SailPoint Technologies Holdings, Inc (SAIL) Q3 2021 Earnings Call Transcript

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SailPoint Technologies Holdings, Inc (SAIL)
Q3 2021 Earnings Call
Nov 9, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings. Welcome to the SailPoint Technologies Holdings, Inc. Third Quarter 2021 Earnings Conference Call. [Operator Instructions]

I will now turn the conference over to your host, Josh Harding, Senior Vice President of Finance and Investor Relations. Thank you. You may begin.

Josh Harding -- Vice President, Finance and Investor Relations

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

And now I'd like to turn the call over to Mark McClain.

Mark McClain -- Chief Executive Officer and Co-founder

Thanks, Josh, and thanks to each of you for joining the call today. I'm very pleased to share our strong third quarter fiscal year 2021 results with you. We exceeded the high end of both our ARR and revenue guidance, driven by very strong growth from our SaaS and subscription-based offerings. We ended the quarter with approximately $324 million of ARR, up 44% year-over-year and a subscription revenue of approximately $71 million, up 39% year-over-year. Our outperformance this quarter can be attributed to two main factors. First, the demand environment for identity security continues to be very strong. An increasing number of enterprises have realized that their current security stack is not sufficient to address today's threat landscape. Recognizing that identity is core to their overall security strategy, enterprises continue to select identity security as a top investment priority. This is evidenced by the strategic conversations we're having with customers and the quality and depth of our sales pipeline. We believe this sets us up for many years of exciting growth. Second, our transition to a subscription-based business model, which we outlined at our Analyst Day earlier this year, has happened well ahead of our initial expectations. In Q3, 87% of the total new bookings came from our subscription-based offerings, up from 82% last quarter and 72% in Q1. This accelerated time line has been driven by two key factors: incredibly strong growth in demand for our SaaS platform and customers' desire to procure our other products on a subscription basis. As Cam will discuss later in the call, our transition to a subscription model is, in our view, largely complete. While our SaaS platform has been successful in the broader enterprise market, one of the key drivers behind the accelerated growth we're experiencing with SaaS is the traction we're now seeing at the upper end of the enterprise market.

It's well known that these large enterprise customers have incredibly challenging use cases. We believe the success we're seeing in this segment of the market highlights the scalability, ease of use and technical superiority of SailPoint's SaaS platform. To this point, we closed two deals in Q3, both with Fortune 100 brands that I found to be great examples of the value we are delivering to complex enterprises today. The first example is a multinational pharmaceutical company that needed an agile approach to identity security to replace their rigid legacy identity system. They chose SailPoint's SaaS identity platform to manage and secure nearly 150,000 identities and their access to thousands of applications. SailPoint rose above the competition for two reasons: one, our modern multi-tenant SaaS architecture provided the agility and cost efficiencies they needed; and two, SailPoint demonstrated the ability to meet at scale the requirements necessary to support their complex global business operations. The second example is one of the world's largest telecommunication providers. This Fortune 100 company turned to SailPoint to replace a struggling legacy approach that failed to address security needs, was difficult to use and created excessive operating costs. They chose SailPoint's identity platform alongside our AI-enabled services to give them a comprehensive single view over their one million identities under management with access to more than 8,000 applications. The increased visibility and scalability of the solution plus the promise of a significant reduction in manual processes due to our AI-enabled automation tip the scales in SailPoint's favor. Another advantage of our transition to a subscription-based model is that it simplifies selling additional solutions to our existing customers. Our customer base is eager to double down on their identity strategy with us and addressing that demand is important to our growth strategy. We saw great success in this area in the third quarter. Let me share two notable examples to add color to this point.

