“We anticipate this mix will continue to increase meaningfully in 2022.”

In context

“Cam McMartin (Interim CFO): Thank you, Mark, and thanks to everyone for joining us on the call today. Before reviewing our strong performance this past quarter, I’d like to remind everyone that we posted a few slides to the Investor Relations section of SailPoint’s website. These supplemental materials include additional disclosures we introduced last quarter. We believe they further highlight SailPoint’s continued strong performance and the success we’ve had shifting the business to a subscription model. As Mark noted earlier, we had a terrific fourth quarter with revenue and bookings well ahead of our expectations. The fourth quarter yielded SailPoint’s largest ever bookings performance and enabled us to comfortably exceed our guidance on revenue and ARR. Total ARR grew sequentially by more than $46 million, ending the period at approximately $370 million. This represents a 48% year-over-year growth rate and a result that is $10 million above the high end of the guidance range we provided on our last call. We ended the fourth quarter with approximately $221 million of ARR from our subscription-based offerings, which represents an 87% year-over-year increase. Our subscription ARR consists of over $161 million from SaaS and approximately $60 million from recurring term licenses. The increasing portion of total ARR that is coming from our subscription offerings speaks to the great success we are having in driving SaaS adoption. We anticipate this mix will continue to increase meaningfully in 2022. While subscription offerings are driving the bulk of total ARR growth, our recurring perpetual maintenance base continues to expand as well, ending the quarter at approximately $150 million. This growth is an important demonstration of the strength of our customer relationships and their commitment to SailPoint. As I highlighted on the last earnings call, we expect to see an increase in migrations of maintenance customers to our SaaS offering over time, which will provide a nice business tailwind in the coming years. In addition to solid ARR growth this past quarter, total revenue was $135.6 million, $21.6 million above the top end of our prior guidance range. We delivered very strong bookings growth across the board, including better-than-expected performance from our license-based offerings, which drove the majority of the revenue upside. In terms of year-over-year growth, total reported revenue grew 31%, largely driven by the license outperformance I just mentioned. However, we still experienced a significant revenue growth headwind in the quarter due to the model transition. If our bookings mix had been the same as we delivered in Q4 of last year, year-over-year revenue growth would have been approximately 14 points higher. We believe this mix adjusted metric when combined with a very healthy ARR growth discussed earlier, provides investors a clear indication of the underlying momentum in the business. Moving past license revenue. Total subscription revenue grew 41% year-over-year this quarter. This growth was driven by a strong sequential increase in SaaS revenue of approximately $6 million and the health of the maintenance space, which continues to benefit from robust renewal rates and upsell into the installed base. I’ll now transition to expenses and operating profit for the quarter. Please note that unless otherwise stated, all references to expenses and operating results are calculated on a non-GAAP basis and exclude the items outlined in the GAAP to non-GAAP reconciliations provided in today’s press release. Operating income was $11.1 million, which was significantly ahead of our prior guidance, primarily due to the outperformance in license revenue. As previously noted, we are investing aggressively in the business, given the large opportunity we see in front of us and is paying off as demonstrated by the strong fourth quarter results. I would like to now shift to our thinking about Q1 and expectations for 2022. For the first quarter, we expect total ending ARR in the range of $393 million to $395 million or 45% to 46% year-over-year growth. For total revenue, we expect $110.5 million to $112.5 million or 22% to 24% growth year-over-year. From a profitability perspective, we anticipate an operating loss of $12 million to $14 million. For the full year 2022, we are targeting total ARR of $516 million to $524 million or 39% to 41% growth year-over-year. We expect total revenue of $513 million to $521 million or 17% to 19% growth year-over-year and expect SaaS revenue of $197 million to $201 million or 75% to 78% growth year-over-year. From a profitability perspective, we anticipate an operating loss of $27 million to $35 million. This reflects a meaningful impact from the revenue model transition as well as several cost drivers, continued expansion of sales capacity to drive durable growth, sustained product and engineering investment to drive innovation, and increased T&E and facilities-related expenses as we anticipate moving past the pandemic and into a more normal operating environment. There are a few things I’d like to highlight as you think about our guidance. First, we are forecasting another year of very strong ARR growth underpinned by our rapidly growing SaaS business. We are seeing better-than-expected adoption of our SaaS solutions as the market for cloud identity security has become a top investment priority for CIOs and CISOs. Second, from a revenue perspective, we expect a similar level of revenue headwind as we experienced in 2021. As a reminder, we are in the midst of a two-step revenue model transition: First to a subscription model consisting of recurring term licenses and SaaS in place of our legacy perpetual license model; and then a shift from term licenses to a business that is overwhelmingly SaaS. The first of these transitions is now effectively complete as we expect minimal perpetual license contribution in 2022 and beyond. Based on this dynamic and the underlying strength of the business, we expect 2022 will be the trough year for revenue growth before accelerating meaningfully in 2023. From an expense perspective, as Mark noted earlier, our success in 2021 has shown us that the market is larger and growing even faster than we initially expected. We strongly believe that as the clear market leader, maintaining our investment pace in sales capacity and product innovation will enable us to fully capitalize on this opportunity. We made impactful investments during 2021, this drove a strong top line return, and we plan to do so again in 2022, particularly in the first half of the year. The combination of these factors is driving the operating loss for the year. As we noted at our Analyst Day last February, we were setting our investment pace based upon the real underlying growth of the business and not based upon GAAP revenue growth, which is impacted by the model transition. To illustrate this point, if you adjusted for the anticipated revenue headwind, we would have guided to a position of profitability in 2022. As we anticipate revenue growth to accelerate next year, we expect profitability will also improve. In closing, I want to reiterate how excited we are about the opportunity in front of us. With the strong execution we’re seeing across the business and the favorable demand backdrop for identity security, we are incredibly well-positioned to drive significant growth for many years to come. With that, we’ll now shift to Q&A.”