SailPoint Inc (SAIL) 2018 Q2 法說會逐字稿

Greetings, and welcome to the SailPoint Technologies second quarter conference call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Josh Harding, Vice President of Finance and Investor Relations.

Good afternoon, and thank you for joining us today to discuss SailPoint's second quarter financial results. Joining me today are SailPoint's CEO and co-founder, 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 Investors section of 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 welcome to everyone joining our Q2 2018 earnings call. I'm pleased to share our results from the second quarter of 2018. In Q2 2018, our total revenue grew 39% to $54.6 million, and we again delivered profitability on a non-GAAP operating income basis. I'd like to share some company highlights from this past quarter, beginning with one of my favorites: SailPoint Navigate, our annual user conference. In May, we welcomed more than 1,000 of our customers, prospects, partners and SailPoint crew members to Austin for our first regional Navigate event of the year. It was an energizing event for our growing community and we're looking forward to Navigate Australia, later this month and Navigate Europe, in Barcelona in October.

Turning to our business highlights, Q2 was another strong quarter for SailPoint. We continue to execute successfully on our growth strategies, including driving awareness and adoption, both directly and through partners, in expanding our presence internationally and in the enterprise mid-market. As a result, we were excited to cross the milestone of having more than 1,000 enterprise organizations as customers, ending Q2 with 1,031. Last quarter, we saw balanced demand across our Identity Solutions portfolio. We also saw a healthy mix of deals across the large enterprise and mid-market enterprise segments and notable contribution from our international team.

I'd like to share 2 customer examples from the quarter that illustrate how we're driving success with both large and mid-market enterprises. At the high end of the market are global enterprises, with hundreds of thousands of employees and even more identities to manage. These enterprises to turn to SailPoint because our identity platform delivers proven scalability and performance. One such organization is a Fortune 100 banking group, headquartered in Europe. This bank is an existing IdentityIQ customer, with more than 0.25 million users being managed across its branches around the globe. The bank is particularly focused on addressing Sarbanes-Oxley compliance and is now also addressing growing GDPR concerns. Their implementation of SailPoint continues to grow, with an increased volume of managed identities and the addition of 8 different integration modules, including our privileged account management, or PAM, integration module.

Companies in the mid-market enterprise segment, which we define as those with 1,000 to 7,500 employees, face similar challenges around security, compliance and IT automation. However, these organizations typically don't have a large dedicated identity team or extensive identity market knowledge. They also tend to have a cloud-first strategy, which is why our SaaS solution, IdentityNow, is ideal to provide the comprehensive identity governance they need. In Q2, as an example, we closed a deal with a manufacturer and distributor outside of Chicago, who purchased the entire suite of IdentityNow offerings to help them quickly address Sarbanes-Oxley compliance and some IT audit deficiencies.

In Q2, we were also pleased to see the continued success of both our technology alliance partners and go-to-market partners, as we grow and scale the business. Our customers understand the complementary nature of our identity platform with the rest of their IT operations and security ecosystem, and they appreciate the value of a strategy which helps integrate identity with the rest of their IT investments. This appreciation is contributing to the success of our PAM integration module, as noted in the example I shared earlier, and is also fueling a number of joint opportunities with our technology alliance partners, notably CyberArk in privileged account management and Microsoft and Okta in access management. A great example of this is a defense and aerospace manufacturer with 13,000 employees.

This company, which uses Okta for access management, needed the visibility and control of an identity governance platform to complement their access management implementation. The organization purchased IdentityIQ and SecurityIQ to help address major compliance requirements for international traffic in arms regulations, federal acquisition regulation and GDPR. They also purchased IdentityNow password manager to round out their identity life cycle management and better enable their users.

Speaking of technology alliances, SailPoint recently announced a new partnership with Rackspace, a cloud hosting managed service provider. Rackspace will enable enterprises to deploy SailPoint's identity governance on Amazon Web Services, Microsoft Azure and private cloud environments. Rackspace can also provide those customers with ongoing management and administration of the cloud environment. This partnership supports our comprehensive delivery strategy that provides customers with the freedom of choice to consume our identity solutions in any way they want: in the data center, as SaaS, in the public cloud and delivered as a managed service. We also continue to see success based on the investment SailPoint makes with our go-to-market partners, especially Accenture, Deloitte, KPMG and PwC. These partners all have dedicated SailPoint practices that continue to grow, and we're seeing an even stronger involvement with all of them internationally.

