Greetings and welcome to the SailPoint Technologies Holdings First Quarter Conference Call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. [Operator Instruction] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Josh Harding, Vice President of Financial Planning, Analysis and Investor Relations. Thank you, sir. You may begin.

Good afternoon and thank you for joining us today to discuss SailPoint's first quarter financial results. Joining me today are SailPoint; CEO and Co-Founder Mark McClain and SailPoint’s, Chief Financial Officer, Cam McMartin. Please note today's call will include forward looking statements and because these statements are based on the company's current intense expectations and projections, they are not guarantees of future performance in a variety of factors could cause actual results to differ materially. Since this call will include references to non-GAAP results which excludes special items. Please reference this afternoon's press release and the investor section of sailpoinr.com for further information regarding forward looking statements and reconciliations of non-GAAP results. And now I'd like to turn the call over to Mark McClain.

Thanks Josh and thank you to everyone joining our Q1 2018 earnings call. I am pleased to share our results from the first quarter of 2018. In Q1, 2018 our total revenue grew 40% to $49.7 million. And we delivered profitability on a non-GAAP operating income basis. I'd like to share some company highlights from Q1 before handing it over to Cam to discuss the details of our financial results. We began 2018 with continued success across our various growth strategies, including further penetrating our existing market, extending our global presence and expanding within our customer base, all while leveraging our partner network. As a result, we ended Q1 with 984 customers, up from 933 at the end of 2017 and once again approximately 80% of the quarter’s deals were influenced or sold by one of our partners. In global organizations around the world, there's an increasing awareness that identity governance is critically important for security and compliance. Further digital transformation has significantly increased the complexity and scale of managing user identities and information resources in the enterprise. And these organizations are more open and interconnected than ever, across not only employees, but also contractors, suppliers and business partners, as well as system resources, robot identities in IoT, creating additional levels of complexity and risk. With all this growth and complexity, enterprises are seeing their attack service expand exponentially, as hackers frequently target users to gain access to high value systems and data. Considering the number of identities and enterprise may need to manage, each of which may be accessing a myriad of applications with varying levels of permissions. A typical global enterprise could easily have millions of points of access into their systems. Each of these represents a point of exposure and it's just one access point is breached.…

Thanks Mark and thanks to everyone on the line for joining us today. Our financial results for the first quarter beat our guidance on both the top and bottom lines with total revenue growth of 40% positive non-GAAP operating income and meaningful cash flow from operations. 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. A portion of the upside and subscription revenue was driven by an acceleration in SaaS customer go lives, which allowed us to recognize revenue for many of the SaaS customers we signed in Q4 of ‘17 sooner than we had expected. Services and other revenue was $9.7 million up 17 % compared to Q1, 2017. Our services business experienced a higher than expected utilization rate in Q1 due to the strength of Q4 for new bookings and the acceleration of projects previously slated to be in Q2. Overall, we expect to continue to push more of the implementation work to our partners who are an important part of our ecosystem and expect minimal services growth for 2018. On a geographic basis, the United States contributed 66% of Q1 revenue with the rest of the world making up the remaining 34%. This compares to 73% in Q1 of 2017 and 27% for rest of world. As I transitioned to the remainder of the…

Thank you. At this time, we will be conducting a question and answer session. [Operator Instructions] Our first question is coming from the line of Walter Pritchard with Citi. Please proceed with your question

Hi guys, its Jerry McGranaghan [ph] for Walter. Could you maybe quantify the impact for license revenue from the deals that were initially targeted for the second quarter? And then I guess what would you attribute the earlier than expected bookings do? And I have a follow-up?

Yeah. So thanks for joining. This is Cam McMartin. I appreciate everybody for joining on the call today. The answer your first question is, not a big number. We highlighted it because we did see it a little bit of business where we'd been working with a customer with an expectation that we'd wrap up contracting and other activities in Q2. But really driven by customer initiative, we wrap them up in Q1. It was, between 1 million and 2 million bucks. It was not a big number overall. But we felt like a, it was an effect in the courtroom we wanted to highlight for you.

