0001564590-19-017247.txt : 20190508 0001564590-19-017247.hdr.sgml : 20190508 20190508163133 ACCESSION NUMBER: 0001564590-19-017247 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 64 CONFORMED PERIOD OF REPORT: 20190331 FILED AS OF DATE: 20190508 DATE AS OF CHANGE: 20190508 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Sailpoint Technologies Holdings, Inc. CENTRAL INDEX KEY: 0001627857 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 471628077 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38297 FILM NUMBER: 19807079 BUSINESS ADDRESS: STREET 1: 11120 FOUR POINTS DRIVE STREET 2: SUITE 100 CITY: AUSTIN STATE: TX ZIP: 78726 BUSINESS PHONE: (512) 346-2000 MAIL ADDRESS: STREET 1: 11120 FOUR POINTS DRIVE STREET 2: SUITE 100 CITY: AUSTIN STATE: TX ZIP: 78726 10-Q 1 sail-10q_20190331.htm 10-Q-20190331 sail-10q_20190331.htm
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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 March 31, 2019

OR

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

47-1628077

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

 

 

11120 Four Points Drive, Suite 100,

Austin, TX

78726

(Address of principal executive offices)

(Zip Code)

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

 

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     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      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

 

  

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  

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

The registrant had 88,677,640 shares of common stock outstanding as of May 2, 2019.

 

 

 

 


 

SailPoint Technologies Holdings, Inc.
Table of Contents

 

 

PART I.  FINANCIAL INFORMATION

Page

 

 

Item 1.

Financial Statements (Unaudited)

2

 

Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018

2

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018

3

 

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2019 and 2018

4

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018

5

 

Notes to Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4.

Controls and Procedures

28

 

 

 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

Item 6.

Exhibits, Financial Statement Schedules

30

 

Signatures

31

 


1


 

PART I

ITEM 1. Financial Statements

Sailpoint technologies Holding, Inc. and subsidiaries

Condensed Consolidated Balance sheets

 

 

 

As of

 

 

 

March 31, 2019

 

 

December 31, 2018

 

 

 

(In thousands, except per share data)

 

 

 

(Unaudited)

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

86,223

 

 

$

70,964

 

Restricted cash

 

 

6,289

 

 

 

6,272

 

Accounts receivable

 

 

71,156

 

 

 

101,469

 

Prepayments and other current assets

 

 

22,691

 

 

 

21,850

 

Total current assets

 

 

186,359

 

 

 

200,555

 

Property and equipment, net

 

 

21,452

 

 

 

19,268

 

Right-of-use assets

 

 

32,243

 

 

 

 

Other non-current assets

 

 

22,488

 

 

 

20,374

 

Goodwill

 

 

219,377

 

 

 

219,377

 

Intangible assets, net

 

 

72,529

 

 

 

74,860

 

Total assets

 

$

554,448

 

 

$

534,434

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,395

 

 

$

4,636

 

Accrued expenses and other liabilities

 

 

18,655

 

 

 

21,731

 

Income taxes payable

 

 

3,263

 

 

 

2,143

 

Deferred revenue

 

 

92,630

 

 

 

95,919

 

Total current liabilities

 

 

117,943

 

 

 

124,429

 

Deferred tax liability - non-current

 

 

4,142

 

 

 

4,142

 

Long-term operating lease liabilities

 

 

39,696

 

 

 

9,788

 

Deferred revenue - non-current

 

 

17,516

 

 

 

18,382

 

Total liabilities

 

 

179,297

 

 

 

156,741

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value, authorized 300,000, shares issued and outstanding 88,598

   shares at March 31, 2019 and 87,512 shares at December 31, 2018

 

 

9

 

 

 

9

 

Preferred stock, $0.0001 par value, authorized 10,000 shares, no shares issued and outstanding

   at March 31, 2019 and December 31, 2018

 

 

 

 

 

 

Additional paid in capital

 

 

383,321

 

 

 

