sail-20210930

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________________________________________________________________

FORM 10-Q

_____________________________________________________________________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission File Number 001-38297

SailPoint Technologies Holdings, Inc.

(Exact name of registrant as specified in its charter)

_____________________________________________________________________________________________

Delaware

(State or other jurisdiction of

incorporation or organization)

11120 Four Points Drive, Suite 100,

Austin, TX

(Address of principal executive offices)

47-1628077

(I.R.S. Employer

Identification No.)

78726

(Zip Code)

Registrant’s telephone number, including area code: (512) 346-2000

_____________________________________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.0001 per share

SAIL

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

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). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	x	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

The registrant had 93,263,655 shares of common stock outstanding as of November 3, 2021.

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SailPoint Technologies Holdings, Inc.

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	PART I. FINANCIAL INFORMATION	Page

Item 1.	Financial Statements (Unaudited)	2
	Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020	2
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020	3
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	37

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 6.	Exhibits	39
	Signatures	40

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PART I

ITEM 1. Financial Statements (Unaudited)

SAILPOINT TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)


	As of
	September 30, 2021		December 31, 2020
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	421,847	$	510,289
Restricted cash	6,707		6,355
Accounts receivable, net of allowances of $411 and $376	117,828		112,255
Deferred contract acquisition costs, current	20,696		15,592
Prepayments and other current assets	41,843		26,027
Income taxes receivable	2,876		—
Total current assets	611,797		670,518
Property and equipment, net	17,655		19,443
Right-of-use assets, net	24,541		27,048
Deferred contract acquisition costs, non-current	51,375		38,510
Other non-current assets, net of allowances of $47 and $50	10,253		15,016
Goodwill	289,437		241,103
Intangible assets, net	77,656		63,962
Total assets	$	1,082,714	$	1,075,600
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	1,376	$	4,753
Accrued expenses and other liabilities	66,904		59,460
Income taxes payable	—		978
Convertible senior notes, net	384,744		326,672
Deferred revenue	182,440		165,995
Total current liabilities	635,464		557,858
Deferred tax liability - non-current	22		1,329
Long-term operating lease liabilities	29,765		33,080
Deferred revenue - non-current	23,305		18,723
Total liabilities	688,556		610,990
Commitments and contingencies (Note 7)
Stockholders’ equity
Common stock, $0.0001 par value, authorized 300,000 shares, issued and outstanding 93,234 shares as of September 30, 2021 and 91,386 shares as of December 31, 2020	9		9
Preferred stock, $0.0001 par value, authorized 10,000 shares, no shares issued and outstanding as of September 30, 2021 and December 31, 2020	—		—
Additional paid in capital	462,723		484,012
Accumulated deficit	(68,574)		(19,411)
Total stockholders' equity	394,158		464,610
Total liabilities and stockholders’ equity	$	1,082,714	$	1,075,600

See accompanying notes to unaudited condensed consolidated financial statements.

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SAILPOINT TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
Revenue
Licenses	$	26,087	$	30,864	$	69,772	$	86,748
Subscription	70,796		51,004		194,393		140,807
Services and other	13,227		12,145		39,193		34,358
Total revenue	110,110		94,013		303,358		261,913
Cost of revenue
Licenses	1,994		1,083		4,596		3,269
Subscription	15,711		9,794		40,731		26,927
Services and other	13,408		9,922		37,726		27,597
Total cost of revenue	31,113		20,799		83,053		57,793
Gross profit	78,997		73,214		220,305		204,120
Operating expenses
Research and development	26,879		19,314		69,478		52,775
General and administrative	12,192		8,846		33,920		27,731
Sales and marketing	58,624		44,092		168,194		119,886
Total operating expenses	97,695		72,252		271,592		200,392
Income (loss) from operations	(18,698)		962		(51,287)		3,728
Other expense, net
Interest income	223		349		635		1,790
Interest expense	(630)		(4,639)		(2,051)		(13,757)
Other income (expense), net	(122)		214		(342)		(222)
Total other expense, net	(529)		(4,076)		(1,758)		(12,189)
Loss before income taxes	(19,227)		(3,114)		(53,045)		(8,461)
Income tax (expense) benefit	(669)		2,438		1,116		2,410
Net loss	$	(19,896)	$	(676)	$	(51,929)	$	(6,051)
Net loss per share
Basic	$	(0.21)	$	(0.01)	$	(0.56)	$	(0.07)
Diluted	$	(0.21)	$	(0.01)	$	(0.56)	$	(0.07)
Weighted average shares outstanding
Basic	93,032		90,764		92,398		90,320
Diluted	93,032		90,764		92,398		90,320

See accompanying notes to unaudited condensed consolidated financial statements.

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SAILPOINT TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)


	For the Three Months Ended September 30, 2021
	Common Stock			Additional paid in capital		Accumulated deficit		Stockholders' equity
	Number of shares	Par value
Balance at June 30, 2021	92,804	$	9	$	446,579	$	(48,678)	$	397,910
Exercise of stock options	215	—		3,014		—		3,014
Restricted stock units vested, net of tax settlement	215	—		(1,274)		—		(1,274)
Stock-based compensation expense	—	—		14,404		—		14,404

Net loss	—	—		—		(19,896)		(19,896)
Balance at September 30, 2021	93,234	$	9	$	462,723	$	(68,574)	$	394,158


	For the Nine Months Ended September 30, 2021
	Common Stock			Additional paid in capital		Accumulated deficit		Stockholders' equity
	Number of shares	Par value
Balance at December 31, 2020	91,386	$	9	$	484,012	$	(19,411)	$	464,610
Cumulative effect adjustment from the adoption of ASU 2020-06	—	—		(65,517)		2,766		(62,751)
Exercise of stock options	500	—		5,981		—		5,981
Restricted stock units vested, net of tax settlement	1,060	—		(4,336)		—		(4,336)
Stock-based compensation expense	—	—		37,349		—		37,349
Common stock issued under employee stock plan	143	—		5,234		—		5,234
Partial conversion of convertible senior notes	182	—		—		—		—
Settlement of capped calls related to partial conversion of convertible senior notes	(37)	—		—		—		—
Net loss	—	—		—		(51,929)		(51,929)
Balance at September 30, 2021	93,234	$	9	$	462,723	$	(68,574)	$	394,158

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SAILPOINT TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)


	For the Three Months Ended September 30, 2020
	Common Stock			Additional paid in capital		Accumulated deficit		Stockholders' equity
	Number of shares	Par value
Balance at June 30, 2020	90,607	$	9	$	461,785	$	(14,023)	$	447,771
Exercise of stock options	225	—		2,102		—		2,102
Restricted stock units vested, net of tax settlement	52	—		(195)		—		(195)
Stock-based compensation expense	—	—		7,838		—		7,838

Net loss	—	—		—		(676)		(676)
Balance at September 30, 2020	90,884	$	9	$	471,530	$	(14,699)	$	456,840


	For the Nine Months Ended September 30, 2020
	Common Stock			Additional paid in capital		Accumulated deficit		Stockholders' equity
	Number of shares	Par value
Balance at December 31, 2019	89,676	$	9	$	442,407	$	(8,289)	$	434,127
Cumulative effect adjustment from the adoption of ASC 326	—	—		—		(359)		(359)
Exercise of stock options	648	—		4,909		—		4,909
Restricted stock units vested, net of tax settlement	384	—		(431)		—		(431)
Stock-based compensation expense	—	—		21,179		—		21,179
Common stock issued under employee stock plan	176	—		3,466		—		3,466
Net loss	—	—		—		(6,051)		(6,051)
Balance at September 30, 2020	90,884	$	9	$	471,530	$	(14,699)	$	456,840

See accompanying notes to unaudited condensed consolidated financial statements.

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SAILPOINT TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended
	September 30, 2021		September 30, 2020
Operating activities
Net loss	$	(51,929)	$	(6,051)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense	17,307		13,758
Amortization of debt discount and issuance costs	1,569		13,260
Amortization of contract acquisition costs	14,074		10,127
(Gain) loss on disposal of fixed assets	37		(12)
Provision for credit losses	384		435
Stock-based compensation expense	37,349		21,179
Operating leases, net	(514)		(297)
Deferred taxes	—		(113)
Net changes in operating assets and liabilities, net of assets acquired and liabilities assumed in business acquisitions:
Accounts receivable	(4,956)		4,421
Deferred contract acquisition costs	(32,043)		(20,116)
Prepayments and other current assets	(15,781)		(5,820)
Other non-current assets	6,121		(7,633)
Accounts payable	(3,377)		1,033
Accrued expenses and other liabilities	5,286		8,122
Income taxes	(3,733)		(4,944)
Deferred revenue	19,291		7,057
Net cash provided by (used in) operating activities	(10,915)		34,406
Investing activities
Purchase of property and equipment	(2,923)		(2,434)
Proceeds from sale of property and equipment	29		18
Purchase of intangibles	(40)		—
Business acquisitions, net of cash acquired	(70,960)		—
Net cash used in investing activities	(73,894)		(2,416)
Financing activities
Payments for partial conversion of convertible senior notes	(10,160)		—
Taxes associated with net issuances of shares upon vesting of restricted stock units	(4,336)		(431)
Proceeds from employee stock purchase plan contributions	5,234		3,466
Exercise of stock options	5,981		4,909
Net cash provided by (used in) financing activities	(3,281)		7,944
Net increase (decrease) in cash, cash equivalents and restricted cash	(88,090)		39,934
Cash, cash equivalents and restricted cash, beginning of period	516,644		450,120
Cash, cash equivalents and restricted cash, end of period	$	428,554	$	490,054

See accompanying notes to unaudited condensed consolidated financial statements.

