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Form 10-Q Sailpoint Technologies For: Mar 31

May 5, 2022 4:42 PM
sail-20220331
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Table of Contents
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, 2022
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 94,276,861 shares of common stock outstanding as of April 28, 2022.


Table of Contents
SailPoint Technologies Holdings, Inc.
Table of Contents
Page
Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

1

Table of Contents
PART I
ITEM 1. Financial Statements (Unaudited)
SAILPOINT TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
As of
March 31, 2022December 31, 2021
(Unaudited)
Assets
Current assets
Cash and cash equivalents$414,640 $435,445 
Restricted cash6,712 6,719 
Accounts receivable, net of allowances of $348 and $564
108,470 147,156 
Deferred contract acquisition costs, current27,555 25,966 
Contract assets, current35,115 31,640 
Prepayments and other current assets22,496 17,806 
Income taxes receivable505 506 
Total current assets615,493 665,238 
Deferred tax asset - non-current4,047 4,047 
Property and equipment, net16,319 17,151 
Right-of-use assets, net24,882 23,806 
Deferred contract acquisition costs, non-current68,868 68,725 
Contract assets - non-current, net of allowances of $2,365 and $2,386
18,877 16,991 
Other non-current assets1,369 983 
Goodwill289,430 289,430 
Intangible assets, net69,292 73,469 
Total assets$1,108,577 $1,159,840 
Liabilities and stockholders’ equity
Current liabilities
Accounts payable$8,263 $6,097 
Accrued expenses and other liabilities54,577 89,972 
Income taxes payable1,305 1,413 
Convertible senior notes, net385,599 385,172 
Deferred revenue214,686 218,937 
Total current liabilities664,430 701,591 
Long-term operating lease liabilities29,585 28,817 
Deferred revenue - non-current27,122 25,193 
Total liabilities721,137 755,601 
Commitments and contingencies (Note 7)
Stockholders’ equity
Common stock, $0.0001 par value, authorized 300,000 shares, issued and outstanding 94,253 shares as of March 31, 2022 and 93,764 shares as of December 31, 2021
9 9 
Preferred stock, $0.0001 par value, authorized 10,000 shares, no shares issued and outstanding as of March 31, 2022 and December 31, 2021
  
Additional paid in capital498,195 481,910 
Accumulated deficit(110,764)(77,680)
Total stockholders' equity387,440 404,239 
Total liabilities and stockholders’ equity$1,108,577 $1,159,840 
See accompanying notes to unaudited condensed consolidated financial statements.
2

Table of Contents
SAILPOINT TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended
March 31, 2022March 31, 2021
Revenue
Licenses
$15,271 $19,235 
Subscription
85,591 59,242 
Services and other
14,558 12,285 
Total revenue
115,420 90,762 
Cost of revenue
Licenses
1,378 1,247 
Subscription
19,966 11,304 
Services and other
13,837 11,799 
Total cost of revenue
35,181 24,350 
Gross profit80,239 66,412 
Operating expenses
Research and development
31,046 19,566 
General and administrative
13,987 11,267 
Sales and marketing
65,730 51,162 
Total operating expenses
110,763 81,995 
Loss from operations(30,524)(15,583)
Other expense, net
Interest income
24 200 
Interest expense
(899)(789)
Other expense, net(660)(1)
Total other expense, net(1,535)(590)
Loss before income taxes(32,059)(16,173)
Income tax (expense) benefit(1,025)882 
Net loss$(33,084)$(15,291)
Net loss per share
Basic
$(0.35)$(0.17)
Diluted
$(0.35)$(0.17)
Weighted average shares outstanding
Basic
93,939 91,684 
Diluted
93,939 91,684 
See accompanying notes to unaudited condensed consolidated financial statements.
3