377,473

 

(Accumulated deficit) retained earnings

 

 

(8,179

)

 

 

211

 

Total stockholders' equity

 

 

375,151

 

 

 

377,693

 

Total liabilities and stockholders’ equity

 

$

554,448

 

 

$

534,434

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

2


 

Sailpoint technologies Holding, Inc. and subsidiaries

Condensed Consolidated STATEMENTS OF OPERATIONS

 

 

 

Three Months Ended

 

 

 

March 31, 2019

 

 

March 31, 2018

 

 

 

(In thousands, except per share data)

 

 

 

(Unaudited)

 

Revenue

 

 

 

 

 

 

 

 

Licenses

 

$

18,669

 

 

$

16,808

 

Subscription

 

 

31,835

 

 

 

22,505

 

Services and other

 

 

10,079

 

 

 

9,628

 

Total revenue

 

 

60,583

 

 

 

48,941

 

Cost of revenue

 

 

 

 

 

 

 

 

Licenses

 

 

1,059

 

 

 

1,138

 

Subscription

 

 

5,813

 

 

 

4,658

 

Services and other

 

 

7,997

 

 

 

6,974

 

Total cost of revenue

 

 

14,869

 

 

 

12,770

 

Gross profit

 

 

45,714

 

 

 

36,171

 

Operating expenses

 

 

 

 

 

 

 

 

Research and development

 

 

12,772

 

 

 

9,762

 

General and administrative

 

 

9,137

 

 

 

7,657

 

Sales and marketing

 

 

30,488

 

 

 

22,459

 

Total operating expenses

 

 

52,397

 

 

 

39,878

 

Loss from operations

 

 

(6,683

)

 

 

(3,707

)

Other expense, net:

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

11

 

 

 

(1,178

)

Other, net

 

 

(417

)

 

 

(147

)

Total other expense, net

 

 

(406

)

 

 

(1,325

)

Loss before income taxes

 

 

(7,089

)

 

 

(5,032

)

Income tax (expense) benefit

 

 

(1,301

)

 

 

2,730

 

Net loss

 

$

(8,390

)

 

$

(2,302

)

Net loss available to common stockholders

 

$

(8,390

)

 

$

(2,302

)

Net loss per share

 

 

 

 

 

 

 

 

Basic

 

$

(0.10

)

 

$

(0.03

)

Diluted

 

$

(0.10

)

 

$

(0.03

)

Weighted average shares outstanding

 

 

 

 

 

 

 

 

Basic

 

 

88,295

 

 

 

85,719

 

Diluted

 

 

88,295

 

 

 

85,719

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

3


 

Sailpoint technologies Holding, Inc. and subsidiaries

Condensed Consolidated STATEMENTS OF STOCKHOLDERS’ EQUITY

 

 

 

For the Three Months Ended March 31, 2019

 

 

 

Common Stock

 

 

Additional

 

 

Retained

earnings

 

 

 

 

 

 

 

Number

of shares

 

 

Par

value

 

 

paid in

capital

 

 

(accumulated

deficit)

 

 

Stockholders'

equity

 

 

 

(In thousands)

 

 

 

(Unaudited)

 

Balance at December 31, 2018

 

 

87,512

 

 

$

9

 

 

$

377,473

 

 

$

211

 

 

$

377,693

 

Exercise of stock options

 

 

271

 

 

 

 

 

 

1,172

 

 

 

 

 

 

1,172

 

Restricted stock units vested, net of tax settlement

 

 

91

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

4,639

 

 

 

 

 

 

4,639

 

Vested incentive units converted to common stock

 

 

724

 

 

 

 

 

 

37

 

 

 

 

 

 

37

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(8,390

)

 

 

(8,390

)

Balance at March 31, 2019

 

 

88,598

 

 

$

9

 

 

$

383,321

 

 

$

(8,179

)

 

$

375,151

 

 

 

 

For the Three Months Ended March 31, 2018

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

Number

of shares

 