As we execute on our growth drivers, we're also listening to our customers and evangelizing our vision of the identity market. At Navigate, we talked about the emerging trends we see impacting our customers. The very nature of their business is changing and the pressure to digitize the enterprise is growing in importance as businesses fight to keep their competitive edge and continuously deliver value to their customers. As organizations struggle to keep pace with the constantly evolving security and compliance landscape amid their digital transformation, SailPoint believes there are 3 new frontiers of identity governance: users, applications and data. Let me briefly explain each one.

The user frontier. Software bots and robotic process automation technology are becoming common in the enterprise. So organizations need the ability to govern these nonhuman identities in the same way they do their human users. The application frontier. Business users have accelerated the expansion of SaaS apps in the enterprise to the point where many organizations are managing hundreds of them. Identity governance needs to make it easier and faster to onboard such a large volume of applications.

And lastly, the data frontier. Historically, an organization's most sensitive data was stored in structured applications and databases, such as financial systems, HR systems and CRM. Today, end users are downloading, extracting and copying that data into electronic files and then storing it in file sharers like SharePoint, and cloud storage systems like box, Google Drive and often leaving that data largely unprotected. This open up a huge area of exposure for organizations that is increasingly important for boards and regulators. We believe the data frontier is increasingly critical. To address it, in Q2, we released version 6.0 of SecurityIQ, which now gives customers the ability to seamlessly manage access to both on-premises and cloud-based file storage systems in a flexible, cost-effective way. This new release also features enhanced risk-based forensics and alert management that enables security and audit teams to quickly detect and proactively remediate suspicious activity, like a user downloading large amounts of data outside of business hours.

Lastly, this latest version is tuned to run in environments like Amazon Web Services and Microsoft Azure, enabling customers to choose how best to deploy it for their organization. Because SecurityIQ extends an existing identity governance implementation to govern data stored in files, it provides an opportunity for us to expand our footprint with our entire customer base. For example, one of the largest banks in South Africa, which has been an IdentityIQ customer since 2015, needed to protect their unstructured data and all their data repositories. In Q2, we were able to cross sell SecurityIQ into the bank, allowing their team to capitalize on SecurityIQ's data discovery and classification capabilities. In summary, Q2 was another strong quarter for us. We continued to execute well against our growth strategies while delivering innovative solutions to market, to meet the growing needs of our large and diverse customer base.

Now let me hand it over to Cam.

Thank you, Mark, and thanks to everyone on the line for joining us today. SailPoint's financial results for the second quarter beat our guidance on both the top and bottom lines, with strong revenue growth, positive non-GAAP operating income and meaningful cash flow from operations. Total revenue was $54.6 million, an increase of 39% over Q2 of 2017. In Q2 of '18, both license and subscription revenue were strong. License revenue increased 43% year-over-year to $19.1 million. Subscription revenue increased 53% year-over-year to $25.1 million. This was driven by a combination of healthy SaaS gross -- growth and strong IdentityIQ maintenance renewal rates that remain above 95%.

Services and other revenue was $10.4 million, up 8% compared to Q2 of 2017, and ahead of our expectations. Our services business experienced a higher-than-expected utilization rate in Q2 as our teams worked on services projects related to recent quarters' bookings. As we've stated in the past, we continue to push implementation work to our partners who are an important part of our ecosystem. We now expect single digit services growth for full year 2018. On a geographic basis, the United States contributed 63% of revenue in Q2 and rest of world made up the remaining 37%. This compares to 69% in Q2 of 2017 and 31% for rest of world.

We are pleased with our performance on a global basis. The quarter's strong results highlights the investments we've made over recent years in several new markets. With that said, our international business in the quarter benefited from several large deals and is not yet at the scale of our U.S. business. Given this, we believe it is best to assess our geographic revenue growth on a multi-quarter basis. As I transition to the remainder of the income statement, I want to note upfront that unless otherwise stated, all references to expenses, margins and operating results are on a non-GAAP basis and are reconciled to our GAAP results in the earnings release that was published just before this call.

