0001628280-21-009712.txt : 20210510 0001628280-21-009712.hdr.sgml : 20210510 20210510163424 ACCESSION NUMBER: 0001628280-21-009712 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 79 CONFORMED PERIOD OF REPORT: 20210331 FILED AS OF DATE: 20210510 DATE AS OF CHANGE: 20210510 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: 21907779 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-20210331.htm 10-Q sail-20210331
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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, 2021
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
(State or other jurisdiction of
incorporation or organization)
11120 Four Points DriveSuite 100,
AustinTX
(Address of principal executive offices)
47-1628077
(I.R.S. Employer
Identification No.)
78726
(Zip Code)
Registrant’s telephone number, including area code: (512) 346-2000
_____________________________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading
Symbol(s)
Name of each exchange on which registered
Common stock, par value $0.0001 per shareSAILNew York Stock Exchange
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  x   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  x   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 filerxAccelerated filer
Non-accelerated filerSmaller 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  x
The registrant had 92,325,246 shares of common stock outstanding as of May 5, 2021.


SailPoint Technologies Holdings, Inc.
Table of Contents
Page

1

PART I
ITEM 1. Financial Statements (Unaudited)
SAILPOINT TECHNOLOGIES HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
As of
March 31, 2021December 31, 2020
(Unaudited)
Assets
Current assets
Cash and cash equivalents$416,185 $510,289 
Restricted cash6,396 6,355 
Accounts receivable, net of allowances of $290 and $376
85,299 112,255 
Deferred contract acquisition costs, current16,486 15,592 
Prepayments and other current assets33,390 26,027 
Total current assets557,756 670,518 
Deferred tax asset - non-current1,232  
Property and equipment, net18,809 19,443 
Right-of-use assets, net26,375 27,048 
Deferred contract acquisition costs, non-current39,875 38,510 
Other non-current assets, net of allowances of $75 and $50
13,465 15,016 
Goodwill288,410 241,103 
Intangible assets, net86,948 63,962 
Total assets$1,032,870 $1,075,600 
Liabilities and stockholders’ equity
Current liabilities
Accounts payable$4,384 $4,753 
Accrued expenses and other liabilities39,324 59,460 
Income taxes payable 978 
Convertible senior notes, net383,891 326,672 
Deferred revenue158,901 165,995 
Total current liabilities586,500 557,858 
Deferred tax liability - non-current 1,329 
Long-term operating lease liabilities32,038 33,080 
Deferred revenue - non-current17,376 18,723 
Total liabilities635,914 610,990 
Commitments and contingencies (Note 7)
Stockholders’ equity
Common stock, $0.0001 par value, authorized 300,000 shares, issued and outstanding 92,228 shares as of March 31, 2021 and 91,386 shares as of December 31, 2020
9 9 
Preferred stock, $0.0001 par value, authorized 10,000 shares, no shares issued and outstanding as of March 31, 2021 and December 31, 2020
  
Additional paid in capital428,883 484,012 
Accumulated deficit(31,936)(19,411)
Total stockholders' equity396,956 464,610 
Total liabilities and stockholders’ equity$1,032,870 $1,075,600 
See accompanying notes to unaudited condensed consolidated financial statements.
2

SAILPOINT TECHNOLOGIES HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended
March 31, 2021March 31, 2020
Revenue
Licenses
$19,235 $21,004 
Subscription
59,242 43,881 
Services and other
12,285 10,557 
Total revenue
90,762 75,442 
Cost of revenue
Licenses
1,247 1,080 
Subscription
11,304 8,476 
Services and other
11,799 9,006 
Total cost of revenue
24,350 18,562 
Gross profit66,412 56,880 
Operating expenses
Research and development
19,566 15,808 
General and administrative
11,267 9,514 
Sales and marketing
51,162 36,860 
Total operating expenses
81,995 62,182 
Loss from operations(15,583)(5,302)
Other expense, net
Interest income
200 1,272 
Interest expense
(789)(4,532)
Other expense, net(1)(324)
Total other expense, net(590)(3,584)
Loss before income taxes(16,173)(8,886)
Income tax benefit882 469 
Net loss$(15,291)$(8,417)
Net loss per share
Basic
$(0.17)$(0.09)
Diluted
$(0.17)$(0.09)
Weighted average shares outstanding
Basic
91,684 89,862 
Diluted
91,684 89,862 
See accompanying notes to unaudited condensed consolidated financial statements.
3

SAILPOINT TECHNOLOGIES HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
For the Three Months Ended March 31, 2021
Common StockAdditional
paid in
capital
Accumulated
deficit
Stockholders'
equity
Number
of shares
Par
value
Balance at December 31, 202091,386 $9 $484,012 $(19,411)$464,610 
Cumulative effect adjustment from the adoption of ASU 2020-06— — (65,517)2,766 (62,751)
Exercise of stock options188 — 1,608 — 1,608 
Restricted stock units vested, net of tax settlement509 — (1,293)— (1,293)
Stock-based compensation expense— — 10,073 — 10,073 
Partial conversion of convertible senior notes182 — — — — 
Settlement of capped calls related to partial conversion of convertible senior notes(37)— — — — 
Net loss— — — (15,291)(15,291)
Balance at March 31, 202192,228 $9 $428,883 $(31,936)$396,956 

For the Three Months Ended March 31, 2020
Common StockAdditional
paid in
capital
Accumulated
deficit
Stockholders'
equity
Number
of shares
Par
value
Balance at December 31, 201989,676 $9 $442,407 $(8,289)$434,127 
Cumulative effect adjustment from the adoption of ASC 326— — — (359)(359)
Exercise of stock options228 — 1,317 — 1,317 
Restricted stock units vested, net of tax settlement265 — (155)— (155)
Stock-based compensation expense— — 6,191 — 6,191 
Net loss— — — (8,417)(8,417)
Balance at March 31, 202090,169 $9 $449,760 $(17,065)$432,704 
See accompanying notes to unaudited condensed consolidated financial statements.
4

