Greetings. Welcome to the SailPoint Technologies Holdings Inc., Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to our host, Josh Harding, Senior Vice President of Finance and Investor Relations. Thank you. You may begin.

Good afternoon and thank you for joining us today to discuss SailPoint's third quarter 2021 financial results. Joining me today are SailPoint's CEO and Co-Founder, Mark McClain; and our Interim Chief Financial Officer, Cam McMartin. Please note that today's call will include forward-looking statements and because these statements are based on the company's current intent, expectations, and projections, they are not guarantees of future performance, and a variety of factors could cause actual results to differ materially. Since this call will include references to non-GAAP results, which excludes special items, please reference this afternoon's press release in the Investors section of sailpoint.com for further information regarding forward-looking statements and reconciliations of GAAP to non-GAAP results. And now, I'd like to turn the call over to Mark McClain.

Thanks, Josh, and thanks to each of you for joining the call today. I’m very pleased to share our strong third quarter fiscal year 2021 results with you. We exceeded the high end of both our ARR and revenue guidance driven by very strong growth from our SaaS and subscription-based offerings. We ended the quarter with approximately $324 million of ARR, up 44% year-over-year, and a subscription revenue of approximately $71 million, up 39% year-over-year. Our outperformance this quarter can be attributed to two main factors. First, the demand environment for identity security continues to be very strong. An increasing number of enterprises have realized that their current security stack is not sufficient to address today's threat landscape, recognizing that identity is core to their overall security strategy. Enterprises continue to select identity security as a top investment priority. This is evidenced by the strategic conversations we're having with customers and the quality and depth of our sales pipeline. We believe this sets us up for many years of exciting growth. Second, our transition to a subscription-based business model, which we outlined at our analyst day earlier this year, has happened well ahead of our initial expectations. In Q3, 87% of the total new bookings came from our subscription-based offerings, up from 82% last quarter and 72% in Q1. This accelerated timeline has been driven by two key factors: incredibly strong growth in demand for our SaaS platform, and customers' desire to procure our other products on a subscription basis. As Cam will discuss later in the call, our transition to a subscription model is largely complete. While our SaaS platform has been successful in the broader enterprise market, one of the key drivers behind the accelerated growth we're experiencing with SaaS is the traction we're now seeing at the upper end of the enterprise market. It's well known that these large enterprise customers have incredibly challenging use cases. We believe the success we're seeing in this segment of the market highlights the scalability, ease of use, and technical superiority of SailPoint’s SaaS platform. To this point, we closed two deals in Q3, both with Fortune 100 brands that I found to be great examples of the value we're delivering to complex enterprises today. The first example is a multinational pharmaceutical company that needed an agile approach to identity security to replace their rigid legacy identity system. They chose SailPoint’s SaaS identity platform to manage and secure nearly 150,000 identities and their access to thousands of applications. SailPoint rose above the competition for two reasons: one, our modern multi-tenant SaaS architecture provided the agility and cost efficiencies they needed, and two, SailPoint demonstrated the ability to meet, at scale, the requirements necessary to support their complex global business operations. The second example is one of the world's largest telecommunications providers. This Fortune 100 company turned to SailPoint to replace a struggling legacy approach that failed to address security needs, was difficult to use, and created excessive operating costs. They chose SailPoint's identity platform, alongside our AI-enabled services, to give them a comprehensive single view over their 1 million identities under management with access to more than 8,000 applications. The increased visibility and scalability of the solution, plus the promise of a significant reduction in manual processes due to our AI-enabled automation, tipped the scales in SailPoint’s favor. Another advantage of our transition to a subscription-based model is that it simplifies selling additional solutions to our existing customers. Our customer base is eager to double down on their identity strategy with us, and addressing that demand is important to our growth strategy. We saw great success in this area in the third quarter. Let me share two notable examples to add color to this point. The large healthcare consortium is currently running their identity program on SailPoint’s SaaS platform to securely manage almost 400,000 identities. In Q3, they added SailPoint’s AI-enabled access modeling, access insights, and recommendations services. This powerful combination gives the organization an autonomous, modernized approach to identity, speeding identity decisions, and providing intelligent recommendations on role access changes. With this approach, they now have an adaptable identity security program that will be able to keep pace with the velocity of their business. In another example, a leading property and casualty insurance customer needed broader visibility into access over cloud resources and data stored in files. To address the first issue, they chose SailPoint’s cloud access management capability to provide visibility into who has access to what at the cloud resource level, specifically in the Azure environment. To help protect their critical information, they also chose SailPoint’s file access management capability for strong oversight of sensitive data stored in files. SailPoint delivered on both fronts, giving them the deeper and richer approach to identity security they required to fully protect their business. While we're seeing great traction with our current product portfolio, as evidenced by each of the examples I've just shared, we're also very focused on expanding the depth and breadth of our industry-leading identity security platform. During the quarter, we announced our new workflows capability, which is designed to help customers streamline and automate repetitive manual security tasks with minimal to no coding required. This will allow customers to further embed identity security into the thousands of business processes in a typical enterprise, enabling faster and broader adoption of identity security policies and controls. Similar to our AI-enabled services, we believe workflows will differentiate SailPoint in the market, and will further simplify how our customers manage and control identity within their technology ecosystem. As we turn to Q4 and look ahead to 2022, SailPoint is well positioned across the board. Market trends are favorable, and customer interest in our identity security solutions has never been greater. We're seeing very strong demand for our SaaS solutions and our transition to a subscription-based model is largely complete. We are confident that our laser focus on comprehensive intelligent identity security will continue to set us apart in the enterprise market. In closing, our team continues to be very excited about the opportunities that lie ahead of us and believe we're building a very durable growth story for many years to come. And now, I'd like to hand it over to Cam to talk more in-depth about our financial results for the quarter. Cam?

