Greetings. Welcome to the SailPoint Technologies Fourth Quarter and Full Year 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 your host, Brian Denyeau from ICR. You may begin.

Good afternoon, and thank you for joining us today to discuss SailPoint’s fourth 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, today’s call will include forward-looking statements, and because those 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 a reconciliation of GAAP to non-GAAP results. And now, I’d like to turn the call over to Mark McClain.

Thanks, Brian, and thanks to each of you for joining the call today. I’m very pleased to share the business and financial performance that led to a record-breaking fourth quarter and year. 2021 was an outstanding year for SailPoint. We demonstrated our market leadership and the differentiated value our identity security offerings deliver. Our record-breaking Q4 helped us to close 2021, exceeding the plan we set forth at the start of the fiscal year. As we highlighted then and continue to see throughout the year, enterprises worldwide have elevated identity security to a top-tier IT priority. Our performance has made it clear that the market for SaaS identity security solutions is large and growing, and demand is very strong, as our solution is being adopted by customers even faster than we anticipated. As a result, we are increasingly confident in our ability to generate strong growth for years to come. To fully capitalize on the attractive market opportunity in front of us, we will continue to invest in our go-to-market and product development initiatives in 2022. As Cam will discuss in more detail shortly, these investments, together with a faster-than-expected revenue model transition, will have a near-term impact on our profitability. We strongly believe this best positions SailPoint to generate high revenue growth rates, significant margin expansion, and substantial shareholder value over the long term. Now, let me provide some insight into our Q4 performance, which exceeded the high end of our ARR and revenue guidance. We ended the year with approximately $370 million of ARR, up 48% year-over-year and subscription revenue of approximately $273 million, up 39% year-over-year. ARR performance this past quarter was driven by three factors. First, customers continue to choose our SaaS platform at an increasing rate, driving strong growth in our recurring revenue base. As evidence of this point, we added nearly $30 million of SaaS ARR in the fourth quarter, up more than 130% year-over-year. Secondly, overall, we generated record demand for our entire product portfolio as global enterprises continue to prioritize their investment in our identity security offerings as foundational to the security of their enterprise. And finally, our average deal size for both new and existing customers continues to expand year-over-year as customers embrace our growing portfolio of identity security solutions. Further, our success is being driven in part by the investments we have made in recent quarters in product innovation and international expansion. We’ve made significant enhancements in our SaaS platform that help us better address the complexity of securing identity in modern enterprises while simplifying both the administration and user experience for our customers and their workforce. For example, our new workflows capability is designed to help customers streamline and automate repetitive manual security tasks with minimal to no coding required. And our identity outliers capability will enable companies to quickly discover and remediate high-risk access by leveraging AI and machine learning-driven analysis to unearth anomalous identities, all within a single dashboard. These are just a couple of examples of how we’re infusing intelligence and automation into our SaaS platform to enable smarter, faster, and broader adoption of policies and controls to address identity security challenges faced by global enterprises. It’s also important to note that these investments benefit all of our customers, no matter their choice of operating environment, on-premises or in the cloud. We also made considerable investments into our international business this year. Both Europe, the Middle East, Africa, and Asia Pacific, Japan delivered significant and record-breaking contributions in Q4. Our international success reflects the benefit of the new leadership we appointed in APJ this past year; the increased number of field-facing teams in Latin America, the EMEA, and APJ; and the broadening of our partner network in these important geographies. To provide some additional color on Q4, I’d like to share a few customer anecdotes. A global information technology company based in India selected our SaaS platform, along with our additional AI services to help them manage and secure the 300,000 identities that make up their business. They recognized SailPoint was the only vendor who could support the complexities and scale of their business with a SaaS-architected platform and a simple, straightforward user interface. A multinational supply chain company based in Germany chose SailPoint due to our clearly defined SaaS vision and ongoing commitment to delivering an autonomous, flexible approach to identity security. This customer needed broad visibility and an AI-driven approach plus the ability to scale to over 1 million identities. The strength of our customer base and the terrific customer reference checks we provided to this customer during the sales process were critical in sealing the deal. And finally, based on the shared belief that identity security is foundational to the security of their business, a large U.S.-based retailer chose SailPoint as it formalized its own approach to identity security after spinning out from their parent company. Our SaaS platform won them over, given the flexibility and agility it will provide coupled with our AI services that they will rely on to further simplify and streamline the ongoing administration of their identity program over time. As these customer examples underscore, we continue to lead the market with a technically superior identity security offering. This leadership was recently validated by our placement as the leader for the third time in the Forrester Wave for identity management and governance. In the most recent 2021 report, we received the highest ranking across all three evaluation criteria, spanning company strategy, current offering, and market presence. Now, as we look ahead to 2022, we are laser-focused on three key priorities as we continue to build on the momentum demonstrated throughout 2021. Number one, as the industry leader, we will continue to invest in innovation that delivers to the market an increasingly autonomous, intelligent, and simplified approach to identity security. This approach is critical to helping our customers deliver secure and frictionless workforce productivity, which is especially important in the tight labor market that many sectors continue to experience today. Number two, we are investing in our demand generation and direct sales efforts to further accelerate our ability to address the exciting market opportunity that’s in front of us. Adoption of SaaS identity security solutions is still in an early stage of development, and we expect to have a strong year of new customer growth and expansion within our customer base. Number three, we will continue to capitalize on the increasing strategic importance of identity security as more C-level executives and Board members recognize that identity security and specifically SailPoint is core to enterprise security. With digital transformation now pervasive across all industry sectors, we believe the demand for and prioritization of identity security will continue as identity is seen as an enabler and a secured digital transformation efforts worldwide. We have go-to-market plans in place to drive increased awareness and interest in SailPoint with these key decision-makers around the globe. In closing, we are thrilled with our performance in 2021. We executed at a very high level to capitalize on the demand for our offerings, leaving us well positioned for sustained long-term success. We remain confident in our ability to generate high growth rates and increasing profitability over time as we execute on our strategy and complete our revenue model transition. A key factor in our success is our strong and growing leadership team, which brings the right mix of domain expertise, proven experience building and scaling global brands, and the operational excellence needed to bring SailPoint to new heights. To that end, I would like to welcome our newly appointed CFO, Colleen Healy. Colleen has nearly 30 years of finance and operational experience, including nearly 20 years at Microsoft where she held various roles in finance and operations, including as General Manager of the company’s U.S. industry for financial services and as Head of Investor Relations. Colleen will assume the CFO role effective March 16th. Cam McMartin will step down from his role as interim CFO but continue his service to SailPoint as a Board member. I am thrilled to have Colleen joining the SailPoint leadership team and believe her enterprise pedigree and operational background will be instrumental in our Company’s continued success. I’m also grateful to Cam for his support as interim CFO and look forward to his continued service as a member of our Board. With that, I’d like to turn the call over to Cam, who will review the financial details of our performance this quarter. Cam?