 

Par

value

 

 

paid in

capital

 

 

Accumulated

deficit

 

 

Stockholders'

equity

 

 

 

(In thousands)

 

 

 

(Unaudited)

 

Balance at December 31, 2017

 

 

84,948

 

 

$

8

 

 

$

353,609

 

 

$

(25,220

)

 

$

328,397

 

Cumulative effect adjustment from the adoption of ASC 606

 

 

 

 

 

 

 

 

 

 

 

21,761

 

 

 

21,761

 

Exercise of stock options

 

 

26

 

 

 

 

 

 

62

 

 

 

 

 

 

62

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

5,139

 

 

 

 

 

 

5,139

 

Vested incentive units converted to common stock

 

 

979

 

 

 

1

 

 

 

49

 

 

 

 

 

 

50

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(2,302

)

 

 

(2,302

)

Balance at March 31, 2018

 

 

85,953

 

 

$

9

 

 

$

358,859

 

 

$

(5,761

)

 

$

353,107

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

4


 

Sailpoint technologies Holding, Inc. and subsidiaries

CONDENSED Consolidated STATEMENTS OF CASH FLOWS

 

 

 

Three Months Ended

 

 

 

March 31, 2019

 

 

March 31, 2018

 

 

 

(In thousands)

 

 

 

(Unaudited)

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(8,390

)

 

$

(2,302

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

3,303

 

 

 

2,628

 

Amortization of debt issuance costs

 

 

10

 

 

 

108

 

Amortization of contract acquisition costs

 

 

2,166

 

 

 

1,675

 

Gain on disposal of fixed assets

 

 

(3

)

 

 

(4

)

Stock-based compensation expense

 

 

4,639

 

 

 

5,139

 

Operating lease liabilities, net

 

 

251

 

 

 

 

Net changes in operating assets and liabilities

 

 

15,252

 

 

 

8,078

 

Net cash provided by operating activities

 

 

17,228

 

 

 

15,322

 

Investing activities

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(2,306

)

 

 

(530

)

Proceeds from sale of property and equipment

 

 

11

 

 

 

4

 

Net cash used in investing activities

 

 

(2,295

)

 

 

(526

)

Financing activities

 

 

 

 

 

 

 

 

Debt issuance costs

 

 

(829

)

 

 

 

Exercise of stock options

 

 

1,172

 

 

 

62

 

Net cash provided by financing activities

 

 

343

 

 

 

62

 

Net increase in cash, cash equivalents and restricted cash

 

 

15,276

 

 

 

14,858

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

77,236

 

 

 

116,127

 

Cash, cash equivalents and restricted cash, end of period

 

$

92,512

 

 

$

130,985

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

5


 

Sailpoint technologies Holding, Inc. and subsidiaries

NOTES TO UNAUDITED CONDENSED Consolidated FINANCIAL STATEMENTS

1. Organization and Description of Business

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 (the “Acquisition”) occurred on September 8, 2014 and our certificate of incorporation was amended and restated as of such date. SailPoint Technologies, Inc. was formed July 14, 2004 as a Delaware corporation. The Company designs, develops, and markets identity governance software that helps organizations govern user access to critical systems and data. The Company currently markets its products and services worldwide.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with Article 10 of Regulation S-X, “Interim Financial Statements” and the rules and regulations for Form 10-Q of the Securities and Exchange Commission (the “SEC”). Pursuant to those rules and regulations, the Company has condensed or omitted certain information and footnote disclosure it normally includes in its annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). 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, 2019 or any future period. Our unaudited condensed consolidated financial statements have been prepared in a manner consistent with the accounting principles described in our Company’s Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the SEC on March 18, 2019 (the “Annual Report”). These financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s Annual Report. All intercompany accounts and transactions have been eliminated in consolidation.

