4. Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables present the Company’s financial assets that are measured at fair value on a recurring basis:
| | As of June 30, 2020 | | | As of September 30, 2020 |
| Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Level 1 | | Level 2 | | Level 3 | | Total |
| (In thousands) | | | (In thousands) |
Assets: | | | | | | | | | | | | | | | | Assets: | |
Cash equivalents: | | | | | | | | | | | | | | | | Cash equivalents: | |
Money market funds | $ | 5,125 | | | | — | | | | — | | | $ | 5,125 | | Money market funds | $ | 2,691 | | | — | | | — | | | $ | 2,691 | |
Total cash equivalents | $ | 5,125 | | | | — | | | | — | | | $ | 5,125 | | Total cash equivalents | $ | 2,691 | | | — | | | — | | | $ | 2,691 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2019 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| (In thousands) |
Assets: | | | | | | | |
Cash equivalents: | | | | | | | |
Money market funds | $ | 364,127 | | | — | | | — | | | $ | 364,127 | |
Total cash equivalents | $ | 364,127 | | | — | | | — | | | $ | 364,127 | |
The Company’s carrying amounts of financial instruments, including cash, accounts receivable, accounts payable, and accrued expenses are considered Level 1 and approximate their fair values due to their short maturities as of
JuneSeptember 30, 2020 and December 31, 2019 and are excluded from the fair value tables above.
See Note 9 “Convertible Senior Notes and Capped Call Transactions” for the carrying amount and estimated fair value of our Notes
(as defined below) as of
JuneSeptember 30, 2020.
On October 15, 2019, the Company acquired 100% of the equity interest in Orkus, Inc. (“Orkus”), a Delaware corporation engaged in the development and license of software products to assist customers in monitoring and controlling access and authorization across hybrid cloud assets. Total consideration related to the acquisition was $16.5 million in cash, of which $2.0 million is to be paid upon the lapse of an indemnification period of 12 months and 24 months of the acquisition date. As of
JuneSeptember 30, 2020 and December 31, 2019, $1.0 million of holdback amount is reflected within accrued expenses and other liabilities and $1.0 million is included in other long-term liabilities in the
unaudited condensed consolidated balance sheets.
The following table summarizes the final purchase price allocation as of the date of acquisition:
| | As of | |
| | October 15, 2019 | |
| | (In thousands) | |
Cash and cash equivalents | | $ | — | |
Prepayments and other current assets | | | 34 | |
Right-of-use assets | | | 90 | |
Goodwill | | | 7,637 | |
Intangible assets | | | 9,760 | |
Accounts payable | | | (21 | ) |
Accrued expenses and other liabilities | | | (133 | ) |
Deferred tax liability - non-current | | | (861 | ) |
Total fair value of assets acquired and liabilities assumed | | $ | 16,506 | |
| | | | | |
| As of |
| October 15, 2019 |
| (In thousands) |
Cash and cash equivalents | $ | 0 | |
Prepayments and other current assets | 34 | |
Right-of-use assets | 90 | |
Goodwill | 7,637 | |
Intangible assets | 9,760 | |
Accounts payable | (21) | |
Accrued expenses and other liabilities | (133) | |
Deferred tax liability - non-current | (861) | |
Total fair value of assets acquired and liabilities assumed | $ | 16,506 | |
The following table presents the estimated fair values and useful lives of the identifiable intangible assets acquired:
| | | | | | | | | | | |
| Amount | | Estimated Useful Life |
| (In thousands) | | (In years) |
Developed technology | $ | 9,760 | | | 5 |
11
On October 15, 2019, the Company acquired 100% of the equity interest in Overwatch.ID, Inc. (“Overwatch.ID”), a Delaware corporation engaged in the development and license of software products focused on access controls security for cloud applications, cloud computing, hybrid IT environments, and on-premises infrastructure. The consideration related to the acquisition was $20.9 million in cash, of which $3.0 million is to be paid upon the lapse of an indemnification period of 12 months and 18 months of the acquisition date. As of
JuneSeptember 30, 2020 and December 31, 2019, $3.0 million and $1.5 million, respectively, of the holdback is included within accrued expenses and other current liabilities in the
unaudited condensed consolidated balance sheets. As of December 31, 2019, $1.5 million of the holdback is included in other long-term liabilities in the
unaudited condensed consolidated balance sheet.
The following table summarizes the final purchase price allocation as of the date of acquisition:
| | As of | |
| | October 15, 2019 | |
| | (In thousands) | |
Cash and cash equivalents | | $ | 45 | |
Accounts receivable | | | 66 | |
Prepayments and other current assets | | | 103 | |
Deferred tax asset - non-current | | | 687 | |
Right-of-use assets | | | 175 | |
Goodwill | | | 14,107 | |
Intangible assets | | | 6,610 | |
Accounts payable | | | (256 | ) |
Accrued expenses and other liabilities | | | (185 | ) |
Deferred revenue | | | (466 | ) |
Total fair value of assets acquired and liabilities assumed | | $ | 20,886 | |
| | | | | |
| As of |
| October 15, 2019 |
| (In thousands) |
Cash and cash equivalents | $ | 45 | |
Accounts receivable | 66 | |
Prepayments and other current assets | 103 | |
Deferred tax asset - non-current | 687 | |
Right-of-use assets | 175 | |
Goodwill | 14,107 | |
Intangible assets | 6,610 | |
Accounts payable | (256) | |
Accrued expenses and other liabilities | (185) | |
Deferred revenue | (466) | |
Total fair value of assets acquired and liabilities assumed | $ | 20,886 | |
The following table presents the estimated fair values and useful lives of the identifiable intangible assets acquired:
| | | | | | | | | | | |
| Amount | | Estimated Useful Life |
| (In thousands) | | (In years) |
Developed technology | $ | 6,610 | | | 5 |
Additional Acquisition Related Information
The operating results of the acquired companies are included in our
unaudited condensed consolidated statements of income from the respective dates of acquisition. Pro forma results of operations have not been presented because the effects of these acquisitions, individually and in the aggregate, were not material to our
unaudited condensed consolidated
statementstatements of operations.
These acquisitions have been accounted for as business combinations. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the respective acquisition date. The Company finalized the purchase price within the required one-year measurement period as of the dates of acquisition.
The fair value of developed technology was estimated using the replacement cost method (Level 3), which utilized assumptions for the cost to replace, such as the workforce, timing and resources required, as well as a theoretical developer’s profit margin and entrepreneurial incentive and opportunity cost. The Company believes that for each acquisition, the acquired companies will provide opportunities for growth through investing in additional products and capabilities, among other factors. This contributed to a purchase price in excess of the estimated fair value of each acquired company’s net identifiable assets acquired and, as a result, goodwill was recorded in connection with each acquisition. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. Goodwill arising from these acquisitions are not deductible for tax purposes.
12
6. Goodwill and Intangible Assets
The following table reflects goodwill activity for the
sixnine months ended
JuneSeptember 30, 2020:
| | (In thousands) | |
Balance, December 31, 2019 | | $ | 241,051 | |
Measurement period adjustments | | | 70 | |
Balance, June 30, 2020 | | $ | 241,121 | |
| | | | | |
| (In thousands) |
Balance, December 31, 2019 | $ | 241,051 | |
Measurement period adjustments | 70 | |
Balance, September 30, 2020 | $ | 241,121 | |
There were 0 impairments of goodwill during the periods ended
JuneSeptember 30, 2020 or 2019.
Total cost and amortization of intangible assets are comprised of the following:
| | | | | As of | | | As of |
| | Weighted Average Useful Life | | June 30, 2020 | | | December 31, 2019 | | | Weighted Average Useful Life | | September 30, 2020 | | December 31, 2019 |
Intangible assets, net | | (In years) | | (In thousands) | | Intangible assets, net | (In years) | | (In thousands) |
Customer lists | | 15 | | $ | 42,500 | | | $ | 42,500 | | Customer lists | 15 | | $ | 42,500 | | | $ | 42,500 | |
Developed technology | | 8.9 | | | 58,370 | | | | 58,440 | | Developed technology | 8.9 | | 58,370 | | | 58,440 | |
Trade names and trademarks | | 17 | | | 24,500 | | | | 24,500 | | Trade names and trademarks | 17 | | 24,500 | | | 24,500 | |
Other intangible assets | | 4.8 | | | 3,689 | | | | 3,689 | | Other intangible assets | 4.8 | | 3,689 | | | 3,689 | |
Total intangible assets | | | | | 129,059 | | | | 129,129 | | Total intangible assets | | 129,059 | | | 129,129 | |
Less: Accumulated amortization | | | | | (53,833 | ) | | | (47,478 | ) | Less: Accumulated amortization | | (56,992) | | | (47,478) | |
Total intangible assets, net | | | | $ | 75,226 | | | $ | 81,651 | | Total intangible assets, net | | $ | 72,067 | | | $ | 81,651 | |
Amortization expense for the following periods is as follows:
| | | Three Months Ended | | | Six Months Ended | | | Three Months Ended | | Nine Months Ended |
| | June 30, 2020 | | | June 30, 2019 | | | June 30, 2020 | | | June 30, 2019 | | | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 |
| | (In thousands) | | | (In thousands) |
Cost of revenue - licenses | | $ | 1,008 | | | $ | 1,008 | | | $ | 2,016 | | | $ | 2,016 | | Cost of revenue - licenses | $ | 1,007 | | | $ | 1,008 | | | $ | 3,023 | | | $ | 3,024 | |
Cost of revenue - subscription | | | 911 | | | | 96 | | | | 1,821 | | | | 192 | | Cost of revenue - subscription | 921 | | | 96 | | | 2,742 | | | 288 | |
Research and development | | | 190 | | | | 159 | | | | 381 | | | | 318 | | Research and development | 162 | | | 159 | | | 543 | | | 477 | |
Sales and marketing | | | 1,069 | | | | 1,068 | | | | 2,137 | | | | 2,136 | | Sales and marketing | 1,069 | | | 1,068 | | | 3,206 | | | 3,204 | |
Total amortization expense | | $ | 3,178 | | | $ | 2,331 | | | $ | 6,355 | | | $ | 4,662 | | Total amortization expense | $ | 3,159 | | | $ | 2,331 | | | $ | 9,514 | | | $ | 6,993 | |
Periodically, the Company evaluates intangible assets for possible impairment. There were 0 impairments of intangible assets during the periods ended
JuneSeptember 30, 2020 or 2019.
The total estimated future amortization expense of these intangible assets as of
JuneSeptember 30, 2020 is as follows:
| Year Ending December 31, | | (in thousands) | | Year Ending December 31, | (In thousands) |
2020 (except the six months ended June 30) | | $ | 6,312 | | |
2020 (except the nine months ended September 30) | | 2020 (except the nine months ended September 30) | $ | 3,153 | |
2021 | | | 12,585 | | 2021 | 12,585 | |
2022 | | | 12,247 | | 2022 | 12,247 | |
2023 | | | 11,744 | | 2023 | 11,744 | |
2024 | | | 9,412 | | 2024 | 9,412 | |
Thereafter | | | 22,926 | | Thereafter | 22,926 | |
Total amortization expense | | $ | 75,226 | | Total amortization expense | $ | 72,067 | |
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7. Commitments and Contingencies
As of
JuneSeptember 30, 2020 and December 31, 2019, the Company had an aggregate of $6.0 million of cash collateral for an unconditional standby letter of credit related to the Company’s corporate headquarters lease. The Company is also required to maintain a small amount of restricted cash to guarantee rent payments in a foreign subsidiary.
As of
JuneSeptember 30, 2020, our leases, which primarily consist of office leases, have remaining lease terms of less than one year to nine years. Certain leases include early termination and/or extension options; however, exercise of these options is at the Company’s sole discretion. As of
JuneSeptember 30, 2020, the Company determined it is not reasonably certain it will exercise the options to extend its leases or terminate them early. As of
JuneSeptember 30, 2020, we have 0 financing leases and our non-cancelable operating lease commitments excludes variable consideration.
The undiscounted annual future minimum lease payments are summarized by year in the table below:
| Year Ending December 31, | | (in thousands) | | Year Ending December 31, | (In thousands) |
2020 (except the six months ended June 30) | | $ | 2,761 | | |
2020 (except the nine months ended September 30) | | 2020 (except the nine months ended September 30) | $ | 1,416 | |
2021 | | | 5,773 | | 2021 | 5,832 | |
2022 | | | 5,686 | | 2022 | 5,734 | |
2023 | | | 5,238 | | 2023 | 5,264 | |
2024 | | | 4,944 | | 2024 | 4,951 | |
Thereafter | | | 22,283 | | Thereafter | 22,283 | |
Total minimum lease payments | | | 46,685 | | Total minimum lease payments | 45,480 | |
Less: interest | | | (7,462 | ) | Less: interest | (6,939) | |
Total present value of operating lease liabilities | | $ | 39,223 | | Total present value of operating lease liabilities | $ | 38,541 | |
| | | | | |
Current operating lease liabilities | | $ | 4,049 | | Current operating lease liabilities | $ | 4,314 | |
Long-term operating lease liabilities | | | 35,174 | | Long-term operating lease liabilities | 34,227 | |
Total operating lease liabilities | | $ | 39,223 | | Total operating lease liabilities | $ | 38,541 | |
Indemnification Arrangements
In the ordinary course of business, the Company enters into contractual arrangements under which it agrees to provide indemnification of varying scope and terms to customers, business partners and other parties with respect to certain matters, including losses arising out of the breach of such agreements, intellectual property infringement claims made by third parties, and other liabilities with respect to our products and services and business. In these circumstances, payment may be conditional on the other party making a claim pursuant to the procedures specified in a particular contract.
The Company includes service level commitments to customers of our cloud-based products warranting certain levels of uptime reliability and performance and permitting those customers to receive credits in the event that we fail to meet those levels. To date, the Company has not incurred any material costs as a result of these commitments, and we expect the time between any potential claims and issuance of the credits to be short. As a result, we have not accrued any liabilities related to these commitments in our
unaudited condensed consolidated financial statements.
