0001627857-22-000082
SEC filingSailPoint's Q2 revenue grew 31% YoY to $134.3M, driven by subscription strength, but gross margin contracted to 70% due to higher cloud costs.
SailPoint's second quarter 2022 revenue reached $134.3M, a 31% increase from $102.5M in Q2 2021, driven primarily by strong subscription growth. Subscription revenue grew 43% to $92.3M, with SaaS surging 83% to $46.4M and maintenance and support up 17% to $43.8M. License revenue increased 5% to $25.7M, while services and other revenue rose 19% to $16.3M.
Gross profit increased 26% to $94.6M, but gross margin declined to 70% from 73%, driven by a 500 bps drop in subscription gross margin to 75% due to a $9.0M increase in cloud hosting costs and employee expenses. Services and other gross margin fell sharply from 8% to 3% as costs grew faster than revenue. License gross margin remained stable at 95%.
Operating loss widened to $(26.8)M from $(17.0)M, as operating expenses grew 32% to $121.4M. R&D spending rose 45% to $33.4M due to headcount growth, sales and marketing increased 28% to $75.0M, and general and administrative expenses rose 25% to $13.0M. Net loss was $(29.4)M compared to $(16.7)M last year.
The revenue mix continues to shift toward subscriptions, which represented 69% of total revenue in Q2 2022 versus 63% in the prior year. Within subscriptions, SaaS revenue more than doubled its share from 25% to 35% of total revenue, reflecting the successful transition to cloud-based offerings. License revenue share declined from 24% to 19%.
Geographically, the United States remained the largest market at 72% of revenue, up from 68%, driven by a 39% growth rate. EMEA contributed 18% (down from 19%) with 25% growth, while Rest of World declined 2% and represented 10% of revenue.
Total ARR, a key non-GAAP metric, grew 47% to $429.5M, underscoring the strength of recurring revenue streams.
Management expects the pending acquisition by Thoma Bravo to close in the second half of 2022, subject to regulatory approvals. The company provided no specific financial guidance, but highlighted ongoing investments in R&D and sales to drive long-term growth. The shift toward subscription-based revenue is expected to continue, which may pressure near-term margins but improve revenue predictability. COVID-19 impacts have been manageable, with revenue growth sustained through the first half of 2022.
As of June 30, 2022, SailPoint held $402.4 million in cash and cash equivalents, plus $6.7 million in restricted cash, totaling $409.1 million in combined liquidity. Total debt consisted of convertible senior notes with a net carrying amount of $386.0 million (principal $389.8 million less unamortized issuance costs of $3.8 million). The estimated fair value of these notes was $861.2 million, reflecting the significant conversion premium. Stockholders' equity stood at $382.3 million, down from $404.2 million at year-end 2021, driven by a net loss of $62.5 million in the first half of 2022. The company had no outstanding borrowings under its $75.0 million revolving credit facility. A $6.0 million cash collateral standby letter of credit was maintained for the corporate headquarters lease.
The most significant commitment disclosed relates to the pending Merger with Thoma Bravo. While the Merger is subject to closing conditions, the company has incurred $1.8 million in Merger-related expenses through June 30, 2022, and expects additional contingent liabilities of approximately $66.9 million upon consummation (banker fees, legal, and other professional fees). Additionally, the Merger Agreement includes a termination fee of $425.1 million payable to SailPoint if Parent fails to close under certain conditions, and a $212.5 million fee payable by SailPoint if it terminates for a superior proposal. Non-cancelable operating lease commitments totaled $37.7 million in undiscounted future minimum payments, with $3.0 million due within the next twelve months. Deferred revenue, a key contractual obligation indicator, was $257.2 million, of which $226.7 million is current. Remaining performance obligations (RPO) aggregated $642.7 million, with $345.9 million expected to be recognized over the next 12 months.
SailPoint did not execute share buybacks or pay dividends during the period. Capital expenditures were $3.5 million in the first six months of 2022, representing approximately 1.4% of total revenue. The company made no new debt issuances or repayments in the current period; the net carrying amount of the convertible notes increased slightly due to the amortization of issuance costs. The Capped Call Transactions, originally covering 14.1 million shares, now cover 13.7 million shares following a pro-rata termination related to partial note conversions in Q1 2021. The $37.1 million cost of these transactions remains recorded in additional paid-in capital.
SailPoint operates as a single reportable segment. Geographic revenue disclosure shows the United States contributed $173.6 million (69.5%) of total revenue in the first half of 2022, EMEA contributed $47.4 million (19.0%), and Rest of World contributed $28.7 million (11.5%). No single country outside the U.S. represented more than 10% of revenue, and no single customer exceeded 10% of revenue or accounts receivable. Revenue by type is further disaggregated within the notes: licenses ($41.0M), SaaS subscriptions ($87.5M), maintenance and support ($86.1M), other subscription ($4.3M), and services ($30.8M). All subscription and services revenue is recognized over time.
For the six months ended June 30, 2022, SailPoint reported a net loss of $62.5 million, while net cash used in operating activities was $36.2 million. The primary non-cash adjustments were stock-based compensation ($33.9M), depreciation and amortization ($11.4M), and amortization of contract acquisition costs ($14.4M). However, significant working capital outflows—particularly a $29.0 million decrease in accrued expenses and other liabilities and a $21.8 million increase in deferred contract acquisition costs—drove the cash burn. The operating cash flow deficit widened by 47% year-over-year, from -$24.6M to -$36.2M, reflecting higher net losses and adverse working capital movements.
Capital expenditures (capex) were $3.5 million, up from $2.0 million in the prior period, indicating modest investment intensity. No free cash flow is explicitly stated, but the combination of negative operating cash flow and capex implies a significant cash consumption. There were no share repurchases or dividends; financing activities provided $6.7 million, primarily from employee stock plan contributions and stock option exercises, partially offset by taxes on RSU vestings. The company's cash balance declined by $33.0 million to $409.1 million at period end.
Anomalies include the large swing in accrued expenses and other liabilities (-$29.0M vs. -$15.4M prior) and the increase in deferred contract acquisition costs, which are typical for subscription-based software companies but amplified here. The pending merger with Thoma Bravo (announced April 2022) may influence management's focus on cash preservation rather than capital returns.