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
OR
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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
(Exact name of Registrant as specified in its Charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
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(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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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.
Indicate by check mark whether the registrant has submitted electronically 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).
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.
Large accelerated filer |
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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
The registrant had
SailPoint Technologies Holdings, Inc.
Table of Contents
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PART I. FINANCIAL INFORMATION |
Page |
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Item 1. |
2 |
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Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019 |
2 |
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3 |
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4 |
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Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019 |
6 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
7 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 |
Item 3. |
33 |
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Item 4. |
34 |
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PART II. OTHER INFORMATION |
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Item 1. |
35 |
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Item 1A. |
35 |
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Item 2. |
35 |
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Item 6. |
36 |
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37 |
1
PART I
ITEM 1. Financial Statements (Unaudited)
Sailpoint technologies Holding, Inc. and subsidiaries
Condensed Consolidated Balance sheets
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As of |
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June 30, 2020 |
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December 31, 2019 |
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(In thousands, except 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, net of allowance |
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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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Right-of-use assets, net |
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Other non-current assets, net of allowance |
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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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Total current liabilities |
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Deferred tax liability - non-current |
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Convertible senior notes, net |
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Long-term operating lease liabilities |
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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 7) |
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Stockholders’ equity |
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Common stock, $ |
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Preferred stock, $ |
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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.
2
Sailpoint technologies Holding, Inc. and subsidiaries
Condensed Consolidated STATEMENTS OF OPERATIONS
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Three Months Ended |
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Six Months Ended |
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June 30, 2020 |
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June 30, 2019 |
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June 30, 2020 |
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June 30, 2019 |
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(In thousands, except 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 income |
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Interest expense |
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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) benefit |
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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 stockholders |
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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.
3
Sailpoint technologies Holding, Inc. and subsidiaries
Condensed Consolidated STATEMENTS OF STOCKHOLDERS’ EQUITY
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For the Three Months Ended June 30, 2020 |
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Common Stock |
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Additional |
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Number of shares |
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Par value |
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paid in capital |
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Accumulated deficit |
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Stockholders' equity |
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(In thousands) |
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(Unaudited) |
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Balance at March 31, 2020 |
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$ |
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$ |
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$ |
( |
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$ |
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Exercise of stock options |
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— |
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— |
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Restricted stock units vested, net of tax settlement |
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— |
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( |
) |
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— |
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( |
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Stock-based compensation expense |
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— |
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— |
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— |
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Common stock issued under employee stock plan |
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— |
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— |
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Net income |
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— |
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— |
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— |
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Balance at June 30, 2020 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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For the Six Months Ended June 30, 2020 |
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Common Stock |
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Additional |
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Number of shares |
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Par value |
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paid in capital |
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Accumulated deficit |
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Stockholders' equity |
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(In thousands) |
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(Unaudited) |
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Balance at December 31, 2019 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Cumulative effect adjustment from the adoption of ASC 326, net of tax |
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— |
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— |
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— |
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( |
) |
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( |
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Exercise of stock options |
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— |
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— |
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Restricted stock units vested, net of tax settlement |
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— |
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( |
) |
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— |
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( |
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Stock-based compensation expense |
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— |
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— |
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— |
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Common stock issued under employee stock plan |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at June 30, 2020 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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See accompanying notes to unaudited condensed consolidated financial statements.
4
Sailpoint technologies Holding, Inc. and subsidiaries
Condensed Consolidated STATEMENTS OF STOCKHOLDERS’ EQUITY
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For the Three Months Ended June 30, 2019 |
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Common Stock |
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Additional |
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Number of shares |
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Par value |
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paid in capital |
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Accumulated deficit |
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Stockholders' equity |
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(In thousands) |
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(Unaudited) |
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Balance at March 31, 2019 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Exercise of stock options |
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— |
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— |
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Restricted stock units vested, net of tax settlement |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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Common stock issued under employee stock plan |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at June 30, 2019 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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For the Six Months Ended June 30, 2019 |
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Common Stock |
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Additional |
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Retained earnings |
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Number of shares |
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Par value |
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paid in capital |
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(accumulated deficit) |
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Stockholders' equity |
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(In thousands) |
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(Unaudited) |
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Balance at December 31, 2018 |
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$ |
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$ |
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$ |
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$ |
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Exercise of stock options |
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— |
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— |
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Restricted stock units vested, net of tax settlement |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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Incentive units vested |
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— |
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— |
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Common stock issued under employee stock plan |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at June 30, 2019 |
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$ |
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$ |
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|
$ |
( |
) |
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$ |
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|
See accompanying notes to unaudited condensed consolidated financial statements.
5
Sailpoint technologies Holding, Inc. and subsidiaries
CONDENSED Consolidated STATEMENTS OF CASH FLOWS
|
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Six Months Ended |
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|||||
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June 30, 2020 |
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June 30, 2019 |
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(In thousands) |
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|||||
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(Unaudited) |
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|||||
Operating activities |
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Net loss |
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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 debt discount and issuance costs |
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Amortization of contract acquisition costs |
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Gain on disposal of fixed assets |
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( |
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( |
) |
Provision for credit losses |
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Stock-based compensation expense |
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Operating leases, net |
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( |
) |
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Deferred taxes |
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( |
) |
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— |
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Net changes in operating assets and liabilities |
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Accounts receivable |
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Prepayments and other current assets |
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( |
) |
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( |
) |
Other non-current assets |
|
|
( |
) |
|
|
( |
) |
Accounts payable |
|
|
( |
) |
|
|
( |
) |
Accrued expenses and other liabilities |
|
|
( |
) |
|
|
( |
) |
Income taxes |
|
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( |
) |
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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 |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale of property and equipment |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Financing activities |
|
|
|
|
|
|
|
|
Payment of debt issuance costs |
|
|
— |
|
|
|
( |
) |
Taxes associated with net issuances of shares upon vesting of restricted stock units |
|
|
( |
) |
|
|
— |
|
Proceeds from employee stock purchase plan contributions |
|
|
|
|
|
|
|
|
Exercise of stock options |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
|
|
|
|
|
|
Net increase in cash, cash equivalents and restricted cash |
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash, beginning of period |
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash, end of period |
|
$ |
|
|
|
$ |
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
6
Sailpoint technologies Holding, Inc. and subsidiaries
NOTES TO UNAUDITED CONDENSED Consolidated FINANCIAL STATEMENTS
1. Description of Business and Summary of Significant Accounting Policies
SailPoint Technologies Holdings, Inc. (“we,” “our,” “the Company” or “SailPoint”) was incorporated in the state of
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements, which include the accounts of the Company and its wholly owned subsidiaries, have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as well as the instructions to Form 10-Q and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”), for interim reporting. Accordingly, the Company has condensed or omitted certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP. All intercompany accounts and transactions have been eliminated in consolidation.
The unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the balance sheets, statements of operations, statements of stockholders’ equity 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, 2020 or any future period.
These financial statements and accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on February 24, 2020 (the “Annual Report”).
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Management periodically evaluates such estimates and assumptions for continued reasonableness. In particular, we make estimates with respect to the fair value allocation of multiple performance obligation in revenue recognition, the valuation allowance based on expected credit losses and the collectability of accounts receivable, valuation and estimated useful lives of long-lived assets, fair value of the liability and equity components of the Notes (as defined below), stock-based compensation expense and income taxes. Appropriate adjustments, if any, to the estimates used are made prospectively based upon periodic evaluation. Actual results could differ from those estimates.
Concentration of Credit Risk and Other Risks
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. As of June 30, 2020 and December 31, 2019, no single customer represented more than
Significant Accounting Policies
The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes in the Annual Report, most notably Note 2 “Summary of Significant Accounting Policies.” Except for the adoption of ASU 2016-13 described below, there have been no changes to our significant accounting policies described in our Annual Report that have had a material impact on our condensed consolidated financial statements and related notes.
7
Recently Adopted Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“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 (“CCAs”). 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. We adopted the standard effective January 1, 2020, using the prospective approach. This adoption did not have a material impact on the Company’s condensed consolidated financial statements.
The Company evaluates if the CCA includes a license to internal-use software. If the CCA includes a software license, the Company accounts for the software license as an intangible asset. Acquired software licenses are recognized and measured at cost, which includes the present value of the license obligation if the license is to be paid for over time. If the CCA does not include a software license, the Company accounts for the arrangement as a service contract (or hosting arrangement) and hosting costs are generally expensed as incurred.
With the adoption of ASU 2018-15, the Company evaluates upfront costs including implementation, set-up or other costs (collectively, implementation costs) for hosting arrangements under the internal-use software framework. Costs related to preliminary project activities and post implementation activities are expensed as incurred, whereas costs incurred in the development stage are generally capitalized. Capitalized implementation costs are recorded in prepayments and other current assets or other non-current assets and amortized over the expected term of the arrangement, which includes consideration of the non-cancellable contractual term and reasonably certain renewal options. During the six months ended June 30, 2020, the Company’s capitalized implementation costs related to hosting arrangements were not material.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Accounting Standards Codification or ASC 326).” This standard requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. The standard replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. The standard also expands the required quantitative and qualitative disclosures surrounding expected credit losses.
On January 1, 2020, we adopted ASC 326 using the modified retrospective transition method, which requires a cumulative adjustment, if applicable, to be recorded to accumulated deficit. In addition, it is important to note that under the modified retrospective transition method, our prior period results were not recast to reflect this standard. We implemented internal controls and key system functionality to enable the preparation of financial information upon adoption.