The large healthcare consortium is currently running their identity program on SailPoint's SaaS platform to securely manage almost 400,000 identities. In Q3, they added SailPoint's AI-enabled access modeling, access insights and recommendation services. This powerful combination gives the organization an autonomous modernized approach to identity, speeding identity decisions and providing intelligent recommendations on role access changes. With this approach, they now have an adaptable identity security program that will be able to keep pace with the velocity of their business. In another example, a leading property and casualty insurance customer needed broader visibility into access over cloud resources and data stored in files. To address the first issue, they chose SailPoint's cloud access management capability to provide visibility into who has access to what at the cloud resource level, specifically in the Azure environment. To help protect their critical information, they also chose SailPoint's file access management capability for strong oversight of sensitive data stored in files. SailPoint delivered on both fronts giving them the deeper and richer approach to identity security they required to fully protect their business. While we're seeing great traction with our current product portfolio, as evidenced by each of the examples I've just shared, we are also very focused on expanding the depth and breadth of our industry-leading identity security platform. During the quarter, we announced our new workflows capability, which is designed to help customers streamline and automate repetitive manual security tasks with minimal to no coding required. This will allow customers to further embed identity security into the thousands of business processes in a typical enterprise, enabling faster and broader adoption of identity security policies and controls. Similar to our AI-enabled services, we believe workflows will differentiate SailPoint in the market and will further simplify how our customers manage and control identity within their technology ecosystem. As we turn to Q4 and look ahead to 2022, SailPoint is well positioned across the board. Market trends are favorable and customer interest in our identity security solutions has never been greater. We're seeing very strong demand for our SaaS solutions, and our transition to a subscription-based model is largely complete. We are confident that our laser focus on comprehensive intelligent identity security will continue to set us apart in the enterprise market. In closing, our team continues to be very excited about the opportunity that's in front of us and believe we're building a very durable growth story for many years to come.

And now I'd like to hand it over to Cam to talk more in-depth about our financial results for the quarter. Cam?

Cam McMartin -- Chief Financial Officer

Thank you, Mark, and thanks to everyone for joining us on the call today. Before reviewing our outperformance for the quarter, I'd like to note that we posted a few slides to the Investor Relations section of SailPoint's website. I'll reference them throughout this call. These supplemental materials include additional disclosure that we believe further highlight the business' continued strong performance and the success we've had shifting the business to what is now almost entirely comprised of subscription revenue streams, which I'll discuss further as part of my prepared remarks. As Mark noted earlier, we had a great quarter and significantly beat our prior guidance across every metric. Driven by strong new bookings results, a faster-than-expected mix shift to our subscription-based offerings and retention that was better than planned, total ARR grew by more than $32 million sequentially this past quarter, ending the period at approximately $324 million. This represents a 44% year-over-year growth rate. And as a result -- and a result that is $6.8 million above the high end of the guidance range we provided on our last call. As you will see in the slides I referenced earlier, we've provided a further breakout of total ARR, not only for this quarter but for each quarter since the first quarter of 2020. We ended the third quarter with $179 million of ARR from our subscription-based offerings, which represents an 81% year-over-year increase. Our subscription ARR consists of $132 million from SaaS and approximately $47 million from recurring term licenses. Further, we ended the quarter with approximately $145 million coming from our recurring perpetual maintenance base. As you can see in the supplemental materials, perpetual maintenance ARR grew by $3.6 million sequentially, despite only 13% of total new bookings coming from our perpetual licenses this past quarter. We believe this highlights the fantastic economics inherent in our perpetual maintenance business, which continues to benefit from annual price increases and a gross renewal rate well above 95%.

In addition, we believe there's a meaningful opportunity to drive additional ARR as some of these maintenance customers move to our SaaS offering. This opportunity is largely untapped as only a small number of existing IdentityIQ customers have made move to our SaaS platform. In addition to the solid ARR growth this past quarter, total revenue was $110.1 million, $6.1 million above the top end of our prior guidance range. This outperformance was driven by very strong new bookings growth, especially from our subscription-based offerings. In terms of year-over-year growth, total reported revenue grew 17%, but as we have noted throughout this year, the rapid shift to a subscription model and more specifically SaaS, continues to create a revenue growth headwind. If our new bookings mix have been the same as we delivered in Q3 of last year, total revenue growth would have been over 30%. We believe this mix-adjusted metric, when combined with the very healthy ARR growth discussed earlier, provides investors a clear indication of the underlying growth momentum of our business. In addition, for the first time, we are providing a breakout of license revenue that we believe highlights the relatively small contribution of perpetual license revenue remaining in our business mix. This past quarter, we recognized $26.1 million of license revenue, nearly 60% of which was driven by recurring term licenses, with the remaining roughly 40% coming from perpetual licenses. With over $110 million of total revenue this quarter, less than 10% came from perpetual licenses, further highlighting that our transition to a subscription revenue model is, in our view, largely complete. While we expect to see the occasional new perpetual license transaction and ongoing expansion deals for current customers, our entire team's principal focus is on selling SaaS and term licenses. Moving past license revenue, total subscription revenue grew 39% year-over-year this quarter, which was largely driven by the strong sequential increase in SaaS revenue of approximately $4.5 million and continued strength in our maintenance base, as noted earlier.