In Q2, license gross margin was 99%. Subscription gross margin was 82%, an increase from 77% in the second quarter of 2017. The year-over-year improvement was driven by increasing scale of our SaaS business as well as continued improvement in maintenance support efficiency. Within our services business, gross margin was 34%. On a combined basis, total gross margin for the quarter was 79%, compared with 76% in Q2 of 2017.

Moving to operating expenses, we continue to make investments throughout our business in order to first, drive top line growth; second, deliver product innovation; third, strengthen our leadership position; and finally, build out the infrastructure to operate as a public company. Total operating expenses for the quarter were $38.3 million, compared with $28.5 million in Q2 of 2017. Overall, our operating income was $4.5 million in Q2, resulting in an 8% operating margin for the quarter, which is ahead of our prior guidance. This compares to an operating margin of 3% in Q2 of last year.

As we move through the back half of this year, we are planning a continued hiring ramp across the business as we further invest in our go-to-market initiatives and in R&D to drive long-term top line growth. Net income was $2.5 million for the second quarter of 2018, or $0.03 per fully diluted common share, compared to a net loss of $1.7 million or a loss of $0.02 per basic and diluted share for the second quarter of 2017. Adjusted EBITDA was $4.4 million in Q2 of '18, compared to $1.9 million against Q2 of 2017.

As of June 30, 2018, cash and cash equivalents were $81.9 million. During the quarter, we paid down $60 million of borrowings outstanding under our term loan facility, with the remaining balance at $10 million. Total deferred revenue for the second quarter was $95.1 million, up 7% over Q1 of 2018. As a reminder, while we believe that deferred revenue growth should generally track with our long-term revenue opportunity for our SaaS and maintenance businesses, there will be quarterly fluctuations due to a variety of variables inherent in our business. Therefore, it's important to stress that we do not believe deferred revenue or calculated billings should be used to gauge the health of our maintenance or SaaS businesses.

During the second quarter of 2018, we generated positive cash flow from operations of $11.3 million, compared with cash flow from operations of $829,000 in Q2 of 2017. In Q2, we added 33 employees and ended the quarter with 868 employees, a 17% increase from Q2 of 2017. Before we turn to our Q3 and full year 2018 guidance, I'd like to update you on our adoption of ASC 606. SailPoint will no longer qualify as an emerging growth company at the end of 2018 and therefore, we will be required to revert our fiscal 2018 results on a 606 basis. We plan to implement 606 on a modified retrospective basis. We will continue to assess any impact from 606 over the next 2 quarters and will update you as the year progresses.

Moving to guidance. 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. This assumes cash taxes of $600,000 and 88 million basic and diluted shares outstanding. For the full year of 2018, we are raising our guidance and now expect total revenue in the range of $233 million to $236 million. We now expect our non-GAAP operating income to be in the range of $17 million to $19 million and non-GAAP net income per diluted share of $0.12 to $0.14. This assumes cash taxes of $2 million and 93 million diluted shares outstanding.

Let me now provide some additional color on our guidance, which reflects the momentum in the License and Subscription portions of our business. 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 showing solid year-over-year growth, we expect license revenue to decline approximately 250 basis points as a percentage of total revenue. In addition, services revenue is expected to decline by approximately 250 basis points as a percentage of total revenue, as we continue to push more services to our partners.

When looking at revenue growth for the second half of 2018, it is important to remember that we recognized approximately $4 million of license revenue and $1 million of non-recurring maintenance revenue in Q4 of 2017 from contracts signed in prior periods, which makes for a tough year-over-year comparison. For the third quarter, we expect license revenue to be up slightly from the second quarter and expect subscription revenue to increase approximately $1 million. We continue to expect services revenue to decline sequentially and come in slightly above $9 million for both Q3 and Q4.

As a reminder, our top priority is investing for growth to support our go-to-market initiatives and to drive innovation across the product portfolio. 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. With that, we'll now open up the call for Q&A. Operator?

(Operator Instructions) Our first question comes from John DiFucci, Jefferies.