We recorded a cumulative adjustment in the amount of $
In December 2019, the FASB issued ASU 2019-12, “Income Taxes – Simplifying the Accounting for Income Taxes.” The guidance removes exceptions to the general principles in Topic 740 for allocating tax expense between financial statement components, accounting basis differences stemming from an ownership change in foreign investments and interim period income tax accounting for year-to-date losses that exceed projected losses. The guidance becomes effective for annual reporting periods beginning after December 15, 2020 and interim periods within those fiscal years with early adoption permitted in the first period of the year this guidance is adopted. We adopted the standard effective January 1, 2020, using the prospective approach except for hybrid tax regimes, which we adopted using the modified retrospective approach. This adoption did not have a material impact on the Company’s condensed consolidated financial statements.
2. Revenue Recognition
Disaggregation of Revenue
The Company’s revenue by geographic region based on the customer’s location is presented in Note 13 “Segment and Geographic Information.”
8
The following table presents the Company’s revenue by timing of revenue recognition to understand the risks of timing of transfer of control and cash flows:
|
|
Three Months Ended June 30, 2020 |
|
|
Three Months Ended June 30, 2019 |
|
||||||||||||||||||
|
|
License |
|
|
Subscription |
|
|
Services and other |
|
|
License |
|
|
Subscription |
|
|
Services and other |
|
||||||
|
|
(In thousands) |
|
|||||||||||||||||||||
Timing of revenue recognition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue recognized at a point in time |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
Revenue recognized over time |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
Six Months Ended June 30, 2020 |
|
|
Six Months Ended June 30, 2019 |
|
||||||||||||||||||
|
|
License |
|
|
Subscription |
|
|
Services and other |
|
|
License |
|
|
Subscription |
|
|
Services and other |
|
||||||
|
|
(in thousands) |
|
|||||||||||||||||||||
Timing of revenue recognition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue recognized at a point in time |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
Revenue recognized over time |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Contract Balances
A summary of the activity impacting our contract balances during the reporting periods is presented below:
|
|
Contract Acquisition Costs |
|
|||||
|
|
Six Months Ended |
|
|||||
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
||
|
|
(In thousands) |
|
|||||
Beginning Balance |
|
$ |
|
|
|
$ |
|
|
Additional deferred contract acquisition costs |
|
|
|
|
|
|
|
|
Amortization of deferred contract acquisition costs |
|
|
( |
) |
|
|
( |
) |
Ending Balance |
|
$ |
|
|
|
$ |
|
|
As of June 30, 2020 and December 31, 2019, $
|
|
Deferred Revenue |
|
|||||
|
|
Six Months Ended |
|
|||||
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
||
|
|
(In thousands) |
|
|||||
Beginning Balance |
|
$ |
|
|
|
$ |
|
|
Increase, net |
|
|
|
|
|
|
|
|
Ending Balance |
|
$ |
|
|
|
$ |
|
|
Deferred revenue, which is a contract liability, consists primarily of amounts invoiced in advance of revenue recognition under the Company’s contracts with customers and is recognized as the revenue recognition criteria are met. During the three and six months ended June 30, 2020, revenue recognized that was previously deferred was $
9
Contract assets primarily relate to unbilled amounts, which are netted with deferred revenue at the contract level, and typically result from sales contracts where revenue recognized exceeds the amount billed to the customer, and the right to payment is subject to more than the passage of time. Contract assets are transferred to accounts receivable when the rights become unconditional and the customer is billed. Contract assets are included in prepayments and other current assets and other non-current assets in the condensed consolidated balance sheets. During the six months ended June 30, 2020 and 2019, amounts reclassified from contract assets to accounts receivable were $
Remaining Performance Obligations
Our contracts with customers include amounts allocated to performance obligations that will be satisfied at a later date. These remaining performance obligations represent contract revenue that has not yet been recognized and is included in deferred revenue, the balance of which includes both invoices that have been issued to customers but have not been recognized as revenue and amounts that will be invoiced and recognized as revenue in future periods. As of June 30, 2020, amounts allocated to these additional performance obligations are $
3. Allowance for Expected Credit Losses
The allowance for expected credit losses is a valuation account that is deducted from the financial asset’s amortized cost basis to present the net amount expected to be collected on contracts with customers. Accounts receivable and contract assets are written off when management believes non-collectability is confirmed. Recoveries of financial assets previously written off shall be recorded when received against the provision for credit losses.
Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts over a financial asset’s contractual term. The Company’s historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made from qualitative and quantitative factors if economic conditions at the reporting date reflect stronger or weaker economic performance than the historical data implies based on management’s expectations of economic conditions on certain indicators of the Company, industry and economy. We review factors such as past collection experience, age of the accounts receivable balance, significant trends in current balances, internal operations and macroeconomic conditions. As of June 30, 2020, SailPoint evaluated these economic conditions and made adjustments to historical loss information for certain economic risk factors, such as COVID-19.
In development of the expected credit loss model, we evaluated our financial assets with similar risk characteristics on a collective (pool) basis for their respective estimated and expected credit loss allowance. A financial asset will be measured individually only if it does not share similar risk characteristics with other financial assets. We believe that historical credit loss patterns by aging bucket and invoice type for accounts receivable are the most significant risk characteristics. We believe that invoice type historical loss patterns differ between renewals and new business. The Company notes expected credit loss is developed for the contractual life of the financial asset, which accounts receivable and contract assets can be viewed as one financial asset. However, a low percentage of our contract assets do not convert to accounts receivable. Therefore, we consider all contract assets as a single pool.
The following table presents the changes in the allowance for expected credit losses for financial assets measured at amortized cost:
|
|
Accounts Receivable |
|
|
Contract Assets |
|
||
|
|
Six Months Ended |
|
|||||
|
|
June 30, 2020 |
|
|||||
|
|
(In thousands) |
|
|||||
Beginning Balance |
|
$ |
— |
|
|
$ |
— |
|
Adoption of ASC 326 |
|
|
|
|
|
|
|
|
Provision for credit losses, net of recoveries |
|
|
|
|
|
|
|
|
Write-offs |
|
|
( |
) |
|
|
— |
|
Ending Balance |
|
$ |
|
|
|
$ |
|
|
10
4. Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables present the Company’s financial assets that are measured at fair value on a recurring basis:
|
As of June 30, 2020 |
|
|||||||||||||
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
|
(In thousands) |
|
|||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
$ |
|
|
|
|
— |
|
|
|
— |
|
|
$ |
|
|
Total cash equivalents |
$ |
|
|
|
|
— |
|
|
|
— |
|
|
$ |
|
|
|
As of December 31, 2019 |
|
|||||||||||||
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
|
(In thousands) |
|
|||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
$ |
|
|
|
|
— |
|
|
|
— |
|
|
$ |
|
|
Total cash equivalents |
$ |
|
|
|
|
— |
|
|
|
— |
|
|
$ |
|
|
The Company’s carrying amounts of financial instruments, including cash, accounts receivable, accounts payable, and accrued expenses are considered Level 1 and approximate their fair values due to their short maturities as of June 30, 2020 and December 31, 2019 and are excluded from the fair value tables above.
See Note 9 “Convertible Senior Notes and Capped Call Transactions” for the carrying amount and estimated fair value of our Notes (as defined below) as of June 30, 2020.
5. Business Combinations
2019 Acquisitions
Orkus
On
The following table summarizes the final purchase price allocation as of the date of acquisition:
|
|
As of |
|
|
|
|
October 15, 2019 |
|
|
|
|
(In thousands) |
|
|
Cash and cash equivalents |
|
$ |
— |
|
Prepayments and other current assets |
|
|
|
|
Right-of-use assets |
|
|
|
|
Goodwill |
|
|
|
|
Intangible assets |
|
|
|
|
Accounts payable |
|
|
( |
) |
Accrued expenses and other liabilities |
|
|
( |
) |
Deferred tax liability - non-current |
|
|
( |
) |
Total fair value of assets acquired and liabilities assumed |
|
$ |
|
|
The following table presents the estimated fair values and useful lives of the identifiable intangible assets acquired:
|
|
Amount |
|
|
Estimated Useful Life |
|
|
|
(In thousands) |
|
|
(In years) |
|
Developed technology |
|
$ |
|
|
|
|
11
Overwatch.ID
On
The following table summarizes the final purchase price allocation as of the date of acquisition:
|
|
As of |
|
|
|
|
October 15, 2019 |
|
|
|
|
(In thousands) |
|
|
Cash and cash equivalents |
|
$ |
|
|
Accounts receivable |
|
|
|
|
Prepayments and other current assets |
|
|
|
|
Deferred tax asset - non-current |
|
|
|
|
Right-of-use assets |
|
|
|
|
Goodwill |
|
|
|
|
Intangible assets |
|
|
|
|
Accounts payable |
|
|
( |
) |
Accrued expenses and other liabilities |
|
|
( |
) |
Deferred revenue |
|
|
( |
) |
Total fair value of assets acquired and liabilities assumed |
|
$ |
|
|
The following table presents the estimated fair values and useful lives of the identifiable intangible assets acquired:
|
|
Amount |
|
|
Estimated Useful Life |
|
|
|
(In thousands) |
|
|
(In years) |
|
Developed technology |
|
$ |
|
|
|
|
Additional Acquisition Related Information
The operating results of the acquired companies are included in our condensed consolidated statements of income from the respective dates of acquisition. Pro forma results of operations have not been presented because the effects of these acquisitions, individually and in the aggregate, were not material to our condensed consolidated statement of operations.
These acquisitions have been accounted for as business combinations. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the respective acquisition date. The Company finalized the purchase price within the required one-year measurement period as of the dates of acquisition.
The fair value of developed technology was estimated using the replacement cost method (Level 3), which utilized assumptions for the cost to replace, such as the workforce, timing and resources required, as well as a theoretical developer’s profit margin and entrepreneurial incentive and opportunity cost. The Company believes that for each acquisition, the acquired companies will provide opportunities for growth through investing in additional products and capabilities, among other factors. This contributed to a purchase price in excess of the estimated fair value of each acquired company’s net identifiable assets acquired and, as a result, goodwill was recorded in connection with each acquisition. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. Goodwill arising from these acquisitions are not deductible for tax purposes.