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SAILPOINT TECHNOLOGIES HOLDINGS, 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 Delaware on August 8, 2014, in preparation for the purchase of SailPoint Technologies, Inc. The purchase occurred on September 8, 2014 and our certificate of incorporation was amended and restated as of such date. SailPoint Technologies, Inc. was formed on July 14, 2004 as a Delaware corporation. The Company designs, develops and markets identity security software that helps organizations govern user access to critical systems and data. The Company currently markets its products and services worldwide.

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, 2021 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, 2020, which was filed with the SEC on February 25, 2021 (the “Annual Report”).

Use of Estimates

The preparation of unaudited 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 obligations in revenue recognition, the expected period of benefit of deferred contract acquisition costs, the collectability of accounts receivable, stock-based compensation expense, income taxes, and the valuation, useful lives and impairment of intangible assets and goodwill arising from business combinations. Appropriate adjustments, if any, to the estimates used are made prospectively based upon such 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. The Company maintains its cash in bank deposit accounts that, at times, may exceed federally insured limits. As of September 30, 2021 and December 31, 2020, no single customer represented more than 10% of the balance in accounts receivable. Management considers concentration of credit risk to be minimal with respect to accounts receivable due to the positive historical collection experience of the Company. No single customer represented more than 10% of revenue for the three and nine months ended September 30, 2021 or 2020. The Company does not experience concentration of credit risk in foreign countries as no single foreign country represents more than 10% of the Company’s consolidated revenues or net assets.

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Significant Accounting Policies

The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes in the Annual Report, most notably Note 1 “Description of Business and Summary of Significant Accounting Policies.” Except for the adoption of Accounting Standards Update ("ASU") 2020-06 described below, there have been no changes to our significant accounting policies described in the Annual Report that have had a material impact on our unaudited condensed consolidated financial statements and related notes.

Recently Adopted Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board ("FASB") issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liability and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU 2020-06 removes from GAAP the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt. Similarly, the embedded conversion feature will no longer be amortized as interest expense over the life of the instrument. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under Accounting Standards Codification ("ASC") Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. Among other potential impacts, this change will reduce reported interest expense, increase reported net income, and result in a reclassification of certain conversion feature balance sheet amounts from stockholders’ equity to liabilities as it relates to the Notes (as defined in Note 9 "Convertible Senior Notes and Capped Call Transactions"). Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020, and can be adopted on either the fully retrospective or modified retrospective basis.

The Company early adopted ASU 2020-06 effective January 1, 2021 using the modified retrospective approach, which requires a cumulative adjustment to be recorded to accumulated deficit. Adoption of ASU 2020-06 resulted in a material effect on the unaudited condensed consolidated balance sheet as the Company no longer separately presents in equity an embedded conversion feature. The impact to the unaudited condensed consolidated balance sheet was an increase of the Notes by $66.8 million, a decrease of our deferred tax liability by $4.0 million, a decrease of our additional paid in capital by $65.5 million and a decrease of our accumulated deficit by $2.8 million. Interest expense recognized will be reduced as a result of accounting for the convertible debt instrument as a single liability measured at its amortized cost. This adoption did not have a material impact on the Company's unaudited condensed consolidated statement of cash flows. The Company will prospectively utilize the if-converted method to calculate the impact of convertible instruments on diluted earnings per share.

2. Revenue Recognition

Disaggregation of Revenue

The Company’s revenue by geographic region based on the customer’s location is presented in Note 13 “Geographic Information and Major Customers.”

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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:


	Licenses		SaaS (1)		Maintenance and Support (1)		Other Subscription Services (1)		Services and Other
	(In thousands)
Three Months Ended September 30, 2021
Revenue recognized at a point in time	$	26,087	$	—	$	—	$	—	$	—
Revenue recognized over time	—		29,842		39,361		1,593		13,227
Total revenue	$	26,087	$	29,842	$	39,361	$	1,593	$	13,227

Three Months Ended September 30, 2020
Revenue recognized at a point in time	$	30,864	$	—	$	—	$	—	$	—
Revenue recognized over time	—		17,407		32,511		1,086		12,145
Total revenue	$	30,864	$	17,407	$	32,511	$	1,086	$	12,145

Nine Months Ended September 30, 2021
Revenue recognized at a point in time	$	69,772	$	—	$	—	$	—	$	—
Revenue recognized over time	—		77,100		112,139		5,154		39,193
Total revenue	$	69,772	$	77,100	$	112,139	$	5,154	$	39,193

Nine Months Ended September 30, 2020
Revenue recognized at a point in time	$	86,748	$	—	$	—	$	—	$	—
Revenue recognized over time	—		46,780		91,735		2,292		34,358
Total revenue	$	86,748	$	46,780	$	91,735	$	2,292	$	34,358

(1) Subscription revenue is further disaggregated into SaaS, Maintenance and Support and Other Subscription Services revenue in the table above.

Contract Balances

A summary of the activity impacting our contract balances during the reporting periods is presented below:


	Contract Acquisition Costs
	Nine Months Ended
	September 30, 2021		September 30, 2020
	(In thousands)
Beginning Balance	$	54,102	$	35,152
Additional deferred contract acquisition costs	32,043		20,117
Amortization of deferred contract acquisition costs	(14,074)		(10,127)
Ending Balance	$	72,071	$	45,142

There were no material impairments of deferred contract acquisition costs for the periods ended September 30, 2021 or 2020.

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	Deferred Revenue
	Nine Months Ended
	September 30, 2021		September 30, 2020
	(In thousands)
Beginning Balance	$	184,718	$	152,033
Increase, net	21,027		7,057
Ending Balance	$	205,745	$	159,090

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. Revenue recognized that was previously deferred was $71.1 million and $167.5 million during the three and nine months ended September 30, 2021, respectively, compared to $54.0 million and $122.3 million during the three and nine months ended September 30, 2020, respectively. The difference between the opening and closing balances of the Company’s contract assets and deferred revenue primarily results from the timing difference between the Company’s performance obligations and customer billings.

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 in the amount of $24.5 million and $10.7 million and other non-current assets in the amount of $9.3 million and $14.2 million on the unaudited condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020, respectively. During the nine months ended September 30, 2021 and 2020, amounts reclassified from contract assets to accounts receivable were $17.7 million and $4.0 million, respectively.

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 September 30, 2021, amounts allocated to these additional performance obligations are $455.4 million, of which we expect to recognize $252.4 million as revenue over the next 12 months with the remaining balance recognized thereafter.

3. 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 September 30, 2021
	Level 1		Level 2	Level 3	Total
	(In thousands)
Assets
Cash equivalents
Money market funds	$	22,810	—	—	$	22,810
Total cash equivalents	$	22,810	—	—	$	22,810

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	As of December 31, 2020
	Level 1		Level 2	Level 3	Total
	(In thousands)
Assets
Cash equivalents
Money market funds	$	9,757	—	—	$	9,757
Total cash equivalents	$	9,757	—	—	$	9,757

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 September 30, 2021 and December 31, 2020 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 the Notes as of September 30, 2021.

4. Business Combinations

2021 Acquisitions

Intello

On February 22, 2021, the Company acquired Intello Inc. ("Intello"), a Delaware corporation, pursuant to an Agreement and Plan of Merger whereby Intello became a wholly owned subsidiary of the Company. Intello is an early-stage software as a service ("SaaS") management company that helps organizations discover, manage, and secure SaaS applications. The aggregate consideration paid in connection with this acquisition was $42.9 million, net of cash acquired.

The following table summarizes the final purchase price allocation as of the date of acquisition:


	As of
	February 22, 2021
	(In thousands)
Cash and cash equivalents	$	1,143
Accounts receivable	146
Prepayments and other current assets	43
Property and equipment	17
Goodwill	32,417
Intangible assets	12,300
Accrued expenses and other liabilities	(97)
Deferred tax liability - non-current	(1,401)
Deferred revenue	(536)
Total fair value of assets acquired and liabilities assumed	$	44,032

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	$	9,500	5
Customer lists	$	2,800	3

The fair value of developed technology was estimated using the relief from royalty method (Level 3) utilizing assumptions for annual obsolescence, royalty rates, tax rate and discount rate. The fair value of customer lists was estimated

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using the replacement cost method (Level 3), which utilized assumptions for the cost to recreate the relationships, such as the timing and resources required, distributor's profit mark-up and opportunity cost.

