SailPoint Inc (SAIL) 2018 Q1 法說會逐字稿

Greetings and welcome to the SailPoint Technologies Holdings First Quarter Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Josh Harding, Vice President of Financial Planning, Analysis and Investor Relations. Thank you, sir. You may begin.

Good afternoon, and thank you for joining us today to discuss SailPoint's First Quarter Financial Results. Joining me today are SailPoint's CEO and Cofounder, Mark McClain; and SailPoint's Chief Financial Officer, Cam McMartin.

Please note 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 exclude special items, please reference this afternoon's press release in the Investor section of www.sailpoint.com for further information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results.

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

Thanks, Josh, and thank you to everyone joining our Q1 2018 Earnings Call. I'm pleased to share our results from the first quarter of 2018. In Q1 2018, our total revenue grew 40% to $49.7 million. And we delivered profitability on a non-GAAP operating income basis. I'd like to share some company highlights from Q1 before handing it over to Cam to discuss the details of our financial results. We began 2018 with continued success across our various growth strategies, including further penetrating our existing market, extending our global presence, and expanding within our customer base all while leveraging our partner network. As a result, we ended Q1 with 984 customers, up from 933 at the end of 2017. And once again, approximately 80% of the quarter's deals were influenced or sold by one of our partners. In global organizations around the world, there's an increasing awareness that identity governance is critically important for security and compliance efforts. Further, digital transformation has significantly increased the complexity and scale of managing user identities and information resources in the enterprise. And these organizations are more open and interconnected than ever. Across, not only employees, but also contractors, suppliers and business partners as well as assistant resources, robot identities and IoT creating additional levels of complexity and risk.

With all this growth and complexity, enterprises are seeing their attack surface expand exponentially, as hackers frequently target users to gain access to high-value systems and data. Considering the number of identities an enterprise may need to manage, each of which may be accessing a myriad of applications with varying levels of permissions, a typical global enterprise could easily have millions of points of access into their systems. Each of these represents a point of exposure. And if just one access point is breached, it can compromise the entire organization. In addition to this very real security concern, organizations are also wrestling with the growing compliance requirements facing their businesses. And new regulations that focus more on privacy, like the general Data Protection Act, are shining a light on a growing area of risk, data, including private personal information, and sensitive corporate information, including financial reports and intellectual property. SailPoint's vision has always been to manage the digital identities of all users, such as employees, contractors, business partners and even bots and devices across all applications whether running in a data center or in the cloud and all data whether in structured applications or stored in files.