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.

And our first question comes from the line of Matt Hedberg with RBC Capital Markets.

Great. Thanks for taking my questions, guys. Congrats on the results. It’s just really good to see, and also great to hear the news on Colleen. Cam, certainly will miss chatting with you, but I know you’re still going to be around things here. So, I appreciate your time here. I guess, there’s a lot to focus on here, obviously, with the momentum in SaaS. When you think about some of these incremental sort of go-to-market initiatives for 2022, how are you prioritizing where those dollars are going? And I guess I’m wondering, between partners or sort of like direct facing initiatives. Just sort of wondering if you can talk a little bit about that.

Yes. Matt, Cam here. First, thanks for the kind words. It’s been a real pleasure to be back working with the team. And I’m, as you can appreciate, excited we’ve identified and then have Colleen ready to come on board to pick up the ball and run with it. We’re very excited about 2022 and really beyond, I would say. As it relates to your specific question, the prioritization of investments as it relates to go-to-market is really focused in two areas. First is continuing to grow the global sales capacity. We saw very good productivity in calendar 2021 in terms of the adds we made across the geographies and very pleased with the ramp rate and productivity of that field force both in terms of the existing force but also the folks we added during calendar ‘21. The second is demand generation. Because, as Mark highlighted in his comments, we’re seeing really quite healthy demand and accelerating demand for our SaaS solutions, while we, quite frankly, see still very good demand for our term license business as well in certain categories of use. We feel like accelerating the spend on a dollar basis in 2022 is a good investment that will yield productive results. And so, we’re focused really on maintaining our investment philosophy in 2022. And in doing that, you’re seeing, I think, the investment go across the total go-to-market team.