I'll now transition to expenses and operating profit for the quarter. Please note that unless otherwise stated, all references to expenses and operating results are calculated on a non-GAAP basis and exclude the items outlined in the GAAP to non-GAAP reconciliations provided in today's press release. Operating income was $0.9 million, which was ahead of our prior guidance due primarily to the outperformance in revenue noted earlier. As we communicated at our Analyst Day in February and have highlighted each quarter since, we are investing aggressively in the business given the large opportunity we see in front of us, and it is continuing to pay off as demonstrated by the strong third quarter results. Now I'd like to shift to how we're thinking about Q4 and our updated guidance for the full year. Based upon our outperformance in Q3, a healthy Q4 pipeline and a faster-than-expected shift to subscription and specifically SaaS, we're raising our full year outlook for total ARR to $358 million to $360 million, up from $343 million to $347 million previously. This outlook represents a 43% growth rate year-over-year. In addition to raising our guidance for total ARR, we are also raising our full year outlook for SaaS revenue by $5.5 million to $7.5 million to a range of $110.5 million to $111.5 million or 65% to 67% growth year-over-year. This is a result of strong SaaS performance in Q3 and the increased contribution of new bookings we expect from SaaS in Q4. Even in light of our expectation that more new bookings will come from subscription and specifically SaaS offerings, which will primarily benefit revenue in periods beyond 2021, we are raising our full year total revenue outlook to $415.5 million to $417.5 million. This increase is a result of healthy new bookings growth in Q3 and higher bookings expectations for Q4. To illustrate the impact of the additional mix shift we're now expecting, our total current revenue guidance would be approximately $7 million higher if our projected Q4 mix was still in line with the mix we assumed when providing full year guidance back in August.

In terms of full year profit, we now anticipate an operating loss of $6.5 million to $8.5 million, roughly in line with our prior year guidance. Given the current performance of the business, how early we are in capitalizing on the market opportunity and the attractive returns we are generating from our growth initiatives, we intend to reinvest any profit outperformance back into the business to strengthen our durable growth strategy. As I close, I'd like to reiterate our excitement for the opportunity in front of us and how pleased we are with the success we have had in shifting the business to a subscription model. As we prepare to enter 2022, we have a business that is almost entirely comprised of subscription revenue streams, which we believe creates an attractive long-term setup. In addition, the identity security market opportunity offers us many years of very exciting growth given our clear leadership. We believe we're making the right investments to grow the value we can deliver to our customers and ultimately, to our shareholders.

With that, we'd now like to take your questions. Operator, you can start the Q&A.

Questions and Answers:

Operator

[Operator Instructions] Our first question is from Rob Owens of Piper Sandler. Please proceed with your question.

Rob Owens -- Piper Sandler -- Analyst

Great. Good afternoon and thank you for taking my question. I want to hone in a little bit, given you gave us the breakout this quarter, around perpetual maintenance and support, and it still grew at 15%, I think, year-over-year. So help us understand when that's going to flatten out, maybe roll over, number one? And number two, is there any incentive for those customers on maintenance and support, just start to move to term at this point? Or will you offer incentives to shift into term longer term? Thanks.

Cam McMartin -- Chief Financial Officer

Rob, Cam McMartin here. Good to hear your voice.

Rob Owens -- Piper Sandler -- Analyst

Likewise, Cam.