We believe the next frontier for identity governance is unstructured data, such as the data stored in systems like SharePoint, Box and Dropbox a belief that is increasingly being validated by companies in our target market. In March, at the Gartner IAM Summit in London, SailPoint polled attendees and found that the majority, or 65% of enterprises polled understood the importance of governing access to data stored in files as part of their overall identity governance strategy. This concern among our current and potential customers has presented a significant cross-sell and upsell opportunity with SecurityIQ, our solution for governing data in files. For example, in our continued work with one of our long-time IdentityIQ customers, a Fortune 100 health insurance provider, they recognized the need to extend their governance to cover access to data stored in files. In Q1, they added SecurityIQ to their program, which now spans 85,000 internal users. In addition to data, there's a second macro trend we're seeing in the market. As we talk to CIOs and CISOs at enterprises of all sizes in various industries around the world, we realize that digital transformation doesn't mean the same thing to everyone and not everyone is at the same stage of that transformation. Yet identity is one of the solutions these businesses anxiously want to implement. At one end of the spectrum, some companies prefer the control, flexibility and extensibility that on-premises solutions provides. While at the other end of the spectrum, some companies prefer the simplicity, time to value, and ease of consumption that a SaaS solution provides. In order to deliver identity to that wide range of enterprises with varying strategies and different needs, we needed to provide our best-of-breed identity platform across various delivery models. That's why earlier this year, we unveiled a comprehensive delivery strategy that provides customers with the freedom of choice to consume our identity solutions in any way they want to. SailPoint now offers 4 delivery options. The first option is in a data center. This is IdentityIQ and/or SecurityIQ deployed on premises for customers who want to maintain complete control of their identity infrastructure while addressing the sophisticated needs of the large enterprise environment. Hundreds of our customers have chosen this deployment model. The second option is SaaS. IdentityNow is delivered as a turnkey SaaS offering to enable midmarket enterprises to rapidly adopt a comprehensive approach to identity that takes advantage of the fast time to value and ease-of-use that SaaS provides. For example, one of our Q1 deals was a 5000-user Swedish hardware chain that needed to address -- that needed a solution to help address GDPR requirements and solve its resourcing challenges, while also supporting its cloud-first corporate strategy. The organization, which had no existing identity governance solution in place, selected SailPoint's robust multitenant SaaS solution, IdentityNow, since it met all the specific requirements and provided a platform for the company's future identity strategy. Returning to our delivery options, our third option is the public cloud. This is when a customer hosts IdentityIQ in a public cloud platform, like Amazon Web Services or Microsoft Azure. Some organizations have asked for this option in order to maximize the benefits of a fully owned and operated identity governance platform, balanced with the agility and efficiencies of the cloud. Fourth and finally, we're seeing some organizations request a managed service delivery option. In this alternative, IdentityIQ and/or SecurityIQ are hosted and delivered by one of our recommended managed service providers, allowing the customer to delegate some or all identity governance administration to approve a service provider to assess, deploy, manage and support overall identity efforts. The managed service path is a newer program for SailPoint but we're seeing good interest and traction within the marketplace. In Q1, we closed a deal with a large, wholly owned subsidiary of a Fortune 50 company, whose legacy identity solutions had proven inadequate. The company wanted a single platform that could deliver visibility across its hybrid IT environment as well as automated provisioning. The company wanted to take a cloud's first approach but had incredibly complex identity requirements. Our flexible deployment options allowed this organization to select the best solution for its needs, in this case IdentityIQ, delivered as a managed service by one of our partners.

I'd like to share one more customer story as it picks up on a number of trends we're seeing. Organizations are embracing a hybrid IT infrastructure, and when they see value from our identity platform, customers are willing to extend their investment with us. In Q1, a Fortune 100 transportation and delivery company that has relied on IdentityIQ on premises for a number of years was struggling to manage passwords for their mobile off-network users. Based on the value SailPoint had already delivered and the flexibility and efficiency of the SaaS-delivered solution for this particular issue, they extended their investment to include our IdentityNow password management service. This is a great example of a customer who may opt for a blended data center and SaaS delivery and it's another reason why SailPoint is committed to enabling customers to consume identity in whatever way they want.

Finally, we continue to be recognized as an industry leader, as Gartner has once again named SailPoint a leader in the Magic Quadrant for identity governance and administration. We also completed 2 information security assessments for IdentityNow, an ISO 27001 certification, and a SOC 2 report. These two assessments are both indications of our overall security posture and give our customers assurance of our adherence to security best practices. Security investments are critical investments for our customers. And increasingly, these assessments provide a level of assurance and comfort to enterprises evaluating SaaS solutions for identity.

In summary, we're off to a good start in 2018. The market continues to recognize that we have the leading identity governance platform with flexible deployment options to meet the needs of large and midmarket enterprises comprising our growing customer base. We've built a strong foundation for SailPoint to deliver innovation and drive growth for years to come.

Now let me hand it over to Cam.

Thanks, Mark. And thanks to everyone on the line for joining us today. Our financial results for the first quarter beat our guidance on both the top and bottom lines with total revenue growth of 40%, positive non-GAAP operating income and meaningful cash flow from operations. Total revenue was $49.7 million, an increase of 40% over Q1 of 2017. License revenue was $17 million, an increase of 39% year-over-year. Q1 license revenue was ahead of our expectations and some of the outperformance was due to closing deals that were targeted for the second quarter.

Subscription revenue was also strong in the first quarter of 2018 at $23 million, up 54% year-over-year. Our subscription revenue grew at a rapid pace on a year-over-year basis and increased sequentially, which was ahead of our expectations. A portion of the upside in description revenue was driven by an acceleration in SaaS customer go-lives, which allowed us to recognize revenue for many of the SaaS customers we signed in Q4 of '17 sooner than we had expected. Services and other revenue was $9.7 million, up 17% compared to Q1 2017. Our services business experienced a higher-than-expected utilization rate in Q1, due to the strength of Q4 new bookings and the acceleration of projects previously slated to be in Q2.