Litigation Claims and Assessments
The Company is subject to claims and suits that may arise from time to time in the ordinary course of business. In addition, some legal actions, claims and governmental inquiries may be instituted or asserted in the future against us and our subsidiaries. Although the outcome of our legal proceedings cannot be predicted with certainty and no assurances can be provided, based upon current information, we do not believe the liabilities, if any, which may ultimately result from the outcome of such matters, individually or in the aggregate, will have a material adverse impact on our
unaudited condensed consolidated financial statements.
14
In 2019, SailPoint Technologies, Inc., as borrower, and certain of our other wholly owned subsidiaries entered into a credit agreement (as amended, restated, amended and restated, supplemented or otherwise modified from time to time through the date hereof, the “Credit Agreement”). The Credit Agreement is guaranteed by SailPoint Technologies Intermediate Holdings, LLC, a wholly owned subsidiary, and the Borrower’s material domestic subsidiaries (the “Guarantors” and, together with the Borrower, the “Loan Parties”) and is supported by a security interest in substantially all of the Loan Parties’ personal property and assets.
Later in 2019, the Company amended the Credit Agreement in connection with the issuance and sale of the
Notes (as defined below).Notes. Such amendment included a decrease in the
commitments for revolving credit loans from $150.0 million to $75.0 million,, with a $15.0 million letter of credit sublimit, which amount can be increased or decreased under certain circumstances and is subject to certain financial covenants. In addition, the Credit Agreement provides for the ability to incur uncommitted term loan facilities if, among other things, the Senior Net Leverage Ratio (as defined in the Credit Agreement), calculated giving pro forma effect to the requested term loan facility, is no greater than 3.50 to 1.00. Borrowings pursuant to the Credit Agreement may be used for working capital and other general corporate purposes, including acquisitions permitted under the Credit Agreement. The Credit Agreement contains certain customary representations and warranties and affirmative and negative covenants.
The agreement has established priority for the lenders party over all assets of the Company.The interest rates applicable to revolving credit loans under the Credit Agreement are at the Company’s option.
The Company pays an unused commitment fee during the term of the Credit Agreement ranging from 0.20% to 0.30% per annum based on the Senior Secured Net Leverage Ratio. Borrowings under the Credit Agreement are scheduled to mature in March 2024.11, 2024.
The Company had
0 outstanding revolving credit loan balance under the Credit Agreement as of
JuneSeptember 30, 2020 and December 31, 2019. The Company was in compliance with all applicable covenants as of
JuneSeptember 30, 2020.
The Company incurred total debt issuance costs of $0.8 million in connection with the Credit Agreement, which the net balance is included in other non-current assets in the accompanying
unaudited condensed consolidated balance sheets. These costs are being amortized to interest expense over the life of the Credit Agreement on a straight-line basis. Amortization of debt issuance for the periods ended
JuneSeptember 30, 2020 and 2019 was not material and recorded in interest expense in the accompanying
unaudited condensed consolidated statements of operations.
9. Convertible Senior Notes and Capped Call Transactions
In September 2019, the Company issued and sold $400.0 million aggregate principal amount of 0.125% Convertible Senior Notes due 2024 (the “Notes”) in a private offering (the “Offering”) to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The net proceeds from the Offering were $391.2 million, after deducting discounts and commissions and other fees and expenses payable by the Company in connection with the Offering. The Company used $37.1 million of the net proceeds from the Offering to pay the cost of the Capped Call
Transactions (as defined below).Transactions.
The Notes were issued pursuant to an indenture (the “Indenture”), by and between the Company and U.S. Bank National Association, as trustee. The Notes are senior unsecured obligations of the Company and will mature on September 15, 2024, unless earlier redeemed, repurchased or converted. The Notes bear interest at a fixed rate of 0.125% per year payable semiannually in arrears on March 15 and September 15 of each year.
The Notes will be convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding March 15, 2024, only under the following circumstances:
| •
| during any calendar quarter commencing after the calendar quarter ending on December 31, 2019 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock, for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
|
| •
| •during any calendar quarter commencing after the calendar quarter ending on December 31, 2019 (and only during the 5 business day period after any 5 consecutive trading day period (the “measurement period”) in which the trading price (as defined in the Indenture) per $1,000 principal amount of the Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of common stock and the conversion rate for the Notes on each such calendar quarter), if the last reported sale price of the Company’s common stock, for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; |
| •during the 5 business day period after any 5 consecutive trading day period (the “measurement period”) in which the trading price (as defined in the Indenture) per $1,000 principal amount of the Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of common stock and the conversion rate for the Notes on each such trading day; | if the Company calls any or all of the Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or
|
| •
| upon the occurrence of specified corporate events as set forth in the Indenture.
|
•if the Company calls any or all of the Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or
•upon the occurrence of specified corporate events as set forth in the Indenture.
On or after March 15, 2024 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances.
15
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Upon conversion, the Company may satisfy its conversion obligation by paying and/or delivering, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election, in the manner and subject to the terms and conditions provided in the Indenture. It is the Company’s current intent to settle the principal amount of the Notes with cash. The Notes are convertible at an initial conversion rate of 35.1849 shares of common stock per $1,000 principal amount of the Notes, which is equivalent to an initial conversion price of $28.42 per share of common stock, subject to adjustment upon the occurrence of specified events. The conversion rate is subject to adjustment under certain circumstances in accordance with the terms of the Indenture.
In addition, following certain corporate events that occur prior to the maturity date or if the Company delivers a notice of redemption, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Notes in connection with such a corporate event or notice of redemption, as the case may be. For example, upon the occurrence of a make-whole fundamental change, as defined in the purchase agreement, the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its Notes in connection with such make-whole fundamental change or during the relevant redemption period.
The Company may not redeem the Notes prior to September 20, 2022. The Company may redeem for cash all or any portion of the Notes, at its option, on or after September 20, 2022, if the last reported sale price of common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes, which means that the Company is not required to redeem or retire the Notes periodically.
If the Company undergoes a fundamental change (as defined in the Indenture), holders may require the Company to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The Indenture includes customary covenants and sets forth certain events of default after which the Notes may be declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default involving the Company after which the Notes become automatically due and payable.
The Company was in compliance with all applicable covenants as of JuneSeptember 30, 2020.As
For at least 20 trading days during the period of
June30 consecutive trading days ended September 30, 2020, the
conditions allowinglast reported sale price of the Company’s common stock was equal to or exceeded 130% of the conversion price of the Notes on each applicable trading day. As a result, the Notes are convertible at the option of the holders during the fiscal quarter ending December 31, 2020 and were classified as current liabilities on the unaudited condensed consolidated balance sheet as of September 30, 2020. As of the date of this filing, none of the holders of the Notes
to convert have
not been met since issuance, and therefore, the Notes were classified as long-term debt on our condensed consolidated balance sheets.submitted requests for conversion.
In accounting for the issuance of the Notes, we separated the Notes into liability and equity components. The carrying amounts of the liability components of the Notes were calculated by measuring the fair value of similar debt instruments that do not have an associated convertible feature. The carrying amounts of the equity components, representing the conversion option, were determined by deducting the fair value of the liability components from the par value of the Notes. This difference represents the debt discount that is amortized to interest expense over the terms of the Notes using the effective interest rate method. The carrying amount of the equity components representing the conversion options was $88.8 million for the Notes and is recorded in additional paid in capital and are not remeasured as long as they continue to meet the conditions for equity classification.
The Company allocates transaction costs related to the issuance of the Notes to the liability and equity components using the same proportions as the initial carrying value of the Notes. Transaction costs attributable to the liability component were $6.8 million and are being amortized to interest expense at an effective interest method rate of 5.25% over the term of the Notes. Transaction costs attributable to the equity component were $2.0 million and are netted with the equity component of the Notes in additional paid in capital.
As of
JuneSeptember 30, 2020, the Notes have a remaining life of
5148 months.
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Table of Contents
The net carrying amount of the liability and equity components of the Notes for the periods presented is as follows:
| | | As of | | | As of |
| | June 30, 2020 | | | December 31, 2019 | | | September 30, 2020 | | December 31, 2019 |
| | (In thousands) | | | (In thousands) |
Liability component | | | | | | | | | Liability component | |
Principal | | $ | 400,000 | | | $ | 400,000 | | Principal | $ | 400,000 | | | $ | 400,000 | |
Unamortized discount | | | (76,512 | ) | | | (84,542 | ) | Unamortized discount | (72,417) | | | (84,542) | |
Unamortized issuance costs | | | (5,733 | ) | | | (6,407 | ) | Unamortized issuance costs | (5,396) | | | (6,407) | |
Net carrying amount | | $ | 317,755 | | | $ | 309,051 | | Net carrying amount | $ | 322,187 | | | $ | 309,051 | |
| | | | | | | | | | | | |
Equity component, net of issuance costs | | $ | 86,764 | | | $ | 86,764 | | Equity component, net of issuance costs | $ | 86,764 | | | $ | 86,764 | |
The interest expense recognized related to the Notes for the periods presented is as follows:
| | | Three Months Ended | | | Six Months Ended | | | Three Months Ended | | Nine Months Ended |
| | June 30, 2020 | | | June 30, 2020 | | | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 |
| | (In thousands) | | | (In thousands) |
Contractual interest expense | | $ | 125 | | | $ | 250 | | Contractual interest expense | $ | 125 | | | $ | 8 | | | $ | 375 | | | $ | 8 | |
Amortization of debt discount | | | 4,042 | | | | 8,031 | | Amortization of debt discount | 4,094 | | | 261 | | | 12,125 | | | 261 | |
Amortization of debt issuance costs | | | 337 | | | | 674 | | Amortization of debt issuance costs | 337 | | | 22 | | | 1,011 | | | 22 | |
Total | | $ | 4,504 | | | $ | 8,955 | | Total | $ | 4,556 | | | $ | 291 | | | $ | 13,511 | | | $ | 291 | |
As of
JuneSeptember 30, 2020, the total estimated fair value of the Notes was
$449.3$610.3 million. The fair value was determined based on the closing trading price per $100 of the Notes as of the last day of trading for the period. The fair value of the Notes is primarily affected by the trading price of our common stock and market interest rates. The fair value of the Notes is considered Level 2 within the fair value hierarchy and was determined based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, and quoted prices of the Notes in an over-the-counter market.
In September 2019, in connection with the pricing of the Notes and in connection with the initial purchasers’ exercise in full of their option to purchase additional Notes, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with the initial purchasers or their respective affiliates and another financial institution. The Capped Call Transactions cover, subject to anti-dilution adjustments substantially similar to those applicable to the Notes, 14.1 million shares of common stock. The Capped Call Transactions are generally expected to reduce potential dilution to common stock upon any conversion of the Notes and/or offset any potential cash payments the Company is required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap. The Capped Call Transactions have an initial strike price of $28.42 per share, which corresponds to the initial conversion price of the Notes and is subject to certain adjustments. The cap price of the Capped Call Transactions is initially $41.34 per share, which is subject to certain adjustments. For accounting purposes, the Capped Calls Transactions are separate transactions and not part of the terms of the Notes. As the Capped Call Transactions are considered indexed to our own stock and are considered equity classified, they are recorded in stockholders’ equity and are not accounted for as derivatives. The cost of $37.1 million incurred in connection with the Capped Call Transactions was recorded as a reduction to additional paid in capital.
10. Stock-Based Compensation
In 2015, the Company adopted (i) the Amended and Restated 2015 Stock Option and Grant Plan and (ii) the 2015 Stock Incentive Plan (together the “2015 Stock Option Plans”) under which it may grant incentive stock options (“ISOs”), nonqualified stock options (“NSOs”) for the right to purchase shares of common stock and grant restricted stock units (“RSUs”). The 2015 Stock Option Plans reserve 5.0 million shares of common stock for issuance as ISOs, 0.5 million shares of RSUs and 0.25 million shares for issuance under the 2015 Stock Incentive Plan. Under the 2015 Stock Option Plans, ISOs may not be granted at less than fair market value on the date of the grant and generally vest over a
four-year period based on continued service. Options generally expire ten years after the grant date.
As of
JuneSeptember 30, 2020, 0.6 million shares were available for issuance under the 2015 Stock Option Plans, including less than 0.1 million shares available for issuance under the 2015 Stock Incentive Plan. The Company currently uses authorized and unissued shares to satisfy share award exercises.
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Table of Contents
2017 Long Term Incentive Plan
In November 2017, the Company’s Board of Directors adopted the 2017 Long Term Incentive Plan (the “2017 Plan”) under which it may grant stock options, NSOs to purchase shares of common stock and RSUs. As of
JuneSeptember 30, 2020, the Company had reserved 17.7 million shares of common stock available for issuance under the 2017 Plan to employees, directors, officers and consultants of the Company and its subsidiaries. The number of shares of common stock available for issuance under the 2017 Plan is increased on each January 1 by 4.4 million shares of common stock. Options and RSUs granted to employees under the 2017 Plan generally vest over four years. Common stock subject to an award that expires or is canceled, forfeited, exchanged or otherwise terminated without delivery of shares, and shares withheld or surrendered to pay the exercise price of, or to satisfy the withholding obligations with respect to an award, will become available for future grants under the 2017 Plan. As of
JuneSeptember 30, 2020,
11.311.1 million shares were available for issuance under the 2017 Plan. The Company currently uses authorized and unissued shares to satisfy share award exercises.