Cash, Cash Equivalents and Restricted Cash

We consider all highly liquid investments with an original maturity of three months or less from date of purchase to be cash equivalents. The Company is required to maintain a small amount of restricted cash to guarantee rent payments in a foreign subsidiary as well as $6.0 million of cash collateral for an unconditional standby letter of credit related to the Company’s corporate headquarters lease.

 

 

 

As of

 

 

 

March 31, 2019

 

 

December 31, 2018

 

 

 

(In thousands)

 

Cash and cash equivalents per balance sheet

 

$

86,223

 

 

$

70,964

 

Restricted cash per balance sheet

 

 

6,289

 

 

 

6,272

 

Cash, cash equivalents and restricted cash per cash flow

 

$

92,512

 

 

$

77,236

 

 

Segment Information and Concentration of Credit and Other Risks

Segment Information

The Company operates as one operating segment. The Company’s chief operating decision makers review financial information presented on a consolidated basis for purposes of making operating decisions, assessing financial performance and allocating resources.

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 licensing of software, subscription and renewals, sale of professional services, maintenance and technical support.

6


 

The following table sets forth the Company’s consolidated revenue by geography:

 

 

 

Three Months Ended

 

 

 

March 31, 2019

 

 

March 31, 2018

 

 

 

(In thousands)

 

United States

 

$

41,560

 

 

$

32,361

 

EMEA (1)

 

 

13,937

 

 

 

11,319

 

Rest of the World (1)

 

 

5,086

 

 

 

5,261

 

Total revenue

 

$

60,583

 

 

$

48,941

 

 

(1)

No single country represented more than 10% of our consolidated revenue.

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 and accounts receivable. The Company maintains its cash in bank deposit accounts that, at times, may exceed federally insured limits. As of March 31, 2019 and December 31, 2018, approximately 14% and 11%, respectively, of the Company’s accounts receivable was from one customer. Management considers concentration of credit risk to be minimal with respect to accounts receivable due to the positive historical collection experience of the Company despite the geographic concentrations related to the Company’s customers. No customer represented more than 10% of revenue for three months ended March 31, 2019 and 2018. The Company does not experience concentration of credit risk in foreign countries as no foreign country represents more than 10% of the Company’s consolidated revenues or net assets.

Significant Accounting Policies

There have been no significant changes to the Company’s significant accounting policies, which are discussed in Note 2 of “Notes to Consolidated Financial Statements” in the Annual Report; except as follows:

In 2019, the Company adopted Accounting Standards Update 2016-02, “Leases” (“ASU 2016-02”) using the modified retrospective approach. For information regarding ASU 2016-02, please refer to Note 5 below.

Recently Issued Accounting Standards Not Yet Adopted

In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (ASU 2018-15), which clarifies the accounting for implementation costs in cloud computing arrangements. ASU 2018-15 is effective for public entities, for annual periods, including interim periods within those annual periods, beginning after December 15, 2019, and earlier adoption is permitted. The Company does not plan to early adopt, and therefore plans to adopt for the annual period beginning after December 15, 2019. The Company is currently evaluating the impact of the pending adoption of ASU 2018-15 on the consolidated financial statements.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02 and subsequent updates thereafter in ASU 2017-13, ASU 2018-10 and ASU 2018-11, Leases (collectively, Accounting Standards Codification 842 or ASC 842). This standard requires lessees to recognize a right-of-use (“ROU”) assets and lease liabilities for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The standard also expands the required quantitative and qualitative disclosures surrounding leases.

On January 1, 2019, we adopted ASC 842 using the modified retrospective transition method with certain practical expedients available for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the condensed consolidated financial statements. SailPoint evaluated whether any cumulative adjustment is required to be recorded to retained earnings as a result of applying the provisions set forth under ASC 842 for any existing arrangements not yet completed as of January 1, 2019. Adoption of ASC 842 did not result in a cumulative adjustment to retained earnings as of January 1, 2019. In addition, it is important to note that under the modified retrospective transition method, our prior period results were not recast to reflect the new standard. We elected certain practical expedients and implemented internal controls and key system functionality to enable the preparation of financial information upon adoption.

