense |
|
|
(618 |
) |
|
|
(2,906 |
) |
|
|
(1,411 |
) |
|
|
(3,062 |
) |
|
Net income (loss) |
|
$ |
3,302 |
|
|
$ |
(6,387 |
) |
|
$ |
(8,312 |
) |
|
$ |
(12,974 |
) |
|
Net income (loss) available to common shareholders |
|
$ |
3,274 |
|
|
$ |
(11,792 |
) |
|
$ |
(8,312 |
) |
|
$ |
(30,969 |
) |
|
Net income (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.04 |
|
|
$ |
(0.24 |
) |
|
$ |
(0.10 |
) |
|
$ |
(0.65 |
) |
|
Diluted |
|
$ |
0.04 |
|
|
$ |
(0.24 |
) |
|
$ |
(0.10 |
) |
|
$ |
(0.65 |
) |
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
86,825,168 |
|
|
|
48,219,826 |
|
|
|
86,267,539 |
|
|
|
47,806,584 |
|
|
Diluted |
|
|
90,355,212 |
|
|
|
48,219,826 |
|
|
|
86,267,539 |
|
|
|
47,806,584 |
|
|
(1) |
Includes stock based compensation and related employer payroll tax expenses as follows: |
|
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
|
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
||||
|
|
|
(In thousands) |
|
|||||||||||||
|
Cost of revenue – subscription |
|
$ |
289 |
|
|
$ |
15 |
|
|
$ |
665 |
|
|
$ |
33 |
|
|
Cost of revenue – services and other |
|
|
395 |
|
|
|
22 |
|
|
|
1,124 |
|
|
|
60 |
|
|
Research and development |
|
|
858 |
|
|
|
41 |
|
|
|
2,151 |
|
|
|
106 |
|
|
General and administrative |
|
|
1,944 |
|
|
|
23 |
|
|
|
5,990 |
|
|
|
98 |
|
|
Sales and marketing |
|
|
1,446 |
|
|
|
100 |
|
|
|
4,323 |
|
|
|
247 |
|
|
Total stock-based compensation expense |
|
$ |
4,932 |
|
|
$ |
201 |
|
|
$ |
14,253 |
|
|
$ |
544 |
|
20
The following table sets forth the consolidated statements of operations data for each of the periods presented as a percentage of total revenue:
|
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
|
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
||||
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses |
|
|
42 |
% |
|
|
39 |
% |
|
|
38 |
% |
|
|
36 |
% |
|
Subscription |
|
|
43 |
|
|
42 |
|
|
|
45 |
|
|
|
42 |
|
|
|
Services and other |
|
|
15 |
|
|
|
19 |
|
|
|
17 |
|
|
|
22 |
|
|
Total revenue |
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
|
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses |
|
|
2 |
|
|
|
3 |
|
|
|
2 |
|
|
|
3 |
|
|
Subscription |
|
|
8 |
|
|
|
9 |
|
|
|
9 |
|
|
|
10 |
|
|
Services and other |
|
|
11 |
|
|
|
14 |
|
|
|
13 |
|
|
|
14 |
|
|
Total cost of revenue |
|
|
21 |
|
|
|
26 |
|
|
|
24 |
|
|
|
27 |
|
|
Gross profit |
|
|
79 |
|
|
|
74 |
|
|
|
76 |
|
|
|
73 |
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
17 |
|
|
|
19 |
|
|
|
18 |
|
|
|
20 |
|
|
General and administrative |
|
|
13 |
|
|
|
10 |
|
|
|
14 |
|
|
|
9 |
|
|
Sales and marketing |
|
|
42 |
|
|
|
44 |
|
|
|
45 |
|
|
|
44 |
|
|
Total operating expenses |
|
|
72 |
|
|
|
73 |
|
|
|
77 |
|
|
|
73 |
|
|
Income (loss) from operations |
|
|
7 |
|
|
|
1 |
|
|
|
(1 |
) |
|
0 |
|
|
|
Other expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(0 |
) |
|
|
(9 |
) |
|
|
(2 |
) |
|
|
(8 |
) |
|
Other, net |
|
|
(1 |
) |
|
|
(0 |
) |
|
|
(1 |
) |
|
|
(0 |
) |
|
Total other expense, net |
|
|
(1 |
) |
|
|
(9 |
) |
|
|
(3 |
) |
|
|
(8 |
) |
|
Income (loss) before income taxes |
|
|
6 |
|
|
|
(8 |
) |
|
|
(4 |
) |
|
|
(8 |
) |
|
Income tax expense |
|
|
(1 |
) |
|
|
(7 |
) |
|
|
(1 |
) |
|
|
(3 |
) |
|
Net income (loss) |
|
|
5 |
% |
|
|
(15 |
)% |
|
|
(5 |
)% |
|
|
(11 |
)% |
Revenue
|
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||||||||||||||||||
|
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
|
variance $ |
|
|
variance % |
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
|
variance $ |
|
|
variance % |
|
||||||||
|
|
|
(In thousands, except percentages) |
|
|||||||||||||||||||||||||||||
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Licenses |
|
$ |
28,131 |
|
|
$ |
16,975 |
|
|
$ |
11,156 |
|
|
|
66 |
% |
|
$ |
64,246 |
|
|
$ |
42,552 |
|
|
$ |
21,694 |
|
|
|
51 |
% |
|
Subscription |
|
|
28,461 |
|
|
|
18,506 |
|
|
|
9,955 |
|
|
|
54 |
% |
|
|
76,517 |
|
|
|
49,782 |
|
|
|
26,735 |
|
|
|
54 |
% |
|
Services and other |
|
|
9,827 |
|
|
|
8,081 |
|
|
|
1,746 |
|