ERP Maestro

On March 15, 2021, the Company acquired ERP Maestro, Inc. ("ERP Maestro"), a Florida corporation, pursuant to an Agreement and Plan of Merger whereby ERP Maestro became a wholly owned subsidiary of the Company. ERP Maestro is an early-stage SaaS governance, risk and compliance solution that provides separation-of-duty controls monitoring for an organization’s most critical applications. The aggregate consideration paid in connection with this acquisition was $28.1 million, net of cash acquired.

The following table summarizes the final purchase price allocation as of the date of acquisition:


	As of
	March 15, 2021
	(In thousands)
Cash and cash equivalents	$	924
Accounts receivable	850
Prepayments and other current assets	59
Property and equipment	152
Right-of-use assets	223
Goodwill	15,917
Intangible assets	13,900
Accrued expenses and other liabilities	(503)
Deferred tax liability - non-current	(1,329)
Deferred revenue	(1,200)
Total fair value of assets acquired and liabilities assumed	$	28,993

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	$	10,000	5
Customer lists	$	3,900	3

The fair value of developed technology was estimated using the replacement cost method (Level 3) utilizing assumptions for the cost to replace, such as the workforce, timing and resources required, annual obsolescence, as well as a theoretical developer’s profit margin and entrepreneurial incentive and opportunity cost. The fair value of customer lists was estimated using the replacement cost method (Level 3), which utilized assumptions for the cost to recreate the customer relationships, such as the timing and resources required, distributor's profit mark-up and opportunity cost and customer age.

Additional Acquisition Related Information

The operating results of the acquired companies are included in our unaudited condensed consolidated statement of operations 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 unaudited condensed consolidated statement of operations. During the nine months ended September 30, 2021, acquisition related costs were $2.2 million, which included primarily legal, accounting and consulting professional service fees and have been included in general and administrative expenses on the unaudited 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.

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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. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill in connection with each acquisition. Goodwill arising from these acquisitions is not deductible for tax purposes.

5. Goodwill and Intangible Assets

Goodwill

Goodwill represents the excess of the purchase price over the identifiable tangible and intangible assets acquired less liabilities assumed arising from business combinations. The change in the carrying amounts of goodwill for the nine months ended September 30, 2021 is due to the acquisitions of Intello and ERP Maestro. For additional information regarding the acquisitions, see Note 4 “Business Combinations.”

The following table reflects goodwill activity for the nine months ended September 30, 2021:


	(In thousands)
Balance, December 31, 2020	$	241,103
Goodwill acquired	47,307
Measurement period adjustments	1,027
Balance, September 30, 2021	$	289,437

There were no impairments of goodwill during the periods ended September 30, 2021 or 2020.

Intangible Assets

Total cost and amortization of intangible assets are comprised of the following:


		As of
	Weighted Average Useful Life	September 30, 2021		December 31, 2020
Intangible assets, net	(In years)	(In thousands)
Customer lists	14.6	$	49,200	$	42,500
Developed technology	8.6	66,260		51,760
Trade names and trademarks	17.0	24,500		24,500
Other intangible assets	4.8	2,975		3,746
Total intangible assets		142,935		122,506
Less: Accumulated amortization		(65,279)		(58,544)
Total intangible assets, net		$	77,656	$	63,962

Amortization expense for the periods presented is as follows:


	Three Months Ended				Nine Months Ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
	(In thousands)
Cost of revenue - licenses	$	829	$	1,007	$	2,845	$	3,023
Cost of revenue - subscription	1,562		921		3,976		2,742
Research and development	169		162		506		543
Sales and marketing	1,628		1,069		4,474		3,206
Total amortization expense	$	4,188	$	3,159	$	11,801	$	9,514

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Periodically, the Company evaluates intangible assets for possible impairment. We recorded an impairment charge of $0.7 million related to certain developed technology assets in Cost of revenue - licenses on the accompanying unaudited condensed consolidated statements of operations during the three months ended September 30, 2021. There were no impairments of intangible assets during the three or nine month period ended September 30, 2020.

The total estimated future amortization expense of these intangible assets as of September 30, 2021 is as follows:


Year Ending December 31,	(In thousands)
2021 (except the nine months ended September 30, 2021)	$	4,187
2022	16,719
2023	16,557
2024	12,674
2025	8,175
Thereafter	19,344
Total amortization expense	$	77,656

6. Leases

Letters of Credit

As of September 30, 2021 and December 31, 2020, the Company had an aggregate of $6.0 million of cash collateral for an unconditional standby letter of credit related to the Company’s corporate headquarters lease. The Company is also required to maintain a small amount of restricted cash to guarantee rent payments for our subsidiaries.

Operating Leases

As of September 30, 2021, our leases, which primarily consist of office leases, have remaining lease terms of less than one year to eight years. Certain leases include early termination and/or extension options; however, exercise of these options is at the Company’s sole discretion. As of September 30, 2021, the Company determined that it is not reasonably certain that it will exercise the options to extend its leases or terminate them early. As of September 30, 2021, we have no financing leases and no material sub-leases, and our non-cancelable operating lease commitments exclude variable consideration.

The undiscounted annual future minimum lease payments are summarized by year in the table below:


Year Ending December 31,	(In thousands)
2021 (except the nine months ended September 30, 2021)	$	1,539
2022	5,983
2023	5,148
2024	5,040
2025	4,890
Thereafter	17,393
Total minimum lease payments	39,993
Less: interest	(5,453)
Total present value of operating lease liabilities	$	34,540

Current operating lease liabilities	$	4,775
Long-term operating lease liabilities	29,765
Total operating lease liabilities	$	34,540

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7. Commitments and Contingencies

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, services and business. In these circumstances, payment may be conditioned 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 unaudited 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 unaudited condensed consolidated financial statements.

8. Credit Agreement

On March 11, 2019, SailPoint Technologies, Inc., as borrower (the "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 of the Company, 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.

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 $150.0 million to $75.0 million, with a $15.0 million letter of credit sublimit, which amount can be increased or decreased under certain circumstances and is subject to certain financial covenants. In addition, the Credit Agreement provides for the ability to incur uncommitted term loan facilities if, among other things, the Senior Secured Net Leverage Ratio (as defined in the Credit Agreement), calculated giving pro forma effect to the requested term loan facility, is no greater than 3.50 to 1.00. Borrowings pursuant to the Credit Agreement may be used for working capital and other general corporate purposes, including acquisitions permitted under the Credit Agreement. The Credit Agreement contains certain customary representations and warranties and affirmative and negative covenants.

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 0.20% to 0.30% per annum based on the Senior Secured Net Leverage Ratio. Borrowings under the Credit Agreement are scheduled to mature on March 11, 2024.

The Company had no outstanding revolving credit loan balance under the Credit Agreement as of September 30, 2021 or December 31, 2020. The Company was in compliance with all applicable covenants as of September 30, 2021.

The Company incurred total debt issuance costs of $0.8 million in connection with the Credit Agreement, the net balance of which is included in other non-current assets in the accompanying unaudited condensed consolidated balance sheets. These costs are being amortized to interest expense over the life of the Credit Agreement on a straight-line basis. Amortization of debt issuance costs for the periods ended September 30, 2021 and 2020 were not material and were recorded in interest expense on the accompanying unaudited condensed consolidated statements of operations.

9. Convertible Senior Notes and Capped Call Transactions

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In September 2019, the Company issued and sold $400.0 million aggregate principal amount of 0.125% Convertible Senior Notes due 2024 (the “Notes”) in a private offering (the “Offering”) to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The net proceeds from the Offering were $391.2 million, after deducting discounts and commissions and other fees and expenses payable by the Company in connection with the Offering. The Company used $37.1 million of the net proceeds from the Offering to pay the cost of the privately negotiated capped call transactions (the "Capped Call Transactions") it entered into with the initial purchasers of the Notes or their respective affiliates and another financial institution.

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 September 15, 2024, unless earlier redeemed, repurchased or converted. The Notes bear interest at a fixed rate of 0.125% per year payable semiannually in arrears on March 15 and September 15 of each year.

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 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

•during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price (as defined in the Indenture) per $1,000 principal amount of the Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of common stock and the conversion rate for the Notes on each such trading day;

•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.

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. The Notes are convertible at an initial conversion rate of 35.1849 shares of common stock per $1,000 principal amount of the Notes, which is equivalent to an initial conversion price of $28.42 per share of common stock, subject to adjustment upon the occurrence of specified events. The conversion rate is subject to adjustment under certain circumstances in accordance with the terms of the Indenture.

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 100% of the principal amount of the Notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes, which means that the Company is not required to redeem or retire the Notes periodically.

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 100% of the principal

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amount of the Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

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 September 30, 2021.

For at least 20 trading days during the period of 30 consecutive trading days ended September 30, 2020, the last reported sale price of the Company’s common stock was equal to or exceeded 130% of the conversion price of the Notes on each applicable trading day. This conversion trigger has been met each quarter since then, including the quarter ended September 30, 2021. As a result, the Notes continue to be convertible at the option of the holders during the fiscal quarter ended September 30, 2021 and remained classified as current liabilities on the unaudited condensed consolidated balance sheet as of September 30, 2021.

