SAIL - 50% y/y Sub Rev growth

Long post…from 2 I made on NPI. Links to previous ERs and some articles.

Net is that they have 4 straight Qs of Subscription Rev growth and in good security vertical around Identity mgmt/governance.

When I saw that they pushed their earnings date…was supposed to be tomorrow…that can never be good:…

They are blaming it on ASC 606 stuff, but all I care about is the paragraph below:

“Of note, the Company delivered solid performance in the fourth quarter of 2018. The Company expects to exceed the high end of its previously issued revenue and non-GAAP profit guidance if financial results were reported on an ASC 605 basis, the standard on which its fourth quarter guidance, established on November 7, 2018, was based. While the Company will not be in position to provide its GAAP results (ASC 606) until the additional procedures are complete, it currently expects its GAAP results for the fourth quarter and full year 2018 to be equivalent to or exceed those that would have been reported on an ASC 605 basis.”

So I read that as good. “Exceed high end of its previously issued guidance”.
I dodged a bullet, right???

Anyway, I like this company for their smaller size, and they appear to think they competed, at least pre-IPO, with OKTA, who has certainly been a high-flyer. Anecdotally, I can attest to knowing a large Enterprise client that said they wanted to do an Identity Management transformation (their exact words) and they mentioned a few vendors they wanted to review and Sailpoint was one (Okta was not).…

"Okta and SailPoint offer different solutions to this identity management problem. As McClain told me in a March 2017 interview, “Okta is a badge reader. It does not provide the back office processes needed to determine whether the person with the badge should get a red or green light.” The back office processes – which determine in real-time whether the badge holder is still an employee and whether their access privileges have changed – is what SailPoint supports.

Identity Management Services – the market in which Okta’s Identity Cloud plays – is an $18 billion market, according to Investors Business Daily."

that was from 2017.

Here is more recent article:…

“We have about 1,000 customers out of about 80,000 companies,” McClain said. “There’s a large available market.” McClain said the next geographical market of attack will be Asia.

While about 75% of the firm’s revenue comes from commercial customers, there’s one other fairly important customer: the federal government. And this idea of the ever-expanding market for cyber security holds true for the federal government. “Does that still apply to the federal government today?” McClain said. “Absolutely yes, because they’re not getting any less scalable today.” The federal government has at least 30 agencies it plans to spend cyber security dollars on in 2019, according to Statista, with the Department of Defense being the most needy of the agencies, requiring a planned $8.4 billion of spending.

Of course, questions remain as to how much of these new markets SailPoint can scrape up for itself, and what the plan of attack is. McClain said Oracle, RSA, and other legacy vendors Sailpoint competes with are nothing to scoff at, but that SailPoint has an advantage over them: new technology.

“Those legacy vendors have a very difficult time adapting to new technology,” he said. “Our technology is more adaptable to the environment.” Oracle’s service revenue, which encompasses identity governance, shrunk more than 1% year over year in the fourth quarter of this year. Surely, Oracle has the cash flow to invest in the new technology that could make it more competitive in identity governance, and “they could,” McClain said. “They just haven’t yet delivered that.”

most recent ER:…

Total revenue was $66.4 million, an increase of 52% over Q3 of 2017. License revenue increased 66% year-over-year to $28.1 million, and was well ahead of our expectations. This result was driven by exceptionally strong federal performance coupled with a balanced contribution from other verticals.

Subscription revenue increased 54% year-over-year to $28.5 million. This was driven by a combination of healthy SaaS gross and strong IdentityIQ maintenance renewal rates that remain above 95%.

On a geographic basis, the United States contributed 69% of revenue in Q3 and the rest of world made up the remaining 31%. This compares to 75% in Q3 of 2017 and 25% for rest of world. We continue to be pleased with our performance on a global basis. The quarter’s strong results highlight the investments we’ve made over recent years in several new markets.

In Q3, license gross margin was 99%. Subscription gross margin was 83%, an increase from 79% in the third quarter of 2017 due to improving scale of our SaaS business and increasing maintenance support efficiency. Within our services business, gross margin was approximately 26% in line with the third quarter of last year. On a combined basis, total gross margin for the quarter was 82%, compared with 77% in Q3 of 2017.

Annual revenues
2015 95m
2016 132m 39% y/y
2017 186m 41% y/y
2018 forecast 242m 30% y/y

We can see why the stock has underperformed, as the trend was solid and then slowed a bit this year. Although if they actually finished at 250m or so, it would change the y/y to 34%, so we have to see what the final number actually is.