The fair value for the Company’s stock options granted and Employee Stock Purchase Plan (the "ESPP") purchase rights, as discussed further below, during the periods presented were estimated at grant date using a Black Scholes option-pricing model using the following weighted average assumptions:
| | | Stock Options | | | ESPP | | | Stock Options | | ESPP |
| | June 30, 2020 | | | June 30, 2019 | | | June 30, 2020 | | | June 30, 2019 | | | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 |
Expected dividend rate | | 0% | | | 0% | | | 0% | | | 0% | | Expected dividend rate | 0% | | 0% | | 0% | | 0% |
Expected volatility | | 50.8% - 56.2% | | | 39.3% - 39.8% | | | 48.1% - 56.2% | | | 39.8% - 46.0% | | Expected volatility | 50% - 56.2% | | 38.8% - 39.8% | | 48.1% - 56.2% | | 39.8% - 46.0% |
Risk-free interest rate | | 0.42% - 1.53% | | | 1.84% - 2.59% | | | 0.18% - 1.57% | | | 2.29 - 2.44% | | Risk-free interest rate | 0.36% - 1.53% | | 1.39% - 2.59% | | 0.18% - 1.57% | | 2.29% -2.44% |
Expected term (in years) | | | 6.25 | | | | 6.25 | | | | 0.50 | | | 0.42 - 0.50 | | Expected term (in years) | 6.25 | | 6.25 | | 0.50 | | 0.42 - 0.50 |
The following table summarizes stock option activity for the
sixnine months ended
JuneSeptember 30, 2020:
| | | Number of Options | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Term | | | Aggregate Intrinsic Value | | | Number of Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term | | Aggregate Intrinsic Value |
| | (In thousands) | | | (Per share) | | | (Years) | | | (In thousands) | | | (In thousands) | | (Per share) | | (Years) | | (In thousands) |
Balances at December 31, 2019 | Balances at December 31, 2019 | | 2,786 | | | $ | 13.67 | | | | 7.7 | | | $ | 31,489 | | Balances at December 31, 2019 | 2,786 | | | $ | 13.67 | | | 7.7 | | $ | 31,489 | |
Granted | | | 585 | | | $ | 24.68 | | | | | | | | | | Granted | 617 | | | $ | 25.30 | | |
Exercised | | | (423 | ) | | $ | 6.64 | | | | | | | | | | Exercised | (648) | | | $ | 7.57 | | |
Forfeited | | | (224 | ) | | $ | 20.45 | | | | | | | | | | Forfeited | (230) | | | $ | 20.42 | | |
Balances at June 30, 2020 | | 2,724 | | | $ | 16.57 | | | | 7.9 | | | $ | 28,640 | | |
Options vested and expected to vest at June 30, 2020 | | 2,724 | | | $ | 16.57 | | | | 7.9 | | | $ | 28,640 | | |
Options vested and exercisable at June 30, 2020 | | 1,124 | | | $ | 9.92 | | | | 6.6 | | | $ | 19,183 | | |
Balances at September 30, 2020 | | Balances at September 30, 2020 | 2,525 | | | $ | 17.47 | | | 7.8 | | $ | 55,819 | |
Options vested and expected to vest at September 30, 2020 | | Options vested and expected to vest at September 30, 2020 | 2,525 | | | $ | 17.47 | | | 7.8 | | $ | 55,819 | |
Options vested and exercisable at September 30, 2020 | | Options vested and exercisable at September 30, 2020 | 1,048 | | | $ | 11.07 | | | 6.7 | | $ | 29,870 | |
The Company expects all outstanding stock options to fully vest. The weighted average grant date fair value per share for the
sixnine months ended
JuneSeptember 30, 2020 and 2019 was
$8.82$17.27 and
$12.06,$11.48, respectively. The total fair value of shares vested for the three and
sixnine months ended
JuneSeptember 30, 2020 was
$0.9$1.1 million and
$3.7$4.8 million, respectively, compared to approximately
$0.5$0.8 million and
$2.9$3.7 million for the three and
sixnine months ended
JuneSeptember 30, 2019, respectively.
The total unrecognized compensation expense related to non-vested stock options granted is
$15.0$14.1 million and is expected to be recognized over a weighted average period of
2.72.5 years as of
JuneSeptember 30, 2020.
18
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In 2014 and 2015, the Company granted shares of the Company’s common stock (the “incentive units”) to certain members of management pursuant to restricted stock agreements (the “RSAs”).
The incentive units were granted with an exercise price equal to the fair market value on the date of grant, are subject to vesting, and if exercised in advance of vesting were subject to the Company’s right to repurchase until vested.
The Company did 0t grant any additional incentive units during the periods ended
JuneSeptember 30, 2020. During the first quarter of 2019, all of the remaining 0.7 million incentive units were vested with a weighted average grant date fair value of $0.05 per share. Therefore, subsequent to the first quarter of 2019, we incurred 0 additional stock-based compensation expense and there is no further unrecognized compensation expense or intrinsic value related to non-vested incentive units.
The following table summarizes the RSU activity for the Company for the
sixnine months ended
JuneSeptember 30, 2020:
| | | Number of Shares | | | Weighted Average Grant Date Fair Value | | | Weighted Average Remaining Contractual Term | | | Aggregate Intrinsic Value | | | Number of Shares | | Weighted Average Grant Date Fair Value | | Weighted Average Remaining Contractual Term | | Aggregate Intrinsic Value |
| | (In thousands) | | | (Per share) | | | (Years) | | | (In thousands) | | | (In thousands) | | (Per share) | | (Years) | | (In thousands) |
Balances at December 31, 2019 | Balances at December 31, 2019 | | 1,881 | | | $ | 23.08 | | | | 1.6 | | | $ | 44,386 | | Balances at December 31, 2019 | 1,881 | | | $ | 23.08 | | | 1.6 | | $ | 44,386 | |
Granted | | | 1,875 | | | $ | 22.55 | | | | | | | | | | Granted | 2,051 | | | $ | 23.48 | | |
Vested | | | (342 | ) | | $ | 26.02 | �� | | | | | | | | | Vested | (399) | | | $ | 25.50 | | |
Forfeited | | | (179 | ) | | $ | 23.17 | | | | | | | | | | Forfeited | (216) | | | $ | 23.29 | | |
Balances at June 30, 2020 | | 3,235 | | | $ | 22.46 | | | | 1.7 | | | $ | 85,626 | | |
Units expected to vest at June 30, 2020 | | 3,235 | | | $ | 22.46 | | | | 1.7 | | | $ | 85,626 | | |
Balances at September 30, 2020 | | Balances at September 30, 2020 | 3,317 | | | $ | 23.03 | | | 1.5 | | $ | 131,260 | |
Units expected to vest at September 30, 2020 | | Units expected to vest at September 30, 2020 | 3,317 | | | $ | 23.03 | | | 1.5 | | $ | 131,260 | |
The Company expects all outstanding RSUs to fully vest. The total unrecognized compensation related to RSUs was $63.963.3 million as of JuneSeptember 30, 2020 and is expected to be recognized over a weighted average period of 3.12.9 years. Employee Stock Purchase Plan
The Company initially reserved 1.8 million shares of common stock for issuance under the ESPP. The number of shares available for issuance under the ESPP increases each January 1 by 0.9 million shares of common stock. The ESPP will continue in effect unless terminated prior thereto by the Company’s board of directors or compensation committee, each of which has the right to terminate the ESPP at any time. As of JuneSeptember 30, 2020, 2.8 million shares were available for issuance under the ESPP Plan. During each of the sixnine months ended JuneSeptember 30, 2020 and 2019, the Company issued and distributed approximately 0.2 million shares of common stock pursuant the ESPP offering periods spanning from December 3, 2019 to June 3, 2020 and January 2, 2019 to June 3, 2019, respectively. The current ESPP offering period is June 4, 2020 through December 2, 2020. Stock-based compensation expense associated with ESPP purchase rights are recognized on a straight-line basis over the offering period.
A summary of the Company’s stock-based compensation expense, which includes stock options, incentive units, RSUs and ESPP, is presented below: | | | Three Months Ended | | | Six Months Ended | | | Three Months Ended | | Nine Months Ended |
| | June 30, 2020 | | | June 30, 2019 | | | June 30, 2020 | | | June 30, 2019 | | | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 |
| | (In thousands) | | | (In thousands) |
Stock options | | $ | 1,437 | | | $ | 1,392 | | | $ | 2,828 | | | $ | 2,636 | | Stock options | $ | 1,479 | | | $ | 1,232 | | | $ | 4,307 | | | $ | 3,868 | |
Incentive units | | | — | | | | — | | | | — | | | | 351 | | Incentive units | 0 | | | 0 | | | 0 | | | 351 | |
RSUs | RSUs | | 5,261 | | | | 3,029 | | | | 9,459 | | | | 5,357 | | RSUs | 5,654 | | | 2,819 | | | 15,113 | | | 8,176 | |
ESPP | ESPP | | 452 | | | | 549 | | | | 1,054 | | | | 1,265 | | ESPP | 705 | | | 438 | | | 1,759 | | | 1,703 | |
Total stock-based compensation expense | | $ | 7,150 | | | $ | 4,970 | | | $ | 13,341 | | | $ | 9,609 | | Total stock-based compensation expense | $ | 7,838 | | | $ | 4,489 | | | $ | 21,179 | | | $ | 14,098 | |
A summary of the Company’s stock-based compensation expense as recognized on the
unaudited condensed consolidated statements of operations is as follows:
19
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 |
| (In thousands) |
Cost of revenue - subscription | $ | 485 | | | $ | 286 | | | $ | 1,270 | | | $ | 830 | |
Cost of revenue - services and other | 550 | | | 337 | | | 1,368 | | | 1,066 | |
Research and development | 1,712 | | | 820 | | | 4,700 | | | 2,653 | |
General and administrative | 1,944 | | | 1,710 | | | 4,896 | | | 4,725 | |
Sales and marketing | 3,147 | | | 1,336 | | | 8,945 | | | 4,824 | |
Total stock-based compensation expense | $ | 7,838 | | | $ | 4,489 | | | $ | 21,179 | | | $ | 14,098 | |
| | Three Months Ended | | | Six Months Ended | |
| | June 30, 2020 | | | June 30, 2019 | | | June 30, 2020 | | | June 30, 2019 | |
| | (In thousands) | |
Cost of revenue - subscription | | $ | 396 | | | $ | 284 | | | $ | 785 | | | $ | 544 | |
Cost of revenue - services and other | | | 391 | | | | 380 | | | | 818 | | | | 729 | |
Research and development | | | 1,487 | | | | 916 | | | | 2,988 | | | | 1,833 | |
General and administrative | | | 1,950 | | | | 1,644 | | | | 2,952 | | | | 3,015 | |
Sales and marketing | | | 2,926 | | | | 1,746 | | | | 5,798 | | | | 3,488 | |
Total stock-based compensation expense | | $ | 7,150 | | | $ | 4,970 | | | $ | 13,341 | | | $ | 9,609 | |
The effective tax rate for the three and
sixnine months ended
JuneSeptember 30, 2020 is
14.0%78.3% and
(0.5)%28.5%, respectively, compared to
9.2%(249.3)% and
(2.2)%13.9% for the three and
sixnine months ended
JuneSeptember 30, 2019, respectively. The primary drivers for the differences in the rates from the prior-year period to the current-year period are related to differences in forecasted pre-tax book income, the impact of stock compensation, an increase in foreign tax liabilities and the impact of
valuation allowance build.research and development ("R&D") credits.
Provision for income taxes consists of U.S. and state income taxes and income taxes in certain foreign jurisdictions in which the Company conducts business.
While theThe Company
is expectedexpects to be in an overall deferred tax liability position for the period ended December 31,
2020 based on the full-year forecast, the Company is still in a three-year cumulative book loss. Based on an analysis of the utilization of its federal and state2020. Additionally, all deferred tax assets
are expected to be fully offset by the
Company hasturning of its deferred tax liabilities over time, so there is no valuation allowance included in
its FIN18the forecasted effective tax rate
a valuation allowance build for the
portion of deferred tax assets for which there is not sufficient offsetting future deferred tax liabilities.nine months ended September 30, 2020. The Company still maintains a full valuation allowance for its Israel tax position due to the lack of taxable earnings for the foreseeable future.
The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. During the periods ended
JuneSeptember 30, 2020 and 2019, the Company did 0t record any material interest or penalties.
The Company files tax returns in the U.S. federal jurisdiction, in several state jurisdictions, and in several foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations for years before
20152016 and is no longer subject to state, local and foreign income tax examinations by tax authorities for years before
2014.2015. The Company is currently under audit for income tax in a single foreign jurisdiction. The audit is ongoing and is not expected to materially impact the
unaudited condensed consolidated financial statements. The Company has an Uncertain Tax Position reserve related to this foreign jurisdiction filing that should sufficiently cover any related assessment.
12. Net Income (Loss) Per Share
Attributable to Common StockholdersBasic and diluted net income (loss) per share is computed by dividing net income (loss)
attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated using our weighted average outstanding common shares including the dilutive effect of stock awards. In periods when the Company recognizes a net loss, the Company excludes the impact of outstanding stock awards from the diluted loss per share calculation as their inclusion would have an anti-dilutive effect.
20
The following table sets forth the calculation of basic and diluted net income (loss) per share for the periods presented:
| | | Three Months Ended | | | Six Months Ended | | | Three Months Ended | | Nine Months Ended |
| | June 30, 2020 | | | June 30, 2019 | | | June 30, 2020 | | | June 30, 2019 | | | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 |
| | (In thousands, except per share data) | | | (In thousands, except per share data) |
Numerator | | | | | | | | | | | | | | | | | Numerator | |
Net income (loss) | | $ | 3,042 | | | $ | (9,197 | ) | | $ | (5,375 | ) | | $ | (17,587 | ) | Net income (loss) | $ | (676) | | | $ | 3,668 | | | $ | (6,051) | | | $ | (13,919) | |
Net income (loss) attributable to common stockholders | | $ | 3,042 | | | $ | (9,197 | ) | | $ | (5,375 | ) | | $ | (17,587 | ) | |
| | | | | | | | | | | | | | | | | |
Denominator | | | | | | | | | | | | | | | | | Denominator | |
Weighted average shares outstanding | | | | | | | | | | | | | | | | | Weighted average shares outstanding | |
Basic | | | 90,328 | | | | 88,767 | | | | 90,095 | | | | 88,533 | | Basic | 90,764 | | | 89,143 | | | 90,320 | | | 88,739 | |
Diluted | | | 91,599 | | | | 88,767 | | | | 90,095 | | | | 88,533 | | Diluted | 90,764 | | | 90,808 | | | 90,320 | | | 88,739 | |
| | | | | | | | | | | | | | | | | |
Net income (loss) attributable to common stockholders per share | | | | | | | | | | | | | | | | | |
Net income (loss) per share | | Net income (loss) per share | |
Basic | | $ | 0.03 | | | $ | (0.10 | ) | | $ | (0.06 | ) | | $ | (0.20 | ) | Basic | $ | (0.01) | | | $ | 0.04 | | | $ | (0.07) | | | $ | (0.16) | |
Diluted | | $ | 0.03 | | | $ | (0.10 | ) | | $ | (0.06 | ) | | $ | (0.20 | ) | Diluted | $ | (0.01) | | | $ | 0.04 | | | $ | (0.07) | | | $ | (0.16) | |
The following weighted average outstanding shares of common stock equivalents were excluded from the computation of the diluted net income (loss) per share
attributable to common stockholders for the periods presented because their effect would have been anti-dilutive:
| | | Three Months Ended | | | Six Months Ended | | | Three Months Ended | | Nine Months Ended |
| | June 30, 2020 | | | June 30, 2019 | | | June 30, 2020 | | | June 30, 2019 | | | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 |
| | (in thousands) | | | (in thousands) |
Stock options to purchase common stock | | | 1,491 | | | | 1,458 | | | | 2,943 | | | | 3,108 | | Stock options to purchase common stock | 2,599 | | | 907 | | | 2,827 | | | 3,062 | |
RSUs issued and outstanding | RSUs issued and outstanding | | 1,805 | | | | 1,941 | | | | 1,212 | | | | 1,791 | | RSUs issued and outstanding | 3,296 | | | 969 | | | 2,953 | | | 1,855 | |
ESPP | ESPP | | — | | | | 57 | | | | 182 | | | | 28 | | ESPP | 210 | | | 0 | | | 136 | | | 67 | |
Convertible senior notes | | Convertible senior notes | 2,558 | | | 0 | | | 0 | | | 0 | |
Total | | | 3,296 | | | | 3,456 | | | | 4,337 | | | | 4,927 | | Total | 8,663 | | | 1,876 | | | 5,916 | | | 4,984 | |
As we expect to settle the principal amount of the Notes in cash and any excess in shares of the Company’s common stock, the Company uses the treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted net income per share, if applicable. The conversion spread of 14.1 million shares will have a dilutive impact on diluted net income per share of common stock when the average market price of our common stock for a given period exceeds the conversion price of $28.42 per share.