Thank you, Mark, and thanks to everyone for joining us on the call today. Before reviewing our outperformance for the quarter, I'd like to note that we posted a few slides to the Investor Relations section of SailPoint’s website. I'll reference them throughout this call. These supplemental materials include additional disclosures that we believe further highlight the business's continued strong performance and the success we've had shifting the business to what is now almost entirely comprised of subscription revenue streams, which I'll discuss further as part of my prepared remarks. As Mark noted earlier, we had a great quarter and significantly beat our prior guidance across every metric, driven by strong new bookings results, a faster than expected mix shift to our subscription-based offerings and retention that was better than planned. Total ARR grew by more than $32 million sequentially this past quarter, ending the period at approximately $324 million. This represents a 44% year-over-year growth rate and a result that is $6.8 million above the high end of the guidance range we provided on our last call. As you will see in the slides I referenced earlier, we provided a further breakout of total ARR, not only for this quarter, but for each quarter since the first quarter of 2020. We ended the third quarter with $179 million of ARR from our subscription-based offerings, which represents an 81% year-over-year increase. Our subscription ARR consists of $132 million from SaaS and approximately $47 million from recurring term licenses. Further, we ended the quarter with approximately $145 million coming from our recurring perpetual maintenance base. As you can see in the supplemental materials, perpetual maintenance ARR grew by $3.6 million sequentially, despite only 13% of total new bookings coming from our perpetual licenses this past quarter. We believe this highlights the fantastic economics inherent in our perpetual maintenance business, which continues to benefit from annual price increases and a gross renewal rate well above 95%. In addition, we believe there's a meaningful opportunity to drive additional ARR as some of these maintenance customers move to our SaaS offering. This opportunity is largely untapped as only a small number of existing IdentityIQ customers have made the move to our SaaS platform. In addition to the solid ARR growth this past quarter, total revenue was $110.1 million, $6.1 million above the top end of our prior guidance range. This outperformance was driven by very strong new bookings growth, especially from our subscription-based offerings. In terms of year-over-year growth, total reported revenue grew 17%, but as we have noted throughout this year, the rapid shift to a subscription model, and more specifically, SaaS, continues to create a revenue growth headwind. If our new bookings mix had been the same as we delivered in Q3 of last year, total revenue growth would have been over 30%. We believe this mix-adjusted metric, when combined with a very healthy ARR growth discussed earlier, provides investors a clear indication of the underlying growth momentum of our business. In addition, for the first time, we're providing a breakout of licensed revenue that we believe highlights the relatively small contribution of perpetual license revenue remaining in our business mix. This past quarter, we recognized $26.1 million of licensed revenue, nearly 60% of which was driven by recurring term licenses, with the remaining roughly 40% coming from perpetual licenses. With over $110 million of total revenue this quarter, less than 10% came from perpetual licenses. This further highlights that our transition to a subscription revenue model is, in our view, largely complete, but we expect to see the occasional new perpetual license transaction and ongoing expansion deals for current customers. Our entire team's principal focus is on selling SaaS and term licenses. Moving past license revenue, total subscription revenue grew 39% year-over-year this quarter, which was largely driven by the strong sequential increase in SaaS revenue of approximately $4.5 million and continued to strengthen our maintenance base, as noted earlier. 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 $0.9 million, which was ahead of our prior guidance due primarily to the outperformance in revenue noted earlier. As we communicated at our Analyst Day in February and have highlighted each quarter since, we are investing aggressively in the business, given the large opportunity we see in front of us and it is continuing to pay off, as demonstrated by the strong third quarter results. Now I'd like to shift to how we're thinking about Q4 and our updated guidance for the full year. Based upon our outperformance in Q3, a healthy Q4 pipeline, and a faster than expected shift to subscription, and specifically SaaS, we're raising our full year outlook for total ARR to $358 million to $360 million, up from $343 million to $347 million previously. This outlook represents a 43% growth rate year-over-year. In addition to raising our guidance for total ARR, we are also raising our full year outlook for SaaS revenue by $5.5 million to $7.5 million to a range of $110.5 million to $111.5 million, or 65% to 67% growth year-over-year. This is a result of strong SaaS performance in Q3 and the increased contribution of new bookings we expect from SaaS in Q4. Even in light of our expectation that more new bookings will come from subscription and specifically SaaS offerings, which will primarily benefit revenue in periods beyond 2021, we are raising our full year total revenue outlook to $415.5 million to $417.5 million. This increase is a result of healthy new bookings growth in Q3 and higher bookings expectations for Q4. To illustrate the impact of the additional mix shift, we're now expecting our total current revenue guidance would be approximately $7 million higher if our projected Q4 mix was still in line with the mix we assumed when providing full year guidance back in August. In terms of full year profit, we now anticipate an operating loss of $6.5 million to $8.5 million, roughly in line with our prior guidance. Given the current performance of the business, how early we are in capitalizing on the market opportunity and the attractive returns we're generating from our growth initiatives, we intend to reinvest any profit outperformance back into the business to strengthen our durable growth strategy. As I close, I'd like to reiterate our excitement for the opportunity in front of us and how pleased we are with the success we have had in shifting the business to a subscription model. As we prepare to enter 2022, we have a business that is almost entirely comprised of subscription revenue streams, which we believe creates an attractive long-term setup. In addition, the identity security market opportunity offers us many years of very exciting growth given our clear leadership. We believe we're making the right investments to grow the value we can deliver to our customers and ultimately to our shareholders. With that, we would now like to take your questions. Operator, you can start the Q&A.