During the three months ended March 31, 2021, upon the request of certain holders, the Company settled the conversion of the $10.2 million in aggregate principal amount of the Notes (the "2021 Converted Notes") with cash and settled all other amounts owed to the respective holders through the issuance of 181,629 shares of the Company's common stock with an aggregate fair value of approximately $10.1 million. The Company recognized an immaterial amount related to the acceleration of unamortized debt issuance costs related to these early note conversions, which was recorded in interest expense on the accompanying unaudited condensed consolidated statements of operations. As of the date of this filing, no other holders of the Notes have submitted requests for conversion.

Transaction costs related to the issuance of the Notes were $8.8 million and are being amortized to interest expense at an effective interest method rate of 0.57% over the term of the Notes.

As of September 30, 2021, the Notes have a remaining life of 36 months.

The net carrying amount of the liability and equity components of the Notes for the periods presented is as follows:


	As of
	September 30, 2021		December 31, 2020
	(In thousands)
Liability component
Principal	$	389,840	$	400,000
Unamortized discount (1)	—		(68,270)
Unamortized issuance costs (1)	(5,096)		(5,058)
Net carrying amount	$	384,744	$	326,672

Equity component, net of issuance costs (1)	$	—	$	86,764

(1) See Note 1 "Description of Business and Summary of Significant Accounting Policies" for more information regarding the effect of adoption of ASU 2020-06.

The interest expense recognized related to the Notes for the periods presented is as follows:


	Three Months Ended				Nine Months Ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
	(In thousands)
Contractual interest expense	$	122	$	125	$	362	$	375
Amortization of debt discount (1)	—		4,094		—		12,125
Amortization of debt issuance costs (2)	426		337		1,444		1,011
Total	$	548	$	4,556	$	1,806	$	13,511

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(1) See Note 1 "Description of Business and Summary of Significant Accounting Policies" for more information regarding the effect of adoption of ASU 2020-06.

(2) Amortization of debt issuance costs includes the acceleration of unamortized debt issuance costs related to the partial conversion of the Notes.

As of September 30, 2021, the total estimated fair value of the Notes was $629.8 million. The fair value was determined based on the closing trading price per $100 of the Notes as of the last day of trading for the period. The fair value of the Notes is primarily affected by the trading price of our common stock and market interest rates. The fair value of the Notes is considered Level 2 within the fair value hierarchy and was determined based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, and quoted prices of the Notes in an over-the-counter market.

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 the Capped Call Transactions. The Capped Call Transactions are generally expected to reduce potential dilution to common stock upon any conversion of the Notes and/or offset any potential cash payments the Company is required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap. The Capped Call Transactions have an initial strike price of $28.42 per share, which corresponds to the initial conversion price of the Notes and is subject to certain adjustments, and an initial cap price of $41.34 per share, which is subject to certain adjustments. For accounting purposes, the Capped Call Transactions are separate transactions and not part of the terms of the Notes. As the Capped Call Transactions are considered indexed to our own stock and are considered equity classified, they are recorded in stockholders’ equity and are not accounted for as derivatives. The cost of $37.1 million incurred in connection with the Capped Call Transactions was recorded as a reduction to additional paid in capital.

The Capped Call Transactions initially covered, subject to anti-dilution adjustments substantially similar to those applicable to the Notes, 14.1 million shares of our common stock. In connection with the settlement of the 2021 Converted Notes during the three months ended March 31, 2021, the Company terminated a pro rata amount of the Capped Call Transactions pursuant to the terms thereof. As a result of this pro rata termination, the Company received 37,301 shares of its common stock with an aggregate value of approximately $1.9 million based on the trading price of our common stock at that time. As of September 30, 2021, the Capped Call Transactions cover, subject to anti-dilution adjustments, 13.7 million shares of our common stock.

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”) and nonqualified stock options (“NSOs”) for the right to purchase shares of common stock and restricted stock units (“RSUs”). The 2015 Stock Option Plans reserve 5.0 million shares of common stock for issuance pursuant to ISOs, 0.5 million shares of common stock for issuance pursuant to RSUs and 0.25 million shares of common stock for issuance under the 2015 Stock Incentive Plan. Under the 2015 Stock Option Plans, ISOs may not be granted at less than fair market value on the date of the grant and generally vest over a four-year period based on continued service. Options generally expire ten years after the grant date.

As of September 30, 2021, 0.7 million shares were available for issuance under the 2015 Stock Option Plans, including less than 50 thousand shares available for issuance under the 2015 Stock Incentive Plan. The Company currently uses authorized and unissued shares to satisfy share award exercises.

2017 Long Term Incentive Plan

In November 2017, the Company’s Board of Directors (the "Board") adopted the 2017 Long Term Incentive Plan (the “2017 Plan”) under which it may grant stock options to purchase shares of common stock and RSUs. As of September 30, 2021, the Company had reserved 22.1 million shares of common stock available for issuance under the 2017 Plan to employees, directors, officers and consultants of the Company and its subsidiaries. The number of shares of common stock available for issuance under the 2017 Plan is increased on each January 1 by 4.4 million shares of common stock. Options and RSUs granted

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to employees under the 2017 Plan generally vest over four years. Common stock subject to an award that expires or is canceled, forfeited, exchanged or otherwise terminated without delivery of shares, and shares withheld or surrendered to pay the exercise price of, or to satisfy the withholding obligations with respect to an award, will become available for future grants under the 2017 Plan.

As of September 30, 2021, 13.9 million shares were available for issuance under the 2017 Plan. The Company currently uses authorized and unissued shares to satisfy share award exercises.

The fair values 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
	September 30, 2021	September 30, 2020	September 30, 2021	September 30, 2020
Expected dividend rate	0%	0%	0%	0%
Expected volatility	47.3% - 50.8%	50.0% - 56.2%	50.0% - 50.8%	48.1% - 56.2%
Risk-free interest rate	0.80% - 1.14%	0.36% - 1.53%	0.04% - 0.09%	0.18% - 1.57%
Expected term (in years)	6.25	6.25	0.50	0.50

Stock Options

The following table summarizes stock option activity for the nine months ended September 30, 2021:


	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
	(In thousands)	(Per share)		(In years)	(In thousands)
Balances at December 31, 2020	2,404	$	17.85	7.7	$	85,064
Granted	304	$	60.57
Exercised	(500)	$	11.97
Forfeited	(154)	$	25.17
Balances at September 30, 2021	2,054	$	25.06	7.3	$	41,837
Options vested and expected to vest at September 30, 2021	2,054	$	25.06	7.3	$	41,837
Options vested and exercisable at September 30, 2021	1,111	$	15.95	6.4	$	29,924

The Company expects all outstanding stock options to fully vest. The weighted average grant date fair value per share for the nine months ended September 30, 2021 and 2020 was $29.51 and $17.27, respectively. The total fair value of shares vested for the three and nine months ended September 30, 2021 was $1.2 million and $5.7 million, respectively, compared to $1.1 million and $4.8 million for the three and nine months ended September 30, 2020, respectively.

The total unrecognized compensation expense related to non-vested stock options granted is $14.6 million and is expected to be recognized over a weighted average period of 2.3 years as of September 30, 2021.

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Restricted Stock Units

The following table summarizes the RSU activity for the Company for the nine months ended September 30, 2021:


	Number of Shares	Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
	(In thousands)	(Per share)		(In years)	(In thousands)
Balances at December 31, 2020	3,135	$	23.90	1.4	$	166,927
Granted	1,930	$	55.35
Vested	(1,150)	$	27.48
Forfeited	(411)	$	35.16
Balances at September 30, 2021	3,504	$	38.72	1.4	$	150,264
Units expected to vest at September 30, 2021	3,504	$	38.72	1.4	$	150,264

The Company expects all outstanding RSUs to fully vest. The total unrecognized compensation expense related to RSUs was $121.8 million as of September 30, 2021 and is expected to be recognized over a weighted average period of 2.57 years.

Employee Stock Purchase Plan

The Company initially reserved 1.8 million shares of common stock for issuance under the ESPP. The number of shares available for issuance under the ESPP increases each January 1 by 0.9 million shares of common stock. The ESPP will continue in effect unless terminated by the Company’s Board or Compensation Committee, each of which has the right to terminate the ESPP at any time.

As of September 30, 2021, 3.3 million shares were available for issuance under the ESPP Plan. During the nine months ended September 30, 2021 and 2020, the Company issued and distributed 0.1 million and 0.2 million shares of common stock, respectively.

A summary of the Company’s stock-based compensation expense, which includes stock options, RSUs and ESPP, is presented below:


	Three Months Ended				Nine Months Ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
	(In thousands)
Stock options	$	1,682	$	1,479	$	5,094	$	4,307
RSUs	11,845		5,654		29,620		15,113
ESPP	877		705		2,635		1,759
Total stock-based compensation expense	$	14,404	$	7,838	$	37,349	$	21,179

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A summary of the Company’s stock-based compensation expense as recognized on the unaudited condensed consolidated statements of operations is presented below:


	Three Months Ended				Nine Months Ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
	(In thousands)
Cost of revenue - subscription	$	1,061	$	485	$	2,596	$	1,270
Cost of revenue - services and other	1,037		550		2,749		1,368
Research and development	3,604		1,712		9,010		4,700
General and administrative	2,883		1,944		7,479		4,896
Sales and marketing	5,819		3,147		15,515		8,945
Total stock-based compensation expense	$	14,404	$	7,838	$	37,349	$	21,179

11. Income Taxes

Income Taxes

The effective tax rate for the three and nine months ended September 30, 2021 is (3.5)% and 2.1%, respectively, compared to 78.3% and 28.5% for the three and nine months ended September 30, 2020, respectively. The primary drivers for the differences in the rates from the prior-year period to the current-year period are related to differences in forecasted pre-tax book loss, the impact of stock compensation, foreign tax liabilities, acquisition impact, valuation allowance build and the effect of research and development credits.