Got It. That's helpful. And then customer growth was strong again in the quarter and accelerated for the last couple of quarters. So is there anything specific that you would point to, that’s driving this and how much would you attribute to the out market success with IdentityNow?

Again, Cam here answering, I'd say two things. One is, we continue to see strong growth in both our large enterprise and mid enterprise focus. Both saw good healthy growth in Q1 on a year over year basis. If you think - continue to remind you to think of our large enterprise visits being focused largely on the -- in the on-premise sector of our product offering set and the mid enterprise being largely focused on our SaaS offering set. And both grew nicely. Obviously, as we've highlighted previously, the growth in the mid enterprises faster because it continues to be growing from a small, smaller base. But overall, we were very pleased with the growth rates in both sectors. And I would remind everyone Q1 is our seasonally softest quarter of the year, in terms of our historic activity. And so the to post it, that level of customer expansion, we're very pleased.

Got It. Thanks, nice quarter.

Thanks.

Thank you. The next question is coming from the line of John DiFucci with Jeffries. Please proceed with your question.

Hey, this is Julian [ph] on for John. Mark one question, when you were talking about the various delivery options, right? You talked about four options; the data center, the cloud, the SaaS and unmanned delivery. I didn't really hear SecurityIQ, can talks about it in the datacenter option, is there are options for that to be delivered against potentially one day as a SaaS solution or as a hosted solution. Is that an option? Can you expand on that?

I can. Our current plan is, as in the next release of Security IIQ, we've done the same kind of work in that product that we've done in IQ to make it more cloud friendly. And what we mean by that really is to be able to run nicely and in Azure or AWS or other environment. And then we -- some of the same partners that are offering the MSP offering for IIQ today, couple them already and others are considering offering SIQ in that option. So Julian and the main way we would see SIQ delivered from the cloud would be either the customer putting it on Amazon or Azure or one of our MSP partners hosting it. We won't actually develop a separate asset, a SaaS version of that product, like IBM has a completely different product from IQ there. At this point we do not intend to have a separate SaaS version of SIQ.

Thanks. That makes sense. Cam, just one quick question to you, it looks like there's like the long-term deferred revenue starting to build a little bit in the balance sheet. Should we or you perhaps billing customers definitely like, for longer terms or is that just, is there anything to it, I guess?

Yeah. So first of all, thanks Julian for joining the call. In terms of the activity from a long-term deferred perspective, it really was a Q1 unique set of factors related to a small number of deals where we saw a multi-year maintenance. In a couple of cases, it was in the US where we had utility organizations that opted for going ahead and buying a multiyear maintenance program as part of the initial license agreement. And then we had one oversees transaction as well, where it was going to be a hosted transaction, by a third party and they elected to go ahead and pre-buy multi-year maintenance as well. So no, I would tell you, I don't think indicatively is a trend change more that as inevitably happens quarter to quarter and our business will see a different mix of business quarter to quarter and this just happened to be a quarter where we saw a higher concentration of a perpetual license deals where they bought long - a multiyear maintenance agreement as part of the initial transaction.

Okay. Thanks. It makes sense.

Thank you.

Thank you. The next question is coming from a line of Melissa Gorham Franchi with Morgan Stanley. Please proceed with your question. Well, so your line is live. You may proceed with your question.

Sorry. Thanks for taking my question. I just wanted to dig into SecurityIQ. I'm circling back to that product. Mark, I'm just wondering if you could maybe talk about how that's proceeding relative to your expectations? And if it's helping you garner new customers or is it largely just gear it towards the existing base?