That makes a lot of sense. And I like how you characterize the transition where profitability would have been. And then, I guess, Mark, known you guys for a long time, we’ve asked you about the competitive landscape for years. And I know you guys play well in the upper end of the market here. But for those who are wondering about sort of perhaps newcomers in the space and whatnot, could you talk about the competitive landscape today? Are you still seeing a lot of these deals more greenfield in nature or a lack of competition? Just wondering if you can put a little better point on that.

There hasn't been a significant change since our last update to the market. We continue to see a notable number of legacy solutions, and each quarter, some customers express interest in migrating away from those older systems. As our SaaS solution gains recognition, we've secured several substantial deals, which draws attention among their peers, particularly when large organizations opt for a SaaS solution. We're also aware of concerns regarding new entrants in the market, specifically Microsoft and Okta. While they are active in the lower end of the market, which isn’t our focus, it seems they are capturing some market share without affecting us significantly. We remain very successful in competing within our core mid- to large enterprise segment, especially with organizations that have complex infrastructures. In these cases, we're satisfied with our win rates and our performance against the competition in those segments.

Our next question comes from the line of Rob Owens with Piper Sandler.

I was wondering if you could double-click on your commentary around the increase in the maintenance base transitioning to SaaS, just whether or not you’re seeing that here, or is that within your expectations as we look at the next couple of years.

Yes, Rob, Cam here. As you recall from the last earnings call back in the fall, we had highlighted that this was a motion that we were beginning to see early activity around. We did see a handful of deals, not a large number in Q4 close that relate to customers looking to migrate from IdentityIQ maintenance to our SaaS solution platform. That was not an area of selling focus for us. Quite frankly, it’s demand coming to us rather than us outreaching to our installed base. So, that, I think, is a good indicator. As we come into 2022, as we highlighted back in the October, November time frame, really, the focus now will be to be a bit more intentional. What do I mean by that? It means we’re organizing from an engineering perspective to make sure we have the tools to migrate folks successfully and in a predictable fashion. We’re working from a go-to-market perspective to have the right motion to address those customers that are interested in making the migrations. Our expectations remain that 2022 will be a get-off-the-ground year is the way to think about it. We’ll have a good number of opportunities, we believe, to migrate customers to SaaS, but this will be a story that plays out over a multi-year basis.

Great. And then second, I was wondering if you could touch on the license strength that you saw in the quarter. I mean, ironically, I think it’s the largest license quarter you’ve ever seen despite the fact that you are focused on SaaS and transitioning the business. So, was this just the way the pipeline shook out for the quarter? Did you overachieve on what you thought would be there? And as you look forward, how should we think about that license line, which has been declining over the last year and then was up 27% year-over-year? Thanks.

You bet, Rob. First, let me remind everyone that the fourth quarter is always our strongest quarter of the year. This is also when we typically see a lot of year-end money coming through. The pipeline was healthy across the board. As I mentioned earlier, this was the best booking performance we’ve ever had as a company, which holds true across all categories: SaaS, term, and perpetual. We’re pleased with the performance. There was a very healthy mix of contributions from customers expanding their use of IdentityIQ. We appreciate that expansion within our installed base, as it indicates that customers are satisfied with IdentityIQ and are investing in it to grow their identity security programs. We believe that retaining these customers and encouraging their active use of our solutions enhances our future opportunity to transition them to SaaS, as they clearly trust SailPoint as their identity security solution provider. We are focused on that strategy. We are pleased with the results and had a larger-than-expected quarter in IIQ perpetual. Overall, it was just a very strong quarter across the board.

Our next question comes from the line of Hamza Fodderwala with Morgan Stanley.

Maybe a question for Cam and perhaps Mark can chime in. I’m just curious, when you look at the ARR guide for ‘22, which was obviously much stronger than a lot of us were expecting. How much of that would you say is coming from underlying demand growth, which seems to be really strong, but also what seems to be an incremental shift from your existing maintenance base to SaaS over the last couple of quarters? So, can you help us sort of break that out a little bit?