|
|
22 |
% |
|
|
29,930 |
|
|
|
25,954 |
|
|
|
3,976 |
|
|
|
15 |
% |
|
Total revenue |
|
$ |
66,419 |
|
|
$ |
43,562 |
|
|
$ |
22,857 |
|
|
|
52 |
% |
|
$ |
170,693 |
|
|
$ |
118,288 |
|
|
$ |
52,405 |
|
|
|
44 |
% |
License Revenue. License revenue increased by $11.2 million, or 66%, for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. This increase is primarily due to growth in new customer license revenue as well as an increase in follow on sales to our existing customers. During the three months ended September 30, 2018 and 2017 revenue from new customers was $16.7 million and $10.8 million, respectively, and license revenue from existing customers was $11.4 million and $6.1 million, respectively. Our revenue from any single customer is determined by the number of identities the customer is entitled to govern as well as the number of modules and solutions purchased.
License revenue increased by $21.7 million, or 51%, for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. License revenue from new customers was greater than license revenue from existing customers for the nine months ended September 30, 2018. However, license revenue from existing customers, attributable to follow on sales and sale of additional licenses, represented 62% of total license revenue growth. During the nine months ended September 30, 2018 and 2017 revenue from new customers was $33.8 million and $25.6 million, respectively; and license revenue from existing customers was $30.4 million and $16.9 million, respectively.
21
Subscription Revenue. Subscription revenue increased by $10.0 million, or 54%, for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. The increase was primarily the result of growth in ongoing maintenance renewals and an increase in maintenance revenue derived from new licenses. Our customer base increased by 261, or 31%, from 829 customers at September 30, 2017 to 1,090 customers at September 30, 2018. During the three months ended September 30, 2018 and 2017, revenue from existing customers contributed to more than 80% of subscription revenue.
Subscription revenue increased by $26.7 million, or 54%, for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The increase was primarily the result of increases in ongoing maintenance renewals and an increase in maintenance revenue derived from new licenses as we continue to maintain high annual retention of existing customers. Our customer base increased by 261, or 31%, from 829 customers at September 30, 2017 to 1,090 customers at September 30, 2018. During the nine months ended September 30, 2018 and 2017, revenue from existing customers contributed to more than 90% of subscription revenue.
Services and Other Revenue. Services and other revenue increased by $1.7 million, or 22%, for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. The increase is primarily a result of an increase in the number of customers using consulting and training services.
Services and other revenue increased by $4.0 million, or 15%, for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The increase is primarily a result of an increase in use of our consulting and training services to support our larger customer base. We recognize the revenues associated with professional services on time and material basis or as we deliver the services, provide the training or when the service term has expired.
Geographic Regions. Our operations in the United States were responsible for the largest portion of our revenue in each of the three and nine months ended September 30, 2018 and 2017 because of our larger and more established sales force and partner network in the United States as compared to our other regions. Revenue from both Europe, the Middle East and Africa (“EMEA”) and the rest of the world also increased for three and nine months ended September 30, 2018 and 2017, primarily due to our investment in increasing the size of our international sales force and strengthening partnerships with global system integrators and resellers worldwide.