12
6. Goodwill and Intangible Assets
Goodwill
The following table reflects goodwill activity for the six months ended June 30, 2020:
|
|
(In thousands) |
|
|
Balance, December 31, 2019 |
|
$ |
|
|
Measurement period adjustments |
|
|
|
|
Balance, June 30, 2020 |
|
$ |
|
|
There were
Total cost and amortization of intangible assets are comprised of the following:
|
|
|
|
As of |
|
|||||
|
|
Weighted Average Useful Life |
|
June 30, 2020 |
|
|
December 31, 2019 |
|
||
Intangible assets, net |
|
(In years) |
|
(In thousands) |
|
|||||
Customer lists |
|
|
|
$ |
|
|
|
$ |
|
|
Developed technology |
|
|
|
|
|
|
|
|
|
|
Trade names and trademarks |
|
|
|
|
|
|
|
|
|
|
Other intangible assets |
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
|
|
|
|
|
|
|
|
|
Less: Accumulated amortization |
|
|
|
|
( |
) |
|
|
( |
) |
Total intangible assets, net |
|
|
|
$ |
|
|
|
$ |
|
|
Amortization expense for the following periods is as follows:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Cost of revenue - licenses |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Cost of revenue - subscription |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization expense |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Periodically, the Company evaluates intangible assets for possible impairment. There were
The total estimated future amortization expense of these intangible assets as of June 30, 2020 is as follows:
Year Ending December 31, |
|
(in thousands) |
|
|
2020 (except the six months ended June 30) |
|
$ |
|
|
2021 |
|
|
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
Thereafter |
|
|
|
|
Total amortization expense |
|
$ |
|
|
13
7. Commitments and Contingencies
Letters of Credit
As of June 30, 2020 and December 31, 2019, the Company had an aggregate of $
Operating Leases
As of June 30, 2020, our leases, which primarily consist of office leases, have remaining lease terms of less than
Year Ending December 31, |
|
(in thousands) |
|
|
2020 (except the six months ended June 30) |
|
$ |
|
|
2021 |
|
|
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
Thereafter |
|
|
|
|
Total minimum lease payments |
|
|
|
|
Less: interest |
|
|
( |
) |
Total present value of operating lease liabilities |
|
$ |
|
|
|
|
|
|
|
Current operating lease liabilities |
|
$ |
|
|
Long-term operating lease liabilities |
|
|
|
|
Total operating lease liabilities |
|
$ |
|
|
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.
The Company includes service level commitments to customers of our cloud-based products warranting certain levels of uptime reliability and performance and permitting those customers to receive credits in the event that we fail 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, we have 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 condensed consolidated financial statements.
14
8. Credit Agreement
In 2019, SailPoint Technologies, Inc., as borrower, and certain of our other wholly owned subsidiaries entered into a credit agreement (as amended, restated, amended and restated, supplemented or otherwise modified from time to time through the date hereof, the “Credit Agreement”). The Credit Agreement is guaranteed by SailPoint Technologies Intermediate Holdings, LLC, a wholly owned subsidiary, and the Borrower’s material domestic subsidiaries (the “Guarantors” and, together with the Borrower, the “Loan Parties”) and is supported by a security interest in substantially all of the Loan Parties’ personal property and assets.
Later in 2019, the Company amended the Credit Agreement in connection with the issuance and sale of the Notes (as defined below). Such amendment included a decrease in the commitments for revolving credit loans from $
The interest rates applicable to revolving credit loans under the Credit Agreement are at the Company’s option. The Company pays an unused commitment fee during the term of the Credit Agreement ranging from
The Company had
The Company incurred total debt issuance costs of $
9. Convertible Senior Notes and Capped Call Transactions
In September 2019, the Company issued and sold $
The Notes were issued pursuant to an indenture (the “Indenture”), by and between the Company and U.S. Bank National Association, as trustee. The Notes are senior unsecured obligations of the Company and will mature on
The Notes will be convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding March 15, 2024, only under the following circumstances:
|
• |
during any calendar quarter commencing after the calendar quarter ending on December 31, 2019 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock, for at least |
|
• |
during the |
|
• |
if the Company calls any or all of the Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or |
|
• |
upon the occurrence of specified corporate events as set forth in the Indenture. |
On or after March 15, 2024 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances.
15
Upon conversion, the Company may satisfy its conversion obligation by paying and/or delivering, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election, in the manner and subject to the terms and conditions provided in the Indenture. It is the Company’s current intent to settle the principal amount of the Notes with cash. The Notes are convertible at an initial conversion rate of
In addition, following certain corporate events that occur prior to the maturity date or if the Company delivers a notice of redemption, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Notes in connection with such a corporate event or notice of redemption, as the case may be. For example, upon the occurrence of a make-whole fundamental change, as defined in the purchase agreement, the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its Notes in connection with such make-whole fundamental change or during the relevant redemption period.
The Company may not redeem the Notes prior to September 20, 2022. The Company may redeem for cash all or any portion of the Notes, at its option, on or after September 20, 2022, if the last reported sale price of common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day preceding the date on which the Company provides notice of redemption at a redemption price equal to
If the Company undergoes a fundamental change (as defined in the Indenture), holders may require the Company to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to
The Indenture includes customary covenants and sets forth certain events of default after which the Notes may be declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default involving the Company after which the Notes become automatically due and payable. The Company was in compliance with all applicable covenants as of June 30, 2020.
As of June 30, 2020, the conditions allowing holders of the Notes to convert have not been met since issuance, and therefore, the Notes were classified as long-term debt on our condensed consolidated balance sheets.
In accounting for the issuance of the Notes, we separated the Notes into liability and equity components. The carrying amounts of the liability components of the Notes were calculated by measuring the fair value of similar debt instruments that do not have an associated convertible feature. The carrying amounts of the equity components, representing the conversion option, were determined by deducting the fair value of the liability components from the par value of the Notes. This difference represents the debt discount that is amortized to interest expense over the terms of the Notes using the effective interest rate method. The carrying amount of the equity components representing the conversion options was $
The Company allocates transaction costs related to the issuance of the Notes to the liability and equity components using the same proportions as the initial carrying value of the Notes. Transaction costs attributable to the liability component were $
As of June 30, 2020, the Notes have a remaining life of
16
The net carrying amount of the liability and equity components of the Notes for the periods presented is as follows:
|
|
As of |
|
|||||
|
|
June 30, 2020 |
|
|
December 31, 2019 |
|
||
|
|
(In thousands) |
|
|||||
Liability component |
|
|
|
|
|
|
|
|
Principal |
|
$ |
|
|
|
$ |
|
|
Unamortized discount |
|
|
( |
) |
|
|
( |
) |
Unamortized issuance costs |
|
|
( |
) |
|
|
( |
) |
Net carrying amount |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Equity component, net of issuance costs |
|
$ |
|
|
|
$ |
|
|
The interest expense recognized related to the Notes for the periods presented is as follows:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||
|
|
June 30, 2020 |
|
|
June 30, 2020 |
|
||
|
|
(In thousands) |
|
|||||
Contractual interest expense |
|
$ |
|
|
|
$ |
|
|
Amortization of debt discount |
|
|
|
|
|
|
|
|
Amortization of debt issuance costs |
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
As of June 30, 2020, the total estimated fair value of the Notes was $
Capped Call Transactions
In September 2019, in connection with the pricing of the Notes and in connection with the initial purchasers’ exercise in full of their option to purchase additional Notes, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with the initial purchasers or their respective affiliates and another financial institution. The Capped Call Transactions cover, subject to anti-dilution adjustments substantially similar to those applicable to the Notes,
10. 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”) for the right to purchase shares of common stock and grant restricted stock units (“RSUs”). The 2015 Stock Option Plans reserve
As of June 30, 2020,
17
2017 Long Term Incentive Plan
In November 2017, the Company’s Board of Directors adopted the 2017 Long Term Incentive Plan (the “2017 Plan”) under which it may grant stock options, NSOs to purchase shares of common stock and RSUs. As of June 30, 2020, the Company had reserved
The fair value for the Company’s stock options granted and Employee Stock Purchase Plan (the "ESPP") purchase rights, as discussed further below, during the periods presented were estimated at grant date using a Black Scholes option-pricing model using the following weighted average assumptions:
|
|
Stock Options |
|
|
ESPP |
|
|||||||||
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
|||
Expected dividend rate |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Expected volatility |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Risk-free interest rate |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Expected term (in years) |
|
|
|
|
|
|
|
|
|
|
|
|
|
0.42 - 0.50 |
|
The following table summarizes stock option activity for the six months ended June 30, 2020:
|
|
Number of Options |
|
|
Weighted Average Exercise Price |
|
|
Weighted Average Remaining Contractual Term |
|
|
Aggregate Intrinsic Value |
|
||||
|
|
(In thousands) |
|
|
(Per share) |
|
|
(Years) |
|
|
(In thousands) |
|
||||
Balances at December 31, 2019 |
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2020 |
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Options vested and expected to vest at June 30, 2020 |
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Options vested and exercisable at June 30, 2020 |
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
The Company expects all outstanding stock options to fully vest. The weighted average grant date fair value per share for the six months ended June 30, 2020 and 2019 was $
The total unrecognized compensation expense related to non-vested stock options granted is $
18
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 if exercised in advance of vesting were subject to the Company’s right to repurchase until vested.
