SailPoint Technologies (SAIL), a provider of cybersecurity software and a recent IPO, has made a huge move since reporting Q4 results on February 21. Since the name is not well known as only recently became a public company (made its IPO debut in November 2017), we thought this would be a good time to provide some background on SAIL and provide some color on the Q4 report.
In simple terms, SailPoint is a cybersecurity company based in Austin, TX that focuses on identity management software. It helps companies monitor security breaches, including those from inside the company itself. Specifically, SailPoint is a provider of enterprise identity governance software. The goal is to empower customers to securely govern the digital identities of employees, contractors, business partners and other users, and manage their constantly changing access rights to enterprise applications and data. Its open identity platform provides companies with critical visibility into who currently has access to which resources, who should have access to those resources, and how that access is being used.
The company offers both on-premises and cloud-based software. Its customers include many of the world's largest companies, including commercial enterprises, educational institutions and governments. Its current set of offerings consists of (i) IdentityIQ, its on-premises identity governance platform, (ii) IdentityNow, its cloud-based, multi-tenant governance suite, which is delivered as a subscription and (iii) SecurityIQ, its on-premises data access governance platform that secures access to data stored in file servers, collaboration portals, mailboxes and cloud storage systems.
Today, enterprise environments are more open and interconnected with their business partners, contractors, vendors and customers. Well-funded cyber attackers have significantly increased the frequency and sophistication of their attacks. As a result, IT professionals need to manage and secure increasingly complex hybrid IT environments. Attackers frequently target the identity vector as it allows them to leverage user identities to gain access to high-value systems and data while concealing their activity and movements within an organization's IT infrastructure.
More than 80% of hacking-related breaches involve the misuse of identity credentials, leveraging stolen and/or weak passwords. SailPoint believes its platform addresses a significant gap in today's security environment. Its platform offers a comprehensive approach to identity governance by delivering compliance controls, user lifecycle management, password management and data access governance for users, applications and data. Its open architecture allows its platform to bi-directionally share data with many common security and IT operations products.
Turning to its Q4 report last week, this was SAIL's first earnings report as a public company. Non-GAAP EPS rose 55% YoY to $0.17, which was much better than market expectations. Revenue rose 53% year/year to $67.8 mln, which also was a good bit better than market expectations. Non-GAAP operating margin came in at 24.6%. In terms of guidance, SAIL expects a Q1 non-GAAP loss of $(0.04)-(0.03) and revenue of $44-45 mln. For all of 2018, SAIL expects non-GAAP EPS of $0.04-0.06 with revenue of $220-224 mln.
SailPoint generates revenue from licenses, subscriptions and services. License revenue comes from the sale of its on premise software license agreements. Subscription revenue comes from (i) IdentityNow and (ii) IdentityIQ and SecurityIQ maintenance and support agreements, but not licenses. As SAIL generally sells its platform on a per-identity basis, its subscription revenue is determined by the number of identities that the customer is entitled to govern. License revenue in Q4 was $36.7 mln, a 65% YoY increase while subscription revenue was $21.2 mln, a 51% increase. Services and other revenue rose 23% to $9.9 mln.
Of note, SAIL considers its subscription revenue to be the recurring portion of its revenue base. As such, this is a key metric to watch. It should grow as a percentage of total revenue over time. Recurring revenue tends to lead to a more predictable revenue model and increases a company's visibility so you generally like to see this going up.
In sum, investors were clearly impressed with SAIL's Q4 report and guidance form last week. From a general perspective, SailPoint has a number of attractive qualities. As organizational complexity continues to increase, SailPoint says its platform becomes increasingly essential to govern users and their access to applications and data. The company sounds like it's a big player in its market niche within the cybersecurity framework. In fact, SailPoint pioneered the field of identity governance. The top line growth and subscription revenue as a percentage of total revenue has been growing nicely from 32% in 2015 to 37% in 2016 to 38% in 2017. This will be a metric investors and analysts will be monitoring. It's good to see it going up.