Overall, we expect to continue to push more of the implementation work to our partners who are an important part of our ecosystem and expect minimal services growth for 2018.

On a geographic basis, the United States contributed 66% of Q1 revenue, with the rest of world making up the remaining 34%. This compares to 73% in Q1 of 2017 and 27% for rest of world.

As I transition to the remainder of the income statement, I want to note up front that unless otherwise stated, all references to expenses and operating results are on a non-GAAP basis and are reconciled to our GAAP results in the earnings release that was posted just before this call.

In Q1, license gross margin was 99%. Subscription gross margin was 81%, an increase from 77% in the first quarter of 2017. The year-over-year improvement was driven by the increasing scale of our SaaS business and improvements in maintenance, support efficiency. Within our services business, gross margin was 32%, driven by high utilization rates in the quarter. On a combined basis, total gross margin for the quarter was 78% compared with 75% in Q1 of 2017.

Moving to operating expenses, we experienced a significant benefit due to the rate and pace of hiring during the quarter and the timing of expense related to various projects and marketing programs. Based upon our current hiring plans, we expect to see a ramp in hiring across the business as we move towards the back half of the year and make ongoing investments in our go-to-market initiatives.

Sales and marketing expense was $21.1 million for the first quarter or 42% of total revenue. This compares to 39% of total revenue in Q1 of 2017.

Research and development expense was $9.1 million in Q1 or 18% of total revenue. This compares to 19% of total revenue in a year ago period. Our investments in R&D continue to focus on driving innovation, strengthening the depth and breadth of our open identity platform, extending our leadership in identity governance and driving greater adoption across our product portfolio.

G&A expense was $5.3 million in Q1 or 11% of total revenue. This compares to 8% in the first quarter of 2017 and includes cost associated with building out the infrastructure to operate as a public company. Overall, our operating income was $3.1 million in Q1, which resulted in a 6% operating margin for the quarter, which was ahead of our prior guidance, this compares with an operating margin of 7% in the year-ago period.

Net income was $1.7 million for the first quarter of 2018 or $0.02 per diluted common share compared with a net loss of $64,000 or break even on a fully diluted basis for the first quarter of 2017.

Adjusted EBITDA was $3.3 million in Q1 of 2018 compared to $3.2 million in Q1 of 2017. Total deferred revenue for the first quarter was $89.1 million, up 7% over Q4 of 2017.

As a reminder, while we believe that deferred revenue should generally track with a long-term revenue opportunity for our SaaS and maintenance businesses, there will be quarterly fluctuations due to the variety of variables inherent to our business. Therefore, it's important to stress that we do not believe that deferred revenue or calculated billings should be used as a way to gauge the health of our SaaS business.

During the first quarter of 2018, we generated positive cash flow from operations of $15.3 million compared to $6.9 million in Q1 of 2017. We ended the quarter with 835 employees, a 22% increase from 683 at the end of the first quarter of 2017, and a 4% increase from the 806 employees at year-end.

As I noted earlier, we expect to see a ramp in hiring as we move into the back half of the year and we'll continue to increase our headcount to grow our business.

Moving now to guidance. For the second quarter of 2018, we expect total revenue of $49.5 million to $50.5 million. We expect non-GAAP operating income to range from a loss of $500,000 to a profit of $500,000 and a non-GAAP net loss per basic and diluted shares of negative $0.02 to negative $0.03. This assumes cash taxes of $700,000 and 87.5 million basic and diluted shares outstanding. For the full year 2018, we are raising our guidance and now expect total revenue in the range of $225 million to $229 million. We now expect our non-GAAP operating income to be in the range of $14 million to $16 million, and non-GAAP net income per diluted share of $0.07 to $0.09. This assumes cash taxes of $1.8 million and 93 million diluted shares outstanding.