Thank you. At this time, we will be conducting a question-and-answer session. Our first question comes from Rob Owens of Piper Sandler.

I want to hone in a little bit given you gave us the breakout this quarter for perpetual maintenance and support and it's still grew at 15%, I think year-over-year. So help us understand when that's going to flatten out maybe roll over number one. And number two, is there any incentive for those customers who bought the traditional perpetual and are on maintenance and support to start to move to term at this point, or will you offer incentives to shift them to longer term? Thanks.

Hey, Rob. Cam McMartin here. Good to hear your voice. Look, I think a couple of questions here, let me see if I can take them in turn. I think you did see a healthy growth rate in terms of the maintenance progression in the quarter. We're pleased with the overall contribution that the IIQ family continues to provide. It's largely, as you appreciate, a business that on IIQ family side has now shifted to term license business and that's our focus for selling term. But we are seeing good progression quarter-on-quarter in terms of expansion selling into the IIQ install base, and the occasional contribution from perpetual license transactions. And I expect that will continue going forward into 2022. That's our expectation is that we'll see a moderating contribution from perpetual licenses, but a continued contribution from term licenses. As it relates to incentives, we don't really at this point have any incentives in what we're doing in our installed base, our customers continue to expand their implementations of IIQ, both those that have bought on a perpetual basis and those that are bought on a term basis, and we will continue to work with those customers to fill out, if you will, the depth and breadth of their identity security deployment in their enterprise. As has been the case all along, we typically see a good follow-on, if you will, land and then expand selling opportunity. And that's continued and is represented in the results you saw in this quarter.