The following table sets forth summary of our consolidated total revenue by geography and the respective percentage of total revenue:
|
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||||||||||||||||||
|
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
||||||||||||||||||||
|
|
|
$ |
|
|
% of revenue |
|
|
$ |
|
|
% of revenue |
|
|
$ |
|
|
% of revenue |
|
|
$ |
|
|
% of revenue |
|
||||||||
|
|
|
(In thousands, except percentages) |
|
|||||||||||||||||||||||||||||
|
United States |
|
$ |
45,951 |
|
|
|
69 |
% |
|
$ |
32,761 |
|
|
|
75 |
% |
|
$ |
113,146 |
|
|
|
66 |
% |
|
$ |
85,781 |
|
|
|
73 |
% |
|
EMEA (1) |
|
|
11,376 |
|
|
|
17 |
% |
|
|
7,592 |
|
|
|
18 |
% |
|
|
36,328 |
|
|
|
22 |
% |
|
|
21,445 |
|
|
|
18 |
% |
|
Rest of the World (1) |
|
|
9,092 |
|
|
|
14 |
% |
|
|
3,209 |
|
|
|
7 |
% |
|
|
21,219 |
|
|
|
12 |
% |
|
|
11,062 |
|
|
|
9 |
% |
|
Total revenue |
|
$ |
66,419 |
|
|
|
100 |
% |
|
$ |
43,562 |
|
|
|
100 |
% |
|
$ |
170,693 |
|
|
|
100 |
% |
|
$ |
118,288 |
|
|
|
100 |
% |
|
(1) |
No single country represented more than 10% of our consolidated revenue. |
Cost of Revenue
|
|
|
Three months ended |
|
|
Nine months ended |
|
|||||||||||||||||||||||||
|
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
|
variance $ |
|
|
variance % |
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
|
variance $ |
|
|
variance % |
|
|||||||
|
|
|
(In thousands, except percentages) |
|
||||||||||||||||||||||||||||
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Licenses |
|
$ |
1,145 |
|
|
$ |
1,104 |
|
|
$ |
41 |
|
|
4% |
|
|
$ |
3,543 |
|
|
$ |
3,301 |
|
|
$ |
242 |
|
|
7% |
|
|
|
Subscription |
|
|
5,252 |
|
|
|
4,020 |
|
|
|
1,232 |
|
|
31% |
|
|
|
14,829 |
|
|
|
11,533 |
|
|
|
3,296 |
|
|
29% |
|
|
|
Services and other |
|
|
7,617 |
|
|
|
5,954 |
|
|
|
1,663 |
|
|
28% |
|
|
|
21,788 |
|
|
|
17,074 |
|
|
|
4,714 |
|
|
28% |
|
|
|
Total cost of revenue |
|
$ |
14,014 |
|
|
$ |
11,078 |
|
|
$ |
2,936 |
|
|
27% |
|
|
$ |
40,160 |
|
|
$ |
31,908 |
|
|
$ |
8,252 |
|
|
26% |
|
|
22
Cost of License Revenue. The cost of license revenue increased by 4% for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. During each of the three months ended September 30, 2018 and 2017, cost of license revenue included $1.0 million in amortization of intangibles acquired in business combinations.
The cost of license revenue increased by 7% for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. During each of the nine months ended September 30, 2018 and 2017, cost of license revenue included $3.0 million in amortization of intangibles acquired in business combinations.
Cost of Subscription Revenue. Cost of subscription revenue increased by $1.2 million, or 31%, for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. Approximately $1.1 million was attributable to an increase in headcount and related allocated expenses to support growth of our subscription cloud-based offering and ongoing maintenance for our expanding licensed customer base. Approximately $0.2 million was attributable to increases in cloud-based hosting costs.
Cost of subscription revenue increased by $3.3 million, or 29%, for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. Approximately $2.7 million was attributable to an increase in headcount and related allocated expenses to support growth of our subscription cloud-based offering and ongoing maintenance for our expanding licensed customer base. Approximately $0.7 million was attributable to increases in cloud-based hosting costs.
Cost of Services and Other Revenue. Cost of services and other revenue increased by $1.7 million, or 28%, for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. Substantially all of the increase was the result of our increased services and training headcount, related allocated overhead and related stock-based compensation expense.
Cost of services and other revenue increased by $4.7 million, or 28%, for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. Substantially all of the increase was the result of our increased services and training headcount, related allocated overhead and stock-based compensation expense.
Gross Profit and Gross Margin
|
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||||||||||||||||||
|
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
|
variance $ |
|
|
variance % |
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
|
variance $ |
|
|
variance % |
|
||||||||
|
|
|
(In thousands, except percentages) |
|
|||||||||||||||||||||||||||||
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses |
|
$ |
26,986 |
|
|
$ |
15,871 |
|
|
$ |
11,115 |
|
|
70% |
|
|
$ |
60,703 |
|
|
$ |
39,251 |
|
|
$ |
21,452 |
|
|
55% |
|
||
|
Subscription |
|
|
23,209 |
|
|
|
14,486 |
|
|
|
8,723 |
|
|
60% |
|
|
|
61,688 |
|
|
|
38,249 |
|
|
|
23,439 |
|
|
61% |
|
||
|
Services and other |
|
|
2,210 |
|
|
|
2,127 |
|
|
|
83 |
|
|
4% |
|
|
|
8,142 |
|
|
|
8,880 |
|
|
|
(738 |
) |
|
(8)% |
|
||
|
Total gross profit |
|
$ |
52,405 |
|
|
$ |
32,484 |
|
|
$ |
19,921 |
|
|
61% |
|
|
$ |
130,533 |
|
|
$ |
86,380 |
|
|
$ |
44,153 |
|
|
51% |
|
||
|
Gross Margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses |
|
|
96 |
% |
|
|
93 |
% |
|
|
|
|
|
|
|
|
|
|
94 |
% |
|
|
92 |
% |
|
|
|
|
|
|
|
|
|
Subscription |
|
|
82 |
% |
|
|
78 |
% |
|
|
|
|
|
|
|
|
|
|
81 |
% |
|
|
77 |
% |
|
|
|
|
|
|
|
|
|
Services and other |
|
|
22 |
% |
|
|
26 |
% |
|
|
|
|
|
|
|
|
|
|
27 |
% |
|
|
34 |
% |
|
|
|
|
|
|
|
|
|
Total gross margin |
|
|
79 |
% |
|
|
75 |
% |
|
|
|
|
|
|
|
|
|
|
76 |
% |
|
|
73 |
% |
|
|
|
|
|
|
|
|
Licenses. License gross profit increased by $11.1 million, or 70%, for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. The increase was the result of increased license revenues with only minor increases in third party royalties.