Cam McMartin -- Chief Financial Officer

Look, I think a couple of questions here let me see if I can take them in turn. I think we're -- you did see a healthy growth rate in terms of the maintenance progression in the quarter. We're pleased with the overall contribution that the IIQ family continues to provide. It's largely, as you appreciate, a business that on the IIQ family side has now shifted to term license business, and that's our focus for selling terms. But we are seeing good progression quarter-on-quarter in terms of expansion selling into the IIQ install base and as we saw in Q3, the occasional contribution from perpetual license transactions. I expect that will continue going forward into 2022. That's our expectation is that we'll see moderating contribution from perpetual licenses but a continued contribution from term licenses. As it relates to incentives, we don't really, at this point, have any incentives in what we're doing in our installed base. Our customers continue to expand their implementations of IIQ, both those that have bought on a perpetual basis and those that have bought on a term basis, and we'll continue to work with those customers to fill out, if you will, the depth and breadth of their identity security deployment in their enterprise. As has been the case all along, we typically see a good follow-on if you will land and then expand selling opportunity, and that's continued and is represented on the results you saw in this quarter.

Rob Owens -- Piper Sandler -- Analyst

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

Mark McClain -- Chief Executive Officer and Co-founder

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

Cam McMartin -- Chief Financial Officer

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

Rob Owens -- Piper Sandler -- Analyst

Thank you.

Cam McMartin -- Chief Financial Officer

Thanks, Rob.

Operator

Our next question is from Matt Hedberg of RBC Capital Markets. Please proceed with your question.

Dan Bergstrom -- RBC Capital Markets -- Analyst

Hi. It's Dan Bergstrom for Matt Hedberg. Thanks for taking our questions. ARR growth is really impressive in the quarter, 44%, accelerator from last quarter. Off a tougher comp, guidance points to about a similar level for the fourth quarter. Could you drill down a little more into what's driving the strength here? I think the supplemental slides help to visualize this, but what's enabling you to maintain and even accelerate that growth rate here?

Cam McMartin -- Chief Financial Officer

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

Dan Bergstrom -- RBC Capital Markets -- Analyst

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

Mark McClain -- Chief Executive Officer and Co-founder

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

Dan Bergstrom -- RBC Capital Markets -- Analyst

That's helpful, thanks.

Mark McClain -- Chief Executive Officer and Co-founder

You bet.

Operator

Our next question is from Hamza Fodderwala of Morgan Stanley. Please proceed with your question.

Hamza Fodderwala -- Morgan Stanley -- Analyst

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

Mark McClain -- Chief Executive Officer and Co-founder

Yes, Hamza, good question. On the first part of your question, I think in the kind of why are we seeing increased traction in those large-scale enterprises. It really is kind of both a push, pull. What I mean is, I think we continue to get a lot of engineering and development effort into broadening and deepening the capabilities of the SaaS offering to effectively make it kind of use case equivalent to the on-prem offering. So I think when a high-end enterprise-class customer looks for the things they expect to see in a product of this nature, they see those things now in our IdentityNow product. And so I think that's probably kind of opened their mind to it. And then the pull, if you will, that's the push from us in my metaphor here. The pull from them is just -- I think it just increased open this over time to accept this particular kind of technology from the cloud. I think one of the things we always want people of is we're a very market-driven company when we talked to the market 15 years ago. We get this company started again, 10 to 12 years ago -- I mean, sorry, eight to 10 years ago, it was just very clear that those high-end customers were not really interested in getting this product delivered as a SaaS offering. That has shifted. I think their preference has shifted to a kind of a SaaS first expectation.

Their confidence in the kind of bulletproof nature of the security environment of the cloud providers like Amazon and Azure and Google is just very high. And so I think they trust and believe this is, in fact, a very secure way to manage it, and they get that SaaS is to stay really smart way to do this to continue to allow them and us to extend the product quickly and easily over time. So I think it's a push, pull there. Your second part, Hamza, on the legacy environment. I used to play some baseball. I guess I'll give you about a second or third inning on this deal. I think we're certainly in the first 1/3 of the game. How is that? I don't think we're into the middle innings yet. I think we're in the first 1/3 of the game in terms of the amount of legacy, particularly legacy implementations in these larger enterprises that is still yet to be turned over. And so we're pretty bullish on the number of places we think we can still take a solution in the Fortune Global 5000 around the world. I think there's a lot of installed identity product out there still from the legacy players.

Hamza Fodderwala -- Morgan Stanley -- Analyst

And maybe just a quick follow-up. You talked a lot about the attachment of the AI-enabled services. Any color you can give us as to how penetrated those services are within your install base?

Mark McClain -- Chief Executive Officer and Co-founder

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

Hamza Fodderwala -- Morgan Stanley -- Analyst

Thank you.

