Insurance Technology Industry News

TMCNet:  SailPoint Announces Third Quarter 2018 Financial Results

[November 07, 2018]

SailPoint Announces Third Quarter 2018 Financial Results

SailPoint Technologies Holdings, Inc. (NYSE: SAIL), the leader in enterprise identity governance, today announced financial results for the third quarter ended September 30, 2018.

"We are pleased to announce strong third quarter 2018 financial results, with total revenue of $66.4 million, up 52% year over year. These results were driven by broad-based strength across the business, as well as higher-than-expected sales to U.S. Federal agencies as the majority of our second half federal deals closed during the third quarter," said Mark McClain, SailPoint's CEO and Co-founder.

"As the recognized leader in identity governance, our goal is to help enterprises securely and confidently navigate through the digital transformation by providing a single system of record for their users. With new releases to both IdentityIQ and IdentityNow, our approximately 1,100 customers are better prepared to govern digital identities for their users, whether human or non-human software bots, their applications, from legacy mainframe to cloud apps, and their data, regardless of where the files are stored."

Financial Highlights for Third Quarter 2018:

  • Revenue: Total revenue was $66.4 million, a 52% increase over Q3 2017. License revenue was $28.1 million, a 66% increase over Q3 2017. Subscription revenue was $28.5 million, a 54% increase over Q3 2017. Services and other revenue was $9.8 million, a 22% increase over Q3 2017.
  • Operating Income: Income from operations was $4.5 million, compared to $0.4 million in Q3 2017. Non-GAAP income from operations was $11.6 million, compared to $2.8 million in Q3 2017.
  • Net Income (Loss): Net income was $3.3 million, compared to net loss of $(6.4) million in Q3 2017. Net income available to common shareholders per diluted share was $0.04, compared to net loss available to common shareholders per basic and diluted share of $(0.24) in Q3 2017. Non-GAAP net income was $11.2 million, compared to non-GAAP net loss of $(1.1) million in Q3 2017. Non-GAAP net income per diluted share was $0.12, compared to non-GAAP net loss per basic and diluted share of $(0.02) in Q3 2017.
  • Adjusted EBITDA: Adjusted EBITDA was $11.8 million, compared to $3.4 million in Q3 2017.
  • Balance Sheet and Cash Flow: As of September 30, 2018, cash and cash equivalents were $83.4 million. As of September 30, 2018, the Company's aggregate outstanding principal amount on its term loan facility is $10.0 million, presented net of $0.3 million of unamortized debt issuance costs. During the three months ended September 30, 2018, the Company generated $3.8 million in cash from operations compared with $(0.2) million of cash used by operations in the prior year period. For the nine months ended September 30, 2018, the Company generated $30.4 million in cash from operations, compared to $5.8 million of cash from operations in the prior year period.

The tables at the end of this press release include reconciliation of non-GAAP net income (loss) to GAAP net income (loss), non-GAAP income from operations to GAAP income (loss) from operations, non-GAAP to GAAP weighted average shares outstanding and adjusted EBITDA to GAAP net income (loss) for the three months and nine months ended September 30, 2018 and 2017. An explanation of these measures is also included below under the heading "Non-GAAP Financial Measures."

Financial Outlook:

For the fourth quarter of 2018, SailPoint expects:

  • Revenue in the range of $70.0 million to $71.5 million
  • Non-GAAP income from operations in the range of $8.5 million to $10.0 million
  • Non-GAAP net income per diluted common share in the range of $0.08 to $0.09, based on estimated cash income tax payments of $0.8 million and 91.5 million diluted common shares outstanding. Expectations of non-GAAP income from operations and non-GAAP net income per diluted common share exclude items outlined in the "Non-GAAP Financial Measures" section below.

For the full year 2018, SailPoint now expects:

  • Revenue in the range of $240.7 million to $242.2 million
  • Non-GAAP income from operations in the range of $27.8 million to $29.3 million
  • Non-GAAP net income per diluted common share in the range of $0.25 to $0.26, based on estimated cash income tax payments of $1.5 million and 90.5 million diluted common shares outstanding. Expectations of non-GAAP income from operations and non-GAAP net income per diluted common share exclude items outlined in the "Non-GAAP Financial Measures" section below.

These statements regarding SailPoint's expectations of its financial outlook are forward-looking and actual results may differ materially. Refer to "Forward-Looking Statements" below for information on the factors that could cause its actual results to differ materially from these forward-looking statements.