License gross profit increased by $21.5 million, or 55%, for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The increase was the result of increased license revenues with only minor increases in third party royalties.
Subscription. Subscription gross profit increased by $8.7 million, or 60%, for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. The increase was the result of growth in subscription revenue, as described above, coupled with growth in costs of subscription revenue at a rate lower than our revenue growth as we continue to build economies of scale within our customer support organization and our utilization of cloud-based hosting services.
23
Subscription gross profit increased by $23.4 million, or 61%, for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The increase was the result of growth in subscription revenue, as described above, coupled with growth in costs of subscription revenue at a rate lower than our revenue growth as we continue to build economies of scale within our customer support organization and our utilization of cloud-based hosting services.
Services and Other
Services and other gross profit increased by $0.1 million, or 4% for the three months ended September 30, 2018 compared to the three months ended September 30, 2017, respectively. This increase was the result of the volume and mix of services provided in the period.
Services and other gross profit decreased by $0.7 million or 8% for the nine months ended September 30, 2018 compared to the three and nine months ended September 30, 2017, respectively. This decrease was primarily attributable to the higher costs associated with expanding our infrastructure for our professional services and training organization to support an increasing number of customers for the nine months ended September 30, 2018
Operating Expenses
|
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||||||||||||||||||
|
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
|
variance $ |
|
|
variance % |
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
|
variance $ |
|
|
variance % |
|
||||||||
|
Operating expenses: |
|
(In thousands, except percentages) |
|
|||||||||||||||||||||||||||||
|
Research and development |
|
$ |
11,474 |
|
|
$ |
8,443 |
|
|
$ |
3,031 |
|
|
36% |
|
|
$ |
31,351 |
|
|
$ |
23,336 |
|
|
$ |
8,015 |
|
|
34% |
|
||
|
General and administrative |
|
|
8,763 |
|
|
|
4,414 |
|
|
|
4,349 |
|
|
99% |
|
|
|
24,163 |
|
|
|
10,888 |
|
|
|
13,275 |
|
|
122% |
|
||
|
Sales and marketing |
|
|
27,658 |
|
|
|
19,220 |
|
|
|
8,438 |
|
|
44% |
|
|
|
76,636 |
|
|
|
52,733 |
|
|
|
23,903 |
|
|
45% |
|
||
|
Total operating expenses |
|
$ |
47,895 |
|
|
$ |
32,077 |
|
|
$ |
15,818 |
|
|
49% |
|
|
$ |
132,150 |
|
|
$ |
86,957 |
|
|
$ |
45,193 |
|
|
52% |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and Development Expenses. Research and development expenses increased by $3.0 million, or 36%, for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. Approximately 78% of this increase was the result of an increase in headcount, and related allocated overhead and stock compensation expenses, to optimize and expand our product offerings as well as pursue innovation in identity governance. Recruiting expenses related to attracting talent increased $0.1 million and substantially all of the remaining increase in research and development expenses was the result of an increase in software and maintenance expenses, primarily cloud-based hosting costs related to the development of our cloud-based offering.
Research and development expenses increased by $8.0 million, or 34%, for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. Approximately 82% of this increase was the result of an increase in headcount, and related allocated overhead and stock compensation expenses, to optimize and expand our product offerings as well as pursue innovation in identity governance. Recruiting expenses related to attracting talent increased $0.2 million and substantially all of the remaining increase in research and development expenses was the result of an increase in software and maintenance expenses, primarily cloud-based hosting costs related to the development of our cloud-based offering.
General and Administrative Expenses. General and administrative expenses increased by $4.3 million, or 99%, for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. Approximately 76% of the increase was the result of an increase in corporate headcount, and related allocated overhead, to support our transition to a public company and the growth and scale of the business. During the third quarter of 2018, approximately $2.0 million of the increase was related to stock-based compensation expense. Additionally, general and administrative expenses increased by approximately $0.9 million as a result of an increase in professional service expenses comprised of legal, accounting and consulting fees.
General and administrative expenses increased by $13.3 million, or 122%, for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. Approximately 77% of the increase was the result of an increase in corporate headcount, and related allocated overhead, to support our transition to a public company and the growth and scale of the business. During the first nine months of 2018, approximately $6.0 million of the increase was related to stock-based compensation expense. Additionally, general and administrative expenses increased by approximately $2.8 million as a result of an increase in professional service expenses comprised of legal, accounting and consulting fees.