13. Segment and Geographic Information
ASC 280, “Segment Reporting”, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision makers in deciding how to allocate resources and in assessing performance. The Company manages its business on the basis of 1 reportable segment and derives revenues from licensing of software, sale of our maintenance, SaaS subscription offerings, professional services and technical support. Revenue is classified by the following major geographic areas: (i) United States, (ii) Europe, the Middle East and Africa (“EMEA”) and (iii) rest of the world.
The following are a summary of consolidated revenues within geographic areas:
| Three Months Ended | | | Six Months Ended | |
| June 30, 2020 | | | June 30, 2019 | | | June 30, 2020 | | | June 30, 2019 | |
| (In thousands) | |
United States | $ | 69,197 | | | $ | 44,399 | | | $ | 123,696 | | | $ | 85,959 | |
EMEA (1) | | 13,047 | | | | 12,332 | | | | 26,775 | | | | 26,269 | |
Rest of the World (1) | | 10,214 | | | | 6,323 | | | | 17,429 | | | | 11,409 | |
Total revenue | $ | 92,458 | | | $ | 63,054 | | | $ | 167,900 | | | $ | 123,637 | |
(1)
| No single country outside of the United States represented more than 10% of our revenue.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 |
| (In thousands) |
United States | $ | 67,917 | | | $ | 56,071 | | | $ | 191,613 | | | $ | 142,030 | |
EMEA (1) | 16,329 | | | 12,499 | | | 43,104 | | | 38,768 | |
Rest of the World (1) | 9,767 | | | 7,309 | | | 27,196 | | | 18,718 | |
Total revenue | $ | 94,013 | | | $ | 75,879 | | | $ | 261,913 | | | $ | 199,516 | |
21
(1) No single country outside of the United States represented more than 10% of our revenue.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our Unaudited Condensed Consolidated Financial Statements and notes thereto in Part I, Item 1 of this Quarterly Report on Form 10-Q (this “Quarterly Report”) and our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 24, 2020 (the “Annual Report”), including the consolidated financial statements and related notes included therein.
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. All
Statementsstatements included in this Quarterly Report, other than statements of historical fact, are forward-looking statements. This includes statements regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions.
You should not rely upon forward-looking statements as predictions of future events or place undue reliance thereon. We have based the forward-looking statements contained in this Quarterly Report primarily on our current expectations and projections, in light of currently available information, about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors. Important factors, some of which are beyond our control, that could cause actual results to differ materially from our historical results or those expressed or implied by these forward-looking statements include the following: the effect of the novel coronavirus disease (“COVID-19”) global pandemic and its aftermath, as well as governmental, business and other actions in response, on the global economy and on our business; the scope, duration and severity of the COVID-19 pandemic, including any recurrence, as well as the timing of the economic recovery following the pandemic; our ability to achieve and sustain profitability; our ability to sustain historical growth rates; our ability to attract and retain customers and to deepen our relationships with existing customers; an increased focus in our business from selling licenses to selling subscriptions; breaches in our security, cyber-attacks or other cyber-risks; interruptions with the delivery of our SaaS solutions or third-party cloud-based systems that we use in our operations; our ability to compete successfully against current and future competitors; the length and unpredictable nature of our sales cycle; delayed effects on our operating results from ratably recognizing some of our revenue; fluctuations in our quarterly results; our ability to maintain successful relationships with our channel partners; the increasing complexity of our operations; real or perceived errors, failures or disruptions in our platform or solutions; our ability to adapt and respond to rapidly changing technology, industry standards, regulations or customer needs, requirements or preferences; our ability to achieve and maintain an effective system of disclosure controls and internal control over financial reporting; our ability to comply with our privacy policy or related legal or regulatory requirements; our ability to accurately forecast our estimated annual effective tax rate for financial accounting purposes; our ability to successfully identify, acquire and integrate companies and assets; our ability to maintain high-quality customer satisfaction; and our ability to maintain and enhance our brand or reputation as an industry leader. More information on these risks and other potential factors that could affect our financial results is included in our other filings with the SEC, including in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Annual Report and “Risk Factors” in Part II, Item 1A in subsequent quarterly reports. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Quarterly Report relate only to events as of the date hereof. We undertake no obligation to update any forward-looking statements made in this Quarterly Report to reflect events or circumstances after the date of this Quarterly Report or to reflect new information or the occurrence of unanticipated events, except as required by law. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
SailPoint Technologies Holdings, Inc. (“SailPoint,we,” “our,” “the Company” or “we”“SailPoint”) is the leading provider of enterprise identity governance solutions. Our team of visionary industry veterans launched SailPoint to empower our customers to efficiently and securely govern the digital identities of employees, contractors, business partners, software bots and other human and non-human users, and manage their constantly changing access rights to enterprise applications and data. Our SailPoint Predictive Identity platform provides organizations with critical visibility into who currently has access to which resources, who should have access to those resources, and how that access is being used.22
Table of Contents
We offer both software and software as a service (“SaaS”) solutions, which provide organizations with the intelligence required to empower users and govern their access to systems, applications and data across hybrid IT environments, spanning on-premises, cloud and mobile applications and file storage platforms. We help customers enable their businesses with more agile and innovative IT, streamline delivery of access to their businesses, enhance their security posture and better meet compliance and regulatory requirements. Our customers include many of the world’s largest and most complex organizations, including commercial enterprises, financial institutions and governments.
Organizations globally are investing in technologies such as cloud computing and mobility to improve employee productivity, business agility and competitiveness. Today, enterprise environments are more open and interconnected with their business partners, contractors, vendors and customers. Business users have driven a dramatic increase in the number of applications and amount of data that organizations need to manage, much of which sits beyond the traditional network perimeter. Because of these trends, the attack surface is expanding while 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 within these extended enterprises.
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. The consequences of a data breach can be extremely damaging, with organizations facing significant costs to remediate the breach and repair brand and reputational damage. In addition, governments and regulatory bodies have increased efforts to protect users and their data with a new wave of regulatory and compliance measures that are further burdening organizations and levying severe penalties for non-compliance. As a result of these trends, enterprises are struggling to efficiently manage and secure their digital identities.
We believe that our SailPoint Predictive Identity platform is a critical, foundational layer of a modern cyber security strategy. Its open architecture allows it to complement and build upon traditional perimeter- and endpoint-centric security solutions, which on their own are increasingly insufficient to secure organizations, and their applications and data.
We deliver a user-centric security platform that combines identity and data governance solutions to form a holistic view of the enterprise. In combination with our technology partners, we create identity awareness throughout our customers’ environments by providing valuable insights into, and incorporating information from, a broad range of enterprise software and security solutions. Our governance platform provides a system of record for digital identities across our customers’ IT environments while allowing them to remain agile and competitive. Our adaptable solutions integrate seamlessly into existing technology stacks, allowing organizations to maximize the value of their technology investments. Our professionals work closely with customers throughout the implementation lifecycle, from documentation to development to integration.
The SailPoint Predictive Identity platform currently consists of:
| •
| SailPoint Identity Services: delivered as multi-tenant SaaS subscription services and currently consisting of:
|
| o•SailPoint Identity Services: delivered as multi-tenant SaaS subscription services and currently consisting of:
| IdentityNow: provides customers with a set of fully integrated services for compliance, provisioning and password management for applications and data hosted on-premises or in the cloud;
|
| o◦IdentityNow: provides customers with a set of fully integrated services for compliance, provisioning and password management for applications and data hosted on-premises or in the cloud;
| Access Insights: turns identity data collected into actionable insights;
|
| o◦Access Insights: turns identity data collected into actionable insights;
| Recommendation Engine: uses artificial intelligence (“AI”), machine learning (“ML”), peer group analysis, identity attributes and access activity to help you decide whether access should be granted or removed;
|
| o◦Recommendation Engine: uses artificial intelligence (“AI”), machine learning (“ML”), peer group analysis, identity attributes and access activity to help you decide whether access should be granted or removed;
| Access Modeling: uses AI and ML to suggest roles based on similar access between users and gives you insights to confirm the correct access for each role;
|
| o◦Access Modeling: uses AI and ML to suggest roles based on similar access between users and gives you insights to confirm the correct access for each role;
| Cloud Access Management: uses AI and ML to automatically learn, monitor and secure access to cloud infrastructure; and
|
| o
| Workload Privilege Management: automates the creation and rotation of credentials, keys and passwords and records and logs activity whenever privileged tasks are performed for security and audit purposes,◦Cloud Access Management: uses AI and ML to automatically learn, monitor and secure access to cloud infrastructure; and
|
| •
| IdentityIQ: our identity governance solution that can be delivered from the cloud or on-premises.
|
◦Workload Privilege Management: automates the creation and rotation of credentials, keys and passwords and records and logs activity whenever privileged tasks are performed for security and audit purposes, and
•IdentityIQ: our identity governance solution that can be delivered from the cloud or on-premises.
IdentityIQ provides large, complex enterprise customers a unified and highly configurable identity governance solution that consistently applies business and security policies as well as role and risk models across applications and data. It can be used in conjunction with our SailPoint Identity Services, including Access Insights, Recommendation Engine, Access Modeling, Cloud Access Management and Workload Privilege Management.
23
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Our solutions address the complex needs of global enterprises and mid-market organizations. As of
JuneSeptember 30, 2020,
1,5821,660 customers across a wide variety of industries were using our products to enable and secure digital identities across the globe.
Our success is principally dependent on our ability to deliver compelling solutions to attract new customers and retain existing customers. Delivering these solutions is challenging because our customers have large, complex IT environments, often rely on both legacy and innovative technologies, and deploy different business models, including on-premises and cloud models. Rising security threats and evolving regulations and compliance standards for cyber security, data protection, privacy and internal IT controls create new opportunities for our industry and require us to adapt our solutions to be successful. Maintaining our historical growth rates is also challenging because our growth strategy depends in part on our ability to expand our global presence, increase the number of companies we can address with our current solutions, and invest in new vertical markets, while competing against much larger companies with more recognizable brands and financial resources. Although we seek to grow rapidly, we also focus on managing our net cash from operations while continuing to invest in our platform and to deliver innovative solutions to our customers.
We believe enterprises are increasingly embracing the cloud to house their critical security infrastructure. As a result, a growing number of enterprises are changing their approach to identity governance and now prefer to use a SaaS solution rather than purchase software outright and install it in their own infrastructure. This industry shift aligns well with our current product strategy. Our product strategy is to (1) accelerate innovation within our core identity governance SaaS offerings, (2) deliver continued innovation as we execute against our vision for SailPoint Predictive Identity, and (3) ensure that as we deliver these new innovations, they work in concert with our on-premises offerings in addition to our SaaS offerings. We believe that continued growth of subscription revenue, which includes revenue from our SaaS offerings, as a percentage of total revenue will lead to a more predictable revenue model and increase our visibility to future period total revenues. Nevertheless, our revenue and our gross margins vary depending on the type of solution we sell. As a result, a shift in the sales mix of our solutions could affect our performance relative to historical results.
See “Key Factors Affecting Our Performance”
within “Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Annual Report for information regarding the key factors affecting our
performance.performance.
Recent Developments and Outlook
In December 2019, COVID-19 was identified in Wuhan, China. In March 2020, as the disease began to spread around the world, the World Health Organization subsequently declared the COVID-19 outbreak a pandemic.
In light of the
rapidongoing spread of COVID-19 in the United States and abroad, government and public health authorities have
recommendedcontinued to recommend social distancing and imposed various quarantine and isolation measures on large portions of the population, including
mandatory business closures.measures directed at businesses. While intended to protect human life, these restrictions have had and are expected to continue to have serious adverse impacts on domestic and foreign economies of uncertain
severity and duration. In response to these measures, we have made certain adjustments to our operations
as we continue to provide our offerings to new and existing customers, but
we are not yet certainit remains unclear how these changes or the broader effects of COVID-19 on global economies will affect our financial performance going forward. For example, as a result of the COVID-19 pandemic, we have shifted all customer events to virtual-only experiences for the remainder of 2020. It remains unclear what effect this trend may have on our sales cycle, conversion rate or the quantity and quality of our customer pipeline.
The conditions caused by the COVID-19 pandemic may also materially adversely affect the rate of IT spending by our current and prospective customers. The COVID-19 pandemic could materially adversely affectcustomers, including our customers’ ability or willingness to purchase our offerings, delay prospective customers’ purchasing decisions, delay the provisioning of our offerings, or cause customers to fail to make timely payments. We have seen an immaterial number of customer requests, and may continue to see similar requests, to lengthen payment terms or reduce the value or duration of subscription contracts, and we believe that the effects of COVID-19 hadbut this has not resulted in a slightmaterial adverse impact on our renewal rates during the quarter as well, though much of this impact could be attributable to timing. In addition,rates. And while, due to local and regional restrictions, we have not been able to provide on-site consulting services to our
customers during the pandemic,
but this has not resulted in any meaningful adverse impact on our ability to deliver such services because a significant portion of our consulting services have historically been provided remotely and most on-site projects transitioned to a remote delivery model.