7


 

The adoption of the new standard represents a change in accounting principle with the intent to increase transparency and comparability among organizations by requiring the recognition of ROU assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. We have made an accounting policy election not to recognize ROU assets and lease liabilities that arise from short-term leases for any class of underlying asset.

The standard did not have a material impact on our condensed consolidated statements of operations or statements of cash flows. However, upon adoption of ASC 842 the opening impact on our condensed consolidated balance sheets was not material, but it resulted in recording ROU assets and an increase in total lease liabilities of $3.5 million for operating leases for physical office space.

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (ASC 718): Improvements to Nonemployee Share-Based Payment Accounting (ASU 2018-07), which simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. ASU 2018-07 is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than a company’s adoption date of ASC 606, Revenue from Contracts with Customers. We adopted the standard effective January 1, 2019, using the prospective approach. This adoption resulted in no material impact on the Company’s condensed consolidated financial statements.

3. Revenue Recognition

ASC 606 Adoption and Impact to Previously Reported Results

During the year ended December 31, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (ASC 606) and subsequent amendments to the initial guidance collectively, ASC 606, utilizing the modified retrospective method of transition whereby the results and related disclosures for the comparative 2018 periods presented in this Form 10-Q were recast and are now presented as if Topic 606 had been in effect beginning January 1, 2018 with modified retrospective adjustments applicable prior to January 1, 2018 included as a cumulative adjustment to retained earnings. Refer to the Note 2 “Summary of Significant Accounting Policies” and Note 3 “Revenue Recognition” for our Annual Report in Form 10-K filed on March 18, 2019 for accounting policy updates and adoption of ASC 606.

Disaggregation of Revenue

The Company’s revenue by geographic region based on the customer’s location is presented in Note 2 above.

The following table presents the Company’s revenue by timing of revenue recognition to understand the risks of timing of transfer of control:

 

 

 

Three Months Ended March 31, 2019

 

 

Three Months Ended March 31, 2018

 

 

 

License

 

 

Subscription

 

 

Services and other

 

 

License

 

 

Subscription

 

 

Services and other

 

 

 

(in thousands)

 

Timing of revenue recognition

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue recognized at a point in time

 

$

18,669

 

 

$

 

 

$

 

 

$

16,808

 

 

$

 

 

$

 

Revenue recognized over time

 

 

 

 

 

31,835

 

 

 

10,079

 

 

 

 

 

 

22,505

 

 

 

9,628

 

Total revenue

 

$

18,669

 

 

$

31,835

 

 

$

10,079

 

 

$

16,808

 

 

$

22,505

 

 

$

9,628

 

Contract Balances

A summary of the activity impacting our contract balances during the three months ended March 31, 2019 is presented below (in thousands):

 

 

 

Contract

acquisition costs

 

Balances at December 31, 2018

 

$

28,043

 

Additional deferred contract acquisition costs

 

 

2,052

 

Amortization of deferred contract acquisition costs

 

 

(2,166

)

Balances at March 31, 2019

 

$

27,929

 

8


 

 

 

 

Deferred revenue

(current)

 

 

Deferred revenue

(non-current)

 

Balances at December 31, 2018

 

$

95,919

 

 

$

18,382

 

Decrease, net

 

 

(3,289

)

 

 

(866

)

Balances at March 31, 2019

 

$

92,630

 

 

$

17,516

 

Deferred revenue, which is a contract liability, consists primarily of payments received in advance of revenue recognition under the Company’s contracts with customers and is recognized as the revenue recognition criteria are met. During the three months ended March 31, 2019 and the period from January 1, 2018, the date of ASC 606 adoption, to March 31, 2018, revenue recognized that was previously deferred was $37.5 million and $24.6 million, 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 and the customer billings.