Table of Contents
SAILPOINT TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
For the Three Months Ended March 31, 2022
Common StockAdditional
paid in
capital
Accumulated
deficit
Stockholders'
equity
Number
of shares
Par
value
Balance at December 31, 202193,764 $9 $481,910 $(77,680)$404,239 
Exercise of stock options77 — 1,330 — 1,330 
Restricted stock units vested, net of tax settlement412 — (846)— (846)
Stock-based compensation expense— — 15,801 — 15,801 
Net loss— — — (33,084)(33,084)
Balance at March 31, 202294,253 $9 $498,195 $(110,764)$387,440 

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 


See accompanying notes to unaudited condensed consolidated financial statements.
4

Table of Contents
SAILPOINT TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31, 2022March 31, 2021
Operating activities
Net loss$(33,084)$(15,291)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense5,712 4,784 
Amortization of debt issuance costs468 633 
Amortization of contract acquisition costs6,933 4,328 
Loss on disposal of fixed assets15 27 
Provision for credit losses(106)102 
Stock-based compensation expense15,801 10,073 
Operating leases, net(288)(205)
Net changes in operating assets and liabilities, net of assets acquired and liabilities assumed in business acquisitions:
Accounts receivable38,771 27,854 
Deferred contract acquisition costs(8,665)(6,587)
Contract assets(5,340)(4,445)
Prepayments and other current assets(4,663)23 
Other non-current assets(427)1,473 
Accounts payable2,166 (369)
Accrued expenses and other liabilities(35,415)(22,161)
Income taxes(107)(2,228)
Deferred revenue(2,322)(10,177)
Net cash used in operating activities(20,551)(12,166)
Investing activities
Purchase of property and equipment(749)(818)
Proceeds from sale of property and equipment4 2 
Purchase of intangibles (40)
Business acquisitions, net of cash acquired (71,196)
Net cash used in investing activities(745)(72,052)
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(846)(1,293)
Exercise of stock options1,330 1,608 
Net cash provided by (used in) financing activities484 (9,845)
Net decrease in cash, cash equivalents and restricted cash(20,812)(94,063)
Cash, cash equivalents and restricted cash, beginning of period442,164 516,644 
Cash, cash equivalents and restricted cash, end of period$421,352 $422,581 
See accompanying notes to unaudited condensed consolidated financial statements.
5