SAILPOINT TECHNOLOGIES HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31, 2021March 31, 2020
Operating activities
Net loss$(15,291)$(8,417)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense4,784 4,586 
Amortization of debt discount and issuance costs633 4,367 
Amortization of contract acquisition costs4,328 3,004 
Loss on disposal of fixed assets27 124 
Provision for credit losses102 127 
Stock-based compensation expense10,073 6,191 
Operating leases, net(205)(71)
Deferred taxes (113)
Net changes in operating assets and liabilities, net of assets acquired and liabilities assumed in business acquisitions
Accounts receivable27,854 31,284 
Deferred contract acquisition costs(6,587)(6,211)
Prepayments and other current assets(7,191)1,760 
Other non-current assets2,992 3,213 
Accounts payable(369)(716)
Accrued expenses and other liabilities(22,161)(14,742)
Income taxes(978)(874)
Deferred revenue(10,177)(7,053)
Net cash provided by (used in) operating activities(12,166)16,459 
Investing activities
Purchase of property and equipment(818)(239)
Proceeds from sale of property and equipment2 10 
Purchase of intangibles(40) 
Business acquisitions, net of cash acquired(71,196) 
Net cash used in investing activities(72,052)(229)
Financing activities
Payments for partial conversion of convertible senior notes(10,160) 
Taxes associated with net issuances of shares upon vesting of restricted stock units(1,293)(155)
Exercise of stock options1,608 1,317 
Net cash provided by (used in) financing activities(9,845)1,162 
Net increase (decrease) in cash, cash equivalents and restricted cash(94,063)17,392 
Cash, cash equivalents and restricted cash, beginning of period516,644 450,120 
Cash, cash equivalents and restricted cash, end of period$422,581 $467,512 
See accompanying notes to unaudited condensed consolidated financial statements.
5

SAILPOINT TECHNOLOGIES HOLDING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Summary of Significant Accounting Policies
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 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 security software that helps organizations govern user access to critical systems and data. The Company currently markets its products and services worldwide.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements, which include the accounts of the Company and its wholly owned subsidiaries, have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as well as the instructions to Form 10-Q and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) for interim reporting. Accordingly, the Company has condensed or omitted certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP. All intercompany accounts and transactions have been eliminated in consolidation.
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, 2021 or any future period.
These financial statements and accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on February 25, 2021 (the “Annual Report”).
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Management periodically evaluates such estimates and assumptions for continued reasonableness. In particular, we make estimates with respect to the fair value allocation of multiple performance obligations in revenue recognition, the expected period of benefit of deferred contract acquisition costs, the collectability of accounts receivable, stock-based compensation expense, income taxes, and the valuation, useful lives and impairment of intangible assets and goodwill arising from business combinations. Appropriate adjustments, if any, to the estimates used are made prospectively based upon such periodic evaluation. Actual results could differ from those estimates.
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, 2021 and December 31, 2020, no single customer represented more than 10% of the balance in accounts receivable. Management considers concentration of credit risk to be minimal with respect to accounts receivable due to the positive historical collection experience of the Company. No single customer represented more than 10% of revenue for the three months ended March 31, 2021 or 2020. The Company does not experience concentration of credit risk in foreign countries as no single foreign country represents more than 10% of the Company’s consolidated revenues or net assets.
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Significant Accounting Policies
The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes in the Annual Report, most notably Note 1 “Description of Business and Summary of Significant Accounting Policies.” Except for the adoption of ASU 2020-06 described below, there have been no changes to our significant accounting policies described in the Annual Report that have had a material impact on our unaudited condensed consolidated financial statements and related notes.
Recently Adopted Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liability and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU 2020-06 removes from GAAP the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt. Similarly, the embedded conversion feature will no longer be amortized as interest expense over the life of the instrument. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under Accounting Standards Codification ("ASC") Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. Among other potential impacts, this change will reduce reported interest expense, increase reported net income, and result in a reclassification of certain conversion feature balance sheet amounts from stockholders’ equity to liabilities as it relates to the Company’s convertible senior notes (the "Notes"). Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020, and can be adopted on either the fully retrospective or modified retrospective basis.
The Company early adopted ASU 2020-06 effective January 1, 2021 using the modified retrospective approach, which requires a cumulative adjustment to be recorded to accumulated deficit. Adoption of ASU 2020-06 resulted in a material effect on the unaudited condensed consolidated balance sheet as the Company no longer separately presents in equity an embedded conversion feature. The impact to the unaudited condensed consolidated balance sheet was an increase of the Notes by $66.8 million, a decrease of our deferred tax liability by $4.0 million, a decrease of our additional paid in capital by $65.5 million and a decrease of our accumulated deficit by $2.8 million. Interest expense recognized will be reduced as a result of accounting for the convertible debt instrument as a single liability measured at its amortized cost. This adoption did not have a material impact on the Company's unaudited condensed consolidated statement of cash flows. The Company will prospectively utilize the if-converted method to calculate the impact of convertible instruments on diluted earnings per share.
2. Revenue Recognition
Disaggregation of Revenue
The Company’s revenue by geographic region based on the customer’s location is presented in Note 13 “Geographic Information and Major Customers.”
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The following table presents the Company’s revenue by timing of revenue recognition to understand the risks of timing of transfer of control and cash flows:
Licenses
SaaS (1)
Maintenance and Support (1)
Other Subscription Services (1)
Services and Other
(In thousands)
Three Months Ended March 31, 2021
Revenue recognized at a point in time$19,235 $— $— $— $— 
Revenue recognized over time— 21,889 35,474 1,879 12,285 
Total revenue$19,235 $21,889 $35,474 $1,879 $12,285 
Three Months Ended March 31, 2020
Revenue recognized at a point in time$21,004 $— $— $— $— 
Revenue recognized over time— 14,127 29,157 597 10,557 
Total revenue$21,004 $14,127 $29,157 $597 $10,557 
(1) Subscription revenue is further disaggregated into SaaS, Maintenance and Support and Other Subscription Services revenue in the table above.
Contract Balances
A summary of the activity impacting our contract balances during the reporting periods is presented below:
Contract Acquisition Costs
Three Months Ended
March 31, 2021March 31, 2020
(In thousands)
Beginning Balance$54,102 $35,152 
Additional deferred contract acquisition costs
6,587 2,806 
Amortization of deferred contract acquisition costs
(4,328)(3,004)
Ending Balance$56,361 $34,954 
There were no material impairments of deferred contract acquisition costs for the periods ended March 31, 2021 or 2020.
Deferred Revenue
Three Months Ended
March 31, 2021March 31, 2020
(In thousands)
Beginning Balance$184,718 $152,033 
Decrease, net(8,441)(7,053)
Ending Balance$176,277 $144,980 
Deferred revenue, which is a contract liability, consists primarily of amounts invoiced 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, 2021 and 2020, revenue recognized that was previously deferred was $63.0 million and $46.8 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 obligations and the customer billings.
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Contract assets primarily relate to unbilled amounts, which are netted with deferred revenue at the contract level, and typically result from sales contracts where 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 in the amount of $16.6 million and $10.7 million and other non-current assets in the amount of $12.7 million and $14.2 million in the unaudited condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020, respectively. During the three months ended March 31, 2021 and 2020, amounts reclassified from contract assets to accounts receivable were $0.8 million and $1.5 million, respectively.
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 contract 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, 2021, amounts allocated to these additional performance obligations are $348.2 million, of which we expect to recognize $199.6 million as revenue over the next 12 months with the remaining balance recognized thereafter.
3. Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables present the Company’s financial assets that are measured at fair value on a recurring basis:
As of March 31, 2021
Level 1Level 2Level 3Total
(In thousands)
Assets
Cash equivalents
Money market funds$12,887   $12,887 
Total cash equivalents$12,887   $12,887 