Contract assets primarily relate to unbilled amounts, which are netted with deferred revenue at contract level, and typically result from sales contracts when 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 and other non-current assets in the condensed consolidated balance sheets. During the three months ended March 31, 2019 and 2018, $1.4 million and $0.7 million, respectively, were reclassified from contract assets to accounts receivable. There were no impairments of contract assets during the three months ended March 31, 2019 or 2018.

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 contracted 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 March 31, 2019, amounts allocated to these additional performance obligations are $161.2 million, of which we expect to recognize $108.5 million as revenue over the next 12 months with the remaining balance recognized thereafter.

Assets Recognized from the Costs to Obtain our Contracts with Customers

As of March 31, 2019, and December 31, 2018, $8.8 million and $8.4 million, respectively, of our deferred contract acquisition costs are included in prepayments and other current assets as they are expected to be amortized within the next 12 months. The remaining amount of our deferred contract acquisition costs are included in other non-current assets. The balance of deferred contract acquisition costs, which primarily consist of cumulative capitalized costs to obtain contracts was $27.9 million and $28.0 million at March 31, 2019 and December 31, 2018, respectively. For the three months ended March 31, 2019 and 2018, amortization of deferred contract acquisition of $2.2 million and $1.7 million was recorded for the respective periods. There were no material impairments of assets related to deferred contract acquisition costs during the three months ended March 31, 2019 or 2018.

4. Intangible Assets

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

 

 

 

 

 

As of

 

 

 

Weighted Average

Useful Life

 

March 31, 2019

 

 

December 31, 2018

 

Intangible assets

 

(In years)

 

(In thousands)

 

Customer lists

 

15

 

$

42,500

 

 

$

42,500

 

Developed technology

 

9.6

 

 

42,000

 

 

 

42,000

 

Trade names and trademarks

 

17

 

 

24,500

 

 

 

24,500

 

Order backlog

 

1.5

 

 

 

 

 

1,100

 

Other intangible assets

 

4.9

 

 

3,310

 

 

 

3,310

 

Total intangible assets

 

 

 

 

112,310

 

 

 

113,410

 

Less: Accumulated amortization

 

 

 

 

(39,781

)

 

 

(38,550

)

Total intangible assets, net

 

 

 

$

72,529

 

 

$

74,860

 

 

9


 

Amortization expense is included in the condensed consolidated statements of operations for the three months ended March 31, 2019 and 2018, as follows:

 

 

 

 

 

Three Months Ended

 

Amortization expense (in thousands)

 

 

 

March 31, 2019

 

 

March 31, 2018

 

Cost of revenue - licenses

 

 

 

$

1,008

 

 

$

1,008

 

Cost of revenue - subscription

 

 

 

 

96

 

 

 

96

 

Research and development

 

 

 

 

159

 

 

 

34

 

Sales and marketing

 

 

 

 

1,068

 

 

 

1,068

 

Total amortization of acquired intangibles

 

 

 

$

2,331

 

 

$

2,206

 

Periodically, the Company evaluates intangible assets for possible impairment. There were no impairments for intangible assets during the three months ended March 31, 2019 and 2018.

 

5. Commitments and Contingencies

Operating Leases

Right-of-use assets and lease liabilities are recognized at the present value of future lease payments over the lease term. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease.  ROU assets include any upfront lease payments made and exclude lease incentives. The Company leases its facilities under non-cancelable operating lease agreements, the majority of which include a renewal and or termination options. Additionally, these leases often require the Company to pay taxes, insurance, and maintenance costs, which are generally expensed as incurred and are not included in the table below. Certain of these facility leases contain predetermined fixed escalations of the minimum rentals, and the Company recognizes expense for these leases on a straight-line basis over the full term of the lease arrangement. Leases with an initial term of 12 months or less are not recorded on the balance sheets and short-term lease expense is recognized on a straight-line basis over the lease term. The depreciable life of related leasehold improvements is based on the lease term.