This is Julian on for John. The first question I wanted to ask you guys is you talked about strong international deals and I'm just wondering, like did GDPR have an impact on that or not? Because I recall last quarter you mentioned that was primarily more conversations but didn't really impact the numbers so much. Has that changed at all? Or how is that affecting it?

Julian, first of all thanks for joining the call today. We appreciate the interest. I think 2 comments I'd make to start out. One is that as we've told you previously on a GDPR basis, it's our belief that it will take a number of quarters for that to play out in terms of its fundamental opportunity impact to business. What we did see in the quarter is continued, I would say, heightened interaction with prospects and customers about where they're taking their business from a GDPR reporting and compliance and therefore, IGA perspective. So I would say the activity and interest continues to be growing. I would also say, though, for the quarter itself, we couldn't point you to a business lift in this quarter, in Q2, from GDPR.

Okay. And one follow-up question, too, is just on capital allocation. I guess you talked about repaying the debt of $60 million worth of the term loan. So like big picture, how do you think about capital allocation going forward, since you're going to be free cash flow positive. You're talking about investing for growth, which makes a lot of sense to us, so are you just going to look to build cash to the balance sheet, pay off the remaining of the debt? Like what are your thoughts about capital allocation, big-picture-wise?

Yes, so again, Cam speaking. I think firstly we have been, as you saw, strongly cash flow positive in the first half of the year. We're very pleased with that performance. The inherent profitability of this business as we've driven very rapid growth continues to be healthy. We're very pleased with that performance. We're also pleased with our ability to look at the balance sheet and find ways to drive some efficiency in terms of collection and other activities so you saw DSO come down a bit in the quarter. So overall, we're pleased with what we're being able to generate with the performance of the business. We have been, as you well know, cash flow positive now for a number of quarters. We paid down a significant amount of debt at the time of the IPO. We took the opportunity in June to pay down the majority of the remaining outstanding balance on that debt, $60 million, with $10 million remaining. And our expectation is as we go through the balance of the year, we'll pay off of that remaining $10 million. Don't have any particular schedule to do that but we will do that so that we are, in that sense, debt free, but would then still expect to be able to build some cash through the remaining part of the year. And that's the way we'll think about it. And then on a go-forward basis, obviously, we'll want to continue to drive the business on a growth with profitability basis. That implies positive operating cash flow and therefore, building cash balances and that's the way we think about it.

Our next question comes from Melissa Gorham Franchi, Morgan Stanley.

Mark, you talked about some traction moving down to the mid-market and you did talk about good traction with IdentityNow. Can you talk about to what extent is that just the mid-market sort of coming to you as they're recognizing the need for identity governance solutions? Or are you guys making incremental investments in that opportunity? And if so, what exactly are you investing in from a go-to-market motion perspective?

Okay. Thanks Melissa and good to talk to you. Yes, both is the short answer. I think we have definitely seen increased interest in the mid-market. Some of that is a heightened concern about the areas that we cover with identity governance. What I mean by that is as companies in that mid-market segment continue to have a lot of rapid adoption of applications, mostly SaaS, obviously, their ability to keep up with the operational side of identity, what we always refer to as the Joiner, Mover, Leaver challenge, is just getting tougher, right. They have a lot of movement of applications. And of course, depending on the nature of their industry or their business, maybe a lot of movement and churn in their employee base. And it's those 2 things, right, the movement in identities and the movement in applications targeted that causes a lot of churn in identity governance from a provisioning or a Joiner-Mover-Leaver standpoint. And of course, I think the focus on GDPR and the concern that something like that could show up in the U.S. at some point, just the continued ability to be sure they know who has access to what. Many of them have begun to grow concerned, we think, about their ability to manage that manually, which is the typical method in that middle market. They use spreadsheets and very simple things to try to keep track of who has access to what. So we're definitely seeing some movement toward us as customers in that segment gain a deeper understanding and further wrestle with the risks of that. And then I'd say we're definitely trying to create more demand there with our own efforts. That's everything from marketing programs and webinars and various ways of getting people's interest. It involves targeting partners, go-to-market partners, who are more oriented toward the middle market. As you know, a lot of partners are -- tend toward either a very high-end enterprise segment or maybe a middle or maybe an SMB. We know a lot of partners who are targeting that segment. We've done more work to recruit and enable those partners. And then lastly, we've certainly continued to increase our hiring in our own field selling force in that segment, what we call territory reps whose focus is on kind of a geographic area, sometimes with a little bit of vertical intensity, but generally geographic. And they're often the ones who are looking at the opportunity in that middle market segment. So kind of all 3 of those things I'd say would be primary contributors.