Let me now provide some additional color on our guidance. For the second quarter, we expect license revenue to increase nicely year-over-year, but to be approximately flat with the first quarter. As I mentioned earlier, our Q1 license revenue outperformed our expectations, in part, due to some deals being accelerated into Q1 that were slated for Q2 closing. We expect our subscription revenue to continue growing at a rapid pace on a year-over-year basis and to grow approximately $750,000 sequentially at the midpoint of our range. We expect services revenues to decline a little above $9 million, since some of the services revenue we expected in Q2 was pulled into Q1. For the second half of the year, we expect services to remain around this $9 million level in Q3 and Q4, as we continue to execute our plans to push more services to our partners. Our guidance for full year 2018 continues to assume that subscription revenue remains the fastest-growing component of our revenue and increases by approximately 500 basis points as a percentage of total revenue when compared to 2017. While still showing solid year-over-year growth, we continue to expect license revenue to decline 200 basis points as a percent of total revenue, and for services to decline by approximately 300 basis points as we push more services to our partners. As a reminder, our top priority from a near-term perspective is investing for growth to support our go-to-market initiatives and drive innovation. We expect our expenses to ramp in the second quarter and the remainder of the year, as we catch up on hiring and other investments initially slated for Q1. We believe we have an opportunity to drive strong topline growth for many years while continuing to deliver non-GAAP operating income and positive free cash flow. This balanced approach has served us well historically.

In summary, we're very pleased with the way the business performed in Q1 and our outlook for the remainder of 2018.

With that, we'll now open up the call for Q&A. Operator?

(Operator Instructions) Our first question is coming from the line of Walter Pritchard with Citi.

It's Jerry van Zwieteren for Walter. Can you maybe quantify the impact to license revenue for the deals that were initially targeted for the second quarter? And then, I guess, what would you attribute the earlier than expected bookings to? And I have a follow-up.

Yes, so thanks for joining. This is Cam McMartin. I appreciate everybody for joining on the call today. The answer to your first question is, it's not a big number. We highlighted it because we did see a little bit of business where we've been working with the customer with an expectation that we'd wrap up contracting and other activities in Q2. But really driven by customer initiative, we wrapped them up in Q1. It was between $1 million and $2 million, it was not a big number overall, but we felt like it was an effect in the quarter that we wanted to highlight for you.

Got it, that's helpful. And then customer growth was strong again in the quarter and accelerated for the last couple of quarters. So is there anything specific that you would point to that's driving this? And how much would you attribute to down market success with IdentityNow?

Yes. Again, Cam here answering. I'd say two things. One is we continue to see strong growth in both our large enterprise and mid-enterprise focus. Both saw a good healthy growth in Q1 on a year-over-year basis. If you think -- continue to remind you, think of our large enterprise business being focused largely on the -- in the on-premise sector of our product offerings set, and the mid-enterprise being largely focused on our SaaS offering. And both grew nicely. Obviously, as we've highlighted previously, the growth in the mid-enterprise is faster because it continues to be growing from a smaller base. But overall, we were very pleased with the growth rates in both sectors. And I would remind everyone, Q1 is our seasonally softest quarter of the year in terms of our historic activity. And so to post that level of customer expansion, we're very pleased.

The next question is coming from the line of John DiFucci with Jefferies.

This is Julian on for John. So, Mark, one question. When you were talking about the various delivery options, right, you talked about the 4 options, the data centers, the public cloud, the SaaS and the managed delivery. The one I didn't really hear, SecurityIQ, you talked it about it in the data center option -- is there an option for that to be delivered, I guess, potentially one day as a SaaS solution or as a hosted solution? Is that an option? Can you expand on that?

I can. Our current plan is in the next release of SecurityIQ, we've done the same kind of work in that product that we've done in IIQ to make it more cloud-friendly, what we mean by that really is to be able to run nicely in an Azure or AWS or other environment. And then we -- some of the same partners that are offering the MSP offering for IIQ today, a couple of them already and others are considering offering SIQ in that option. So doing the main -- the way we would see SIQ delivered from the cloud would be either the customer putting it on Amazon or Azure or one of our MSP partners hosting it. We won't actually develop a separate asset -- SaaS version of that product, like IBM is a completely different product from IQ, but at this point, we do not intend to have a separate SaaS version of SIQ.

Okay. That makes sense. And Cam, just one quick question too. It looks like there's a -- the long-term deferred revenue started to build a little bit in the balance sheet. Should we read anything into that? Are you perhaps billing customers differently, like for longer terms or is that just kind of -- is there anything to it, I guess?