As of March 31, 2019, our leases have remaining lease terms of less than one year to ten years. Certain leases include early termination and/or extension options; however, exercises of these options are at the Company’s sole discretion. As of March 31, 2019, the Company determined it is not reasonably certain it will exercise the options to extend its leases or terminate them early. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants and as of March 31, 2019, the Company is not subleasing to any third parties.

The rates implicit in the Company’s leases are not readily determinable. Therefore, in order to value the Company’s lease liabilities, the Company will use an incremental borrowing rate which reflects the fixed rate at which the Company could borrow a similar amount in the same currency, for the same term, and with similar collateral as in the lease at the commencement date. The result of adoption of ASC 842 was an increase in ROU assets and total lease liabilities of $3.5 million on the Company’s condensed consolidated balance sheet. ASC 842 did not have a material impact on our condensed consolidated statements of operations and statements of cash flows. The Company measures its lease liabilities at the net present value of the remaining lease payments, discounted at the weighted average discount rate of 4.12 percent.  As of March 31, 2019, the total lease liabilities are $43.1 million, $3.4 million of which is included in accrued expenses and other current liabilities and $39.7 million is included as long-term operating lease liabilities on the condensed consolidated balance sheets. As of March 31, 2019, the ROU asset balance is $32.2 million.

Facilities costs (including rent and utilities) are considered shared costs and are allocated to departments based on headcount. As such, allocated shared costs are reflected in each cost of revenue and operating expense category. Total rent expense was approximately $1.7 million and $0.9 million for the three months ended March 31, 2019 and 2018, respectively.

10


 

Other information related to leases is as follows:

 

 

 

Three Months Ended

 

 

 

March 31, 2019

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

 

Operating cash flows from operating leases (in millions)

 

$

0.9

 

Lease liabilities arising from obtaining right-of-use assets

 

 

 

 

Operating leases (in millions)

 

$

30.4

 

Weighted-average remaining lease term - operating leases

 

9.4 years

 

Weighted-average discount rate - operating leases

 

 

4.12

%

 

At March 31, 2019, we have no financing leases and we have non-cancelable operating lease commitments, excluding variable consideration. The undiscounted annual future minimum lease payments are summarized by year in the table below:

 

Year Ending December 31,

 

(in thousands)

 

2019 (except the three months ended March 31)

 

$

3,658

 

2020

 

 

5,212

 

2021

 

 

5,479

 

2022

 

 

5,452

 

2023

 

 

4,962

 

Thereafter

 

 

27,031

 

Total minimum lease payments

 

 

51,794

 

Less: interest

 

 

(8,655

)

Total present value of operating lease liabilities

 

$

43,139

 

Less: operating lease liabilities - current

 

$

(3,443

)

Long-term operating lease liabilities

 

$

39,696

 

 

6. Line of Credit and Long-Term Debt

On March 11, 2019, SailPoint Technologies, Inc., as borrower, and certain of our other wholly owned subsidiaries entered into a credit agreement (the “Credit Agreement”) with the financial institutions identified therein as lenders. The Credit Agreement is guaranteed by the Company, 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.

The credit agreement provides for an initial $150.0 million in commitments for revolving credit loans, 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 our 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 for acquisitions permitted under the Credit Agreement.

The Credit Agreement contains certain customary representations and warranties and affirmative and negative covenants, including certain restrictions on the ability of the Loan Parties and their Restricted Subsidiaries (as defined in the Credit Agreement) to incur additional indebtedness or guarantee indebtedness of others; create liens on properties or assets; merge, consolidate, or dissolve; make certain loans or investments; sell or dispose of assets; enter into sale and leaseback transactions; pay dividends and other restricted payments; or enter into transactions with affiliates. The agreement has established priority for the lenders party over all assets of the Company.

Borrowings under our credit agreement are scheduled to mature in March 2024. Any borrowing under our credit agreement may be repaid, in whole or in part, at any time and from time to time without premium or penalty other than customary breakage costs, and any amounts repaid may be reborrowed. No mandatory prepayments will be required other than when borrowings and letter of credit usage exceed the aggregate commitments of all lenders.