Table of Contents
SAILPOINT TECHNOLOGIES HOLDINGS, 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 on 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.
Merger Agreement
On April 10, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Project Hotel California Holdings, LP, a Delaware limited partnership (“Parent”), and Project Hotel California Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”), pursuant to which Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. Parent and Merger Sub are affiliates of Thoma Bravo Fund XV, L.P. (the “Thoma Bravo Fund”), managed by Thoma Bravo, L.P. (“Thoma Bravo”).
As a result of the Merger, each share of the Company’s common stock outstanding immediately prior to the effective time of the Merger (the “Effective Time”) (subject to certain exceptions, including shares of common stock owned by stockholders of the Company who have not voted in favor of the adoption of the Merger Agreement and have properly exercised appraisal rights in accordance with Section 262 of the General Corporation Law of the State of Delaware (the “DGCL”)) will, at the Effective Time, automatically be converted into the right to receive $65.25 in cash (the “Merger Consideration”), subject to applicable withholding taxes.
The transaction is expected to close in the second half of 2022, subject to customary closing conditions, including approval by SailPoint stockholders and receipt of regulatory approvals. Upon closing of the transaction, SailPoint’s common stock will no longer be listed on any public market. See Note 14 “Subsequent Events” to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q for information regarding the Merger.
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, 2022 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, 2021, which was filed with the SEC on February 28, 2022 (the “Annual Report”).
Certain items have been reclassified in the prior year financial statements to conform to the presentation and classifications used in the current year. These reclassifications had no net effect on the Company’s consolidated operating results, financial position or cash flows.
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
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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, recognition and measurement of income tax positions, realizability of deferred tax assets and the valuation, and estimated 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, 2022 and December 31, 2021, no individual entity 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 customer represented more than 10% of revenue for the three months ended March 31, 2022 or 2021. 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
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.” 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 Issued Accounting Standards Not Yet Adopted
In October 2021, the Financial Accounting Standards Board issued Accounting Standards Update 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires application of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, to recognize and measure contract assets and liabilities from contracts with customers acquired in a business combination. ASU 2021-08 creates an exception to the general recognition and measurement principle in ASC 805, Business Combinations, and will result in recognition of contract assets and contract liabilities consistent with those recorded by the acquiree immediately before the acquisition date. The guidance is effective for us beginning January 1, 2023 and interim periods therein, with early adoption permitted.
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.”
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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)
Total SubscriptionServices and Other
(In thousands)
Three Months Ended March 31, 2022
Revenue recognized at a point in time$15,271 $— $— $— $— $— 
Revenue recognized over time— 41,127 42,332 2,132 85,591 14,558 
Total revenue$15,271 $41,127 $42,332 $2,132 $85,591 $14,558 
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 59,242 12,285 
Total revenue$19,235 $21,889 $35,474 $1,879 $59,242 $12,285 
(1) Subscription revenue is further disaggregated into Software as a Service ("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, 2022March 31, 2021
(In thousands)
Beginning Balance$94,691 $54,102 
Additional deferred contract acquisition costs
8,665 6,587 
Amortization of deferred contract acquisition costs
(6,933)(4,328)
Ending Balance$96,423 $56,361 
There were no material impairments of deferred contract acquisition costs for the periods ended March 31, 2022 or 2021.
Deferred Revenue
Three Months Ended
March 31, 2022March 31, 2021
(In thousands)
Beginning Balance$244,130 $184,718 
Decrease, net(2,322)(8,441)
Ending Balance$241,808 $176,277 
Deferred revenue, which is netted with unbilled amounts at the contract level, is a contract liability, and 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. Revenue recognized that was previously deferred was $98.6 million during the three months ended March 31, 2022, compared to $63.0 million during the three months ended March 31, 2021. The
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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 customer billings.
Contract assets primarily relate to unbilled amounts, which are netted with deferred revenue at the 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. During the three months ended March 31, 2022 and 2021, amounts reclassified from contract assets to accounts receivable were $8.6 million and $0.8 million, respectively. Total contract assets as of March 31, 2021 and December 31, 2020 were $29.3 million and $24.9 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, 2022, amounts allocated to these additional performance obligations are $577.9 million, of which we expect to recognize $310.1 million as revenue over the next 12 months with the remaining balance recognized over the period from 2023 to 2028. The additional performance obligations include $95.1 million of current unbilled receivables and $240.7 million of long-term unbilled receivables.
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, 2022
Level 1Level 2Level 3Total
(In thousands)
Assets
Cash equivalents
Money market funds$78,334   $78,334 
Total cash equivalents$78,334   $78,334 