Are they still at the beginning stages? From a size perspective, they are in that AYX/MDB neighborhood of total revenue, but much lower P/S, obviously because growth rate is lower.

Here is the Q2 ER CC:…

In the data center, as SaaS, in the public cloud and delivered as a managed service. We also continue to see success, based on the investment SailPoint makes with our go-to-market partners, especially, Accenture, Deloitte, KPMG and PWC. These partners all have dedicated SailPoint practices that continue to grow, and we’re seeing an even stronger involvement with all of them internationally.

(those are good partners to have in the industry)

Total revenue was $54.6 million, an increase of 39% over Q2 of 2017. In Q2 of 2018, both license and subscription revenue were strong. License revenue increased 43% year-over-year to $19.1 million. Subscription revenue increased 53% year-over-year to $25.1 million. This was driven by a combination of healthy SaaS gross – growth and strong IdentityIQ maintenance renewal rates that remain above 95%.

(ok…this tells me that the Q3 licensing number was an anomaly, likely a huge one-off Fed deal. But I note the Sub rev % is over 50% 2 Q’s in a row.

How about Q1 ER/CC:…

SailPoint now offers four delivery options. The first option is in the datacenter. This is IdentityIQ and/or SecurityIQ deployed on premises for customers who want to maintain complete control of their identity infrastructure, while addressing the sophisticated needs of the large enterprise environment. Hundreds of our customers have chosen this deployment model.

The second option is SaaS, IdentityNow is delivered as a turnkey SaaS offering to enable mid-market enterprises to rapidly adopt a comprehensive approach to identity that takes advantage of the fast time to value and ease of use that SaaS provides. For example, one of our Q1 deals was a 5,000 users Swedish hardware chain that needed to address that excuse me, that needed a solution to help address GDPR requirements and solve its resourcing challenges, while also supporting its cloud-first corporate strategy.

The organization which had no existing identity governance solution in place selected SailPoint’s robust multi-tenant SaaS solution IdentityNow, since it met all these specific requirements and provided a platform for the company’s future identity strategy.

Returning to our delivery options, our third option is the public cloud. This is when a customer hosts IdentityIQ in a public cloud platform like Amazon web services or Microsoft Azure. Some organizations have asked for this option in order to maximize the benefits of a fully-owned and operated identity governance platform, balanced with the agility and the efficiencies of the cloud.

Fourth, and finally, we’re seeing some organizations request a managed service delivery option. In this alternative IdentityIQ and/or SecurityIQ are hosted and delivered by one of our recommended managed service providers, allowing the customer to delegate some or all identity governance administration to a proven service provider to assess, deploy, manage, and support overall identity efforts.

Total revenue was $49.7 million, an increase of 40% over Q1 of 2017. Licensed revenue was $17 million, an increase of 39% year over year. Q1 licensed revenue was ahead of our expectations and some of the out-performance was due to closing deals that were targeted for the second quarter.

Subscription revenue was also strong in the first quarter of 2018 at $23 million of 54% year over year. Our subscription revenue grew at a rapid pace on a year over year basis and increase sequentially, which was ahead of our expectations.

(that makes 3 Qs in a row of Sub rev at 50%+ y/y)

How about Q4 from 1 year ago? Doesn’t appear to be a CC, but here is press release. They went public in Nov 2017:…

Revenue: Total revenue was $67.8 million, a 53% increase over Q4 2016. License revenue was $36.7 million, a 65% increase over Q4 2016. Subscription revenue was $21.2 million, a 51% increase over Q4 2016. Services and other revenue was $9.9 million, a 23% increase over Q4 2016.

(So they had a big Q4 last year in licensing. Again, they appear to have larger pops likely tied to bigger deals that go the licensing route, making for lumpiness in licensing. But if you note the Sub Rev # is again over 50%, which means they have been growing Sub Rev at over 50% y/y for 4 straight Q’s. Hopefully their upcoming ER will mark 5 straight.)

Financial Highlights for Full Year 2017:

Revenue: Total revenue was $186.1 million, a 41% increase year-over-year. License revenue was $79.2 million, a 46% increase year-over-year. Subscription revenue was $71.0 million, a 44% increase year-over-year. Services and other revenue was $35.8 million, a 25% increase year-over-year.

(So it appears they grew Sub revenue, in 2017 over 2016 by 44%. Yet we know the first 3 Q’s of 2018 they have grown Sub Rev over 50%. So it appears we do have Sub Revenue going in the right direction).