As of December 31, 2020
Level 1Level 2Level 3Total
(In thousands)
Assets
Cash equivalents
Money market funds$9,757   $9,757 
Total cash equivalents$9,757   $9,757 
The Company’s carrying amounts of financial instruments, including cash, accounts receivable, accounts payable, and accrued expenses are considered Level 1 and approximate their fair values due to their short maturities as of March 31, 2021 and December 31, 2020 and are excluded from the fair value tables above.
See Note 9 “Convertible Senior Notes and Capped Call Transactions” for the carrying amount and estimated fair value of our Notes as of March 31, 2021.
4. Business Combinations
2021 Acquisitions
Intello
On February 22, 2021, the Company acquired Intello Inc. ("Intello"), a Delaware corporation, pursuant to an Agreement and Plan of Merger whereby Intello became a wholly owned subsidiary of the Company. Intello is an early-stage
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software as a service ("SaaS") management company that helps organizations discover, manage, and secure SaaS applications. The aggregate consideration paid in connection with this acquisition was $44.0 million.
The following table summarizes the preliminary purchase price allocation as of the date of acquisition:
As of
February 22, 2021
(In thousands)
Cash and cash equivalents$1,143 
Accounts receivable150 
Prepayments and other current assets43 
Property and equipment17 
Goodwill32,418 
Intangible assets12,300 
Accrued expenses and other liabilities(102)
Deferred tax liability - non-current(1,401)
Deferred revenue(536)
Total fair value of assets acquired and liabilities assumed
$44,032 
The following table presents the estimated fair values and useful lives of the identifiable intangible assets acquired:
AmountEstimated Useful Life
(In thousands)(In years)
Developed technology$9,500 5
Customer lists$2,800 3
The fair value of developed technology was estimated using the relief from royalty method (Level 3) utilizing assumptions, such as annual obsolescence, royalty rates, tax rate and discount rate. The fair value of customer lists was estimated using the replacement cost method (Level 3), which utilized assumptions for the cost to recreate the relationships, such as the timing and resources required, distributor's profit mark-up and opportunity cost.
ERP Maestro
On March 15, 2021, the Company acquired ERP Maestro, Inc. ("ERP Maestro"), a Florida corporation, pursuant to an Agreement and Plan of Merger whereby ERP Maestro became a wholly owned subsidiary of the Company. ERP Maestro is an early-stage SaaS governance, risk and compliance solution that provides separation-of-duty controls monitoring for an organization’s most critical applications. The aggregate consideration paid in connection with this acquisition was $29.2 million.
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The following table summarizes the preliminary purchase price allocation as of the date of acquisition:
As of
March 15, 2021
(In thousands)
Cash and cash equivalents$924 
Accounts receivable850 
Prepayments and other current assets66 
Property and equipment152 
Right-of-use assets223 
Goodwill14,889 
Intangible assets13,900 
Accrued expenses and other liabilities(499)
Deferred tax liability - non-current(75)
Deferred revenue(1,200)
Total fair value of assets acquired and liabilities assumed$29,230 
The following table presents the estimated fair values and useful lives of the identifiable intangible assets acquired:
AmountEstimated Useful Life
(In thousands)(In years)
Developed technology$10,000 5
Customer lists$3,900 3
The fair value of developed technology was estimated using the replacement cost method (Level 3) utilizing assumptions for the cost to replace, such as the workforce, timing and resources required, annual obsolescence, as well as a theoretical developer’s profit margin and entrepreneurial incentive and opportunity cost. The fair value of customer lists was estimated using the replacement cost method (Level 3), which utilized assumptions for the cost to recreate the relationships, such as the timing and resources required, distributor's profit mark-up and opportunity cost and customer age.
Additional Acquisition Related Information
The operating results of the acquired companies are included in our unaudited condensed consolidated statement of operations from the respective dates of acquisition. Pro forma results of operations have not been presented because the effects of these acquisitions, individually and in the aggregate, were not material to our unaudited condensed consolidated statement of operations. During the three months ended March 31, 2021, acquisition related costs were $1.9 million, which include primarily legal, accounting and consulting professional service fees and have been included in general and administrative expenses in the unaudited condensed consolidated statement of operations.
These acquisitions have been accounted for as business combinations. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the respective acquisition date. The purchase price allocations are provisional pending final valuations and purchase accounting adjustments, which were not final as of March 31, 2021. The Company will finalize the purchase price within the required one-year measurement period as of the dates of acquisition.
The Company believes that for each acquisition, the acquired companies will provide opportunities for growth through investing in additional products and capabilities, among other factors. This contributed to a purchase price in excess of the estimated fair value of each acquired company’s net identifiable assets acquired. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill in connection with each acquisition. Goodwill arising from these acquisitions is not deductible for tax purposes.
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5. Goodwill and Intangible Assets
Goodwill
Goodwill represents the excess of the purchase price over the identifiable tangible and intangible assets acquired less liabilities assumed arising from business combinations. The changes in the carrying amounts of goodwill for the three months ended March 31, 2021 is due to the acquisitions of Intello and ERP Maestro. For additional information regarding the acquisitions, see Note 4 “Business Combinations.”
The following table reflects goodwill activity for the three months ended March 31, 2021:
(In thousands)
Balance, December 31, 2020$241,103 
Goodwill acquired
47,307 
Balance, March 31, 2021$288,410 
There were no impairments of goodwill during the periods ended March 31, 2021 or 2020.
Intangible Assets
Total cost and amortization of intangible assets are comprised of the following:
As of
Weighted Average
Useful Life
March 31, 2021December 31, 2020
Intangible assets, net(In years)(In thousands)
Customer lists
14.6$49,200 $42,500 
Developed technology
8.571,260 51,760 
Trade names and trademarks
17.024,500 24,500 
Other intangible assets
4.73,786 3,746 
Total intangible assets
148,746 122,506 
Less: Accumulated amortization
(61,798)(58,544)
Total intangible assets, net
$86,948 $63,962 
Amortization expense for the periods presented is as follows:
Three Months Ended
March 31, 2021March 31, 2020
(In thousands)
Cost of revenue - licenses$1,008 $1,008 
Cost of revenue - subscription857 910 
Research and development168 191 
Sales and marketing1,220 1,068 
Total amortization expense$3,253 $3,177 
Periodically, the Company evaluates intangible assets for possible impairment. There were no impairments of intangible assets during the periods ended March 31, 2021 or 2020.
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The total estimated future amortization expense of these intangible assets as of March 31, 2021 is as follows:
Year Ending December 31,(In thousands)
2021 (except the three months ended March 31)$13,093 
202217,106 
202316,557 
202412,674 
20258,175 
Thereafter19,343 
Total amortization expense$86,948 
6. Leases
Letters of Credit
As of March 31, 2021 and December 31, 2020, the Company had an aggregate of $6.0 million of cash collateral for an unconditional standby letter of credit related to the Company’s corporate headquarters lease. The Company is also required to maintain a small amount of restricted cash to guarantee rent payments for our subsidiaries.
Operating Leases
As of March 31, 2021, our leases, which primarily consist of office leases, have remaining lease terms of less than one year to nine years. Certain leases include early termination and/or extension options; however, exercise of these options is at the Company’s sole discretion. As of March 31, 2021, the Company determined that it is not reasonably certain that it will exercise the options to extend its leases or terminate them early. As of March 31, 2021, we have no financing leases and no material sub-leases, and our non-cancelable operating lease commitments excludes variable consideration.
The undiscounted annual future minimum lease payments are summarized by year in the table below:
Year Ending December 31,(In thousands)
2021 (except the three months ended March 31)$4,533 
20225,911 
20235,297 
20245,038 
20254,890 
Thereafter17,393 
Total minimum lease payments43,062 
Less: interest(6,378)
Total present value of operating lease liabilities$36,684 
Current operating lease liabilities$4,646 
Long-term operating lease liabilities32,038 
Total operating lease liabilities$36,684 
7. Commitments and Contingencies
Indemnification Arrangements
In the ordinary course of business, the Company enters into contractual arrangements under which it agrees to provide indemnification of varying scope and terms to customers, business partners and other parties with respect to certain matters, including losses arising out of the breach of such agreements, intellectual property infringement claims made by third parties, and other liabilities with respect to our products, services and business. In these circumstances, payment may be conditioned on the other party making a claim pursuant to the procedures specified in a particular contract.
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The Company includes service level commitments to customers of our cloud-based products warranting certain levels of uptime reliability and performance and permitting those customers to receive credits in the event that we fail to meet those levels. To date, the Company has not incurred any material costs as a result of these commitments, and we expect the time between any potential claims and issuance of the credits to be short. As a result, we have not accrued any liabilities related to these commitments in our unaudited condensed consolidated financial statements.
Litigation Claims and Assessments
The Company is subject to claims and suits that may arise from time to time in the ordinary course of business. In addition, some legal actions, claims and governmental inquiries may be instituted or asserted in the future against us and our subsidiaries. Although the outcome of our legal proceedings cannot be predicted with certainty and no assurances can be provided, based upon current information, we do not believe the liabilities, if any, which may ultimately result from the outcome of such matters, individually or in the aggregate, will have a material adverse impact on our unaudited condensed consolidated financial statements.
8. Credit Agreement
On March 11, 2019, SailPoint Technologies, Inc., as borrower (the "Borrower"), and certain of our other wholly owned subsidiaries entered into a credit agreement (as amended, restated, amended and restated, supplemented or otherwise modified from time to time through the date hereof, the “Credit Agreement”). The Credit Agreement is guaranteed by SailPoint Technologies Intermediate Holdings, LLC, a wholly owned subsidiary, 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.
In September 2019, the Company amended the Credit Agreement in connection with the issuance and sale of the Notes. Such amendment included a decrease in the commitments for revolving credit loans from $150.0 million to $75.0 million, 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 the 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 acquisitions permitted under the Credit Agreement. The Credit Agreement contains certain customary representations and warranties and affirmative and negative covenants. The agreement has established priority for the lenders party over all assets of the Company.
The interest rates applicable to revolving credit loans under the Credit Agreement are at the Company’s option. The Company pays an unused commitment fee during the term of the Credit Agreement ranging from 0.20% to 0.30% per annum based on the Senior Secured Net Leverage Ratio. Borrowings under the Credit Agreement are scheduled to mature on March 11, 2024.
The Company had no outstanding revolving credit loan balance under the Credit Agreement as of March 31, 2021 or December 31, 2020. The Company was in compliance with all applicable covenants as of March 31, 2021.
The Company incurred total debt issuance costs of $0.8 million in connection with the Credit Agreement, the net balance of which is included in other non-current assets in the accompanying unaudited condensed consolidated balance sheets. 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 for the periods ended March 31, 2021 and 2020 were not material and were recorded in interest expense in the accompanying unaudited condensed consolidated statements of operations.
9. Convertible Senior Notes and Capped Call Transactions
In September 2019, the Company issued and sold $400.0 million aggregate principal amount of 0.125% Convertible Senior Notes due 2024 (the “Notes”) in a private offering (the “Offering”) to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The net proceeds from the Offering were $391.2 million, after deducting discounts and commissions and other fees and expenses payable by the Company in connection with the Offering. The Company used $37.1 million of the net proceeds from the Offering to pay the cost of the privately negotiated capped call transactions (the "Capped Call Transactions") it entered into with the initial purchasers of the Notes or their respective affiliates and another financial institution.
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The Notes were issued pursuant to an indenture (the “Indenture”), by and between the Company and U.S. Bank National Association, as trustee. The Notes are senior unsecured obligations of the Company and will mature on September 15, 2024, unless earlier redeemed, repurchased or converted. The Notes bear interest at a fixed rate of 0.125% per year payable semiannually in arrears on March 15 and September 15 of each year.
The Notes will be convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding March 15, 2024, only under the following circumstances:
during any calendar quarter commencing after the calendar quarter ending on December 31, 2019 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock, for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price (as defined in the Indenture) per $1,000 principal amount of the Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of common stock and the conversion rate for the Notes on each such trading day;
if the Company calls any or all of the Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or
upon the occurrence of specified corporate events as set forth in the Indenture.
On or after March 15, 2024 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances.
Upon conversion, the Company may satisfy its conversion obligation by paying and/or delivering, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election, in the manner and subject to the terms and conditions provided in the Indenture. The Notes are convertible at an initial conversion rate of 35.1849 shares of common stock per $1,000 principal amount of the Notes, which is equivalent to an initial conversion price of $28.42 per share of common stock, subject to adjustment upon the occurrence of specified events. The conversion rate is subject to adjustment under certain circumstances in accordance with the terms of the Indenture.
In addition, following certain corporate events that occur prior to the maturity date or if the Company delivers a notice of redemption, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Notes in connection with such a corporate event or notice of redemption, as the case may be. For example, upon the occurrence of a make-whole fundamental change, as defined in the purchase agreement, the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its Notes in connection with such make-whole fundamental change or during the relevant redemption period.
The Company may not redeem the Notes prior to September 20, 2022. The Company may redeem for cash all or any portion of the Notes, at its option, on or after September 20, 2022, if the last reported sale price of common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes, which means that the Company is not required to redeem or retire the Notes periodically.
If the Company undergoes a fundamental change (as defined in the Indenture), holders may require the Company to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The Indenture includes customary covenants and sets forth certain events of default after which the Notes may be declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default involving the Company after which the Notes become automatically due and payable. The Company was in compliance with all applicable covenants as of March 31, 2021.
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For at least 20 trading days during the period of 30 consecutive trading days ended September 30, 2020, the last reported sale price of the Company’s common stock was equal to or exceeded 130% of the conversion price of the Notes on each applicable trading day. This conversion trigger has been met each quarter since then, including the quarter ended March 31, 2021. As a result, the Notes continue to be convertible at the option of the holders during the fiscal quarter ending June 30, 2021 and remained classified as current liabilities on the unaudited condensed consolidated balance sheet as of March 31, 2021.
During the three months ended March 31, 2021, upon the request of certain holders the Company settled the conversion of the $10.2 million in aggregate principal amount of the Notes (the "2021 Converted Notes") with cash and settled all other amounts owed to the respective holders through the issuance of 181,629 shares of the Company's common stock with an aggregate fair value of approximately $10.1 million. The Company recognized an immaterial amount related to the acceleration of unamortized debt issuance costs related to these early note conversions, which was recorded in interest expense in the accompanying unaudited condensed consolidated statements of operations. As of the date of this filing, no other holders of the Notes have submitted requests for conversion.
Transaction costs related to the issuance of the Notes were $8.8 million and are being amortized to interest expense at an effective interest method rate of 0.57% over the term of the Notes.
As of March 31, 2021, the Notes have a remaining life of 42 months.
The net carrying amount of the liability and equity components of the Notes for the periods presented is as follows:
As of
March 31, 2021December 31, 2020
(In thousands)
Liability component
Principal$389,840 $400,000 
Unamortized discount (1)
 (68,270)
Unamortized issuance costs (1)
(5,949)(5,058)
Net carrying amount$383,891 $326,672 
Equity component, net of issuance costs (1)
$ $86,764 
(1)    See Note 1 "Description of Business and Summary of Significant Accounting Policies" for more information regarding the effect of adoption of ASU 2020-06.
The interest expense recognized related to the Notes for the periods presented is as follows:
Three Months Ended
March 31, 2021March 31, 2020
(In thousands)
Contractual interest expense$118 $125 
Amortization of debt discount (1)
 3,989 
Amortization of debt issuance costs (2)
592 337 
Total
$710 $4,451 
(1)    See Note 1 "Description of Business and Summary of Significant Accounting Policies" for more information regarding the effect of adoption of ASU 2020-06.
(2)    Amortization of debt issuance costs includes the acceleration of unamortized debt issuance costs related to the partial conversion of the Notes.
As of March 31, 2021, the total estimated fair value of the Notes was $711.3 million. The fair value was determined based on the closing trading price per $100 of the Notes as of the last day of trading for the period. The fair value of the Notes is primarily affected by the trading price of our common stock and market interest rates. The fair value of the Notes is
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considered Level 2 within the fair value hierarchy and was determined based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, and quoted prices of the Notes in an over-the-counter market.
Capped Call Transactions
In September 2019, in connection with the pricing of the Notes and in connection with the initial purchasers’ exercise in full of their option to purchase additional Notes, the Company entered into the Capped Call Transactions. The Capped Call Transactions are generally expected to reduce potential dilution to common stock upon any conversion of the Notes and/or offset any potential cash payments the Company is required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap. The Capped Call Transactions have an initial strike price of $28.42 per share, which corresponds to the initial conversion price of the Notes and is subject to certain adjustments, and an initial cap price of $41.34 per share, which is subject to certain adjustments. For accounting purposes, the Capped Calls Transactions are separate transactions and not part of the terms of the Notes. As the Capped Call Transactions are considered indexed to our own stock and are considered equity classified, they are recorded in stockholders’ equity and are not accounted for as derivatives. The cost of $37.1 million incurred in connection with the Capped Call Transactions was recorded as a reduction to additional paid in capital.
The Capped Call Transactions initially covered, subject to anti-dilution adjustments substantially similar to those applicable to the Notes, 14.1 million shares of our common stock. In connection with the settlement of the 2021 Converted Notes during the three months ended March 31, 2021, the Company terminated a pro rata amount of the Capped Call Transactions pursuant to the terms thereof. As a result of this pro rata termination, the Company received 37,301 shares of its common stock with an aggregate value of approximately $1.9 million based on the trading price of our common stock at that time. As of March 31, 2021, the Capped Call Transactions cover, subject to anti-dilution adjustments, 13.7 million shares of our common stock.
10. 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 restricted stock units (“RSUs”). The 2015 Stock Option Plans reserve 5.0 million shares of common stock for issuance as ISOs, 0.5 million shares of RSUs and 0.25 million 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.
As of March 31, 2021, 0.6 million shares were available for issuance under the 2015 Stock Option Plans, including less than 0.1 million shares 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 (the "Board") adopted the 2017 Long Term Incentive Plan (the “2017 Plan”) under which it may grant stock options, NSOs to purchase shares of common stock and RSUs. As of March 31, 2021, the Company had reserved 22.1 million 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 is increased on each January 1 by 4.4 million shares of common stock. Options and RSUs granted to employees 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.
As of March 31, 2021, 14.2 million shares were available for issuance under the 2017 Plan. The Company currently uses authorized and unissued shares to satisfy share award exercises.
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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 periods presented were estimated at grant date using a Black Scholes option-pricing model using the following weighted average assumptions:
Stock OptionsESPP
March 31, 2021March 31, 2020March 31, 2021March 31, 2020
Expected dividend rate0%0%0%0%
Expected volatility
50.8%
56.2%
50.0%
48.1%
Risk-free interest rate
0.80%
1.53%
0.09%
1.57%
Expected term (in years)6.256.250.50
0.50
Stock Options
The following table summarizes stock option activity for the three months ended March 31, 2021:
Number
of Options
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
(In thousands)(Per share)(In years)(In thousands)
Balances at December 31, 20202,404 $17.85 7.7$85,064 
Granted299 $60.78 
Exercised(188)$8.54 
Forfeited(55)$22.97 
Balances at March 31, 20212,460 $23.68 7.1$69,373 
Options vested and expected to vest at March 31, 20212,460 $23.68 7.1$69,373 
Options vested and exercisable at March 31, 20211,164 $14.39 5.9$42,183 
The Company expects all outstanding stock options to fully vest. The weighted average grant date fair value per share for the three months ended March 31, 2021 and 2020 was $29.64 and $13.74, respectively. The total fair value of shares vested for the three months ended March 31, 2021 and 2020 was $3.2 million and $3.0 million, respectively.
The total unrecognized compensation expense related to non-vested stock options granted is $19.2 million and is expected to be recognized over a weighted average period of 2.6 years as of March 31, 2021.
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Restricted Stock Units
The following table summarizes the RSU activity for the Company for the three months ended March 31, 2021:
Number of
Shares
Weighted
Average
Grant Date
Fair Value
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
(In thousands)(Per share)(In years)(In thousands)
Balances at December 31, 20203,135 $23.90 1.4$166,927 
Granted
1,184 $59.83 
Vested
(533)$25.40 
Forfeited
(91)$27.14 
Balances at March 31, 20213,695 $35.12 1.6$187,146 
Units expected to vest at March 31, 20213,695 $35.12 1.6$187,146 
The Company expects all outstanding RSUs to fully vest. The total unrecognized compensation expense related to RSUs was $119.9 million as of March 31, 2021 and is expected to be recognized over a weighted average period of 2.9 years.
Employee Stock Purchase Plan
The Company initially reserved 1.8 million shares of common stock for issuance under the ESPP. The number of shares available for issuance under the ESPP increases each January 1 by 0.9 million shares of common stock. The ESPP will continue in effect unless terminated by the Company’s Board or compensation committee, each of which has the right to terminate the ESPP at any time.
As of March 31, 2021, 3.5 million shares were available for issuance under the ESPP Plan. During each of the three months ended March 31, 2021 and 2020, there was no ESPP activity. 
A summary of the Company’s stock-based compensation expense, which includes stock options, incentive units, RSUs and ESPP, is presented below:
Three Months Ended
March 31, 2021March 31, 2020
(In thousands)
Stock options$1,616 $1,391 
RSUs7,571 4,198 
ESPP886 602 
Total stock-based compensation expense$10,073 $6,191 
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A summary of the Company’s stock-based compensation expense as recognized on the unaudited condensed consolidated statements of operations is presented below:
Three Months Ended
March 31, 2021March 31, 2020
(In thousands)
Cost of revenue - subscription$662 $389 
Cost of revenue - services and other774 427 
Research and development2,220 1,501 
General and administrative2,062 1,002 
Sales and marketing4,355 2,872 
Total stock-based compensation expense$10,073 $6,191 
11. Income Taxes
Income Taxes
The effective tax rate for the three months ended March 31, 2021 and 2020 is 5.5% and 5.3%, respectively. The primary drivers for the differences in the rates from the prior-year period to the current-year period are related to differences in forecasted pre-tax book income, the impact of stock compensation, foreign tax liabilities, acquisition impact, valuation allowance build and the effect of research and development ("R&D") credits.
Provision for income taxes consists of U.S. and state income taxes and income taxes in certain foreign jurisdictions in which the Company conducts business. The Company expects to be in an overall deferred tax asset position for the period ended December 31, 2021 with a full valuation allowance as its deferred tax assets are not expected to be offset by the turning of its deferred tax liabilities over time. The Company still maintains a full valuation allowance for its Israel tax position due to the lack of taxable earnings for the foreseeable future.
The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. During the periods ended March 31, 2021 and 2020, the Company did not record any material interest or penalties.
The Company files tax returns in the U.S. federal jurisdiction, in several state jurisdictions, and in several foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations for years before 2017 and is no longer subject to state, local and foreign income tax examinations by tax authorities for years before 2016. The Company is currently under audit for income tax in a single foreign jurisdiction. The audit is ongoing and is not expected to materially impact the unaudited condensed consolidated financial statements. The Company has an uncertain tax position reserve related to this foreign jurisdiction filing that should sufficiently cover any related assessment.
12. Net Loss Per Share
Basic and diluted net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated using our weighted average outstanding common shares including the dilutive effect of stock awards. In periods when the Company recognizes a net loss, the Company excludes the impact of outstanding stock awards from the diluted loss per share calculation as their inclusion would have an anti-dilutive effect.
20