As of December 31, 2021
Level 1Level 2Level 3Total
(In thousands)
Assets
Cash equivalents
Money market funds$24,996   $24,996 
Total cash equivalents$24,996   $24,996 
The Company’s carrying amounts of financial instruments, including cash, accounts receivable, accounts payable, and accrued expenses are considered Level 1 instruments as their carrying values approximate their fair values due to their short maturities as of March 31, 2022 and December 31, 2021 and therefore 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 the Notes (as defined below) as of March 31, 2022.
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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 SaaS management company that helps organizations discover, manage, and secure SaaS applications. The aggregate consideration paid in connection with this acquisition was $42.9 million, net of cash acquired.
The following table summarizes the final purchase price allocation as of the date of acquisition:
As of
February 22, 2021
(In thousands)
Cash and cash equivalents$1,143 
Accounts receivable146 
Prepayments and other current assets43 
Property and equipment17 
Goodwill32,425 
Intangible assets12,300 
Accrued expenses and other liabilities(97)
Deferred tax liability - non-current(1,409)
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 for 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 $28.1 million, net of cash acquired.
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The following table summarizes the final 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 assets59 
Property and equipment152 
Right-of-use assets223 
Goodwill15,902 
Intangible assets13,900 
Accrued expenses and other liabilities(503)
Deferred tax liability - non-current(1,314)
Deferred revenue(1,200)
Total fair value of assets acquired and liabilities assumed$28,993 
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 customer 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 included primarily legal, accounting and consulting professional service fees and have been included in general and administrative expenses on 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 Company finalized 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 and, as a result, goodwill was recorded in connection with each acquisition. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. 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. As of March 31, 2022 and December 31, 2021, the carrying amount of goodwill was $289.4 million. There was no change in the carrying amounts of goodwill for the three months ended March 31, 2022. There were no impairments of goodwill during the periods ended March 31, 2022 or 2021.
Intangible Assets
Total cost and amortization of intangible assets are comprised of the following:
As of
Weighted Average
Useful Life
March 31, 2022December 31, 2021
Intangible assets, net(In years)(In thousands)
Customer lists
14.6$49,200 $49,200 
Developed technology
8.666,260 66,260 
Trade names and trademarks
17.024,500 24,500 
Other intangible assets
4.82,976 2,976 
Total intangible assets
142,936 142,936 
Less: Accumulated amortization
(73,644)(69,467)
Total intangible assets, net
$69,292 $73,469 
Amortization expense for the periods presented is as follows:
Three Months Ended
March 31, 2022March 31, 2021
(In thousands)
Cost of revenue - licenses$829 $1,008 
Cost of revenue - subscription1,552 857 
Research and development169 168 
Sales and marketing1,627 1,220 
Total amortization expense$4,177 $3,253 
Periodically, the Company evaluates intangible assets for possible impairment. There were no impairments of intangible assets during the three month period ended March 31, 2022 or 2021.
The total estimated future amortization expense of these intangible assets as of March 31, 2022 is as follows:
Year Ending December 31,(In thousands)
2022 (except the three months ended March 31, 2022)$12,542 
202316,557 
202412,674 
20258,175 
20264,968 
Thereafter14,376 
Total amortization expense$69,292 
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6. Leases
Letters of Credit
As of March 31, 2022 and December 31, 2021, 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, 2022, our leases, which primarily consist of office leases, have remaining lease terms of less than one year to seven 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, 2022, 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, 2022, we have no financing leases and no material sub-leases, and our non-cancelable operating lease commitments exclude variable consideration.
The undiscounted annual future minimum lease payments are summarized by year in the table below:
Year Ending December 31,(In thousands)
2022 (except the three months ended March 31, 2022)$4,299 
20235,360 
20245,025 
20254,890 
20265,036 
Thereafter12,357 
Total minimum lease payments36,967 
Less: interest(2,567)