All of SailPoint's forward-looking non-GAAP financial measures exclude estimates for stock-based compensation expense. SailPoint has not reconciled its expectations as to non-GAAP income from operations and non-GAAP net income (loss) per basic and diluted common shares to their most directly comparable GAAP measure due to the high variability and difficulty in making accurate forecasts and projections, particularly with respect to stock-based compensation expense. Stock-based compensation expense is affected by future hiring, turnover, and retention needs, as well as the future fair market value of our common stock, all of which are difficult to predict and subject to change. The actual amount of the excluded stock-based compensation expense will have a significant impact on SailPoint's GAAP income (loss) from operations and GAAP net income (loss) per basic and diluted common share. Accordingly, reconciliations of our forward-looking non-GAAP income (loss) from operations and non-GAAP net income (loss) per basic and diluted common shares are not available without unreasonable effort.

Conference Call and Webcast:

SailPoint will host a conference call today, November 7, 2018, at 5:00 p.m. Eastern Time to discuss its third quarter 2018 financial results. The dial-in number will be 877-407-0792 or 201-689-8263. A live webcast of the conference call will be available on SailPoint's website at https://investors.sailpoint.com.

Following the conference call, a replay will be available until midnight on November 21, 2018. The replay dial-in number will be 844-512-2921 or 412-317-6671, using the replay pin number: 13683781. An archived webcast of the call will also be available at https://investors.sailpoint.com.

Non-GAAP Financial Measures:

In addition to SailPoint's financial information presented in accordance with generally accepted accounting principles in the United States ("GAAP"), SailPoint uses certain non-GAAP financial measures to clarify and enhance SailPoint's understanding of past performance and future prospects. Generally, a non-GAAP financial measure is a numerical measure of a company's operating performance, financial position or cash flow that includes or excludes amounts that are included or excluded from the most directly comparable measure calculated and presented in accordance with GAAP. SailPoint monitors the non-GAAP financial measures described below, and SailPoint's management believes they are helpful to investors because they provide an additional tool to use in evaluating SailPoint's financial and business trends and operating results. In addition, SailPoint's management uses these non-GAAP measures to compare SailPoint's performance to that of prior periods for trend analysis and for budgeting and planning purposes. In particular, SailPoint believes that non-GAAP income (loss) from operations, non-GAAP net income (loss), non-GAAP net income (loss) available to common shareholders per basic share and per diluted share, and adjusted EBITDA, are important measures for evaluating SailPoint's performance because they facilitate comparisons of SailPoint's core operating results from period to period by removing, where applicable, the impact of SailPoint's capital structure (net interest income or expense from SailPoint's outstanding debt, as well as amortization of debt issuance costs and expenses related to call protection on early payment of debt), asset base (depreciation and amortization), income taxes, purchase accounting adjustments, acquisition and sponsor related costs and stock-based compensation expense.

SailPoint's non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry because they may calculate non-GAAP financial results differently than we do. In addition, there are limitations in using non-GAAP financial measures because they are not prepared in accordance with GAAP and exclude expenses that may have a material impact on our reported financial results. The presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP. SailPoint urges you to review the reconciliations of our non-GAAP financial measures to the comparable GAAP financial measures included below, and not to rely on any single financial measure to evaluate its business.

Non-GAAP income (loss) from operations. SailPoint believes that the use of non-GAAP income (loss) from operations is helpful to our investors to clarify and enhance their understanding of past performance and future prospects. Non-GAAP income (loss) from operations is calculated as loss from operations on a GAAP basis excluding (i) stock-based compensation expense and (ii) amortization of acquired intangibles.

Non-GAAP net income (loss) and non-GAAP net income (loss) available to common shareholders per basic and diluted share. SailPoint believes that the use of non-GAAP net income (loss) and non-GAAP net income (loss) available to common shareholders per basic and diluted share is helpful to our investors to clarify and enhance their understanding of past performance and future prospects. Non-GAAP net income (loss) is calculated as net income (loss) (a) excluding (i) stock-based compensation expense, (ii) amortization of acquired intangibles, (iii) amortization of debt issuance costs, and (iv) income tax expense (benefit) and (b) including cash income taxes paid. SailPoint defines non-GAAP net income (loss) available to common shareholders per basic and diluted share as non-GAAP net income (loss) divided by the non-GAAP weighted average outstanding common shares, which is calculated as if the conversion of our preferred stock, including related accumulated and unpaid dividend, occurred at the beginning of each respective period.

Adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial measure that SailPoint calculates as net loss adjusted to exclude income taxes, net interest expense, depreciation and amortization, purchase accounting adjustments, acquisition and sponsor related costs and stock-based compensation expense.