Thank you for the questions, Hamza. To address your inquiry, the growth in ARR is primarily driven by the strength of our SaaS business, while the shift from our maintenance base is an emerging factor. Overall, the robust ARR guidance reflects our solid competitive position. We are successfully capturing opportunities across various market segments, including different verticals, sizes, and geographies. Our go-to-market efforts are yielding positive results, and we are pleased with this momentum. In line with Matt Hedberg's earlier question, we are investing in this trend and anticipate similar results in 2022 and 2023 as we experienced in 2020 and 2021. Regarding your second question, the maintenance migration is starting to contribute, although it's still a small part. We aim to grow this area thoughtfully, ensuring that customers transitioning from IIQ to ID now are successful throughout the process. We will respond to demand as it arises, but we do not plan to accelerate our efforts toward maintenance migration in 2022.

Got it. And maybe just a follow-up question. Can you remind us what is the ARR multiple when you move a customer from maintenance on IdentityIQ to SaaS IdentityNow?

It's too early to say definitively. It has varied from mid-1s to 3 in total. However, the sample size is currently too small to draw any conclusions. Our focus is on collaborating with customers who are prepared and organized to migrate, rather than optimizing the economics for this initial group of customers. We will optimize the economics as we progress, and we are confident that these migrations will contribute significantly over time.

Next question comes from the line of Brent Thill with Jefferies.

Hey, guys. You have Joe on for Brent. I really appreciate the question. And Cam, I want to echo the earlier sentiment. It was a pleasure working with you. Should we think of operating margin as a proxy for cash flow? How should we think about cash flow inflection? And is that a ‘22 event or more of a ‘23 event given the transition?

Joe, thanks very much for the comments. It’s a pleasure to work with you and your team. The way to think about it fundamentally is the free cash flow profile of this business will largely follow the non-GAAP operating profile of this business. Substantively, you can appreciate the delta between non-GAAP operating income and free cash flow for us is modest. It’s a little bit of CapEx that we drive in the business. And so we’ll get some typical model transition benefit in this period of ‘22 and into ‘23, as we see more SaaS contribution and diminishing term contribution at the margin. But largely speaking, I think you can anticipate that the free cash flow profile will track non-GAAP operating income. And we’ve given you some thinking around that for ‘22. I think as well, we’ve indicated that we see this as ‘22 as a trough year, and we’ll begin to see into ‘23 revenue growth acceleration and correspondingly non-GAAP operating income acceleration, hence, free cash flow acceleration as well.

Thank you, Joe. I wouldn't point to anything specific from the last few weeks. We've maintained a strong presence in both federal and state, local, and education sectors. We're certainly gaining traction globally, particularly in federal governments, due to our solid position in the U.S. federal government, which tends to work in our favor. Overall, the public sector remains a good market for us. However, I wouldn't highlight any significant changes or inflections. Events like these are incredibly challenging and unfortunate for those affected, but in the long term, we tend to see that concerns around security can benefit our sector. Within security, identity is recognized as a crucial element for enhancing security profiles, and we typically see these as long-term advantages for our business. Still, I wouldn't point to any noteworthy short-term changes.

Our next question comes from the line of Brian Essex with Goldman Sachs.

Hi. This is Charlotte Bedick on behalf of Brian. Congratulations on a great quarter. I have a quick question. Now that you've achieved greater parity with IdentityIQ, is your typical customer profile changing? For instance, what is the mix of traditional hybrid and Oracle rip-out versus an emerging cloud-native business? Thank you.

You bet. Yes, no substantial change there. I think in many ways, we’re seeing, as I said earlier, about the legacy displacement, kind of a steady progression. I’ve said for a number of quarters, we would love to point you to a short-term inflection there, but we just continue to see a steady progression. I would point out, you’ve seen some of the customer anecdotes we’ve been highlighting in the last few quarters. Increasingly, SaaS having a stronger impact at the mid- to high end of the market, particularly for us, while it’s been quite well performing in the mid-market for a long time, as Cam said. Therefore, I think SaaS is performing well across the board. Well, when we see that, I think we fundamentally see the same market dynamics and market requirements that we have seen. Obviously, you’ve still got the backdrop of the IT landscape, digital transformation being a driver as people get more aggressive about some of those moves. But in general, every large enterprise we’re dealing with has a lot of the same underlying challenges. They’re going through some flavor of digital transformation. They’re shifting workloads to the cloud. They’re bringing in new SaaS apps and building new bespoke cloud-based apps. A lot of the dynamics are fairly consistent, which is great for us because it means we have a good market opportunity kind of across the horizontal landscape. Obviously, the handful of verticals is a little stronger for us historically. But in general, we still see really good demand and good execution across all the verticals.