Okay, that's helpful. And one, sort of, related follow-up. So you mentioned the Rackspace deal. You also talked about being able to deploy SailPoint in a variety of different methods including managed security offerings. Can you just give us a little bit of an update on how big of a business managed-security partners are for you today? And is that an opportunity that you're investing in, potentially could help you reach more mid-market customers?

Yes, it's fairly small today. We do see that as kind of an emerging trend. Because remember, we have this unique situation that not everyone has where we have our own SaaS offering, right, it's a true, multitenant SaaS offering hosted for the customer. And then we also have found that because of the depth of functionality of our IdentityIQ enterprise product, some customers, probably in that upper end of that middle market segment, tend to want that level of functionality and breadth and flexibility of the product but don't want it in their data center. And those are prime candidates for a managed offering. I'd say that's early days from a level of demand there, but we're engaging in more conversations with people that fit that orientation. And so I think we're going to keep watching that and seeing whether customers are -- whether that's kind of a small subset of customers that will move that way, or whether the ones that really want to go toward cloud will primarily move toward our SaaS offering. But we just wanted to ensure we had that flexibility for customers to look at our product offerings, consultatively work with our team and our partner to pick the best solution and then ensure they can deploy it whatever manner they think is best for their business.

Our next question comes from Rob Owens, KeyBanc Capital Markets.

You've had pretty meaningful beats on the license line each of the last 3 quarters here. And I'm wondering if there's anything that you can draw, kind of, commonality across the quarters whether it's pipeline converting quicker, sales productivity as a result or sales cycles decreasing or partner-driven revenue. Just curious if there's kind of a common thread here across the last 3 quarters in the strong license growth that you've seen.

Thanks Rob, first of all for the question and for joining the call today. This is Cam. Let me see if I can tackle that question in series for you. Yes, we're very pleased as I think you noted the performance in the license line, both for IdentityIQ therefore, and SecurityIQ has now achieved our expectations in terms of continued strength, right. We're pleased with that performance. And we didn't -- I wanted to highlight, we really didn't have anything special or unique come off the balance sheet this quarter, so it was a very much performance within the quarter standpoint. The reality, as we've talked to you and everybody else, Rob, over time about the large enterprise market is this is a big problem. It is a problem that is getting more acute in the enterprise and so our ability to provide people with solutions for both governance of applications and governance for files is powerful. And I think it's achieving what we wanted to achieve. And we obviously extended the portfolio with a SecurityIQ 6.0 release in the quarter and I think that as well is an extension of our leadership position in that market. In terms of the overall cadence of the quarter, I would say, overall, contribution from our enterprise selling force, our partners was very much on the line in terms of what we would expect from the business and the way we've been performing in prior quarters. We're simply seeing strong demand. I think we're pleased with both the performance of the business in terms of acquisition of new logos as well as selling, cross-selling and upselling into the installed base. And we saw a healthy mix of both during Q2, which we're pleased by. You've heard us say previously that we've been focusing a bit more on making sure we're capitalizing on our installed base and those programs are working and yielding and so we are pleased by that. I think the other reality is, it continues to be a contribution model in terms of overall revenue across all of the vertical segments. We've had good health across all vertical segments and that's a continuation of prior quarter trends as well. So really good performance and good health on all of the dimensions that you highlighted. And quite frankly, it's high quality sales execution as well. Across the team, across the globe, we saw what we believe to be solid sales performance and we're pleased by that as well.

Great. And then as you look at coming down mid-market, you mentioned displacing spreadsheets. Is a lot of that opportunity greenfield? And when you run into competitive situations, typically who's it against?