I guess a little bit of everything. I will comment and then Cam may join as well? Melissa, thanks again for joining. And I think in general we have a stronger sales motion today with that product line in conjunction with our other products, which of course takes two forms primarily, either for a net new transaction that new customer, we'll spell it alongside IIQ or IdM. And then we've obviously made some efforts to go back into our install base, particularly IIQ, but also IdM to talk about, that product offering as an add-on to their existing environment. And in general, we're pretty much on our target plan internal plan numbers for that product line. We are seeing, two different kind of drivers I guess, I'd say for that, one is, there's clearly some level of GDPR influence on that product line because it's a, a bit of an answer to that kind of a concern in the customer's mind. But what we've really been focusing on more is getting customers who have traditionally been focused on the identity governance problem set, to expand their thinking beyond the governance of data and applications to the governance of data in files. It's the same data, it’s just been exported out of a structured app like SAP or Oracle and now it's living out in, in a SharePoint or Dropbox environment. And I think our customers are really beginning to resonate with that understanding and, and kind of begin to package it into their thinking about governance over the data they care about. So primarily selling alongside what we call an attached motion or a crossed into an existing account. Those were the primary motions today. I don't know Cam do you have any…

I think that's a good summary. Overall, I think we're, what we're pursuing all three motions is we go to market, but those are the principal more motions today. And I think the important overarching view is, identity governance for files is the way in which we're beginning to position and go to market. That solution is resonating as Mark said, I think quite nicely with customers as they think more broadly about how to ensure that from an operational perspective, they're managing access to those files in the file stores that they live in. And then as well to couple the information around compliance as well as security across files back to the application set.

Got It. That's helpful. And, just a quick follow up for you Cam, -- on, the large deal activity in the quarter. Just wondering if you can comment on what you're seeing and if there was anything kind of one time. I know you talked about the deals that pulled forward in Q1, but were there any sort of mega deals that we should be aware of?

No. Melissa, first of all, again, thanks for joining. No mega deals overall. I think, it was a quarter in terms of the mix that we saw good contribution from larger deals. Not -- as you well know, quarter to quarter it's going to bump up a little bit, bumped down a little bit in terms of the overall contribution. But it was for us a solid Q1 in terms of the contribution of the greater than seven figure deals.

Great. Thank you. Thank you.

Thank you. The next question is coming from the line of Matt Hedberg with RBC Capital Markets. Please proceed with your question.

Hey guys, thanks for taking my questions. Congrats on the strong quarter. Mark. It was helpful to kind of think about the four ways of deployment and there's, obviously hundreds of customers deploying a, you guys on premise and stuff like IdentityNow continues to track well. I guess I'm curious, can you give us a sense for how many customers deploy IdentityIQ and the public cloud and maybe what are those economics look like versus an on-prem deployment?

So I don't think we have a real strong sense of the number today because frankly, Matt, we don't always know that. Meaning, sometimes a customer will deploy or excuse me, purchase IIQ as a typical perpetual license. And if we aren't directly involved in that deployment, sometimes just one of our partners, we might, we may learn later that they chose to deploy that out in Azure, AWS. It's not a difference in how we licensed the product or any in any way. I do think we're at the early stages of that trend in general, that most of the IIQ deployments and the same by the way, for SecurityIQ back to the earlier question. Most of those deployments today are still in the datacenter, but the reason we kind of made a point of highlighting those deployment options earlier this year was that we are definitely feeling poll for those other motions, particularly the just deployed in the cloud motion. As said earlier, the MSP motion is newer and still very early. We think from a, from a momentum standpoint, but we are hearing a lot of large and mid-sized customers say that rather than deploy IdentityIQ or SIQ in the datacenter, they're going to go ahead and look to deploy that out in Amazon Web Services or Azure. And frankly other cloud platforms as well. So that today I was not a significant proportion of our overall datacenter deployments.

Got It. And then maybe as a follow-up, identity AI and we continue to hear good things on the Beta site for that, I'm curious if you can give us an update on the launch there? And, and maybe it could, could you fill in a little bit more of the white space on sort of what some of these Beta customers are or have been telling you guys up and help you guys?