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. The Company expects to be in an overall deferred tax asset position for the period ended December 31, 2021 with a full valuation allowance as its deferred tax assets are not expected to be offset by the turning of its deferred tax liabilities over time. 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 September 30, 2021 and 2020, the Company did not record any material interest or penalties.

The Company files tax returns in the U.S. federal jurisdiction, in several state jurisdictions, and in several foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations for years before 2017 and is no longer subject to state, local and foreign income tax examinations by tax authorities for years before 2016. The Company is currently under audit for income tax in a single foreign jurisdiction. The audit is ongoing and is not expected to materially impact the unaudited condensed consolidated financial statements. The Company has an uncertain tax position reserve related to this foreign jurisdiction filing that should sufficiently cover any related assessment.

12. Net Loss Per Share

Basic and diluted net loss per share is computed by dividing net loss 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 and shares related to the Notes. In periods when the Company recognizes a net loss, the Company excludes the impact of outstanding stock awards and shares related to the Notes from the diluted loss per share calculation as their inclusion would have an anti-dilutive effect.

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The following table sets forth the calculation of basic and diluted net loss per share for the periods presented:


	Three Months Ended				Nine Months Ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
	(In thousands, except per share data)
Numerator
Net loss	$	(19,896)	$	(676)	$	(51,929)	$	(6,051)

Denominator
Weighted average shares outstanding
Basic	93,032		90,764		92,398		90,320
Diluted	93,032		90,764		92,398		90,320

Net loss per share
Basic	$	(0.21)	$	(0.01)	$	(0.56)	$	(0.07)
Diluted	$	(0.21)	$	(0.01)	$	(0.56)	$	(0.07)

The following weighted average outstanding shares of common stock equivalents were excluded from the computation of the diluted net loss per share for the periods presented because their effect would have been anti-dilutive:


	Three Months Ended		Nine Months Ended
	September 30, 2021	September 30, 2020	September 30, 2021	September 30, 2020
	(In thousands)
Stock options to purchase common stock	2,141	2,599	2,334	2,827
RSUs issued and outstanding	3,588	3,296	3,551	2,953
ESPP	152	210	99	136
Convertible senior notes	9,983	2,558	10,208	—
Total	15,864	8,663	16,192	5,916

13. Geographic Information and Major Customers

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 one reportable segment and derives revenues from the licensing of software and the sale of our maintenance, SaaS subscription offerings, professional services and technical support. 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.

The following is a summary of consolidated revenues within geographic areas:


	Three Months Ended				Nine Months Ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
	(In thousands)
United States	$	79,481	$	67,917	$	214,630	$	191,613
EMEA (1)	17,039		16,329		51,917		43,104
Rest of the World (1)	13,590		9,767		36,811		27,196
Total revenue	$	110,110	$	94,013	$	303,358	$	261,913

(1) No single country outside of the United States represented more than 10% of our revenue.

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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, 2020, which was filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 25, 2021 (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 scope, duration and severity of the COVID-19 pandemic, including any recurrence, as well as the timing of the economic recovery following the pandemic and its effect on the global economy and on our business; 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 software as a service ("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 comply with our privacy policy or related legal or regulatory requirements; the impact of various tax laws and regulations, including our failure to comply therewith; our ability to successfully identify, acquire and integrate companies and assets; our ability to maintain and enhance our brand or reputation as an industry leader; and the ability of our platform and solutions to effectively interoperate with our customers’ existing or future IT infrastructures. 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.

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Business Overview

SailPoint Technologies Holdings, Inc. (“we,” “our,” the “Company” or “SailPoint”) is the leading provider of enterprise identity security solutions. Our identity security solutions provide organizations with critical visibility into who currently has access to which resources, who should have access to those resources and how that access is being used.

We offer both SaaS and on-premise software solutions, which provide organizations with the intelligence required to empower users and govern their access to systems, applications and data across hybrid information technology ("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.

Our set of identity security solutions consists of:

•IdentityNow: our cloud-based, multi-tenant identity security platform, which 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;

•IdentityIQ: our on-premises identity security solution, which can be hosted in the public cloud or deployed in a customer’s data center, provides large, complex enterprise customers a unified and highly configurable identity security solution; and

•SailPoint Identity Services: delivered as multi-tenant SaaS subscription services that can be utilized in conjunction with IdentityNow and IdentityIQ and currently consisting of:

◦Access Insights: collects a wealth of identity information and turns that information into actionable insights and provides business-oriented dashboards and reports to track the effectiveness of customers' identity programs;

◦Access Modeling: uses artificial intelligence ("AI") and machine learning ("ML") to suggest roles based on similar access between users and gives customers insights to confirm the correct access for each role;

◦Access Risk Management: our cloud‐based access controls solution that enables our customers to manage their risk by automating access controls for business applications with complex security requirements;

◦Cloud Access Management: uses AI and ML to automatically learn, monitor and secure access to cloud infrastructure;

◦Recommendation Engine: uses AI, ML, peer group analysis, identity attributes and access activity to help customers decide whether access should be granted or removed; and

◦SaaS Management: our cloud‐based solution that helps customers discover, manage, and secure their SaaS applications.

Our solutions address the complex needs of global enterprises and mid-market organizations. Our success is principally dependent on our ability to deliver compelling solutions to attract new customers and retain existing customers. 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 rate is also challenging because our growth strategy depends in part on our ability to drive new customer growth within existing geographic markets, further penetrate our existing customer base, continue to invest in our platform, leverage and expand our network of partners, expand market and product investment across existing vertical markets, and continue to expand our global presence, while competing against much larger companies with more recognizable brands and financial resources. Although we seek to grow rapidly, we also focus on operating leverage and efficiency while continuing to invest in our platform 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 security 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 security SaaS offerings, (2) deliver

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continued innovation as we execute against our vision for SailPoint identity security, and (3) ensure that as we deliver these new innovations, they work in concert with our SaaS offerings in addition to our on-premises offerings.

While an acceleration toward subscription-based offerings results in a short-term revenue headwind, we believe that continued growth of SaaS, term-based license and maintenance and support 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, and we expect that as we continue our acceleration toward subscription-based offerings, our subscription retention rates could be slightly lower than the retention rate for support and maintenance for our perpetual customers. As a result, a shift in the sales mix of our solutions could affect our performance relative to historical results. Our transition to a subscription model has accelerated more rapidly than originally anticipated, and as revenue from perpetual licenses has continued to represent an increasingly smaller portion of our total revenue, we now view our transition as largely complete. While we expect to occasionally see perpetual license transitions with new customers and ongoing expansions deals for current customers, our principal focus is on selling subscription based arrangements consisting of SaaS and term licenses.

IdentityNow and our SailPoint Identity Services are provided in exchange for a subscription fee and offer customers access to these solutions and infrastructure support for the duration of their subscription agreement. Our standard subscription agreement for our SaaS offerings has a duration of three years. For our IdentityIQ solutions, our customers either purchase a perpetual software license, which includes one year of maintenance and support, or a term license, sold as bundled arrangements that include the rights to a term license and maintenance and support typically for a three-year term. Accordingly, we allocate the transaction price to each performance obligation. Our maintenance provides software maintenance as well as access to our technical support services during the maintenance term. After the initial maintenance period, customers with perpetual licenses may renew their maintenance and support agreement for an additional fee.

Pricing for each of our solutions is dependent on the number of digital identities of employees, contractors, business partners, software bots and other human and non-human users that the customer is entitled to govern with the solution. We also package and price our IdentityNow and IdentityIQ solutions into modules. Each module has unique functionalities, and our customers are able to purchase one or more modules, depending on their needs. We also offer advanced integration modules for key applications and systems which can be purchased in addition to our base solution modules. They are also priced based on the total number of identities, as are our SailPoint Identity Services. Thus, our revenue from any customer is generally determined by the number of identities that the customer is entitled to govern as well as the number of modules purchased by the customer for our IdentityIQ and IdentityNow solutions and which, if any, of the SailPoint Identity Services that the customer purchases.

Our revenue mix is changing as demand for our products and services is shifting from sales of perpetual licenses to sales of term licenses and subscriptions, and we expect this shift in demand to continue, particularly as we continue our strategy to shift the sales mix of our solutions towards our SaaS offerings. For customers that still wish to purchase and operate non-SaaS software, we are increasingly selling our software through subscription-based term licenses, rather than through perpetual licenses. Over time, we expect that sales to new customers will be exclusively comprised of term licenses and subscriptions. Our transition to a subscription model has impacted, and will continue to impact, the timing of our recognition of revenue as an increasing percentage of our sales become recognized ratably, as well as our operating margins as subscription revenue becomes a larger percentage of our sales. Our shift to a subscription model has fluctuated between periods, and our ability to predict our revenue and margins in any particular period has been, and may continue to be, limited.