Rob, this is Mark again. I'd say, yes, the bulk of that mid-market opportunity we do consider greenfield. I'd say that the vendor -- and it's a little bit by vertical that we probably run into down-market more often would have been what I'd now I guess refer to as Micro Focus, formerly NetIQ, formerly Novell. I think Novell, in its day with its directories that kind of they extended into identity had a decent push into that mid-market. But it generally was only on what we would call the provisioning side, right, the lifecycle management side, not on the compliant side so much. And so in general, if we run into much product there at all, it's probably that one, among smatterings of others to be sure but probably that one. Although, we don't consider that a "competitive threat." Quite often the customers have very old implementation of that and they're just often not using it very broadly. So it's pretty much a greenfield approach in general is how we think of it. If they do have that product, it's probably fairly lightly deployed.

Our next question comes from Matt Hedberg, RBC Capital.

I want to start with IdentityIQ. I know it's still relatively early but I kind of wanted to talk about that cross-sell opportunity into your base. And maybe -- I know you guys introduced the identity governance suite. Has that helped with adoption there?

Go ahead -- and Matt, you said IdentityIQ? I just want to -- you meant SecurityIQ as kind of an add-on, right? Just to be clear, I think that's what you meant?

I'm sorry, I meant SecurityIQ, yes.

Yes, just to be verify, I was pretty sure that's what you meant. Go ahead, Cam.

Yes, So I think, Matt -- this is Cam. Look, we're pleased with the performance of SecurityIQ. It is meeting our expectations across the globe. I think we're seeing good adoption in -- across the spectrum of enterprises to which we sell. I think, again, as well we've got some great implementations going across multiple vertical segments. Identity governance for files is a new and emerging problem. Some organizations are far down the -- if you will, far down the path around identity governance for application. And so therefore, they're beginning to move onto governance for files. I think to answer your question around the suite, yes, I think it helps. In the end, I think you can't underestimate, from a buying simplicity perspective, the fact that when you package solutions together and that packaging is consistent with the market positioning and messaging and what we think is the need profile of the business, I think it simplifies the decision and buying process for our buyers. And so we're pleased with the contribution that packaging, that identity governance suite has provided us in recent quarters. And we'll look to continue to capitalize on that as we go forward.

That's great. And then maybe a follow-up. You guys have had a lot of success in the federal vertical earlier this year. Can you talk about the momentum into the federal year-end and sort of what's driving some of that strength?

Yes, so as you highlight, we have good strength over time in the federal vertical. We don't -- in any particular quarter, we don't highlight specifically what transactions occurred. What I'll tell you is about 13% of our customer installed base is in the government, that is federal, state, local and education markets. So in that sense, as you've heard me say before, we like balance across verticals and those low double-digit percentage share numbers are, we think, a sort of strength. It is the case that as you go into Q3, you generally see a bit more demand from the federal government, that's seasonally typical in terms of the historic budget cycle. But in recent years, I'd also highlight for you because of the fact that there is no official federal budget, we've seen a little bit of spreading, if you will, or division of the buying between Q3 and Q4. Because in some cases, their working against continuing resolution money, some of the money runs through our partners in larger programs in terms of integration programs. So I think our history would suggest we'll see benefit both in Q3 and Q4. We'll obviously, as we go through the third quarter be looking to capitalize on that opportunity and for that matter for the full half of the year.

Our next question comes from Alex Henderson, Needham & Company.

Just a quick one off of that last question. Can you remind me where and whether you've finished your Fed ramp qualification?

We've started it, we have not finished it.

Okay. Question I wanted to ask is as you look into the adoption of IdentityIQ and, for that matter, SecurityIQ, how much are you seeing that implementation in AWS as your and other cloud instances run as a on-prem package but in the cloud, if you will. And to what extent if you put that together with IdentityNow, what percentage of the business is going in that format?