The following table sets forth the calculation of basic and diluted net loss per share for the periods presented:
Three Months Ended
March 31, 2021March 31, 2020
(In thousands, except per share data)
Numerator
Net loss$(15,291)$(8,417)
Denominator
Weighted average shares outstanding
Basic91,684 89,862 
Diluted91,684 89,862 
Net loss per share
Basic$(0.17)$(0.09)
Diluted$(0.17)$(0.09)
The following weighted average outstanding shares of common stock equivalents were excluded from the computation of the diluted net loss per share for the periods presented because their effect would have been anti-dilutive:
Three Months Ended
March 31, 2021March 31, 2020
(In thousands)
Stock options to purchase common stock2,466 2,994 
RSUs issued and outstanding3,440 2,492 
ESPP138 179 
Convertible senior notes10,565  
Total
16,609 5,665 
13. Geographic Information and Major Customers
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, sale of our maintenance, SaaS subscription offerings, professional services and technical support. Revenue is classified by the following major geographic areas: (i) United States, (ii) Europe, the Middle East and Africa (“EMEA”) and (iii) rest of the world.
The following are a summary of consolidated revenues within geographic areas:
Three Months Ended
March 31, 2021March 31, 2020
(In thousands)
United States$65,407 $54,499 
EMEA (1)
15,456 13,728 
Rest of the World (1)
9,899 7,215 
Total revenue$90,762 $75,442 
(1)    No single country outside of the United States represented more than 10% of our revenue.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our Unaudited Condensed Consolidated Financial Statements and notes thereto in Part I, Item 1 of this Quarterly Report on Form 10-Q (this “Quarterly Report”) and our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 25, 2021 (the “Annual Report”), including the consolidated financial statements and related notes included therein.
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. All statements included in this Quarterly Report, other than statements of historical fact, are forward-looking statements. This includes statements regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions.
You should not rely upon forward-looking statements as predictions of future events or place undue reliance thereon. We have based the forward-looking statements contained in this Quarterly Report primarily on our current expectations and projections, in light of currently available information, about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors. 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: the scope, duration and severity of the COVID-19 pandemic, including any recurrence, as well as the timing of the economic recovery following the pandemic and its effect on the global economy and on our business; our ability to achieve and sustain profitability; our ability to sustain historical growth rates; our ability to attract and retain customers and to deepen our relationships with existing customers; an increased focus in our business from selling licenses to selling subscriptions; breaches in our security, cyber-attacks or other cyber-risks; interruptions with the delivery of our software as a service ("SaaS") solutions or third-party cloud-based systems that we use in our operations; our ability to compete successfully against current and future competitors; the length and unpredictable nature of our sales cycle; delayed effects on our operating results from ratably recognizing some of our revenue; fluctuations in our quarterly results; our ability to maintain successful relationships with our channel partners; the increasing complexity of our operations; real or perceived errors, failures or disruptions in our platform or solutions; our ability to adapt and respond to rapidly changing technology, industry standards, regulations or customer needs, requirements or preferences; our ability to comply with our privacy policy or related legal or regulatory requirements; the impact of various tax laws and regulations, including our failure to comply therewith; our ability to successfully identify, acquire and integrate companies and assets; our ability to maintain and enhance our brand or reputation as an industry leader; and the ability of our platform and solutions to effectively interoperate with our customers’ existing or future IT infrastructures. More information on these risks and other potential factors that could affect our financial results is included in our other filings with the SEC, including in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Annual Report and “Risk Factors” in Part II, Item 1A in subsequent quarterly reports. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Quarterly Report relate only to events as of the date hereof. We undertake no obligation to update any forward-looking statements made in this Quarterly Report to reflect events or circumstances after the date of this Quarterly Report or to reflect new information or the occurrence of unanticipated events, except as required by law. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