Great. And then if I may, around the expansion, I think Mark made the comment about simplifying selling into the install base. And is this seen through reduced sales cycles? Is this seen through larger contracts? And then I guess when things normalize here, I would assume an acceleration in business trends in general, just given that a lot of your revenue in any given quarter is coming from that install base.

Yes, Rob. Good question. Yes, we debated that term, simplify for words. I think what we're saying is, we see good momentum with a number of things, with the modules we've developed and introduced to the market, with some of the acquisitions we did. And just that general sense of, quite often, customers, as we like to say, buy less than everything on the truck. So we have a nice motion to continue to add to your time. So it wasn't a brand new shift from things before we'd seen plenty of upsell, cross-sell in our base and both IQ and IDN. But now I think we're seeing that as we shift to a more recurring revenue, either term or SaaS model. I think customers themselves are more in a mindset of buying more over time. It's sort of the discipline I think they've gotten more used to. Yes, I think it's just simplifying the motion.

And Rob, I just add a bit to that. I think, think of it as a richer expansion opportunity in that we continue not to fill out every identity need of the enterprise in terms of the quantum of identities we're selling. But now with some of the additional products that Mark referenced AI, cloud access management, others, we've got the opportunity to come back and have a more fulsome, if you will, coverage of their identity security needs. And so in that sense, it's a richer follow-on expansion opportunity than you might have seen historically with SailPoint.

Our next question is from Matt Hedberg of RBC Capital Markets.

Hey, it’s Sternberg for Hedberg. Thanks for taking our questions. ARR growth, really impressive in the quarter 44% accelerated from last quarter off a tougher comp guidance points to about a similar level for the fourth quarter. Could you drill down a little more into what's driving the strength here? I think the supplemental slides help to visualize this, but what's enabling you to maintain and even accelerate that growth right here?

Yes, Cam McMartin here. Again, good to talk to you. Look, I think it's multifaceted as you look at the supplemental materials we provided you today. The prior question, I think, points to one element. We continue with the strength of the IIQ family to be able to expand the perpetual maintenance ARR, both in terms of the expansion selling and again, that occasional follow-on or occasional new perpetual license transaction. So that maintenance ARR was growing nicely. I think the motion in the enterprise for term licenses continues to be healthy as well. There are organizations that do prefer IIQ, but the principal motion and the one that's really accelerated very nicely over the last six, eight quarters, and you see that in the supplemental materials, is SaaS. The resonance in the enterprise for a cloud identity security solution has picked up, we think in a very healthy way. One that we're pleased with, it's across the spectrum of enterprise size. It's across the geographics, if you will, regions that we cover and so it is a depth and breadth story that we like in that we're seeing multiple subscription revenue lines growing nicely. The selling of those is also expanding and accelerating. You saw that in some of the comments we made in the prepared marks around increasing bookings, objectives for Q4. So we're seeing, I think, overall, the full spectrum of the business contributing to that ARR expansion and the continued growth of the business.

Great, thanks. And then you mentioned workflows in the prepared remarks. Could you just expand upon the concept of moving identity closer to the workflow of a business?

Sure, this is Mark, I'll take that one. What we're seeing there is, historically, we had some workflow capabilities in our on-prem identity product IdentityIQ. And that kind of led to the mindset, I guess I'll call it that, in that environment, people expected to be able to extend the product through some level of tying into their business processes. And when we first introduced SaaS, in the kind of market, we're focused on initially mid-market, they were more kind of prone to say, I'll just kind of take what you've given me from a process management standpoint, as we move more into the mid to large and then very large-scale enterprises. Typically, we're right in situations where the customers either have more unique environments, they want to connect to, more unique applications, more complex business processes, where their ability to kind of quickly adapt to their business processes and policies was a little tougher, frankly, in the product initially with our SaaS product. So with workflows, we're making it even simpler and more accessible for business people to tie in various identity processes to their regular business flow. And that can take the form of everything from not just the traditional kind of joiner mover lever processes we talk about that other flavors of either compliance or provisioning processes where they want to get the business people more into that policy flow. And I think we're finding that both our partners and our customers are really excited about the ability to use that capability to make it simpler to integrate the identity security processes into their traditional business process.

Our next question is from Hamza Fodderwala of Morgan Stanley.

