Greetings and welcome to SailPoint Technologies Holdings Fourth Quarter and Fiscal Year 2019 Earnings Conference Call. Please note, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Josh Harding, Vice President of Financial Planning, Analysis and Investor Relations. Thank you. You may begin.

Thank you. Good afternoon and thank you for joining us today to discuss SailPoint’s fourth quarter and full year 2019 financial results. Joining me today are SailPoint’s CEO and Co-Founder, Mark McClain; and our Chief Financial Officer, Jason Ream.

Thanks, Josh and good afternoon. Thank you for joining the call today. I’m pleased to share our results from the fourth quarter of 2019 where we delivered $89 million of total revenue ahead of our guidance, driven by continued market demand for identity governance, our laser focus on innovation and solid execution by the SailPoint team. I’d like to spend a few moments adding some color around these results. Looking back at the year we just completed, we believe our success was fueled by our long track record of innovation in the identity market. In 2019, we delivered innovation across three areas of our business. First, we redefined the direction of the industry with the unveiling of our AI and ML enabled identity platform, SailPoint Predictive Identity. With SailPoint Predictive Identity, which can be leveraged by both our SaaS and on-premise customers, we are evolving identity governance to be more automated, adaptive and predictive. This speed’s important identity decisions, freeing up IT and identity teams to focus on the areas of greatest risks to the business. It also introduces a simpler way of doing identity, inviting a more productive, efficient and secure workforce. This new way of doing identity ensures that everyone and everything, whether that’s employees, contractors, partners and even non-human entities has exactly what they need exactly when they need it seamlessly and automatically. Second, we expanded the scope of our core SaaS identity governance platform to more comprehensively address the complex enterprise use cases we see among customers around the world. In fact, we’re beginning to see more companies who had traditionally leaned towards an on-premise identity platform now leaning more and more towards SaaS. As an example from last year, one of the world’s largest multinational mass media and entertainment organizations opted for our SaaS identity platform IdentityNow to form the foundation of their identity program. This customer was drawn to the functionality available out of the box and the ongoing operational benefits of a SaaS-based approach to identity governance, having spent years running CA’s cumbersome and highly complex on-premise solution.

Thank you, Mark and thank you to everyone on the line for joining us today. As Mark noted earlier, we saw a number of positive trends in the fourth quarter and are pleased to have exceeded our guidance on both the top and bottom line. Total revenue for the fourth quarter was $89 million, an increase of 10% over Q4 of 2018. Subscription revenue increased 37% year-over-year to $40.5 million and represented 45% of total revenue for the quarter. If you will recall, in the third quarter subscription was just under half of our total revenue at 49%. In Q4, some large license deals at the end of the year moved that percentage down despite higher year-over-year growth in subscription this quarter. We expect that this maybe one of the last time that subscription is less than half of our total revenue. Renewal rates remain consistent with historical trends, which we believe to be attractive relative to industry norms. License revenue of $38 million was down 6% year-over-year, but up 42% compared to prior quarter and ahead of the expectations that were built into our guidance. The better than expected license performance was driven by strong execution across all three geographies.

Thank you. At this time, we will be conducting a question-and-answer session. Our first question comes from the line of Melissa Franchi with Morgan Stanley. Please state with your question.

Okay. Thanks for taking my question. I wanted to start maybe on the topic of sales execution. So the new Chief Revenue Officer, Matt Mills has been on board I think for about two quarters now. So can you talk about the changes that he’s been able to make to the sales organization, what you’re seeing in terms of sales productivity this quarter? And what is still getting worked on for 2020?

Hi. Thanks, Melissa, its Mark. In general, I’d say largely unchanged. I think Matt felt like he inherited a machine that was up and running pretty well. He certainly fine tuning some of our processes, thinking about how to build in better scaling capabilities and everything from how we onboard and enable our team. How we work through our selling processes and how we worked through our contracting processes. But I think his assessment would be that this was a pretty well running machine, but it can certainly be tuned up and getting it better. I think a lot of his focus in this first part of 2020 is really to build the team and get the capacity up early in the year to capitalize on the opportunity we see in front of us.

Okay, that’s helpful. And then on the kind of leaning more heavily into the SaaS side is the business. How are you doing that exactly? Is it more customer-driven? Or you just anticipate customers are more willing to buy SaaS? Are you making any changes to the sales force to incent them to sell that?

Yes, Melissa. Look, it’s a little bit of everything. As you know, we’ve been transitioning somewhat over the past several years, right? SaaS has become an increasingly larger part of our business, we’re getting a lot of pull from the market. And that is, I think customers all over and in almost every industry vertical have been looking at SaaS for long time. And maybe security was a little bit further behind in some places, because some customers felt like they had to have that on-prem. We’re seeing a lot of acceptance now of something even as mission critical as Identity Governance, being a SaaS delivered product and in fact, proactive interest in that direction. You combine that with the fact that our product, which we launched I think, 5.5 years ago at first, obviously that was not ready to serve the majority of the market. Today, it can serve, really customers of almost any size. Mark referenced one example of a huge multi-national corporation with our SaaS product in Q4, work to the point or close to the point, now we’re just about any customer in the market could use our product. A couple of use cases here and there, that are only on the on-prem product, but that’s part of the investment we’re making on the R&D side in 2020, to where it can serve any customer in the market. You put all that together and that’s what the leading to our beliefs about what’s going to happen in 2020. I think we have, as Mark referenced in his part of the script, our approach here is it’s not a 180 degree pivot. One, we think there are some customers, who will continue to want the on-prem version or just want an on-prem deployment and we’ll still serve that demand. And second, obviously we’ve got on-prem customers, existing customers who continue to buy more from us. And so that will be part of our business for some period of time to come.