In addition to our solutions, we offer professional services to our customers and partners to configure and optimize the use of our solutions as well as training services related to the configuration and operation of our platform. Most of our professional services activity is in support of our partners, who perform a significant majority of all initial and follow-on implementation work for our customers. Most of our consulting services are priced on a time-and-materials basis, and our training services are provided through multiple pricing models, including on a per-person basis for instructor led courses and a flat-rate basis for our e-learning courses.

As part of our growth strategy, in the first quarter of 2021 we acquired Intello Inc. (“Intello”), an early-stage SaaS management company that helps organizations to discover, manage, and secure SaaS applications, and ERP Maestro, Inc., ("ERP Maestro"), an early-stage SaaS governance, risk and compliance solution that provides separation-of-duty controls monitoring, enabling customers to manage their risk by automating access controls for business applications with complex security concepts. See Note 4 “Business Combinations” in our notes to our unaudited condensed consolidated financial statements included in this Quarterly Report for more information.

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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.

Impact of COVID-19

In light of the ongoing spread of COVID-19 in the United States and abroad, including the emergence of new variants of the coronavirus, government and public health authorities continue to recommend social distancing and impose various quarantine and isolation measures on portions of the population, including measures directed at businesses. 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 duration. We have made certain adjustments to our operations as we continue to provide our offerings to new and existing customers in response to these measures. For example, as a result of the COVID-19 pandemic, we shifted all customer events to virtual-only experiences beginning in early 2020 and expect this trend to continue for the foreseeable future, and we have transitioned to primarily providing consulting services virtually as well.

While we believe that the pandemic has not had an immediate material adverse impact on our financial performance, our business may yet be negatively impacted by the COVID-19 pandemic as the duration of the pandemic and the long-term scope of its effects ultimately remain unknown. For example, the conditions caused by the COVID-19 pandemic may materially adversely affect the rate of IT spending by our current and prospective customers, including 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, but this has not resulted in a material adverse impact on our renewal rates. In addition, during 2020 and the first part of 2021, we generally were not able to provide on-site consulting services to our customers due to local and regional restrictions related to the pandemic, and such restrictions remain in place for some of our customers. However, 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. We continue to monitor the global impact of the pandemic on our customers and our business, especially as the number of cases involving new strains and variants of the coronavirus continues to increase and as certain parts of the world experience surges in COVID-19 cases and particularly devastating effects from the pandemic.

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 has not had a material adverse impact on our financial performance, and indeed, our revenue grew in 2020 and during the first nine months of 2021 as compared to the prior year periods. We expect to continue to see healthy demand for our solutions; nevertheless, 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.

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 the recent emergence of new strains of the coronavirus and the effectiveness of vaccines for the disease as they continue to be developed and distributed. Consequently, we will continue to evaluate our financial position and results of operations in light of future developments, particularly those relating to COVID-19. See “Risk Factors” in Part I, Item 1A in the Annual Report for more information regarding the possible effects of COVID-19 on our business.

Key Business Metric

In addition to our financial information prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), we monitor the following key metric to help us measure and evaluate the effectiveness of our operations:


	As of
	September 30, 2021		September 30, 2020
	(In thousands)
Total annual recurring revenue	$	323,770	$	224,657

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We use total annual recurring revenue ("Total ARR") to monitor the growth of our recurring business as we continue to shift to a subscription model. Total ARR represents the annualized value of the active portion of SaaS, term-based license, maintenance and support contracts and other subscription services at the end of the reporting period. We calculate Total ARR by dividing the active contract value by the number of days in the active portion of the overall contract term and then multiplying by 365. Total ARR should be viewed independently of revenue and deferred revenue as Total ARR is an operating metric and is not intended to be combined with or replace these items. Total ARR is not a forecast of future revenue, which can be impacted by contract start and end dates and renewal rates, and does not include revenue from perpetual licenses, training, professional services or other sources of revenue that are not deemed to be recurring in nature.

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.

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Results of Operations

The following table sets forth our unaudited condensed consolidated statements of operations for the periods presented:


	Three Months Ended				Nine Months Ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
	(In thousands)
Revenue
Licenses	$	26,087	$	30,864	$	69,772	$	86,748
Subscription	70,796		51,004		194,393		140,807
Services and other	13,227		12,145		39,193		34,358
Total revenue	110,110		94,013		303,358		261,913
Cost of revenue
Licenses	1,994		1,083		4,596		3,269
Subscription (1)	15,711		9,794		40,731		26,927
Services and other (1)	13,408		9,922		37,726		27,597
Total cost of revenue	31,113		20,799		83,053		57,793
Gross profit	78,997		73,214		220,305		204,120
Operating expenses
Research and development (1)	26,879		19,314		69,478		52,775
General and administrative (1)	12,192		8,846		33,920		27,731
Sales and marketing (1)	58,624		44,092		168,194		119,886
Total operating expenses	97,695		72,252		271,592		200,392
Income (loss) from operations	(18,698)		962		(51,287)		3,728
Other expense, net
Interest income	223		349		635		1,790
Interest expense	(630)		(4,639)		(2,051)		(13,757)
Other income (expense), net	(122)		214		(342)		(222)
Total other expense, net	(529)		(4,076)		(1,758)		(12,189)
Loss before income taxes	(19,227)		(3,114)		(53,045)		(8,461)
Income tax (expense) benefit	(669)		2,438		1,116		2,410
Net loss	$	(19,896)	$	(676)	$	(51,929)	$	(6,051)

(1)Includes stock-based compensation expense as follows:


	Three Months Ended				Nine Months Ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
	(In thousands)
Cost of revenue - subscription	$	1,061	$	485	$	2,596	$	1,270
Cost of revenue - services and other	1,037		550		2,749		1,368
Research and development	3,604		1,712		9,010		4,700
General and administrative	2,883		1,944		7,479		4,896
Sales and marketing	5,819		3,147		15,515		8,945
Total stock-based compensation expense	$	14,404	$	7,838	$	37,349	$	21,179

The following table sets forth the unaudited condensed consolidated statements of operations data for each of the

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periods presented as a percentage of total revenue:


	Three Months Ended				Nine Months Ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
Revenue
Licenses	24	%	33	%	23	%	33	%
Subscription	64		54		64		54
Services and other	12		13		13		13
Total revenue	100		100		100		100
Cost of revenue
Licenses	2		1		2		1
Subscription	14		10		13		10
Services and other	12		11		12		11
Total cost of revenue	28		22		27		22
Gross profit	72		78		73		78
Operating expenses
Research and development	24		21		23		20
General and administrative	11		9		11		11
Sales and marketing	53		47		55		46
Total operating expenses	88		77		89		77
Income (loss) from operations	(16)		1		(16)		1
Other expense, net
Interest income	—		—		—		1
Interest expense	(1)		(5)		(1)		(5)
Other income (expense), net	—		—		—		—
Total other expense, net	(1)		(5)		(1)		(4)
Loss before income taxes	(17)		(4)		(17)		(3)
Income tax (expense) benefit	(1)		3		—		1
Net loss	(18)	%	(1)	%	(17)	%	(2)	%

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Comparison of the Three and Nine Months Ended September 30, 2021 and 2020

Revenue


	Three Months Ended								Nine Months Ended
	September 30, 2021		September 30, 2020		variance $		variance %		September 30, 2021		September 30, 2020		variance $		variance %
	(In thousands, except percentages)
Revenue
Licenses	$	26,087	$	30,864	$	(4,777)	(15)	%	$	69,772	$	86,748	$	(16,976)	(20)	%
Subscription
SaaS	29,842		17,407		12,435		71	%	77,100		46,780		30,320		65	%
Maintenance and support	39,361		32,511		6,850		21	%	112,139		91,735		20,404		22	%
Other subscription services	1,593		1,086		507		47	%	5,154		2,292		2,862		125	%
Total subscription	70,796		51,004		19,792		39	%	194,393		140,807		53,586		38	%
Services and other	13,227		12,145		1,082		9	%	39,193		34,358		4,835		14	%
Total revenue	$	110,110	$	94,013	$	16,097	17	%	$	303,358	$	261,913	$	41,445	16	%

License Revenue. License revenue decreased by $4.8 million, or 15%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily due to SaaS offerings becoming a larger portion of new sales.

License revenue decreased by $17.0 million, or 20%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to SaaS offerings becoming a larger portion of new sales.

Subscription Revenue. Subscription revenue increased by $19.8 million, or 39%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily due to new sales of our SaaS offerings and an increase in ongoing maintenance and support revenue from our installed base.

Subscription revenue increased by $53.6 million, or 38%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to new sales of our SaaS offerings and an increase in ongoing maintenance and support revenue from our installed base.

Services and Other Revenue. Services and other revenue increased by $1.1 million, or 9%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily as a result of an increase in the number of customers using our consulting and training services.