Notwithstanding the potential and actual adverse impacts described above, as the pandemic has caused more of our customers to shift to a virtual workforce, we believe the value and scalability of our identity platform has become even more evident. We believe that the pandemic
didhas not
havehad a material adverse impact on our financial performance,
duringand indeed, our revenue and customer base have grown through the first
halfthree quarters of 2020.
While we did note that our performance during the first quarter was somewhat dampened by the impact of COVID-19, we closed some additional deals during the second quarter that had slipped out of the first quarter due to uncertainty around COVID-19. For the remainder of 2020, we foresee healthy demand
offor our solutions given the aforementioned virtual workforce shift, though we recognize that the uncertainty related to COVID-19 may result in increased volatility in the financial projections we use as the basis for estimates and assumptions used in our financial statements.
24
Table of Contents
The challenges posed by COVID-19 on our business and our customers’ businesses may evolve rapidly, and the speed, trajectory and strength of a recovery in general economic conditions remains highly uncertain and could be slowed or reversed by a number of factors, including
a possible widespreadthe recent resurgence in COVID-19 infections in
a number of locations around the
second half of 2020 withoutworld and the
availabilitycontinued lack of generally effective therapeutics or a vaccine for the disease. Consequently, we will continue to evaluate our financial position in light of future developments, particularly those relating to COVID-19. See “Risk Factors” in Part II, Item 1A of the Quarterly Report for the quarter ended March 31, 2020 for information regarding the possible effects of COVID-19 on our business.
In addition to our GAAP financial information, we monitor the following key metrics to help us measure and evaluate the effectiveness of our operations:
| | Three Months Ended | | | Six Months Ended | |
| | June 30, 2020 | | | June 30, 2019 | | | June 30, 2020 | | | June 30, 2019 | |
Number of customers | | | 1,582 | | | | 1,278 | | | | 1,582 | | | | 1,278 | |
Subscription revenue as a percentage of total revenue | | | 50 | % | | | 53 | % | | | 54 | % | | | 53 | % |
| •
| Number of Customers. We believe that the size of our customer base is an indicator of our market penetration and that our net customer additions are an indicator of the growth of our business and our future revenue opportunity. We define a customer as a distinct entity, division or business unit of an organization that receives support or has the right to use our cloud-based solutions as of the specified measurement date. Revenue from any single customer is determined by the number of identities the customer is entitled to govern as well as the number of modules and solutions purchased. Our customer base increased by 304, or 24%, from 1,278 customers at June 30, 2019 to 1,582 customers at June 30, 2020. This increase includes 12 customers added in the first quarter of 2020 as a result of the integration of our two acquisitions in the fourth quarter of 2019.
|
| •
| Subscription Revenue as a Percentage of Total Revenue. Subscription revenue is a portion of our total revenue and is derived from (i) IdentityIQ maintenance and support agreements and (ii) the SailPoint Identity Services where customers enter into subscription agreements with us. As we generally sell our solutions on a per-identity basis, our SaaS subscription revenue for any customer is primarily determined by the number of identities that the customer is entitled to govern, the number of applications that the customer has licensed from us, and the ongoing price paid per-identity under a maintenance and support agreement. Thus, we consider our subscription revenue to be the recurring portion of our revenue base and believe that its continued growth as a percentage of total revenue will lead to a more predictable revenue model and increase our visibility to future period total revenues. Because we recognize our subscription revenue ratably over the duration of those agreements, a portion of the revenue we recognize each period is derived from agreements we entered into in prior periods. In contrast, we typically recognize license revenue upon entering into the applicable license, the timing of which is less predictable and may cause significant fluctuations in our quarterly financial results.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 |
Number of customers (at period end) | 1,660 | | | 1,341 | | | 1,660 | | | 1,341 | |
Subscription revenue as a percentage of total revenue | 54 | % | | 49 | % | | 54 | % | | 52 | % |
•Number of Customers. We believe that the size of our customer base is an indicator of our market penetration and that our net customer additions are an indicator of the growth of our business and our future revenue opportunity. We define a customer as a distinct entity, division or business unit of an organization that receives support or has the right to use our cloud-based solutions as of the specified measurement date. Revenue from any single customer is determined by the number of identities the customer is entitled to govern as well as the number of modules and solutions purchased. Our customer base increased by 319, or 24%, from 1,341 customers at September 30, 2019 to 1,660 customers at September 30, 2020. This increase includes 12 customers added in the first quarter of 2020 as a result of the integration of our two acquisitions in the fourth quarter of 2019.
•Subscription Revenue as a Percentage of Total Revenue. Subscription revenue is a portion of our total revenue and is derived from (i) IdentityIQ maintenance and support agreements and (ii) the SailPoint Identity Services where customers enter into subscription agreements with us. As we generally sell our solutions on a per-identity basis, our SaaS subscription revenue for any customer is primarily determined by the number of identities that the customer is entitled to govern, the number of applications that the customer has licensed from us, and the ongoing price paid per-identity under a maintenance and support agreement. Thus, we consider our subscription revenue to be the recurring portion of our revenue base and believe that its continued growth as a percentage of total revenue will lead to a more predictable revenue model and increase our visibility to future period total revenues. Because we recognize our subscription revenue ratably over the duration of those agreements, a portion of the revenue we recognize each period is derived from agreements we entered into in prior periods. In contrast, we typically recognize license revenue upon entering into the applicable license, the timing of which is less predictable and may cause significant fluctuations in our quarterly financial results.
Components of Results of Operations
See “Components of Results of Operations” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Annual Report for information regarding the components of our results of operations.
We generally experience seasonal fluctuations in demand for our products and services. Our quarterly sales are impacted by industry buying patterns. As a result, our sales have generally been highest in the fourth quarter of a calendar year and lowest in the first quarter. Although these seasonal factors are common in the technology industry, historical patterns should not be considered a reliable indicator of our future sales activity or performance.
Further, the seasonal factors could be heightened due to the impact of the current gross domestic product contraction and other impacts unknown at this time on our customers and sales cycles caused by the COVID-19 pandemic.25
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The following table sets forth our unaudited condensed consolidated statements of operations for the periods presented:
| | | Three Months Ended | | | Six Months Ended | | | Three Months Ended | | Nine Months Ended |
| | June 30, 2020 | | | June 30, 2019 | | | June 30, 2020 | | | June 30, 2019 | | | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 |
| | (In thousands) | | | (In thousands) |
Revenue | | | | | | | | | | | | | | | | | Revenue | |
Licenses | | $ | 34,880 | | | $ | 19,333 | | | $ | 55,884 | | | $ | 38,002 | | Licenses | $ | 30,864 | | | $ | 26,825 | | | $ | 86,748 | | | $ | 64,827 | |
Subscription | | | 45,922 | | | | 33,711 | | | | 89,803 | | | | 65,546 | | Subscription | 51,004 | | | 37,383 | | | 140,807 | | | 102,929 | |
Services and other | | | 11,656 | | | | 10,010 | | | | 22,213 | | | | 20,089 | | Services and other | 12,145 | | | 11,671 | | | 34,358 | | | 31,760 | |
Total revenue | | | 92,458 | | | | 63,054 | | | | 167,900 | | | | 123,637 | | Total revenue | 94,013 | | | 75,879 | | | 261,913 | | | 199,516 | |
Cost of revenue | | | | | | | | | | | | | | | | | Cost of revenue | |
Licenses | | | 1,106 | | | | 1,015 | | | | 2,186 | | | | 2,074 | | Licenses | 1,083 | | | 1,083 | | | 3,269 | | | 3,157 | |
Subscription (1) | | | 8,657 | | | | 6,315 | | | | 17,133 | | | | 12,128 | | Subscription (1) | 9,794 | | | 6,862 | | | 26,927 | | | 18,990 | |
Services and other (1) | | | 8,669 | | | | 8,379 | | | | 17,675 | | | | 16,376 | | Services and other (1) | 9,922 | | | 8,985 | | | 27,597 | | | 25,361 | |
Total cost of revenue | | | 18,432 | | | | 15,709 | | | | 36,994 | | | | 30,578 | | Total cost of revenue | 20,799 | | | 16,930 | | | 57,793 | | | 47,508 | |
Gross profit | | | 74,026 | | | | 47,345 | | | | 130,906 | | | | 93,059 | | Gross profit | 73,214 | | | 58,949 | | | 204,120 | | | 152,008 | |
Operating expenses | | | | | | | | | | | | | | | | | Operating expenses | |
Research and development (1) | | | 17,653 | | | | 13,398 | | | | 33,461 | | | | 26,170 | | Research and development (1) | 19,314 | | | 14,148 | | | 52,775 | | | 40,318 | |
General and administrative (1) | | | 9,371 | | | | 8,490 | | | | 18,885 | | | | 17,627 | | General and administrative (1) | 8,846 | | | 10,192 | | | 27,731 | | | 27,819 | |
Sales and marketing (1) | | | 38,934 | | | | 35,536 | | | | 75,794 | | | | 66,024 | | Sales and marketing (1) | 44,092 | | | 33,274 | | | 119,886 | | | 99,298 | |
Total operating expenses | | | 65,958 | | | | 57,424 | | | | 128,140 | | | | 109,821 | | Total operating expenses | 72,252 | | | 57,614 | | | 200,392 | | | 167,435 | |
Income (loss) from operations | | | 8,068 | | | | (10,079 | ) | | | 2,766 | | | | (16,762 | ) | Income (loss) from operations | 962 | | | 1,335 | | | 3,728 | | | (15,427) | |
Other expense, net: | | | | | | | | | | | | | | | | | Other expense, net: | |
Interest income | | | 169 | | | | 379 | | | | 1,441 | | | | 425 | | Interest income | 349 | | | 418 | | | 1,790 | | | 843 | |
Interest expense | | | (4,586 | ) | | | (118 | ) | | | (9,118 | ) | | | (153 | ) | Interest expense | (4,639) | | | (408) | | | (13,757) | | | (561) | |
Other, net | | | (112 | ) | | | (306 | ) | | | (436 | ) | | | (723 | ) | |
Other income (expense), net | | Other income (expense), net | 214 | | | (295) | | | (222) | | | (1,018) | |
Total other expense, net | | | (4,529 | ) | | | (45 | ) | | | (8,113 | ) | | | (451 | ) | Total other expense, net | (4,076) | | | (285) | | | (12,189) | | | (736) | |
Income (loss) before income taxes | | | 3,539 | | | | (10,124 | ) | | | (5,347 | ) | | | (17,213 | ) | Income (loss) before income taxes | (3,114) | | | 1,050 | | | (8,461) | | | (16,163) | |
Income tax (expense) benefit | | | (497 | ) | | | 927 | | | | (28 | ) | | | (374 | ) | |
Income tax benefit | | Income tax benefit | 2,438 | | | 2,618 | | | 2,410 | | | 2,244 | |
Net income (loss) | | $ | 3,042 | | | $ | (9,197 | ) | | $ | (5,375 | ) | | $ | (17,587 | ) | Net income (loss) | $ | (676) | | | $ | 3,668 | | | $ | (6,051) | | | $ | (13,919) | |
| (1)
| Includes stock-based compensation expense as follows:
|
| | Three Months Ended | | | Six Months Ended | |
| | June 30, 2020 | | | June 30, 2019 | | | June 30, 2020 | | | June 30, 2019 | |
| | (In thousands) | |
Cost of revenue - subscription | | $ | 396 | | | $ | 284 | | | $ | 785 | | | $ | 544 | |
Cost of revenue - services and other | | | 391 | | | | 380 | | | | 818 | | | | 729 | |
Research and development | | | 1,487 | | | | 916 | | | | 2,988 | | | | 1,833 | |
General and administrative | | | 1,950 | | | | 1,644 | | | | 2,952 | | | | 3,015 | |
Sales and marketing | | | 2,926 | | | | 1,746 | | | | 5,798 | | | | 3,488 | |
Total stock-based compensation expense | | $ | 7,150 | | | $ | 4,970 | | | $ | 13,341 | | | $ | 9,609 | |
26
(1)Includes stock-based compensation expense as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 |
| (In thousands) |
Cost of revenue - subscription | $ | 485 | | | $ | 286 | | | $ | 1,270 | | | $ | 830 | |
Cost of revenue - services and other | 550 | | | 337 | | | 1,368 | | | 1,066 | |
Research and development | 1,712 | | | 820 | | | 4,700 | | | 2,653 | |
General and administrative | 1,944 | | | 1,710 | | | 4,896 | | | 4,725 | |
Sales and marketing | 3,147 | | | 1,336 | | | 8,945 | | | 4,824 | |
Total stock-based compensation expense | $ | 7,838 | | | $ | 4,489 | | | $ | 21,179 | | | $ | 14,098 | |
The following table sets forth the unaudited condensed consolidated statements of operations data for each of the periods presented as a percentage of total revenue:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 |
Revenue | | | | | | | |
Licenses | 33 | % | | 35 | % | | 33 | % | | 32 | % |
Subscription | 54 | | | 49 | | | 54 | | | 52 | |
Services and other | 13 | | | 16 | | | 13 | | | 16 | |
Total revenue | 100 | | | 100 | | | 100 | | | 100 | |
Cost of revenue | | | | | | | |
Licenses | 1 | | | 1 | | | 1 | | | 2 | |
Subscription | 10 | | | 9 | | | 10 | | | 9 | |
Services and other | 11 | | | 12 | | | 11 | | | 13 | |
Total cost of revenue | 22 | | | 22 | | | 22 | | | 24 | |
Gross profit | 78 | | | 78 | | | 78 | | | 76 | |
Operating expenses | | | | | | | |