24
Sales and Marketing Expenses. Sales and marketing expenses increased by $8.4 million, or 44%, for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. Approximately $6.6 million, or 78%, of the increase was the result of our increased sales and marketing headcount, stock-based compensation expense and related allocated overhead, to support increased penetration into our existing customer base as well as expansion into new industry verticals and geographic markets. As our headcount increased, we also experienced related increases in both travel and professional service comprised of recruiting, consulting and training related expense of $0.7 million and $0.7 million, respectively, for the three months ended September 30, 2018 compared to the three months ended September 30, 2017.
Sales and marketing expenses increased by $23.9 million, or 45%, for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. Approximately $20.0 million, or 84%, of the increase was the result of our increased sales and marketing headcount, stock-based compensation expense and related allocated overhead, to support increased penetration into our existing customer base as well as expansion into new industry verticals and geographic markets. As our headcount increased, we also experienced related increases in travel and promotional expenses of $1.8 million and $0.9 million, respectively, for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017.
Interest Expense, Net
Interest expense, net of interest income, decreased by $3.5 million, or 95%, for the three months ended September 30, 2018, compared to September 30, 2017 and decreased by $4.9 million, or 54%, for the nine months ended September 30, 2018, compared to September 30, 2017. This decrease was primarily due to refinancing our debt to lower the stated interest rate from 8.0% to 6.8%, as well as decrease in the term loan principal balance and related lower amortization of debt issuance cost.
Provision for Income Taxes
Provision for income taxes consists of U.S. and state income taxes and income taxes in certain foreign jurisdictions in which we conduct business. We have a full valuation allowance for net deferred tax assets, including net operating loss carryforwards, and tax credits related primarily to research and development for our operations in the United States. We expect to maintain this full valuation allowance until the Company is no longer in a cumulative three-year pre-tax book loss position.
Our income tax rate varies from the federal statutory rate due to the valuation allowances on our deferred tax assets and foreign withholding taxes; changing tax laws, regulations and interpretations in multiple jurisdictions in which we operate; changes to the financial accounting rules for income taxes; unanticipated changes in tax rates; differences in accounting and tax treatment of our stock-based compensation and the tax effects of purchase accounting for acquisitions. We expect this fluctuation in income tax rates, as well as its potential impact on our results of operations, to continue.
We operate in several tax jurisdictions and are subject to taxes in each country or jurisdiction in which we conduct business including the United States and Israel. Earnings from our non-U.S. activities are subject to local country income tax and may be subject to U.S. income tax if such earnings are distributed to the U.S. We have incurred net losses in each fiscal year since our inception except during the fourth quarter of each year. We have recorded insignificant U.S. federal income tax expense. Our tax expense to date relates primarily to foreign income taxes, mainly from our Israeli activities, and to a lesser extent, state income taxes. The effective tax rate for the three and nine months ended September 30, 2018 is 15.8% and 20.5% compared to 83.5% and 30.9% respectively, for the same period in the prior year. The difference in effective tax rate for three and nine months ended September 30, 2018 compared to the prior period is primarily due to our overall pre-tax book income position under FIN18 and discrete items related to current period excess stock deductions, return to provision adjustments and adjustments to the FIN48 reserve.
For further discussion regarding tax matters, see Note 8 of the “Notes to Consolidated Financial Statements” included in Part I, Item 1 of the Annual Report.
Liquidity and Capital Resources
As of September 30, 2018, we had $83.3 million of cash and cash equivalents and $1.5 million of availability under our revolving credit facility. As of September 30, 2018, we had approximately $3.7 million of cash and cash equivalents held in our foreign subsidiaries. We do not consider the earnings of our foreign subsidiaries, with the exception of India, to be permanently reinvested in foreign jurisdictions and have consistently applied Section 956 of the Internal Revenue Code of 1986, as amended, to such earnings. As a result of applying Section 956 consistently to our intercompany cash flows, the majority of the earnings in our foreign subsidiaries represent income that was previously taxed in the United States. As a result, there would be no material income tax consequences to repatriating the cash currently held in our foreign subsidiaries. In India, we continue to invest and grow our research and development
25
activities and have no plans to repatriate undistributed earning held in India back to the U.S. parent company, and therefore consider earnings in India to be permanently reinvested.
We believe that existing cash and cash equivalents, positive cash flows from operations and available borrowings under our revolving credit facility will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts, the continued expansion of sales and marketing activities and the introduction of new solutions and product enhancements. To the extent existing cash and cash equivalents and borrowings under our revolving credit facility are not sufficient to fund future activities, we may seek to raise additional funds through equity, equity-linked or debt financings. If we raise additional funds through the incurrence of indebtedness, such indebtedness may have rights that are senior to holders of our equity securities and could contain covenants that restrict operations. Any additional equity financing may be dilutive to our existing stockholders. Although we are not currently a party to any agreement or letter of intent with respect to potential investments in, or acquisitions of, complementary businesses, services or technologies, we may enter into these types of arrangements in the future, which could also require us to seek additional equity financing, incur indebtedness, or use cash resources. As of September 30, 2018, we have no present understandings, commitments or agreements to enter into any such acquisitions, nor do we have any material commitments for capital expenditures.