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Business Overview
SailPoint Technologies Holdings, Inc. (“we,” “our,” “the Company” or “SailPoint”) is the leading provider of enterprise identity security solutions. Our identity security solutions provide organizations with critical visibility into who currently has access to which resources, who should have access to those resources and how that access is being used.
We offer both SaaS and on-premise software solutions, which provide organizations with the intelligence required to empower users and govern their access to systems, applications and data across hybrid IT environments, spanning on-premises, cloud and mobile applications and file storage platforms. We help customers enable their businesses with more agile and innovative IT, streamline delivery of access to their businesses, enhance their security posture and better meet compliance and regulatory requirements. Our customers include many of the world’s largest and most complex organizations, including commercial enterprises, financial institutions and governments.
Our set of identity security solutions currently consists of:
IdentityNow: our cloud-based, multi-tenant identity security platform, which provides customers with a set of fully integrated services for compliance, provisioning and password management for applications and data hosted on-premises or in the cloud;
IdentityIQ: our on-premises identity security solution, which can be hosted in the public cloud or deployed in a customer’s data center, provides large, complex enterprise customers a unified and highly configurable identity security solution; and
SailPoint Identity Services: delivered as multi-tenant SaaS subscription services that can be utilized in conjunction with IdentityNow and IdentityIQ and currently consisting of:
Access Insights: collects a wealth of identity information and turns that information into actionable insights and provides business-oriented dashboards and reports to track the effectiveness of your identity program;
Recommendation Engine: uses artificial intelligence (“AI”), machine learning (“ML”), peer group analysis, identity attributes and access activity to help you decide whether access should be granted or removed;
Access Modeling: uses AI and ML to suggest roles based on similar access between users and gives you insights to confirm the correct access for each role; and
Cloud Access Management: uses AI and ML to automatically learn, monitor and secure access to cloud infrastructure.
Our solutions address the complex needs of global enterprises and mid-market organizations. Our success is principally dependent on our ability to deliver compelling solutions to attract new customers and retain existing customers. Rising security threats and evolving regulations and compliance standards for cyber security, data protection, privacy and internal IT controls create new opportunities for our industry and require us to adapt our solutions to be successful. Maintaining our historical growth rates is also challenging because our growth strategy depends in part on our ability to drive new customer growth within existing geographic markets, further penetrate our existing customer base, continue to invest in our platform, leverage and expand our network of partners, expand market and product investment across existing vertical markets, and continuing to expand our global presence, while competing against much larger companies with more recognizable brands and financial resources. Although we seek to grow rapidly, we also focus on operating leverage and efficiency while continuing to invest in our platform to deliver innovative solutions to our customers.
We believe enterprises are increasingly embracing the cloud to house their critical security infrastructure. As a result, a growing number of enterprises are changing their approach to identity security and now prefer to use a SaaS solution rather than purchase software outright and install it in their own infrastructure. This industry shift aligns well with our current product strategy. Our product strategy is to (1) accelerate innovation within our core identity security SaaS offerings, (2) deliver continued innovation as we execute against our vision for SailPoint identity security, and (3) ensure that as we deliver these new innovations, they work in concert with our SaaS offerings in addition to our on-premises offerings. We believe that continued growth of SaaS, term-based license and maintenance and support revenue will lead to a more predictable revenue model and increase our visibility to future period total revenues. Nevertheless, our revenue and our gross margins vary depending on the type of solution we sell. As a result, a shift in the sales mix of our solutions could affect our performance relative to historical results.
23