The accompanying tables have more details on the reconciliations of non-GAAP financial measures to their nearest comparable GAAP measures.

Forward-Looking Statements:

This press release and statements made during the above referenced conference call may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including regarding the Company's growth rate and its expectations regarding future revenue, operating income or loss or earnings or loss per share. In some cases, you can identify forward-looking statements because they contain words such as "may," "will," "will be," "will likely result," "should," "expects," "plans," "anticipates," "could," "would," "foresees," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. These statements are not guarantees of future performance, but are based on management's current expectations, assumptions and beliefs concerning future developments and their potential effect on us, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Our expectations expressed or implied in these forward-looking statements may not turn out to be correct. Our results could be materially different from our expectations because of various risks.

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: our ability to attract and retain customers and our ability to deepen our relationships with existing customers; our expectations regarding our customer growth rate; our ability to maintain successful relationships with our channel partners and further develop strategic relationships; our ability to develop or acquire new solutions, improve our platform and solutions and increase the value of and benefits associated with our platform and solutions; our ability to compete successfully against current and future competitors; our plans to further invest in and grow our business, and our ability to effectively manage our growth and associated investments; our ability to adapt and respond to rapidly changing technology, evolving industry standards, changing regulations and changing customer needs; our ability to maintain and enhance our brand or reputation as an industry leader and innovator; our ability to hire, retain, train and motivate our senior management team and key employees; our ability to successfully enter new markets and manage our international expansion; adverse economic conditions in the United States, Europe or the global economy; significant changes in the contracting or fiscal policies of the public sector; actual or perceived failures by us to comply with privacy policy or legal or regulatory requirements; our ability to maintain third-party licensed software in or with our solutions; and our ability to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies. These and other important risk factors are described more fully in our reports and other documents filed with the Securities and Exchange Commission ("the SEC") including (i) under "Part I, Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on March 19, 2018, and (ii) under "Part II, Item 1A. Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, which was filed with the SEC on May 9, 2018, (iii) under "Part II, Item IA. Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, which was filed with the SEC on August 8, 2018, and (iv) under "Part II, Item 1A. Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, which is expected to be filed shortly after the release of this press release on November 7, 2018, and could cause actual results to vary from expectations.

Any forward-looking statement speaks only as of the date as of which such statement is made, and, except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise.

About SailPoint

SailPoint, the leader in enterprise identity governance, brings the Power of Identity to customers around the world. SailPoint's open identity platform gives organizations the power to enter new markets, scale their workforces, embrace new technologies, innovate faster and compete on a global basis. As both an industry pioneer and market leader in identity governance, SailPoint delivers security, operational efficiency and compliance to enterprises with complex IT environments. SailPoint's customers are among the world's largest companies in a wide range of industries, including: 7 of the top 15 banks, 4 of the top 6 healthcare insurance and managed care providers, 9 of the top 15 property and casualty insurance providers, 5 of the top 13 pharmaceutical companies, and 11 of the largest 15 federal agencies.

More information on SailPoint is available at: www.sailpoint.com.



         

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 
Three months ended Nine months ended
September 30,

2018

  September 30,

2017

September 30,

2018

  September 30,

2017

(In thousands, except share and per share data)
(Unaudited)
Revenue
Licenses $ 28,131 $ 16,975 $ 64,246 $ 42,552
Subscription 28,461 18,506 76,517 49,782
Services and other   9,827   8,081   29,930   25,954
Total revenue 66,419 43,562 170,693 118,288
Cost of revenue
Licenses (1) 1,145 1,104 3,543 3,301
Subscription (1)(2) 5,252 4,020 14,829 11,533
Services and other (2)   7,617   5,954   21,788   17,074
Total cost of revenue   14,014   11,078   40,160   31,908
Gross profit 52,405 32,484 130,533 86,380
Operating expenses
Research and development (1)(2) 11,474 8,443 31,351 23,336
General and administrative (1)(2) 8,763 4,414 24,163 10,888
Sales and marketing (1)(2)   27,658   19,220   76,636   52,733
Total operating expenses   47,895   32,077   132,150   86,957
Income (loss) from operations 4,510 407 (1,617) (577)
Other expense, net:
Interest expense, net (202) (3,726) (4,180) (9,079)
Other, net   (388)   (162)   (1,104)   (256)
Total other expense, net   (590)   (3,888)   (5,284)   (9,335)
Income (loss) before income taxes 3,920 (3,481) (6,901) (9,912)
Income tax expense   (618)   (2,906)   (1,411)   (3,062)
Net income (loss) $ 3,302 $ (6,387) $ (8,312) $ (12,974)
Net income (loss) available to common shareholders (3) $ 3,274 $ (11,792) $ (8,312) $ (30,969)
Net income (loss) per common share
Basic $ 0.04 $ (0.24) $ (0.10) $ (0.65)
Diluted $ 0.04 $ (0.24) $ (0.10) $ (0.65)
Weighted average shares outstanding
Basic   86,825,168   48,219,826   86,267,539   47,806,584
Diluted   90,355,212   48,219,826   86,267,539   47,806,584
 