Total present value of operating lease liabilities$34,400 
Current operating lease liabilities$4,815 
Long-term operating lease liabilities29,585 
Total operating lease liabilities$34,400 
7. Commitments and Contingencies
Contingencies
The completion of the Merger with Thoma Bravo remains subject to customary closing conditions. As part of the Merger, the Company has incurred approximately $0.6 million through March 31, 2022 in Merger-related expenses and expects to incur additional liabilities of approximately $69.4 million that are contingent on the deal consummation. These liabilities include banker fees, legal fees and other third party professional fees.
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. 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.
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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 of the Company, and the Borrower’s material domestic subsidiaries (collectively, 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 Credit 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, 2022 or December 31, 2021. The Company was in compliance with all applicable covenants as of March 31, 2022.
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, 2022 and 2021 were not material and were recorded in interest expense on 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.
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:
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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, 2022.
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, 2022. As a result, the Notes continue to be convertible at the option of the holders during the fiscal quarter ended March 31, 2022 and remained classified as current liabilities on the unaudited condensed consolidated balance sheet as of March 31, 2022.
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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 on 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, 2022, the Notes have a remaining life of 30 months.
The net carrying amount of the liability component of the Notes for the periods presented is as follows:
As of
March 31, 2022December 31, 2021
(In thousands)
Liability component
Principal$389,840 $389,840 
Unamortized issuance costs(4,241)(4,668)
Net carrying amount$385,599 $385,172 
The interest expense recognized related to the Notes for the periods presented is as follows:
Three Months Ended
March 31, 2022March 31, 2021
(In thousands)
Contractual interest expense$122 $118 
Amortization of debt issuance costs (1)
427 592 
Total
$549 $710 
(1)    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, 2022, the total estimated fair value of the Notes was $727.0 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 considered Level 2 within the fair value hierarchy and was determined based on inputs that are observable in the market or that
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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 Call 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, 2022, 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”) and 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 pursuant to ISOs, 0.5 million shares of common stock for issuance pursuant to RSUs and 0.25 million shares of common stock 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, 2022, 0.7 million shares were available for issuance under the 2015 Stock Option Plans, including 34 thousand 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 to purchase shares of common stock and RSUs. As of March 31, 2022, the Company had reserved 26.6 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 terms of  one to four years based on continued service and generally expire ten years after the grant date. 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, 2022, 16.1 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 values 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 the grant date using a Black Scholes option-pricing model using the following weighted average assumptions:
Stock OptionsESPP
March 31, 2022March 31, 2021March 31, 2022March 31, 2021
Expected dividend rate0%0%0%0%
Expected volatility
50.8%
50.8%
47.9%
50.0%
Risk-free interest rate
2.00%
0.80%
0.09%
0.09%
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, 2022:
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, 20211,901 $25.52 7.0$46,895 
Granted446 $39.75 
Exercised(77)$17.25 
Forfeited(122)$32.67 
Balances at March 31, 20222,148 $28.36 7.4$51,403 
Options vested and expected to vest at March 31, 20222,148 $28.36 7.4$51,403 
Options vested and exercisable at March 31, 20221,159 $20.05 6.2$36,792 
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, 2022 and 2021 was $20.15 and $29.64, respectively. The total fair value of shares vested for the three months ended March 31, 2022 was $3.0 million, compared to $3.2 million for the three months ended March 31, 2021.