The Company did
Restricted Stock Units
The following table summarizes the RSU activity for the Company for the six months ended June 30, 2020:
|
|
Number of Shares |
|
|
Weighted Average Grant Date Fair Value |
|
|
Weighted Average Remaining Contractual Term |
|
|
Aggregate Intrinsic Value |
|
||||
|
|
(In thousands) |
|
|
(Per share) |
|
|
(Years) |
|
|
(In thousands) |
|
||||
Balances at December 31, 2019 |
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Vested |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2020 |
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Units expected to vest at June 30, 2020 |
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
The Company expects all outstanding RSUs to fully vest. The total unrecognized compensation related to RSUs was $
Employee Stock Purchase Plan
The Company initially reserved
A summary of the Company’s stock-based compensation expense, which includes stock options, incentive units, RSUs and ESPP, is presented below:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Stock options |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Incentive units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
RSUs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ESPP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
A summary of the Company’s stock-based compensation expense as recognized on the condensed consolidated statements of operations is as follows:
19
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
||||
|
|
(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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
11. Income Taxes
Income Taxes
The effective tax rate for the three and six months ended June 30, 2020 is
Provision for income taxes consists of U.S. and state income taxes and income taxes in certain foreign jurisdictions in which the Company conducts business. While the Company is expected to be in an overall deferred tax liability position for the period ended December 31, 2020 based on the full-year forecast, the Company is still in a three-year cumulative book loss. Based on an analysis of the utilization of its federal and state deferred tax assets, the Company has included in its FIN18 forecasted effective tax rate a valuation allowance build for the portion of deferred tax assets for which there is not sufficient offsetting future deferred tax liabilities. The Company still maintains a full valuation allowance for its Israel tax position due to the lack of taxable earnings for the foreseeable future.
The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. During the periods ended June 30, 2020 and 2019, the Company did
The Company files tax returns in the U.S. federal jurisdiction, in several state jurisdictions, and in several foreign jurisdictions. The Company is
12. Net Income (Loss) Per Share Attributable to Common Stockholders
Basic and diluted net income (loss) per share is computed by dividing net income (loss) attributable to common stockholders 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 anti-dilutive effect.
20
The following table sets forth the calculation of basic and diluted net income (loss) per share for the periods presented:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
||||
|
|
(In thousands, except per share data) |
|
|||||||||||||
Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Net income (loss) attributable to common stockholders |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders 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 stockholders for the periods presented because their effect would have been anti-dilutive:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Stock options to purchase common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs issued and outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ESPP |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As we expect to settle the principal amount of the Notes in cash and any excess in shares of the Company’s common stock, the Company uses the treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted net income per share, if applicable. The conversion spread of
13. Segment and Geographic Information
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 makers in deciding how to allocate resources and in assessing performance. The Company manages its business on the basis of
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, 2020 |
|
|
June 30, 2019 |
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
||||
|
(In thousands) |
|
|||||||||||||
United States |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
EMEA (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of the World (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
(1) |
No single country outside of the United States represented more than |
21
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 our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 24, 2020 (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 included in this Quarterly Report, other than statements of historical fact, are forward-looking statements. This includes statements regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management. 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.
You should not rely upon forward-looking statements as predictions of future events or place undue reliance thereon. We have based the forward-looking statements contained in this Quarterly Report primarily on our current expectations and projections, in light of currently available information, 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: the effect of the novel coronavirus disease (“COVID-19”) global pandemic and its aftermath, as well as governmental, business and other actions in response, on the global economy and on our business; the scope, duration and severity of the COVID-19 pandemic, including any recurrence, as well as the timing of the economic recovery following the pandemic; our ability to achieve and sustain profitability; our ability to sustain historical growth rates; our ability to attract and retain customers and to deepen our relationships with existing customers; an increased focus in our business from selling licenses to selling subscriptions; breaches in our security, cyber-attacks or other cyber-risks; interruptions with the delivery of our SaaS solutions or third-party cloud-based systems that we use in our operations; our ability to compete successfully against current and future competitors; the length and unpredictable nature of our sales cycle; delayed effects on our operating results from ratably recognizing some of our revenue; fluctuations in our quarterly results; our ability to maintain successful relationships with our channel partners; the increasing complexity of our operations; real or perceived errors, failures or disruptions in our platform or solutions; our ability to adapt and respond to rapidly changing technology, industry standards, regulations or customer needs, requirements or preferences; our ability to achieve and maintain an effective system of disclosure controls and internal control over financial reporting; our ability to comply with our privacy policy or related legal or regulatory requirements; our ability to accurately forecast our estimated annual effective tax rate for financial accounting purposes; our ability to successfully identify, acquire and integrate companies and assets; our ability to maintain high-quality customer satisfaction; and our ability to maintain and enhance our brand or reputation as an industry leader. More information on these risks and other potential factors that could affect our financial results is included in our other filings with the SEC, including in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Annual Report and “Risk Factors” in Part II, Item 1A in subsequent quarterly reports. 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. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
Business Overview
SailPoint Technologies Holdings, Inc. (“SailPoint,” “the Company” or “we”) is the leading provider of enterprise identity governance solutions. Our team of visionary industry veterans launched SailPoint to empower our customers to efficiently and securely govern the digital identities of employees, contractors, business partners, software bots and other human and non-human users, and manage their constantly changing access rights to enterprise applications and data. Our SailPoint Predictive 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.
22
We offer both software and software as a service (“SaaS”) solutions, which provide organizations with the intelligence required to empower users and govern their access to systems, applications and data across hybrid IT environments, spanning on-premises, cloud and mobile applications and file storage platforms. We help customers enable their businesses with more agile and innovative IT, streamline delivery of access to their businesses, enhance their security posture and better meet compliance and regulatory requirements. Our customers include many of the world’s largest and most complex organizations, including commercial enterprises, financial institutions and governments.
Organizations globally are investing in technologies such as cloud computing and mobility to improve employee productivity, business agility and competitiveness. Today, enterprise environments are more open and interconnected with their business partners, contractors, vendors and customers. Business users have driven a dramatic increase in the number of applications and amount of data that organizations need to manage, much of which sits beyond the traditional network perimeter. Because of these trends, the attack surface is expanding while well-funded cyber attackers have significantly increased the frequency and sophistication of their attacks. As a result, IT professionals need to manage and secure increasingly complex hybrid IT environments within these extended enterprises.
Attackers frequently target the identity vector as it allows them to leverage user identities to gain access to high-value systems and data while concealing their activity and movements within an organization’s IT infrastructure. The consequences of a data breach can be extremely damaging, with organizations facing significant costs to remediate the breach and repair brand and reputational damage. In addition, governments and regulatory bodies have increased efforts to protect users and their data with a new wave of regulatory and compliance measures that are further burdening organizations and levying severe penalties for non-compliance. As a result of these trends, enterprises are struggling to efficiently manage and secure their digital identities.
We believe that our SailPoint Predictive Identity platform is a critical, foundational layer of a modern cyber security strategy. Its open architecture allows it to complement and build upon traditional perimeter- and endpoint-centric security solutions, which on their own are increasingly insufficient to secure organizations, and their applications and data.
We deliver a user-centric security platform that combines identity and data governance solutions to form a holistic view of the enterprise. In combination with our technology partners, we create identity awareness throughout our customers’ environments by providing valuable insights into, and incorporating information from, a broad range of enterprise software and security solutions. Our governance platform provides a system of record for digital identities across our customers’ IT environments while allowing them to remain agile and competitive. Our adaptable solutions integrate seamlessly into existing technology stacks, allowing organizations to maximize the value of their technology investments. Our professionals work closely with customers throughout the implementation lifecycle, from documentation to development to integration.
The SailPoint Predictive Identity platform currently consists of:
|
• |
SailPoint Identity Services: delivered as multi-tenant SaaS subscription services and currently consisting of: |
|
o |
IdentityNow: provides customers with a set of fully integrated services for compliance, provisioning and password management for applications and data hosted on-premises or in the cloud; |
|
o |
Access Insights: turns identity data collected into actionable insights; |
|
o |
Recommendation Engine: uses artificial intelligence (“AI”), machine learning (“ML”), peer group analysis, identity attributes and access activity to help you decide whether access should be granted or removed; |
|
o |
Access Modeling: uses AI and ML to suggest roles based on similar access between users and gives you insights to confirm the correct access for each role; |
|
o |
Cloud Access Management: uses AI and ML to automatically learn, monitor and secure access to cloud infrastructure; and |
|
o |
Workload Privilege Management: automates the creation and rotation of credentials, keys and passwords and records and logs activity whenever privileged tasks are performed for security and audit purposes, and |
|
• |
IdentityIQ: our identity governance solution that can be delivered from the cloud or on-premises. |
IdentityIQ provides large, complex enterprise customers a unified and highly configurable identity governance solution that consistently applies business and security policies as well as role and risk models across applications and data. It can be used in conjunction with our SailPoint Identity Services, including Access Insights, Recommendation Engine, Access Modeling, Cloud Access Management and Workload Privilege Management.
23
Our solutions address the complex needs of global enterprises and mid-market organizations. As of June 30, 2020, 1,582 customers across a wide variety of industries were using our products to enable and secure digital identities across the globe.
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-premises and cloud models. 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. Maintaining our historical growth rates is also challenging because our growth strategy depends in part on our ability to expand our global presence, increase the number of companies we can address with our current solutions, 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 managing our net cash from operations while continuing to invest in our platform and to deliver innovative solutions to our customers.
We believe enterprises are increasingly embracing the cloud to house their critical security infrastructure. As a result, a growing number of enterprises are changing their approach to identity governance and now prefer to use a SaaS solution rather than purchase software outright and install it in their own infrastructure. This industry shift aligns well with our current product strategy. Our product strategy is to (1) accelerate innovation within our core identity governance SaaS offerings, (2) deliver continued innovation as we execute against our vision for SailPoint Predictive Identity, and (3) ensure that as we deliver these new innovations, they work in concert with our on-premises offerings in addition to our SaaS offerings. We believe that continued growth of subscription revenue, which includes revenue from our SaaS offerings, as a percentage of total revenue will lead to a more predictable revenue model and increase our visibility to future period total revenues. Nevertheless, our revenue and our gross margins vary depending on the type of solution we sell. As a result, a shift in the sales mix of our solutions could affect our performance relative to historical results.