IdentityNow and our SailPoint Identity Services are provided in exchange for a subscription fee and offer customers access to these solutions and infrastructure support for the duration of their subscription agreement. Our standard subscription agreement for our SaaS offerings has a duration of three years. For our IdentityIQ solutions, our customers either purchase a perpetual software license, which includes one year of maintenance and support, or a term license, sold as bundled arrangements that include the rights to a term license and maintenance and support typically for a three-year term. Accordingly, we allocate the transaction price to each performance obligation. Our maintenance provides software maintenance as well as access to our technical support services during the maintenance term. After the initial maintenance period, customers with perpetual licenses may renew their maintenance and support agreement for an additional fee.
Pricing for each of our solutions is dependent on the number of digital identities of employees, contractors, business partners, software bots and other human and non-human users that the customer is entitled to govern with the solution. We also package and price our IdentityNow and IdentityIQ solutions into modules. Each module has unique functionalities, and our customers are able to purchase one or more modules, depending on their needs. We also offer advanced integration modules for key applications and systems which can be purchased in addition to our base solution modules. They are also priced based on the total number of identities, as are our SailPoint Identity Services. Thus, our revenue from any customer is generally determined by the number of identities that the customer is entitled to govern as well as the number of modules purchased by the customer for our IdentityIQ and IdentityNow solutions and which, if any, of the SailPoint Identity Services that the customer purchases.
Our revenue mix is changing as demand for our products and services is shifting from sales of perpetual licenses to sales of term licenses and subscriptions, and we expect this demand shift to continue, particularly as we continue our strategy to shift the sales mix of our solutions towards our SaaS offerings. For customers that still wish to purchase and operate non-SaaS software, we are increasingly selling our software through subscription-based term licenses, rather than through perpetual licenses. Over time, we expect that sales to new customers will be exclusively comprised of term licenses and subscriptions. Our transition to a subscription model has impacted, and it will continue to impact, the timing of our recognition of revenue as an increasing percentage of our sales become recognized ratably, as well as impact our operating margins as subscription revenue becomes a larger percentage of our sales. Our shift to a subscription model has fluctuated between periods, and our ability to predict our revenue and margins in any particular period has been, and may continue to be, limited.
In addition to our solutions, we offer professional services to our customers and partners to configure and optimize the use of our solutions as well as training services related to the configuration and operation of our platform. Most of our professional services activity is in support of our partners, who perform a significant majority of all initial and follow-on implementation work for our customers. Most of our consulting services are priced on a time-and-materials basis; our training services are provided through multiple pricing models, including on a per-person basis for instructor led courses and a flat-rate basis for our e-learning courses.
As part of our growth strategy, in the first quarter of 2021 we acquired Intello Inc. (“Intello”), an early-stage SaaS management company that helps organizations to discover, manage, and secure SaaS applications, and ERP Maestro, Inc., ("ERP Maestro"), an early-stage SaaS governance, risk and compliance solution that provides separation-of-duty controls monitoring, enabling customers to manage their risk by automating access controls for business applications with complex security concepts. See Note 4 “Business Combinations” in our notes to our unaudited condensed consolidated financial statements included in this Quarterly Report for more information.
See “Key Factors Affecting Our Performance” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Annual Report for information regarding the key factors affecting our performance.
Impact of COVID-19
In light of the ongoing spread of COVID-19 in the United States and abroad, including the emergence of new variants of the coronavirus, government and public health authorities continue to recommend social distancing and impose various quarantine and isolation measures on portions of the population, including measures directed at businesses. While intended to protect human life, these restrictions have had and are expected to continue to have serious adverse impacts on domestic and foreign economies of uncertain duration. We have made certain adjustments to our operations as we continue to provide our offerings to new and existing customers in response to these measures. For example, as a result of the COVID-19 pandemic, we shifted all customer events to virtual-only experiences beginning in early 2020 and expect this trend to continue for the foreseeable future, and we have transitioned to providing consulting services virtually as well.
24