The total unrecognized compensation expense related to non-vested stock options granted is $18.0 million and is expected to be recognized over a weighted average period of 2.8 years as of March 31, 2022.
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Restricted Stock Units
The following table summarizes the RSU activity for the Company for the three months ended March 31, 2022:
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, 20213,631 $41.17 1.4$175,508 
Granted
1,657 $39.84 
Vested
(433)$35.76 
Forfeited
(222)$40.38 
Balances at March 31, 20224,633 $41.23 3.1$237,142 
Units expected to vest at March 31, 20224,633 $41.23 3.1$237,142 
The Company expects all outstanding RSUs to fully vest. The total unrecognized compensation expense related to RSUs was $176.3 million as of March 31, 2022 and is expected to be recognized over a weighted average period of 3.06 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, 2022, 4.1 million shares were available for issuance under the ESPP Plan. During each of the three months ended March 31, 2022 and 2021, there was no ESPP activity. In connection with the Merger, the current offering period under the ESPP is scheduled to close on June 3, 2022, and no additional offering period may be commenced after April 10, 2022. Each currently outstanding purchase right must be exercised as of the earlier of (a) June 3, 2022 or (b) ten days prior to the date on which the Effective Time of the Merger occurs. The Company will terminate the ESPP immediately prior to, but contingent upon the occurrence of, the Effective Time of the Merger.
A summary of the Company’s stock-based compensation expense, which includes stock options, RSUs and ESPP, is presented below:
Three Months Ended
March 31, 2022March 31, 2021
(In thousands)
Stock options$1,538 $1,616 
RSUs13,363 7,571 
ESPP900 886 
Total stock-based compensation expense$15,801 $10,073 
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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, 2022March 31, 2021
(In thousands)
Cost of revenue - subscription$1,256 $662 
Cost of revenue - services and other1,127 774 
Research and development4,435 2,220 
General and administrative2,549 2,062 
Sales and marketing6,434 4,355 
Total stock-based compensation expense$15,801 $10,073 
11. Income Taxes
Income Taxes
The effective tax rate for the three months ended March 31, 2022 and 2021 is (3.2)% and 5.5%, 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 pre-tax book loss and the discrete tax benefit recognized for the change in valuation allowance in the prior-year period.
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 is in an overall deferred tax asset position and maintains its valuation allowance for certain federal and state tax jurisdictions as existing deferred tax liabilities do not provide sufficient future taxable income to realize the full benefit of its deferred tax assets.
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, 2022 and 2021, 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 2018 and is no longer subject to state, local and foreign income tax examinations by tax authorities for years before 2015. 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.
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 and shares related to the Notes. In periods when the Company recognizes a net loss, the Company excludes the impact of outstanding stock awards and shares related to the Notes from the diluted loss per share calculation as their inclusion would have an anti-dilutive effect.
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The following table sets forth the calculation of basic and diluted net loss per share for the periods presented:
Three Months Ended
March 31, 2022March 31, 2021
(In thousands, except per share data)
Numerator
Net loss$(33,084)$(15,291)
Denominator
Weighted average shares outstanding
Basic93,939 91,684 
Diluted93,939 91,684 
Net loss per share
Basic$(0.35)$(0.17)
Diluted$(0.35)$(0.17)
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, 2022March 31, 2021
(In thousands)
Stock options to purchase common stock2,076 2,466 
RSUs issued and outstanding4,254 3,440 
ESPP147 138 
Convertible senior notes9,573 10,565 
Total
16,050 16,609 
13. Geographic Information
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 the licensing of software and the 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 is a summary of consolidated revenues within geographic areas:
Three Months Ended
March 31, 2022March 31, 2021
(In thousands)
United States$76,652 $65,407 
EMEA (1)
23,146 15,456 
Rest of the World (1)
15,622 9,899 
Total revenue$115,420 $90,762 
(1)    No single country outside of the United States represented more than 10% of our revenue.
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14. Subsequent Events