See “Key Factors Affecting Our Performance” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Annual Report for information regarding the key factors affecting our performance.
Recent Developments and Outlook
In December 2019, COVID-19 was identified in Wuhan, China. In March 2020, as the disease began to spread around the world, the World Health Organization subsequently declared the COVID-19 outbreak a pandemic. In light of the rapid spread of COVID-19 in the United States and abroad, government and public health authorities have recommended social distancing and imposed various quarantine and isolation measures on large portions of the population, including mandatory business closures. While intended to protect human life, these restrictions have had and are expected to continue to have serious adverse impacts on domestic and foreign economies of uncertain severity and duration. In response to these measures, we have made certain adjustments to our operations, but we are not yet certain how these changes or the broader effects of COVID-19 on global economies will affect our financial performance going forward. For example, as a result of the COVID-19 pandemic, we have shifted all customer events to virtual-only experiences for the remainder of 2020. It remains unclear what effect this trend may have on our sales cycle, conversion rate or the quantity and quality of our customer pipeline.
The conditions caused by the COVID-19 pandemic may also affect the rate of IT spending by our current and prospective customers. The COVID-19 pandemic could materially adversely affect our customers’ ability or willingness to purchase our offerings, delay prospective customers’ purchasing decisions, delay the provisioning of our offerings, or cause customers to fail to make timely payments. We have seen an immaterial number of customer requests, and may continue to see similar requests, to lengthen payment terms or reduce the value or duration of subscription contracts, and we believe that the effects of COVID-19 had a slight adverse impact on our renewal rates during the quarter as well, though much of this impact could be attributable to timing. In addition, due to local and regional restrictions, we have not been able to provide on-site consulting services to our customers during the pandemic, but this has not resulted in any meaningful adverse impact on our ability to deliver such services because a significant portion of our consulting services have historically been provided remotely and most on-site projects transitioned to a remote delivery model.
Notwithstanding the potential and actual adverse impacts described above, as the pandemic has caused more of our customers to shift to a virtual workforce, we believe the value and scalability of our identity platform has become even more evident. We believe that the pandemic did not have a material adverse impact on our financial performance during the first half of 2020. While we did note that our performance during the first quarter was somewhat dampened by the impact of COVID-19, we closed some additional deals during the second quarter that had slipped out of the first quarter due to uncertainty around COVID-19. For the remainder of 2020, we foresee healthy demand of our solutions given the aforementioned virtual workforce shift, though we recognize that the uncertainty related to COVID-19 may result in increased volatility in the financial projections we use as the basis for estimates and assumptions used in our financial statements.
24
The challenges posed by COVID-19 on our business and our customers’ businesses may evolve rapidly, and the speed, trajectory and strength of a recovery in general economic conditions remains highly uncertain and could be slowed or reversed by a number of factors, including a possible widespread resurgence in COVID-19 infections in the second half of 2020 without the availability of generally effective therapeutics or a vaccine for the disease. Consequently, we will continue to evaluate our financial position in light of future developments, particularly those relating to COVID-19. See “Risk Factors” in Part II, Item 1A of the Quarterly Report for the quarter ended March 31, 2020 for information regarding the possible effects of COVID-19 on our business.
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 |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
||||
Number of customers |
|
|
1,582 |
|
|
|
1,278 |
|
|
|
1,582 |
|
|
|
1,278 |
|
Subscription revenue as a percentage of total revenue |
|
|
50 |
% |
|
|
53 |
% |
|
|
54 |
% |
|
|
53 |
% |
|
• |
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. 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. Our customer base increased by 304, or 24%, from 1,278 customers at June 30, 2019 to 1,582 customers at June 30, 2020. This increase includes 12 customers added in the first quarter of 2020 as a result of the integration of our two acquisitions in the fourth quarter of 2019. |
|
• |
Subscription Revenue as a Percentage of Total Revenue. Subscription revenue is a portion of our total revenue and is derived from (i) IdentityIQ maintenance and support agreements and (ii) the SailPoint Identity Services where customers enter into subscription agreements with us. As we generally sell our solutions on a per-identity basis, our SaaS subscription revenue for any customer is primarily determined by the number of identities that the customer is entitled to govern, the number of applications that the customer has licensed from us, and the ongoing price paid per-identity under a maintenance and support agreement. 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. |
Components of Results of Operations
See “Components of Results of Operations” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Annual Report for information regarding the components of our results of operations.
Seasonality
We generally experience seasonal fluctuations in demand for our products and services. Our quarterly sales are impacted by industry buying patterns. As a result, our sales have generally been highest in the fourth quarter of a calendar year and lowest in the first quarter. Although these seasonal factors are common in the technology industry, historical patterns should not be considered a reliable indicator of our future sales activity or performance. Further, the seasonal factors could be heightened due to the impact of the current gross domestic product contraction and other impacts unknown at this time on our customers and sales cycles caused by the COVID-19 pandemic.
25
Results of Operations
The following table sets forth our unaudited condensed consolidated statements of operations for the periods presented:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses |
|
$ |
34,880 |
|
|
$ |
19,333 |
|
|
$ |
55,884 |
|
|
$ |
38,002 |
|
Subscription |
|
|
45,922 |
|
|
|
33,711 |
|
|
|
89,803 |
|
|
|
65,546 |
|
Services and other |
|
|
11,656 |
|
|
|
10,010 |
|
|
|
22,213 |
|
|
|
20,089 |
|
Total revenue |
|
|
92,458 |
|
|
|
63,054 |
|
|
|
167,900 |
|
|
|
123,637 |
|
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses |
|
|
1,106 |
|
|
|
1,015 |
|
|
|
2,186 |
|
|
|
2,074 |
|
Subscription (1) |
|
|
8,657 |
|
|
|
6,315 |
|
|
|
17,133 |
|
|
|
12,128 |
|
Services and other (1) |
|
|
8,669 |
|
|
|
8,379 |
|
|
|
17,675 |
|
|
|
16,376 |
|
Total cost of revenue |
|
|
18,432 |
|
|
|
15,709 |
|
|
|
36,994 |
|
|
|
30,578 |
|
Gross profit |
|
|
74,026 |
|
|
|
47,345 |
|
|
|
130,906 |
|
|
|
93,059 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development (1) |
|
|
17,653 |
|
|
|
13,398 |
|
|
|
33,461 |
|
|
|
26,170 |
|
General and administrative (1) |
|
|
9,371 |
|
|
|
8,490 |
|
|
|
18,885 |
|
|
|
17,627 |
|
Sales and marketing (1) |
|
|
38,934 |
|
|
|
35,536 |
|
|
|
75,794 |
|
|
|
66,024 |
|
Total operating expenses |
|
|
65,958 |
|
|
|
57,424 |
|
|
|
128,140 |
|
|
|
109,821 |
|
Income (loss) from operations |
|
|
8,068 |
|
|
|
(10,079 |
) |
|
|
2,766 |
|
|
|
(16,762 |
) |
Other expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
169 |
|
|
|
379 |
|
|
|
1,441 |
|
|
|
425 |
|
Interest expense |
|
|
(4,586 |
) |
|
|
(118 |
) |
|
|
(9,118 |
) |
|
|
(153 |
) |
Other, net |
|
|
(112 |
) |
|
|
(306 |
) |
|
|
(436 |
) |
|
|
(723 |
) |
Total other expense, net |
|
|
(4,529 |
) |
|
|
(45 |
) |
|
|
(8,113 |
) |
|
|
(451 |
) |
Income (loss) before income taxes |
|
|
3,539 |
|
|
|
(10,124 |
) |
|
|
(5,347 |
) |
|
|
(17,213 |
) |
Income tax (expense) benefit |
|
|
(497 |
) |
|
|
927 |
|
|
|
(28 |
) |
|
|
(374 |
) |
Net income (loss) |
|
$ |
3,042 |
|
|
$ |
(9,197 |
) |
|
$ |
(5,375 |
) |
|
$ |
(17,587 |
) |
|
(1) |
Includes stock-based compensation expense as follows: |
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Cost of revenue - subscription |
|
$ |
396 |
|
|
$ |
284 |
|
|
$ |
785 |
|
|
$ |
544 |
|
Cost of revenue - services and other |
|
|
391 |
|
|
|
380 |
|
|
|
818 |
|
|
|
729 |
|
Research and development |
|
|
1,487 |
|
|
|
916 |
|
|
|
2,988 |
|
|
|
1,833 |
|
General and administrative |
|
|
1,950 |
|
|
|
1,644 |
|
|
|
2,952 |
|
|
|
3,015 |
|
Sales and marketing |
|
|
2,926 |
|
|
|
1,746 |
|
|
|
5,798 |
|
|
|
3,488 |
|
Total stock-based compensation expense |
|
$ |
7,150 |
|
|
$ |
4,970 |
|
|
$ |
13,341 |
|
|
$ |
9,609 |
|
26