Mark, first question for you. You talked a little bit about how you're seeing more traction in the upper end of the enterprise market. I'm curious if you could expand on that a little bit? And what inning of the sort of legacy replacement cycle do you think that we're in? And obviously, there's still a lot of legacy Oracle or IBM solutions being used out there for identity governance? So are you seeing more of a willingness for customers to look at some of these newer offerings such as yourself? And how much alike do you think that still have?

Yes, that’s a great question. Regarding why we are seeing increased interest from large-scale enterprises, it really reflects both our efforts and the market's readiness. We have been dedicating significant engineering and development resources to enhance our SaaS offerings, making them comparable to our on-premises solutions. As a result, enterprise-class customers now find the expected features in our IdentityNow product, which has likely broadened their perspective on it. Additionally, there's been a growing acceptance of cloud technology over time. Historically, high-end customers were hesitant to adopt SaaS solutions, but their preference has shifted towards a SaaS-first approach. Their confidence in the robust security provided by cloud providers like Amazon, Azure, and Google has increased significantly. They now trust that this is a secure method for management, recognizing that SaaS offers a smart solution for efficient product expansion over time. As for the legacy environment, I would say we are in the early stages of this transition. I believe we are still in the first third of the game regarding the legacy implementations in large enterprises that need to be replaced. We remain optimistic about the potential opportunities to introduce our solution across the Fortune Global 5000, as there are still many legacy identity products in use from older providers.

Maybe just a quick follow-up. You talked a lot about the attach rate of the AI-enabled services, any color you can give us how penetrated those services are within your install base?

Still pretty low penetration, yes. Not heavily penetrated in the install base, we've had good motion in both what we call attach meaning, putting it into the initial transaction with a lot of customers. And we've had a pretty good level of activity in the install base, what we would call in that case a cross-sell of new functionality. But both are still far from dominant in either our new selling motion or our installed base penetration. So again, lots of headroom there to add value over the coming years.

Our next question is from Brent Thill of Jefferies.

Hey guys, this is Joe on Brent. Really appreciate the question. Seems like everything is firing on all cylinders. And I know you guys made a lot of good market changes early this year, building out the inside sales team, moving to more solutions oriented sales for transactions. Can you give an update there and how hiring has trended throughout the year?

Yes, I think in general, good on both fronts, Joe, meaning we're pleased with the momentum of the hiring. I'll start with the second half, I guess first. We all know there's a pretty challenging talent environment out there right now, probably even more so in the technical deep skills, talent environment. But even in the technical selling and traditional sales roles, it's a pretty, pretty frothy market, pretty competitive. We've been really pleased at the rate that we've been able to bring on really capable, experienced talented people and in some cases, more early stage career folks in their lifetimes or inside selling or, in general, I think we're running ahead of plan on where we wanted to be at this point of the year on quota carrying folks and so kind of feel good about the preparedness for hitting '22 at a good momentum. So very, very good on that front on the hiring. On the selling motion, there was a pretty significant focus on a new methodology that was more consultative kind of designed to focus on more business value than just technical sales, prowess, if you will. And I think Matt Mills would tell you, he feels really good about the momentum shift there as well, in terms of how we're approaching the selling process. I think it has to do with the value we're getting from customers as they appreciate the value we're delivering in the environment. So overall, pretty pleased with both the momentum of capacity building as well as the motion to sell at a greater value and higher up in the organization generally.

Great to hear. And it's obviously evident in the SaaS and ARR numbers. I guess as a follow-up, can you guys provide some guardrails? Or maybe put some take on how to think about cash flow into '22 and '23? When should we see meaningful leverage? I know there's a term license overhang versus perpetual, but just any help there would be helpful.

Yes, Joe, this was Cam. I think we've not provided any guidance yet on '22. What you saw in the prepared remarks is that the transition to a subscription-based model that is now principally or largely subscription-based model we see is now complete. And we will continue to invest aggressively in this business as we see top-line perform. Mark has commented about the success we're having and expanding the capacity of the field sales force, in the '21 timeframe to benefit '22. That's on track. We're pleased with where we are. And we continue to make investments in the R&D organization because we believe the innovation that we're driving is yielding benefit in the selling motion and across the board. We'll continue to think about and be aggressive investing. So I think as you look at it, you'll see us continue to be thoughtful about how we invest. But with the subscription transition, I think what I'll tell you is that we will give you more color about that transition to cash flow, breakeven, and the timing of that when we get out into the February timeframe.