Alex, it's Mark. I don't have a percentage off the top of my head for the first part there, meaning we are seeing as I said earlier, probably at the -- sounds a little funny I suppose, high end of the mid-market and the low end of these enterprise market, kind of that 7,000 to 15,000 range. I think that's kind of the band where it's likely we'll run into a customer who says, hey, I think I need the sophistication and flexibility of IdentityIQ versus our IdentityNow SaaS offering, which is still very much primarily targeted at customers who want a simpler, faster deployment and can live with a little trade-off there in the configurability. And those customers in that segment we're definitely seeing some pick up there. And as I answered Melissa earlier, Alex, there's kind of a division between, I'll run it myself at AWS or Azure, or I'd like someone else to kind of run and operate it for me, which would be in MSP. And we definitely seen a huge pick up there to date in actual deals done that way. I think we're engaging -- almost like the GDPR answer earlier. We're engaging in a lot more dialogue about people who just want to understand where that fits into their range of options. So in the old days, if maybe they would just default to, I'm going to put this in my data center, now they want to understand, if I want that product but I don't want to put it in my data center, talk to me about these options. Again, we're forced into having some good strong go-to market partners for that MSP offering. We've done work to tune the product. That was a lot of our recent as SIQ 6.0 release and a prior IIQ release. We've done a lot to tune the products to run and perform well in those cloud-hosted environments, primarily Azure and AWS. So it's early days on the percentage number, it's low percentage there. And as you know, we're still not releasing the percent of the business that is going to SaaS but we'll continue to keep you guys apprised on the fact that it's growing very nicely as a component of our product portfolio.

If I could follow-up. So we're now, on IdentityAI, about where we would have been this time last year on IdentityNow in terms of its ramp cycle. Are you seeing faster adoption, slower adoption, comparable adoption? If you were to plot the 2 curves against each other, are they similar in terms of where they would be halfway into the first year of launch?

Yes, Alex, let me -- we're a little off on the compare there in that IdentityNow at this point last year had been in market more like 3-ish years. And AI is still in an early release program. So I wouldn't make that an apple-and-apple compare at all, just to be kind of clear there. What we are seeing with AI is a very, very high level of interest in it in general and with a number of customers we have in our early access program a lot of engagement. And I think I said this on the call last quarter, Alex, but we do kind of consider that, for lack of better term, a run product, in the crawl-walk-run metaphor. Meaning, its value today is certainly highest for a customer who's got pretty significant investment and understanding of identity governance and they are looking for more efficient, effective ways to advance their program as opposed to a way to get started. Today the product is definitely oriented primarily -- and this will continue to evolve to add more use cases that are relevant to brand-new users, but its value today is much more to an existing fairly advanced customer, of which we have hundreds, that's the good news. But we're focused on making sure that, that product is -- the algorithmic work is delivering the value the customers expect. They're helping us understand the data they want to see in different formats and the ways we can give them insight that they can't get today. It really is kind of a classic analytical Big Data product. It's helping them sift through a lot of information to find ways to be more efficient and effective in their governance program. And so real pleased with how things are going with it but it's definitely early in its life cycle than IdentityNow was a year ago. It's more like IdentityNow circa 2015, '16, would be probably a better compare.

Our next question comes from Walter Pritchard, Citi.

Two questions. Just one, you went to sort of extensive detail to highlight the subscription mix moving higher. Is there anything new driving that? Or is it kind of more of the same in terms of mid-market demand and so forth?

First of all, Walter, Cam, here. Thanks for joining the call. The answer there is more of the same. The continued health in the business, the variables we've highlighted previously are the variables that are driving us today. Basically, first, the health of the maintenance business and that relates to the continued healthy growth rate for both IdentityIQ and SecurityIQ and the maintenance that's follow-ons off of that. We continue to see very healthy renewal rates. That's a trend we've highlighted for you previously and it continues today. We are continuing to see some uptick in the number of customers also employing premium maintenance, that is the 7/24 offering that we provide. That's also an increasing activity. And then, we've talked to you about this before on the subscription line. Inside of that line is SaaS. It is the fastest growing component of our business today. It's growing at a very healthy rate. And we're pleased by that. It's meeting our expectations across the board in terms of the types of customers, the adoption of the breadth of services that we're offering. So both elements of that combined line are doing exactly what we hoped we'd be doing and are consistent with prior quarters.

And then it sounds like on the services side, I mean, our math suggests maybe services revenue going up a bit for the year. But it sounds like you're trying to push more of that business to partners. Can you talk about just what seems like a little bit of a disconnect there? And then any breakout in terms of what percentage of your business at this point is SI-influenced and maybe where that was a year ago?