What is, it's still pretty early in the lifecycle of that product line. And I think the short version Matt is it's, we're learning as you'd expect us to. We're learning as we go there and I think we're finding is the expectations for the breadth and depth of what folks want that product to do are a little wider and deeper than we thought. So we're, we're taking a little more time to make sure we're gathering a full understanding of the requirements and how customers want to use it. Again, primarily today, it's most relevant to our most mature customers. And meaning that those folks who have been in a long-term usage of IdentityIQ or IdentityNow our SecurityIQ and have learned a lot about their basic understanding of governance in their environment are now looking for more nuance and more under deeper understanding of how best to govern, how to ask more intelligent questions, how to find the needles in the haystacks, et cetera. And so what we're focused on is making sure that that product can really serve that purpose, that, that when an existing customer roles out IdentityAI, they get a fair amount of new and fresh insight into their issues and their concerns. And so that's the focus. We are, as you said, something you've been talking about, some of those folks still a pretty small handful of customers, but they're pretty deeply engaged with us on that product. And just very pleased so far with what we're learning jointly as we worked together.

Great. Well done guys.

Thank you, Matt.

Thank you. Our next question is coming from the line of Rob Owens with KeyBanc Capital Markets. Please proceed with your question.

Great. And thanks for taking my question. You noted back in Q4 that there was a benefit on achieving some product delivery requirements that benefited the quarter. But in addition, you did also note that you had higher than normal close rates. And now we see a polling here from Q2 to Q1. I'm just curious relative to sales cycles and what you guys are seeing, are you seeing compression at this point either relative to what you've seen historically or how you've built the model?

For Rob, this is Cam McMartin here. Good to speak with you. Thanks for the question. The general answer is no. I think as we watched the sales cycles longitudinally, we're not really seeing a great deal of movement. Again, if you, as we've highlighted before, you segregate software from SaaS and that sense, you know, the obviously the on-premise sales cycle tends to be a bit longer for the large enterprise and it is a SaaS selling cycle for the mid enterprise. No surprise there. I think fundamentally the selling activity in Q1 is if we look at the data would suggest those. Again, given variability quarter to quarter, those close cycles were very much within the normal realm of total lifecycle. And so we felt good about that because again, I would highlight Q1 tends to be a quarter that is seasonally the weakest and so sometimes it takes a bit longer to get momentum in the quarter from a selling perspective. But overall we were pleased with what we saw in terms of the pace of closing and the overall sales cycle times.

Well I guess building on that then you had 51 new customers quarter over quarter and that's a record for Q1. So I guess two questions relative to velocity number one, which, which you're saying you're not seeing a change, but I'd suggest evidence to the contrary? And number two is I look at your product revenue, is there more of an influence coming from new customers? How much licenses from the installed base versus these newly acquired customers? Thanks.

Yep. Thanks Rob. So the answer is yeah, we did see a somewhat higher contribution in terms of new customer acquisition than we've seen in prior quarters. But I would remind you it does bounce a bit quarter to quarter. We inevitably we'll see a bit of up and down quarter to quarter. Our historic mix has been in the range of 65% new to 35% repeat customer. If I look at it both on a transaction count basis as well as the dollar basis, we weren't that far off what we normally would see in Q1 versus trend. And so, we were pleased with that contribution overall. I think as we continue to move forward, we would expect that mix to be in that range that is 65, 35. We think that for us is the right mix. You'll see us and we've highlighted that we are addressing the install base, a segment of our business a bit more aggressively. We think that the size of that customer base is, it's now our approach to a thousand customers is an opportunity for us. We want to make sure we're fully capitalizing on. And so we're beginning to think about marketing programs as well as sales motions that would overtime accelerate our focus there from past years. But fundamentally the good news is, I think Q1 demonstrates this. We've got the ability with this market in terms of its total size to capture new customers at a very healthy rate. And so that we think that balance can be maintained over time.

Great. Thank you.

Thank Rob.

Thank you. [Operator Instructions] Our next question is coming from the line of Alex Henderson with Needham. Please proceed with your question.