On April 10, 2022, SailPoint entered into the Merger Agreement, by and among the Company, Parent and Merger Sub, pursuant to which Merger Sub will merge with and into the Company, with the Company surviving the Merger as a wholly owned subsidiary of Parent. Parent and Merger Sub are affiliates of the Thoma Bravo Fund, which is managed by Thoma Bravo.
The Board, acting upon the recommendation of a special committee of the Board, has unanimously approved the Merger Agreement and, subject to certain exceptions set forth in the Merger Agreement, resolved to recommend that the Company’s stockholders adopt the Merger Agreement.
As a result of the Merger, each share of common stock of the Company outstanding immediately prior to the Effective Time (subject to certain exceptions, including shares of common stock owned by stockholders of the Company who have not voted in favor of the adoption of the Merger Agreement and have properly exercised appraisal rights in accordance with Section 262 of the DGCL) will, at the Effective Time, automatically be converted into the right to receive the Merger Consideration of $65.25 in cash, subject to applicable withholding taxes.
If the Merger is consummated, the Company’s common stock will be delisted from the New York Stock Exchange and deregistered under the Securities Exchange Act of 1934 (the “Exchange Act”). Completion of the Merger is subject to certain closing conditions, including (1) the adoption of the Merger Agreement by a majority of the holders of the outstanding shares of common stock, (2) the expiration or early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the approval of the Merger under the Australian Foreign Acquisitions and Takeovers Act 1975 (Cth) and the UK National Security and Investment Act 2021, (3) the absence of any order, injunction or law prohibiting the Merger, (4) the accuracy of the other party’s representations and warranties, subject to certain materiality standards set forth in the Merger Agreement, (5) compliance in all material respects with the other party’s obligations under the Merger Agreement, and (6) no Company Material Adverse Effect (as defined in the Merger Agreement) having occurred since the date of the Merger Agreement. Subject to the satisfaction or waiver of such closing conditions, the parties expect the transaction to close in the second half of 2022.
Either the Company or Parent may terminate the Merger Agreement in certain circumstances, including if (1) the Merger is not completed by October 10, 2022 (the “End Date”), subject to certain limitations, and provided that the End Date will automatically be extended until January 10, 2023 if certain regulatory conditions have not been satisfied as of the close of business on the business day immediately prior to the then-current End Date, (2) a governmental authority of competent jurisdiction has issued a final non-appealable governmental order prohibiting the Merger, (3) the Company’s stockholders fail to adopt the Merger Agreement, and (4) the other party materially breaches its representations, warranties or covenants in the Merger Agreement, subject in certain cases, to the right of the breaching party to cure the breach. Parent and the Company may also terminate the Merger Agreement by mutual written consent.
The Company is also entitled to terminate the Merger Agreement and receive a termination fee of $425.1 million from Parent if (1) Parent fails to consummate the Merger following the satisfaction or waiver of the applicable closing conditions or (2) Parent otherwise breaches its obligations under the Merger Agreement such that the conditions to the consummation of the Merger cannot be satisfied. The Company is also entitled to receive this termination fee from Parent if Parent terminates the Merger Agreement because the Merger has not been completed by the End Date and at the time of such termination, the Company could have validly terminated the Merger Agreement for either of the reasons described in the preceding sentence.
If the Merger Agreement is terminated in certain other circumstances, including by the Company in order to enter into a superior proposal or by Parent because the Board withdraws its recommendation in favor of the Merger, the Company would be required to pay Parent a termination fee of $212.5 million; provided that a lower fee of $81.8 million will apply with respect to a termination by the Company prior to 11:59 p.m. (Eastern time) on May 26, 2022 to enter into a superior proposal received during the Go-Shop Period (as defined in the Merger Agreement).