Since inception, we have financed operations primarily through license fees, maintenance fees, subscription fees, consulting and training fees, borrowings under our credit facility and the sale of equity securities including our initial public offering. Our principal uses of cash are funding operations and capital expenditures. Over the past several years, revenue has increased significantly from year to year and, as a result, cash flows from customer collections have increased. However, operating expenses have also increased as we have invested in growing our business. Our operating cash requirements may increase in the future as we continue to invest in the strategic growth of our company.
Our Credit Facility
Pursuant to a credit and guaranty agreement by and among SailPoint Technologies, Inc., as the borrower, and SailPoint Technologies Intermediate Holdings, LLC and SailPoint International, Inc., as guarantors, the lenders party thereto from time to time and Goldman Sachs Bank USA, as administrative agent and collateral agent, as amended, we have a senior secured credit facility (our “credit facility”) that consists of a term loan facility, a $7.5 million revolving credit facility, and a letter of credit sub-facility with an aggregate limit equal to the lesser of $7.5 million and the aggregate unused amount of the revolving commitments then in effect. On June 29, 2018, we voluntarily prepaid $60.0 million of borrowings outstanding under our term loan facility, reducing the balance outstanding under our term loan facility to $10.0 million. Each of the term loan facility and revolving credit facility has a maturity of five years and will mature on August 16, 2021. However, we currently anticipate that we will repay the remaining term loan facility within 12 months.
As of September 30, 2018, we had $1.5 million available under the revolving credit facility and $6.0 million in standby letters of credit outstanding, issued primarily in connection with our new corporate headquarters lease.
All of our obligations under our credit facility are guaranteed by our existing and future domestic subsidiaries and, subject to certain exceptions, secured by a security interest in substantially all of our tangible and intangible assets.
Borrowings under our credit facility bear interest at our option at (i) LIBOR, subject to a 1.00% floor, plus a margin, or (ii) the base rate, subject to a 3.50% floor, plus a margin. For LIBOR borrowings, the applicable rate margin is 4.50%. For base rate borrowings, the applicable margin is 4.00%. We are also required to pay a 0.50% per annum fee on undrawn amounts under our revolving credit facility, payable quarterly in arrears.
Summary of Cash Flows
The following table summarizes our cash flows for the periods indicated:
|
|
|
Nine months ended |
|
|||||
|
|
|
September 30, 2018 |
|
|
September 30, 2017 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Cash provided by operating activities |
|
$ |
30,358 |
|
|
$ |
5,786 |
|
|
Cash used in investing activities |
|
|
(4,005 |
) |
|
|
(1,929 |
) |
|
Cash used in financing activities |
|
|
(59,044 |
) |
|
|
(2,263 |
) |
|
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
$ |
(32,691 |
) |
|
$ |
1,594 |
|
26
Cash Flows from Operating Activities
During the nine months ended September 30, 2018, cash provided by operating activities was $30.4 million, which consisted of a net loss of $8.3 million, adjusted by non-cash charges of $24.1 million and a net change of $14.5 million in our net operating assets and liabilities. The non-cash charges are primarily comprised of depreciation and amortization of $8.0 million, stock-based compensation expense of $14.1 million, and loss on the modification and partial extinguishment of debt of $1.5 million. The change in our net operating assets and liabilities was primarily as a result of an increase in deferred revenue of $17.5 million due to the timing of billings and cash received in advance of revenue recognition primarily for subscription and support services, a decrease in accounts receivable of $1.3 million due to the timing of receipts of payments from customers and an increase in accounts payable of $0.8 million, due to timing of cash disbursements; partially offset by a decrease in accrued expenses and other liabilities of $4.1 million due to timing of commissions and bonuses accruals, an increase in income taxes payable of $0.4 million as a result of fluctuations in our effective tax rate, and an increase in prepayments and other assets of $1.4 million.
During the nine months ended September 30, 2017, cash provided by operating activities was $5.8 million, which consisted of a net loss of $13.0 million, adjusted by non-cash charges of $8.7 million and a net change of $10.1 million in our net operating assets and liabilities. The non-cash charges are primarily comprised of depreciation and amortization of $7.6 million, amortization of debt issuance costs of $0.5 million and stock-based compensation of $0.5 million. The change in our net operating assets and liabilities was primarily as a result of an increase in deferred revenue of $12.9 million due to the timing of billings and cash received in advance of revenue recognition primarily for subscription and support services, an increase in accounts payable of $1.3 million due to timing of cash disbursements and an increase in income taxes payable of $2.4 million, partially offset by an increase in prepayments and other assets of $2.7 million, an increase in accounts receivable of $3.4 million due to the timing of receipts of payments from customers and an decrease in accrued expenses of $0.5 million due primarily to bonus accruals.