Research and development | 21 | | | 19 | | | 20 | | | 20 | |
General and administrative | 9 | | | 13 | | | 11 | | | 14 | |
Sales and marketing | 47 | | | 44 | | | 46 | | | 50 | |
Total operating expenses | 77 | | | 76 | | | 77 | | | 84 | |
Income (loss) from operations | 1 | | | 2 | | | 1 | | | (8) | |
Other expense, net: | | | | | | | |
Interest income | — | | | 1 | | | 1 | | | — | |
Interest expense | (5) | | | (1) | | | (5) | | | — | |
Other income (expense), net | — | | | — | | | — | | | — | |
Total other expense, net | (5) | | | — | | | (4) | | | — | |
Income (loss) before income taxes | (4) | | | 2 | | | (3) | | | (8) | |
Income tax benefit | 3 | | | 3 | | | 1 | | | 1 | |
Net income (loss) | (1) | % | | 5 | % | | (2) | % | | (7) | % |
| | Three Months Ended | | | Six Months Ended | |
| | June 30, 2020 | | | June 30, 2019 | | | June 30, 2020 | | | June 30, 2019 | |
Revenue | | | | | | | | | | | | | | | | |
Licenses | | | 38 | % | | | 31 | % | | | 33 | % | | | 31 | % |
Subscription | | | 50 | | | | 53 | | | | 54 | | | | 53 | |
Services and other | | | 12 | | | | 16 | | | | 13 | | | | 16 | |
Total revenue | | | 100 | | | | 100 | | | | 100 | | | | 100 | |
Cost of revenue | | | | | | | | | | | | | | | | |
Licenses | | | 1 | | | | 2 | | | | 1 | | | | 2 | |
Subscription | | | 10 | | | | 10 | | | | 10 | | | | 10 | |
Services and other | | | 9 | | | | 13 | | | | 11 | | | | 13 | |
Total cost of revenue | | | 20 | | | | 25 | | | | 22 | | | | 25 | |
Gross profit | | | 80 | | | | 75 | | | | 78 | | | | 75 | |
Operating expenses | | | | | | | | | | | | | | | | |
Research and development | | | 19 | | | | 21 | | | | 20 | | | | 21 | |
General and administrative | | | 10 | | | | 13 | | | | 11 | | | | 14 | |
Sales and marketing | | | 42 | | | | 56 | | | | 45 | | | | 53 | |
Total operating expenses | | | 71 | | | | 90 | | | | 76 | | | | 88 | |
Income (loss) from operations | | | 9 | | | | (15 | ) | | | 2 | | | | (13 | ) |
Other expense, net: | | | | | | | | | | | | | | | | |
Interest income | | | 0 | | | | 1 | | | | 1 | | | | 0 | |
Interest expense | | | (5 | ) | | | 0 | | | | (6 | ) | | | 0 | |
Other, net | | | 0 | | | | 0 | | | | 0 | | | | (1 | ) |
Total other expense, net | | | (5 | ) | | | 1 | | | | (5 | ) | | | (1 | ) |
Income (loss) before income taxes | | | 4 | | | | (14 | ) | | | (3 | ) | | | (14 | ) |
Income tax (expense) benefit | | | (1 | ) | | | 1 | | | | 0 | | | | 0 | |
Net income (loss) | | | 3 | % | | | (13 | )% | | | (3 | )% | | | (14 | )% |
Comparison of the Three and SixNine Months Ended JuneSeptember 30, 2020 and 2019
| | | Three Months Ended | | | Six Months Ended | | | Three Months Ended | | Nine Months Ended |
| | June 30, 2020 | | | June 30, 2019 | | | variance $ | | | variance % | | | June 30, 2020 | | | June 30, 2019 | | | variance $ | | | variance % | | | September 30, 2020 | | September 30, 2019 | | variance $ | | variance % | | September 30, 2020 | | September 30, 2019 | | variance $ | | variance % |
| | (In thousands, except percentages) | | | (In thousands, except percentages) |
Revenue | | | | | | | Revenue | |
Licenses | | $ | 34,880 | | | $ | 19,333 | | | $ | 15,547 | | | | 80 | % | | $ | 55,884 | | | $ | 38,002 | | | $ | 17,882 | | | | 47 | % | Licenses | $ | 30,864 | | | $ | 26,825 | | | $ | 4,039 | | | 15 | % | | $ | 86,748 | | | $ | 64,827 | | | $ | 21,921 | | | 34 | % |
Subscription | | | 45,922 | | | | 33,711 | | | | 12,211 | | | | 36 | % | | | 89,803 | | | | 65,546 | | | | 24,257 | | | | 37 | % | Subscription | 51,004 | | | 37,383 | | | 13,621 | | | 36 | % | | 140,807 | | | 102,929 | | | 37,878 | | | 37 | % |
Services and other | | | 11,656 | | | | 10,010 | | | | 1,646 | | | | 16 | % | | | 22,213 | | | | 20,089 | | | | 2,124 | | | | 11 | % | Services and other | 12,145 | | | 11,671 | | | 474 | | | 4 | % | | 34,358 | | | 31,760 | | | 2,598 | | | 8 | % |
Total revenue | | $ | 92,458 | | | $ | 63,054 | | | $ | 29,404 | | | | 47 | % | | $ | 167,900 | | | $ | 123,637 | | | $ | 44,263 | | | | 36 | % | Total revenue | $ | 94,013 | | | $ | 75,879 | | | $ | 18,134 | | | 24 | % | | $ | 261,913 | | | $ | 199,516 | | | $ | 62,397 | | | 31 | % |
License Revenue. License revenue increased by $15.5$4.0 million, or 80%15%, for the three months ended JuneSeptember 30, 2020 compared to the three months ended JuneSeptember 30, 2019. During the three months ended JuneSeptember 30, 2020 and 2019, license revenue from new customers was $22.1$22.4 million and $11.8$15.4 million, and license revenue from existing customers was $12.8$8.5 million and $7.5$11.4 million for the respective periods. License revenue increased by
$17.9$21.9 million, or
47%34%, for the
sixnine months ended
JuneSeptember 30, 2020 compared to the
sixnine months ended
JuneSeptember 30, 2019. During the
sixnine months ended
JuneSeptember 30, 2020 and 2019, license revenue from new customers was
$33.5$55.9 million and
$26.3$41.7 million, and license revenue from existing customers was
$22.4$30.9 million and
$11.7$23.1 million for the respective periods.
Subscription Revenue. Subscription revenue increased by $12.2$13.6 million, or 36%, for the three months ended JuneSeptember 30, 2020 compared to the three months ended JuneSeptember 30, 2019 primarily due to an increase in ongoing maintenance revenue from our increased installed base and new sales of our SaaS offerings.offerings as we continue to see strong momentum in our SaaS business. During both the three months ended JuneSeptember 30, 2020 and 2019, subscription revenue from new customers was $3.0$6.5 million and $5.7 million, and subscription revenue from existing customers during the three months ended June 30, 2020 and June 30, 2019 was $42.9$44.5 million and $30.7$31.7 million for the respective periods.27
Table of Contents
Subscription revenue increased by
$24.3$37.9 million, or 37%, for the
sixnine months ended
JuneSeptember 30, 2020 compared to the
sixnine months ended
JuneSeptember 30, 2019. The increase was primarily a result of an increase in ongoing maintenance revenue from our increased installed base and new sales of our SaaS
offerings.offerings as we continue to see strong momentum in our SaaS business. During the
sixnine months ended
JuneSeptember 30, 2020 and 2019, subscription revenue from new customers was
$4.4$10.9 million and
$4.3$10.1 million, and subscription revenue from existing customers
during the six months ended June 30, 2020 and June 30, 2019 was
$85.4$129.9 million and
$61.2$92.8 million for the respective periods.
Services and Other Revenue. Services and other revenue increased by $1.6$0.5 million, or 16%4% for the three months ended JuneSeptember 30, 2020 compared to the three months ended JuneSeptember 30, 2019. The increase is primarily a result of an increase in the number of customers using our consulting and training services. Services and other revenue increased by
$2.1$2.6 million, or
11%8%, for the
sixnine months ended
JuneSeptember 30, 2020 compared to the
sixnine months ended
JuneSeptember 30, 2019. The increase is primarily a result of an increase in the number of customers using our consulting and training services.
Geographic Regions. Our customers in the United States contributed the largest portion of our revenue in each reporting period ended JuneSeptember 30, 2020 and 2019 because we have more market momentum related to our larger and more established sales force, sales pipeline and brand recognition and awareness in the United States as compared to our other regions. Revenue is classified by the following major geographic areas: (i) United States, (ii) Europe, the Middle East and Africa (“EMEA”) and (iii) rest of the world. We continue to invest in increasing the size of our international sales force and strengthening partnerships with global system integrators and resellers worldwide. For the three and sixnine months ended JuneSeptember 30, 2020, revenue in the United States, EMEA and the rest of the world increased year-over-year, while EMEA remained consistent year-over-year.
The following table sets forth, for each of the periods presented, our consolidated total revenue by geography and the respective percentages of total revenue:
| | | Three Months Ended | | | Six Months Ended | | | Three Months Ended | | Nine Months Ended |
| | June 30, 2020 | | | June 30, 2019 | | | June 30, 2020 | | | June 30, 2019 | | | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 |
| | $ | | | % of revenue | | | $ | | | % of revenue | | | $ | | | % of revenue | | | $ | | | % of revenue | | | $ | | % of revenue | | $ | | % of revenue | | $ | | % of revenue | | $ | | % of revenue |
| | (In thousands, except percentages) | | | (In thousands, except percentages) |
United States | | $ | 69,197 | | | | 75 | % | | $ | 44,399 | | | | 70 | % | | $ | 123,696 | | | | 74 | % | | $ | 85,959 | | | | 70 | % | United States | $ | 67,917 | | | 72 | % | | $ | 56,071 | | | 74 | % | | $ | 191,613 | | | 73 | % | | $ | 142,030 | | | 71 | % |
EMEA (1) | | | 13,047 | | | | 14 | % | | | 12,332 | | | | 20 | % | | | 26,775 | | | | 16 | % | | | 26,269 | | | | 21 | % | EMEA (1) | 16,329 | | | 17 | % | | 12,499 | | | 16 | % | | 43,104 | | | 17 | % | | 38,768 | | | 19 | % |
Rest of the World (1) | | | 10,214 | | | | 11 | % | | | 6,323 | | | | 10 | % | | | 17,429 | | | | 10 | % | | | 11,409 | | | | 9 | % | Rest of the World (1) | 9,767 | | | 11 | % | | 7,309 | | | 10 | % | | 27,196 | | | 10 | % | | 18,718 | | | 10 | % |
Total revenue | | $ | 92,458 | | | | 100 | % | | $ | 63,054 | | | | 100 | % | | $ | 167,900 | | | | 100 | % | | $ | 123,637 | | | | 100 | % | Total revenue | $ | 94,013 | | | 100 | % | | $ | 75,879 | | | 100 | % | | $ | 261,913 | | | 100 | % | | $ | 199,516 | | | 100 | % |
(1)No single country outside of the United States represented more than 10% of our revenue. | No single country outside of the United States represented more than 10% of our revenue.
|
Gross Profit and Gross Margin
| | | Three Months Ended | | | Six Months Ended | | | | Three Months Ended | | Nine Months Ended |
| | June 30, 2020 | | | June 30, 2019 | | | variance $ | | | variance % | | | June 30, 2020 | | | June 30, 2019 | | | variance $ | | | variance % | | September 30, 2020 | | September 30, 2019 | | variance $ | | variance % | | September 30, 2020 | | September 30, 2019 | | variance $ | | variance % |
| | (In thousands, except percentages) | | | | (In thousands, except percentages) |
Gross profit | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross profit | |
Licenses | | $ | 33,774 | | | $ | 18,318 | | | $ | 15,456 | | | | 84 | % | | $ | 53,698 | | | $ | 35,928 | | | $ | 17,770 | | | | 49 | % | | Licenses | $ | 29,781 | | | $ | 25,742 | | | $ | 4,039 | | | 16 | % | | $ | 83,479 | | | $ | 61,670 | | | $ | 21,809 | | | 35 | % |
Subscription | | | 37,265 | | | | 27,396 | | | | 9,869 | | | | 36 | % | | | 72,670 | | | | 53,418 | | | | 19,252 | | | | 36 | % | | Subscription | 41,210 | | | 30,521 | | | 10,689 | | | 35 | % | | 113,880 | | | 83,939 | | | 29,941 | | | 36 | % |
Services and other | | | 2,987 | | | | 1,631 | | | | 1,356 | | | | 83 | % | | | 4,538 | | | | 3,713 | | | | 825 | | | | 22 | % | | Services and other | 2,223 | | | 2,686 | | | (463) | | | (17) | % | | 6,761 | | | 6,399 | | | 362 | | | 6 | % |
Total gross profit | | $ | 74,026 | | | $ | 47,345 | | | $ | 26,681 | | | | 56 | % | | $ | 130,906 | | | $ | 93,059 | | | $ | 37,847 | | | | 41 | % | | Total gross profit | $ | 73,214 | | | $ | 58,949 | | | $ | 14,265 | | | 24 | % | | $ | 204,120 | | | $ | 152,008 | | | $ | 52,112 | | | 34 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross margin | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross margin | |
Licenses | | | 97 | % | | | 95 | % | | | | | | | | | | | 96 | % | | | 95 | % | | | | | | | | | | Licenses | 96 | % | | 96 | % | | 96 | % | | 95 | % | |
Subscription | | | 81 | % | | | 81 | % | | | | | | | | | | | 81 | % | | | 81 | % | | | | | | | | | | Subscription | 81 | % | | 82 | % | | 81 | % | | 82 | % | |
Services and other | | | 26 | % | | | 16 | % | | | | | | | | | | | 20 | % | | | 18 | % | | | | | | | | | | Services and other | 18 | % | | 23 | % | | 20 | % | | 20 | % | |
Total gross margin | | | 80 | % | | | 75 | % | | | | | | | | | | | 78 | % | | | 75 | % | | | | | | | | | | Total gross margin | 78 | % | | 78 | % | | 78 | % | | 76 | % | |
Licenses. License gross profit increased by $15.5$4.0 million, or 84%16%, for the three months ended JuneSeptember 30, 2020 compared to the three months ended JuneSeptember 30, 2019. The increase in gross profit was the result of increased license revenues with only minor increases in third party royalties.28
Table of Contents
License gross profit increased by $17.8$21.8 million, or 49%35%, for the sixnine months ended JuneSeptember 30, 2020 compared to the sixnine months ended JuneSeptember 30, 2019. The increase in gross profit was the result of increased license revenues with only minor increases in third party royalties. Subscription. Subscription gross profit increased by $9.9$10.7 million, or 36%35%, for the three months ended JuneSeptember 30, 2020 compared to the three months ended JuneSeptember 30, 2019. The increase in gross profit was the result of growth in subscription revenue, as described above, while gross margin remained materially consistent with prior period. Subscription gross profit increased by $19.3$29.9 million, or 36%, for the sixnine months ended JuneSeptember 30, 2020 compared to the sixnine months ended JuneSeptember 30, 2019. The increase in gross profit was the result of growth in subscription revenue, as described above, while gross margin remained materially consistent with prior period. Services and Other. Services and other gross profit increaseddecreased by $1.4$0.5 million, or 83%17%, for the three months ended JuneSeptember 30, 2020 compared to the three months ended JuneSeptember 30, 2019. The decrease in gross profit is primarily attributable to the higher partner utilization in our professional services and training organization to support an increasing number of customers, partially offset by increased revenues due to customer growth.