Great. I'd like to go into, the deal sizes and to what extent you're seeing any changes in the scale of the purchases based on the increasing amount of board involvement, the complexity around the GDPR, and if you could separate between the two buckets, a IdentityIQ and IdentityNow, which obviously had different motion on those features. Can you, can you talk a little bit about whether you're seeing any increase deal size and in each of those segments, I assume obviously there's a difference between the two in terms of sizing?

Yeah. So, Alex, first of all, thanks for joining and appreciate your question, this is Cam. Let's see, I'll give you a few overall comments are comments and then maybe dive down a bit in terms of some of the detailed questions you ask. I think as we look at Q1 and compare it to both prior Q1s ones as well as Q4 and the prior, the second half of last year, really no affects overall in terms of the average deal size, right. We're pleased with the deal sizes. As I've said before I give you - I don't give you guidance on ASP 0or history on ASP as part of our information we're providing you, but what I will say is like prior quarters that sweet spot or range, if you will, is the to a $100,000 to $1 million range. And that's true for both, IdentityNow as well as IdentityIQ. And so we are, we're working to build a book of business over the overtime that the new customer acquisition activity is in that range from a transaction sizing standpoint in Q1 was really very much within that normal course overall. We have if I think back over the longer term we seen Alex deal size expansion over a long term period of time that’s not surprising when you think about combining IdentityIQ and IdentityNow individually, or SecurityIQ for instance. But in terms of the recent couple of quarters and the mix of business that we saw really no shift in average selling price or deal size if you will, better said but that range continuous to be very intact. I would say, if I think about on IdentityIQ versus IdentityNow basis that was core governance. Again, no fundamental movement, overall in terms of the quarter, in terms of those average prices. We’re foreseeing good for good performance. We're pleased with where we're landing on a average selling price basis in both product lines. And, and do believe that in aggregate, one of the opportunities that we've talked about previously and that we're going to continue to watch is our ability to grow overtime, total lifetime value by selling more of the product portfolio into an existing customer as they've ramped their initial implementation of whatever solution they've initially selected to expand across a product families to address the totality of the governance challenge that they all face today.

If I could follow on. So I'm a little puzzled by that answer in the sense that I would think that if you're downsizing service and you know, shifting the mix between license a subscription services that would be altering the deal size. Is it a function of the improvement in deal size exclusive, or if I adjust to the fact that I'm taking this, some of that service out as an example? Or is it that when you calibrate your adjusting that out to reflect the fact that you're trying to outsource the more of the service?

Yeah. So Alex, you're right, we are, as we intend to do over time is build out the ecosystem of service for partners to deliver more and more of the services. When I specifically speak to deal sizes, I'm talking more about initial and follow on deal size is. I'm not really trying to give you a full guide on customer total revenue size, because that will over time, very certainly change quarter to quarter based upon whether or not we're doing a concentrated amount of delivery of initial or follow on services or it's shifting more to partner. So that mix will shift when I'm really thinking about is what is the in discussing is what is the footprint of delivering Identity capacity, to our customers overall. That's the way we is -- I talk about the opportunity to grow deal size. I'm thinking about it that way because ultimately we think that's the right way to drive business growth.

Thanks for addressing that conflict that he thinks that's great.

Thank you. The next question is coming from the line of Shaul Eyal with Oppenheimer. Please proceed with your question.

Thank you guys congrats on performance and guidance. . Cam, Mark, geographic distribution, could you share with us in any areas though they'll already some challenges geographically? I think Mark you mention GDPR in your prepared remarks. Did, did that have an impact on Europe or also in some US related business?