Cash Flows from Investing Activities
During the nine months ended September 30, 2018 cash used in investing activities was $4.0 million. Substantially all of the cash flows from investing activities in the nine-month periods consisted of purchases of property and equipment.
During the nine months ended September 30, 2017, cash used in investing activities was $1.9 million, consisting of $2.0 million in purchases of property and equipment, partially offset by $0.1 million in proceeds from sales of property and equipment.
Cash Flows from Financing Activities
During the nine months ended September 30, 2018, cash used in financing activities was $59.0 million consisting of $60.0 million in repayment of debt, and $0.3 million in prepayment penalties partially offset by $1.3 million of proceeds from exercise of stock options.
During the nine months ended September 30, 2017, cash used in financing activities was $2.3 million, consisting of $0.7 million for the repurchase of common and preferred stock, debt issuance cost of $1.4 million, proceeds from borrowings of $50.0 million utilized for dividend payments of $50.4 million, partially offset by $0.2 million of proceeds from the exercise of stock options of common stock.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, and expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
We believe that the accounting policies associated with revenue recognition, share-based compensation and income taxes are most significant areas involving management's judgments and estimates. Therefore, these are considered to be our critical accounting policies and estimates. There have been no material changes to these estimates or the policies related to them during the three and nine months ended September 30, 2018. For a full discussion of these estimates and policies, see the section titled “Critical Accounting Policies and Estimates” in Part II, Item 7 of the Annual Report.
27
Recent Accounting Pronouncements
See Note 2 to our condensed consolidated financial statements included in Part I, Item 1 for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on our results of operations, financial condition, and cash flows.
The JOBS Act Accounting Election
We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to take advantage of all of the reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards, until we are no longer an emerging growth company. We will lose emerging growth status on December 31, 2018. Our election to use the phase-in periods permitted by this election may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the longer phase-in periods under the JOBS Act and who will comply with new or revised financial accounting standards. If we were to subsequently elect to instead comply with these public company effective dates, such election would be irrevocable pursuant to the JOBS Act.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
For a description of market risks, see Part II, Item 7A in the Annual Report. Our exposure to market risks has not changed materially from the exposure described in the Annual Report.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s management, including its Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, the Company’s disclosure controls and procedures were effective at a reasonable assurance level such that material information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act) during the quarter ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.
28
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time in the normal course of business, we may be subject to various legal matters such as threatened or pending claims or proceedings. We are not currently a party to, nor is our property currently subject to, any material legal claims or proceedings. We are not aware of any governmental inquiries or investigations into our business.
Item 1A. Risk Factors
Except with respect to the risk factors set forth below, there have been no material changes to the risk factors disclosed in Part I, Item 1A in the Annual Report and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018. The following risk factors have been updated in connection with the assessment of changes in existing financial accounting standards as well as the offering of our common stock by certain selling stockholders in August 2018.
Changes in existing financial accounting standards or practices, or taxation rules or practices, may harm our operating results.
Changes in existing accounting or taxation rules or practices, new accounting pronouncements or taxation rules, or varying interpretations of current accounting pronouncements or taxation practice could harm our operating results or the manner in which we conduct our business. Further, such changes could potentially affect our reporting of transactions completed before such changes are effective.
GAAP is subject to interpretation by the Financial Accounting Standards Board (“FASB”), the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results and could affect the reporting of transactions completed before the announcement of a change.
For example, in May 2014 the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“Topic 606”), for which certain elements may impact our accounting for revenue and costs incurred to acquire contracts. We are required to implement this guidance for the year ending December 31, 2018. Application of Topic 606 may significantly impact the amount and timing of revenue recognition, such as recognizing revenue from existing contracts in periods other than when historically reported under existing GAAP or the revenue recognized under existing GAAP could be eliminated as part of the effect of adoption. Further, adoption of Topic 606 could result in changes to the periods when revenue is recognized in the future compared with management’s current expectations under existing GAAP. In addition, Topic 606 may significantly change the timing of when expense recognition will occur related to costs to obtain and fulfill customer contracts. While the adoption of Topic 606 does not change the cash flows received from our contracts with customers, we anticipate a material impact to our opening balance sheet as a result of the adoption of Topic 606 and the adoption could have a material adverse effect on our financial position or results of operations.
Thoma Bravo has the right to nominate one director for election to our board of directors.