Yes. So first of all, thanks, Julian, for joining the call. In terms of the activity from a long-term deferred perspective, it really was a Q1 -- I think a unique set of factors related to a small numbers of deals where we saw multiyear maintenance. In a couple of cases, it was in the U.S., where we had utility organizations that opted for going ahead and buying a multiyear maintenance program as part of the initial license agreement. And then we had one overseas transaction as well, where it was going to be a hosted transaction by a third party and they elected to go ahead and prebuy multiyear maintenance as well. So no, I would tell you, I don't think indicatively it's a trend change. More of that as inevitably happens quarter-to-quarter, our business will see a different mix of business quarter-to-quarter. And this just happened to be a quarter where we saw a higher concentration of perpetual license deals, where they bought a long -- a multiyear maintenance agreement as part of the initial transaction.

The next question is coming from the line of Melissa Gorham Franchi with Morgan Stanley.

I just wanted to dig in to SecurityIQ, circle back to that product. Mark, I'm just wondering if you can maybe talk about how that's proceeding relative to your expectations? And is this helping you garner new customers? Or is it largely just geared towards the existing base?

Well, I guess a little of everything. I'll comment and then Cam may join as well. So thanks again for joining. I think, in general, we have a stronger sales motion today with that product line in conjunction with our other products, which of course takes 2 forms, primarily either for a net new transaction, net new customer we'll sell it alongside IIQ or IBM. And then we've obviously made some efforts to go back in our installed base, particularly IIQ, but also IBM to talk about that product offering as an add-on to their existing environment. And in general, we're pretty much on our target plan, internal planned numbers for that product line. We are seeing two different kind of drivers, I guess I'd say, for that. One is there's clearly some level of GDPR influence on that product line because it's a bit of an answer to that kind of a concern in the customer's mind. But what we've really been focusing on more is getting customers who have traditionally been focused on the identity governance problem set to expand their thinking beyond the governance of data and applications to the governance of data in files, it's the same data, it's just been exported out of a structured app like SAP or Oracle and now it's living out in a SharePoint or Dropbox environment. And I think our customers are really beginning to resonate with that understanding and kind of begin to package it into their thinking about governance over the data they care about. So primarily sell it alongside what we call an attached motion or a cross-sell into an existing account. Those are the primary motions today. And Cam, do you have any other...

No. I think that's a good summary. Overall, I think we're -- look, we're pursuing all three motions as we go to market. But those are the principal motions today. And I think the important overarching view is identity governance for files is the way in which we're beginning to position in go-to-market of that solution. It's resonating, as Mark said, I think quite nicely with customers, as they think more broadly about how to ensure that from an operational perspective, they're managing access to those files and the file stores that they live in, and then as well to couple the information around compliance as well as security across files back to the application set.

Got it, that's helpful. And just a quick follow-up for you, Cam, on the large deal activity in the quarter. Just wondering if you can comment on what you're seeing and if there's anything kind of one-time. I know you talked about the deals that pulled forward in Q1. But were there any sort of mega deals that we should be aware of?

No. Melissa, first of all again, thanks for joining. No. No mega deals overall. I think it was a quarter in terms of the mix that we saw a good contribution from larger deals. Not -- as you well know, quarter-to-quarter is going to bump up a little bit, bump down a little bit in terms of the overall contribution. But it was, for us, a solid Q1 in terms of the contribution of the greater than 7-figure deals.

The next question is coming from the line of Matt Hedberg with RBC Capital Markets.

Mark, it was helpful to kind of think about the 4 ways of deployment. And there's, obviously, hundreds of customers deploying you guys on premise. And it sounds like IdentityNow continues to track well. I guess I'm curious, can you give us a sense for how many customers deploy IdentityIQ in the public cloud. And maybe what are those economics look like versus a nonprem deployment?

So I don't think we have a real strong sense of the number today because frankly, Matt, we don't always know that. Meaning, sometimes the customer will deploy -- or excuse me, purchase IIQ as a typical perpetual license. And if we aren't directly involved in the deployment, sometimes it's one of our partners, we might -- we may learn later that they chose to deploy that out in Azure or AWS. It's not a difference in how we license the product or in any way. I do think we're at the early stages of that trend in general. Most of the IIQ deployments -- and the same by the way for SecurityIQ. Back to the earlier question. Most of those appointments today are still in the data center, but the reason we kind of made a point of highlighting those deployment options earlier this is that we are definitely feeling pull for those other motions, particularly the just deployed in the cloud motion. As we said earlier, the MSP motion is newer and still very early, we think, from a momentum standpoint. But we are hearing a lot of large and midsized customers say that rather than deploy IdentityIQ or SIQ in the data center, they're going to go ahead and look to deploy that out in Amazon Web Services or Azure and, in fact, the other cloud platforms as well. So -- but today, it's not a significant proportion of our overall data center deployments.