Services and other revenue increased by $4.8 million, or 14%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 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 September 30, 2021 and 2020 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 nine months ended September 30, 2021, revenue in the United States, EMEA and the rest of the world increased year-over-year.

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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								Nine Months Ended
	September 30, 2021				September 30, 2020				September 30, 2021				September 30, 2020
	$		% of revenue		$		% of revenue		$		% of revenue		$		% of revenue
	(In thousands, except percentages)
United States	$	79,481	72	%	$	67,917	72	%	$	214,630	71	%	$	191,613	73	%
EMEA (1)	17,039		16	%	16,329		17	%	51,917		17	%	43,104		17	%
Rest of the World (1)	13,590		12	%	9,767		11	%	36,811		12	%	27,196		10	%
Total revenue	$	110,110	100	%	$	94,013	100	%	$	303,358	100	%	$	261,913	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										Nine Months Ended
	September 30, 2021			September 30, 2020			variance $		variance %		September 30, 2021			September 30, 2020			variance $		variance %
	(In thousands, except percentages)
Gross profit
Licenses	$	24,093		$	29,781		$	(5,688)	(19)	%	$	65,176		$	83,479		$	(18,303)	(22)	%
Subscription	55,085			41,210			13,875		34	%	153,662			113,880			39,782		35	%
Services and other	(181)			2,223			(2,404)		(108)	%	1,467			6,761			(5,294)		(78)	%
Total gross profit	$	78,997		$	73,214		$	5,783	8	%	$	220,305		$	204,120		$	16,185	8	%

Gross margin
Licenses	92		%	96		%					93		%	96		%
Subscription	78		%	81		%					79		%	81		%
Services and other	(1)		%	18		%					4		%	20		%
Total gross margin	72		%	78		%					73		%	78		%

Licenses. License gross profit decreased by $5.7 million, or 19%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The decrease in gross profit was primarily the result of decreased license revenues, as described above, in addition to increased royalty costs. Gross margin remained materially consistent with the prior period.

License gross profit decreased by $18.3 million, or 22%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The decrease in gross profit was primarily the result of decreased license revenues, as described above, in addition to increased royalty costs. Gross margin remained materially consistent with the prior period.

Subscription. Subscription gross profit increased by $13.9 million, or 34%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The increase in gross profit was the result of growth in subscription revenue, as described above, partially offset by a $5.9 million increase in cost of revenue compared to the prior period. The increase in cost of revenue was primarily driven by a $2.1 million increase in cloud-based hosting costs to further support the scalability of our SaaS offerings, a $3.1 million increase in employee-based costs to support the growth of our SaaS offerings and ongoing maintenance and support to our expanding installed customer base and a $0.6 million increase in amortization of intangibles, primarily from our acquired intangible assets during the first quarter of 2021.

Subscription gross profit increased by $39.8 million, or 35%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase in gross profit was the result of growth in subscription revenue, as

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described above, partially offset by a $13.8 million increase in cost of revenue compared to the prior period. The increase in cost of revenue was primarily driven by a $5.8 million increase in cloud-based hosting costs to further support the scalability of our SaaS offerings, a $6.9 million increase in employee-based costs to support the growth of our SaaS offerings and ongoing maintenance and support to our expanding installed customer base and a $1.2 million increase in amortization of intangibles, primarily from our acquired intangible assets during the first quarter of 2021.

Services and Other. Services and other gross profit decreased by $2.4 million, or 108%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The decrease in gross profit is primarily attributable to a $3.5 million increase in cost of revenue compared to the prior period, partially offset by increased revenues due to customer growth. The increase in cost of revenue was primarily driven by a $2.7 million increase in employee-based costs to support an increasing number of customers and a $0.7 million increase in partner costs due to higher partner utilization in our professional services and training organization.

Services and other gross profit decreased by $5.3 million, or 78%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The decrease in gross profit is primarily attributable to a $10.1 million increase in cost of revenue compared to the prior period, partially offset by increased revenues due to customer growth. The increase in cost of revenue was primarily driven by a $7.0 million increase in employee-based costs to support an increasing number of customers and a $3.0 million increase in partner costs due to higher partner utilization in our professional services and training organization.

Operating Expenses


	Three Months Ended								Nine Months Ended
	September 30, 2021		September 30, 2020		variance $		variance %		September 30, 2021		September 30, 2020		variance $		variance %
	(In thousands, except percentages)
Operating expenses
Research and development	$	26,879	$	19,314	$	7,565	39	%	$	69,478	$	52,775	$	16,703	32	%
General and administrative	12,192		8,846		3,346		38	%	33,920		27,731		6,189		22	%
Sales and marketing	58,624		44,092		14,532		33	%	168,194		119,886		48,308		40	%
Total operating expenses	$	97,695	$	72,252	$	25,443	35	%	$	271,592	$	200,392	$	71,200	36	%

Research and Development. Research and development expenses increased by $7.6 million, or 39%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. This increase was primarily driven by a $6.8 million increase in employee-based costs due to an increase in headcount as we continue investing in additional products and capabilities.

Research and development expenses increased by $16.7 million, or 32%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was primarily driven by a $15.9 million increase in employee-based costs due to an increase in headcount as we continue investing in additional products and capabilities and a $1.5 million increase in software and hosting arrangement expenses, partially offset by a $0.6 million decrease in professional services expense.

General and Administrative. General and administrative expenses increased by $3.3 million, or 38%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. This increase was primarily driven by employee-related costs and professional service fees associated with consulting services.

General and administrative expenses increased by $6.2 million, or 22%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was primarily driven by a $3.8 million increase in professional service fees associated with our acquisitions of Intello and ERP Maestro and consulting services, a $2.1 million increase in employee related costs for stock-based compensation and a $0.5 million increase in software and hosting arrangement expenses.

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Sales and Marketing. Sales and marketing expenses increased by $14.5 million, or 33%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. This increase was primarily driven by a $14.7 million increase in employee-based costs to support increased penetration into our existing customer base and expansion into new industry verticals and geographic markets, as well as a $0.7 million increase in software and hosting arrangement expenses, partially offset by a $1.2 million decrease in professional services expense relating primarily to advisory services.

Sales and marketing expenses increased by $48.3 million, or 40%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was primarily driven by a $44.5 million increase in employee-based costs to support increased penetration into our existing customer base and expansion into new industry verticals and geographic markets, as well as a $1.2 million increase in professional services expense relating primarily to advisory services and a $2.3 million increase in software and hosting arrangement expenses primarily to support headcount, partially offset by a $1.0 million decrease in travel expense due to COVID-19 related limitations.

Interest Income and Interest Expense

Interest Income

Interest income for the three months ended September 30, 2021 remained consistent compared to the three months ended September 30, 2020.

Interest income decreased by $1.2 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The decrease was primarily due to a significant decrease in interest rates on our money market accounts and a decrease in our cash balance.

Interest Expense

Interest expense decreased by $4.0 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily due to lower amortization expense related to the Notes (defined below) as a result of our adoption of Accounting Standards Update ("ASU") 2020-06, which eliminated the embedded conversion feature of the Notes. See Note 1 “Description of Business and Summary of Significant Accounting Policies” in our notes to our unaudited condensed consolidated financial statements included in this Quarterly Report for more information regarding the adoption of ASU 2020-06.

Interest expense decreased by $11.7 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to lower amortization expense related to the Notes as a result of our adoption of ASU 2020-06.

Income Tax (Expense) Benefit

The Company recorded an income tax benefit of $1.1 million and income tax benefit of $2.4 million for the nine months ended September 30, 2021 and 2020, respectively, leading to a decrease in net benefit of $1.3 million year-over-year. Provision for income taxes consists of U.S. federal and state income taxes and income taxes in certain foreign jurisdictions in which we conduct business. The Company is in an overall deferred tax asset position and has established a valuation allowance for federal and state tax purposes as we do not expect our deferred tax liabilities to offset our deferred tax assets prior to expiration. We still maintain a full valuation allowance for our Israel tax position due its lack of taxable earnings for the foreseeable future.

The effective tax rate for the three and nine months ended September 30, 2021 is (3.5)% and 2.1%, respectively, compared to 78.3% and 28.5% for the three and nine months ended September 30, 2020, respectively. The main drivers of the differences in the rates from the prior period to the current period are related to differences in forecasted pre-tax book loss, the impact of stock compensation, an increase in foreign tax liabilities, acquisition impact, valuation allowance build and the effect of 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.

Liquidity and Capital Resources

As of September 30, 2021, we had $421.8 million of cash and cash equivalents (of which $6.8 million is 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 in connection with our corporate headquarters

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lease. As of September 30, 2021, we had $158.8 million in net working capital, which we define as current assets less current liabilities, excluding deferred revenue.

On March 11, 2019, SailPoint Technologies, Inc., as borrower, and certain of our other wholly owned subsidiaries entered into a credit agreement (as amended, the “Credit Agreement”) which includes commitments for revolving credit loans of $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. We had no outstanding revolving credit loan balance and we were in compliance with all applicable covenants as of September 30, 2021. See Note 8 “Credit Agreement” in our notes to our unaudited condensed consolidated financial statements included in this Quarterly Report for more information regarding terms and conditions of the Credit Agreement.