Thoma Bravo, LLC (“Thoma Bravo”), as the ultimate general partner of Thoma Bravo Fund XI, L.P., Thoma Bravo Fund XI-A, L.P. and Thoma Bravo Executive Fund XI, L.P., and the general partner of Thoma Bravo XI GP, beneficially owned in the aggregate approximately 6.7% of our common stock as of September 11, 2018. For so long as Thoma Bravo beneficially owns at least 5% (but less than 10%) of our outstanding shares of common stock, Thoma Bravo will have the right to nominate one director to our board of directors. As a result of their ownership interests and director nomination rights, Thoma Bravo may have the ability to influence the outcome of matters that require approval of our stockholders or to otherwise influence the Company. The interests of Thoma Bravo might conflict with, or differ from, other stockholder interests, and may cause us to pursue transactions or take actions that could enhance their equity investments, even though such transactions or actions may involve risks to other stockholders.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On November 16, 2017, the Registration Statement on Form S-1 (File No. 333-221036) (the “Registration Statement”) relating to our initial public offering was declared effective by the SEC. Pursuant to the Registration Statement, we registered an aggregate of 23,000,000 shares of our common stock, of which 15,800,000 shares were sold by us and 7,200,000 shares were sold by certain selling stockholders named therein at a price to the public of $12.00 per share. We received net proceeds of approximately $172.0 million, after deducting underwriting discounts and commissions and offering-related expenses. There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus dated November 16, 2017 and filed with the SEC on November 17, 2017 pursuant to Rule 424(b) of the Securities Act. As of March 30, 2018, we have used $90.0 million of the proceeds from our initial public offering to repay borrowings under our term loan facility and approximately $1.4 million of such proceeds to pay
29
a related prepayment premium, both of which were made concurrently with the closing of our initial public offering in the fourth quarter of 2017. In addition, as of September 30, 2018, we prepaid $60.0 million of the borrowings outstanding under our remaining term loan to reduce the aggregate outstanding principal balance to $10.0 million and paid approximately $0.3 million of such proceeds to pay a related prepayment premium; all of the remaining net proceeds from our initial public offering are held in cash and have not been deployed.
Item 5. Other Information
Our board of directors has determined that it intends to hold the Company’s Annual Meeting of Stockholders (the “2019 Annual Meeting”) on May 2, 2019, at a time and location to be specified in the Company’s proxy statement for the 2019 Annual Meeting (the “Proxy Statement”). The record date for determining stockholders eligible for notice of, and to vote at, the 2019 Annual Meeting has not yet been set by the Board and will also be included in the Proxy Statement.
Because the date of the 2019 Annual Meeting has been changed by more than 30 days from the anniversary of the Company’s 2018 Annual Meeting of Stockholders, pursuant to Rule 14a-8 (“Rule 14a-8”) under the Exchange Act, stockholders of the Company who wish to have a proposal considered for inclusion in the Company’s proxy materials for the 2019 Annual Meeting pursuant to Rule 14a-8 must ensure that their proposal is received by the Secretary of the Company at 11305 Four Points Drive, Building 2, Suite 100, Austin, Texas 78726 by December 2, 2018, which the Company has determined to be a reasonable time before it expects to begin to print and send its proxy materials. Rule 14a-8 proposals must also comply with the requirements of Rule 14a-8 and other applicable laws in order to be eligible for inclusion in the Company’s proxy materials for the 2019 Annual Meeting. The December 2, 2018 deadline will also apply in determining whether notice of a stockholder proposal is timely for purposes of exercising discretionary voting authority with respect to proxies under Rule 14a-4(c) under the Exchange Act.
In addition, in accordance with the requirements contained in the Company’s bylaws, stockholders who wish to bring business before the 2019 Annual Meeting outside of Rule 14a-8 or to nominate a person for election as a director must ensure that written notice of such proposal (including all of the information specified in the bylaws) is received by the Secretary of the Company at the address specified above no earlier than the close of business on January 2, 2019 and no later than the close of business on February 1, 2019. Any such proposal must meet the requirements set forth in the bylaws in order to be brought before the 2019 Annual Meeting.
30
Item 6. Exhibits
Exhibit Index
|
Exhibit Number |
|
Description |
|
|
|
|
|
3.1 |
|
|
|
|
|
|
|
3.2 |
|
|
|
|
|
|
|
31.1* |
|
|
|
|
|
|
|
31.2* |
|
|
|
|
|
|
|
32.1** |
|
|
|
|
|
|
|
32.2** |
|
|
|
|
|
|
|
101.INS* |
|
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
|
|
101.SCH* |
|
XBRL Taxonomy Extension Schema Document. |
|
|
|
|
|
101.CAL* |
|
XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
|
|
101.DEF* |
|
XBRL Taxonomy Extension Definition Linkbase Document. |
|
|
|
|
|
101.LAB* |
|
XBRL Taxonomy Extension Label Linkbase Document. |
|
|
|
|
|
101.PRE* |
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
* |
Filed herewith. |
|
** |
Furnished herewith (such certification shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, except to the extent that the Company specifically incorporates it by reference). |
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
SailPoint Technologies Holdings, Inc., |
|
|
|
|
|
|
|
Date: November 7, 2018 |
|
By: |
/s/ Mark McClain |
|
|
|
|
Mark McClain |
|
|
|
|
Chief Executive Officer and Director |
|
|
|
|
|
|
Date: November 7, 2018 |
|
By: |
/s/ Cam McMartin |
|
|
|
|
Cam McMartin |
|
|
|
|
Chief Financial Officer |
32