While we believe that the pandemic has not had an immediate material adverse impact on our financial performance, our business may yet be negatively impacted by the COVID-19 pandemic as the duration of the pandemic and the scope of its effects ultimately remain unknown. For example, the conditions caused by the COVID-19 pandemic may materially adversely affect the rate of IT spending by our current and prospective customers, including our customers’ ability or willingness to purchase our offerings, delay prospective customers’ purchasing decisions, delay the provisioning of our offerings, or cause customers to fail to make timely payments. We have seen an immaterial number of customer requests, and may continue to see similar requests, to lengthen payment terms or reduce the value or duration of subscription contracts, but this has not resulted in a material adverse impact on our renewal rates. While we have not been able to provide on-site consulting services to our customers during the pandemic due to local and regional restrictions, this has not resulted in any meaningful adverse impact on our ability to deliver such services because a significant portion of our consulting services have historically been provided remotely and most on-site projects transitioned to a remote delivery model. We continue to monitor the global impact of the pandemic on our customers and our business, especially as certain parts of the world experience surges in COVID-19 cases and particularly devastating effects from the pandemic, as is currently the case in India.
Notwithstanding the potential and actual adverse impacts described above, as the pandemic has caused more of our customers to shift to a virtual workforce, we believe the value and scalability of our identity platform has become even more evident. We believe that the pandemic has not had a material adverse impact on our financial performance, and indeed, our revenue and customer base grew in 2020 and during the first quarter of 2021 as compared to the prior year period, and our travel expense continues to be lower than historical levels. We expect to see an increase in our travel and facilities expenses in 2021 and expect to continue to see healthy demand for our solutions. Nevertheless, we recognize that the uncertainty related to COVID-19 may result in increased volatility in the financial projections we use as the basis for estimates and assumptions used in our financial statements.
The challenges posed by COVID-19 on our business and our customers’ businesses may evolve rapidly, and the speed, trajectory and strength of a recovery in general economic conditions remains highly uncertain and could be slowed or reversed by a number of factors, including the recent emergence of new strains of the coronavirus and the effectiveness of vaccines for the disease as they continue to be developed and distributed. Consequently, we will continue to evaluate our financial position and results of operations in light of future developments, particularly those relating to COVID-19. See “Risk Factors” in Part I, Item 1A in the Annual Report for more information regarding the possible effects of COVID-19 on our business.
Key Business Metric
In addition to our GAAP financial information, we monitor the following key metric to help us measure and evaluate the effectiveness of our operations:
As of
March 31, 2021March 31, 2020
(In thousands)
Total annual recurring revenue$270,169 $188,548 
Total Annual Recurring Revenue (“Total ARR”). We use Total ARR to monitor the growth of our recurring business as we continue to shift to a subscription model. Total ARR represents the annualized value of the active portion of SaaS, term-based license, maintenance and support contracts and other subscription services at the end of the reporting period. We calculate Total ARR by dividing the active contract value by the number of days in the active portion of the overall contract term and then multiplying by 365. Total ARR should be viewed independently of revenue and deferred revenue as Total ARR is an operating metric and is not intended to be combined with or replace these items. Total ARR is not a forecast of future revenue, which can be impacted by contract start and end dates and renewal rates, and does not include revenue from perpetual licenses, training, professional services or other sources of revenue that are not deemed to be recurring in nature.
Components of Results of Operations
See “Components of Results of Operations” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Annual Report for information regarding the components of our results of operations.
25