The Company had no outstanding revolving credit loan balance as of March 31, 2019 and December 31, 2018. The Company was in compliance with all applicable covenants as of March 31, 2019.

11


 

The interest rates applicable to revolving credit loans under our Credit Agreement are, at the borrower’s option, either (i) a base rate, which is equal to the greatest of (a) the Prime Rate (as defined in our credit agreement), (b) the Federal Funds Effective Rate (as defined in our Credit Agreement) plus 1/2 of 1%, and (c) the one-month Adjusted LIBO Rate (as defined in our Credit Agreement) plus 1%, in each case, plus an interest margin ranging from 0.25% to 0.75% based on the Senior Secured Net Leverage Ratio, or (ii) the Adjusted LIBO Rate plus an interest margin ranging from 1.25% to 1.75% based on the Senior Secured Net Leverage Ratio. The Adjusted LIBO Rate cannot be less than zero. The borrower will pay an unused commitment fee during the term of our Credit Agreement ranging from 0.20% to 0.30% per annum based on the Senior Secured Net Leverage Ratio.

The Company incurred total debt issuance costs of approximately $0.8 million in connection with this new Credit Agreement, which is included in other non-current assets on the accompanying condensed consolidated balance sheet. 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 during the three months ended March 31, 2019 was not significant and was recorded in interest expense in the accompanying condensed consolidated statements of operations. Amortization of debt issuance costs under our prior credit agreement during the three months ended March 31, 2018 was approximately $0.1 million.

7. Stock Option Plans and 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”), nonqualified stock options (“NSOs”) for the right to purchase shares of common stock, and grant restricted stock units. The 2015 Stock Option Plans reserve 5,000,000 shares of common stock for issuance as ISOs, 500,000 shares of restricted stock and 250,000 shares 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.

At March 31, 2019, 546,093 shares were available for issuance under the Amended and Restated 2015 Stock Option and Grant Plan and 89,526 shares were 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 adopted the 2017 Long Term Incentive Plan (the “2017 Plan”) under which it may grant stock options, nonqualified stock options to purchase shares of common stock and restricted stock units. As of March 31, 2019, the Company had reserved 13,285,314 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 will be increased on each January 1 hereafter by 4,428,438 shares of common stock. Options and RSUs granted 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. At March 31, 2019, 9,240,711 shares were available for issuance under the 2017 Plan. The Company currently uses authorized and unissued shares to satisfy share award exercises.

The fair value for the Company’s stock options granted and Employee Stock Purchase Plan (the "ESPP") purchase rights, as discussed further below, during the period ended March 31, 2019 and 2018 was estimated at grant date using a Black Scholes option-pricing model using the following weighted average assumptions:

 

 

 

Stock Options

 

 

ESPP

 

 

March 31, 2019

 

 

March 31, 2018

 

 

March 31, 2019

 

 

March 31, 2018

Expected dividend rate

 

0%

 

 

0%

 

 

0%

 

 

NA

Expected volatility

 

39.8%

 

 

41.0%

 

 

46.0%

 

 

NA

Risk-free interest rate

 

2.48% - 2.59%

 

 

2.63% - 2.73%

 

 

2.44%

 

 

NA

Expected term (in years)

 

 

6.25

 

 

 

6.25

 

 

 

0.42

 

 

NA

 

12


 

The following table summarizes stock option activity during the three months ended March 31, 2019:

 

 

 

Number

of Options

 

 

Weighted Average Exercise Price

 

 

Weighted Average Remaining Contractual Term

 

 

Aggregate

Intrinsic

Value

 

 

 

(in thousands)

 

 

(per share)

 

 

(years)

 

 

(in thousands)

 

Balances at December 31, 2018

 

2,817

 

 

$

6.64

 

 

 

8.0

 

 

$

47,589

 

Granted

 

 

682