Shaul, thanks for joining. This is Cam. Good to have you on board and we appreciate your question. So I'll start out and then let Mark follow on with the answer to the second question. Overall, we saw a somewhat higher than long-term trend, a contribution from international. We are very pleased with that. I think it validates for us that the investments that we've been making are generating the outcomes we're looking for. I think over time I think you're going to see contribution from domestic versus international business move back and forth a bit just based upon mix of quarterly activity, but Q1 was a stronger outside of the US, in terms of this mix contribution in the US versus prior quarters. But nothing fundamental to highlight there, just the way the deals fell out of it. But I do think, and I continue to emphasize that we are focused on continuing to increase our global footprint in terms of the investments that we're making with the capacity of the salesforce outside the US are professional services and customer support activity. We think, both businesses, that is Europe and APAC offer real opportunities for growth. So we're investing there. But as you would expect, we're continuing to invest in a pretty aggressive rate in the US. So I think that's the highlight is, Q1 little bit stronger and the rest of the world versus the United States, but nothing indicative in terms of changing the outlook overall.

Got it, implemented. I'm sorry, go ahead.

Shaul ,If you wanted me to pick up on the GDPR or did you want to follow Cam there?

Any color will be a greatly appreciated, whether it's Europe or maybe also some US contribution?

Yeah, I think, in general, I think just to echo what Cam said, I think we saw good strong performance in international business. Again, just to make sure we didn't miss state that, strong relative to what it's been not stronger than the US and it wasn't that the rest of the world was more than the US, just to be very clear. But it was stronger a little bit relative to what the mix has been of late. And then on GDPR Shaul, I think we would tell you that, one of the things we are making sure people understand that, I think other vendors are coming on as well as GDPR is absolutely a global phenomenon that is not only European in that large US organizations who operate internationally are absolutely talking to us about GDPR and its potential impact. But we'll still echo what we've been saying that and that is that, it is generating a lot of dialogue and discussion more than it is, you know, explicit product revenue. Yet now I think that's picking up as we head into the second half of the year. But that in general, we feel like that's a long-term, trend that will probably much like Sarbanes did much like even HIPAA did here in the US have a long tail. But I think in some ways what's important. And you know, I'm no expert on what all the dialogue's been between the US government and Facebook, but privacy as a topic, GDPR happens to be an instantiation of that. But privacy as a topic, I think it's going to continue to be interesting, not beyond the realm that the US may pass them sort to privacy legislation given everything that's happened in the last few months. And all that means to us is very likely additional legislation relative to privacy and security will continue to get looked at or around the world. And to the extent it does, that's good for us. Right? So we -- those are often great conversation starters for us with these large and mid-size enterprises because they're, you know, subject to this regulation in many cases sometimes whether they're public or not. And so, I think it just causes us to have great discussions with customers about the importance of governing identity, certainly vis-a-vis privacy and other factors. So again, a strong tailwind overall, nothing we would say, disproportion of the quarters business was directly tied to that. I wouldn't, I wouldn't give you that because it's still relatively minimal impact on revenue today.

Got it. Super helpful, Mark. And any vertical shining down this quarter or pretty much in line with what you'd been expecting into other first quarter?

Yeah, I got a couple – Shaul this is Cam. A couple of comments, one is I think, I continue to be pleased by the balance. I think that's an important part of our overall story of performance. Do you go back over the last couple of years, we've seen good balance across vertical industry segment. We were pleased in Q1 that continue to be a well balanced mix. In terms of, in terms of highlights about the only thing I would comment I did highlight a bit ago, we did have a couple of customers in the utility segment popping this quarter that, that drove that segment up a bit in terms of its overall contribution. But, but nothing that I would say reflects a change in the fundamental outlook. We, we like the fact that across, but if you will, the total economy that we're seeing, good success in selling it anywhere in the world, so financial services, TMT, retail across the full spectrum of the industry categorization that we track. We're seeing good balanced mix and good growth.

Got It. Thank you very much, well done. Thank you.

Thanks Shaul.

Thank you. We have reached the end of our question and answer session. So I'd like to pass the floor back over to management for any additional comments.

I don't think we have anything more to add on fundamental comments. Again, we, we're grateful for everyone's a interest in and time on the call today. We appreciate all the good questions and obviously will continue to provide you with the best information we can about how this business is growing and performing. Anything else?

Thank you for joining us today. Take care of all.