Mark McClain -- Chief Executive Officer and Co-founder

You bet.

Operator

Our next question is from Brent Thill of Jefferies. Please proceed with your question.

Joe Gallo -- Jefferies -- Analyst

Hi, guys. This is Joe on for Brent. I really appreciate the question. It seems like everything is firing on all cylinders. And I know you guys made a lot of go-to-market changes earlier this year, building out an inside sales team, moving to more solutions-oriented sales versus transaction. Could you just get an update there? And how hiring has trended throughout the year?

Mark McClain -- Chief Executive Officer and Co-founder

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

Joe Gallo -- Jefferies -- Analyst

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

Cam McMartin -- Chief Financial Officer

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

Joe Gallo -- Jefferies -- Analyst

It's helpful. Thanks guys.

Cam McMartin -- Chief Financial Officer

Thanks.

Operator

Our next question is from Brian Essex of Goldman Sachs. Please proceed with your question.

Brian Essex -- Goldman Sachs -- Analyst

Great. Good afternoon and thank you for taking my question and thank you as well for the additional disclosure. That's very helpful. I was wondering maybe if I could start with a lot of the commentary into the backlog. I think you noted that you're building a healthy backlog into the fourth quarter. How does that -- maybe would like to know how that may be differs from prior periods? Is it a similar mix? Are there -- I think in 4Q or the back half of the year tend to be -- might tend to be a little bit more seasonally heavy on the perpetual side. Do you still have maybe some larger perpetual deals floating out or do you think it's going to be mostly geared toward SaaS with a higher degree of visibility, allowing you to make a little bit narrower kind of guide rails around guidance?

Cam McMartin -- Chief Financial Officer

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

Brian Essex -- Goldman Sachs -- Analyst

Got it. That's super helpful. And maybe, Cam, well, I have you, good to meet you as well, could you provide a little bit of color on some of the puts and takes on the gross margin side? It looks like they moved around a little bit, but just as we kind of fine-tune our models over the next couple of years, how should we expect those margins to trend? And was there anything anomalous in the quarter that caused them to shift a little bit?

Cam McMartin -- Chief Financial Officer

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

Brian Essex -- Goldman Sachs -- Analyst

Okay. Fair enough. Very good. Thank you.

Mark McClain -- Chief Executive Officer and Co-founder

You bet.

Operator

Our next question is from Andrew Nowinski of Wells Fargo. Please proceed with your question.

Andrew Nowinski -- Wells Fargo -- Analyst

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

Cam McMartin -- Chief Financial Officer

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

Andrew Nowinski -- Wells Fargo -- Analyst

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

Cam McMartin -- Chief Financial Officer

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

Andrew Nowinski -- Wells Fargo -- Analyst

Sounds good. Thanks guys.

Cam McMartin -- Chief Financial Officer

Thanks.

Operator

Our next question is from Mike Walkley of Canaccord Genuity. Please proceed with your question.

Daniel Park -- Canaccord Genuity -- Analyst

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

Cam McMartin -- Chief Financial Officer

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

Daniel Park -- Canaccord Genuity -- Analyst

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

Mark McClain -- Chief Executive Officer and Co-founder

Yes. So as you recall, we have a very large installed base of at IIQ customers. We're obviously with the level of ARR maintenance, you see there about $145 million at the end of the period. It's a big contributor overall to the business. And as I highlighted in my prepared remarks, we're retaining those customers at greater than 95%, and we view that as a an indication of how satisfied those customers are with their IdentityIQ installations today. We have begun to have, not surprising, a small number of initial conversations with customers around the possibility of making transitions from IdentityIQ to IdentityNow from a platform to a platform perspective going into the cloud with IdentityNow. So we're working with those customers, identifying how we would transition them and across what time line. Our expectations in terms of the way to think about this is this motion will begin to contribute to the business in 2022, but will be a multiyear contributor. That is, it won't be -- you won't see a large scale move across platforms in any particular year, I think what you'll see is a steady and a healthy progression of migration across a multiyear period. And that is based both, I think, on our belief that many of our customers will remain IQ customers for a number of years to come. And quite frankly, the fact that we continue to make investments in IdentityIQ product portfolio to enrich and extend the value prop there. So in both ways, this will be a multiyear transition process. We included it in the comments this quarter only to point out that we're beginning to have those conversations, and we expect there to be a, if you will, a beginning of that motion to contribute to the business for 2022. It does, obviously, over time, represent a growth lever to total ARR growth. And we'll begin to comment on that as we get into 2022 as the year progresses there. But at this point, we were just trying to, if you will, give you that heads up that this is a motion that will begin.