Got it. And then maybe as a follow-up, IdentityAI, we continue to hear good things on the beta side of that. I'm curious, if you can give us an update on the launch there? And maybe could you fill in a little bit more the white space on sort of what some of these beta customers are -- or have been telling you guys, have been talking to you guys?

Well, it's still pretty early in the life cycle of that product line. And I think that the short version, Matt, is it's we're learning -- as you expect us to, we're learning as we go there. And I think what we're finding is the expectations for the breadth and depth of what folks want that product to do are a little wider and deeper than we thought. So we're taking a little more time to make sure we're gathering a full understanding of the requirements and how customers want to use it. Again primarily today, it's most relevant to our most mature customers. And meaning that those folks who've been in a long-term usage of IdentityIQ or IdentityNow or SecurityIQ and have learned a lot about their basic understanding of governance and their environment are now looking for more nuance and more deeper understanding of how best to govern, how to ask more intelligent questions, how to find the needles in the haystacks, et cetera. And so what we're focused on is making sure that, that product can really serve that purpose. That when an existing SailPoint customer rolls out IdentityAI, they get a fair amount of new and fresh insight into their issues and their concerns. And so that's the focus. We are, as you said, it sounds like you've been talking to some of those folks, still a pretty small handful of customers, but they're pretty deeply engaged with us on that product. And just very pleased so far with what we're learning jointly as we work that together.

Our next question is coming from the line of Rob Owens with KeyBanc Capital Markets.

You noted back in Q4 that there was a benefit on achieving some product delivery requirements that benefited the quarter. But in addition, you did also note that you had higher than normal close rates. And now we see a pull in here from Q2 to Q1. I'm just curious, relative to sales cycle and what you guys are seeing, are you seeing compression at this point, either relative to what you've seen historically or how you built the model?

Yes. First of all, Rob, it's Cam McMartin here. Good to speak with you, and thanks for the question. The general answer is no. I think as we watch the sales cycles longitudinally, we're not really seeing a great deal of movement. Again, if you -- as we've highlighted before, if you segregate software from SaaS in that sense, the -- obviously, on-premise sales cycle tends to be a bit longer for the large enterprise than it is a SaaS selling cycle for the mid-enterprise, no surprise there, I think fundamentally. The selling activity in Q1, as we look at the data, would suggest those. Again, given variability quarter-to-quarter, those close cycles were very much within the normal realm of total life cycle. And so we felt good about that because again, I would highlight, Q1 tends to be a quarter that is seasonally the weakest and so it does -- sometimes it takes a bit longer to get momentum in the quarter from a selling perspective. And overall, we were pleased with what we saw in terms of the pace in closing and the overall sales cycle times.

I guess building on that then you had, what, 51 new customers quarter-over-quarter, and that's a record for Q1. So I guess that makes two questions. Relative to the velocity, number one, which you're saying you're not seeing a change, but I'd suggest evidence to the contrary. And number two, as I look at your product revenue, is there more of an influence coming from new customers? How much license is from the installed base versus the newly acquired customers?

Yes, so Cam. Thanks, Rob. So the answer is yes, we did see a somewhat higher contribution in terms of new customer acquisition then we've seen in prior quarters. But I would remind you, it does bounce a bit quarter-to-quarter. We inevitably will see a bit of up and down quarter-to-quarter. Our historic mix has been in the range of 65%, near to 35% repeat customer. If I look at it both on a transaction-count basis as well as a dollar basis, we weren't that far off what we normally would see in Q1 versus trend, and so we were pleased with that contribution overall. I think as we continue to move forward, we would expect that mix to be in that range, that is 65%, 35%. We think that, for us, is the right mix. We -- you'll see us and we've highlighted that we are addressing the installed base segment of our business, a bit more aggressively. We think that the size of that customer base has now approached 1,000 customers is an opportunity for us we want to make sure we're fully capitalizing on. And so we're beginning to think about marketing programs as well as sales motions that would, over time, accelerate our focus there from past years. But fundamentally, the good news is, I think Q1 demonstrates this, we've got the ability with this market in terms of its total size to capture new customers at a very healthy rate and so that -- we think that balance can be maintained over time.