Thanks, Jason. Thank you.

Our next question comes from the line of Matt Hedberg with RBC Capital Markets. Please state your question.

Yes, thanks. This is actually Matt Swanson on for Matt. Mark, you did a great job explaining kind of the competitive differentiation of the Predictive Identity platform, but could you dive a little bit deeper on how this could help you expand within your existing customers. Just in terms of the number of identities that your customers can manage, especially when we start thinking more about adding bots into the equation?

Yes, great question, Matt. We always count on some Matt dialing in from RBC. How’s that? Look, I think a couple of ways I would say that this is going to help us with our existing install bases, right? What we hear continually from customers is there’s a lot of challenge getting their arms around the scope and complexity of their environment. And at the end of the day, part of the challenge is just understanding where they should spend their time and energy and focus. Part of what we’re delivering with Predictive Identity is helping them automate and streamline a lot of the relatively repetitive road parts of identity governance of which there’s a lot. So that they can focus on the real risk and security concerns that the organization has. And as you pointed out, Matt, part one of the newer risks that’s emerged is the concern over software bots or robotic software processes, where more and more work is being driven into an automated software program to take the load off of people. But those programs, those bots behave very much like a human in regards to systems and applications. And so customers are absolutely expecting a product like SailPoint to help them govern who and what in that case has access to those questions or to those issues. And therefore we can kind of work our way through it with the Predictive. And in general, I think the scaling up, like as we’ve said many times, sometimes customers will license from their entire enterprise. But quite often a large enterprise will license for something less than that, maybe a geographic region, maybe a division. And so the speed with which we can help them deploy and rollout the solution in their enterprise, which we believe Predictive Identity will accelerate, that will help them get to more identities under governance sooner. So that will certainly be an assistant helping us drive more product capabilities into these customers.

That’s really helpful. And then since the SaaS portion has been growing, I think something that we’ve thought about some is how to think about balancing the investments in IdentityIQ versus IdentityNow. Could you just talk about how something like Predictive Identity that can be leveraged by both platforms maybe can bridge that gap from an R&D investment capabilities?

Yes, absolutely. This is Jason. That is the core of our strategy there is that as we build out significant new capabilities, we’re building that amount out in SaaS. But in a way that it can be leveraged by both, existing on-prem customers as well as existing SaaS customers and future customers of either side really. Obviously, there’s some work that we need to do in the on-prem product to be able to make it work with those capabilities, but that’s relatively minimal. And we still have some ongoing investment we need to make into the – to the on-prem product to keep it current and keep existing deployments functional with new minor releases. So I think the right way to think about it is that we’re making the necessary investments in the on-prem side, and most of the forward-leaning, forward-looking and speculative investments are more on the SaaS side, whether that’s in the SaaS governance platform or in the additional modules. So to speak, that would work with both on-prem and SaaS.

Thanks. That’s really helpful.

Our next question comes from the line of Andrew Nowinski with D.A. Davidson. Please state your question.

Great. Thank you, and congrats on the good quarter relative to your guidance. I guess, I just had another follow-up question sort on the SaaS investments you’re making. So you said all customers will have access to the full benefits of Predictive Identity. I guess is that the same as saying that IdentityIQ and IdentityNow will be add feature parity by the end of 2020. What customers will get the same functionality regardless of the form factor they deployed?

Andy, it’s Mark. I wouldn’t – we’ve always avoided saying full parity because the truth is when we built IdentityNow, we intentionally took some different approaches to how we thought customers would want to do things in a SaaS centric environment. And so we tend to talk about use case coverage rather than feature parity to say we’re – our goal is to make sure we cover the use cases our customers think are relevant and increasingly as Jason said earlier, we believe our IdentityNow SaaS platform will cover the bulk of requirements for the bulk of the customers we serve. I think there’s still going to be a number of cases, incredibly large complex global organizations for whom some of them IdentityIQ will still be the right fit. But what we mean by that is saying, whatever we deliver in Predictive and that’s going to be encompassed in things like the IdentityAI platform. We’d already launched some of the new services, we’re adding to that. We just announced access modeling last week that we’ll be delivering more capabilities to the technology we acquired through Orkus and OverWatch. All of those capabilities will be delivered as SaaS services that will ensure that a customer, whether running IdentityNow or IdentityIQ we’ll be able to leverage all of that new functionality. And as Jason said, sometimes that involves us making some changes in those core platforms to make sure that’s true. And that’s the ongoing commitment of investment we’re making in both those existing platforms is that everything new that we do should be leverageable by both platforms.