Services and other gross profit increased by $0.4 million, or 6%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The increase in gross profit is primarily a result of an increase in the number of customers using our consulting and training services.Services and other gross profit increasedservices, partially offset by $0.8 million, or 22%, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. The increasehigher partner utilization in gross profit is primarily a result of an increase in the number of customers using our consultingprofessional services and training services.organization.
| | | Three Months Ended | | | Six Months Ended | | | Three Months Ended | | Nine Months Ended |
| | June 30, 2020 | | | June 30, 2019 | | | variance $ | | | variance % | | | June 30, 2020 | | | June 30, 2019 | | | variance $ | | | variance % | | | September 30, 2020 | | September 30, 2019 | | variance $ | | variance % | | September 30, 2020 | | September 30, 2019 | | variance $ | | variance % |
| | (In thousands, except percentages) | | | (In thousands, except percentages) |
Operating expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating expenses | |
Research and development | | $ | 17,653 | | | $ | 13,398 | | | $ | 4,255 | | | | 32 | % | | $ | 33,461 | | | $ | 26,170 | | | $ | 7,291 | | | | 28 | % | Research and development | $ | 19,314 | | | $ | 14,148 | | | $ | 5,166 | | | 37 | % | | $ | 52,775 | | | $ | 40,318 | | | $ | 12,457 | | | 31 | % |
General and administrative | | | 9,371 | | | | 8,490 | | | | 881 | | | | 10 | % | | | 18,885 | | | | 17,627 | | | | 1,258 | | | | 7 | % | General and administrative | 8,846 | | | 10,192 | | | (1,346) | | | (13) | % | | 27,731 | | | 27,819 | | | (88) | | | — | % |
Sales and marketing | | | 38,934 | | | | 35,536 | | | | 3,398 | | | | 10 | % | | | 75,794 | | | | 66,024 | | | | 9,770 | | | | 15 | % | Sales and marketing | 44,092 | | | 33,274 | | | 10,818 | | | 33 | % | | 119,886 | | | 99,298 | | | 20,588 | | | 21 | % |
Total operating expenses | | $ | 65,958 | | | $ | 57,424 | | | $ | 8,534 | | | | 15 | % | | $ | 128,140 | | | $ | 109,821 | | | $ | 18,319 | | | | 17 | % | Total operating expenses | $ | 72,252 | | | $ | 57,614 | | | $ | 14,638 | | | 25 | % | | $ | 200,392 | | | $ | 167,435 | | | $ | 32,957 | | | 20 | % |
Research and Development Expenses. Research and development expenses increased by $4.3$5.2 million, or 32%37%, for the three months ended JuneSeptember 30, 2020 compared to the three months ended JuneSeptember 30, 2019. This increase was primarily driven by a $3.4$5.0 million increase in employee-based costs primarily consisting of salary related expenses, bonus accrual and stock-based compensation.
Research and development expenses increased by $12.5 million, or 31%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. This increase was primarily driven by a $11.1 million increase in employee-based costs primarily consisting of salary related expenses, bonus accrual and stock-based compensation, $0.6$0.7 million increase in professional services expense and $0.3a $0.7 million increase in software and hosting arrangement expenses.Research and development expenses increased by $7.3 million, or 28%, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019.
This increase was primarily driven by a $6.1 million increase in employee-based costs primarily consisting of salary related expenses, bonus accrual and stock-based compensation, $0.8 million increase in professional services expense and $0.4 million increase in software and hosting arrangement expenses.General and Administrative Expenses. General and administrative expenses increaseddecreased by $0.9$1.3 million, or 10%13%, for the three months ended JuneSeptember 30, 2020 compared to the three months ended JuneSeptember 30, 2019. This increasedecrease was primarily driven by a $1.4 million decrease in professional services expense relating primarily to legal fees and consulting fees associated with the issuance and sale of the Notes and Capped Call Transactions (each as defined below) and acquisition related costs in the prior year and a $0.4 milliondecreasein provision of credit losses, partially offset by a $0.7 million increase in software maintenance and subscription expenses.
General and administrative expenses and $0.7decreased by $0.1 million,increasein provision of credit losses, partially offset or 0%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. This decrease was primarily driven by $0.4a $2.9 million decrease in professional services expense relating primarily to legal costs.Generalfees and consulting fees associated with the issuance and sale of the Notes and Capped Call Transactions and acquisition related costs in the prior year, offset by a $2.3 million increase in software maintenance and subscription expenses and a $0.7 million increasein general and administrative headcount and related allocated overhead expenses.
Sales and Marketing Expenses. Sales and marketing expenses increased by $1.3$10.8 million, or 7%33%, for the sixthree months ended JuneSeptember 30, 2020 compared to the sixthree months ended JuneSeptember 30, 2019. This increase was primarily driven by a $1.6$10.9 million increase in software maintenance and subscription expenses, $0.8 million increasein provision of credit losses and $0.6 million increasein general and administrative headcount and related allocated overhead expenses, partially offset by a $1.5 million decrease in professional services expense relating primarily to legal costs.Sales and Marketing Expenses. Sales and marketing expenses increased by $3.4 million, or 10%, for the three months ended June 30, 2020 compared to the three months ended June 30, 2019. Approximately $6.3 million of the increase in employee-based costs primarily consists of salary related expenses, commissions, bonus accrual and stock-based compensation,a $1.6 million increase in professional services expense relating primarily to staff augmentation and advisory services and a $0.5 million increase in software and hosting arrangement expenses, partially offset by a $2.1 million decrease in travel expense and $0.9 million decrease in events expense, both due to COVID-19 related limitations.
29
Table of ContentsSales and Marketing Expenses.Sales and marketing expenses increased by $9.8$20.6 million, or 15%21%, for the sixnine months ended JuneSeptember 30, 2020 compared to the sixnine months ended JuneSeptember 30, 2019. Approximately $12.7This increase was primarily driven by a $23.6 million of the iincreasencrease in employee-based costs primarily consists of salary related expenses, commissions, bonus accrual and stock-based compensation,a $1.2 million increase in professional services expense relating primarily to staff augmentation and advisory services and a $1.0 million increase in software and hosting arrangement expenses, partially offset by a $2.3$4.4 million decrease in travel expense and $0.8a $0.7 million decrease in events expense, both due to COVID-19 related limitations.
Interest Income and Interest Expense Interest income decreased by $0.2$0.1 million for the three months ended JuneSeptember 30, 2020 compared to the three months ended JuneSeptember 30, 2019. This decrease was primarily due to a significant decrease in interest rates earned on our money market accounts, partially offset by the increase in our cash balance. Interest income increased by
$1.0$0.9 million for the
sixnine months ended
JuneSeptember 30, 2020 compared to the
sixnine months ended
JuneSeptember 30, 2019. This increase was due to interest income earned on our money market accounts, primarily during the first quarter of 2020, in which we have invested a significant portion of the net proceeds from the Notes issuance in the third quarter of 2019.
Interest expense increased by $4.5$4.2 million for the three months ended JuneSeptember 30, 2020 compared to the three months ended JuneSeptember 30, 2019. This increase was primarily due to $4.0$4.1 million of amortization of debt discount and $0.3 million of debt issuance costs related to the Notes for the three months ended JuneSeptember 30, 2020. Interest expense increased by $9.0$13.2 million for the sixnine months ended JuneSeptember 30, 2020 compared to the sixnine months ended June September 30,
2019.2019. This increase was primarily due to $8.0$12.1 million of amortization of debt discount and $0.7$1.0 million of debt issuance costs related to the Notes for the sixnine months ended JuneSeptember 30, 2020. Income Tax
(Expense) Benefit
The Company recorded an income tax
expensebenefit of
less than $0.1approximately $2.4 million and
$0.4$2.2 million for the
sixnine months ended
JuneSeptember 30, 2020 and 2019, respectively, leading to a net benefit of
$0.3$0.2 million year-over-year. The Company maintains a full valuation allowance for our Israel tax position due the lack of taxable earnings for the foreseeable future.
Our income tax rate varies from the federal statutory rate due to the valuation allowances on certain foreign deferred tax assets, regulations and interpretations in multiple jurisdictions in which we operate; unanticipated changes in tax rates; and differences in accounting and tax treatment of our stock-based compensation, foreign withholding taxes and research and development credits. We expect this fluctuation in income tax rates, as well as its potential impact on our results of operations, to continue.
We operate in several tax jurisdictions and are subject to taxes in each country or jurisdiction in which we conduct business. Earnings from our non-U.S. activities are subject to local country income tax and may be subject to U.S. income tax if such earnings are distributed to the U.S. With the exception of 2018 and 2019, we have incurred net operating losses for federal income tax purposes each year since our inception. We have since begun to utilize some of our net operating losses for federal income tax purposes. Thus, our tax expense to date relates primarily to state as well as foreign income taxes. The effective tax rate for the three and
sixnine months ended
JuneSeptember 30, 2020 is
14.0%78.3% and
(0.5)%28.5%, respectively, compared to
9.2%(249.3)% and
(2.2)%13.9% for the three and
sixnine months ended
JuneSeptember 30, 2019. The main drivers for the differences in the rates from the prior period to the current period are related to differences in forecasted pre-tax book income, the impact of stock compensation,
andan increase in foreign tax liabilities and
the impact of the
valuation allowance build.research and development ("R&D") credits.
We do not consider the earnings of our foreign subsidiaries, with the exception of India, to be permanently reinvested in foreign jurisdictions. The global intangible low-taxed income (“GILTI”) provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The Company is currently in a tested loss and does not incur a GILTI tax. In India, we continue to invest and grow our research and development activities and have no plans to repatriate undistributed earning held in India back to the U.S. parent company, and therefore consider earnings in India to be permanently reinvested.
Liquidity and Capital Resources
As of
JuneSeptember 30, 2020, we had
$470.6$483.7 million of cash and cash equivalents
$4.2(of which $4.7 million
of cash and cash equivalentsis held in our foreign
subsidiaries,subsidiaries), $75.0 million of availability under the Credit Agreement (as defined below) and $6.0 million in our irrevocable, cash collateralized, unconditional standby letter of credit, issued primarily in connection with our corporate headquarters lease. As of
JuneSeptember 30, 2020, we had
$561.3$253.9 million in
net working capital, which we define as current assets less current liabilities, excluding deferred revenue.
30
We believe that existing cash and cash equivalents, any positive cash flows from operations and available borrowings under our Credit Agreement will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts, the continued expansion of sales and marketing activities,
and the introduction of new solutions and product
enhancements.enhancements and the continuing market acceptance of our offerings and services. To the extent existing cash and cash equivalents are not sufficient to fund future activities, we may borrow under our Credit Agreement or seek to raise additional funds through equity, equity-linked or debt financings. Any additional equity financing may be dilutive to our existing stockholders. We may enter into agreements or letters of intent with respect to potential investments in, or acquisitions of, complementary businesses, services or technologies, which could also require us to seek additional equity financing, incur indebtedness or use cash resources. As of
JuneSeptember 30, 2020, we had no material commitments for capital expenditures.
Since inception, we have financed operations primarily through license fees, maintenance fees, SaaS subscription fees, consulting and training fees, borrowings under our prior credit agreement and, to a lesser degree, the sale of equity securities. Our principal uses of cash are funding operations and capital expenditures. Over the past several years, revenue has increased significantly from year to year and, as a result, cash flows from customer collections have increased. However, operating expenses have also increased as we have invested in growing our business. Our operating cash requirements may increase in the future as we continue to invest in key initiatives to drive the Company’s long-term growth.
In March 2019, SailPoint Technologies, Inc., as borrower, and certain of our other wholly owned subsidiaries entered into a credit agreement (as amended, restated, amended and restated, supplemented or otherwise modified from time to time through the date hereof, the “Credit Agreement”). In September 2019, the Company amended the Credit Agreement in connection with the issuance and sale of the Notes. Such amendment included a decrease in the commitments for revolving credit loans from an initial $150.0 million to $75.0 million, with a $15.0 million letter of credit sublimit, which amount can be increased or decreased under specified circumstances and is subject to certain financial covenants. Borrowings pursuant to the Credit Agreement may be used for working capital and other general corporate purposes, including for acquisitions permitted under the Credit Agreement.
Borrowings under the Credit Agreement are scheduled to mature in March
11, 2024. We
had no outstanding revolving credit loan balance as of JuneSeptember 30, 2020 and December 31, 2019. We were in compliance with all applicable covenants as of JuneSeptember 30, 2020.See Note 8 “Credit Agreement” in our notes to
unaudited condensed consolidated financial statements included in this Quarterly Report for more information regarding terms and conditions of the Credit Agreement.
In September 2019, we issued $400.0 million aggregate principal amount of 0.125% convertible senior notes due 2024 (the “Notes”), in a private offering to qualified institutional buyers. In connection with the issuance of the Notes and exercise in full of the initial purchasers’ option, the Company used $37.1 million of the net proceeds to pay the cost of the privately negotiated capped call transactions (the “Capped Call Transactions”).