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 (the "Offering") to qualified institutional buyers. The net proceeds from the Offering were approximately $391.2 million, after deducting discounts and commissions and other fees and expenses payable by the Company in connection with the Offering. In conjunction with the issuance of the Notes, and exercise in full of the initial purchasers’ option, the Company used approximately $37.1 million of the net proceeds to pay the cost of privately negotiated capped call transactions (the “Capped Call Transactions”) to reduce our exposure to additional cash payments above principal balances in the event of a cash conversion of the Notes. The Notes will mature on September 15, 2024, unless earlier redeemed, repurchased or converted. The Notes bear interest at a fixed rate of 0.125% per year payable semiannually in arrears on March 15 and September 15 of each year. As of September 30, 2021, we had in aggregate $1.4 million in contractual interest payments, of which $0.5 million are due within the next 12 months.

As of September 30, 2021, the Notes are convertible at the option of the holders. We have the ability to settle the Notes in cash, shares of our common stock, or a combination of cash and shares of our common stock at our own election. The impact of the Notes on our liquidity will depend on whether we elect to settle any conversion in shares of our common stock or a combination of cash and shares. During the three months ended March 31, 2021, the Company settled conversion requests in the aggregate principal amount of $10.2 million of the Notes and terminated corresponding Capped Call Transactions. In connection with these transactions, we paid $10.2 million in cash to the converting holders for the principal amount, issued to the converting holders 181,629 shares of the Company's common stock with a fair value of approximately $10.1 million, and received 37,301 shares of the Company's common stock bearing a fair value of $1.9 million. As of the date of this filing, no other holders of the Notes have submitted requests for conversion. See Note 9 “Convertible Senior Notes and Capped Call Transactions” in our notes to our unaudited condensed consolidated financial statements included in this Quarterly Report for more information regarding the terms and conditions of the Notes and Capped Call Transactions.

The Company acquired two companies during the first quarter of 2021, resulting in $71.0 million of cash paid for business acquisitions, net of cash acquired. See Note 4 “Business Combinations” and Note 5 “Goodwill and Intangible Assets” in our notes to our unaudited condensed consolidated financial statements included in this Quarterly Report for more information. Other than the acquisitions and settled Notes conversion requests, there have been no material changes outside the ordinary course of business to the cash requirements from our contractual and other obligations, as disclosed in the Annual Report.

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, capital expenditures and other cash requirements for at least the next 12 months and, based on our current expectations, for the foreseeable future thereafter. Our future capital requirements, both near-term and long-term, 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, the introduction of new solutions and product enhancements, the continuing market acceptance of our offerings and services, the costs of any future acquisitions in complementary businesses and technologies and the impact of the COVID-19 pandemic to our and our customers', vendors' and partners' businesses. 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. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, operating results and financial condition would be adversely affected.

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Since inception, we have financed operations primarily through license fees, SaaS subscription fees, maintenance and support 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.

Summary of Cash Flows

The following table summarizes our cash flows for the periods presented:


	Nine Months Ended
	September 30, 2021		September 30, 2020
	(In thousands)
Net cash provided by (used in) operating activities	$	(10,915)	$	34,406
Net cash used in investing activities	(73,894)		(2,416)
Net cash provided by (used in) financing activities	(3,281)		7,944
Net increase (decrease) in cash, cash equivalents and restricted cash	$	(88,090)	$	39,934

Cash Flows from Operating Activities

During the nine months ended September 30, 2021, cash used in operating activities was $10.9 million, which consisted of a net loss of $51.9 million, adjusted by non-cash charges of $70.2 million and a net decrease of $29.2 million in our operating assets and liabilities. The non-cash charges are primarily comprised of depreciation and amortization of $17.3 million, amortization of debt discount and issuance costs of $1.6 million, amortization of contract acquisition costs of $14.1 million, and stock-based compensation of $37.3 million. The $29.2 million decrease in our net operating assets and liabilities was primarily a result of an increase in deferred contract acquisition costs which has accelerated as subscription sales continue to grow, an increase in prepayments and other assets due to increases in contract assets related to multi-year deals, an increase in accounts receivable due to the timing of receipts of payments from customers, a decrease in accounts payable due to timing of cash disbursements and a change in income taxes payable to income taxes receivable, partially offset by an increase in accrued expenses and other liabilities due to the timing of cash disbursements, including commissions and bonuses, 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 nine months ended September 30, 2020, cash provided by operating activities was $34.4 million, which consisted of a net loss of $6.1 million, adjusted by non-cash charges of $58.3 million and a net decrease of $17.9 million in our operating assets and liabilities. The non-cash charges are primarily comprised of depreciation and amortization of $13.8 million, amortization of debt discount and issuance costs of $13.3 million, amortization of contract acquisition costs of $10.1 million, provision for credit losses of $0.4 million, stock-based compensation of $21.2 million, a net decrease in operating leases of $0.3 million and a net decrease in deferred taxes of $0.1 million. The decrease in our net operating assets and liabilities was $17.9 million as a result of an increase in prepayments and other assets, an increase in deferred contract acquisition costs which has accelerated as subscription sales continue to grow and a change in income taxes payable to income taxes receivable, partially offset by a decrease in accounts receivable due to the timing of receipts of payments from customers, an increase in accounts payable due to timing of cash disbursements, an increase in accrued expenses and other liabilities due primarily to accrual of additional bonuses and withholdings of Employee Stock Purchase Plan (the "ESPP") contributions, 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.

Cash Flows from Investing Activities

During the nine months ended September 30, 2021, cash used in investing activities was $73.9 million, consisting primarily of $71.0 million of cash paid for business acquisitions, net of cash acquired, and $2.9 million for purchases of property and equipment.

During the nine months ended September 30, 2020, cash used in investing activities was $2.4 million, consisting primarily of purchases of property and equipment.

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Cash Flows from Financing Activities

During the nine months ended September 30, 2021, cash used in financing activities was $3.3 million, consisting of $10.2 million of payments upon the partial conversion of the Notes and $4.3 million in vesting of restricted stock units, primarily related to tax payments funded in the form of net issuances for certain executive officers, partially offset by $5.2 million of proceeds from issuance of equity related to shares issued pursuant to the ESPP and $6.0 million of proceeds from exercise of stock options.

During the nine months ended September 30, 2020, cash provided by financing activities was $7.9 million, consisting of $4.9 million of proceeds from exercise of stock options and $3.5 million of proceeds from issuance of equity related to shares issued pursuant to the ESPP, partially offset by $0.4 million in vesting of restricted stock units, primarily related to tax payments funded in the form of net issuances for certain executive officers.

Critical Accounting Estimates

Our unaudited 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.

We believe that the accounting policies associated with fair value allocation of multiple performance obligations in revenue recognition, the expected period of benefit of deferred contract acquisition costs, income taxes, and the valuation, impairment and useful lives of long-lived assets and goodwill arising from business combinations are the most significant areas involving management's judgments and estimates. Therefore, these are considered to be our critical accounting policies and estimates.

See “Critical Accounting 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 regarding the estimation, uncertainty and impact of the Company's critical accounting estimates has had, or is reasonably likely to have, on the Company's financial condition or results of operations.

Recent Accounting Pronouncements

With the exception of the adoption of ASU 2020-06, there have been no material changes to our critical accounting policies as compared to the critical accounting policies disclosed in the Annual Report. See Note 1 “Description of Business and Summary of Significant Accounting Policies” in our notes to our unaudited 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

We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates and foreign currency exchange rates. We do not hold or issue financial instruments for trading purposes.

Interest Rate Risk

We had cash and cash equivalents and restricted cash of $428.6 million as of September 30, 2021, which 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 September 30, 2021, 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 September 30, 2021.

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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 debt issuance costs on our balance sheet, 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 British pound, Euro, Israeli shekel, Indian rupee, Australian dollar, Singapore dollar and Canadian dollar. As of September 30, 2021, our cash and cash equivalents included $6.8 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 unaudited 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 value of the U.S. dollar relative 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.

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 Securities Exchange Act of 1934 (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 Interim Chief Financial Officer (“CFO”), to allow timely decisions regarding disclosure. Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2021 and, based on such evaluation, our CEO and CFO have concluded that the disclosure controls and procedures were effective as of such date.

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 September 30, 2021 that materially affected, or are reasonably likely to materially affect, our internal control 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, and we are not aware of any such proceedings contemplated by governmental authorities.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed in Part I, Item 1A in the Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Securities

None.

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

None.

Use of Proceeds from Initial Public Offering of Common Stock

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 September 30, 2021, 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						Description

3.1						Third Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (File No. 001-38297)).

3.2						Second Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (File No. 001-38297)).

31.1*						Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*						Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**						Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**						Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*						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.

101.SCH*						Inline XBRL Taxonomy Extension Schema Document.

101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104						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).

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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.


	SailPoint Technologies Holdings, Inc.

Date: November 9, 2021	By:	/s/ Mark McClain
		Mark McClain
		Chief Executive Officer

Date: November 9, 2021	By:	/s/ Cam McMartin
		Cam McMartin
		Interim Chief Financial Officer