(1) Includes amortization of acquired intangibles as follows:

         
Three months ended Nine months ended
September 30,

2018

  September 30,

2017

September 30,

2018

  September 30,

2017

(In thousands)
Cost of revenue - license $ 1,008 $ 1,008 $ 3,024 $ 3,024
Cost of revenue - subscription 96 96 288 288
Research and development 34 34 102 115
Sales and marketing   1,068   1,069   3,204   3,208
Total amortization of acquired intangibles $ 2,206 $ 2,207 $ 6,618 $ 6,635
 

(2) Includes stock-based compensation expense and related employer payroll tax expense as follows:

         
Three months ended Nine months ended
September 30,

2018

  September 30,

2017

September 30,

2018

  September 30,

2017

(In thousands)
Cost of revenue - subscription $ 289 $ 15 $ 665 $ 33
Cost of revenue - services and other 395 22 1,124 60
Research and development 858 41 2,151 106
General and administrative 1,944 23 5,990 98
Sales and marketing   1,446   100   4,323   247
Total stock-based compensation expense $ 4,932 $ 201 $ 14,253 $ 544
 

(3) Net income (loss) available to common shareholders is calculated by subtracting the accretion of undeclared and unpaid dividends on redeemable convertible preferred stock from net income (loss).

     

CONDENSED CONSOLIDATED BALANCE SHEETS

 
As of
September 30,

2018

    December 31,

2017

(In thousands, except share data)
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 83,315 $ 116,049
Restricted cash 121 78
Accounts receivable 71,316 72,907
Prepayments and other current assets   11,743     10,013  
Total current assets 166,495 199,047
Property and equipment, net 10,103 3,018
Deferred tax asset - non-current 264 264
Other non-current assets 3,236 3,542
Goodwill 219,377 219,377
Intangible assets, net   74,567     81,185  
Total assets $ 474,042   $ 506,433  
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 3,036 $ 2,231
Accrued expenses and other liabilities 18,623 22,636
Income taxes payable 2,099 1,688
Deferred revenue 86,679 73,671
Current portion of long-term debt   9,669    

-

 
Total current liabilities 120,106 100,226
Long-term debt - 68,329
Other long-term liabilities 4,404 27
Deferred revenue non-current   13,976     9,454  
Total liabilities 138,486 178,036
Commitments and contingencies
Stockholders' equity
Common stock, $0.0001 par value 9 8
Preferred stock, $0.0001 par value

-

-
Additional paid-in capital 369,079 353,609
Accumulated deficit   (33,532 )   (25,220 )
Total stockholders' equity   335,556     328,397  
Total liabilities and stockholders' equity $ 474,042   $ 506,433  
 

     

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
Nine months ended
September 30,

2018

    September 30,

2017

(In thousands)
(Unaudited)
Operating activities
Net loss $ (8,312 ) $ (12,974 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization expense 7,977 7,570
Amortization of loan origination fees 220 545
Loss on modification and partial extinguishment of debt 1,536 -
(Gain) loss on disposal of fixed assets (36 ) 2
Bad debt 299 58
Stock-based compensation expense 14,138 544
Changes in operating assets and liabilities:
Accounts receivable 1,292 (3,427 )
Prepayments and other current assets (1,730 ) (1,399 )
Other non-current assets 306 (1,275 )
Accounts payable 805 1,295
Accrued expenses and other liabilities (4,078 ) (486 )
Income taxes payable 411 2,422
Deferred revenue   17,530     12,911  
Net cash provided by operating activities   30,358     5,786  
Investing activities
Purchase of property and equipment (4,030 ) (2,039 )
Proceeds from sale of property and equipment   25     110  
Net cash used in investing activities   (4,005 )   (1,929 )
Financing activities
Repayment of debt (60,000 ) -
Prepayment penalty and fees (300 ) -
Proceeds from borrowing - 50,000
Dividend payments - (50,387 )
Debt issuance costs - (1,384 )
Repurchase of equity shares (1 ) (654 )
Exercise of stock options   1,257     162  
Net cash used in financing activities   (59,044 )   (2,263 )
(Decrease) increase in cash (32,691 ) 1,594
Cash, cash equivalents and restricted cash, beginning of period   116,127     18,272  
Cash, cash equivalents and restricted cash, end of period $ 83,436   $ 19,866  
 