The following table sets forth the unaudited condensed consolidated statements of operations data for each of the periods presented as a percentage of total revenue:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses |
|
|
38 |
% |
|
|
31 |
% |
|
|
33 |
% |
|
|
31 |
% |
Subscription |
|
|
50 |
|
|
|
53 |
|
|
|
54 |
|
|
|
53 |
|
Services and other |
|
|
12 |
|
|
|
16 |
|
|
|
13 |
|
|
|
16 |
|
Total revenue |
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses |
|
|
1 |
|
|
|
2 |
|
|
|
1 |
|
|
|
2 |
|
Subscription |
|
|
10 |
|
|
|
10 |
|
|
|
10 |
|
|
|
10 |
|
Services and other |
|
|
9 |
|
|
|
13 |
|
|
|
11 |
|
|
|
13 |
|
Total cost of revenue |
|
|
20 |
|
|
|
25 |
|
|
|
22 |
|
|
|
25 |
|
Gross profit |
|
|
80 |
|
|
|
75 |
|
|
|
78 |
|
|
|
75 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
19 |
|
|
|
21 |
|
|
|
20 |
|
|
|
21 |
|
General and administrative |
|
|
10 |
|
|
|
13 |
|
|
|
11 |
|
|
|
14 |
|
Sales and marketing |
|
|
42 |
|
|
|
56 |
|
|
|
45 |
|
|
|
53 |
|
Total operating expenses |
|
|
71 |
|
|
|
90 |
|
|
|
76 |
|
|
|
88 |
|
Income (loss) from operations |
|
|
9 |
|
|
|
(15 |
) |
|
|
2 |
|
|
|
(13 |
) |
Other expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
0 |
|
|
|
1 |
|
|
|
1 |
|
|
|
0 |
|
Interest expense |
|
|
(5 |
) |
|
|
0 |
|
|
|
(6 |
) |
|
|
0 |
|
Other, net |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(1 |
) |
Total other expense, net |
|
|
(5 |
) |
|
|
1 |
|
|
|
(5 |
) |
|
|
(1 |
) |
Income (loss) before income taxes |
|
|
4 |
|
|
|
(14 |
) |
|
|
(3 |
) |
|
|
(14 |
) |
Income tax (expense) benefit |
|
|
(1 |
) |
|
|
1 |
|
|
|
0 |
|
|
|
0 |
|
Net income (loss) |
|
|
3 |
% |
|
|
(13 |
)% |
|
|
(3 |
)% |
|
|
(14 |
)% |
Comparison of the Three and Six Months Ended June 30, 2020 and 2019
Revenue
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||||||||||||||||||
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
|
variance $ |
|
|
variance % |
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
|
variance $ |
|
|
variance % |
|
||||||||
|
|
(In thousands, except percentages) |
|
|||||||||||||||||||||||||||||
Revenue |
|
|
|
|
|
|
||||||||||||||||||||||||||
Licenses |
|
$ |
34,880 |
|
|
$ |
19,333 |
|
|
$ |
15,547 |
|
|
|
80 |
% |
|
$ |
55,884 |
|
|
$ |
38,002 |
|
|
$ |
17,882 |
|
|
|
47 |
% |
Subscription |
|
|
45,922 |
|
|
|
33,711 |
|
|
|
12,211 |
|
|
|
36 |
% |
|
|
89,803 |
|
|
|
65,546 |
|
|
|
24,257 |
|
|
|
37 |
% |
Services and other |
|
|
11,656 |
|
|
|
10,010 |
|
|
|
1,646 |
|
|
|
16 |
% |
|
|
22,213 |
|
|
|
20,089 |
|
|
|
2,124 |
|
|
|
11 |
% |
Total revenue |
|
$ |
92,458 |
|
|
$ |
63,054 |
|
|
$ |
29,404 |
|
|
|
47 |
% |
|
$ |
167,900 |
|
|
$ |
123,637 |
|
|
$ |
44,263 |
|
|
|
36 |
% |
License Revenue. License revenue increased by $15.5 million, or 80%, for the three months ended June 30, 2020 compared to the three months ended June 30, 2019. During the three months ended June 30, 2020 and 2019, license revenue from new customers was $22.1 million and $11.8 million, and license revenue from existing customers was $12.8 million and $7.5 million for the respective periods.
License revenue increased by $17.9 million, or 47%, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. During the six months ended June 30, 2020 and 2019, license revenue from new customers was $33.5 million and $26.3 million, and license revenue from existing customers was $22.4 million and $11.7 million for the respective periods.
Subscription Revenue. Subscription revenue increased by $12.2 million, or 36%, for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to an increase in ongoing maintenance revenue from our increased installed base and new sales of our SaaS offerings. During both the three months ended June 30, 2020 and 2019, subscription revenue from new customers was $3.0 million, and subscription revenue from existing customers during the three months ended June 30, 2020 and June 30, 2019 was $42.9 million and $30.7 million for the respective periods.
27
Subscription revenue increased by $24.3 million, or 37%, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. The increase was primarily a result of an increase in ongoing maintenance revenue from our increased installed base and new sales of our SaaS offerings. During the six months ended June 30, 2020 and 2019, subscription revenue from new customers was $4.4 million and $4.3 million, and subscription revenue from existing customers during the six months ended June 30, 2020 and June 30, 2019 was $85.4 million and $61.2 million for the respective periods.
Services and Other Revenue. Services and other revenue increased by $1.6 million, or 16% for the three months ended June 30, 2020 compared to the three months ended June 30, 2019. The increase is primarily a result of an increase in the number of customers using our consulting and training services.
Services and other revenue increased by $2.1 million, or 11%, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. The increase is primarily a result of an increase in the number of customers using our consulting and training services.
Geographic Regions. Our customers in the United States contributed the largest portion of our revenue in each reporting period ended June 30, 2020 and 2019 because we have more market momentum related to our larger and more established sales force, sales pipeline and brand recognition and awareness in the United States as compared to our other regions. Revenue is classified by the following major geographic areas: (i) United States, (ii) Europe, the Middle East and Africa (“EMEA”) and (iii) rest of the world. We continue to invest in increasing the size of our international sales force and strengthening partnerships with global system integrators and resellers worldwide. For the three and six months ended June 30, 2020, revenue in the United States and the rest of the world increased year-over-year, while EMEA remained consistent year-over-year.
The following table sets forth, for each of the periods presented, our consolidated total revenue by geography and the respective percentages of total revenue:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||||||||||||||||||
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
||||||||||||||||||||
|
|
$ |
|
|
% of revenue |
|
|
$ |
|
|
% of revenue |
|
|
$ |
|
|
% of revenue |
|
|
$ |
|
|
% of revenue |
|
||||||||
|
|
(In thousands, except percentages) |
|
|||||||||||||||||||||||||||||
United States |
|
$ |
69,197 |
|
|
|
75 |
% |
|
$ |
44,399 |
|
|
|
70 |
% |
|
$ |
123,696 |
|
|
|
74 |
% |
|
$ |
85,959 |
|
|
|
70 |
% |
EMEA (1) |
|
|
13,047 |
|
|
|
14 |
% |
|
|
12,332 |
|
|
|
20 |
% |
|
|
26,775 |
|
|
|
16 |
% |
|
|
26,269 |
|
|
|
21 |
% |
Rest of the World (1) |
|
|
10,214 |
|
|
|
11 |
% |
|
|
6,323 |
|
|
|
10 |
% |
|
|
17,429 |
|
|
|
10 |
% |
|
|
11,409 |
|
|
|
9 |
% |
Total revenue |
|
$ |
92,458 |
|
|
|
100 |
% |
|
$ |
63,054 |
|
|
|
100 |
% |
|
$ |
167,900 |
|
|
|
100 |
% |
|
$ |
123,637 |
|
|
|
100 |
% |
(1) |
No single country outside of the United States represented more than 10% of our revenue. |
Gross Profit and Gross Margin
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
||||||||||||||||||||||||||
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
|
variance $ |
|
|
variance % |
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
|
variance $ |
|
|
variance % |
||||||||||
|
|
(In thousands, except percentages) |
|
|
|||||||||||||||||||||||||||||
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses |
|
$ |
33,774 |
|
|
$ |
18,318 |
|
|
$ |
15,456 |
|
|
|
84 |
% |
|
$ |
53,698 |
|
|
$ |
35,928 |
|
|
$ |
17,770 |
|
|
|
49 |
% |
|
Subscription |
|
|
37,265 |
|
|
|
27,396 |
|
|
|
9,869 |
|
|
|
36 |
% |
|
|
72,670 |
|
|
|
53,418 |
|
|
|
19,252 |
|
|
|
36 |
% |
|
Services and other |
|
|
2,987 |
|
|
|
1,631 |
|
|
|
1,356 |
|
|
|
83 |
% |
|
|
4,538 |
|
|
|
3,713 |
|
|
|
825 |
|
|
|
22 |
% |
|
Total gross profit |
|
$ |
74,026 |
|
|
$ |
47,345 |
|
|
$ |
26,681 |
|
|
|
56 |
% |
|
$ |
130,906 |
|
|
$ |
93,059 |
|
|
$ |
37,847 |
|
|
|
41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses |
|
|
97 |
% |
|
|
95 |
% |
|
|
|
|
|
|
|
|
|
|
96 |
% |
|
|
95 |
% |
|
|
|
|
|
|
|
|
|
Subscription |
|
|
81 |
% |
|
|
81 |
% |
|
|
|
|
|
|
|
|
|
|
81 |
% |
|
|
81 |
% |
|
|
|
|
|
|
|
|
|
Services and other |
|
|
26 |
% |
|
|
16 |
% |
|
|
|
|
|
|
|
|
|
|
20 |
% |
|
|
18 |
% |
|
|
|
|
|
|
|
|
|
Total gross margin |
|
|
80 |
% |
|
|
75 |
% |
|
|
|
|
|
|
|
|
|
|
78 |
% |
|
|
75 |
% |
|
|
|
|
|
|
|
|
|
Licenses. License gross profit increased by $15.5 million, or 84%, for the three months ended June 30, 2020 compared to the three months ended June 30, 2019. The increase in gross profit was the result of increased license revenues with only minor increases in third party royalties.
28
License gross profit increased by $17.8 million, or 49%, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. The increase in gross profit was the result of increased license revenues with only minor increases in third party royalties.
Subscription. Subscription gross profit increased by $9.9 million, or 36%, for the three months ended June 30, 2020 compared to the three months ended June 30, 2019. The increase in gross profit was the result of growth in subscription revenue, as described above, while gross margin remained consistent with prior period.