Great. Thank you. And can you speak of a vertical that saw significant strength this last quarter, if any?

I wouldn’t call out anything that was uniquely strong. The great news continues to be I’ve looked at the data for the last 2 or 3 quarters, and there’s been real balance across the verticals. We typically see and we did in the second half of the year, a bit of a governmental pop. That’s not atypical. That’s budget cycle driven. But on balance, as you look across the industries that we’re selling into, it remains a quite balanced profile and nothing that I would call out for you that set itself apart really for the second half of the year.

Our next question comes from the line of Joel Fishbein with Truist.

Hi, guys. Hey Mark. Thanks for the color on the call with some of the large wins. It sounds like you’re getting some traction there. I’d love to just get a little bit more color, if you can, on any average deal sizes or how if you’re landing bigger, some of these overall, that would be really helpful.

Yes. I mean I think in general, from an average deal size, Joel, as we see a lot of traction in the mid- to high end of the market, and we've highlighted some of those, in general, obviously, the larger the customer, the larger the deal. I’d say, as the thing I might point to is as we’ve seen more and more traction with our AI offerings around our core, and that’s becoming a more natural motion, both from a demand from the customer and a selling motion with our team, that tends to increase the overall selling deal size because we’re attaching those AI products at initial sale time. Quite often, we still have situations where that isn’t happening, maybe it’s because the deal has been in the pipeline a long time and things like that. And we have a nice steady drum beat of upsell, cross-sell of those AI products into our installed base. So, those things are helping probably drive more expansion, just larger companies in general and the attachment of AI. But, yes, in general, I think we’re still really pleased with the overall progression of average sales over time, partly as I think people recognize our strength in the market, we tend to command a premium price. We do get a lot of price pressure in the market. Honestly, we’ve talked about that before, but we’re I think able to hold that price point pretty well because of the perceived superiority of the solution.

Our next question comes from the line of Andrew Nowinski with Wells Fargo.

Congrats on the great results this quarter. Cam, I thought you did a great job during the interim. I just want to ask a question on your SaaS business. So I know you’re seeing more traction in the mid to high enterprise with adoption of SaaS solution. But given how easy it is to deploy that solution, I would think you should be able to push your IGA solution down to that small and midsized enterprise market that previously could not support or implement an enterprise-grade IGA solution. So, I’m wondering whether that lower end of the segment could actually be a growth driver in 2022. And just wondering if you could give us any color on maybe your new customer growth that we’ve seen over the last 12 months, call it.

Thank you for your comments, Andy. I appreciate them. Customer growth has aligned with our overall business growth. During these transitional model periods, it’s challenging to establish direct comparisons. However, I can share that we are on track with our expectations for new customer growth, which is crucial for driving our top line. I'm particularly pleased, as Mark mentioned, with the contribution from our non-U.S. customers. This reflects the global investments we are making, and our capacity is performing as anticipated. Historically, we've maintained a balanced distribution of customer contributions across different sizes. We typically don’t target the small enterprise category, but in the mid-enterprise and large enterprise segments, where there are numerous potential customers, we are achieving success at a favorable rate. Our economic model, deployment approach, and overall strategy are functioning well, giving us confidence in our continued progress. We have focused on the larger segment recently due to evolving inquiries about market replacements, especially regarding legacy players in the high-end market. The good news is that we are now addressing customer needs at the upper end effectively. However, this does not mean we are exclusively shifting our focus upmarket; we remain committed to investing across all segments we aim to serve.