Our next question is from Brian Essex of Goldman Sachs.

Thank you for the additional information; it's very useful. I'd like to start with some comments about the backlog. You mentioned that you are building a healthy backlog going into the fourth quarter. How does that compare to previous periods? Is the mix similar? Typically, the fourth quarter or the latter half of the year tends to have more perpetual deals—do you still have some larger perpetual deals in the pipeline? Do you anticipate that it will primarily focus on SaaS, which offers a higher degree of visibility, allowing for a more refined guidance?

Sure. Thanks, Brian. This is Cam. Good to meet you. A few comments as it relates to the fourth quarter pipeline. We did highlight that it's healthy. As a reminder, the second half of the year is generally our “seasonally” strongest period of the year, with the fourth quarter being the most seasonally healthy period of the year. And that's true this year. I think as we look across all the business, across the globe, we're seeing real build a pipeline as we came into Q4, and it looks healthier across all the product lines and across all the geographies as well. It's a mature pipeline, we like to see that in Q4. So we're pleased with the composition of the pipeline in the quarter. In terms of mix, it historically has been a somewhat higher perpetual bit mix in the quarter. But with the progression we've made in the selling of both SaaS and term licenses, I would say that the mix that we saw in Q3 and the way we commented on it being 10% from a perpetual standpoint, or loss for the quarter, I think will continue to manifest itself in the coming quarters, fourth quarter included now. Anyone deal and anyone quarter can move the percentages around a little bit. But I think you can take away from the comments that we made in the prepared remarks that the profile of the business going forward is going to be essentially or effectively a subscription profile. And that's the way you should think about it as you go forward.

Got it. That's very helpful. Cam, it's good to meet you. Could you provide some insight on the factors affecting gross margins? It seems they have fluctuated a bit as we refine our models for the next couple of years. How should we expect those margins to trend, and was there anything unusual this quarter that contributed to the changes?

I would say there was nothing anomalous when we start with the second half of your question, Brian. First, there was nothing anomalous in the quarterly profile. As you would expect, there's a bit of mix effect depending on the relative contribution of perpetual versus term versus SaaS in the sense, you understand what those margin profiles typically look like. So that effect is true. I was coming back into the business and studying what the gross margin trends have been over recent quarters, I'm quite pleased with the way in which the team has been managing the overall margin progression in terms of SaaS, particularly with the scale progression that we've seen in the business. I'm pleased with what I see there; we've had a bit of pressure from a margin standpoint on the services side and that really is getting the scale of that team and the processes right to service that accelerating SaaS contribution is just the sheer SaaS volume of the business. So I feel good about the overall position of the company on the gross margin basis and the aggregates. I think, as you go forward, I think you can expect us to continue to manage it within the lines from a mix standpoint, to see progression and health. But in terms of the overall trend again, I will basically point you out to February and let us get through the planning process and think about '22 to give you any more look than that. Okay.

Our next question is from Andrew Nowinski of Wells Fargo.

Thanks. Congrats on a quarter. I just want to step back at a high level. I'm wondering if you could just explain how that current threat landscape has influenced customers to deploy an IGA solution and why it's a higher priority now than maybe it was even a year ago?

Look, I think no sudden inflection, no shift there. But just a continued higher level of focus and awareness is the way I would describe the progression. I mean, yes, there's definitely sensitivity to significant threat events. But I'd say in general, this is more like a sea change of people just recognizing that identity is a vector they weren't as focused on managing well in their enterprises, that only got exposed and highlighted a bit through the early stages of the pandemic COVID environment as everybody went home or out of the office. And as we've come back partially to offices, partially not all that did was just kind of leave that awareness in place and cause people to, I think, be more and more focused on closing that gap, if you will, of how little they really do understand their identity landscape and mostly large enterprises today. So I think it's more that than any particularly pointed inflections of growth related to threats. It's just a level of awareness that so many of the bad things that happen are related to some level of compromised identity. And that's just driving a lot of focus in this area.

Okay, got it. And then, as a follow up, Cam, it's good to chat with you again. But I'm wondering if you could just give us an update on the current CFO search?