Subscription gross profit increased by $19.3 million, or 36%, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. The increase in gross profit was the result of growth in subscription revenue, as described above, while gross margin remained consistent with prior period.
Services and Other. Services and other gross profit increased by $1.4 million, or 83%, for the three months ended June 30, 2020 compared to the three months ended June 30, 2019. The increase in gross profit is primarily a result of an increase in the number of customers using our consulting and training services.
Services and other gross profit increased by $0.8 million, or 22%, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. The increase in gross profit is primarily a result of an increase in the number of customers using our consulting and training services.
Operating Expenses
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||||||||||||||||||
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
|
variance $ |
|
|
variance % |
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
|
variance $ |
|
|
variance % |
|
||||||||
|
|
(In thousands, except percentages) |
|
|||||||||||||||||||||||||||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
$ |
17,653 |
|
|
$ |
13,398 |
|
|
$ |
4,255 |
|
|
|
32 |
% |
|
$ |
33,461 |
|
|
$ |
26,170 |
|
|
$ |
7,291 |
|
|
|
28 |
% |
General and administrative |
|
|
9,371 |
|
|
|
8,490 |
|
|
|
881 |
|
|
|
10 |
% |
|
|
18,885 |
|
|
|
17,627 |
|
|
|
1,258 |
|
|
|
7 |
% |
Sales and marketing |
|
|
38,934 |
|
|
|
35,536 |
|
|
|
3,398 |
|
|
|
10 |
% |
|
|
75,794 |
|
|
|
66,024 |
|
|
|
9,770 |
|
|
|
15 |
% |
Total operating expenses |
|
$ |
65,958 |
|
|
$ |
57,424 |
|
|
$ |
8,534 |
|
|
|
15 |
% |
|
$ |
128,140 |
|
|
$ |
109,821 |
|
|
$ |
18,319 |
|
|
|
17 |
% |
Research and Development Expenses. Research and development expenses increased by $4.3 million, or 32%, for the three months ended June 30, 2020 compared to the three months ended June 30, 2019. This increase was primarily driven by a $3.4 million increase in employee-based costs primarily consisting of salary related expenses, bonus accrual and stock-based compensation, $0.6 million increase in professional services expense and $0.3 million increase in software and hosting arrangement expenses.
Research and development expenses increased by $7.3 million, or 28%, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. This increase was primarily driven by a $6.1 million increase in employee-based costs primarily consisting of salary related expenses, bonus accrual and stock-based compensation, $0.8 million increase in professional services expense and $0.4 million increase in software and hosting arrangement expenses.
General and Administrative Expenses. General and administrative expenses increased by $0.9 million, or 10%, for the three months ended June 30, 2020 compared to the three months ended June 30, 2019. This increase was primarily driven by a $0.7 million increase in software maintenance and subscription expenses and $0.7 million increase in provision of credit losses, partially offset by $0.4 million decrease in professional services expense relating primarily to legal costs.
General and administrative expenses increased by $1.3 million, or 7%, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. This increase was primarily driven by a $1.6 million increase in software maintenance and subscription expenses, $0.8 million increase in provision of credit losses and $0.6 million increase in general and administrative headcount and related allocated overhead expenses, partially offset by a $1.5 million decrease in professional services expense relating primarily to legal costs.
Sales and Marketing Expenses. Sales and marketing expenses increased by $3.4 million, or 10%, for the three months ended June 30, 2020 compared to the three months ended June 30, 2019. Approximately $6.3 million of the increase in employee-based costs primarily consists of salary related expenses, commissions, bonus accrual and stock-based compensation, partially offset by $2.1 million decrease in travel expense and $0.9 million decrease in events expense, both due to COVID-19 related limitations.
29
Sales and marketing expenses increased by $9.8 million, or 15%, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. Approximately $12.7 million of the increase in employee-based costs primarily consists of salary related expenses, commissions, bonus accrual and stock-based compensation, partially offset by a $2.3 million decrease in travel expense and $0.8 million decrease in events expense, both due to COVID-19 related limitations.
Interest Income and Interest Expense
Interest Income
Interest income decreased by $0.2 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019. This decrease was primarily due to a significant decrease in interest rates earned on our money market accounts, partially offset by the increase in our cash balance.
Interest income increased by $1.0 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. This increase was due to interest income earned on our money market accounts, primarily during the first quarter of 2020, in which we have invested a significant portion of the net proceeds from the Notes issuance in the third quarter of 2019.
Interest Expense
Interest expense increased by $4.5 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019. This increase was primarily due to $4.0 million of amortization of debt discount and $0.3 million of debt issuance costs related to the Notes for the three months ended June 30, 2020.
Interest expense increased by $9.0 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. This increase was primarily due to $8.0 million of amortization of debt discount and $0.7 million of debt issuance costs related to the Notes for the six months ended June 30, 2020.
Income Tax (Expense) Benefit
The Company recorded an income tax expense of less than $0.1 million and $0.4 million for the six months ended June 30, 2020 and 2019, respectively, leading to a net benefit of $0.3 million year-over-year. The Company maintains a full valuation allowance for our Israel tax position due the lack of taxable earnings for the foreseeable future.
Our income tax rate varies from the federal statutory rate due to the valuation allowances on certain foreign deferred tax assets, regulations and interpretations in multiple jurisdictions in which we operate; unanticipated changes in tax rates; and differences in accounting and tax treatment of our stock-based compensation, foreign withholding taxes and research and development credits. 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. 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. With the exception of 2018 and 2019, we have incurred net operating losses for federal income tax purposes each year since our inception. We have since begun to utilize some of our net operating losses for federal income tax purposes. Thus, our tax expense to date relates primarily to state as well as foreign income taxes. The effective tax rate for the three and six months ended June 30, 2020 is 14.0% and (0.5)%, respectively, compared to 9.2% and (2.2)% for the three and six months ended June 30, 2019. The main drivers for the differences in the rates from the prior period to the current period are related to differences in forecasted pre-tax book income, the impact of stock compensation and increase in foreign tax liabilities and impact of the valuation allowance build.
We do not consider the earnings of our foreign subsidiaries, with the exception of India, to be permanently reinvested in foreign jurisdictions. The global intangible low-taxed income (“GILTI”) provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The Company is currently in a tested loss and does not incur a GILTI tax. In India, we continue to invest and grow our research and development 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.
Liquidity and Capital Resources
As of June 30, 2020, we had $470.6 million of cash and cash equivalents, $4.2 million of cash and cash equivalents held in our foreign subsidiaries, $75.0 million of availability under the Credit Agreement (as defined below) and $6.0 million in our irrevocable, cash collateralized, unconditional standby letter of credit, issued primarily in connection with our corporate headquarters lease. As of June 30, 2020, we had $561.3 million in working capital, which we define as current assets less current liabilities, excluding deferred revenue.
30
We believe that existing cash and cash equivalents, any positive cash flows from operations and available borrowings under our Credit Agreement 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 are not sufficient to fund future activities, we may borrow under our Credit Agreement or seek to raise additional funds through equity, equity-linked or debt financings. Any additional equity financing may be dilutive to our existing stockholders. We may enter into agreements or letters of intent with respect to potential investments in, or acquisitions of, complementary businesses, services or technologies, which could also require us to seek additional equity financing, incur indebtedness or use cash resources. As of June 30, 2020, we had no material commitments for capital expenditures.
Since inception, we have financed operations primarily through license fees, maintenance fees, SaaS subscription fees, consulting and training fees, borrowings under our prior credit agreement and, to a lesser degree, the sale of equity securities. 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 key initiatives to drive the Company’s long-term growth.
Credit Agreement
In March 2019, SailPoint Technologies, Inc., as borrower, and certain of our other wholly owned subsidiaries entered into a credit agreement (as amended, restated, amended and restated, supplemented or otherwise modified from time to time through the date hereof, the “Credit Agreement”). In September 2019, the Company amended the Credit Agreement in connection with the issuance and sale of the Notes. Such amendment included a decrease in the commitments for revolving credit loans from an initial $150.0 million to $75.0 million, with a $15.0 million letter of credit sublimit, which amount can be increased or decreased under specified circumstances and is subject to certain financial covenants. Borrowings pursuant to the Credit Agreement may be used for working capital and other general corporate purposes, including for acquisitions permitted under the Credit Agreement.
Borrowings under the Credit Agreement are scheduled to mature in March 2024. We had no outstanding revolving credit loan balance as of June 30, 2020 and December 31, 2019. We were in compliance with all applicable covenants as of June 30, 2020.
See Note 8 “Credit Agreement” in our notes to condensed consolidated financial statements included in this Quarterly Report for more information regarding terms and conditions of the Credit Agreement.
Convertible Senior Notes
In September 2019, we issued $400.0 million aggregate principal amount of 0.125% convertible senior notes due 2024 (the “Notes”), in a private offering to qualified institutional buyers. In connection with the issuance of the Notes and exercise in full of the initial purchasers’ option, the Company used $37.1 million of the net proceeds to pay the cost of the privately negotiated capped call transactions (the “Capped Call Transactions”).
See Note 9 “Convertible Senior Notes and Capped Call Transactions” in our notes to condensed consolidated financial statements included in this Quarterly Report for more information regarding terms and conditions of the Notes and Capped Call Transactions.