Matt Mills -- President, Worldwide Field Operations

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

Daniel Park -- Canaccord Genuity -- Analyst

Great, thank you very much.

Operator

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

Alex Henderson -- Needham & Co -- Analyst

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

Cam McMartin -- Chief Financial Officer

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

Alex Henderson -- Needham & Co -- Analyst

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

Cam McMartin -- Chief Financial Officer

No. That's right. Versus the expectations.

Alex Henderson -- Needham & Co -- Analyst

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

Cam McMartin -- Chief Financial Officer

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

Alex Henderson -- Needham & Co -- Analyst

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

Mark McClain -- Chief Executive Officer and Co-founder

Well, Alex, I think to be clear, I think what we said was we're seeing it as a simplified process more than we said we've seen an actual uptick. I think we still see a fairly consistent level percentage-wise of the amount of business we do into kind of new logos versus kind of upsell, cross-sell into our installed base, that actually has been a fairly consistent percentage of, let's just round it to roughly 2/3 to 1/3, over time. I think our point was that as people are moving to a more subscription or the model, whether that's term or SaaS, I think that model tends to lend itself to kind of a get more as you go kind of a mindset for the customer as much as our sales team. So I think that's going to make it -- by the way, just to be clear, it's in contrast to the traditional perpetual license sale, big buy, wait for some number of years and do an upgrade, right? I think there's a more iterative, consistent motion to both sell and buy, I think, in a recurring repetitive selling motion there around these kinds of term and SaaS offerings. So that was the main point. I don't know that we'll be breaking out exactly kind of data on that anytime too soon. I think it is a it is an indicator that with all the things we've done to add to the portfolio, new developed, organically developed modules, some of the products we've acquired, all those we see as creating great opportunity for additional upsell into the future.

Alex Henderson -- Needham & Co -- Analyst

Great. Well, thank you very much for the questions and thank you for the great print and guide.

Operator

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

Josh Tilton -- Wolfe Research -- Analyst

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

Cam McMartin -- Chief Financial Officer

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

Josh Tilton -- Wolfe Research -- Analyst

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

Cam McMartin -- Chief Financial Officer

It does as well, yes, yes. Absolutely.

Josh Tilton -- Wolfe Research -- Analyst

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

Cam McMartin -- Chief Financial Officer

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

Operator

Our next question is from Rudy Kessinger of D.A. Davidson. Please proceed with your question.

Rudy Kessinger -- D.A. Davidson -- Analyst

Hi, thanks for taking my questions, guys. Most of them have been answered. I guess I'm just curious, going back to some of the perpetual customers that you've seen migrate to SaaS at this point, what's kind of the dollar-for-dollar uplift that you've seen so far?

Cam McMartin -- Chief Financial Officer

Cam here. The answer is it's very early days. I wouldn't want to draw any conclusions at this juncture from the transaction history we have. It's a very, very small number. A handful of transactions the way to think about it. And so I wouldn't want to give you an indication or draw a conclusion at this juncture about what we're doing. We are getting an uplift as you would expect in the sense of moving from a maintenance stream to a SaaS revenue stream. The platforms, as Mark commented earlier, are getting to be quite equivalent in terms of their total functional value delivered. That didn't -- when I was in the business a couple of years ago, that wasn't the case. We were a bit different, if you will, in terms of trailing somewhat in SaaS from a functionality standpoint, the team has done a magnificent job in innovating and bringing forward the depth and breadth of capability in the SaaS platform. So they're very nicely complementary today in terms of how I think about it. So we are getting that uplift, it's early. Importantly, as you, I think, can discern from the prepared remarks and some of the answers to the question, the vast majority, essentially all of the SaaS growth that we're getting today is from new customer acquisition. We're that's the motion. It's the principal motion of the sales force today is to lead the SaaS, and we're doing that. And it's having great success, and that's demonstrated by the numbers you saw in the release today.

