SailPoint Technologies Holdings (NYSE:SAIL), a cybersecurity company focused on enterprise identity governance solutions, reported its second-quarter results on Wednesday. Strong demand for the company's software-as-a-service identity product line continued to grow at a brisk pace and pushed the top line higher. The sales leverage helped the company to produce non-GAAP profits even as management continues to aggressively reinvest in the business.

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SailPoint Q2 results: The raw numbers

Metric

Q2 2018

Q2 2017

Year-Over-Year Change

Revenue

$54.6 million 

$39.3 million

39%

GAAP operating loss

($1.8 million)

($1.2 million)

N/A

GAAP net income (loss)

($5.6 million)

($4.3 million)

N/A

GAAP earnings (loss) per share

($0.07)

($0.22)

N/A

Data source: SailPoint.

What happened with SailPoint this quarter?

  • License revenue jumped 43% to $19.1 million against the prior-year quarter. Subscription revenue grew 53% to $25 million. Services and other revenue increased 8% to $10.4 million.
  • Total revenue of $54.6 million easily beat management's guidance range of approximately $50 million.
  • Renewal rates for IdentityNow -- the company's software-as-a-service (SaaS) component -- remained above 95%.
  • International sales comprised 37% of revenue, up 600 basis points over the previous year. 
  • Gross margin expanded 300 basis points to 79%. Management credited the gains to increased scale. 
  • On a non-GAAP basis, operating margin expanded 500 basis points to 8%. 
  • Non-GAAP net income and earnings per share (EPS) came in at $2.5 million and $0.03, respectively. These numbers compared favorably to management's call for a non-GAAP EPS loss of about $0.02 per share.
  • The company's cash balance was $82 million at quarter end.
  • SailPoint ended the quarter with 1,031 customers. 

What management had to say

CEO and co-founder Mark McClain focused his commentary on the macro opportunity that lies ahead:

Organizations are struggling to keep pace with the constantly evolving security and compliance landscape amid their digital transformation, which is why identity governance is so critical. Regardless of where an enterprise is in their digital transformation, they need the ability to securely govern digital identities for all users, which includes both humans and nonhuman bots, all applications and all data, whether on premises or in the cloud. SailPoint is at the forefront of developing innovative ways of providing comprehensive identity governance to ensure companies can securely and confidently enable their workforce.

McClain also credited the company's continued growth with its decision to strike up partnerships with other cybersecurity businesses such as CyberArk and Okta

Management also announced on the conference call with investors that it recently entered into a new partnership with Rackspace Hosting. McClain says that this deal will enable enterprises to deploy SailPoint's identity governance software on major cloud systems such as Amazon Web Services, Microsoft Azure, and private cloud environments. 

Looking forward

CFO Cam McMartin shared the following guidance with investors for the upcoming quarter:

For the third quarter of 2018, we expect total revenue of $54.5 million to $55.5 million. We expect a non-GAAP operating loss in the range of $1 million to breakeven, and a non-GAAP loss per basic and diluted share of $0.02 negative to $0.01 negative. 

McMartin also took the opportunity to raise guidance for the full year 2018:

Metric New Guidance Range
Old Guidance Range
Total revenue $233 million to $236 million $225 million to $229 million
Non-GAAP operating income $17 million to $19 million $14 million to $16 million
Non-GAAP EPS $0.12 to $0.14 $0.07 to $0.09

Data source: SailPoint.

SailPoint's stock jumped by double digits in the trading session after this earnings report was released. The bullish move was in response to the organization's strong quarterly growth numbers and upbeat guidance. 

McMartin ended his prepared remarks on the earnings conference call by laying out the company's operating plan for the back half of the year: "As we move through the second half of 2018, we are capitalizing on our strong first-half performance and plan to ramp spending as part of reinvesting in the business. We believe we have an opportunity to drive strong top-line growth for many years while continuing to look to deliver non-GAAP operating income and positive free cash flow."

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Brian Feroldi owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and Okta. The Motley Fool recommends CyberArk Software and SailPoint Technologies. The Motley Fool has a disclosure policy.