(Operator Instructions) Our next question is coming from the line of Alex Henderson with Needham.

I'd like go into the deal sizes and to what extent you're seeing any changes in the scale of the purchases, based on the increased amount of board involvement, the complexity around GDPR. And if you could separate between the 2 buckets, IdentityIQ and IdentityNow, which obviously have different motion on those features, can you talk a little bit about whether you're seeing any great deal size in each of those segments? I assume, obviously, there's a difference between these 2 in terms of sizing.

Yes. So Alex, first of all, thanks for joining. I appreciate your questions. This is Cam. Let's see, I'll give you a few overall comments, arching comments and then maybe dive down a bit in terms of the some of the detailed questions you asked. I think as we look at Q1 and compare it to both prior Q1s as well as Q4 in the prior -- the second half of last year. Really no effects overall in terms of the average deal size. We're pleased with the deal sizes. As I've said before, I don't give you guidance on ASP or history on ASPs as part of our -- information we're providing you. But what I will say is like prior quarters, that sweet spot or range, if you will, is the $100,000 to $1 million range, and that's true for both IdentityNow as well as IdentityIQ. And so we are working to build a book of business over the -- over time. That the new customer acquisition activity is in that range from a transaction sizing standpoint in Q1, it was really very much within that normal course overall. We have -- if I think back over the longer term, we have seen, Alex, a deal size expansion over a long-term period of time. That's not surprising, when you think about combining IdentityIQ and IdentityNow individually with SecurityIQ, for instance. But in terms of the recent couple of quarters and the mix of business that we saw, really no shift in average selling price or deal size, if you will, better said. That, that range continues to be very much intact. I would say if I think about it on an IdentityIQ versus IdentityNow basis at its core governance, again, no fundamental movement overall in terms of the quarter, in terms of those average prices. We're seeing good performance. We're pleased with where we're leaning on an average selling price basis in both product lines. And do believe that in aggregate, one of the opportunities that we've talked about previously and that we're going to continue to watch is our ability to grow over time total lifetime value by selling more of the product portfolio into an existing customer as they've ramped their initial implementation of whatever solution they've initially selected to expand across product families, to address the totality of the governance challenge that they all face today.

If I could follow on, so I'm a little puzzled by that answer in the sense that I would think that if you're downsizing service and shifting the mix between license, subscription and services, that would be altering the deal size. Is it a function of -- there's an improvement in deal size exclusive? Or if I -- just on the fact that I'm taking this -- some of that service out as an example or is it that when you calibrate, you're adjusting that out to reflect the fact that you're trying to outsource the -- more of the service?

Yes, so Alex, you're right. We are -- as we intend to do over time is build out the ecosystem of service of partners to deliver more and more of the services. When I specifically speak of deal sizes, I'm talking more about initial and follow-on deal sizes, I'm not really trying to give you a full guide on customer total revenue size because that will, over time, very certainly change quarter-to-quarter based upon whether or not we're doing a concentrated amount of delivery of initial or follow-on services or it's shifting more to partner, so that mix will shift. What I'm really thinking about is what is the -- in discussing this, what is the footprint of delivering identity capacity to our customers overall, that's the way we -- as I talk about the opportunity to grow deal size, I'm thinking about it that way because, ultimately, we think that's the right way to drive business growth.

The next question is coming from the line of Shaul Eyal with Oppenheimer.

Cam, Mark, geographic distribution, can you share it with us? Any areas of strength or anything, challenges geographically? I think, Mark, you also mentioned GDPR in your prepared remarks. Did that have an impact on Europe or also on some U.S.-related business?