Summary of Cash Flows
The following table summarizes our cash flows for the periods presented:
|
|
Six Months Ended |
|
|||||
|
|
June 30, 2020 |
|
|
June 30, 2019 |
|
||
|
|
(In thousands) |
|
|||||
Net cash provided by operating activities |
|
$ |
22,053 |
|
|
$ |
21,829 |
|
Net cash used in investing activities |
|
|
(1,275 |
) |
|
|
(3,606 |
) |
Net cash provided by financing activities |
|
|
6,037 |
|
|
|
3,893 |
|
Net increase in cash, cash equivalents and restricted cash |
|
$ |
26,815 |
|
|
$ |
22,116 |
|
31
Cash Flows from Operating Activities
During the six months ended June 30, 2020, cash provided by operating activities was $22.1 million, which consisted of net loss of $5.4 million, adjusted by non-cash charges of $37.8 million and a net change of $(10.4) million in our operating assets and liabilities. The non-cash charges are primarily comprised of depreciation and amortization of $9.2 million, amortization of debt discount and issuance costs of $8.8 million, amortization of contract acquisition costs of $6.1 million, provision for credit losses of $0.8 million, stock-based compensation of $13.3 million, a net decrease in operating leases of $0.2 million and a net decrease in deferred taxes of $0.1 million. The change in our net operating assets and liabilities was $(10.4) million as a result of an increase in prepayments and other assets, a decrease in accounts payable due to timing of cash disbursements, a decrease in accrued expenses and other liabilities due primarily to payments on commissions and bonuses and a decrease in income taxes payable, partially offset by a decrease in accounts receivable due to the timing of receipts of payments from customers and an increase in deferred revenue due to the timing of billings and cash received in advance of revenue recognition primarily for subscription and support services.
During the six months ended June 30, 2019, cash provided by operating activities was $21.8 million, which consisted of a net loss of $17.6 million, adjusted by non-cash charges of $21.7 million and a net change of $17.7 million in our net operating assets and liabilities. The non-cash charges are primarily comprised of depreciation and amortization of $6.9 million, amortization of debt issuance costs of $0.1 million, amortization of contract acquisition costs of $4.7 million, bad debt expense of $0.1 million, stock-based compensation of $9.6 million and net change in operating leases of $0.4 million. The change in our net operating assets and liabilities was $17.7 million as a result of a decrease in accounts receivable due to the timing of receipts of payments from customers and an increase in deferred revenue due to the timing of billings and cash received in advance of revenue recognition primarily for subscription and support services, partially offset by an increase in prepayments and other assets, a decrease in accounts payable due to timing of cash disbursements, a decrease in accrued expenses and other liabilities due primarily to accrual of additional commissions and bonuses and a decrease in income taxes payable.
Cash Flows from Investing Activities
During the six months ended June 30, 2020, cash used in investing activities was $1.3 million, consisting primarily of purchases of property and equipment.
During the six months ended June 30, 2019, cash used in investing activities was $3.6 million, consisting primarily of purchases of property and equipment.
Cash Flows from Financing Activities
During the six months ended June 30, 2020, cash provided by financing activities was $6.0 million, consisting of $2.8 million of proceeds from exercise of stock options and $3.5 million of proceeds from issuance of equity related to shares issued pursuant to our Employee Stock Purchase Plan, partially offset by $0.2 million in vesting of restricted stock units.
During the six months ended June 30, 2019, cash provided by financing activities was $3.9 million, consisting of $1.8 million of proceeds from exercise of stock options and $2.9 million of proceeds from issuance of equity related to shares issued pursuant to our Employee Stock Purchase Plan, partially offset by debt issuance costs of $0.8 million associated with the new Credit Agreement.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities, which includes special purposes entities and other structured finance entities.
Contractual Obligations and Commitments
There have been no material changes outside the ordinary course of business in our contractual obligations and commitments during the six months ended June 30, 2020, as compared to the Annual Report on Form 10-K for the year ended December 31, 2019.
Critical Accounting Policies and Estimates
Our condensed 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.
32
We believe that the accounting policies associated with revenue recognition, the valuation allowance based on expected credit losses and the collectability of accounts receivable, stock-based compensation expense, fair value of the liability and equity components of the Notes, income taxes and valuation of long-lived assets and goodwill are the most significant areas involving management's judgments and estimates. Therefore, these are considered to be our critical accounting policies and estimates.
Except for the adoption of ASU 2016-13, see “Critical Accounting Policies and Estimates” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Annual Report for a full discussion of these estimates and policies. See Note 1 “Description of Business and Summary of Significant Accounting Policies” and Note 3 “Allowance for Expected Credit Losses” in our notes to condensed consolidated financial statements included in this Quarterly Report for more information on the adoption of ASU 2016-13.
Recent Accounting Pronouncements
See Note 1 “Description of Business and Summary of Significant Accounting Policies” in our notes to condensed consolidated financial statements included in this Quarterly Report for a description of recent accounting pronouncements, including the dates of adoption and estimated effects on our results of operations, financial condition, and cash flows.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For a description of market risks, see “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of the Annual Report. Our exposure to market risks related to inflation risk has not changed materially from the exposure described in the Annual Report.
Interest Rate Risk
We had cash and cash equivalents of $476.9 million as of June 30, 2020, including $6.3 million of restricted cash as of June 30, 2020. Our cash and cash equivalents are held in cash deposits and money market funds. Due to the short-term nature of these instruments, we believe that we do not have material risk of exposure to changes in the fair value of our cash and cash equivalents as a result of changes in interest rates. As of June 30, 2020, we do not believe a hypothetical 10% relative change in interest rates would have a material impact on the value of our cash equivalents.
We did not have any investments in marketable securities as of June 30, 2020.
In September 2019, we issued and sold $400.0 million aggregate principal amount of 0.125% convertible senior notes due 2024 in a private offering to qualified institutional buyers. The fair value of the Notes is subject to interest rate risk, market risk and other factors due to the conversion feature. The fair value of the Notes will generally increase as our common stock price increases and will generally decrease as our common stock price decreases. The interest and market value changes affect the fair value of the Notes but do not impact our financial position, cash flows or results of operations due to the fixed nature of the debt obligation. Additionally, we carry the Notes at face value less unamortized discount and debt issuance costs on our balance sheets, and we present the fair value for required disclosure purposes only.
Foreign Currency Exchange Risk
Our reporting currency is the U.S. dollar. Due to our international operations, we have foreign currency risk related to operating expenses denominated in currencies other than the U.S. dollar, primarily the Euro, British pound, Australian dollar, Canadian dollar, Singaporean dollar, Israeli shekel and the Indian rupee. As of June 30, 2020, our cash and cash equivalents included $4.2 million held in currencies other than the U.S. dollar. Decreases in the relative value of the U.S. dollar to other currencies may negatively affect our operating results as expressed in U.S. dollars. These amounts are included in other expense, net, on our condensed consolidated statements of operations.
Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates because, although substantially all of our revenue is generated in U.S. dollars, our expenses are generally denominated in the currencies of the jurisdictions in which we conduct our operations, which are primarily in the United States, Europe and Asia. Our results of operations and cash flows could therefore be adversely affected in the future due to changes in foreign exchange rates. We do not believe that a hypothetical 10% change in the relative value of the U.S. dollar to other currencies would have a material effect on our results of operations or cash flows, and to date, we have not engaged in any hedging strategies with respect to foreign currency transactions. As our international operations grow, we will continue to reassess our approach to manage our risk relating to fluctuations in currency rates, and we may choose to engage in the hedging of foreign currency transactions in the future.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and to ensure that information required to be disclosed is accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), to allow timely decisions regarding disclosure. Our CEO and CFO, with assistance from other members of management, have reviewed the effectiveness of our disclosure controls and procedures as of June 30, 2020 and, based on their evaluation, have concluded that the disclosure controls and procedures were effective as of such date.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the presentation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
In connection with the preparation of this Quarterly Report on Form 10-Q, our management assessed the effectiveness of our internal control over financial reporting as of June 30, 2020. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013 framework). Based on such assessment, our management concluded that, as of June 30, 2020, our internal control over financial reporting was effective based on those criteria.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting as defined in Exchange Act Rule 13a-15(d) and 15d-15(d) during the quarter ended June 30, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that our employees are working remotely due to the global COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation to determine any potential impacts on the design and operating effectiveness of our internal controls over financial reporting.
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Part II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently a party to, nor is our property currently subject to, any material legal proceedings. We are not aware of any governmental inquiries or investigations into our business.
Item 1A. Risk Factors
There have been no material changes to the risk factors disclosed in Part I, Item 1A in the Company’s Annual Report and Part II, Item 1A in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
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) relating to our initial public offering was declared effective by the SEC and we priced our initial public offering. Pursuant to the Registration Statement, we registered an aggregate of 23.0 million shares of our common stock, of which 15.8 million shares were sold by us and 7.2 million shares were sold by certain selling stockholders named therein at a price to the public of $12.00 per share (for an aggregate offering price of $276.0 million). We received net proceeds of $172.0 million, after deducting underwriting discounts and commissions of $13.3 million and offering-related expenses of $4.4 million. As of June 30, 2020, we have used $160.0 million of the proceeds from our initial public offering to repay borrowings under our previous term loan facility and $1.8 million of such proceeds to pay a related prepayment premium; the remaining net proceeds are held in cash and have not been deployed.
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Item 6. Exhibits
Exhibit Index
Exhibit Number |
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Description |
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2.1*** |
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2.2*** |
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3.1 |
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3.2 |
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31.1* |
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31.2* |
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32.1** |
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32.2** |
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101.INS* |
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Inline 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. |
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101.SCH* |
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Inline XBRL Taxonomy Extension Schema Document. |
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101.CAL* |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF* |
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Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB* |
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Inline XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE* |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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104 |
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Inline Cover Page Interactive Data File (embedded within the Inline XBRL 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). |
*** |
Certain schedules and exhibits have been omitted in accordance with Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the Securities and Exchange Commission on request. |
+ |
Management contract or compensatory plan or arrangement. |
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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.
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SailPoint Technologies Holdings, Inc., |
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Date: August 6, 2020 |
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By: |
/s/ Mark McClain |
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Mark McClain |
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Chief Executive Officer and Director (Principal Executive Officer) |
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Date: August 6, 2020 |
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By: |
/s/ Jason Ream |
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Jason Ream |
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Chief Financial Officer (Principal Financial Officer) |
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