Yes, so I think the headline and overall comment around services continues to be the principal strategic direction is for more and more of the services ecosystem to be delivered by our partner community. We believe that fundamentally is the right business strategy for us in terms of our ability to sustain high growth rates and ensure that customers can be implemented and get to value quickly. That ecosystem is very productive and has a great track record, and we like that. So overall, we're pleased with where we are in terms of the performance of the services business. I think the reality for us is, is that as we move through this strategy, I think we're going to see the opportunity for that number to bounce around a little bit on us. It certainly was strong in Q2. I think as we think about Q3, you saw my comments in the script and you think about the second half of the year, if you think about 9, 9.5, if you will, over time for those couple of quarters, it's going to be in that range. Our objective is to deliver what services we need to deliver to keep the market in balance, to keep moving forward. We do have customers that want to do initial and follow-on implementations with SailPoint. We are aggressively continuing to extend our expert services offering both in terms of things like health checks, architectural checks and then partnering with customers in our partner community, just to make sure implementation cycles are on track and yield the value we're expecting. And then lastly, we've talked about this before, our maintenance -- or excuse me, our training business while small is growing nicely both in terms of on premise delivered training as well as e-learning offerings. So all of that is performing well. You'll see that -- again, we guided you to roughly $9 million, but there could be some bounce in that number upward a little bit as we go through the year. Again, just depending on how much of the capacity we have to absorb into the market.

And on an SI-influenced business, is that something you're willing to break out or anything you're tracking internally at this point?

No, we haven't broken it out and at this juncture I won't, again, give you specific numbers. We continue to -- I think the stats that we've given you is, on an overall partner basis, about 85% of the overall business is somehow influenced by the partner community. That's the first point. The second point, it continues to be roughly at about 15% of our overall business runs through resellers, one, the 15% is a subset of the 85%, that round number. We are pleased with the overall contribution of SI. It's been steady overall. I think growing right along with the business, which again would suggest they're making the investments in capacity and resources for their business to grow right along with ours and support the implementation needs of our customers. So we're very pleased with where it is. The international component of that is getting more mature. That's a good thing because we're obviously -- you've seen the health of our international business in recent quarters and so the evolution and the maturation in the marketplace of our SI partners' ability to deliver there is, I think, gratifying to us because we think that means, again, we've got the chance to keep growing on the line we want.

(Operator Instructions) Our next question comes from Shaul Eyal, Oppenheimer.

Apologies in advance for some background noise. So without a doubt, it appears as if the [IGA] Market, the identity market as a whole continues to see nice acceleration. On the other hand it would also appear that the number of participants within this market is shrinking by the week, by the day, by the month. Just wishing to understand maybe from a near or a midterm perspective, specifically, given that one of the larger participants in the IGA market and on the legacy front is being removed from the environment. Could that close any interesting displacement opportunities?

So I'll just at least verify that we're all thinking the same thoughts since you haven't used any names. But are you referring to the Broadcom deal, just to be clear?

Yes, indeed.

Okay. I think our view of that is a couple things. One is, as we have highlighted for you all before, we have a very strong and growing book of business that is involved with replacing legacy products. At the top of that list is Oracle CA, IBM, occasionally Quest, Novell, as I've mentioned, and others. So we have a good track record of both competing with CA and actually replacing their products where they're deployed already. I think past experience would indicate to us that in a scenario like this, it will be either neutral or positive for us with regard to what this would mean for our future in that type of environment. I think the market is waiting and watching to see exactly how, assuming the deal goes through, obviously, Broadcom would handle that and what they would do with that identity portfolio. But even in almost all cases, whether they spin it out or whether they keep it or anything in between, it's going to create some level of uncertainty and uncertainty often drives people to look at all their options and that probably bodes well for us.

Ladies and gentlemen, we have reached the end of the question-and-answer session and I would like to turn the call back to Mark McClain for closing remarks.

Well, thank you. Again, thanks to all of you for joining us today. I'd be remiss if I didn't take a moment to thank our employees and partners for all the work they're doing to continue to contribute to our growth as a business and to the strong results we were able to report today. I'd also like to thank our customers, in case any of them are on. Even if they're not, we continue to thank them for their trust and confidence in us as a vendor and a partner. And we look forward to speaking with many of you again soon. Thanks for joining us this afternoon. Take care.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.