         

RECONCILIATION OF NON-GAAP INCOME FROM OPERATIONS

 
Three months ended Nine months ended
September 30,

2018

  September 30,

2017

September 30,

2018

  September 30,

2017

(In thousands)
Income (loss) from operations $ 4,510 $ 407 $ (1,617 ) $ (577 )
Add back:
Stock-based compensation expense (1) 4,932 201 14,253 544
Amortization of acquired intangibles   2,206   2,207   6,618     6,635  
Non-GAAP income from operations $ 11,648 $ 2,815 $ 19,254   $ 6,602  
 

(1) Stock-based compensation expense includes related employer payroll tax expense.

         

RECONCILIATION OF NON-GAAP NET INCOME (LOSS)

 
Three months ended Nine months ended
September 30,

2018

  September 30,

2017

September 30,

2018

  September 30,

2017

(In thousands)
Net income (loss) on a GAAP basis $ 3,302 $ (6,387 ) $ (8,312 ) $ (12,974 )
Add back:
Stock-based compensation expense (1) 4,932 201 14,253 544
Amortization of acquired intangibles 2,206 2,207 6,618 6,635
Amortization of debt issuance costs (2) 29 238 1,756 545
Expense related to call protection on early payment of debt - - 300 -
GAAP income tax expense 618 2,906 1,411 3,062
Less:
Cash (refund) paid for income taxes   (69 )   265     654     639  
Non-GAAP net income (loss) $ 11,156   $ (1,100 ) $ 15,372   $ (2,827 )
Non-GAAP net income (loss) per common share
Basic $ 0.13   $ (0.02 ) $ 0.18   $ (0.04 )
Diluted $ 0.12   $ (0.02 ) $ 0.17   $ (0.04 )
Non-GAAP weighted average number of common shares outstanding
Basic 86,825,168 67,493,741 86,267,539 70,213,593
Diluted 90,355,212 67,493,741 89,862,980 70,213,593
 

(1) Stock-based compensation expense includes employer related payroll tax expense.

(2) Includes $1.5 million of loss on the modification and partial extinguishment of debt for the nine months ended September 30, 2018

         

RECONCILIATION OF NON-GAAP WEIGHTED-AVERAGE OUTSTANDING COMMON SHARES

 
Three months ended Nine months ended
September 30,

2018

  September 30,

2017

September 30,

2018

  September 30,

2017

Weighted average shares used to compute net loss per share available to common shareholders, basic and diluted, on a GAAP basis 86,825,168 48,219,826 86,267,539 47,806,584
Add back:
Additional weighted average shares giving effect to conversion of preferred stock at the beginning of the period - 19,273,915 - 22,407,009
Non-GAAP weighted average outstanding common shares
Basic 86,825,168 67,493,741 86,267,539 70,213,593
Effect of potentially dilutive securities 3,530,044 - 3,595,441 -
Diluted 90,355,212 67,493,741 89,862,980 70,213,593
 
         

RECONCILIATION OF ADJUSTED EBITDA

 
Three months ended Nine months ended
September 30,

2018

  September 30,

2017

September 30,

2018

  September 30,

2017

(In thousands)
Net income (loss) $ 3,302 $ (6,387 ) $ (8,312 ) $ (12,974 )
Stock-based compensation (1) 4,932 201 14,253 544
Amortization of acquired intangibles 2,206 2,207 6,618 6,635
Depreciation 493 385 1,359 935
Purchase price accounting adjustment (2) 18 16 50 126
Acquisition and sponsor related costs - 322 - 978
Interest expense (3) 202 3,726 4,180 9,079
Income tax expense   618   2,906     1,411     3,062  
Adjusted EBITDA $ 11,771 $ 3,376   $ 19,559   $ 8,385  
 

(1) Stock-based compensation expense includes employer related payroll tax expense.

(2) Purchase accounting adjustment related to the fair value write down of deferred revenue from the acquisition of SailPoint Technologies, Inc. on September 8, 2014.

(3) Includes $1.5 million of loss on the modification and partial extinguishment of debt for the nine months ended September 30, 2018.


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