Shaul, thanks for joining. This is Cam. Good to have you on board and we appreciate your question. So I'll start out, then let Mark follow on for the answer of the second question. Overall, we saw a somewhat higher than long-term trend contribution from international. We are very pleased with that. I think it validates for us that the investments that we've been making are generating the outcomes we're looking for. I think over time, I think you're going to see contribution from domestic versus international business move back and forth a bit just based upon mix and quarterly activity. But Q1 was stronger outside of the U.S. in terms of this mix contribution in the U.S. versus prior quarters. Nothing fundamental to highlight there, just the way the deals fell out. But I do think -- I continue to emphasize that we are focused on continuing to increase our global footprint in terms of the investments that we're making with the capacity of the sales force outside of the U.S., our professional services and customer support activity. We think both businesses that is Europe and APAC offer real opportunities for growth, so we're investing there. But as you would expect, we're continuing to invest at a pretty aggressive rate in the U.S. So I think that's the highlight as -- is Q1 a little bit stronger in the rest of the world versus the United States, but nothing indicative that I would say in terms of changing the outlook overall.

Yes, Shaul, I think you wanted me to pick up on the GDPR? Did you want to follow-on to Cam there?

Yes -- no. Absolutely, any color will be greatly appreciated, whether it's Europe or maybe also some U.S. contribution.

Yes, I think -- in general, I think -- just like with what Cam said, I think we saw a good strong performance in international business. Again, just to make sure we didn't mistake that, stronger relative to what it's been, not stronger than the U.S., it wasn't that the rest of the world was more than the U.S., just to be very clear. But it was stronger a little relative to what the mix has been of late. And then on GDPR, Shaul, I think we would tell you one that, A, one of the things that we are making sure people understand that I think other vendors are coming out as well is GDPR is absolutely a global phenomenon, it is not only European. And that large U.S. organizations who operate internationally are absolutely talking to us about GDPR and its potential impact. But we'll still echo what we've been saying that -- and that is that it is generating a lot of dialogue and discussion more than it is explicit product revenue yet. Now I think that's picking up as we head into the second half of the year, but that in general, we feel like that's a long-term trend that will probably, much like Sarbanes did, much like even HIPAA did here in the U.S. have a long tail, but I think in some ways what's important in -- I'm no expert on what all the dialogue's been between the U.S. government and Facebook, but privacy as a topic, GDPR happens to be an [extension] of that, but privacy as a topic I think is going to continue to be interesting. It's not beyond the realm that the U.S. may pass in terms of privacy legislation given everything that's happened in the last few months. And all that means to us is very likely additional legislation relative to privacy and security will continue to get looked at around the world. And to extent it does, that's good for us, right? So we -- those are often great conversation starters for us with these large and midsize enterprises because they're subject to this regulation in many cases, sometimes whether they're public or not. And so I think it just causes us to have great discussions with customers about the importance of governing identities, certainly vis-a-vis privacy and other factors. So again, a strong tailwind overall, nothing we would say, "Oh, this proportion of the quarter's business is directly tied to that," I wouldn't give you that because it's still relatively minimal impact on our revenue today.

Got it, and that's super helpful, Mark. And any vertical shining out this quarter or 3 months in line with what you've been expecting in into the first quarter?

Yes, again, a couple -- Shaul, this is Cam. A couple of comments. One is, I think, I continue to be pleased by the balance. I think that's an important part of our overall story of performance. If you go back over the last couple of years, we've seen good balance across vertical industry segment. We were pleased in Q1 that, that continued to be a well-balanced mix. In terms of highlights, about the only thing I would comment, I did highlight a bit ago, we did have a couple of customers in the utility segment pop in this quarter. That drove that segment up a bit in terms of its overall contribution, but nothing that I would say reflects a change in the fundamental outlook. We like the fact that across -- that we -- if you will, the total economy that we're seeing good success in selling anywhere in the world, so financial services, TMT, retail across the full spectrum of industry categorization that we track, we're seeing good balance mix and good growth.

We have reached the end of our question-and-answer session. So I'd like to pass the floor back over to management for any additional comments.

I don't think we have anything more to add on fundamental comments. Again, we -- we're grateful for everyone's interest and time on the call today. We appreciate all the good questions. And obviously, we'll continue to provide you with the best information we can about how this business is growing and performing. Anything else? Thank you for joining us today.

Take care all.

Ladies and gentlemen, this does conclude today's teleconference. Again, we thank you for your participation. And you may disconnect your lines at this time.