Seasonality
We generally experience seasonal fluctuations in demand for our products and services. Our quarterly sales are impacted by industry buying patterns. As a result, our sales have generally been highest in the fourth quarter of a calendar year and lowest in the first quarter. Although these seasonal factors are common in the technology industry, historical patterns should not be considered a reliable indicator of our future sales activity or performance.
Results of Operations
The following table sets forth our unaudited condensed consolidated statements of operations for the periods presented:
Three Months Ended
March 31, 2021March 31, 2020
(In thousands)
Revenue
Licenses$19,235 $21,004 
Subscription59,242 43,881 
Services and other12,285 10,557 
Total revenue90,762 75,442 
Cost of revenue
Licenses1,247 1,080 
Subscription (1)
11,304 8,476 
Services and other (1)
11,799 9,006 
Total cost of revenue24,350 18,562 
Gross profit66,412 56,880 
Operating expenses
Research and development (1)
19,566 15,808 
General and administrative (1)
11,267 9,514 
Sales and marketing (1)
51,162 36,860 
Total operating expenses81,995 62,182 
Loss from operations(15,583)(5,302)
Other expense, net
Interest income200 1,272 
Interest expense(789)(4,532)
Other expense, net(1)(324)
Total other expense, net(590)(3,584)
Loss before income taxes(16,173)(8,886)
Income tax benefit882 469 
Net loss$(15,291)$(8,417)
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(1)Includes stock-based compensation expense as follows:
Three Months Ended
March 31, 2021March 31, 2020
(In thousands)
Cost of revenue - subscription$662 $389 
Cost of revenue - services and other774 427 
Research and development2,220 1,501 
General and administrative2,062 1,002 
Sales and marketing4,355 2,872 
Total stock-based compensation expense
$10,073 $6,191 
The following table sets forth the unaudited condensed consolidated statements of operations data for each of the periods presented as a percentage of total revenue:
Three Months Ended
March 31, 2021March 31, 2020
Revenue
Licenses21 %28 %
Subscription65 58 
Services and other14 14 
Total revenue100 100 
Cost of revenue
Licenses
Subscription12 11 
Services and other13