As of September 30, 2020, the Notes are convertible at the option of the holders. We have the ability to settle the Notes in cash, shares of our common stock, or a combination of cash and shares of our common stock at our own election. It is our current intent to settle conversions of the Notes through combination settlement, which involves repayment of the principal portion in cash and any excess of the conversion value over the principal amount in shares of our common stock.
In conjunction with the issuance of the Notes, we entered into the Capped Call Transactions to reduce our exposure to additional cash payments above principal balances in the event of a cash conversion of the Notes. We may owe additional cash to the holders of the Notes upon early conversion if our stock price exceeds $41.34 per share, which is subject to certain adjustments. Although our incremental exposure to the additional cash payment above the principal amount of the Notes is reduced by the capped calls, conversion of the Notes by the holders may cause dilution to the ownership interests of existing stockholders.
See Note 9 “Convertible Senior Notes and Capped Call Transactions” in our notes to
unaudited condensed consolidated financial statements included in this Quarterly Report for more information regarding terms and conditions of the Notes and Capped Call Transactions.
The following table summarizes our cash flows for the periods presented:
| | | Six Months Ended | | | Nine Months Ended |
| | June 30, 2020 | | | June 30, 2019 | | | September 30, 2020 | | September 30, 2019 |
| | (In thousands) | | | (In thousands) |
Net cash provided by operating activities | | $ | 22,053 | | | $ | 21,829 | | Net cash provided by operating activities | $ | 34,406 | | | $ | 39,654 | |
Net cash used in investing activities | | | (1,275 | ) | | | (3,606 | ) | Net cash used in investing activities | (2,416) | | | (5,075) | |
Net cash provided by financing activities | | | 6,037 | | | | 3,893 | | Net cash provided by financing activities | 7,944 | | | 358,834 | |
Net increase in cash, cash equivalents and restricted cash | | $ | 26,815 | | | $ | 22,116 | | Net increase in cash, cash equivalents and restricted cash | $ | 39,934 | | | $ | 393,413 | |
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Table of Contents
Cash Flows from Operating Activities
During the
sixnine months ended
JuneSeptember 30, 2020,, cash provided by operating activities was
$22.1$34.4 million, which consisted of net loss of
$5.4$6.1 million, adjusted by non-cash charges of
$37.8$58.3 million and a net
changedecrease of
$(10.4)$17.9 million in our operating assets and liabilities. The non-cash charges are primarily comprised of depreciation and amortization of
$9.2$13.8 million, amortization of debt discount and issuance costs of
$8.8$13.3 million, amortization of contract acquisition costs of
$6.1$10.1 million, provision for credit losses of
$0.8$0.4 million, stock-based compensation of
$13.3$21.2 million, a net decrease in operating leases of
$0.2$0.3 million and a net decrease in deferred taxes of $0.1 million. The
changedecrease in our net operating assets and liabilities was
$(10.4)$17.9 million as a result of an increase in prepayments and other assets
a decrease in accounts payable due to timing of cash disbursements, a decrease in accrued expenses and other liabilities due primarily to payments on commissions and bonuses and a
decreasechange in income taxes payable
to income taxes receivable, partially offset by a decrease in accounts receivable due to the timing of receipts of payments from customers,
an increase in accounts payable due to timing of cash disbursements, an increase in accrued expenses and other liabilities due primarily to accrual of additional bonuses and withholdings of employee stock purchase plan contributions, and an increase in deferred revenue due to the timing of billings and cash received in advance of revenue recognition primarily for subscription and support services.
During the
sixnine months ended
JuneSeptember 30, 2019, cash provided by operating activities was
$21.8$39.7 million, which consisted of
a net loss of
$17.6$13.9 million, adjusted by non-cash charges of
$21.7$32.9 million and a net
changeincrease of
$17.7$20.7 million in our net operating assets and liabilities. The non-cash charges are primarily comprised of depreciation and amortization of
$6.9$10.6 million, amortization of debt
discount and issuance costs of
$0.1$0.4 million, amortization of contract acquisition costs of
$4.7$7.3 million, bad debt expense of
$0.1$0.2 million, stock-based compensation of
$9.6$14.1 million and
a net
changeincrease in operating leases of
$0.4$0.3 million. The
changeincrease in our net operating assets and liabilities was
$17.7$20.7 million as a result of a decrease in accounts receivable due to the timing of receipts of payments from customers,
and an increase in deferred revenue due to the timing of billings and cash received in advance of revenue recognition primarily for subscription and support services
partially offset byand an increase
in prepayments and other assets, a decrease in accounts payable due to timing of cash disbursements, a decrease in accrued expenses and other liabilities due primarily to accrual of additional commissions and bonuses,
partially offset by an increase in prepayments and
other assets due to increases in deferred contract acquisition costs and contract assets, a decrease in
accounts payable due to timing of cash disbursements and a change in income taxes
payable.payable to income taxes receivable.
Cash Flows from Investing Activities
During the
sixnine months ended
JuneSeptember 30, 2020, cash used in investing activities was
$1.3$2.4 million, consisting primarily of purchases of property and equipment.
During the
sixnine months ended
JuneSeptember 30, 2019, cash used in investing activities was
$3.6$5.1 million, consisting primarily of purchases of property and equipment.
Cash Flows from Financing Activities
During the
sixnine months ended
JuneSeptember 30, 2020,, cash provided by financing activities was
$6.0$7.9 million, consisting of
$2.8$4.9 million of proceeds from exercise of stock options and $3.5 million of proceeds from issuance of equity related to shares issued pursuant to our Employee Stock Purchase Plan, partially offset by
$0.2$0.4 million in vesting of restricted stock
units.units, primarily related to tax payments funded in the form of net issuances for certain executive officers.
During the
sixnine months ended
JuneSeptember 30, 2019, cash provided by financing activities was
$3.9$358.8 million, consisting of
$1.8$400.0 million of proceeds from issuance of the Notes, $2.6 million of proceeds from exercise of stock options and $2.9 million of proceeds from issuance of equity related to shares issued pursuant to our Employee Stock Purchase Plan, partially offset by
payments of debt issuance costs of
$0.8$9.6 million associated with the
new Credit
Agreement.Agreement and issuance of the Notes and $37.1 million of purchases of capped calls associated with the issuance of the Notes.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities, which includes special purposes entities and other structured finance entities.
Contractual Obligations and Commitments
There have been no material changes outside the ordinary course of business in our contractual obligations and commitments during the
sixnine months ended
JuneSeptember 30, 2020, as compared to the Annual Report on Form 10-K for the year ended December 31, 2019.
Critical Accounting Policies and Estimates
Our
unaudited condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, and expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
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We believe that the accounting policies associated with revenue recognition, the valuation allowance based on expected credit losses and the collectability of accounts receivable,
stock-based compensation expense,valuation and estimated useful lives of long-lived assets, fair value of the liability and equity components of the Notes, stock-based compensation expense and income taxes and valuation of long-lived assets and goodwill are the most significant areas involving management's judgments and estimates. Therefore, these are considered to be our critical accounting policies and estimates.Except for the adoption of ASU 2016-13, see “Critical Accounting Policies and Estimates” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Annual Report for a full discussion of these estimates and policies. See Note 1 “Description of Business and Summary of Significant Accounting Policies” and Note 3 “Allowance for Expected Credit Losses” in our notes to
unaudited condensed consolidated financial statements included in this Quarterly Report for more information on the adoption of ASU 2016-13.
Recent Accounting Pronouncements
See Note 1 “Description of Business and Summary of Significant Accounting Policies” in our notes to unaudited condensed consolidated financial statements included in this Quarterly Report for a description of recent accounting pronouncements, including the dates of adoption and estimated effects on our results of operations, financial condition, and cash flows.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For a description of market risks, see “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of the Annual Report. Our exposure to market risks related to inflation risk has not changed materially from the exposure described in the Annual Report.
We had cash and cash equivalents
and restricted cash of
$476.9$490.1 million as of
JuneSeptember 30, 2020,
including $6.3 million of restricted cash as of June 30, 2020. Our cash and cash equivalentswhich are held in cash deposits and money market funds. Due to the short-term nature of these instruments, we believe that we do not have material risk of exposure to changes in the fair value of our cash and cash equivalents as a result of changes in interest rates. As of
JuneSeptember 30, 2020, we do not believe a hypothetical 10% relative change in interest rates would have a material impact on the value of our cash equivalents.
We did not have any investments in marketable securities as of
JuneSeptember 30, 2020.
In September 2019, we issued and sold $400.0 million aggregate principal amount of 0.125% convertible senior notes due 2024 in a private offering to qualified institutional buyers. The fair value of the Notes is subject to interest rate risk, market risk and other factors due to the conversion feature. The fair value of the Notes will generally increase as our common stock price increases and will generally decrease as our common stock price decreases. The interest and market value changes affect the fair value of the Notes but do not impact our financial position, cash flows or results of operations due to the fixed nature of the debt obligation. Additionally, we carry the Notes at face value less unamortized discount and debt issuance costs on our balance sheets, and we present the fair value for required disclosure purposes only.
Foreign Currency Exchange Risk
Our reporting currency is the U.S. dollar. Due to our international operations, we have foreign currency risk related to operating expenses denominated in currencies other than the U.S. dollar, primarily the Euro, British pound, Australian dollar, Canadian dollar, Singaporean dollar, Israeli shekel and the Indian rupee. As of
JuneSeptember 30, 2020, our cash and cash equivalents included
$4.2$4.7 million held in currencies other than the U.S. dollar. Decreases in the relative value of the U.S. dollar to other currencies may negatively affect our operating results as expressed in U.S. dollars. These amounts are included in other
expense,income (expense), net, on our
unaudited condensed consolidated statements of operations.
Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates because, although substantially all of our revenue is generated in U.S. dollars, our expenses are generally denominated in the currencies of the jurisdictions in which we conduct our operations, which are primarily in the United States, Europe and Asia. Our results of operations and cash flows could therefore be adversely affected in the future due to changes in foreign exchange rates. We do not believe that a hypothetical 10% change in the relative value of the U.S. dollar to other currencies would have a material effect on our results of operations or cash flows, and to date, we have not engaged in any hedging strategies with respect to foreign currency transactions. As our international operations grow, we will continue to reassess our approach to manage our risk relating to fluctuations in currency rates, and we may choose to engage in the hedging of foreign currency transactions in the future.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and to ensure that information required to be disclosed is accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), to allow timely decisions regarding disclosure. Our CEO and CFO, with assistance from other members of management, have reviewed the effectiveness of our disclosure controls and procedures as of
JuneSeptember 30, 2020 and, based on their evaluation, have concluded that the disclosure controls and procedures were effective as of such date.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the presentation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
In connection with the preparation of this Quarterly Report on Form 10-Q, our management assessed the effectiveness of our internal control over financial reporting as of
JuneSeptember 30, 2020. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”)(COSO) in Internal Control—Integrated Framework (2013 framework). Based on such assessment, our management concluded that, as of
JuneSeptember 30, 2020, our internal control over financial reporting was effective based on those criteria.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting as defined in Exchange Act Rule 13a-15(d) and 15d-15(d) during the quarter ended
JuneSeptember 30, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We have not experienced any material impact to our internal controls over financial reporting despite the fact that our employees are working remotely due to the global COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation to determine any potential impacts on the design and operating effectiveness of our internal controls over financial reporting.34
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently a party to, nor is our property currently subject to, any material legal proceedings. Weproceedings, and we are not aware of any such proceedings contemplated by governmental inquiries or investigations into our business.authorities.
There have been no material changes to the risk factors disclosed in Part I, Item 1A in the Company’s Annual Report and Part II, Item 1A in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On November 16, 2017, the Registration Statement on Form S-1 (File No. 333-221036) relating to our initial public offering was declared effective by the SEC and we priced our initial public offering. Pursuant to the Registration Statement, we registered an aggregate of 23.0 million shares of our common stock, of which 15.8 million shares were sold by us and 7.2 million shares were sold by certain selling stockholders named therein at a price to the public of $12.00 per share (for an aggregate offering price of $276.0 million). We received net proceeds of $172.0 million, after deducting underwriting discounts and commissions of $13.3 million and offering-related expenses of $4.4 million. As of
JuneSeptember 30, 2020, we have used $160.0 million of the proceeds from our initial public offering to repay borrowings under our previous term loan facility and $1.8 million of such proceeds to pay a related prepayment premium; the remaining net proceeds are held in cash and have not been deployed.
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Exhibit
Number
| | Description
| | | | | | |
Exhibit Number | | Description |
| | |
2.1*** | | Agreement and Plan of Merger, by and among SailPoint Technologies, Inc., Whaler Merger Sub, Inc., Orkus, Inc., and Aspect Ventures II, L.P., dated as of October 7, 2019 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K (File No. 001-38297), filed with the Securities and Exchange Commission on October 16, 2019). |
| | |
2.2*** | | Agreement and Plan of Merger, by and among SailPoint Technologies, Inc., Osprey Merger Sub, Inc., Overwatch.ID, Inc., and Shareholder Representative Services LLC, dated as of October 10, 2019 (incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K (File No. 001-38297), filed with the Securities and Exchange Commission on October 16, 2019). |
| | |
3.1 | | |
| | |
3.2 | | |
| | |
| | |
| | |
| | |
31.2*
| | Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| | |
| | |
| | |
| | |
101.INS* | | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| | |
101.SCH* | | Inline XBRL Taxonomy Extension Schema Document. |
| | |
101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
| | |
101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
| | |
101.LAB* | | Inline XBRL Taxonomy Extension Label Linkbase Document. |
| | |
101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
| | |
104 | | Inline Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| | | | | |
* | Filed herewith. |
** | Furnished herewith (such certification shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, except to the extent that the Company specifically incorporates it by reference). |
*** | Certain schedules and exhibits have been omitted in accordance with Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the Securities and Exchange Commission on request. |
+ | Management contract or compensatory plan or arrangement. |
36
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | | | | | | | | |
| SailPoint Technologies Holdings, Inc., |
| | | |
Date: August 6,November 5, 2020 | By: | By:
| /s/ Mark McClain |
| | | Mark McClain |
| | | Chief Executive Officer and Director (Principal Executive Officer) |
| | | |
Date: November 5, 2020 | By: | | |
Date: August 6, 2020
| | By:
| /s/ Jason Ream |
| | | Jason Ream |
| | | (Principal Financial Officer)
|
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