Yes, happy to. Andy, it's good, first of all, good to talk to you again. The answer is, is that we're pleased with the progress obviously, with the transition, wanted me jumping back and lend a hand in this transition period. We immediately began a search, as you would expect. That search is underway. It will be ongoing for a bit of time, but we're pleased with the candidate flow. We're pleased with the interest that we're seeing from candidates in the company and the opportunity and would expect in a reasonable period of time, we'll get that role filled. And I'll call get to jump back in, what I was doing previously. So I think you'll see a good answer here in the coming weeks and months.

Our next question is from Mike Walkley of Canaccord Genuity.

It's Denzel on for Mike. Thanks for taking my questions. So I was just wondering, just given the solid ARR beat this quarter, as well as the strong 43% ARR growth expectations for Q4? Do you just provide us with some color on maybe some of the level of conservatism you're baking into the total revenue guide? I think this was actually in line with street at the higher end. Are you anticipating license revenue falling off a little bit faster than you had previously anticipated?

Yes, Denzel, this was Cam. A couple of comments. One, you obviously did see the acceleration in the guide for both the fourth quarter and the full year. As you will note in the prepared remarks, the full year guide now at $415.5 and $417.5 would have been about $7 million higher had bookings mix in Q4 been the same as bookings mix was in the August period. And so in that regard, the revenue reflects that continuing, if you will, shifting mix more towards SaaS in totality, and even within the license line more towards terms. So we're seeing the kind of progression we want to see in the overall subscription lines from a revenue and bookings perspective, it's contributing in the right way. So we're pleased with the way total revenue has come out from a guide perspective, again, given that if the mix had been the same, as we saw back in August, we've been about $7 million higher.

Okay, great. Thanks for the details. And in the prepared remarks, you noted only a small number of your existing perpetual license customers have made the transition over to a SaaS. So clearly, there's obviously some room to expand here. Could you give us some details on sort of how these conversations have trended as they come up for renewal, and do you expect these customers to omit the transition over time?

Yes. We have a large base of IdentityIQ customers and at the end of the period, our annual recurring revenue maintenance was about $145 million, which significantly contributes to our overall business. As I mentioned in my prepared remarks, we are retaining over 95% of these customers, reflecting their satisfaction with IdentityIQ. Recently, we've started initial discussions with some customers about transitioning from IdentityIQ to IdentityNow, moving to the cloud. We are collaborating with these customers to determine the best way and timeline for this transition. We anticipate that this could start contributing to our business in 2022, but it will be a gradual, multi-year process. There won't be a mass shift in any single year; instead, we expect a steady and healthy migration over several years. We believe many of our customers will continue as IdentityIQ users for some time, and we're committed to investing in the IdentityIQ product to enhance its value. This transition is just beginning, and we want to highlight that it may become a growth driver for our total annual recurring revenue in the long run. We'll provide more updates as we progress through 2022, but for now, we wanted to inform you about this early movement.

Just a tiny little bit of color to add to that, right. And if you think about it, we have customers that bought IdentityIQ, let's say between eight and 14 years ago, when we didn't have a SaaS offering. And some of those customers were probably at the size and scale and complexity that IdentityNow weren't available would have been the right answer. And because they've had the product for that long, they're fully depreciated, they've got good value from and they are open to it, right. So kind of think smaller and/or older customers of IdentityIQ, we are seeing some level of interest coming from those customers. And we expect that will pick up as they get more confident that IdentityNow is in fact a great transition option for them. But again, we really do want to reinforce we're not pressing people to make this move, where we're going to increasingly think we'll hear more about their interest in it from some subset of our base. But as Cam said, there is pressure on those customers to migrate, but we do anticipate seeing a little more uptick over starting more next year and probably increasing frankly in the next few years, but still with a large IQ base probably for quite a long time in front of us.

Our next question is from Alex Henderson of Needham & Co. Please proceed with your question.

Thanks. Just a couple of quick clarifications before I ask a question. I think you said to one of the prior comments that the $7 million was based off of the level of subscriptions that were in the period of August as opposed to, earlier I thought you said that versus your expectations for the year-end fourth quarter percent subscription. Can you just clarify which of those statements is true?

Sure, Alex, this is Cam. So the answer is that what I was basically saying is that the contribution in Q4 bookings from SaaS has increased versus our previous expectations. So as we look at the revenue guide and compared the current revenue guide to the fourth quarter— to the August revenue guide, excuse me, what we're seeing is, is that there is a, if you will, $7 million downward effect on what revenue otherwise would have been had the mix of bookings remain the same in our current forecast, as was the case in August.