Rudy Kessinger -- D.A. Davidson -- Analyst

Got it. And then, I guess, as we try to -- again, as I try to get on the model going forward, when we think about Q4 and going forward as perpetual licenses are largely wound down at this point, I mean is it your expectation that term licenses will continue to grow for the next couple of years? Or how should we think about that line?

Cam McMartin -- Chief Financial Officer

I think if you look at it on a dollar basis, yes, we will continue to see expansion in the dollar level of term license contribution from an ARR expansion standpoint and a revenue standpoint. As Mark highlighted a minute ago when asked a question about where we are with the replacement cycle in the marketplace, as Mark said early innings, second or third, if you think about it, those very large customers today that our replacement opportunities for us are going to be a mix of term and SaaS going forward. And so we're going to see dollar growth. On a mix basis, I think it will continue to be the case, as you've seen in the trend line, that SaaS will be a greater and greater percentage of the totality of our business in the coming periods.

Operator

Our next question is from Yun Kim of Loop Capital. Please proceed with your question.

Yun Kim -- Loop Capital -- Analyst

Thank you. Mark and Cam, congrats on our continued success. On the traction that you're seeing with the enterprise market with the SaaS platform, can you give us some color around how fast large enterprises in Europe and Europe is adopting SaaS solution versus their U.S. counterparts? And any update on the -- on your go-to-market and sales approach difference in Europe versus the U.S., is that mix between staff and on plan is different between those two regions? Thanks.

Mark McClain -- Chief Executive Officer and Co-founder

Yes. Thanks, Yun. Generally, no. What I'll tell you is there are pockets where that's a little more differentiated. Certain geographies, by the way, true in Asia and in Europe, where there's a little more hesitancy to move toward SaaS, I'd say in some of the larger enterprises. But in general, I'd say you're seeing most of the major economies in Europe look pretty similar to the U.S. in terms of their openness, willingness to move SaaS. And our sales motion, to your second part of that, is pretty much the same in both regions, that we're leading with SaaS as the option, we think, is going to be the most relevant option for the great majority of the enterprises we talk to. But again, for various reasons, some customers are still interested in procuring new versions of IIQ, and we are very happy that, that the answer the works for them, and we will continue to support that need in the market. But it is clearly becoming less prevalent that there are customers for whom that is the right answer. Again, I think increasingly will be kind of the highest end of the enterprise market where some of those customers really want that flexibility and are happy to take it, say, a hosted offering versus a true multi-tenant SaaS offering. But in general, no, no major pattern differential in Europe, and for that matter, Asia from the U.S.

Yun Kim -- Loop Capital -- Analyst

Okay. Great. And then a quick question for Cam. For those large enterprise SaaS deals you mentioned in the prepared remarks, can you talk about any difference in contract length or billing frequency versus other typical SaaS deals you guys have done?

Cam McMartin -- Chief Financial Officer

Yes. The profile of those transactions really looks very similar to what we have been doing for a number of years, that is the vast majority of them are three-year bill is annually transactions. That has been our motion really since the beginning of the SaaS product coming into the market, and we continue to focus in that direction. We have had the periodic transaction that will go beyond three years for whatever particular reason. But if you think about, our business profile, that business profile is the vast majority of transactions are those three-year duration's annual billing transactions.

Operator

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

Mark McClain -- Chief Executive Officer and Co-founder

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

Operator

[Operator Closing Remarks]

Duration: 62 minutes

Call participants:

Josh Harding -- Vice President, Finance and Investor Relations

Mark McClain -- Chief Executive Officer and Co-founder

Cam McMartin -- Chief Financial Officer

Matt Mills -- President, Worldwide Field Operations

Rob Owens -- Piper Sandler -- Analyst

Dan Bergstrom -- RBC Capital Markets -- Analyst

Hamza Fodderwala -- Morgan Stanley -- Analyst

Joe Gallo -- Jefferies -- Analyst

Brian Essex -- Goldman Sachs -- Analyst

Andrew Nowinski -- Wells Fargo -- Analyst

Daniel Park -- Canaccord Genuity -- Analyst

Alex Henderson -- Needham & Co -- Analyst

Josh Tilton -- Wolfe Research -- Analyst

Rudy Kessinger -- D.A. Davidson -- Analyst

Yun Kim -- Loop Capital -- Analyst

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