Okay. That makes sense. And then maybe just a clarification. As it relates to your 2020 outlook, can you give us any color in terms of how much contribution from Orkus and OverWatch you added that outlook? Just trying to understand sort of the organic growth rate versus the contribution from the acquisitions. Thank you.

Andy, it’s almost 100% organic. Those products – one our SaaS, so the recognized revenue effect in 2020 would be pretty minimal. But they’re really launching actually this quarter. And so, the sales team knows about them and the market knows about them and there’s a lot of excitement out there. But we don’t really have formal pipeline built yet. So I’m sure, we’ll sell some this year. But I don’t expect really revenue contribution.

Wonderful. Thanks guys.

Thanks, Andy.

Our next question comes from the line of Yun Kim with Rosenblatt Securities. Please state your question.

Thank you. Congrats on a solid quarter and your progress towards the cloud. If you can talk about what has changed in terms of your go-to-market as you shift more towards the cloud and SaaS solutions. Obviously, you probably be focusing more on the land and expand going forward rather than probably a large – one large replacement opportunity that you saw – typically saw in the on-prem world. Do you expect the initial land deal size to be more modest going forward as a result?

Yes, I’ll take a first shot at that and let Jason jump on. I think in general, we’ve always had a bit of a land and expand approach where we thought it made sense. As I referenced earlier, even historically with IdentityIQ, it was not uncommon for us – global enterprise to start using either a subset of our functionality, like just the governance compliance or just the provisioning side or to apply that just to a division or maybe to a subsidiary in one country when they have global operations. So there’s always been some flavor of land and expand quite typically. It’s been rare as we like to say that we would back up the truck and unload everything for a large global customer. So there’s always been some aspect of that given the nature of what we do. I do agree with you that we would expect it in a SaaS realm, it’s more typical for customers to start with the one or two, maybe three services they need out of what will shortly be about nine services and grow towards that over time. So I think you’re right. I don’t know, if Jason would have any comments on how that would affect kind of financial picture we’ve been talking about.

Yes. Yun, what I would say is to date we’ve seen not actually as much variance between our SaaS offering and our on-prem offering as you might think. Customers usually are looking proactively to revamp their – either build or revamp the identity program and know that they’re going to want various components. And so, tend to come in and purchase the components that they want. To Mark’s point, we tend to start with a portion of an enterprise and then expand to additional identities, additional users as that deployment rolls out and matures. And the dynamic has played out pretty similarly on both the SaaS and the on-prem side. I think we’re cognizant that the industry is shifting generally in that direction and that people associate SaaS with that shift as well. If that turns out to be the case, we’re happy for that to occur. And we’ll just take advantage of shorter deals – shorter sales cycles and more rapid transaction velocity if that’s the case. But to date, we haven’t seen a significant difference between the two sides.

Okay, great. Thanks for that answer. In terms of the, I mean, it seems like we’re – I’m just kind of curious, are we at an inflection point between the on-prem and the cloud where you might – can we expect to see certain on-prem installed-base or installed customers to start thinking about migrating over to the cloud starting this year.

Yun, this is Mark again. No, not particularly. All of our on-prem customers, many of them who had been with us over a decade, obviously some signed up in the last quarter, they’re aware of our SaaS offerings. And for the most part, as they look at this and their own software environments, if a product is meeting their needs, they’re not necessarily motivated to move from one product to another just to make it SaaS. What we do see and we’ve commented on this I think in prior calls, more and more when people have our on-premise software product, we could say on-prem, but say software quite often now they will deploy that product, that software from us, IdentityIQ in the cloud, Azure, Amazon Web Services, Google Cloud, et cetera. So it’s very common for the customers to have a mandate not to do new deployments in their own data centers, but that doesn’t necessarily drive them to SaaS. And so what we’ve found is the customers who have IdentityIQ that are generally quite satisfied. We’ve talked for years about our incredibly high renewal rates from a maintenance standpoint, they’re not necessarily pushing us to migrate towards SaaS. We get a handful of those discussions every year and I would expect that may increase a little year-over-year as we go forward. But it’s not a significant part of what’s happening in our install-base. But the great majority of our IdentityIQ customers are perfectly content and sometimes address their cloud concerns by just moving that deployment from their own data center to the cloud.

Great. Thank you so much.

Thanks for the question.

Since there are no further questions left in the queue, I would like to turn the call back over to Mr. Mark McClain for any closing remarks.

Thanks very much operator. We appreciate everyone’s time and interest on the call. We kind of expected there might be a little challenge doing the call in the middle of RSAs. So many of the folks in our industry are probably quite busy with that, so we do know some set of folks may have dialed in and not been able to do much on Q&A today. But we still appreciate the time that everyone took to listen in. Please do follow-up with us if you have questions that we can answer later. Thanks for your continued interest in SailPoint. Thanks and have a great day.

This concludes today’s teleconference. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.