Okay. That’s great. And maybe just a follow-up for you. I know your results are amazing tonight. You’re clearly not having any issues with demand. But I’m wondering if customers are asking you for a more integrated solution with IGA and PAM and SSO. Do they actually want more of a broader platform, or do you see your customers still focusing on best-of-breed solutions for each of those segments?

This is Mark. I’ll take that one. Thanks. It’s good to talk to you. Yes, related to Cam’s last answer, we believe that as we target smaller markets, there’s more demand for an integrated solution from a single vendor. In these cases, the individual components might not be as comprehensive as what larger enterprises need, but customers may prefer the convenience of a single vendor, even if it means sacrificing some depth in the solution. Our focus remains on the mid- to high-end enterprises, where resolving core problems is the priority, rather than just providing a single vendor solution. We understand there’s pressure from procurement and others in the industry to consolidate vendors. However, we don’t feel significant pressure to shift away from our strategy of expanding our solution's breadth and addressing core issues. Shifting our terminology from identity governance to identity security was a significant move for us because we see a wider range of concerns beyond just compliance and provisioning that still fall within our area, without necessarily venturing into the traditional realms of privilege and access management. We believe the market is responding positively to this messaging. Regarding integration, our clients expect us to work with their preferred vendors for complementary solutions, but they are not pressuring us to consolidate into a single vendor approach in our key markets.

Yes. To build on Mark's last comment, the Gradient team has put in significant effort to collaborate with leaders in the PAM solution space to achieve high-quality integrations, and we have succeeded in that. Both we and our partners are making investments, which benefits our target customer base. Our customers can leverage the best solutions available without sacrificing operational efficiency because we are working together on these integrations.

Our next question comes from the line of Joshua Tilton with Wolfe Research.

Yes. Hey, guys. Thanks for taking my questions, and congrats on the quarter. You guys mentioned that the legacy replacement deals continue to be steady from quarter to quarter. But we are starting to hear more of the Saviynt customers migrating over to sale. Anything to comment on that front? And how should we think about that opportunity in 2022 as more of the customers start to come up for renewal?

Yes, this is Cam. Thank you for the question. I’ll start and then let Mark continue. As Mark mentioned, our win rates over the past couple of quarters have been strong, and we were happy to maintain this into the fourth quarter. We have a long-standing philosophy of losing gracefully because our experience shows that customers often return. We're witnessing this behavior with several customers, as time passes and their deployed solutions evolve, they find it challenging to keep up. We are capitalizing on this and achieving success. The signals you’re noticing in the market align with our sales activities, and we are encouraged by that. It indicates that identity is a long-term platform decision, and as customers grow familiar with competitors' products like Saviynt, we can present a more comprehensive story about our solutions.

Yes. And the only thing I’d add to that, Josh, is kind of tied into the last question from Andy about breadth. Saviynt made a slightly different strategic choice on us. I think they’ve tried to go much wider and their business is somewhat smaller than ours. I don’t know exactly because they’re private. But they’ve tried to get more into the PAM space and a few other areas. And I think as a result, I think their competitiveness directly against us is at times challenged. And as Cam said, we will still occasionally lose, we have lost to them over the years, not at a very high rate but we have. But we have, as you picked up on, a little more increase in the rate of some of those customers coming back around, I think, partly because the breadth and depth just isn’t as strong in our deep segment. And so, I think we probably don’t put them as quickly in our mind as legacy players, say Oracle, IBM, and CA, but they’ve been around the game quite some time as well. And yes, I think it is a fair pick up there, good research on your behalf that there’s been a little bit of a pickup there in terms of displacing that.

I appreciate the color. And just as a quick follow-up, you guys did give the disclosure on the bookings mix between perpetual and subscription. Would it be possible to get the split on subscription between term and SaaS in the quarter? And then also, you mentioned that this is kind of going to be a double transition where first perpetual disappears and then term. So, given that we should start seeing that term mix kind of come down, is there any way to get the mix of term and SaaS that’s baked into the guide for 2022?

We are evolving our disclosures. Last quarter, we provided more details on the composition of ARR, breaking it down into three components. However, we have not yet decided to provide more visibility on the bookings mix. Our focus in 2021 and as we enter 2022 is on recognizing this as a subscription business. We completed the transition away from license perpetual business last year and have seen strong success in selling both SaaS and term. We anticipate good contributions from both in 2022, with SaaS likely growing faster than term. As we progress into 2023 and beyond, we will place more emphasis on SaaS. For now, we are comfortable with the guidance and visibility we are providing, which we believe accurately reflects our focus for 2022.