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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, 2021, which was filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 28, 2022 (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 pending acquisition by Thoma Bravo, our expectations regarding the timing of the Merger, 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 completion of the proposed transaction on anticipated terms and timing, including obtaining shareholder and regulatory approvals, anticipated tax treatment, unforeseen liabilities, future capital expenditures, revenues, expenses, earnings, synergies, economic performance, indebtedness, financial condition, losses, future prospects, business and management strategies for the management, expansion and growth of SailPoint’s business and other conditions to the completion of the Merger; significant transaction costs associated with the proposed Merger; (v) potential litigation relating to the proposed Merger; the risk that disruptions from the proposed Merger will harm SailPoint’s business, including current plans and operations; potential adverse reactions or changes to business relationships resulting from the announcement or completion of the proposed Merger; restrictions during the pendency of the proposed Merger that may impact SailPoint’s ability to pursue certain business opportunities or strategic transactions; 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 information technology (“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 this Quarterly Report and 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,
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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.

Pending Transaction
On April 10, 2022, the Company entered into the Merger Agreement by and among the Company, Parent and Merger Sub, pursuant to which Merger Sub will merge with and into the Company, with the Company surviving the Merger as a wholly owned subsidiary of Parent. Parent and Merger Sub are affiliates of the Thoma Bravo Fund, which is managed by Thoma Bravo.
As a result of the Merger, each share of the Company’s common stock outstanding immediately prior to the Effective Time of the Merger (subject to certain exceptions, including shares of common stock owned by stockholders of the Company who have not voted in favor of the adoption of the Merger Agreement and have properly exercised appraisal rights in accordance with Section 262 of the DGCL) will, at the Effective Time, automatically be converted into the right to receive the Merger Consideration of $65.25 in cash, subject to applicable withholding taxes.
The transaction is expected to close in the second half of 2022, subject to customary closing conditions, including approval by SailPoint stockholders and receipt of regulatory approvals. Upon closing of the transaction, SailPoint’s common stock will no longer be listed on any public market. See Note 14 “Subsequent Events” to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q for information regarding the Merger.
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 software platforms, which provide organizations visibility and the intelligence required to both seamlessly empower users and securely manage 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 frictionless IT, streamline and accelerate the 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, that provides large, complex enterprise customers a unified and highly configurable identity security solution; and
SailPoint Identity Services: our 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 customers' identity programs;
Access Modeling: uses machine learning to suggest roles based on similar access between users and gives customers insights to confirm the correct access for each role;
Access Risk Management: our cloud‐based access controls solution that enables our customers to manage their risk by automating access controls for business applications with complex security requirements;
Cloud Access Management: uses machine learning to automatically learn, monitor and secure access to cloud infrastructure;
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Recommendation Engine: uses machine learning, peer group analysis, identity attributes and access activity to help customers decide whether access should be granted or removed; and
SaaS Management: our cloud‐based solution that helps customers discover, manage, and secure their SaaS applications.
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 rate 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 continue 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.
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 and support offering 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 each customer is generally determined by the number of identities that such 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.
Combinations of our SaaS products are also offered in bundles through our Identity Security Cloud Business and Business Plus suites. These suites of products provide comprehensive sets of solutions for customers, meeting their needs at various stages of their identity security journey.
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, whereas 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.
Over the past several years, our revenue mix has changed as demand for our products and services has shifted from sales of perpetual licenses to sales of SaaS and term licenses, and in 2021, we largely completed our transition to a subscription model, with our principal focus on selling subscription-based arrangements, including SaaS and term licenses, and with revenue from perpetual licenses representing an increasingly smaller portion of our total revenue. Although we expect to occasionally see perpetual license transactions with new customers and ongoing expansion deals for current customers, our principal focus is
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on selling subscription-based arrangements. 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, and over time, we expect that sales to new customers will be exclusively comprised of SaaS, term licenses and other subscriptions.
Our acceleration toward subscription-based offerings, which occurred more rapidly than anticipated, has resulted in and is likely to continue to result in short-term revenue headwind. In particular, our transition to a subscription model has impacted, and 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. However, 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 gross margins vary depending on the type of solution we sell, and we expect that in a primarily subscription-based model, retention rates for our subscription customers could be slightly lower than the retention rates for support and maintenance for our perpetual customers. As a result, a shift in the sales mix of our solutions could affect our performance relative to historical results. 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.
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 the 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 continued emergence of new variants of the coronavirus, government and public health authorities continue to recommend and impose various regulations and restrictive 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. In 2021, we resumed certain in-person and hybrid events, but we expect that for the foreseeable future, some of our customer events will be virtual-only or hybrid events.
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 long-term 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. In addition, during 2020 and the first part of 2021, we generally were not able to provide on-site consulting services to our customers due to local and regional restrictions related to the pandemic, and such restrictions remain in place for some of our customers. However, 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.
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 grew throughout 2020 and 2021 and the first quarter of 2022 as compared to the prior year periods. We 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.
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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 emergence or spread of variants of the coronavirus and the effectiveness and acceptance of vaccines and therapeutics 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, and we will continue to monitor the global impact of the pandemic on our customers and our business. See the section titled “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 financial information prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), we monitor the following key metric to help us measure and evaluate the effectiveness of our operations:
As of
March 31, 2022March 31, 2021
(In thousands)
Total annual recurring revenue$394,689 $270,169 
We use total annual recurring revenue ("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.
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.
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Table of Contents
Results of Operations
The following table sets forth our unaudited condensed consolidated statements of operations for the periods presented:
Three Months Ended
March 31, 2022March 31, 2021
(In thousands)
Revenue
Licenses$15,271 $19,235 
Subscription85,591 59,242 
Services and other14,558 12,285