Right. So you didn't say that it was relative to the rate of subscription in the prior period, you're saying versus your expectations for fourth quarter, that's the clarification I want to—

No, that's right, versus the expectations. Yes.

All right. The second thing is you talked about very strong hiring. Can you talk about any attrition rates, are you seeing any turnover in your sales force, what's going on with your wage rates as a result of obviously the great resignation period that we're in impacting people's decision to stay or move?

Yes, Alex, Cam here. I would say that our overall attrition rate is relative to what I'm seeing other places in the marketplace quite good. We are— it's definitely the case that the attrition rate has come up some in 2021 over what it was in 2020, not surprising given the realities of people's behavior between those two years. So we have seen an increase in attrition. But in general, I would say the leadership team of the company believes that that attrition rate is better than we might have otherwise expected and better than what we're quite frankly reading and hearing from others in the marketplace, so we're pleased. As it relates to, I think you asked about the sales force, the sales rate— sales turnover rate, excuse me, is quite healthy. We're very pleased there. I think the overall given the tightness of talent in the marketplace, we— Matt's been able— Matt Mills was able to do a great job of both attracting new talent as Mark talked about in terms of growth of the size of the team, but also retaining the talent within the team. So the balance there is really quite healthy and we're pleased with where we're ending the year.

If I could do a follow-up since the first one was just a clarification. You mentioned earlier in the call that you were seeing more interest in upsell and better upsell of additional subscriptions and features. Can you provide any data to help us demonstrate that point to our clients as we're writing our notes? So it would be very helpful if you have any supporting information other than just simply the claim?

Alex, I think to be clear, I think what we said was, we're seeing it as a simplified process more than we said we've seen an actual uptick. I think we still see a fairly consistent level percentage-wise of the amount of business we do into kind of new logos versus kind of upsell, cross-sell into our installed base, that actually has been a fairly consistent percentage of, let's just round it to roughly two-thirds, one-third over time. I think our point was that as people are moving a more subscription revenue model, whether that's term or SaaS, I think that model tends to lend itself to kind of a, get more as you go kind of a mindset for the customer as much as our sales team. So I think that's going to make it— by the way, just to be clear, Alex, in contrast to the traditional perpetual license sale, big buy waited some number of years and do an upgrade, right. I think there is a more iterative consistent motion to both sell and buy, I think in a recurring repetitive selling motion there around these kinds of term and SaaS offerings. So that was the main point. I don't know that we'll be breaking out exactly kind of data on that anytime too soon. I think it is a— it is an indicator that with all the things we've done to add to the portfolio, new developed, organically developed modules, some of the products we've acquired, all those we see as creating great opportunity for additional upsell in the future.

Our next question is from Joshua Tilton of Wolfe Research. Please proceed with your question.

Hey guys, thanks for sneaking me in real quick. I just have a quick housekeeping question. The bookings mix slide of perpetual versus term that you gave in the supplemental information, do those bookings include maintenance, and if it does, could you just remind me what percentage of perpetual and the term booking is maintenance?

Yes. So this is Cam, Joshua. Yes, the bookings mix for perpetual does include maintenance one-year, in terms of the way we price and package the transaction for perpetual; we've always included as part of the overall offering one year of maintenance, and then after that, it goes into renewal cycle. And that's my reference to that 95% retention of renewal rate in that installed base. The answer is plus or minus. I mean the maintenance rate in terms of simple math is roughly 20% of any perpetual transaction will be that first-year maintenance value that gets ascribed to that service that PCs that maintenance will be consumed across that first year.

And in terms of the term booking, does that include maintenance as— does that include the allocation that goes to maintenance as well?

It does as well. Yes, yes, absolutely.

And that's 40% of the bookings, is that correct?

Plus or minus, that's a good number to use, yes. And it's generally speaking, importantly, the second question would be what's the duration there that's assume we on average sell a three-year term license transaction.

We have reached the end of the question-and-answer session. I will now turn the call back over to Mark McClain for closing remarks.

Thank you. Just appreciation again for folks who took the time to join us on the call today. Obviously, we're pleased with the results, we thought we are making great progress on some of the things we talked about at the beginning of the year in our Analyst Day. And we're looking forward to talking to you in a few months about how the year wrapped up, but we wish you all a good holiday season and thanks for joining us today.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.