Our next question comes from the line of Alex Henderson with Needham.

A couple of just quick housekeeping questions, if I could. Could you just talk a little bit about your exposure to Russia and what your churn rate was in terms of staff churning in the fourth quarter or for the ‘21 time frame, not versus ‘20, but versus ‘19? And what you’re seeing on wage inflation? And I’ve got a follow-up. Thanks.

Sure, Alex. Cam here. Our exposure to Russia is very minimal due to the nature of our customer base in both the commercial and governmental sectors. We have historically chosen not to engage in that market, so our exposure is quite limited. Regarding wage inflation, it is generally aligned with market trends and has certainly accelerated. I won’t deny that we are competing globally for talent, which has made it more difficult to attract and retain employees. We are addressing these challenges since we understand that our success is driven by great people, and we want to bring in and keep the right individuals to propel the business forward. Concerning turnover, in comparison to 2019, 2021 saw a higher rate, but when analyzing it on a blended basis, there is no significant difference in the overall pace of people choosing to join SailPoint. I can say we're pleased with how the second half of the year went, showing both a slowdown in that turnover rate and an increase in the speed at which we are onboarding new employees. Overall, looking back at the end of 2021, we are very satisfied with our staffing levels across both go-to-market and engineering teams.

Great. And if I could follow up, could you just give us some sense of what your headcount expectations are for ‘22? And what’s built into the model? And specifically, if you could give us any sense of what the mix of that increase is relative to these sales staff portion of the market?

So, Alex, I won’t provide specific details about the plan. Instead, I’ll share some general insights. We expect headcount to grow in alignment with our top-line goals. As both Mark and I mentioned earlier, this growth is focused on our go-to-market capacity, demand generation, and product development. We're observing strong ARR growth, whether viewed in total or in terms of new accounts, and we're achieving the productivity levels we desire. This gives us confidence in expanding our team size. Overall, across all departments, the growth is balanced. Our investment strategy supports product development to capitalize on the momentum in SaaS and the overall market, as well as the go-to-market teams concerning our entire product portfolio. Essentially, we are continuing our approach from 2021.

Last quarter, you said license revenue was about 60% term, 40% perpetual. I’m just curious if you could give us a finer point on what it was in Q4. I’m just curious how much perpetual there was.

Perpetual, I don’t have that number right handy. It came down modestly over Q3 was the answer.

On a percentage basis or a nominal dollar basis?

On a percentage basis, it came down modestly over the prior quarter.

Got it. That is helpful. In ‘22, the midpoint of your guidance is 18% top line growth at the midpoint. If you go back about a year ago at your Analyst Day, you said you expected the model transition to be about 10- to 11-point headwind on ‘22. I know it’s 14% in Q4. Do you still expect that kind of headwind to top line growth in ‘22?

Yes. I think the way to think about it is we had a mid-teens headwind adjusted growth effect in ‘21. And we would expect roughly that sort of effect in ‘22. It will moderate a few percentage points in ‘22 over ‘21, but not significantly. If you think of it a little bit above the mid-teens, a little bit below the mid-teens, that’s the range. And in the way we’ve thought about our business planning, it is, as we’ve said in the prepared remarks, the last meaningful year of headwind effect. We’re going to drop in the single digits as we go into next year.

Thank you for taking my questions. I appreciate it. I just wanted to ask you a question with respect to Phase 1 of the model transition, which is now complete. So just to be 100% clear, the perpetual form factor is entirely out of your price books, it will no longer be sold. And I’m curious about the term and the process with the term licensing format, especially as you reinforce and double down on the SaaS selling. I would love some of your clarification and opinion there. And I have a follow-up for Cam, if I may.

Ladies and gentlemen, again, we do apologize for the inconvenience. We have reached the end of the question-and-answer session, unfortunately. And this does conclude today’s conference, and you may disconnect your lines at this time. Thank you for your participation. And again, we do apologize for the inconvenience.